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PROSPECTUS
JACKSON PRODUCTS, INC.
OFFER TO EXCHANGE ITS 9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2005,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, FOR ANY AND ALL OF ITS
OUTSTANDING 9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2005.
Notwithstanding the designation of the Notes as Senior Subordinated Notes,
the Company has not issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Notes would be senior, and
the Notes will be effectively subordinate to essentially all of the
outstanding indebtedness of the Company and its subsidiaries. The Company does
not have any current or pending arrangements or agreements to incur any
additional significant indebtedness to which the Notes would be subordinate.
Jackson Products, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange up
to $115 million aggregate principal amount of 9 1/2% Series B Senior
Subordinated Notes due 2005 (the "New Notes"), of the Company for a like
principal amount of the Company's issued and outstanding 9 1/2% Series A
Senior Subordinated Notes due 2005 (the "Old Notes" and collectively with the
New Notes, the "Notes"), with the holders (each holder of Old Notes, a
"Holder") thereof. The New Notes will be fully and unconditionally guaranteed,
on a senior subordinated basis, by all of the Company's Domestic Subsidiaries
(as defined). The terms of the New Notes are substantially identical to the
terms of the Old Notes that are to be exchanged therefor. See "Description of
Notes." The Company will receive no proceeds in connection with the Exchange
Offer.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON OCTOBER 16, 1998, UNLESS EXTENDED.
The Notes will be general unsecured obligations of the Company, subordinated
in right of payment to all existing and future Senior Indebtedness of the
Company, including indebtedness under the New Credit Agreement, and pari passu
or senior in right of payment to any future subordinated indebtedness of the
Company. As of June 30, 1998, the aggregate principal amount of Senior
Indebtedness (as defined) of the Company to which the Notes are subordinated
is $74.6 million and there is no Indebtedness (as defined) as to which the
Notes are senior. The Indenture permits the Company and its subsidiaries to
incur additional indebtedness, including Senior Indebtedness, subject to
certain limitations. Other than with respect to drawings under the New Credit
Agreement, the Company has no current intentions or plans to incur such
additional indebtedness. See "Description of Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on
October 16, 1998, unless the Exchange Offer is extended (the "Expiration
Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary
conditions which may be waived by the Company. The Company has agreed to pay
the expenses of the Exchange Offer. There will be no cash proceeds to the
Company from the Exchange Offer. See "Use of Proceeds."
The Old Notes were issued and sold on April 22, 1998 (the "Old Note
Offering"), in a transaction not registered under the Securities Act of 1933,
as amended (the "Securities Act"), in reliance upon the exemption provided in
Section 4(2) of the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable
(Cover continued on following page)
----------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OLD NOTES WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
ON PAGE 14 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is September 16, 1998
<PAGE>
(Continued from previous page)
exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered for exchange in order to satisfy
certain obligations of the Company under a Registration Rights Agreement (as
defined) between the Company and the Initial Purchasers (as defined). The New
Notes will be obligations of the Company evidencing the same indebtedness as
the Old Notes and will be entitled to the benefits of the same Indenture (as
defined), which governs both the Old Notes and the New Notes. The form and
terms (including principal amount, interest rate, maturity and ranking) of the
New Notes are the same as the form and terms of the Old Securities, except
that the New Notes (i) have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable
to the Old Notes, (ii) will not be entitled to registration rights and (iii)
will not provide for any Liquidation Damages (as defined). See "The Exchange
Offer--Registration Rights; Liquidated Damages."
Prior to the Exchange Offer, there has been no established trading market
for the Old Notes or the New Notes. The Company does not intend to apply for
listing or quotation of the New Notes on any securities exchange or stock
market. Therefore, there can be no assurance as to the liquidity of any
trading market for the New Notes or that an active public market for the New
Notes will develop. Any Old Notes not tendered and accepted in the Exchange
Offer will remain outstanding. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Old Notes will continue to
be subject to the existing restrictions on transfer thereof and the Company
will have no further obligations to such holders to provide for the
registration of the Old Notes under the Securities Act. See "The Exchange
Offer--Consequences of Not Exchanging Old Notes."
The Company is making the Exchange Offer pursuant to the registration
statement of which this Prospectus is a part in reliance upon the position of
the staff of the Securities and Exchange Commission (the "Commission") set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Company has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Based on these interpretations by the staff of the Commission,
the Company believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser
who acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in the ordinary course of such
Holders' business and such Holders have no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
such New Notes. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. By tendering, each
Holder which is not a broker-dealer will represent to the Company that, among
other things, the person receiving the New Notes, whether or not such person
is the Holder, (i) will acquire the New Notes in the ordinary course of such
person's business, (ii) has no arrangement or understanding with any person to
participate in a distribution the New Notes and (iii) is not engaged in and
does not intend to engage in a distribution of the New Notes. If any Holder or
any such other person has an arrangement or understanding with any person to
participate in a distribution of such New Notes, is engaged in or intends to
engage in a distribution of such New Notes, is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, or acquired the Old
Notes as a result of market making or other trading activities, then such
Holder or any such other person (i) can not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date (as defined), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all references in
this Prospectus to the Company's business and pro forma data give effect to the
consummation of the Acquisitions and the acquisition by the Company in 1997 of
Lansec (as defined herein). Unless otherwise indicated, references in this
Prospectus to the "Company" are to Jackson Products, Inc., its subsidiaries and
their respective predecessors and references to a fiscal year are to the twelve
months ended December 31 of such year.
THE COMPANY
Jackson Products, Inc. ("JPI" or the "Company") is a leading designer,
manufacturer and distributor of safety products serving a variety of niche
applications within the personal and highway safety markets throughout North
America and Europe. JPI markets its products under established, well-known
brand names to an extensive network of over 8,000 distributors, wholesalers,
contractors and government agencies. Management believes that the Company holds
leading market share positions in each of its primary product lines, reflecting
the Company's (i) proprietary technology, (ii) strong reputation and
relationships with its customer base, (iii) breadth of product lines and (iv)
low cost manufacturing operations.
Due to strong industry fundamentals, its solid competitive position and
strategic acquisitions, the Company has achieved significant and consistent
growth under its current management team. Net sales grew from $92.8 million in
1994 to $173.6 million on a pro forma basis in 1997, representing a compounded
annual growth rate ("CAGR") of 23.2%. In addition, the Company has improved
profitability through the rationalization of non-core product lines and
implementation of cost control initiatives. During the same period, the
Company's EBITDA grew from $16.9 million to $29.7 million on a pro forma basis,
representing a CAGR of 22.0%. In addition, due to its low capital expenditure
requirements, the Company has historically generated significant free cash
flow. The Company currently focuses on two product groups: (i) personal safety
products, which represented approximately 60% of pro forma net sales in 1997,
and (ii) highway safety products, which represented approximately 40% of pro
forma net sales in 1997.
PERSONAL SAFETY PRODUCTS
Personal safety products generated net sales of $103.5 million on a pro forma
basis for the Company in 1997. The Company offers over 10,000 SKU's of personal
safety products designed to protect individuals from various head, eye, ear and
face hazards in the workplace. The Company's product offerings include welding
helmets and auto-darkening welding filter lenses, hardhats, face shields,
safety spectacles and prescription safety eyewear frames. Approximately 43% of
the Company's personal safety product sales are to distributors in the welding
industry. Management believes that JPI is the leading supplier of welding
safety equipment in North America, with an estimated 55% market share. JPI's
Electronic Quick Change ("EQC") product line offers a technologically advanced
range of welding helmet filter lenses featuring the world's fastest auto-
darkening switching speed. Switching speed represents the time required for a
lens to switch from a light to dark state. Auto-darkening technology allows
welders to see without lifting the helmet, therefore improving worker
productivity while significantly reducing repetitive motion and eye injuries.
The U.S. industrial market for personal safety products focused on the eye,
face, ear and head is estimated by management to have been in excess of $610
million in 1997. JPI's sales of personal safety products have benefited and are
expected to continue to benefit from increased workplace regulation and safety
awareness. The Company believes the outlook for the U.S. personal safety
products market is continually being influenced by heightened social awareness
regarding worker health and safety, which in turn stimulates legislation
requiring
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and monitoring the use of safety products in commercial and industrial
environments. The Company expects that the enforcement of safety regulations by
government agencies, such as the Occupational Safety and Health Administration
("OSHA"), and the efforts of employers and insurance carriers to contain group
health care and workers' compensation costs should maintain the growth of the
market.
In order to capitalize on these strong industry fundamentals, the Company has
made several recent acquisitions to build its personal safety products
business. In 1996, the Company acquired OSD Envizion, Inc. ("OSD"), providing
JPI with an estimated 70% market share of the North American auto-darkening
welding filter lens market and establishing JPI as the only North American-
based manufacturer of auto-darkening welding filter lenses. The acquisition of
Crystaloid Electronics Company (to be renamed Crystaloid Technologies, Inc.
("Crystaloid")) and its expertise in liquid crystal technology is expected to
strengthen the Company's lead in auto-darkening technology and allow for the
development of additional applications in new markets. In 1997, the Company
acquired Lansec Holding GmbH ("Lansec"), providing the Company with
distribution capabilities throughout Europe. The acquisition of American
Allsafe Company ("Allsafe") and Silencio/Safety Direct, Inc. ("Silencio/Safety
Direct") will further expand the range of the Company's personal safety
products and enhance the Company's channels of distribution.
HIGHWAY SAFETY PRODUCTS
Highway safety products generated net sales of $70.1 million on a pro forma
basis for the Company in 1997. Highway safety products offered by the Company
include traffic cones and markers, barricades, reflective clothing and glass
beads. Glass beads provide the reflective agent in an extensive range of
applications, such as highway striping, traffic signs, aviation runways,
license plates and reflective tape. The Company believes that it has a leading
market share in North America in the majority of its primary highway safety
product categories.
The U.S. market for highway safety products sold by JPI is estimated by the
Company to be approximately $450 million. The demand for highway safety
products is primarily driven by state and federal expenditures on highway
construction and maintenance. Management expects such government spending to
increase in the future to address the deteriorating and increasingly congested
North American highway infrastructure. The U.S. Federal Highway Administration
has estimated that nearly one-third of the nation's interstate highways are in
need of immediate repair. Federal highway funding since 1991 has been governed
by the Intermodel Surface Transportation Efficiency Act of 1991 ("ISTEA") which
provided $124 billion for highway programs to be funded over its initial six-
year period ending October 1997. The U.S. Senate and House of Representatives
approved a new joint public works bill, the Transportation Equity Act for the
21st Century ("TEA-21"), on May 22, 1998. TEA-21 provides for $173 billion in
highway funding over the next six years, a 39.5% increase over ISTEA.
COMPETITIVE STRENGTHS
The Company believes that it benefits from the following competitive
strengths:
Leading Market Share Positions. The Company has focused on serving distinct
niche markets in which it has been able to build leading market share
positions, providing the Company with a number of marketing, pricing and cost
advantages. The Company is the leading supplier of welding safety equipment in
North America with an estimated 55% market share and the leading supplier of
auto-darkening welding filter lenses with an estimated 70% share of the North
American market. The Company is the only North American manufacturer and
distributor of high index glass beads, the second largest manufacturer of
traffic and industrial glass beads, and the North American market leader in
each of its other primary highway safety product categories.
Proprietary Technology. In December 1994, the Company acquired EQC auto-
darkening technology for use in welding helmets. This technology provides the
Company with the most advanced welding helmet filter
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lenses on the market, with a switching speed at 1/25,000th of a second, which
is five times faster than competing auto-darkening lenses. Management believes
that the Crystaloid Acquisition will enable the Company to further develop this
technology within the safety products industry. The Company's EQC products have
experienced rapid growth in net sales, as they increased from approximately $1
million in 1991 to approximately $23 million on a pro forma basis in 1997.
Strong Customer Relationships and Brand Name Recognition. The Company has
developed strong relationships and achieved brand name recognition in most of
its distribution channels due to its focus on providing superior customer
service and quality products that address the specialized needs of its end-
users. Each of the Company's major brand names, including Jackson, Morsafe,
Flex-O-Lite, SMC, American Allsafe Co. and Team Silencio, are well established
with good recognition among end-users. As a result of its reputation and
relationships, the Company has been able to generate substantial repeat
business and build stability throughout its extensive network of over 8,000
distributors, wholesalers, contractors and government agencies.
Breadth of Product Line. In an industry characterized by small niche
manufacturers, management believes those manufacturers that provide "one-stop
shopping," such as the Company, hold a significant advantage as customers seek
to consolidate supply sources. The Company believes that this breadth of
product line will prove particularly helpful in building upon JPI's recent
entry into the European welding safety product market.
Low-Cost Manufacturing. Management believes that the Company has achieved
low-cost producer status in several key product areas. Proximity of Company
facilities to natural gas pipelines and major customers and the Company's ready
access to supplies of glass contribute to lower transportation and product
costs in its glass bead business. The Company has also implemented a number of
programs over the last several years aimed at improving its overall cost
structure, including plant consolidations, shifting of production resources and
non-core product rationalizations.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Leverage Synergies Across Subsidiaries. The Company has identified a number
of material synergies that can be realized between its existing and newly
acquired subsidiaries. It is expected that similar synergies will also be
available in future acquisitions. In order to realize such synergies, the
Company intends to (i) effectively allocate production among its manufacturing
facilities, (ii) implement cross selling programs to access new channels of
distribution and customers, and (iii) access newly acquired sales capabilities
to expand its distribution base.
Continue to Develop Innovative New Products. Capitalizing on its market
knowledge, its in-house technological capabilities and its new product
development team, JPI intends to continue developing new products to respond to
the changing demands of its end-users and to create additional sales. During
the last three fiscal years, the Company has introduced more than 50 new
products or product enhancements, including an expansion of the highly
innovative EQC product line, several new safety eyewear styles, nonskid
reflective tape, high-intensity reflective beads and a light-weight DuraBill
channelizer base. Management believes JPI's new product development efforts
will be significantly enhanced with the acquisition of Crystaloid's liquid
crystal display technological capabilities.
Further Develop Presence in European Markets. The Company established a
European market presence with the October 1997 acquisition of Lansec. The
acquisition of Lansec provides JPI in-house European distribution for its auto-
darkening product line as well as an overseas platform for distribution of
other JPI welding safety products. The Company intends to continue to develop
its European distribution since it believes the breadth of its product line,
its EQC technology and lower labor costs offer substantial competitive
advantages over existing European welding safety product manufacturers.
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Selectively Pursue Strategic Acquisitions. The highly fragmented industry in
which the Company operates offers significant opportunity for additional
synergistic acquisitions. The Company intends to selectively pursue
acquisitions that will further its growth strategy by providing new geographic
markets, additional distribution channels, complementary product lines and
expanded technological capabilities.
THE ACQUISITIONS
Pursuant to a stock purchase agreement, dated March 30, 1998, the Company
acquired all of the outstanding capital stock of Allsafe and Silencio/Safety
Direct for $29.5 million (the "Allsafe Acquisition"). Products sold by these
companies include safety goggles, spectacles, hardhats, hazard warnings and
hearing safety products. The Allsafe Acquisition provides JPI with
complementary product lines, additional channels of distribution and new end-
users. Management has identified a number of potential manufacturing cost
synergies and cross-selling opportunities from the Allsafe Acquisition. Allsafe
and Silencio/Safety Direct generated an aggregate of approximately $32.5
million of net sales in 1997.
Pursuant to a stock purchase agreement, dated March 31, 1998, the Company
acquired all of the outstanding capital stock of Crystaloid for $6.5 million
(the "Crystaloid Acquisition"), $0.5 million of which is payable 18 months from
the April 23, 1998 closing of the Crystaloid Acquisition. Crystaloid is a
manufacturer of liquid crystal displays for use in aviation and industrial
equipment, including the Company's line of auto-darkening filter lenses and
welding helmets. The acquisition provides JPI with an in-house auto-darkening
technology base for both existing and new safety products and an in-house
source for its current liquid crystal shutter needs. Crystaloid generated
approximately $8.6 million of net sales in 1997.
In addition to its acquisition of Allsafe, Silencio/Safety Direct and
Crystaloid for approximately $45 million, on July 22, 1998, the Company,
through Allsafe, acquired all of the outstanding capital stock of Kedman
Company for a total purchase price of approximately $10.0 million.
----------------
Each of the following is a registered trademark of the Company: Jackson,
Morsafe, Flex-O-Lite, EQC, Aden, AOP, Contour Marker, American Allsafe Co.,
Team Silencio, and Lamba.
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THE EXCHANGE OFFER
Securities Offered........ $115 million principal amount of 9 1/2% Series B
Senior Subordinated Notes due 2005. The terms of
the New Notes and the Old Notes are identical in
all material respects, except for certain transfer
restrictions and registration rights relating to
the Old Notes and except for certain Liquidated
Damages provisions relating to the Old Notes
described below under "--Summary Description of
the New Notes."
Issuance of Old Notes;
Registration Rights...... The Old Notes were issued on April 22, 1998 to
Jefferies & Company, Inc. and Goldman, Sachs & Co.
(collectively, the "Initial Purchasers"), pursuant
to April 16, 1998, the terms of a Purchase
Agreement, dated as of April 16, 1998, by and
between the Company and the Initial Purchasers.
Pursuant to a registration rights agreement
between the Company and the Initial Purchasers
(the "Registration Rights Agreement"), the Company
agreed (i) to file a registration statement (the
"Registration Statement") on or prior to 90 days
after April 22, 1998 with respect to the Exchange
Offer and (ii) to use their best efforts to cause
the Registration Statement to be declared
effective by the Commission on or prior to 150
days after April 22, 1998. In certain
circumstances, the Company will be required to
provide a shelf registration statement (the "Shelf
Registration Statement") to cover resale of the
Old Notes by the holders thereof. If the Company
does not comply with its obligations under the
Registration Rights Agreement, it will be required
to pay Liquidated Damages to holders of the Old
Notes under certain circumstances. See "The
Exchange Offer--Registration Rights; Liquidated
Damages." Holders of Old Notes do not have any
appraisal rights in connection with the Exchange
Offer.
The Exchange Offer........ The New Notes are being offered in exchange for a
like principal amount of Old Notes. The issuance
of the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement. Based upon the
position of the staff of the Commission set forth
in no-action letters issued to third parties in
other transactions substantially similar to the
Exchange Offer, the Company believes that the New
Notes issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any
such holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act, (ii) an Initial Purchaser who
acquired the Old Notes directly from the Company
solely in order to resell pursuant to Rule 144A of
the Securities Act or any other available
exemption under the Securities Act, or (iii) a
broker-dealer who acquired the Old Notes as a
result of market making or other trading
activities) within further compliance with the
registration and prospectus delivery requirements
of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such
holder's business and such holder is not
participating and has no arrangement or
understanding with any person to participate in a
distribution (within the meaning of the Securities
Act) of such New Notes. By tendering, each Holder,
which is not a broker-dealer will represent to the
Company that, among other things, the person
receiving the New Notes, whether or
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<PAGE>
not such person is the Holder, (i) will acquire
the New Notes in the ordinary course of such
person's business, (ii) has no arrangement or
understanding with any person to participate in a
distribution of the New Notes and (iii) is not
engaged in and does not intend to engage in a
distribution of the New Notes. If any Holder or
any such other person has an arrangement or
understanding with any person to participate in a
distribution of such New Notes, is engaged in or
intends to engage in a distribution of such New
Notes, is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company, or
acquired the Old Notes as a result of market
making or other trading activities, then such
Holder or any such other person (i) can not rely
on the applicable interpretations of the staff of
the Commission and (ii) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Each broker-dealer that
receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
for such New Notes. Although there has been no
indication of any change in the staff's position,
there can be no assurance that the staff of the
Commission would make a similar determination with
respect to the resale of the New Notes. See "Risk
Factors."
Procedures for Tendering.. Tendering holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Notes. Holders of the
Old Notes desiring to tender such Old Notes in
exchange for New Notes should allow sufficient
time to ensure timely delivery. Certain brokers,
dealers, commercial banks, trust companies and
other nominees may also effect tenders by book-
entry transfer. Holders of Old Notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee are urged to
contact such person promptly if they wish to
tender Old Notes pursuant to the Exchange Offer.
Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange Offer--
Procedures for Tendering Old Notes."
Tenders, Expiration
Date; Withdrawal.......... The Exchange Offer will expire the earlier of (i)
5:00 p.m., New York City time, on October 16,
1998, or (ii) the date when all Old Notes have
been tendered, or such later date and time to
which it is extended, provided it may not be
extended beyond November 16, 1998. The tender of
Old Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration
Date. Any Old Note not accepted for exchange for
any reason will be returned without expense to the
tendering holder thereof as promptly as
practicable after the expiration or termination of
the Exchange Offer. See "The Exchange Offer--Terms
of the Exchange Offer; Period for Tendering Old
Notes" and "--Withdrawal Rights."
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Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, all of which may be waived by the
Company, including the absence of (i) threatened
or pending proceedings seeking to restrain the
Exchange Offer or resulting in a material delay to
the Exchange Offer; (ii) a general suspension of
trading on any national securities exchange or in
the over-the-counter market; (iii) a banking
moratorium; (iv) a commencement of war, armed
hostilities or other similar international
calamity directly or indirectly involving the
United States; and (v) change or threatened change
in the business, properties, assets, liabilities,
financial condition, operations, results of
operations or prospects of the Company and its
subsidiaries taken as a whole that, in the
reasonable judgment of the Company, is or may be
adverse to the Company. The Company shall not be
required to accept for exchange, or to issue New
Notes in exchange for, any Old Notes, if at any
time before the acceptance of such Old Notes for
exchange or the exchange of New Notes for such Old
Notes, any of the foregoing events occurs which,
in the sole judgment of the Company, make it
inadvisable to proceed with the Exchange Offer
and/or with such acceptance for exchange or with
such exchange. In the event the Company asserts or
waives a condition to the Exchange Offer which
constitutes a material change to the terms of the
Exchange Offer, the Company will disclose such
change in a manner reasonably calculated to inform
prospective investors of such change, and will
extend the period of the Exchange Offer by five
business days. If the Company fails to consummate
the Exchange Offer because the Exchange Offer is
not permitted by applicable law or Commission
policy, it will file with the Commission a Shelf
Registration Statement to cover resales of the
Transfer Restricted Securities (as defined) by the
holders thereof who satisfy certain conditions. If
the Company fails to consummate the Exchange Offer
or file a Shelf Registration Statement in
accordance with the Registration Rights Agreement,
the Company will pay Liquidated Damages to each
holder of Transfer Restricted Securities until the
cure of all defaults. The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
See "The Exchange Offer--Registration Rights;
Liquidated Damages" and "--Certain Conditions to
the Exchange Offer."
Federal Income Tax
Consequences.............. For Federal income tax purposes, the exchange
pursuant to the Exchange Offer should not result
in any income, gain or loss to the Holders or the
Company. See "Certain Federal Income Tax
Considerations."
Use of Proceeds........... There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Appraisal Rights.......... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent............ State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer.
7
<PAGE>
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may
not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors--Consequences of Exchange and Failure to Exchange" and
"The Exchange Offer--Consequences of Exchanging Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
Notwithstanding the designation of the Notes as Senior Subordinated Notes,
the Company has not issued, and does not have any current firm arrangements to
issue, any significant indebtedness to which the Notes would be senior, and the
Notes will be effectively subordinate to essentially all of the outstanding
indebtedness of the Company and its subsidiaries. The Company does not have any
current or pending arrangements or agreements to incur any additional
significant indebtedness to which the Notes would be subordinate.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by September 19, 1998, subject to certain exceptions, with respect
to the first 90-day period immediately following thereafter, the Company will
be obligated to pay Liquidated Damages to each Holder of Old Notes in an amount
equal to $.05 per week for each $1,000 principal amount of Old Notes, as
applicable, held by such Holder. The amount of the Liquidated Damages will
increase by an additional $.05 per week with respect to each subsequent 90-day
period until the Exchange Offer is consummated, or any other Registration
Default (as defined) is cured, up to a maximum of $.40 per week for each $1,000
principal amount of Old Notes, as applicable.
The New Notes will bear interest from the most recent date to which interest
has been paid on the Old Notes or, if no interest has been paid on the Old
Notes, from April 22, 1998. Accordingly, registered Holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 22, 1998. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
8
<PAGE>
THE NEW NOTES
Issuer.................... Jackson Products, Inc.
Securities Offered........ $115 million aggregate principal amount of 9 1/2%
Series B Senior Subordinated Notes due 2005.
Maturity.................. April 15, 2005.
Interest.................. The Old Notes bear interest and the New Notes will
bear interest at a rate of 9 1/2% per annum,
payable semi-annually in cash in arrears on each
April 15 and October 15, commencing October 15,
1998.
Optional Redemption....... On or after April 15, 2001, the Notes will be
redeemable at the option of the Company, in whole
or in part, at any time at the redemption prices
set forth herein, plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of
redemption. Notwithstanding the foregoing, at any
time prior to April 15, 2001, the Company may
redeem up to one-third of the aggregate principal
amount of the Notes ever issued with the net
proceeds of one or more Equity Offerings (as
defined) at a redemption price equal to 109.50% of
the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of redemption, provided that at least
two-thirds of the aggregate principal amount of
Notes ever issued remains outstanding immediately
after the occurrence of any such redemption. See
"Description of Notes-Redemption of Notes--
Optional-Redemption."
Mandatory Redemption...... None.
Change of control......... Upon the occurrence of a Change of Control (as
defined), each Holder of Notes will have the right
to require the Company to purchase such Holder's
Notes pursuant to an Offer (as defined) at a
purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of purchase. Certain transactions
with affiliates of the Company may not be deemed
to be a Change of Control. Transactions
constituting a Change of Control are not limited
to hostile takeover transactions not approved by
the current management of the Company. Except as
described under "Description of Notes--Change of
Control," the Indenture does not contain
provisions that permit the Holders of Notes to
require the Company to purchase or redeem the
Notes in the event of a takeover, recapitalization
or similar restructuring, including an issuer
recapitalization or similar transaction with
management. See "Description of Notes--Mandatory
Offers to Purchase Notes."
The Company expects that prepayment of the Notes
following a Change of Control would, and the
exercise by holders of Notes of the right to
require the Company to purchase Notes would,
constitute a default under the New Credit
Agreement. In the event a Change of Control
occurs, the Company will likely be required to
refinance the Indebtedness outstanding under the
New Credit Agreement and the Notes. If there is a
Change of Control, any Indebtedness under the New
Credit Agreement could be accelerated. Moreover,
there can be no assurance that sufficient funds
will be available at the time of any
9
<PAGE>
Change of Control to repay Senior Indebtedness
(including under the New Credit Agreement) and
make any required repurchases of the Notes given
the degree of the Company's leverage. The
occurrence of a Change of Control may also have an
adverse impact on the ability of the Company to
obtain additional financing in the future. See
"Description of Notes--Mandatory Offers to
Purchase Notes."
Guarantees................ The Notes will be fully and unconditionally
guaranteed (the "Note Guarantees"), jointly and
severally, on a senior subordinated basis, by all
of the Company's Domestic Subsidiaries (the
"Guarantors").
Ranking................... The Notes will be general unsecured obligations of
the Company, subordinated in right of payment to
all existing and future Senior Indebtedness (as
defined) of the Company including Indebtedness (as
defined) under the New Credit Agreement, and pari
passu or senior in right of payment to any future
subordinated Indebtedness of the Company. As of
June 30, 1998, the aggregate principal amount of
Senior Indebtedness to which the Notes are
subordinated is $74.6 million and there is no
Indebtedness as to which the Notes are senior. As
of June 30, 1998 on a pro forma basis, the Company
could incur $25.6 million of additional
indebtedness based on its leverage ratio of total
indebtedness to trailing twelve months EBITDA of
6.5x. The Indenture permits the Company and its
subsidiaries to incur additional indebtedness,
including Senior Indebtedness, subject to certain
limitations, including a specified Leverage
Coverage Ratio (as defined). Other than with
respect to drawings under the New Credit
Agreement, the Company has no current intent or
plans to incur such additional indebtedness. See
"Description of Senior Notes--Certain Covenants"
and "Description of Certain Indebtedness."
The Company believes that prepayment of the Notes
pursuant to a Change of Control would constitute a
default under the New Credit Agreement. In the
event a Change of Control occurs, the Company will
likely be required to refinance the Indebtedness
outstanding under the New Credit Agreement and the
Notes. If there is a Change of Control, any
Indebtedness under the New Credit Agreement could
be accelerated, which Indebtedness is secured and
effectively ranks senior to the Notes. Moreover,
there can be no assurance that sufficient funds
will be available at the time of any Change of
Control to make any required repurchases of the
Notes given the Company's high leverage. See "Risk
Factors--Leverage and Coverage."
Certain Covenants......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries
(as defined) to (i) pay dividends, redeem capital
stock or make certain other restricted payments or
investments; (ii) incur additional indebtedness or
issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of
their assets; (iv) create liens on assets; (v)
engaged in certain asset sales; (vi) enter into
certain transactions with affiliates or related
persons; and (vii) incur senior subordinated
indebtedness. See "Description of Notes--Certain
Covenants."
10
<PAGE>
Satisfaction and
Discharge................. The Indenture contains provisions which would
allow the Company to terminate all of its and any
future guarantors obligations under the Notes, any
guarantees of Notes and the Indenture, including
the covenants contained in the Indenture, except
for certain specified obligations. In order to
exercise this option with respect to the Notes
outstanding, the Company must irrevocably deposit
in trust with the trustee money or U.S. Government
obligations (as defined) for the payment of
principal of and premium and unpaid interest and
Liquidated Damages, if any, on the Notes then
outstanding to redemption or maturity, as the case
may be, and must comply with certain other
conditions. See "Description of Notes--Legal
Defeasance and Covenant Defeasance."
RISK FACTORS
Holders of Old Notes should consider carefully all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors." Risk factors which Holders of Old Notes
should evaluate include the consequences of exchanging and not exchanging Old
Notes for New Notes, the Company's leverage and coverage, the ranking of the
Notes among other indebtedness of the Company, the Company's dependence on
intercompany transfers to meet its debt service and other obligations, the
restrictive covenants contained in the Indenture and the New Credit Agreement,
the absence of a market for the New Notes, the ability of the Company to
purchase the Notes upon a Change of Control, the influence of the Company's
principal stockholders and fraudulent transfer considerations.
11
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth the summary combined historical financial data
of (i) the Company's predecessor, Jackson Holding Company, for the periods
January 1, 1993 to March 31, 1993; (ii) the Company's predecessor, Jackson
Holding Company, for the periods April 1, 1993 to December 31, 1993, 1994; and
January 1, 1995 to August 16, 1995; (iii) the Company for the periods August
17, 1995 to December 31, 1995, 1996 and 1997; and (iv) the Company for the
periods January 1 to June 30, 1997 and 1998 and the pro forma financial data
for the year ended December 31, 1997 and the six months ended June 30, 1998.
The pro forma financial information was prepared as if each of the
Acquisitions, the acquisition of Lansec and the Offering had been consummated
on the first day of the period presented for Statement of Operations Data. The
pro forma data is unaudited. The pro forma information does not purport to
represent what the consolidated results of the Company would have been had such
transactions actually occurred at the beginning of the relevant period, and
does not purport to project the combined financial position or the combined
results of operations of the Company for the current year or for any future
period. The summary and pro forma financial information set forth below should
be read in conjunction with the historical and pro forma financial statements
and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY
--------------------------------------------------------------------------------
SIX SIX SIX
AUGUST 17, MONTHS MONTHS MONTHS
1995 TO ENDED ENDED ENDED
DECEMBER 31, PRO FORMA JUNE 30, JUNE 30, PRO FORMA
1995 1996 1997 1997 1997 1998 1998
------------ ------------ -------- ---------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............... $37,558 $111,788 $123,417 $173,602 $62,264 $78,680 $91,458
Cost of sales........... 30,566 80,485 87,466 123,014 44,227 53,104 61,427
Selling, general &
administrative
expenses............... 4,965 14,440 15,205 26,141 7,631 11,965 14,917
Operating income (loss). 339 (3,036) 4,033 4,177 737 9,848 10,442
Other Data
EBITDA(1)............... $7,209 $21,145 $24,660 $29,694 $13,001 $16,072 $17,817
Depreciation and
amortization........... 3,141 23,131 20,292 25,182 12,599 7,024 8,237
Capital expenditures.... 465 1,910 3,246 4,224 1,178 1,895 4,009
Cash (used in) provided
by operating
activities............. 7,410 6,833 10,313 -- 1,175 1,230 --
Cash used in investing
activities............. (129,154) (14,552) (5,890) -- (2,011) (38,022) --
Cash (used in) provided
by financing
activities............. 121,619 7,719 (3,900) -- 909 36,740 --
<CAPTION>
PREDECESSORS
----------------------------------------------
JANUARY 1, APRIL 1, JANUARY 1,
1993 TO 1993 TO 1995 TO
MARCH 31, DECEMBER 31, AUGUST 16,
1993 1993 1994 1995
------------ ------------ -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............... $8,497 $29,718 $92,838 $72,541
Cost of sales........... 5,232 18,573 67,348 52,416
Selling, general &
administrative
expenses............... 1,402 4,706 12,337 9,640
Operating income (loss). 405 1,369 6,420 7,476
Other Data
EBITDA(1)............... $2,321 $8,086 $16,894 $13,219
Depreciation and
amortization........... 1,916 6,496 10,138 5,548
Capital expenditures.... 11 331 2,055 1,744
Cash provided by
operating activities... 931 3,134 7,104 2,774
Cash used in investing
activities............. (11) (57,741) (44,485) (1,661)
Cash (used in) provided
by financing
activities............. (293) 56,294 35,694 (1,113)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------ AT JUNE 30,
1996 1997 1998
-------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $ -- $ 523 $ 471
Total assets.............................. 135,015 125,047 172,047
Redeemable preferred stock and long-term
debt, including current portion.......... 134,194 133,452 187,620
Total stockholders' deficit(2)............ (17,738) (31,277) (44,645)
</TABLE>
- --------
(1) EBITDA, as defined in the Indenture, represents operating income plus
depreciation, amortization and certain non-cash charges. See "Description
of Notes--Certain Definitions" and "Selected Historical Financial Data."
EBITDA is not included herein as operating data and should not be construed
as a substitute for operating income or a better indicator of liquidity
than cash flow from operating activities, which are determined in
accordance with GAAP. The Company has included EBITDA because the Company
understands that it is one measure used by certain investors to determine
the Company's operating cash flow and historical ability to service its
indebtedness and because the Cash Flow Coverage Ratio, when calculated on a
Pro Forma Basis (each as defined in the Indenture), is calculated on a
similar basis.
(2) The June 30, 1998 stockholders' deficit includes (i) extraordinary loss due
to the early extinguishment of debt of $7,558, (ii) the $2,609 difference
between the accreted value and the carrying amount of the Preferred Stock
and (iii) the repurchase for $4,150 of common equity held by an
Institutional Investor.
13
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following risk
factors, as well as other information set forth in this Prospectus, before
tendering their Old Notes in the Exchange Offer. The risk factors set forth
below (other than "Consequences of Exchange and Failure to Exchange") are
generally applicable to the Old Notes as well as the New Notes.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
such Old Notes, a properly completed and duly executed Letter of Transmittal
and all other required documents. Therefore, Holders of the Old Notes desiring
to tender such Old Notes in exchange for New Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Holders of Old Notes who do not exchange their Old Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions from,
or in transactions not subject to the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. In addition, upon the consummations of the Exchange Offer holders of Old
Notes which remain outstanding will not be entitled to any rights to have such
Old Notes registered under the Securities Act or to any rights under the
Registration Rights Agreement. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Old Notes could be adversely affected. See "The
Exchange Offer--Consequences of Not Exchanging Old Notes."
Based on interpretations by the staff of the Commission set forth in no
action letters issued to third parties in other transactions substantially
similar to the Exchange Offer, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a holder thereof (other than (i)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (ii) an initial Purchaser who acquired Old Notes directly from
the Company solely in order to resell pursuant to Rule 144A of the Securities
Act or any other available exemption under the Securities Act, or (iii) a
broker-dealer who acquired the Old Notes as a result of market making or other
trading activities) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. Any holder that cannot rely upon such
interpretations must comply with the registration and prospectus delivery
requirements of the Securities act in connection with a secondary resale
transaction, unless such sale is made pursuant to an exemption from such
requirements. See "The Exchange Offer--Purpose of the Exchange Offer."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
With the consummation of the Acquisitions and the Offering, the Company is
highly leveraged and has indebtedness that is substantial in relation to
stockholders' equity. As of June 30, 1998 the Company had total indebtedness
of approximately $187.6 million (including the Notes) and stockholders'
deficit of approximately $44.6 million. As of such date, the aggregate
principal amount of Senior Indebtedness was approximately $74.6 million. For
the six months ended June 30, 1998, the Company's ratio of EBITDA to cash
interest expense on a pro forma basis was 2.1x. The Company and its
subsidiaries will be permitted to incur substantial additional indebtedness in
the future. See "Capitalization," "Selected Historical Financial Data" and
"Description of Notes."
14
<PAGE>
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for other
purposes, however according to the New Credit Agreement, the Company has no
required principal payments until June 30, 2001 and therefore, the Company
will have no debt service obligations until such time (iii) certain of the
Company's borrowings are and will continue to be at variable rates of
interest, which exposes the Company to the risk of higher interest rates; (iv)
the indebtedness outstanding under the New Credit Facility on April 22, 1998
was $77 million and will be secured by substantially all of the assets of the
Company and will mature prior to the Notes; (v) the Company may be
substantially more leveraged than certain of its competitors, which may place
the Company at a competitive disadvantage; and (vi) the Company's substantial
degree of leverage may hinder its ability to adjust rapidly to changing market
conditions and could make it more vulnerable in the event of a downturn in
general economic conditions or its business.
The Company's ability to make scheduled payments of principal of, or to pay
interest or Liquidated Damages, if any, on, or to refinance, its indebtedness
(including the Notes) will depend on its future financial and operating
performance, which, in turn, is subject to prevailing economic conditions and
to certain financial, business and other factors that are beyond its control.
If the Company's cash flow and capital resources are insufficient to fund its
debt service obligations, the Company may be forced to reduce or delay planned
expansion and capital expenditures, sell assets, obtain additional equity
capital or restructure its debt. There can be no assurance that the Company's
operating results, cash flow and capital resources will be sufficient to
service its indebtedness (including the Notes) in the future. In the absence
of such operating results and resources, the Company could face substantial
liquidity problems and might be required to dispose of material assets or
operations to meet its debt service and other obligations, and there can be no
assurance as to the timing of such sales or the amount of proceeds which the
Company could realize therefrom. In addition, there can be no assurance that
the Company will be able to refinance its indebtedness on commercially
reasonable terms, if at all.
The New Credit Facility and the Indenture will contain a number of
significant covenants that, among other things, will restrict the ability of
the Company to dispose of assets, incur additional indebtedness, repay other
indebtedness or amend other debt instruments, pay dividends, create liens on
assets, enter into investments or acquisitions, engage in mergers or
consolidations, make capital expenditures, or engage in certain transactions
with subsidiaries and affiliates and otherwise restrict corporate activities.
The Credit Agreement will prohibit the Company from honoring its obligations
under the Indenture to repurchase Notes in the event of a Change of Control or
Asset Sale Trigger Date (as defined herein). Accordingly, the Company would
need to seek the consent of its lenders under the Credit Agreement in order to
repurchase Notes under such circumstances. The failure of the Company to
obtain such consent would result in an event of default under the Indenture.
In addition, the Company will be required to comply with specified financial
ratios and tests under the New Credit Facility. The Company's ability to
comply with the covenants contained in the New Credit Facility and the
Indenture may be affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of such
covenants or restrictions could result in a default under the New Credit
Facility, which would permit the senior lenders thereunder to declare all
amounts borrowed thereunder to be due and payable, together with accrued and
unpaid interest, and the commitments of the senior lenders to make further
extensions of credit under the New Credit Facility could be terminated. If the
Company were unable to repay its indebtedness to its senior lenders, which
indebtedness matures prior to the Notes, such lenders could proceed against
the collateral securing such indebtedness, which collateral consists of
substantially all of the assets of the Company. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing all of the
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Notes--Mandatory Offers to Purchase Notes" and "Description of
Certain Indebtedness--New Credit Facility."
SUBORDINATION; DEPENDENCE ON SUBSIDIARIES; LIMITATIONS ON ACCESS TO CASH FLOW
OF SUBSIDIARIES
The Notes will be subordinated in right of payment to all current and future
Senior Indebtedness of the Company. However, the Indenture will provide that
the Company will not incur or otherwise become liable for any indebtedness
that is subordinate or junior in right of payment to any Senior Indebtedness
and senior in any
15
<PAGE>
respect in right of payment to the Notes. Upon any distribution to creditors
of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness
will be entitled to be paid in full in cash before any payment may be made
with respect to the Notes. In addition, the subordination provisions of the
Indenture will provide that payments with respect to the Notes will be blocked
in the event of a payment default on Senior Indebtedness and may be blocked
for up to 179 days each year in the event of certain non-payment defaults on
Senior Indebtedness. In the event of a bankruptcy, liquidation or
reorganization of the Company, holders of the Notes will participate ratably
with all holders of subordinated indebtedness of the Company that is deemed to
be of the same class as the Notes, and potentially with all other general
creditors of the Company, based upon the respective amounts owed to each
holder or creditor, in the remaining assets of the Company. In any of the
foregoing events, there can be no assurance that there would be sufficient
assets to pay amounts due on the Notes. As a result, holders of Notes may
receive less, ratably, than the holders of Senior Indebtedness. See
"Description of Notes--Subordination." As of June 30, 1998 the aggregate
principal amount of Senior Indebtedness (exclusive of unused commitments of
approximately $51.7 million) of the Company and the Guarantors was
approximately $74.6 million. The Indenture will permit the incurrence of
substantial additional indebtedness, including Senior Indebtedness, by the
Company and its subsidiaries in the future. See "Description of Notes--Certain
Covenants" and "Description of Certain Indebtedness--New Credit Facility."
A substantial portion of the Company's business is conducted through its
subsidiaries. Accordingly, the Company's ability to pay the principal of, and
interest and Liquidated Damages, if any, on the Notes is dependent upon the
earnings of its subsidiaries and the distribution of funds from its
subsidiaries. The Company's subsidiaries will be permitted under the terms of
the Indenture to incur certain additional indebtedness that may severely
restrict or prohibit the making of distributions, the payment of dividends or
the making of loans by such subsidiaries to the Company. There can be no
assurance that the Company's operations will generate sufficient cash flow to
support payment of principal of, and interest and Liquidated Damages, if any,
on the Notes, or that dividends, distributions or loans will be available from
the Company's subsidiaries to fund such payments. See "Description of Certain
Indebtedness."
The Notes will be unconditionally guaranteed on a senior subordinated basis
by the Guarantors. The Note Guarantees will be general unsecured obligations
of the Guarantors, will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Guarantors, including indebtedness under
the New Credit Facility, and will rank senior in right of payment to any
future subordinated indebtedness of the Guarantors. The Indenture will permit
the Company and its subsidiaries to incur additional indebtedness, including
Senior Indebtedness, subject to certain limitations. See "Description of
Notes--Certain Covenants." If any subsidiary indebtedness were to be
accelerated, there can be no assurance that the assets of such subsidiary
would be sufficient to repay such indebtedness or that the assets of the
Company and of the other subsidiaries would be sufficient to repay in full the
indebtedness of the Company, including the Notes. See "Description of Certain
Indebtedness--New Credit Facility."
COMPETITION
The personal and highway safety products industries are highly competitive.
The Company believes that participants in these industries compete primarily
on the basis of product characteristics (such as functional performance,
design and style), price, brand name recognition and service. Some of the
Company's competitors have greater financial and other resources than the
Company, and the Company's cash flows from operations could be adversely
affected by competitors' new product innovations and pricing changes made by
the Company in response to competition from existing or new competitors.
Individual competitors have advantages and strengths in different sectors of
the industry, in different products and in different areas, including
manufacturing and distribution systems, geographic market presence, customer
service and support, breadth of product, delivery time and price. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that the competitive pressures faced by the
Company will not adversely affect its financial condition or operations.
16
<PAGE>
Additionally, the Company is a manufacturer of traffic beads, which
accounted for approximately 7.8% of the Company's pro forma net sales in 1997.
Historically prices for traffic beads have fluctuated and have generally
declined following the entrance of new competitors in this market. While
prices for traffic beads have been generally stable since 1993, there can be
no assurance that traffic bead prices will not decline in the future. Any such
decline could have a material adverse effect on the Company's net sales.
See "Business--Competition."
CONCENTRATION OF CUSTOMERS
The Company markets its Jackson line of safety products through wholesalers
who sell to distributors and end-users. Two wholesalers accounted for
approximately 17.0% of the Company's pro forma net sales in 1997. While there
can be no assurance that these wholesalers will remain customers of the
Company, the Company believes that it could replace such wholesalers with
alternative distribution in the event that such wholesalers ceased to purchase
the Company's products.
EFFECT OF REGULATORY CONDITIONS AND FEDERAL SPENDING ON SALES
The Company's net sales may be adversely affected by changes in safety
regulations covering industrial workers in the U.S. and Canada and in the
level of enforcement of such regulations. Certain changes in regulations could
reduce the utility of certain products manufactured by the Company, requiring
the Company to reengineer such products and thereby creating opportunities for
its competitors. In addition, road and highway marking requirements and
specifications for products approved for use on highways are subject to
comprehensive regulation by various governmental authorities. The Company
sells a significant portion of its highway safety products in the U.S. to
various governmental agencies through fixed price contracts awarded by
competitive bids submitted to state and local agencies. The terms and
conditions of such sales and the government contract process are subject to
extensive regulation by various federal, state and local authorities in the
U.S. and Canada. See "Business--Government Regulation and Industrial
Standards."
The Company sells glass traffic beads to the U.S. federal government, state
governments, over 260 local and municipal government agencies, and the
provincial and local governments of Canada. The Company also sells glass
traffic beads to 119 independent highway line stripers who contract with
state, local and provincial governments. Approximately 65% of the Company's
glass traffic beads' sales are to government agencies, and any reduction in
the spending patterns of the government agencies could adversely affect
revenue from sales of the Company's products. See "The Company--General."
ISTEA, which governed Federal highway funding and provided $124 billion for
highway programs over a six-year period initially ending in October 1997, has
been extended through the period ending May 1998. The U.S. Senate and House of
Representatives approved TEA-21 on May 22, 1998 providing for $173 billion in
highway funding for a further six-year period. If funding approvals under TEA-
21 occur later than June 1998, the Company may experience a short-term
reduction in net sales as the delay in federal funding will coincide with the
summer highway construction season. See "Business--Highway Safety Products."
DEPENDENCE ON KEY PERSONNEL
The operations of the Company depend significantly upon the efforts of
certain members of senior management, particularly those listed in the
"Management" section of this Offering Circular. The extended loss of the
services of these or other officers could have a material adverse effect upon
the Company's business, results of operations and financial condition. See
"Management."
17
<PAGE>
CONTROL OF THE COMPANY
Following the consummation of the Offering, the Jordan Investors (as
defined) and the Management Investors (as defined) of the Company will
continue to own, directly or indirectly, approximately 66.4% and 19.6%,
respectively, of the then outstanding shares of the capital stock of the
Company. Affiliates of The Jordan Company may, as a practical matter, have
substantial influence in connection with the election of the board of
directors of the Company and, in general, in the determination of the outcome
of corporate transactions or other matters submitted to the stockholders for
approval, including the election of directors, any merger, consolidation or
sale of all or substantially all of the Company's assets, which could prevent
or cause a change in control of the Company. In addition, pursuant to the
Stockholders Agreement dated as of August 16, 1995 (the "Stockholders
Agreement"), all of the holders of the Common Stock of the Company prior to
the Offering (the "Current Holders") have agreed to vote all of their shares
of Common Stock for the election of directors designated by certain
stockholders. Further, the Stockholders Agreement contains prohibitions and
restrictions on the transfer by the Current Holders of Common Stock of the
Company including certain co-sale rights and rights of first refusal for the
Company and each Current Holder to purchase the shares of Common Stock prior
to transfer by any other Current Holder, which could prevent or cause a change
of control of the Company. See "Principal Stockholders" and "Management."
PRODUCT LIABILITY EXPOSURE
The Company faces an inherent business risk of exposure to product liability
claims arising from the potential failure of its products to prevent the types
of personal injury or death against which they are intended to protect.
Although the Company has not experienced any material uninsured losses due to
product liability claims, there can be no assurance that it will not
experience such losses in the future. In the event any of the Company's
products prove to be defective, the Company may be required to recall or
redesign such products. The Company maintains insurance against product
liability claims, but there can be no assurance that such insurance coverage
will be adequate for liabilities actually incurred. A successful claim brought
against the Company in excess of available insurance coverage, or any claim or
product recall that results in significant expense or adverse publicity
against the Company, may have a material adverse effect on the Company's
business, operating results and financial condition.
UNPREDICTABILITY OF PATENT PROTECTION AND OTHER INTELLECTUAL PROPERTY
The Company's success depends, in part, on its ability to obtain and enforce
patents, maintain trade secret protection and operate without infringing on
the proprietary rights of third parties. While the Company has been issued
patents and has registered trademarks with respect to many of its products,
there can be no assurance that competitors of the Company will not
independently develop similar or superior products or technologies, duplicate
any of the Company's designs, trademarks, processes or other intellectual
property or design around any processes or designs on which the Company has or
may obtain patents or trademark protection. In addition, it is possible that
third parties may have or acquire licenses for other technology or designs
that the Company may use or desire to use, so that the Company may need to
acquire licenses to, or to contest the validity of, such patents or trademarks
of third parties. There can be no assurance that any such license would be
made available to the Company on acceptable terms, if at all, or that the
Company would prevail in any such contest. In addition to patent and trademark
protection, the Company also protects trade secrets, know-how and other
confidential information against unauthorized use by others or disclosure by
persons who have access to them, such as employees of the Company, through
contractual arrangements. There can be no assurance that these agreements will
provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be materially adversely
affected. See "Business--Intellectual Property."
RISKS ASSOCIATED WITH ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the storage, handling, generation, treatment,
emission, release, discharge and disposal of certain substances and wastes
18
<PAGE>
and the clean up of properties affected by hazardous substances. While the
Company believes that it is currently in material compliance with those laws
and regulations, some risk of environmental liability is inherent in the
Company's business, and there can be no assurance that the Company will not
incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or the enforcement thereof). Such
costs could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Business--Environmental Matters."
FRAUDULENT CONVEYANCE
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company or any of the Guarantors, at the time it incurred the indebtedness
evidenced by the Notes or its Note Guarantee, as applicable, (i) (a) was or is
insolvent or rendered insolvent by reason of such occurrence or (b) was or is
engaged in a business or transaction for which the assets remaining with the
Company or such Guarantor constituted unreasonably small capital or (c)
intended or intends to incur, or believed or believes that it would incur,
debts beyond its ability to pay such debts as they mature, and (ii) the
Company or such Guarantor received or receives less than reasonably equivalent
value or fair consideration for the incurrence of such indebtedness, then the
Notes or its Note Guarantee, as applicable, and any pledge or other security
interest securing such indebtedness, could be voided, or claims in respect of
the Notes or such Note Guarantee, as applicable, could be subordinated to all
other debts of the Company or such Guarantor. In addition, the payment of
interest and principal by the Company pursuant to the Notes or by such
Guarantor pursuant to its Note Guarantee could be voided and required to be
returned to the person making such payment, or to a fund for the benefit of
the creditors of the Company or such Guarantor.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or such Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due. Among other
things, a legal challenge to the Note Guarantees on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Guarantors as a
result of the issuance by the Company of the Notes.
On the basis of historical financial information, recent operating history
and other factors, the Company believes that, after giving effect to the
indebtedness incurred in connection with the Offering, it will not be
insolvent, will not have unreasonably small capital for the business in which
it is engaged and will not incur debts beyond its ability to pay such debts as
they mature. There can be no assurance, however, as to what standard a court
would apply in making such determinations or that a court would agree with the
Company's conclusions in this regard.
POSSIBLE INABILITY TO REPURCHASE NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require the Company to repurchase all or any part of such
holder's Notes at an offer price in cash equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. There can be no assurance that the
Company will have sufficient resources to satisfy its repurchase obligation
with respect to the Notes following a Change of Control. See "Description of
Notes--Mandatory Offers to Purchase Notes--Change of Control."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The New Notes are being offered to Holders of the Old Notes. The Old Notes
were issued on April 22, 1998 to a small number of institutional investors and
are eligible for trading in the Private Offering, Resale and Trading through
Automated Linkages (PORTAL) Market, the National Association of Securities
Dealers'
19
<PAGE>
screenbased, automated market for trading of securities eligible for resale
under Rule 144A. The New Notes are new securities for which there currently is
no market. Although the Initial Purchasers have advised the Company that they
currently intent to make a market in the New Notes, they are not obligated to
do so and may discontinue such market making at any time without notice. The
Company does not intend to list the Notes on any national securities exchange
or to seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. Accordingly, no assurance can
be given that an active market will develop for any of the Notes or as to the
liquidity of the trading market for any of the Notes. If a trading market does
not develop or is not maintained, holders of the Notes may experience
difficulty in reselling such Notes or may be unable to sell them at all. If a
market for the Notes develops, any such market may be discontinued at any
time. If a trading market develops for the Notes, future trading prices of
such Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the Notes may trade at a discount from their principal amount.
YEAR 2000
Many information and process control systems used in the current business
environment were designed to use only two digits in the date field, and thus
may not function properly in the year 2000. Currently, most of the major
systems of the Company have been modified to be year 2000 compliant. The
Company anticipates that the appropriate modifications to all information and
process control systems will be completed by the middle of 1999. The cost of
achieving year 2000 compliance is included in the Company's operating and
administrative expenses. The Company does not currently expect year 2000
issues to materially affect the Company's costs or to cause any significant
disruption in operations.
20
<PAGE>
THE COMPANY
GENERAL
The Company is a leading designer, manufacturer and distributor of safety
products serving a variety of niche applications within the personal and
highway safety markets throughout North America and Europe. JPI markets its
products under established, well-known brand names to an extensive network of
over 8,000 distributors, wholesalers, contractors and government agencies.
The organizational structure of the Company and its material subsidiaries
and operating units following the Acquisitions will be as follows:
[FLOW CHART APPEARS HERE OF THE COMPANY ORGANIZATION]
The Company currently focuses on two product groups: (1) personal safety
products, which represented approximately 60% of pro forma net sales in 1997
and (2) highway safety products, which represented approximately 40% of pro
forma net sales in 1997.
Personal Safety Products
Jackson. Jackson, founded in 1932, designs, manufactures and distributes
safety products primarily to welding and other industrial markets. These
products are designed to protect individuals from various head, eye and face
hazards. Jackson's product offering includes welding helmets, hardhats, face
shields, safety spectacles and prescription safety eyewear frames. Management
believes that, through its Jackson and Morsafe brand names, Jackson is the
leading supplier of welding safety equipment in North America, with an
estimated 55% market share.
OSD. OSD, founded in 1990 and acquired by the Company in 1996, is the only
manufacturer of auto-darkening welding filter lenses in North America. OSD
offers a wide range of auto-darkening welding filter lenses and distributes
these products internationally through welding distributors. Management
estimates that Jackson and OSD combine for approximately 70% of the North
American auto-darkening welding filter lens market.
Allsafe. Allsafe, founded in 1929 and acquired by the Company in 1998,
designs, manufactures and distributes safety products to industrial,
construction, janitorial, healthcare and food service customers. These
products are designed to protect individuals from various head, eye, ear and
face and other hazards. Allsafe's product offering includes safety goggles,
hardhats, hearing protection products and general hazard warnings.
Crystaloid. Crystaloid, founded in 1976 and acquired by the Company in 1998,
designs and manufactures liquid crystal displays and filters for mid-market
manufacturers of industrial, commercial and aviation equipment. The Crystaloid
Acquisition will provide the Company with in-house production of liquid
crystal shutters for use in the Company's auto-darkening welding filter lenses
and in-house technology for further development of auto-darkening related
safety products for eye protection.
21
<PAGE>
Lansec. Lansec, founded in 1983 and acquired by the Company in 1997,
operates business divisions in Germany, France, the United Kingdom and the
Netherlands. These businesses, all of which are represented by the Lansec
brand name, distribute welding safety products throughout Europe and into
Eastern Europe. The acquisition of Lansec provides JPI with in-house European
distribution capabilities for its auto-darkening product line as well as an
overseas infrastructure platform for other JPI safety products.
Silencio/Safety Direct. Silencio/Safety Direct, founded in 1972 and acquired
by the Company in 1998, designs, manufactures and distributes hearing
protection products for the sporting industry.
Highway Safety Products
Flex-O-Lite. Flex-O-Lite, Inc. ("Flex-O-Lite"), founded in 1942 and acquired
by the Company in 1994, designs, manufactures and distributes reflective and
industrial glass beads. Reflective glass beads are used as the reflective
agent in a wide range of applications, including pavement striping, aviation
runways, reflective sheeting, pavement tape, license plates and essentially
any product with reflective characteristics. Within the U.S. market, Flex-O-
Lite is the second largest manufacturer of traffic and industrial glass beads
with estimated market shares of 23% and 33%, respectively. Additionally, Flex-
O-Lite is the only North American manufacturer and distributor of high index
glass beads, which offer a high degree of reflectivity required for
applications such as reflective sheeting and signage products.
Services and Materials. Services and Materials ("SMC"), founded in 1971 and
acquired by the Company in 1994, manufactures and distributes a broad range of
safety products primarily to highway construction markets. Its broad product
offering includes traffic cones, channelizers, barricade lights, traffic
flags, reflective vests and reflective pavement tape. SMC has a leading market
share in North America in each of its primary product categories.
THE ACQUISITIONS
Pursuant to a stock purchase agreement, dated March 30, 1998, the Company
has acquired all of the outstanding capital stock of Allsafe and
Silencio/Safety Direct for $29.5 million. These companies generated an
aggregate of $32.5 million of net sales in 1997.
Pursuant to a stock purchase agreement, dated March 31, 1998, the Company
has acquired all of the outstanding capital stock of Crystaloid for $6.5
million, of which $0.5 million is payable 18 months from the April 23, 1998
closing of the Crystaloid Acquisition. Crystaloid generated approximately $8.6
million of net sales in 1997.
In connection with the Crystaloid Acquisition, it was reported that the
Company anticipated consummating approximately $100 million of acquisitions
this year. The Company does regularly enter into confidentiality agreements
and non-binding letters of intent with respect to potential acquisitions.
However, the execution of any acquisition agreement requires the prior
approval of its Board of Directors. Similarly, the Company's forecasts and
budget, which are approved annually, do not contemplate additional
acquisitions for 1998. Accordingly, the Company has no current expectations or
commitments to consummate additional acquisitions this year.
----------------
The Company was incorporated in the State of Delaware on July 27, 1995. Its
principal executive offices are located at 2997 Clarkson Road, Chesterfield,
Missouri 63017, and its telephone number is (314) 207-2700.
22
<PAGE>
USE OF PROCEEDS
The net proceeds from the Offering, together with initial borrowings under
the Credit Agreement, were used to (i) repay the Existing Bank Debt, (ii)
redeem the Prior Notes, (iii) redeem the Preferred Stock, (iv) repurchase
common equity from one of the Institutional Investors (v) pay the cash portion
of the purchase price for the Acquisitions and (vi) pay related fees and
expenses. Entities advised by an affiliate of The Jordan Company will receive
a portion of the net proceeds from the Offering. See "Principal Stockholders"
and "Certain Transactions."
The following table sets forth the estimated sources and uses of funds as of
April 22, 1998 in connection with the Offering and the Acquisition.
<TABLE>
<CAPTION>
SOURCES USES
- ------------------------------------ -------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Senior Subordinated Notes. $114,277 Repay Existing Bank Debt(2)....... $ 84,884
Credit Agreement(1)....... 78,298 Redeem Prior Notes(3)............. 36,731
Redeem Preferred Stock(4)......... 23,810
Repurchase Common Equity(5)....... 4,150
Allsafe Acquisition(6)............ 29,500
Crystaloid Acquisition(6)......... 6,000
Fees and expenses(7).............. 7,500
-------- --------
Total sources........... $192,575 Total uses........................ $192,575
======== ========
</TABLE>
- --------
(1) Borrowings under the Credit Agreement as of the Closing Date were $77.0
million.
(2) Approximately $84.8 million of principal and accrued interest was
outstanding as of April 22, 1998 under the Company's then current credit
agreement (the "Existing Bank Debt"), which was scheduled to mature in
September 2003. The weighted average interest rate on the Existing Bank
Debt at April 22, 1998 was 9.5%.
(3) Consists of $34.0 million aggregate principal amount of 12.25% Senior
Subordinated Notes due August 15, 2004 (the "Prior Notes"). The amount set
forth in the table reflects accrued interest and other expenses incurred
in connection with the redemption of the Prior Notes.
(4) Consists of all of the Company's outstanding Series A Cumulative 13.25%
Exchangeable Preferred Stock (the "Preferred Stock"). The amount set forth
in the table includes accrued dividends. Certain of the Jordan Investors
are holders of the Preferred Stock. See "Principal Stockholders" and
"Certain Transactions."
(5) Reflects the repurchase from one of the Institutional Investors of common
stock and warrants representing approximately 9.5% of the Company's
common stock on a fully diluted basis. See "Principal Stockholders" and
"Certain Transactions."
(6) For a description of the purchase prices for and the conditions to the
Acquisitions, see "The Company--The Acquisitions."
(7) Includes estimated fees to the Initial Purchasers in connection with the
Offering, and fees and expenses in connection with the Acquisitions,
negotiation of the New Credit Facility, fees payable to TJMC (as defined)
and rating, legal, accounting, printing and other related transaction
expenses. See "Certain Transactions."
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 to reflect the Acquisitions and the consummation of the Offering and
the application of the net proceeds of the Offering as described in "Use of
Proceeds." The table should be read in conjunction with the financial
statements of the Company and related notes thereto included elsewhere in this
Prospectus. See "The Company--The Acquisitions," "Selected Historical
Financial Data," the Unaudited Pro Forma Consolidated Financial Statements of
the Company, the historical financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
ACTUAL
-------------
<S> <C>
Cash and cash equivalents......................................... $ 471
========
Long-term debt, including current portion:
New Credit Facility(1).......................................... $ 73,317
9 1/2% Senior Subordinated Notes due 2005....................... 114,303
--------
Total long-term debt, including current portion............... $187,620
Stockholder's deficit(2).......................................... (44,645)
--------
Total capitalization.......................................... $142,975
========
</TABLE>
- --------
(1) The Company also has outstanding $1.3 million related to letters of credit
outstanding as of June 30, 1998. For additional information, see
"Description of Certain Indebtedness--New Credit Facility."
(2) The June 30, 1998 stockholders' deficit includes (i) extraordinary loss
due to the early extinguishment of debt of $7,558, (ii) the $2,609
difference between the accreted value and the carrying amount of the
Preferred Stock and (iii) the repurchase for $4,150 of common equity held
by an Institutional Investor.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth historical operating, balance sheet and other
data of (i) the Company's predecessor, Jackson Holding Company, for the
periods January 1, 1993 to March 31, 1993; (ii) the Company's predecessor,
Jackson Holding Company, for the periods April 1, 1993 to December 31, 1993,
1994; and January 1, 1995 to August 16, 1995; (iii) the Company for the
periods August 17, 1995 to December 31, 1995; 1996 and 1997; and (iv) the
Company for the periods January 1 to June 30, 1997 and 1998. The historical
financial information for the periods ended June 30, 1997 and 1998 were
derived from unaudited consolidated financial statements included elsewhere in
this Prospectus. The historical financial information of the Company and its
predecessors as of and for the periods ending December 31, 1995, 1996 and 1997
were derived from the audited consolidated financial statements of the Company
and its predecessor for such dates and such periods, which are included
elsewhere in this Prospectus. The historical financial information for the
predecessors as of the dates and for the periods presented through December
31, 1994 were derived from the audited consolidated financial statements of
such predecessors for such dates and such periods, which are not included in
this Prospectus. The financial information set forth below should be read in
conjunction with the financial statements and the related notes thereto
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSORS THE COMPANY
------------------------------------------- ---------------------------------------------------
SIX SIX
JANUARY 1, APRIL 1, JANUARY 1, AUGUST 17, MONTHS MONTHS
1993 TO 1993 TO 1995 TO 1995 TO ENDED ENDED
MARCH 31, DECEMBER 31, AUGUST 16, DECEMBER 31, JUNE 30, JUNE 30,
1993 1993 1994 1995 1995 1996 1997 1997 1998
---------- ------------ ------- ---------- ------------ --------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
Net sales....... $ 8,497 $29,718 $92,838 $72,541 $ 37,558 $ 111,788 $123,417 $62,264 $78,680
Cost of sales... 5,232 18,573 67,348 52,416 30,566 80,485 87,466 44,227 53,104
Selling, general
&
administrative
expenses....... 1,402 4,706 12,337 9,640 4,965 14,440 15,205 7,631 11,965
Writedown of
assets......... -- -- -- -- -- 1,050 335 335 --
Amortization of
intangibles.... 1,458 5,070 6,733 3,009 1,688 18,849 16,378 9,334 3,763
------- ------- ------- ------- -------- --------- -------- ------- -------
Operating income
(loss)......... 405 1,369 6,420 7,476 339 (3,036) 4,033 737 9,848
Other expenses:
Interest
expense........ (2,030) (3,539) (6,676) (5,279) (4,381) (11,306) (12,050) (6,022) (7,056)
Amortization of
deferred
financing
costs.......... (99) (467) (765) (525) (340) (1,076) (1,261) (635) (757)
Other........... (73) 9 (102) 14 14 (599) (401) (243) (363)
Sale of company
expenses....... -- -- -- (4,391) -- -- -- -- --
------- ------- ------- ------- -------- --------- -------- ------- -------
Income (loss)
before income
tax provision
and
extraordinary
items.......... (1,797) (2,628) (1,123) (2,705) (4,368) (16,017) (9,679) (6,163) 1,672
Income tax
expense........ -- -- 700 -- -- 429 684 122 313
------- ------- ------- ------- -------- --------- -------- ------- -------
Income (loss)
before
extraordinary
items.......... (1,797) (2,628) (1,823) (2,705) (4,368) (16,446) (10,363) (6,285) 1,359
Extraordinary
items:
Loss due to
early
extinguishment
of debt........ (1,288) -- (1,914) (7,236) -- -- -- -- (7,558)
------- ------- ------- ------- -------- --------- -------- ------- -------
Net loss........ $(3,085) $(2,628) $(3,737) $(9,941) $ (4,368) $ (16,446) $(10,363) $(6,285) $(6,199)
======= ======= ======= ======= ======== ========= ======== ======= =======
OTHER DATA:
EBITDA(1)....... $ 2,321 $ 8,086 $16,894 $13,219 $ 7,209 $ 21,145 $ 24,660 $13,001 $16,072
Depreciation and
amortization... 1,916 6,496 10,138 5,548 3,141 23,131 20,292 12,599 7,024
Capital
expenditures... 11 331 2,055 1,744 465 1,910 3,246 1,178 1,895
Ratio of
earnings to
fixed
charges(2)..... -- -- -- -- -- -- -- -- 1.2
Cash (used in)
provided by
operating
activities..... 931 3,134 7,104 2,774 7,410 6,833 10,313 1,175 1,230
Cash used in
investing
activities..... (11) (57,741) (44,485) (1,661) (129,154) (14,552) (5,890) (2,011) (38,022)
Cash (used in)
provided by
financing
activities..... (293) 56,294 35,694 (1,113) 121,619 7,719 (3,900) 909 36,740
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, DECEMBER 31, AUGUST 16, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1993 1994 1995 1995 1996 1997 1998
--------- ------------ ------------ ---------- ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (DOLLARS IN THOUSANDS)
Cash and cash
equivalents........... $ 2,806 $ 1,687 $ -- $ -- $ -- $ -- $ 523 $ 471
Total assets........... 47,613 66,272 112,658 108,739 141,525 135,015 125,047 172,047
Redeemable preferred
stock and long-term
debt, including
current portion....... 58,320 45,559 79,488 80,953 122,771 134,194 133,452 187,620
Total stockholders'
equity (deficit)...... (18,104) 12,306 14,215 4,329 1,517 (17,738) (31,277) (44,645)
</TABLE>
(footnotes on next page)
25
<PAGE>
- --------
(1) EBITDA, as defined in the Indenture, represents operating income plus
depreciation, amortization and certain non-cash charges. See "Description
of Notes--Certain Definitions." EBITDA is not included herein as operating
data and should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flow from operating activities,
which are determined in accordance with GAAP. The Company has included
EBITDA because the Company understands that it is one measure used by
certain investors to determine the Company's operating cash flow and
historical ability to service its indebtedness and because the Cash Flow
Coverage Ratio, when calculated on a Pro Forma Basis (each as defined in
the Indenture), is calculated on a similar basis. EBITDA has not been
reduced by management fees payable pursuant to the TJC Management
Agreement (as defined) and directors fees, both of which are subordinated
to the Company's obligations under the Notes. EBITDA has also not been
reduced by non-cash, non-recurring charges which consist of (i) $221, $336
and $429 in 1993, 1994 and 1995, respectively, for post-retirement
benefits, (ii) purchase accounting adjustments of $3,647 in 1995 related
to inventory, and (iii) $1,050 and $335 in 1996 and 1997, respectively,
related to the writedown of assets in connection with the Company's
discontinuation and sale of certain product lines.
(2) In the computation of the ratio to fixed charges, earnings consist of
income before income taxes and extraordinary (loss), plus fixed charges.
Fixed charges consist of interest expense on indebtedness, plus that
portion of lease rental expense representative of the interest factor.
Earnings were insufficient to cover fixed charges by approximately $1,797
for the period from January 1, 1993 to March 31, 1993; $2,628 for the
period from April 1, 1993 to December 31, 1993; $1,123 for 1994; $2,705
for the period from January 1, 1995 to August 16, 1995; $4,368 for the
period from August 17, 1995 to December 31, 1995; $16,017 for 1996; $9,679
for 1997; $6,163 for the period from January 1, 1997 to June 30, 1997.
Earnings were sufficient to cover fixed charges by approximately $1,672
for the period from January 1, 1998 to June 30, 1998.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the Company's financial condition
and results should be read in conjunction with the Company's consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus. All statements, trend analysis and other information contained in
this filing relative to markets for the Company's services and trends in the
Company's operations or financial results, as well as other statements,
including words such as "anticipate," "believe," "plan," "estimate," "expect,"
and "intent" and other similar expressions, constitute forward-looking
statements as defined in Section 21E(i)(1) of the Exchange Act and are subject
to business and economic risks, including but not limited to those discussed
in "Risk Factors," and actual results may differ materially from those
contemplated by the forward-looking statements. Pursuant to Section
21E(b)(2)(D) of the Exchange Act, the safe harbor for forward-looking
statements does not apply to initial public offerings.
OVERVIEW
The Company, which was founded in 1932, operated as a subsidiary of
Thermadyne Industries, Inc. during the period from January 1, 1993 to March
31, 1993. From April 1, 1993 to August 16, 1995, the Company was operated as
Jackson Holding Company. On August 16, 1995, the Company was acquired by
members of management and affiliates of The Jordan Company. In October 1996,
the Company acquired OSD, and in October 1997, the Company acquired Lansec.
ACQUISITIONS
On April 22, 1998 the Company, through its subsidiary, Jackson Acquisition,
Inc. acquired all of the outstanding capital stock of American Allsafe Company
and Silencio/Safety Direct, Inc. for $29.1 million, as adjusted, (the "Allsafe
Acquisition"). On April 23, 1998 the Company, through its subsidiary,
Crystaloid Technologies, Inc., acquired all of the outstanding capital stock
of Crystaloid Electronics, Inc., for $6.5 million (the "Crystaloid
Acquisition"), $0.5 million of which is payable in 18 months subject to
certain conditions. Operating results of Allsafe and Crystaloid have been
included in the financial statements of the Company as of these dates.
RESULTS OF OPERATIONS
The following table sets forth certain financial information of the Company
for the years 1995, 1996 and 1997 as well as for the six months ended June 30,
1997 and 1998, respectively.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR JUNE 30,
--------------------------- ---------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $110,099 $111,788 $123,417 $62,264 $78,680
Cost of sales....................... 82,982 80,485 87,466 44,227 53,104
Selling, general & administrative... 14,605 14,440 15,205 7,631 11,965
Operating income (loss)............. 7,815 (3,036) 4,033 737 9,848
Income tax expense.................. -- 429 684 122 313
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net sales -- Net sales for the six months ended June 30, 1998 increased
26.4% to $78.7 million from $62.3 million in 1997. The increase in net sales
resulted from the growth of personal safety products associated with the April
1998 Allsafe Acquisition and the Crystaloid Acquisition and the October 1997
Lansec Acquisition.
27
<PAGE>
Cost of sales -- Cost of sales for the six months ended June 30, 1998
increased 20.0% to $53.1 million from $44.2 million in 1997, primarily as a
result of the increase in net sales. Cost of sales as a percentage of sales
decreased to 67.5% from 71.0% due to various cost reduction programs and
higher margins associated with the acquired companies.
Selling, general & administrative expenses -- Selling, general and
administrative expenses for the six months ended June 30, 1998 increased 56.8%
to $12.0 million from $7.6 million due to the Allsafe Acquisition, the
Crystaloid Acquisition and the Lansec Acquisition. Selling, general &
administrative expenses as a percentage of net sales increased to 15.2% from
12.3% due to an increase in distribution costs at Lansec.
Operating income -- Operating Income for the six months ended June 30, 1998
increased to $9.8 million from $0.7 million in 1997 due to the Allsafe
Acquisition, the Crystaloid Acquisition and a reduction in amortization
expenses as certain intangibles were fully amortized during 1997.
Income tax expense -- Income tax expense for the six months ended June 30,
1998 increased to $0.3 million from $0.1 million due to an increase in foreign
taxes. The Company's effective income tax rate is substantially lower than the
statutory rate due to non-deductible amortization expenses of certain
intangibles.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net sales -- Net sales in 1997 increased 10.4% to $123.4 million from $111.8
million in 1996. The increase in net sales resulted from sales growth of
welding safety products and high index glass bead products, and the October
1996 acquisition of OSD. Net sales were offset in 1997 as a result of a
decision by management to eliminate certain low margin product lines within
the highway safety products group. The welding safety products sales growth
was initiated by a sales management reorganization implemented in late 1996,
improved factory responsiveness and sales force product retraining. The high
index glass bead sales growth was the result of redirected marketing efforts
from the product rationalization process. Approximately $6.8 million of the
increase in sales in 1997 were the direct result of the OSD acquisition.
Cost of sales -- Cost of sales in 1997 increased 8.7% to $87.5 million from
$80.5 million in 1996, primarily as a result of the net sales increases of
welding safety products and high index glass bead products and the acquisition
of OSD. Cost of sales as a percentage of sales decreased to 70.9% from 72.0%
due to improved product mix resulting from the product rationalization process
discussed above and the increased sales of welding safety and high index glass
bead products. Cost of sales also improved through the reduction of certain
material costs and from manufacturing productivity improvements.
Selling, general & administrative expenses -- Selling, general and
administrative expenses in 1997 increased 5.3% to $15.2 million from $14.4
million in 1996. The increase was primarily volume driven and consisted of
increases in advertising and commissions. Selling, general and administrative
expenses as a percent of sales decreased to 12.3% in 1997 from 12.9% in 1996.
Operating income -- Operating income in 1997 increased to $4.0 million from
a net loss of $3.0 million in 1996 due to the increase in gross profit and
reduced amortization expenses.
Income tax expense -- Income tax expense in 1997 increased to $0.7 million
from $0.4 million in 1996 due to an increase in foreign taxes. The Company's
effective income tax rate is substantially lower than the statutory rate due
to non-deductible amortization expenses of certain intangibles.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net sales -- Net sales in 1996 increased 1.5% to $111.8 million from $110.1
million in 1995. This increase reflected flat welding safety product sales due
to an inventory consolidation effort initiated by the Company's wholesalers,
and a decision by management to eliminate certain low margin product lines
within the highway safety products group.
28
<PAGE>
Cost of sales -- Cost of sales in 1996 decreased 3.0% to $80.5 million from
$83.0 million in 1995, primarily due to acquisition accounting for inventory
in August 1995. The inventory adjustment reflects a $3.6 million increased
valuation of inventory at date of acquisition in accordance with APB Opinion
No. 16, Accounting for Business Combinations. This adjustment was subsequently
written off over the remainder of 1995. Cost of sales as a percentage of sales
decreased to 72.0% from 75.4% due to the combination of the acquisition
adjustment and the elimination of certain low margin product lines.
Other comparative data -- On August 17, 1995 the Company was sold to members
of management and affiliates of The Jordon Company. It is management's belief
that presenting combined data of the Company and its predecessor beyond sales
and cost of sales is not comparable due to the change in control. For this
reason, other data comparing these two periods such as operating income and
selling, general and administrative expenses is omitted.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities for the six months ended June 30, 1998
and 1997 was $1.2 million and $1.2 million, respectively. Changes in working
capital resulted in cash uses of $7.2 million and $5.5 million for the six
months ended June 30, 1998 and 1997, respectively.
Cash provided by operating activities in 1997 and 1996 was $10.3 million and
$6.8 million, respectively. Changes in working capital resulted in cash uses
of $1.0 million and $2.0 million in 1997 and 1996, respectively.
Cash used in investing activities for the six months ended June 30, 1998 and
1997 was $38.0 million and $2.0 million, respectively. The 1998 period
includes $36.3 million expended for the acquisition of businesses, principally
in connection with the Allsafe Acquisition and the Crystaloid Acquisition. The
Company typically makes capital expenditures related to the maintenance and
improvements of manufacturing facilities and related processing equipment such
as injection molding machines and glass bead furnaces. Capital expenditures
for the six months ended June 30, 1998 and 1997 were $1.9 million and $1.2
million, respectively. Capital expenditures in 1997 and 1996 were $3.2 million
and $1.9 million, respectively.
Net cash provided by financing activities for the six months ended June 30,
1998 and 1997 were $36.7 million and $0.9 million, respectively. The Allsafe
Acquisition and Crystaloid Acquisition were principally financed with the
proceeds of the Senior Subordinated Notes and the New Credit Facility. (See
below). Net cash used in financing activities in 1997 was $3.9 million and net
cash provided by financing activities in 1996 was $7.7 million.
Effective April 22, 1998, the Company entered into a credit agreement (the
"New Credit Facility") with BankBoston, N.A. and Mercantile Bank National
Association, which will provide for a line of credit in the aggregate amount
of $125.0 million consisting of an acquisition line facility in the principal
amount of $95.0 million and a revolving facility in the principal amount of
$30.0 million. At June 30, 1998 there was $14.3 million outstanding on the
revolving credit facility.
On April 16, 1998, the Company offered $115.0 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the
"Offering"). The Notes will bear interest at the rate of 9 1/2% per annum,
payable semi-annually in arrears on April 15 and October 15 on each year,
commencing October 15, 1998. The payment of principal, premium, interest and
liquidated damages on the Notes are unconditionally guaranteed, jointly and
severally, by the Company's domestic subsidiaries ("Guarantors").
The Company believes that cash flow from operations together with available
borrowing capacity are sufficient to fund working capital requirements, debt
service requirements, and capital expenditures for the remainder of 1998.
29
<PAGE>
Following the consummation of the Acquisitions, the Offering and related
transactions, the Company's primary capital requirements will be for debt
service, working capital and capital expenditures. Historically, the Company's
capital expenditures have been approximately $3.5 million per annum. The
Company anticipates that its capital expenditure requirements for 1998 will be
approximately $5.5 million due to a one-time expenditure of approximately $2.0
million required to reduce air emissions and ensure continued compliance with
clean air regulations at its glass bead facility in Paris, Texas. The Company
believes that cash flow from operating activities and borrowings under the
Credit Agreement will be adequate to meet the Company's short-term and long-
term liquidity requirements for the foreseeable future, although no assurance
can be given in this regard. The Company anticipates that capital expenditures
following the 1998 fiscal year will approximate historical levels on a pro
forma basis.
In connection with the Crystaloid Acquisition, it was reported that the
Company anticipated consummating approximately $100 million of acquisitions
this year. The Company does regularly enter into confidentiality agreements
and non-binding letters of intent with respect to potential acquisitions.
However, the execution of any acquisition agreement requires the prior
approval of its Board of Directors. Similarly, the Company's forecasts and
budget, which are approved annually, do not contemplate additional
acquisitions for 1998. Accordingly, the Company has no current expectations or
commitments to consummate additional acquisitions this year.
The Credit Agreement consists of a $30.0 million revolving credit facility
and a $95.0 million acquisition facility.
NEW ACCOUNTING STANDARDS
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." In February 1998, the FASB issued SFAS
No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits." The Company will be required to implement these standards in 1998.
Although the implementation of these standards should have no effect on
reported operations, the Company is assessing the impact of the required
disclosures on its quarterly and annual reports.
SEASONALITY AND INFLATION
The Company experiences seasonal fluctuations in its net sales and
profitability, with generally lower net sales and profitability in the first
and fourth quarters and increased working capital requirements in the first
half of its fiscal year. The seasonality of net sales and profitability is
primarily due to the winter slowdown of highway construction and maintenance
projects. In 1997, the Company's net sales were divided approximately evenly
between the first half and second half.
The impact of inflation on the Company's operations has not been significant
to date. However, there can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operating
results.
30
<PAGE>
BUSINESS
THE COMPANY
Jackson Products, Inc. is a designer, manufacturer and distributor of safety
products serving a variety of niche applications within the personal and
highway safety markets throughout North America and Europe. JPI markets its
products under established, well-known brand names to an extensive network of
over 8,000 distributors, wholesalers, contractors and government agencies.
Management believes that the Company holds leading market share positions in
each of its primary product lines, reflecting the Company's (i) proprietary
technology, (ii) strong reputation and relationships with its customer base,
(iii) breadth of product lines and (iv) low cost manufacturing operations.
Due to strong industry fundamentals, its solid competitive position and
strategic acquisitions, the Company has achieved significant and consistent
growth under its current management team. Net sales grew from $92.8 million in
1994 to $173.6 million on a pro forma basis in 1997, representing a CAGR of
23.2%. In addition, the Company has improved profitability through the
rationalization of non-core product lines and implementation of cost control
initiatives. During the same period, the Company's EBITDA grew from $16.9
million to $29.7 million on a pro forma basis, representing a CAGR of 22.0%.
Due to its low capital expenditure requirements, the Company has historically
also generated significant free cash flow. The Company currently focuses on
two product groups: (i) personal safety products, which represented
approximately 60% of pro forma net sales in 1997, and (ii) highway safety
products, which represented approximately 40% of pro forma net sales in 1997.
PERSONAL SAFETY PRODUCTS
Personal safety products generated net sales of $103.5 million on a pro
forma basis for the Company in 1997. The Company offers over 10,000 SKU's of
personal safety products designed to protect individuals from various head,
eye, ear and face hazards in the workplace. The Company's product offerings
include welding helmets and auto-darkening welding filter lenses, hardhats,
face shields, safety spectacles and prescription safety eyewear frames.
Approximately 43% of the Company's personal safety product sales are to
distributors in the welding industry. Management believes that JPI is the
leading supplier of welding safety equipment in North America, with an
estimated 55% market share competing with such companies as Fibre-Metal,
Sellstrom and Arc-One. JPI's EQC product line offers a technologically
advanced range of welding helmet filter lenses featuring the world's fastest
auto-darkening switching speed. Switching speed represents the time required
for a lens to switch from a light to dark state. Auto-darkening technology
allows welders to see without lifting the helmet, therefore improving worker
productivity while significantly reducing repetitive motion and eye injuries.
The U.S. industrial market for personal safety products focused on the eye,
face, ear and head is estimated to have been in excess of $610 million in
1997. JPI's sales of personal safety products have benefited and are expected
to continue to benefit from increased workplace regulation and safety
awareness. The Company believes the outlook for the U.S. personal safety
products market is continually being influenced by heightened social awareness
regarding worker health and safety, which in turn stimulates legislation
requiring and monitoring the use of safety products in commercial and
industrial environments. The Company expects that the enforcement of safety
regulations by government agencies, such as OSHA, and the efforts of employers
and insurance carriers to contain group health care and workers' compensation
costs should maintain the growth of the market.
In order to capitalize on these strong industry fundamentals, the Company
has made several recent acquisitions to build its personal safety products
business. In 1996, the Company acquired OSD, providing JPI with an estimated
70% market share of the North American auto-darkening welding filter lens
market and establishing JPI as the only North American-based manufacturer of
auto-darkening welding filter lenses. Other worldwide competitors in this
market include Xelux and Hornell. The acquisition of Crystaloid and its
expertise
31
<PAGE>
in liquid crystal technology is expected to strengthen the Company's lead in
auto-darkening technology and allow for the development of additional
applications in new markets. In 1997, the Company acquired Lansec, providing
the Company with distribution capabilities throughout Europe. The acquisition
of Allsafe and Silencio/Safety Direct will further expand the range of the
Company's personal safety products and enhance the Company's channels of
distribution. The Company estimates that as a result of these acquisitions and
future growth, it will be able to increase annual sales of its auto-darkening
hood from $25 million to $100 million within five years.
HIGHWAY SAFETY PRODUCTS
Highway safety products generated net sales of $70.1 million on a pro forma
basis for the Company in 1997. Highway safety products offered by the Company
include traffic cones and markers, barricades, reflective clothing and glass
beads. Glass beads provide the reflective agent in an extensive range of
applications, such as highway striping, traffic signs, aviation runways,
license plates and reflective tape. The Company believes that it has a leading
market share in North America in the majority of its primary highway safety
product categories. Within the glass beads products market, the Company's
primary competitors include Potters and Cataphote. The competition within the
Company's various other product lines is comprised of a number of smaller,
niche companies, usually with annual sales between $5 million and $20 million.
The U.S. market for highway safety products sold by JPI is estimated by the
Company to be approximately $450 million. The demand for highway safety
products is primarily driven by state and federal expenditures on highway
construction and maintenance. Management expects such government spending to
increase in the future to address the deteriorating and increasingly congested
North American highway infrastructure. The U.S. Federal Highway Administration
has estimated that nearly one-third of the nation's interstate highways are in
need of immediate repair. Federal highway funding since 1991 has been governed
by ISTEA which provided $124 billion for highway programs to be funded over
its initial six-year period ending October 1997. The U.S. Senate and House of
Representatives approved a new joint public works bill, the Transportation
Equity Act for the 21st Century ("TEA-21"), on May 22, 1998. TEA-21 provides
for $173 billion in highway funding over the next six years, a 39.5% increase
over ISTEA.
COMPETITIVE STRENGTHS
The Company believes that it benefits from the following competitive
strengths:
Leading Market Share Positions. The Company has focused on serving distinct
niche markets in which it has been able to build leading market share
positions, providing the Company with a number of marketing, pricing and cost
advantages. The Company is the leading supplier of welding safety equipment in
North America with an estimated 55% market share and the leading supplier of
auto-darkening welding filter lenses with an estimated 70% share of the North
American market. The Company is the only North American manufacturer and
distributor of high index glass beads, the second largest manufacturer of
highway and industrial glass beads, and the North American market leader in
each of its other primary highway safety product categories.
Proprietary Technology. In December 1994, the Company acquired EQC auto-
darkening technology for use in welding helmets. This technology provides the
Company with the most advanced welding filter lenses on the market, with a
switching speed at 1/25,000th of a second, which is five times faster than the
competing auto-darkening lenses. Management believes that the Crystaloid
Acquisition will enable the Company to further develop this technology within
the safety products industry. The Company's EQC products have experienced
rapid growth in net sales, as they increased from approximately $1 million in
1991 to approximately $23 million on a pro forma basis in 1997.
Strong Customer Relationships and Brand Name Recognition. The Company has
developed strong relationships and achieved brand name recognition in most of
its distribution channels due to its focus on providing superior customer
service and quality products that address the specialized needs of its end-
users. Each of the Company's major brand names, including Jackson, Morsafe,
Flex-O-Lite, SMC, American Allsafe Co.
32
<PAGE>
and Team Silencio, are well established with good recognition among end-users.
As a result of its reputation and relationships, the Company has been able to
generate substantial repeat business and build stability throughout its
extensive network of over 8,000 distributors, wholesalers, contractors and
government agencies.
Breadth of Product Line. In an industry characterized by small niche
manufacturers, management believes those manufacturers that provide "one-stop
shopping," such as the Company, hold a significant advantage as customers seek
to consolidate supply sources. The Company believes that this breadth of
product line will prove particularly helpful in building upon JPI's recent
entry into the European welding safety product market.
Low-Cost Manufacturing. Management believes that the Company has achieved
low-cost producer status in several key product areas. Proximity of Company
facilities to natural gas pipelines and major customers and the Company's
ready access to supplies of glass contribute to lower transportation and
product costs in its glass bead business. The Company has also implemented a
number of programs over the last several years aimed at improving its overall
cost structure, including plant consolidations, shifting of production
resources and non-core product rationalizations.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Leverage Synergies Across Subsidiaries. The Company has identified a number
of material synergies that can be realized between its existing and newly
acquired subsidiaries. It is expected that similar synergies will also be
available in future acquisitions. In order to realize such synergies, the
Company intends to (i) effectively allocate production among its manufacturing
facilities, (ii) implement cross selling programs to access new channels of
distribution and customers, and (iii) access newly acquired sales capabilities
to expand its distribution base.
Continue to Develop Innovative New Products. Capitalizing on its market
knowledge, its in-house technological capabilities and its new product
development team, JPI intends to continue developing new products to respond
to the changing demands of its end-users and to create additional sales.
During the last three fiscal years, the Company has introduced more than 50
new products or product enhancements, including an expansion of the highly
innovative EQC product line, several new safety eyewear styles, nonskid
reflective tape, high-intensity reflective beads and a light-weight DuraBill
channelizer base. Management believes JPI's new product development efforts
will be significantly enhanced with the acquisition of Crystaloid's liquid
crystal display technological capabilities.
Further Develop Presence in European Markets. The Company established a
European market presence with the October 1997 acquisition of Lansec. The
acquisition of Lansec provides JPI with in-house European distribution for its
auto-darkening product line as well as an overseas platform for distribution
of other JPI safety products. The Company intends to continue to develop its
European distribution since it believes the breadth of its product line, its
EQC technology and lower labor costs offer substantial competitive advantages
over existing European welding safety product manufacturers.
Selectively Pursue Strategic Acquisitions. The highly fragmented industry in
which the Company operates offers significant opportunity for additional
synergistic acquisitions. The Company intends to selectively pursue
acquisitions that will further its growth strategy by providing new geographic
markets, additional distribution channels, complementary product lines and
expanded technological capabilities.
33
<PAGE>
PRODUCT GROUPS
As shown in the table below, the Company focuses on two specific product
groups: (i) personal safety products and (ii) highway safety products.
[CHART APPEARS HERE]
JACKSON PRODUCTS, INC.
1997 pro forma net sales: $173.6 million
<TABLE>
<CAPTION>
Personal Safety Products Highway Safety Products
1997 pro forma net sales: $103.5 million 1997 pro forma net sales: $70.1 million
(Approximately 60.0%) (Approximately 40.0%)
<S> <C>
Operating Units Operating Units
. Jackson . Flex-O-Lite
. OSD . SMC
. Lansec
. American Allsafe
. Silencio/Safety Direct
. Crystaloid
Major Product Lines Major Product Lines
. Auto-darkening welding filter lenses . Glass beads
. Welding helmets Traffic beads
. Hardhats Industrial beads
. Face shields . Cones
. Safety spectacles . Channelizers
. Prescription safety eyewear frames . Barricades
. Safety goggles . Pavement tape
. Hearing protection . Flags, vests and roll-up signs
. First aid supplies . Barricade and high intensity lights
. Sign stands
. Plastic barrier/safety fencing
. Reflective sheeting
Primary End-Users
Primary End-Users . State and local municipalities
. Welding . Independent contract road stripers
. Industrial . Thermoplastic manufacturers
. Construction . Highway contractor supply and rental
. Janitorial companies
. Healthcare . Industrial
. Sporting
. Food service
</TABLE>
34
<PAGE>
PERSONAL SAFETY PRODUCTS GROUP
The Company sells over 10,000 different safety products (a figure which
includes different styles of similar products) including welding helmets and
auto-darkening welding filter lenses, safety caps and hardhats, face shields
and visors, safety goggles and spectacles, prescription safety eyewear frames
and hearing protection products under the Jackson, Morsafe, Aden, AOP, Contour
Marker, American Allsafe Co., Team Silencio and Lamba brand names. Primary
customers for these products are found in the welding, construction,
janitorial, healthcare, sporting, and food service sectors as well as
throughout general industry, including oil, gas and chemical processors, metal
fabricators and auto and aircraft manufacturers. The Company's products are
designed to protect workers from various head/eye/face hazards in
manufacturing environments, including flying debris, chemical splashes,
excessive noise, noxious fumes and ultraviolet rays. The Company
differentiates itself within its market by providing broad lines of innovative
products, often employing proprietary technology, that meet the specialized
needs of its end-users.
A 1996 study prepared by Frost & Sullivan (the "Frost & Sullivan Report")
estimated that the size of the segment of the personal safety products market
in which the Company competes would be approximately $610 million in the U.S.
in 1997, and an additional $960 million within Europe. Historically, a large
number of relatively small, independent manufacturers with limited product
lines have served the personal safety products market, and the industry
remains highly fragmented. Management believes that manufacturers offering a
wide range of products having a high degree of market acceptance and strong
brand names, such as the Company, benefit from several competitive advantages,
including (i) economies of scale in manufacturing, sales and distribution,
(ii) greater appeal to large industrial distributors and national retailers
seeking to rationalize their sources of supply and (iii) an extensive
distribution network for introducing new product categories and product
enhancements.
Several factors are driving growth in the personal safety products market.
Employers are now increasingly aware of savings in insurance costs and
workers' compensation costs that can be achieved through the consistent use of
effective personal safety products. Significant growth in demand will also
continue to be realized as government regulations which mandate the use of
personal safety products are instituted and enforced by agencies like OSHA and
the National Institute of Occupational Safety and Health ("NIOSH"). In
addition, improvements in comfort, performance, and styling have resulted in
the increased acceptance of personal safety products by their users. The
market for personal safety products is expanding beyond the traditional U.S.
industrial distributor. Retail home centers and mass merchandisers are
offering a greater variety of personal safety products for the consumer do-it-
yourself market. As manufacturing employment and safety awareness grow outside
of the U.S. and Europe, international demand for personal safety products
could increase.
Products. The Company currently offers a broad range of products to the
personal safety products market. Primary examples of these products include:
Auto-Darkening Welding Filter Lenses and Welding Helmets. In 1991, Jackson
introduced welding helmets with an auto-darkening welding filter lens which
automatically changes tint when the welder begins to weld. Jackson's product
has the fastest switching speed at 1/25,000th of a second, which is five times
faster than any competing auto-darkening technology in the world. Switching
speed represents the time required for a lens to switch from a light to dark
state. It is estimated that auto-darkening filter lenses and auto-darkening
helmets are used by 20% of the total U.S. welding market. Management believes
it is the largest supplier of auto-darkening welding helmets in the world and
it is the only manufacturer of auto-darkening welding filter lenses in North
America.
Prior to the introduction of the auto-darkening welding filter lens, filters
were opaque, forcing a welder to lift the helmet to see when not welding. By
eliminating this process, the auto-darkening filter lens has greatly enhanced
welder efficiency, quality and safety and has reduced welder fatigue. The
auto-darkening technology also protects against eye damage from arc light and
eliminates cumulative trauma disorder associated with repetitive flipping of
the helmet up and down.
35
<PAGE>
In December 1994, Jackson acquired the technology rights to manufacture
auto-darkening filters from OSD as well as the related manufacturing
equipment. As a result of this initial asset purchase, Jackson brought
in-house the manufacturing control and related profit margin previously
realized by OSD. In October 1996, Jackson purchased OSD as part of a stock
purchase including an additional product line, patents, patent rights and
inventory. With the acquisition of Crystaloid, Jackson gains the in-house
knowledge of liquid crystal technology. Crystaloid has estimated that it will
be able to supply Jackson with all of its liquid crystal shutters for the
welding filter lens by July 1, 1998. The Company also plans to exploit other
liquid crystal technology applications within the personal safety market.
The Company's auto-darkening welding filter lenses utilize a high speed
auto-darkening surface mode device liquid crystal filter. In addition to
placing these filters in its own helmets, the Company sells a variety of auto-
darkening welding filter lenses in standard U.S. and international sizes to
other helmet manufacturers. The Crystaloid Acquisition allows the Company to
bring liquid crystal technology in-house, so that the entire production of the
auto-darkening welding filter lens is under the Company's control.
In late 1997 the Company acquired Lansec which operates business divisions
in Germany, France, United Kingdom and the Netherlands. These businesses, all
of which are represented by the Lansec brand name, primarily distribute auto-
darkening welding helmets throughout Europe. The acquisition of Lansec
provides the Company with in-house European distribution for its auto-
darkening product line as well as an overseas infrastructure platform for the
Company's other welding safety products. Auto-darkening welding filter lenses,
welding helmets and other welding-related safety products accounted for 14%,
13% and 13% of total sales for 1997, 1996 and the period from August 17 to
December 31, 1995, respectively.
Face and Eye Protection Products. The Company produces both prescription and
non-prescription protective eyewear, goggles, face shields and visors. The
Company manufactures and sells a complete line of non-prescription safety
spectacles and goggles under the Jackson, Morsafe, American Allsafe Co. and
Aden brand names. Non-prescription protective spectacles, which are known
within the industry as "planos", protect an individual's eyes from flying
objects, sparks and chemical splashes in a multitude of industrial and
commercial settings. The Company has historically targeted goggle and plano
end-users in the construction, manufacturing and healthcare industries.
American Allsafe maintains the highest share of the U.S. industrial safety
goggle market. All of the Company's safety spectacles have been designed to
comply with ANSI Z-87.1989, which requires each spectacle to sustain the
impact of a one-quarter inch ball traveling at a velocity of 150 feet per
second and to resist melting at temperatures up to 400 degrees.
The Company's Aden Ophthalmic Product ("AOP") group produces prescription
protective eyewear used for similar purposes as planos, but which contain
prescription lenses. The frames are marketed under the AOP brand name to
optical wholesalers and retail chains. AOP is continually introducing new
frame series, including wire frames which are more fashionable than the
traditional plastic prescription safety spectacles.
The Company's line of face shields are designed to protect against heat,
liquid splashes and flying particles and are often worn in conjunction with
other protective equipment, such as plano eyewear. The Company's face shields
are marketed under the Jackson, Morsafe and American Allsafe Co. brand names.
The Company sells a broad line of head protection products for use in
construction and general industry under the Jackson, Morsafe and American
Allsafe Co. brand names. The product line includes "bump" caps, full-brim hats
and traditional hardhats, all with four or six point suspensions, ratchet
adjustments, and a wide selection of colors and custom imprintings.
Other. The Company produces other personal protection products which include
(i) safety warning products and (ii) hearing protection products.
The Company's line of safety warning products provide visual warnings
against hazards and help to prevent costly slip and fall and other accidents.
These products include cones, signs, barricades, fences, tape, lights, flags,
floor stands and banners.
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<PAGE>
The Company has the number one market share of hearing protection products
in the shooting sports, mass merchandisers and government markets. These
products include earmuffs, earplugs and electronic hearing protection products
and are marketed under the Team Silencio and American Allsafe Co. brand names.
HIGHWAY SAFETY PRODUCTS GROUP
The Company sells over 1,100 different products including reflective glass
beads, cones, channelizers, pavement tape, flags, vests and roll-up signs,
barricades and high intensity lights. Primary customers for these products
include state and local municipalities, independent contract road stripers,
thermoplastic manufacturers, and highway contractor supply and rental
companies. The Company's highway safety products are designed to make both
driving and construction on highways safer by enhancing driving visibility and
marking construction sites.
Sales of the Company's highway safety products are driven by the amount of
state and federal expenditures on highway construction and maintenance as well
as the increase in regulations governing highway markings. The U.S. Federal
Highway Administration has estimated that one-third of the nation's highways
are in need of repair. As a result, management believes the U.S. highway
industry is poised to benefit from expected increases in infrastructure
spending. Federal highway funding since 1991 has been governed by ISTEA, which
provided $124 billion for highway programs to be funded over a six-year
period, initially ending in October 1997. The U.S. Senate and House of
Representatives approved a new joint public works bill, the Transportation
Equity Act for the 21st Century ("TEA-21"), on May 22, 1998. TEA-21 provides
for $173 billion in highway funding over the next six years, a 39.5% increase
over ISTEA.
Products. The Company currently offers a broad range of products to the
highway safety product market. Primary examples of these products include:
Glass Beads. The Company designs, manufactures and distributes industrial
reflective and glass beads which are used in applications which require
enhanced visibility. Glass bead products accounted for 18%, 25% and 23% of
total sales for 1997, 1996 and the period from August 17 to December 31, 1995,
respectively. Glass beads are used in highway striping, industrial cleaning
and polishing, airport runway striping, reflective sheeting, pavement tape,
and reflective tape applied to traffic cones, safety vests and clothing, and
traffic signs. Management believes that the Company is the second largest U.S.
manufacturer of traffic glass beads, with an estimated 23% share of the
traffic bead market.
Glass traffic beads are used for highway line substrates and pavement tape.
The beads are dropped onto freshly applied highway striping substrates (i.e.,
paint, epoxy and thermoplastics) which act as a binder leaving a portion of
the bead submerged and the remaining portion above the substrate. The exposed
portion of the bead gives the highway line its reflective attributes. Glass
traffic beads are sold according to state specifications which vary by
engineering preference, regional climate, type of striping substrate and bead
coatings. Management believes it is the only company capable of meeting these
specifications in all 50 U.S. states. The Company markets the majority of its
glass traffic beads under the well-recognized Flex-O-Lite trade name. The
Company also recently introduced Star-Brite beads which are chemically treated
using a coating that enhances buoyancy, adhesion and reflectivity, and is
moisture resistant. Glass traffic beads provide consistent recurring revenue
for the Company because the beads encounter significant wear and tear,
especially in regions with snow.
The Company markets glass traffic beads to the federal government, state
governments, and over 260 local and municipal government agencies in North
America. The Company also markets glass traffic beads to over 119 independent
highway line stripers who are contracted by state, local and provincial
governments for highway line painting.
Low index glass beads are also used as an impact agent for specialized
industrial cleaning and finishing applications. Glass beads provide a high
quality alternative to other materials such as sand, due to their spherical
characteristics. The beads are typically sprayed from a pressurized device to
remove scale, polish and debur metal
37
<PAGE>
surfaces, and peel metal surfaces to relieve stress. Glass is environmentally
safe and capable of cleaning surfaces without altering the strength or
composition of the underlying material. End-users of industrial glass beads
include major industries such as automotive manufacturers and engine
rebuilders, aircraft engine manufacturers and rebuilders, tool and die
manufacturers, and the U.S. military and its subcontractors. Management
estimates that Flex-O-Lite has a 33% market share in the U.S. industrial glass
bead market.
The Company is the only North American manufacturer which sells high index
glass beads with both 1.9x and 2.1x reflectivity ratings. The 1.9x beads are
used in the manufacture of reflective tape, pavement tape, aviation runway
striping lines, license plate reflective systems, reflective collars for
traffic cones and reflective clothing. The 2.lx index beads are used
exclusively in the manufacture of reflective sheeting. The Company has
developed unique manufacturing capabilities that have resulted in lower
production costs and consistently high quality levels. Major customers of high
index beads include operators of airports both civilian and domestic, Avery
International, which uses 2.lx index beads in its reflective sheeting
products, and Minnesota Mining and Manufacturing Corporation ("3M"), which
uses 1.9x beads for its pavement tape product.
Cones. The Company believes it is the largest manufacturer of traffic cones
in the United States. Cones manufactured by the Company range in size from 4"
to 36" in height and have varying weights of up to 10 pounds. Cones are
available in various colors and may be purchased with reflective collars
applied to enhance night visibility and with a weighted bottom to prevent
"creeping" in high speed traffic areas. The Company also has the capability to
stencil or screen customer names and labels on to cones. An innovative product
in this area is the "Sergeant Sidewalk" cone sold throughout the Toys-R-Us
chain of toy stores.
Pavement Tape. The Company is the largest manufacturer of foil-backed
temporary pavement tape in the U.S. market. Pavement tape is designed for
short-term highway construction projects and other industrial work zone
applications. Temporary tape is non-removable and is used on highways for both
the final asphalt overlay and on temporary road surfaces over which new
pavement will ultimately be applied. Removable tape is used on finished
highway sites on which the lines are moved to accommodate short term detours
and lane shifts. The Company's tape products are coated with yellow, white, or
orange paint to which the Company's glass beads are applied.
Flags, Vests and Roll-Up Signs. The Company manufactures a full line of
safety flags, vests and roll-up signs. Management believes the Company has the
number one position in the U.S. market for these products. Most vests and
flags are made from lightweight vinyl-coated nylon. Reflective tape is
typically applied to the front and back of the vest. End-users of vests and
flags include highway construction workers police and fire departments, and
medical emergency teams. Roll-up signs are made from reflective and non-
reflective vinyl and hung from aluminum sign stands providing a lightweight
alternative for temporary construction jobs, utility crews, etc. The signs
roll up and the stands collapse making storage and transport easy.
Resale Products. In addition to its manufactured products, the Company
purchases other safety-related products for resale to complement its
manufactured product lines. The Company markets several models of aluminum
sign stands, including spring action stands for use in high speed traffic
areas as well as several rigid models. The stands are designed to collapse for
easy storage and set up. The Company manufactures the vinyl sign panels which
attach to these stands. Other resale products include plastic barrier/safety
fencing and reflective sheeting. Made from durable polyethylene, plastic
fencing is both strong and lightweight, and generally is used on highway and
office building construction sites. The Company is one of two master
distributors of 3M reflective sheeting in the United States. The Company
markets several brands of the 3M sheeting products to the highway safety
markets for use on traffic cones, reflective barricades and other traffic zone
applications. Additionally, the Company distributes several hundred safety-
related products including flares, first aid kits, marking tape, plastic
barricades and hardhats, among others.
SALES AND DISTRIBUTION
Personal Safety Products. The Company distributes its personal safety
products domestically primarily through a network of wholesalers and
distributors. The Company's sales force directs its efforts at the distributor
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and end-user levels to create an effective pull-through of product to the
market. The Company's in-house sales force is covered by an incentive bonus
plan while the Company's manufacturer representatives are compensated on a
varying commission structure. These salespeople and agents are supported by
regionally-based sales and technical specialists allowing the Company to
deliver high levels of customer service locally in its significant markets.
Internationally, the Company distributes its products primarily through
Lansec, which operates business divisions in Germany, France, the United
Kingdom and the Netherlands.
Highway Safety Products. The Company distributes its highway safety products
through direct salespersons and catalogues. The Company's line of reflective
and industrial glass beads are sold by salespeople directly to state and local
municipalities, independent contract road stripers, thermoplastic
manufacturers, and highway contracted supply and rental companies. The
Company's other highway safety products are sold through a combined effort of
in-house sales personnel, manufactures representatives, a well-circulated
Company catalog and inclusion in various industrial supply catalogs.
MANUFACTURING
The Company uses a variety of manufacturing processes to produce products
for the personal and highway safety product industry. Products manufactured
from plastic, polycarbonate, polyvinylchloride ("PVC"), resins and similar raw
materials are produced using injection molding, compression molding, flow
molding and blow molding techniques. Such products include welding helmets,
hardhats, cones, channelizers, safety goggles and face shields.
Crystaloid possesses liquid crystal technology with which it produces liquid
crystal shutters used in Jackson's auto-darkening welding filter lenses.
Flex-O-Lite produces low index glass beads through a process by which cullet
or scrap glass is run through a pulverizer, screened and stored by size. The
ground cullet is then fed into the bottom of a gas burner, and as the cullet
rises it melts to form spheres, which are cooled and packed. High index glass
beads are produced with virgin raw materials, which are mixed in a hopper then
heated into molten glass. The molten glass is passed through a break-up burner
where it is formed into glass beads. The 1.9x beads are cooled and sorted, the
2.1x beads are passed through another burner which effectively polishes the
beads to result in the higher refraction.
Sewn products, including safety vests, flags and roll-up signs, are produced
through a fairly labor intensive process which involves stenciling, cutting
and sewing. While these products involve more labor, they consistently produce
high gross margins.
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FACILITIES
In addition to its executive offices in Chesterfield, Missouri, the Company
operates 15 major facilities in the United States, Canada and Europe with a
total area (including the executive offices) of approximately 714,000 square
feet, of which the Company currently owns approximately 489,000 square feet
and leases approximately 225,000 square feet. These facilities are as follows:
<TABLE>
<CAPTION>
USER/ OWNED/ LEASE
LOCATION SUBSIDIARY PRIMARY USE SQUARE FEET LEASED EXPIRATION
-------- ----------- ----------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
Chesterfield, Missouri Corporate Corporate and Administration 58,030 Leased 9/14/02
Belmont, Michigan Jackson Manufacturing and Distribution 148,100 Owned --
Elwood, Indiana SMC Manufacturing and Distribution 60,076 Owned --
Fenton, Missouri SMC Manufacturing and Distribution 84,414 Leased 12/31/00
Fenton, Missouri Flex-O-Lite Manufacturing and Distribution 20,400 Leased 3/31/03
Muscatine, Iowa Flex-O-Lite Manufacturing and Distribution 31,903 Owned --
Paris, Texas Flex-O-Lite Manufacturing and Distribution 91,363 Owned --
Tonawonda, New York Allsafe Manufacturing and Distribution 100,000 Owned --
Sparks, Nevada Allsafe Manufacturing and Distribution 2 buildings Leased 12/31/99
20,000 each
Hudson, Ohio Crystaloid Manufacturing and Distribution 36,770 Owned --
St. Thomas, Ontario,
Canada Flex-O-Lite Manufacturing and Distribution 21,244 Owned --
Belmont, Ontario, Canada Flex-O-Lite Distribution 10,000 Leased Monthly
Alzenau, Germany Lansec Manufacturing and Distribution 5,895 Leased 10/31/02
Merignac, France Lansec Distribution 2,592 Leased 8/31/98
Ede, Netherlands Lansec Distribution 1,962 Leased Monthly
West Midlands, U.K. Lansec Distribution 950 Leased 7/31/99
Milan, Italy Lansec Sales office 540 Leased Monthly
</TABLE>
The Company's facilities are adequate for its current production
requirements. The Company expects that such facilities will remain adequate
for the foreseeable future; however, the Company may shift operations among
existing facilities in order to maximize production efficiency.
RAW MATERIALS AND SUPPLIERS
Raw materials used by the Company in the manufacture of its products are
purchased both domestically and internationally. The Company believes that its
supply sources are both well-established and reliable. Although the Company
has no long-term supply contracts, it has experienced no significant problems
in supplying its operations. Although the Company has ongoing relationships
with certain suppliers of raw materials, the Company believes that there are a
number of reliable vendors available and it is able to obtain competitive
pricing for raw materials. Raw material prices fluctuate over time depending
on supply, demand and other factors and increases in raw material prices may
have an impact on the Company's financial performance.
INTELLECTUAL PROPERTY
It is the Company's policy to protect its intellectual property through a
range of measures, including trademarks, patents and confidentiality
agreements. The Company owns and uses trademarks and brand names to identify
itself as a source of certain goods. The following brand names of certain
company products and product lines are registered in the United States:
Jackson, Morsafe, Flex-O-Lite, EQC, Aden, AOP, Contour Market, American
Allsafe Co., Team Silencio and Lamba. See "Risk Factors--Intellectual
Property."
Whenever possible, the Company's intellectual property rights are protected
through the filing of applications for and registrations of trademarks and
patents. In addition, the Company protects its trade secrets by requiring
certain of its employees, consultants and other suppliers, customers, agents
and advisors to execute
40
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confidentiality agreements upon the commencement of employment or other
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual or entity during the
course of the relationship with the Company is to be kept confidential and not
disclosed to third parties except in certain circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's proprietary information or adequate remedies in the event of
the unauthorized use or disclosure of such information.
No assurance can be given that others will not independently develop
substantially equivalent proprietary information and technologies, otherwise
gain access to the Company's trade secrets or disclose such technology or that
the Company can meaningfully protect its rights to unpatented trade secrets.
Further, there can be no assurance that infringement or invalidity claims will
not be asserted against the Company in the future. The costs of defending such
claims, or an unfavorable determination with respect to litigation based on
such claims, could have a material adverse effect on the Company's business
and financial condition.
The Company also relies upon unpatented trade secrets for the protection of
certain intellectual property rights.
ENVIRONMENTAL MATTERS
The Company is subject to Federal, state and local environmental laws,
regulations and ordinances that (i) govern activities or operations that may
have adverse environmental effects (such as emissions to air, discharges to
water, and the generation, handling, storage and disposal of solid and
hazardous wastes) or (ii) impose liability for the costs of clean-up or other
remediation of contaminated property, including damages from spills, disposals
or other releases of hazardous substances or wastes, in certain circumstances
without regard to fault. The Company's manufacturing operations routinely
involve the handling of chemicals and wastes, some of which are or may become
regulated as hazardous substances. The Company endeavors to maintain
compliance with applicable environmental laws, but from time to time the
Company's operations may result in noncompliance or liability for clean-up
pursuant to such laws. Based on information reviewed by and available to the
Company, the Company believes it is in compliance with applicable
environmental laws. The Company is spending approximately $2.0 million at its
Paris, Texas glass bead production facility to upgrade its air emission
controls and ensure continued compliance with clean air environmental
standards. The Company does not believe it will incur significant additional
costs in connection with any compliance or potential liability under
applicable environmental laws, and believes that any such costs will not have
a material adverse effect on its business or financial condition.
COMPETITION
The personal and highway safety products industries are highly competitive
industries with participants ranging in size from small companies focusing on
single types of safety products, to a few large multinational corporations
which manufacture and supply many types of safety products. The Company's main
competitors vary by region and product. The Company believes that participants
in the personal and highway safety products industries compete primarily on
the basis of price, product characteristics (such as functional performance,
design and style), brand name recognition and service. The Company enjoys
certain economies of scale which are not available to smaller competitors.
Nonetheless, other large competitors may enjoy similar economies of scale and
may possess greater financial or other resources than the Company. In
addition, to maintain its market position, the Company must be competitive in
the area of brand image, distribution, design, style, customer service,
quality and price. See "Risk Factors--Competition."
GOVERNMENT REGULATION AND INDUSTRIAL STANDARDS
Government regulation mandating the use of personal safety equipment for
certain job classifications and work site environments is the most significant
factor in the creation of demand for personal safety equipment. OSHA generally
regulates the workplace environments in which personal safety equipment must
be worn and
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specifies the standards which such equipment must meet. The Company believes
it has complied in all material respects with the regulations and standards of
these agencies, and any non-material non-compliance with such regulations and
standards in the past have not had a material adverse effect on its business.
The primary users of the Company's personal safety products are industrial
workers in the United States. As a result, decreases in general employment
levels of industrial workers may have an adverse effect on the Company's
sales. The Company's sales may also be adversely affected by changes in safety
regulations covering industrial workers in the United States and in the level
of enforcement of such regulations. Changes in regulations could reduce the
need for and the utility of certain products manufactured by the Company.
The United States and Canadian regulatory agencies each mandate that the
Company's products meet performance standards established by private groups,
such as the American National Standards Institute ("ANSI") and the Canadian
Standards Association ("CSA"), respectively. The Company's eyewear products
are subject to the latest series of applicable standards, which currently
include ANSI Industrial Standard Z87.1-1989 and CSA Z94.3-1992. These
standards require that protective eyewear be tested for optical performance,
high velocity impact, high mass impact and other integral product performance
features. The Company maintains and operates on-site testing labs at
facilities which are equipped to perform necessary tests.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. The Company is not aware of any pending or threatened legal
proceeding which would reasonably be expected to have a material adverse
effect on the Company's results of operations or financial condition.
EMPLOYEES
As of June 30, 1998, the Company had approximately 1,050 employees.
Approximately 100 employees are represented by various unions pursuant to
collective bargaining agreements, one of which will expire, at the option of
either party, at the end of 1998. The Company has not experienced any labor
problems resulting in a work stoppage, and believes it maintains good
relations with its employees.
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<PAGE>
MANAGEMENT
DIRECTORS AND OFFICERS
The following sets forth the names and ages of the Company's directors and
certain officers and the positions they hold or will hold following the
consummation of the Offering:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Robert H. Elkin......... 52 Director, Chairman, President and Chief Executive Officer
Christopher T. Paule.... 34 Vice President, Chief Financial Officer and Secretary
Mark R. Hefty........... 47 President, Jackson Division
Allan A. Huning......... 60 President, Flex-O-Lite
John W. Jordan II....... 50 Director
David W. Zalaznick...... 44 Director
A. Richard Caputo, Jr... 32 Director and Vice President
Jonathan F. Boucher..... 41 Director
</TABLE>
Set forth below is a brief description of the business experience of each
director and certain officers of the Company. The term of office for each
director will last until the next annual shareholder's meeting. Each officer,
other than Messrs. Elkin, Paule, Hefty and Huning, serves at the pleasure of
the Company's Board of Directors with no set term of office. See "--
Employment/Non-Interference Agreements."
Robert H. Elkin. Mr. Elkin has served as the Company's Chairman, President
and Chief Executive Officer and as a Director since August 1995. Mr. Elkin was
appointed President and Chief Executive Officer of the predecessor to the
Company in March 1994. From September 1987 to March 1996, Mr. Elkin served as
President and Chief Operating Officer of Clarke Industries (a division of
Thermadyne Industries, Inc. ("Thermadyne")).
Christopher T. Paule. Mr. Paule has served as the Company's Vice President,
Chief Financial Officer and Secretary since August 1995. Mr. Paule was
appointed Vice President-Finance of the predecessor to the Company in January
1994. From 1988 to 1994, he served as Controller at Coyne Cylinder Company in
Huntsville, Alabama (a division of Thermadyne), Controller of the Cutting and
Welding segment of Thermadyne and various other financial and operating
positions.
Mark R. Hefty. Mr. Hefty has served as the President and Chief Operating
Officer of Jackson since 1997. From 1996 to 1997, Mr. Hefty was President and
Chief Executive Officer of Clarke Industries. He also served in several other
marketing and sales positions at Clarke Industries beginning in 1981.
Allan A. Huning. Mr. Huning has served as President of Flex-O-Lite since
1991. Mr. Huning joined Flex-O-Lite in 1969, became Regional Sales Manager in
1972, General Sales Manager in 1974, Director of Operations in 1980, Vice
President of Operations in 1986, and was named President in January 1991.
John W. Jordan II. Mr. Jordan has served as a Director of the Company since
August 1995. Mr. Jordan is a managing partner of The Jordan Company, a private
merchant banking firm, which he founded in 1982. Mr. Jordan is also a director
of Jordan Industries, Inc., Jordan Telecommunication Products, Inc., American
Safety Razor Company, AmeriKing, Inc., Carmike Cinemas, Inc., Rockshox, Inc.,
GFSI Holdings, Inc., GFSI, Inc., Motors and Gears, Inc. and Apparel Ventures,
Inc., as well as other privately held companies.
David W. Zalaznick. Mr. Zalaznick has served as a Director of the Company
since August 1995. Mr. Zalaznick is a managing partner of The Jordan Company,
which he co-founded with Mr. Jordan in 1982. Mr. Zalaznick is also a director
of Jordan Industries, Inc., Jordan Telecommunication Products, Inc., Carmike
Cinemas, Inc., AmeriKing, Inc., American Safety Razor Company, Marisa
Christina, Inc., Great American Cookie Company, GFSI Holdings, Inc., GFSI,
Inc. Motors and Gears, Inc. and Apparel Ventures, Inc., as well as other
privately held companies.
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<PAGE>
A. Richard Caputo, Jr. Mr. Caputo has served as a Director of the Company
since August 1995. Mr. Caputo has been a partner of The Jordan Company since
1990. Mr. Caputo is also a director of AmeriKing, Inc., GFSI Holdings, Inc.
and GFSI, Inc., as well as other privately held companies.
Jonathan F. Boucher. Mr. Boucher has served as a Director of the Company
since August 1995. Mr. Boucher has been a partner of The Jordan Company since
1983. Mr. Boucher is also a director of Jordan Industries, Inc., Jordan
Telecommunication Products, Inc., Motors and Gears, Inc. and American Safety
Razor Company, as well as other privately held companies.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid and accrued to the Company's top five executive officers for
services rendered to the Company during each of the three most recent fiscal
years. The executive officers include Robert H. Elkin, Chief Executive
Officer, Christopher T. Paule, Chief Financial Officer, Allan A. Huning,
President, Flex-O-Lite, Jack L. Bortle, Vice President of Sales and Marketing,
and John L. Garavaglia III, Vice President of Operations.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
FISCAL --------------- ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION (1)
- -------- ------ ------- ------- ----------------
<S> <C> <C> <C> <C>
Robert H. Elkin......................... 1997 347,591 222,507 20,195
Chief Executive Officer 1996 338,755 136,000 20,195
1995 321,904 429,042 20,060
Christopher T. Paule.................... 1997 126,363 83,151 6,326
Chief Financial Officer 1996 118,993 59,000 6,000
1995 100,493 119,343 6,000
Allan A. Huning......................... 1997 139,970 70,570 12,084
President, Flex-O-Lite 1996 136,075 10,000 13,626
1995 129,375 64,699 14,311
Jack L. Bortle.......................... 1997 119,902 41,151 6,000
Vice President 1996 114,955 10,000 6,000
1995 108,490 71,953 6,000
John L. Garavaglia III (2).............. 1997 113,537 37,359 6,326
Vice President 1996 30,438 5,500 1,500
1995 -- -- --
</TABLE>
- --------
(1) Other annual compensation consists of car allowance, defined contribution
payments paid by the Company.
(2) John Garavaglia employment date of September 9, 1996.
EMPLOYMENT/NON-INTERFERENCE AGREEMENTS
Elkin Employment Agreement. Mr. Elkin has an employment and non-interference
agreement with the Company which provides for Mr. Elkin's employment as
Chairman, Chief Executive Officer and President of the Company. The initial
term of the employment agreement terminates on August 15, 2000, at which time
the term will be automatically extended for successive one-year periods until
either party gives notice of its intention to not renew 180 days prior to the
end of the then current term. The employment agreement can also be terminated
at any time by the Company. His base salary (which is increased annually based
on a CPI formula) is $360,000 for 1998, and he may be awarded a bonus, at the
sole discretion of the Board, of up to 65% of his annual salary, which amounts
are inclusive of any compensation, fees, salary, bonuses or other payments to
Mr. Elkin by any of the subsidiaries of affiliates of the Company or
affiliates of The Jordan Company. In
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<PAGE>
connection with the Offering, the Company and Mr. Elkin have agreed to amend
this employment agreement. The amended agreement will provide for a base
salary of $414,000 with a discretionary bonus of up to 75% of Mr. Elkin's
annual salary. Under the employment agreement, if Mr. Elkin's employment is
terminated for reasons other than voluntary termination, cause, disability or
death, he will be paid a severance payment of varying amounts, depending on
the reason for termination, up to the full amount of his compensation through
the term of the agreement. In addition, Mr. Elkin is entitled to receive an
amount in respect of his vested equity ownership in the Company equal to such
vested equity percentage multiplied by the product of 6.0 times the Company's
EBITDA for the immediately preceding fiscal year (net of indebtedness and
transaction expenses) in the event he is terminated by the Company other than
for Cause (as defined in his employment agreement). If Mr. Elkin's employment
is terminated voluntarily or for reasons of Cause, no severance payment is
made. Under the terms of the employment agreement, Mr. Elkin may not compete
with the Company in the same market for 24 months following the termination of
his employment.
Paule Employment Agreement. Mr. Paule has an employment and non-interference
agreement with the Company which provides for Mr. Paule's employment as Chief
Financial Officer of the Company. The initial term of the employment agreement
terminates on August 15, 2000, at which time the term will be automatically
extended for successive one-year periods until either party gives notice of
its intention to not renew 180 days prior to the end of the then current term.
The employment agreement can also be terminated at any time by the Company.
His base salary (which is increased annually based on a CPI formula) is
$153,000 for 1998, and he may be awarded a bonus, at the sole discretion of
the Board, of up to 50% of his annual salary, which amounts are inclusive of
any compensation, fees, salary, bonuses or other payments to Mr. Paule by any
of the subsidiaries or affiliates of the Company or affiliates of The Jordan
Company. In connection with the Offering, the Company and Mr. Paule have
agreed to amend this employment agreement. The amended agreement will provide
for a base salary of $176,000 with a discretionary bonus of up to 60% of Mr.
Paule's annual salary. Under the employment agreement, if Mr. Paule's
employment is terminated for reasons other than voluntary termination, cause,
disability or death, he will be paid a severance payment of varying amounts,
depending on the reason for termination, up to the full amount of his
compensation through the term of the agreement. In addition, Mr. Paule is
entitled to receive an amount in respect of his vested equity ownership in the
Company equal to such vested equity percentage multiplied by the product of
6.0 times the Company's EBITDA for the immediately preceding fiscal year (net
of indebtedness and transaction expenses) in the event he is terminated by the
Company other than for Cause (as defined in his employment agreement). If Mr.
Paule's employment is terminated voluntarily or for reasons of Cause, no
severance payment is made. Under the terms of the agreement, Mr. Paule may not
compete with the Company in the same market for 24 months following the
termination of his employment.
Hefty Employment Agreement. Mr. Hefty has an employment and non-interference
agreement with the Company which provides for Mr. Hefty's employment as
President and Chief Operating Officer of the Company. The initial term of the
employment agreement terminates on April 22, 2001, at which time the term will
be automatically extended for successive one-year periods until either party
gives notice of its intention to not renew 180 days prior to the end of the
then current term. The employment agreement can also be terminated at any time
by the Company. His base salary (which is increased annually based on a CPI
formula) is $175,000 for 1998, and he may be awarded a bonus, at the sole
discretion of the Board, of up to 65% of his annual salary, which amounts are
inclusive of any compensation, fees, salary, bonuses or other payments to Mr.
Hefty by any of the subsidiaries or affiliates of the Company or affiliates of
The Jordan Company. Under the employment agreement, if Mr. Hefty's employment
is terminated for reasons other than voluntary termination, cause, disability
or death, he will be paid a severance payment of varying amounts, depending on
the reason for termination, up to the full amount of his compensation through
the term of the agreement. If Mr. Hefty's employment is terminated voluntarily
or for reasons of Cause, no severance payment is made. Under the terms of the
agreement, Mr. Hefty may not compete with the Company in the same market for
24 months following the termination of his employment.
Huning Employment Agreement. Mr. Huning has an employment and non-
interference agreement with Flex-O-Lite which provides for Mr. Huning's
employment as President of Flex-O-Lite. The initial term of the
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employment agreement terminates on August 15, 2000, at which time the term
will be automatically extended for successive one-year periods until either
party gives notice of its intention to not renew 180 days prior to the end of
the then current term. The employment agreement can also be terminated at any
time by the Company. His base salary (which is increased annually based on a
CPI formula) is $142,578 for 1998, and he may be awarded a bonus, at the sole
discretion of the Board, of up to 50% of his annual salary, which amounts are
inclusive of any compensation, fees, salary, bonuses or other payments to Mr.
Huning by any of the subsidiaries or affiliates of Flex-O-Lite or affiliates
of The Jordan Company. Under the employment agreement, if Mr. Huning's
employment is terminated for reasons other than voluntary termination, cause,
disability or death, he will be paid a severance payment of varying amounts,
depending on the reason for termination, up to the full amount of his
compensation through the term of the employment agreement. If Mr. Huning's
employment is terminated voluntarily or for reasons of Cause, no severance
payment is made. Under the terms of the employment agreement, Mr. Huning may
not compete with Flex-O-Lite in the same market for 24 months following the
termination of his employment.
INCENTIVE COMPENSATION PLAN
The Company has adopted incentive compensation plans for its key management
employees, which provide for annual cash bonuses payable if certain EBITDA,
cash flow and individual performance targets are met.
SAR AGREEMENTS
Upon the closing of the Offering and the Acquisitions, the Company will
enter into stock appreciation right agreements ("SAR Agreements") with Messrs.
Elkin, Paule and Hefty providing for an aggregate payment of up to 3.0% of the
Company's equity value upon a sale of the Company above a specified threshold.
The initial term of the SAR Agreements is ten years, at which time the term
will be automatically extended for one-year periods. The rights of Messrs.
Paule and Hefty under the SAR Agreements vest ratably over the three-year
period following the Closing.
STOCK OPTION PLAN
The Company has adopted a stock option plan (the "Option Plan") in order to
provide incentives to certain key officers, managers and employees through
ownership of the Company's Common Stock. The shares of Common Stock to be sold
or transferred pursuant to the exercise of options granted under the Option
Plan shall be authorized shares of Common Stock of the Company, and may be
newly issued shares and treasury shares. As of June 30, 1998, options have
been granted for 3,198.04 shares of the Class C Common Stock of the Company.
These shares vest over a five-year period, and as of June 30, 1998, 1,019.2
shares were vested. In addition, up to 639.59 shares will vest in 1998 and
1999, up to 639.65 shares will vest in 2000, up to 215.00 shares will vest in
2001 and up to 215.03 shares will vest in 2002.
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PRINCIPAL STOCKHOLDERS
The table below sets forth certain information, as of June 30, 1998,
regarding beneficial ownership of the common stock of the Company held by: (i)
each director of the Company who beneficially owns common stock, (ii) each
executive officer of the Company named in the table below "Management--
Executive Compensation--Summary Compensation Table" who beneficially owns
common stock, (iii) all directors and executive officers of the Company as a
group and (iv) each person known by the Company to own beneficially more than
5% of its common stock. The Company believes that each individual or entity
named has sole investment and voting power with respect to shares of common
stock indicated as beneficially owned by them, except as otherwise noted. See
"Certain Transactions."
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL OWNERSHIP(1)
---------------------------------
NUMBER OF PERCENTAGE
SHARES OWNED
--------- -----------------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
John W. Jordan II (2)(3)............. 4,631 9.8%
David W. Zalaznick (3)............... 4,631 9.8
Robert H. Elkin (4).................. 4,393 9.2
Jonathan F. Boucher (3).............. 3,970 8.4
Christopher T. Paule (5)............. 1,485 3.1
A. Richard Caputo, Jr. (3)........... 1,453 3.1
Allan A. Huning (6).................. 888 1.9
Jack L. Bortle (7)................... 754 1.6
John L. Garavaglia III (8)........... 250 *
All directors and executive officers
as a group (11 persons)
(2)(3)(4)(5)(6)(7)(8)............... 22,800 47.6%
OTHER PRINCIPAL STOCKHOLDERS:
Massachusetts Mutual Life Insurance
Company (9)......................... 13,168 22.7%
JZ Equity Partners PLC (10).......... 12,352 21.6
Leucadia Investors, Inc. (11)........ 7,263 15.4
Northwestern Mutual Life Insurance
Company (12)........................ 8,231 15.3
Safety Partners, L.P. (13)........... 3,448 7.3
John R. Lowden (3)................... 2,905 6.2
Adam E. Max (3)...................... 2,905 6.2
</TABLE>
- --------
* Indicates beneficial ownership of less than 1% of shares of Common Stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
beneficially owned by such person, but not deemed outstanding for the
purpose of calculating the percentage beneficially owned by each other
person listed. As of June 30, 1998, there were 47,056 shares of common
stock of the Company issued and outstanding.
(2) All shares are held by the John W. Jordan II Revocable Trust, of which Mr.
Jordan is the trustee.
(3) Each of Messrs. Jordan, Zalaznick, Boucher, Lowden, Max and Caputo are
affiliated with The Jordan Company, whose address is 767 Fifth Avenue, New
York, New York 10153.
(4) Includes immediately exercisable options to purchase 605 shares of common
stock. Mr. Elkin was also granted SARs in connection with the Offering.
See "Management--SAR Agreements." Mr. Elkin's address is 2997 Clarkson
Road, Chesterfield, Missouri 63017.
(5) Includes immediately exercisable options to purchase 210 shares of common
stock. Mr. Paule was also granted SARs in connection with the Offering.
See "Management--SAR Agreements." Mr. Paule's address is 2997 Clarkson
Road, Chesterfield, Missouri 63017.
(6) Includes immediately exercisable options to purchase 14 shares of common
stock. Mr. Huning's address is 2997 Clarkson Road, Chesterfield, Missouri
63017.
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<PAGE>
(7) Includes immediately exercisable options to purchase 4 shares of common
stock. Mr. Bortle's address is 2997 Clarkson Road, Chesterfield, Missouri
63017.
(8) Mr. Garavaglia's address is 2997 Clarkson Road, Chesterfield, Missouri
63017.
(9) Includes 432 shares of common stock and immediately exercisable warrants
to purchase 1988 shares of common stock held by MassMutual Corporate Value
Partners Limited, 217 shares of common stock and immediately exercisable
warrants to purchase 999 shares of common stock held by MassMutual
Participation Investors and 434 shares of common stock and immediately
exercisable warrants to purchase 1999 shares of common stock held by
MassMutual Corporate Investors, each of which are affiliates of
Massachusetts Mutual Life Insurance Company, and 1,267 shares of common
stock and immediately exercisable warrants to purchase 5,832 shares of
common stock held by Massachusetts Mutual Life Insurance Company. The
principal address of Massachusetts Mutual Life Insurance Company is 1295
State Street, Springfield, Massachusetts 01111.
(10) Includes immediately exercisable warrants to purchase 10,142 shares of
common stock. JZ Equity Partners PLC is a publicly traded U.K. investment
trust advised by an affiliate of The Jordan Company. See "Certain
Transactions." The principal address of JZ Equity Partners PLC is c/o
Jordan/Zalaznick Capital Company, 767 Fifth Avenue, New York, New York
10153.
(11) The principal address of Leucadia Investors, Inc. is 315 Park Avenue
South, New York, New York 10010.
(12) Includes immediately exercisable warrants to purchase 6,762 shares of
common stock. The principal address of Northwestern Mutual Life Insurance
Company is 720 East Wisconsin Avenue, 18th Floor, Milwaukee, Wisconsin
53203.
(13) Safety Partners, L.P. is an affiliate of Jefferies & Company, Inc., one
of the Initial Purchasers. See "Plan of Distribution." The beneficial
owners of Safety Partners, L.P. are comprised entirely of Jefferies &
Company, Inc. as the sale general partner and certain employees and
officers of Jefferies & Company, Inc. as the limited partners. The
principal address of Safety Partners, L.P. is 11100 Santa Monica Blvd.,
10th Floor, Los Angeles, California 90025.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement provides for certain rights and obligations among
the Company and the Current Holders including with respect to the election of
directors, restrictions on transfer, co-sale rights and registration rights.
Pursuant to the Stockholders Agreement, the Current Holders have agreed to
vote their shares for the election of at least four members of the board of
directors designated by affiliates of The Jordan Company, and JZ Equity
Partners PLC (the "Jordan Investors") and one director designated by
management stockholders (the "Management Investors").
The Current Holders may only transfer shares of Common Stock in accordance
with the Stockholders Agreement. The Company and the Current Holders have a
right of first offer to purchase all or any portion of any shares of Common
Stock to be transferred by any Current Holder, subject to certain limited
exceptions, on the same terms put forth for such transfer by the selling
holder. The Stockholders Agreement provides for preferences on the rights of
first offer such that the Management Investors have the first right to
purchase shares sold by any other Management investor and the Jordan Investors
have the first right to purchase shares sold by any other Jordan Investor.
Pursuant to the Stockholders Agreement, Current Holders other than the
Jordan Investors and the Management Investors (the "Institutional Investors")
have been granted demand and incidental registration rights by the Company.
All other Current Holders have been granted incidental registration rights.
The Company is required to bear all registration expenses in connection with
each demand and incidental registration and has agreed to indemnify the
holders of demand and incidental registration rights against, and provide
contribution with respect to, certain liabilities under the Securities Act in
connection with the demand and incidental registrations.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
On April 22, 1998, the Company entered into a $125,000,000 Credit Agreement
with BankBoston, NA, as agent, and Mercantile Bank National Association, as
co-agent, that is comprised of a $30,000,000 revolving working capital
facility and a $95,000,000 acquisition facility. The Revolver provides that up
to $5,000,000 of such facility may be used for the issuance of letters of
credit and lender guaranties. The Credit Agreement also contains several
financial covenants, which require the Company to maintain certain financial
ratios and restrict the Company's ability to incur indebtedness and pay
dividends. The commitment fee on the unused portion of the Revolver is 1/2%
per annum, payable quarterly.
The Credit Agreement is guaranteed by the Company's Domestic Subsidiaries
and is secured by a perfected first priority security interest in all of the
assets of each domestic subsidiary, the pledge of 100% of the capital stock of
each Domestic Subsidiary and the pledge of up to a maximum of 66% of the
capital stock of each direct foreign subsidiary.
Mandatory principal payments on the acquisition facility are due in
quarterly installments beginning on June 30, 2001, with the final installment
due on April 22, 2004.
The borrowings under the Credit Agreement bear interest at the option of the
Company, at a rate per annum equal to (i) the Base Rate (as defined in the
Credit Agreement) plus .75%; or (ii) the LIBOR Rate (as defined in the Credit
Agreement) plus 2.25% for the Revolver and the Acquisition loan. For each of
the quarters following September 30, 1998, the factor added to either the Base
Rate or the LIBOR Rate will be adjusted based on the ratio of the Company's
Total Debt to EBITDA (as defined by the Credit Agreement).
The Credit Agreement contains three financial covenants that must be
maintained by the Company. The first covenant is a ratio which measures the
relationship between EBITDA and Consolidated Total Interest Expense (as
defined in the Credit Agreement), including interest expense with respect to
the Notes. This ratio is currently set at 1.60:1.00 and will be adjusted
upward periodically to a maximum of 2.25:1.00 after June 30, 2003. The second
covenant is a Leverage Ratio (as defined in the Credit Agreement), which
measures the relationship between Total Funded Indebtedness (as defined in the
Credit Agreement), including the Notes, to EBITDA. The ratio is currently set
at 6.50:1.00 and will be adjusted downward periodically to a minimum of
4.75:1.00 after December 31, 2003. The final covenant is a ratio which
measures the relationship between Consolidated Operating Cash Flow (as defined
in the Credit Agreement), to total debt service, which itself is a sum of
Consolidated Total Interest Expense and the Company's debt service (i.e
required payments of principal) with respect to the Company's Indebtedness (as
defined in the Credit Agreement), including the Notes. This ratio is currently
set at 1.20:1.00 and will be adjusted downward periodically to a minimum of
1.05:1.00 after March 31, 2003. The Company will be in default of its Leverage
Ratio financial covenant if it exceeds the prescribed ratio at the end of any
fiscal quarter. With respect to the other two financial covenants, the Company
will be in default if it falls below the prescribed ratios for a period of
four consecutive fiscal quarters. The Company is currently in compliance with
all of the financial covenants contained in the Credit Agreement.
49
<PAGE>
CERTAIN TRANSACTIONS
The Jordan Company. In connection with its acquisition by the Management
Investors and the Jordan Investors in August 1995, the Company entered into an
agreement (the "TJC Management Agreement") with The Jordan Company Management
Corporation ("TJMC"), an affiliate of The Jordan Company. Under the TJC
Management Agreement, the Company retains TJMC to render services to the
Company, its financial and business affairs, its relationships with its
lenders and stockholders, and the operation and expansion of its business. The
TJC Management Agreement will expire in 2005, but is automatically renewed for
successive one-year terms, unless either party provides written notice of
termination 60 days prior to the scheduled renewal date. In connection with
the Offering, the Company and TJMC have agreed to amend the TJC Management
Agreement. The TJC Management Agreement, as amended, will provide an annual
consulting fee payable on a quarterly basis equal to at least $600,000 but in
no event greater than 2.5% of EBITDA (as defined in the TJC Management
Agreement). In addition, the TJC Management Agreement provides for payment to
TJMC of (i) an investment banking and sponsorship fee of up to 2% of the
purchase price of certain acquisitions or sales involving the Company and (ii)
a financial consulting fee of up to 1% of any debt, equity or other financing
arranged by the Company with the assistance of TJMC. A fee in the amount of
$1.65 million will be payable to TJMC upon consummation of the Offering. Such
fees are subject to board of directors approval. The Company believes that the
terms of the TJC Management Agreement are comparable to the terms that it
would obtain from disinterested third parties for comparable services.
Pursuant to the terms of the Indenture, payment of fees to TJMC pursuant to
the TJC Management Agreement is not permitted in the event of a payment or
financial covenant default with respect to the Notes. See "Description of
Notes--Certain Covenants."
Employee Stockholder Loans. In 1995, the Company made loans to certain
employees, including Messrs. Elkin, Paule and Huning, to be used for the
purchase of the Company's stock. The loan to Mr. Elkin had an original
principal amount of $165,553 and is the only loan with a principal amount in
excess of $60,000. As of March 31, 1998 there was $343,000 outstanding on all
stockholder loans, including $165,553 outstanding on the loan to Mr. Elkin.
Each of the loans bears interest at a rate of 7% per annum and, as of March
31, 1998, payments on all of the loans by the employee stockholders were
current.
Directors' Indemnification. The Company has entered into indemnification
agreements with each member of the Board of Directors whereby the Company has
agreed, subject to certain exceptions, to indemnify and hold harmless each
director from liabilities incurred as a result of such person's status as a
director of the Company.
Ownership of the Company's Preferred Stock. Holders of the Company's
Preferred Stock, which will be redeemed in connection with the Offering,
include affiliates of MCIT, a publicly traded UK investment trust which is
advised by an affiliate of The Jordan Company. As of December 31, 1997, these
affiliates held, in the aggregate, 29.4% of the outstanding Preferred Stock.
See "Principal Stockholders."
Employment/Non-Interference Agreements. In connection with the Offering, the
Company will amend the terms of the Employment Agreements with certain
executive officers and enter into SAR Agreements with such officers. See
"Management--Employment/Non-Interference Agreements" and "--SAR Agreements."
Repurchase of Common Equity. In connection with the Offering, the Company
intends to repurchase from one of the Institutional Investors common stock and
warrants representing approximately 9.5% of the Company's common stock on a
fully diluted basis for $4.15 million.
50
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement, which requires the Company to
use its best efforts to effect the Exchange Offer. See "--Registration
Rights."
The Company is making the Exchange Offer pursuant to the Registration
Statement of which this Prospectus is a part in reliance upon the position of
the staff of the Commission set forth in certain no-action letters addressed
to other parties in other transactions. However, the Company has not sought
its own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, (ii) an Initial Purchaser
who acquired the Old Notes directly from the Company solely in order to resell
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, or (iii) a broker-dealer who acquired the Old Notes
as a result of market making or other trading activities) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution (within the meaning of the Securities Act) of
such New Notes. By tendering, each Holder which is not a broker dealer will
represent to the Company that, among other things, the person receiving the
New Notes, whether or not such person is the Holder, (i) will acquire the New
Notes in the ordinary course of such person's business, (ii) has no
arrangement or understanding with any person to participate in a distribution
of the New Notes and (iii) is not engaged in and does not intend to engage in
a distribution of the New Notes. If any Holder or any such other person has an
arrangement or understanding with any person to participate in a distribution
of such New Notes, is engaged in or intends to engage in a distribution of
such New Notes, is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company, or acquired the Old Notes as a result of market making or
other trading activities, then such Holder or any such other person (i) can
not rely on the applicable interpretations of the staff of the Commission and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction, unless
such sale is made pursuant to an exemption from such requirements.
Holders of Old Notes not tendered will not have any further registration
rights and the Old Notes not exchanged will continue to be subject to certain
restrictions on transfer. Accordingly, the liquidity of the markets for the
Old Notes could be adversely affected.
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE
OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the issuance of the Old Notes, the Company entered into
the Registration Rights Agreement with the Initial Purchasers of the Old
Notes.
Holders of New Notes (other than as set forth below) are not entitled to any
registration rights with respect to the New Notes. Pursuant to the
Registration Rights Agreement, Holders of Old Notes are entitled to certain
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<PAGE>
registration rights. Under the Registration Rights Agreement, the Company has
agreed, for the benefit of the Holders of the Old Notes, that it will, at its
cost, (i) within 90 days after the date of the original issue of the Old
Notes, file the Registration Statement with the Commission and (ii) within 150
days after the date of original issuance of the Old Notes, use its best
efforts to cause such Registration Statement to be declared effective under
the Securities Act. The Registration Statement of which this Prospectus is a
part constitutes the Registration Statement. If (i) the Company is not
permitted to consummate the Exchange Offer because the Exchange Offer is not
permitted by applicable law or Commission policy or (ii) any Holder of
Transfer Restricted Securities (as defined) notifies the Company within the
specified time period that (A) due to a change in law or policy it is not
entitled to participate in the Exchange Offer, (B) due to a change in law or
policy it may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and the prospectus contained in the
Registration Statement is not appropriate or available for such resales by
such holder or (C) it is a broker-dealer and acquired the Notes directly from
the Company or an affiliate of the Company, the Company will file with the
Commission a Shelf Registration Statement to cover resales of the Transfer
Restricted Securities by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer
Restricted Securities" means each Note, until (i) the date of which such
Transfer Restricted Security has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Transfer Restricted
Security for a New Note, the date on which such New Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Registration Statement, (iii)
the date on which such security has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such security is distributed pursuant to
Rule 144 under the Act.
The Registration Rights Agreement also provides that, (i) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 60 business days after the date on which the Registration
Statement was declared effective by the Commission, New Securities in exchange
for all Transfer Restricted Securities tendered prior thereto in the Exchange
Offer and (ii) if obligated to file the Shelf Registration Statement, the
Company will file the Shelf Registration Statement with the Commission on or
prior to 90 days after such filing obligation arises and use its best efforts
to cause the Shelf Registration to be declared effective by the Commission on
or prior to 150 days after such obligation arises. The Company shall use its
best efforts to keep such Shelf Registration Statement continuously effective,
supplemented and amended until the third anniversary of the Closing Date or
such shorter period that will terminate when all the Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement. If (a) the Company fails to file any of the registration statements
required by the Registration Rights Agreement on or before the date specified
for such filing, (b) any of such registration statements are not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), (c) the Company fails to
consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Registration Statement, or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter, subject to certain exceptions, ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (d) above a "Registration Default"), then the Company will
pay Liquidated Damages to each Holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week for each $1,000
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up
to a maximum amount of Liquidated Damages of $.40 per week for each $1,000
principal amount of Notes, as applicable. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide comments on the Shelf Registration Statement within the time
periods set forth in the Registration Rights Agreement in order to have their
Transfer Restricted Securities
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<PAGE>
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD SECURITIES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on October 16, 1998; provided, however, that if the
Company, in its sole discretion, has extended the period of time for which the
Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer is extended; provided further that in no
event will the Exchange Offer be extended beyond November 16, 1998. The
Company may extend the Exchange Offer at any time and from time to time by
giving oral or written notice to the Exchange Agent and by timely public
announcement. Without limiting the manner in which the Company may choose to
make any public announcement and subject to applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer will remain subject to the Exchange
Offer. The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of the Exchange Act and the rules and regulations
thereunder.
As of the date of this Prospectus, $115,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September 18, 1998, to all
Holders of Old Notes known to the Company. The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "--Certain Conditions to the Exchange Offer"
below.
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and rights to receive Liquidated Damages. See "--
Registration Rights; Liquidated Damages." The Old Notes were, and the New
Notes will be, issued under the Indenture and all such Notes are entitled to
the benefits of the Indenture.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old Notes
not accepted for exchange for any reason will be returned without expense to
the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer". The
Company will give oral or written notice of any extension, amendment,
nonacceptance or termination to the Holders of the Old Notes as promptly as
practicable. Any amendment to the Exchange Offer will not limit the right of
Holders to withdraw tendered Old Notes prior to the Expiration Date. See "--
Withdrawal Rights."
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a Holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a Holder who wishes to
tender Old Notes for exchange pursuant to the Exchange
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Offer must transmit a properly completed and duly executed Letter of
Transmittal, including all other documents required by such Letter of
Transmittal, to State Street Bank and Trust Company (the "Exchange Agent") at
one of the addresses set forth below under "Exchange Agent" on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must
be received by the Exchange Agent along, with the Letter of Transmittal, or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Old Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF
THE HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust
company having an office or correspondent in the United States (collectively,
"Eligible Institutions"). If Old Notes are registered in the name of a person
other than signer of the Letter of Transmittal, the Old Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered Holder with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any Holder who seeks to tender Old
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any particular Old Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall
any of them incur any liability for failure to give such notification. The
Exchange Agent intends to use reasonable efforts to give notification of such
defects and irregularities.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered Holder or Holders that appear on the
Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporation or others acting in a fiduciary or representatives
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
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By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder and such person has no
arrangement with any person to participate in the distribution of the New
Notes. If any Holder or any such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company, is engaged in or intends
to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, such Holder or any such other person (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer." For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered Holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to
which interest has been paid on the Old Notes, or, if no interest has been
paid on the Old Notes, from April 22, 1998. Old Notes accepted for exchange
will cease to accrue interest from and after the date of consummation of the
Exchange Offer. Holders of Old Notes whose Old Notes are accepted for exchange
will not receive any payment in respect of accrued interest on such Old Notes
otherwise payable on any interest payment date the record date for which
occurs on or after consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer, or if Old Notes are submitted for a greater
amount than the Holder desires to exchange, such unaccepted or nonexchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry procedures described below, such nonexchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility)
designated by the tendering Holder as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required documents, must, in
any case, be transmitted to and received
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<PAGE>
by the Exchange Agent at one of the addresses set forth below under "--
Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a
timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form of the corresponding exhibit to
the Registration Statement of which this Prospectus constitutes a part (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within three NYSE trading days after the date
of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing Holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at the Book- Entry Transfer
Facility to be credited with the withdrawn Old Notes and otherwise comply with
the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the Holder thereof without cost to such Holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the Holder) as soon as
practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following
one of the procedures described under "--Procedures for Tendering Old Notes"
above at any time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange
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Offer, if at any time before the acceptance of such Old Notes for exchange or
the exchange of the New Notes for such Old Notes, any of the following events
shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of
the Old Notes pursuant to the Exchange Offer;
or any statute, rule, regulation, order or injunction shall be sought,
proposed, introduced, enacted, promulgated or deemed applicable to the
Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any government or governmental authority, domestic or foreign, or
any action shall have been taken, proposed or threatened, by any
government, governmental authority, agency or court, domestic or foreign,
that in the sole judgment of the Company might directly or indirectly
result in any of the consequences referred to in clauses (i) or (ii) above
or, in the sole judgment of the Company, might result in the holders of New
Notes having obligations with respect to resales and transfers of New Notes
which are greater than those described in the interpretation of the
Commission referred to on the cover page of this Prospectus, or would
otherwise make it inadvisable to proceed with the Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Company to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company and its subsidiaries taken as a whole that, in the
sole judgment of the Company, is or may be adverse to the Company, or the
Company shall have become aware of facts that, in the sole judgment of the
Company, have or may have adverse significance with respect to the value of
the Old Notes or the New Notes.
Holders of Old Notes will have registration rights and the right to
Liquidated Damages as described under "--Registration Rights; Liquidated
Damages" if the Company fails to consummate the Exchange Offer.
To the Company's knowledge as of the date of this Prospectus none of the
foregoing events has occurred.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time. In the event the
Company asserts or waives a condition to the Exchange Offer which constitutes
a material change to the terms of the Exchange Offer, the Company will
disclose such change in a manner reasonably calculated to inform prospective
investors of such change, and will extend the period of the Exchange Offer by
five business days.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if at such time any stop order shall be threatened or in effect with respect
to the Registration Statement of which this Prospectus constitutes a part or
the qualification of the Indenture under the Trust Indenture Act of 1939.
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EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal and Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the addresses
set forth below. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
Deliver to: State Street Bank and Trust Company, Exchange Agent:
<TABLE>
<CAPTION>
By Registered or Certified Mail: Telephone Number By Overnight Courier or Hand:
<S> <C> <C>
State Street Bank and Trust Company (617) 664-5278
P.O. Box 778
Boston, MA 02102-0078 By Facsimile for State Street Bank and Trust Company
Attn: Kerri Riley Eligible Institutions: Two International Place
(617) 664-5290 Boston, MA 02110
Attn: Kerri Riley
</TABLE>
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
The Company will, however, pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Prospectus and related
documents to the beneficial owners of Old Notes, and in handling tenders for
their customers. The expenses to be incurred in connection with the Exchange
Offer, including the fees and expenses of the Exchange Agent and printing,
accounting, registration, and legal fees, will be paid by Company and are
estimated to be approximately $60,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN
CONNECTION WITH THE EXCHANGE OFFER.
REGULATORY MATTERS
The Company is not aware of any governmental or regulatory approvals that
are required in order to consummate the Exchange Offer.
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CONSEQUENCES OF NOT EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register Old Notes under the Securities Act.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Company believes New Notes issued pursuant to the Exchange Offer
in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by a Holder thereof (other than any (i) Holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act, (ii) an Initial Purchaser who acquired the Old Notes directly form the
Company solely in order to resell pursuant to Rule 144A of the Securities Act
or any other available exemption under the Securities Act, or (iii) a broker-
dealer who acquired the old Notes as a result of market making or other
trading activities) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holder's business and such Holder has
no arrangement with any person to participate in the distribution of such New
Notes. However, the Company has not sought its own no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes, and has no arrangement or understanding to participate in a
distribution of New Notes. If any Holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the New Notes to be acquired pursuant to
the Exchange Offer, such Holder (i) could not rely on the relevant
determinations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities and that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company has agreed to register or qualify the sale of the New Notes
in such jurisdictions only in limited circumstances and subject to certain
conditions.
ACCOUNTING TREATMENT
The exchange of the New Notes for the Old Notes will have no impact on the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. Expenses of the Exchange
Offer and expenses related to the Old Notes will be amortized, pro rata, over
the term of the New Notes.
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DESCRIPTION OF NOTES
GENERAL
The Notes will be issued pursuant to the Indenture between the Company and
State Street Bank and Trust Company, as trustee (the "Trustee"), in a private
transaction that is not subject to the registration requirements of the
Securities Act. See "Notice to Investors." The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), as in effect on the date of original issuance of the Notes. The Notes
are subject to all such terms, and holders of the Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of all of the material provisions of the Indenture is qualified by
reference to the complete text of the Indenture, including the definitions
therein of certain terms used below. The definitions of certain terms used in
the following summary are set forth below under "Certain Definitions."
The Notes will be general unsecured obligations of the Company, will be
subordinated in right of payment to all existing and future Senior
Indebtedness of the Company, including indebtedness under the New Credit
Facility, and will rank senior in right of payment to any future subordinated
indebtedness of the Company. The Notes will be unconditionally guaranteed on a
senior subordinated basis by the Guarantors. The Note Guarantees will be
general unsecured obligations of the Guarantors, will be subordinated in right
of payment to all existing and future Senior Indebtedness of the Guarantors,
including indebtedness under the New Credit Facility, and will rank senior in
right of payment to any future subordinated indebtedness of the Guarantors. On
December 31, 1997, on a pro forma basis, after giving effect to the
Acquisitions and the Offering, the aggregate principal amount of Senior
Indebtedness of the Company and the Guarantors would have been approximately
$72.7 million. The Indenture will permit the Company and its subsidiaries to
incur additional indebtedness, including Senior Indebtedness, subject to
certain limitations. See "Risk Factors," "--Certain Covenants" and
"Description of Certain Indebtedness."
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate each of its existing Subsidiaries, Subsidiaries
formed by the Company or Subsidiaries acquired by the Company after the
original issuance of the Notes as Non-Restricted Subsidiaries. Non-Restricted
Subsidiaries will not be subject to many of the restrictive covenants set
forth in the Indenture.
The Notes will be limited to $115,000,000 in aggregate principal amount and
will mature on April 15, 2005. The Notes will bear interest at the rate set
forth on the front cover of this Offering Circular. Interest on the Notes is
payable semi-annually in cash in arrears on April 15 and October 15 in each
year, commencing October 15, 1998, to holders of record of Notes at the close
of business on the April 1 or October 1 immediately preceding such interest
payment date. Interest on the Notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes will be payable, and the Notes may be presented for registration
of transfer or exchange, at the office of the Paying Agent and Registrar in
New York, New York. Holders of Notes must surrender their Notes to the Paying
Agent to collect principal payments, and the Company may pay principal and
interest and Liquidating Damages, if any, by check and may mail checks to a
holder's registered address; provided that all payments with respect to Global
Notes and Certificated Notes, the holders of which have given wire transfer
instructions to the Company, will be required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
The Registrar may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection with certain
transfers or exchanges. See "--Transfer and Exchange." The Trustee will
initially act as Paying Agent and Registrar. The Company may change the Paying
Agent or Registrar without prior notice to holders of Notes, and the Company
or any of its Subsidiaries may act as Paying Agent or Registrar.
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SUBORDINATION
The payment of principal of, premium, and interest and Liquidated Damages,
if any, on the Notes will be subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash of all Senior
Indebtedness, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Indebtedness will be entitled to
receive payment in full in cash of all Obligations due in respect of such
Senior Indebtedness (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Indebtedness whether
or not a claim therefor is allowed in such proceeding) before the Holders of
Notes will be entitled to receive any payment with respect to the Notes, and
until all Obligations with respect to Senior Indebtedness are paid in full in
cash, any distribution to which the Holders of Notes would be entitled shall
be made to the holders of Senior Indebtedness (except that Holders of Notes
may receive and retain Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") or acquire any of the Notes
(including repurchases of the Notes at the option of the holders upon a Change
of Control) or on account of the redemption provisions of the Notes or on
account of any other obligations under the Notes or the Indenture if (a) a
default in the payment of the principal of, premium, if any, or interest on
Designated Senior Indebtedness occurs and is continuing beyond any applicable
period of grace or (b) any other default occurs and is continuing with respect
to Designated Senior Indebtedness that permits holders of the Designated
Senior Indebtedness as to which such default relates to accelerate its
maturity and, as to this clause (b), the Trustee receives a written notice
(with a copy to the Company) of such default (a "Payment Blockage Notice")
from the Company or the holders of any Designated Senior Indebtedness.
Payments on the Notes may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived in writing and
(b) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived in writing or 179 days after the date on
which the applicable Payment Blockage Notice is received by the Trustee,
unless the maturity of any Designated Senior Indebtedness has been
accelerated. No new period of payment blockage may be commenced unless and
until 360 days have elapsed since the date of receipt by the Trustee of the
immediately prior Payment Blockage Notice. No nonpayment default that existed
or was continuing on the date of delivery of any Payment Blockage Notice to
the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice, unless such default shall have been cured or waived for a period of
not less than 90 consecutive days (it being understood that any subsequent
action, or any breach of any covenant for a period commencing after the date
of receipt by the Trustee of such Payment Blockage Notice, that, in either
case, would give rise to such a default pursuant to any provisions under which
a default previously existed or was continuing shall constitute a new default
for this purpose).
The Indenture will further require that the Company promptly notify holders
of Senior Indebtedness if payment of the Notes is accelerated because of an
Event of Default. See "Events of Default and Remedies." As a result of the
subordination provisions described above, in the event of a liquidation or
insolvency, Holders of Notes may recover less ratably than creditors of the
Company who are holders of Senior Indebtedness.
NOTE GUARANTEES
The Company's payment obligations under the Notes will be jointly and
severally guaranteed (the "Note Guarantees") by the Guarantors. The Note
Guarantee of each Guarantor will be subordinated to the prior payment in full
of all Senior Indebtedness of such Guarantor (including such Guarantor's
guarantee of the Credit Agreement) to the same extent that the Notes are
subordinated to Senior Indebtedness of the Company. The obligations of each
Guarantor under its Note Guarantee will be limited so as not to constitute a
fraudulent conveyance under applicable law.
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The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless: (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture and the Registration Rights Agreement;
(ii) immediately after giving effect to such transaction, no Default or Event
of Default exists; (iii) such Guarantor, or any Person formed by or surviving
any such consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction) equal to or greater than
the Consolidated Net Worth of such Guarantor immediately preceding such
transaction; and (iv) the Company would be permitted by virtue of the
Company's pro forma Cash Flow Coverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional Indebtedness
pursuant to the Cash Flow Coverage Ratio test set forth in the "Limitation on
Incurrence of Indebtedness" covenant. The requirements of clauses (iii) and
(iv) of this paragraph will not apply in the case of a consolidation with or
merger with or into the Company or another Guarantor.
The Indenture will provide that, in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, such Guarantor (in the event of a sale or other disposition, by way
of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Note Guarantee; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "Mandatory
Offers to Purchase Notes."
REDEMPTION OF NOTES
Optional Redemption. The Notes may not be redeemed at the option of the
Company prior to April 15, 2001, other than out of the net proceeds of one or
more Equity Offerings as and to the extent described below. During the 12-
month period beginning on April 15 of the years indicated below, the Notes
will be redeemable, at the option of the Company, in whole or in part, on at
least 30 but not more than 60 days' notice to each holder of Notes to be
redeemed, at the redemption prices in cash (expressed as percentages of the
principal amount) set forth below, plus any accrued and unpaid interest and
Liquidated Damages, if any, to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.............................. 104.750%
2002.............................. 103.167%
2003.............................. 101.583%
2004 and thereafter............... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to April 15, 2001, the Company may (but
shall not have the obligation to) redeem up to one-third of the aggregate
principal amount of Notes ever issued under the Indenture at a redemption
price in cash of 109.50% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the redemption date, with
the net proceeds of one or more Equity Offerings; provided that at least two-
thirds of the aggregate principal amount of Notes ever issued under the
Indenture remains outstanding immediately after the occurrence of any such
redemption; and provided further that any such redemption shall occur within
60 days of the date of the closing of any such Equity Offering. The
restrictions on optional redemptions contained in the Indenture do not limit
the Company's right to separately make open market, privately negotiated or
other purchases of Notes from time to time.
Mandatory Redemption. Except as set forth below under "--Mandatory Offers to
Purchase Notes--Change of Control" and "--Asset Sales," the Company is not
required to make any mandatory redemption, purchase or sinking fund payments
with respect to the Notes.
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MANDATORY OFFERS TO PURCHASE NOTES
Change of Control. Upon the occurrence of a Change of Control (such date
being the "Change of Control Trigger Date"), each holder of Notes shall have
the right to require the Company to purchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to an Offer
(as defined herein) at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus any accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. The Company shall furnish to the
Trustee, at least two Business Days before notice of an Offer is mailed to all
holders of Notes pursuant to the procedures described below under "--
Procedures for Offers," notice that the Offer is being made. Transactions
constituting a Change of Control are not limited to hostile takeover
transactions not approved by the current management of the Company. Except as
described under "--Change of Control," the Indenture does not contain
provisions that permit the holders of Notes to require the Company to purchase
or redeem the Notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction
with management.
The Company expects that prepayment of the Notes following a Change of
Control would, and the exercise by holders of Notes of the right to require
the Company to purchase Notes would, constitute a default under the Credit
Agreement or other indebtedness of the Company. The Indenture will provide
that, prior to the mailing of the notice referred to below, but in any event
within 30 days following any Change of Control Trigger Date, the Company
covenants to (i) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay in
full and terminate all commitments under all Indebtedness under the Credit
Agreement and all other such Senior Indebtedness and to repay the Indebtedness
owed to each lender which has accepted such offer or (ii) obtain the requisite
consents under the Credit Agreement and all such other Senior Indebtedness to
permit the repurchase of the Notes as provided below. The Company shall first
comply with the covenant in the immediately preceding sentence before it shall
be required to repurchase Notes pursuant to the provisions described below.
The Company's failure to comply with this covenant shall constitute an Event
of Default described in clause (c) and not in clause (b) under "--Events of
Default" below. In the event a Change of Control occurs, the Company will
likely be required to refinance the Indebtedness outstanding under the Credit
Agreement and the Notes. If there is a Change of Control, any Indebtedness
under the Credit Agreement could be accelerated. There is no limitation in the
Indenture which prohibits the Company from using the proceeds from the
offering of the Notes to finance mandatory purchases of Notes upon a Change of
Control. Moreover, there can be no assurance that sufficient funds will be
available at the time of any Change of Control to repay Senior Indebtedness
and make any required repurchases of the Notes given the Company's high
leverage. The financing of the purchases of Notes could additionally result in
a default under the Credit Agreement or other indebtedness of the Company. The
occurrence of a Change of Control may also have an adverse impact on the
ability of the Company to obtain additional financing in the future. The
ability of holders of Notes to require that the Company purchase Notes upon a
Change of Control may deter persons from effecting a takeover of the Company.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of Notes to require that
the Company purchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. See "Risk Factors."
Asset Sales. The Indenture provides that the Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, consummate an
Asset Sale (including the sale of any of the Capital Stock of any Restricted
Subsidiary) providing for Net Proceeds in excess of $5,000,000 unless at least
75% of the Net Proceeds from such Asset Sale are applied (in any manner
otherwise permitted by the Indenture) to one or more of the following purposes
in such combination as the Company shall elect: (a) an investment in another
asset or business in the same line of business as, or a line of business
similar to that of, the line of business of the Company and its Restricted
Subsidiaries at the time of the Asset Sale; provided that such investment
occurs on or prior to the 365th day following the date of such Asset Sale (the
"Asset Sale Disposition Date"); (b) to reimburse the Company or its
Subsidiaries for expenditures made, and costs incurred, to repair, rebuild,
replace or restore property subject to loss, damage or taking to the extent
that the Net Proceeds consist of insurance proceeds received on account of
such loss, damage or taking; (c) the purchase, redemption or other prepayment
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or repayment of outstanding Senior Indebtedness of the Company or Indebtedness
of the Company's Restricted Subsidiaries on or prior to the 365th day
following the Asset Sale Disposition Date; or (d) an Offer expiring on or
prior to the Purchase Date (as defined herein). The Indenture also provides
that the Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, consummate an Asset Sale unless at least 75% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash, cash equivalents or marketable securities; provided that,
solely for purposes of calculating such 75% of the consideration, the amount
of (x) any liabilities (as shown on the Company's or such Restricted
Subsidiary's most recent balance sheet or in the notes thereto, excluding
contingent liabilities and trade payables) of the Company or any Restricted
Subsidiary (other than liabilities that are by their terms subordinated to the
Notes) that are assumed by the transferee of any such assets and (y) any notes
or other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are promptly, but in no event more than 30 days
after receipt, converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash and cash
equivalents for purposes of this provision. Any Net Proceeds from any Asset
Sale that are not applied or invested as provided in the first sentence of
this paragraph shall constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10,000,000 (such date
being an "Asset Sale Trigger Date"), the Company shall make an Offer to all
holders of Notes to purchase the maximum principal amount of the Notes then
outstanding that may be purchased out of Excess Proceeds, at an offer price in
cash equal to 100% of principal amount thereof, plus any accrued and unpaid
interest and Liquidated Damages, if any, to the Purchase Date, in accordance
with the procedures set forth in the Indenture. Notwithstanding the foregoing,
to the extent that any or all of the Net Proceeds of an Asset Sale is
prohibited or delayed by applicable local law from being repatriated to the
United States, the portion of such Net Proceeds so affected will not be
required to be applied as described in this or the preceding paragraph, but
may be retained for so long, but only for so long, as the applicable local law
prohibits repatriation to the United States.
To the extent that any Excess Proceeds remain after completion of an Offer,
the Company may use such remaining amount for general corporate purposes. If
the aggregate principal amount of Notes surrendered by holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of an Asset Sale Offer, the
amount of Excess Proceeds shall be reset at zero.
Although the Credit Agreement will permit dividends from the Company's
Subsidiaries to the Company for the purpose of paying interest on the Notes,
dividends for other purposes, such as repurchases of Notes by the Company upon
an Asset Sale, will not be permitted under the terms of the Credit Agreement.
Accordingly, the Company would need to seek the consent of its lenders under
the Credit Agreement in order to repurchase Notes with the Net Proceeds of an
Asset Sale. See "Risk Factors."
Procedures for Offers. Within 30 days following any Change of Control
Trigger Date or Asset Sale Trigger Date, subject to the provisions of the
Indenture, the Company shall mail a notice to each holder of Notes at such
holder's registered address a notice stating: (a) that an offer (an "Offer")
is being made pursuant to a Change of Control or an Asset Sale Trigger Date,
as the case may be, the length of time the Offer shall remain open and the
maximum principal amount of Notes that will be accepted for payment pursuant
to such Offer; (b) the purchase price, the amount of accrued and unpaid
interest and Liquidated Damages, if any, as of the purchase date, and the
purchase date (which shall be no earlier than 30 days and no later than 40
days from the date such notice is mailed (the "Purchase Date")); and (c) such
other information required by the Indenture and applicable law and
regulations.
On the Purchase Date for any Offer, the Company will, to the extent required
by the Indenture and such Offer, (1) in the case of an Offer resulting from a
Change of Control, accept for payment all Notes or portions thereof tendered
pursuant to such Offer and, in the case of an Offer resulting from an Asset
Sale Trigger Date, accept for payment the maximum principal amount of Notes or
portions thereof tendered pursuant to such Offer that can be purchased out of
Excess Proceeds, (2) deposit with the Paying Agent the aggregate purchase
price of all Notes or portions thereof accepted for payment and any accrued
and unpaid interest and Liquidated Damages,
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if any, on such Notes as of the Purchase Date, and (3) deliver or cause to be
delivered to the Trustee all Notes tendered pursuant to the Offer. The Paying
Agent shall promptly mail to each holder of Notes or portions thereof accepted
for payment an amount equal to the purchase price for such Notes plus any
accrued and unpaid interest and Liquidated Damages, if any, thereon, and the
Trustee shall promptly authenticate and mail (or cause to be transferred by
book-entry) to such holder of Notes accepted for payment in part a new Note
equal in principal amount to any unpurchased portion of the Notes and any Note
not accepted for payment in whole or in part shall be promptly returned to the
holder thereof. The Company will publicly announce the results of the Offer on
or as soon as practicable after the Purchase Date.
The Company will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with an
offer required to be made by the Company to repurchase the Notes as a result
of a Change of Control or an Asset Sale Trigger Date. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
the Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the Indenture by virtue thereof.
Selection and Notice. In the event of a redemption or purchase of less than
all of the Notes, the Notes to be redeemed or purchased will be chosen by the
Trustee pro rata, by lot or by any other method that the Trustee considers
fair and appropriate and, if the Notes are listed on any securities exchange,
by a method that complies with the requirements of such exchange; provided
that, if less than all of a holder's Notes are to be redeemed or accepted for
payment, only principal amounts of $1,000 or multiples thereof may be selected
for redemption or accepted for payment. On and after any redemption or
purchase date, interest and Liquidated Damages, if any, shall cease to accrue
on the Notes or portions thereof called for redemption or accepted for
payment. Notice of any redemption or offer to purchase will be mailed at least
30 days but not more than 60 days before the redemption or purchase date to
each holder of Notes to be redeemed or purchased at such holder's registered
address.
CERTAIN COVENANTS
The Indenture contains, among other things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
account of the Company's or such Restricted Subsidiary's Capital Stock or
other Equity Interests (other than dividends or distributions payable in
Capital Stock or other Equity Interests (other than Disqualified Stock) of the
Company or a Restricted Subsidiary and dividends or distributions payable by a
Restricted Subsidiary to another Restricted Subsidiary or to the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any Capital
Stock or other Equity Interests of the Company or any of its Restricted
Subsidiaries (other than any such Equity Interests purchased from the Company
or any Restricted Subsidiary for fair market value (as determined by the Board
of Directors in good faith)); (iii) voluntarily prepay any Subordinated
Indebtedness of the Company, whether any such Subordinated Indebtedness is
outstanding on, or issued after, the date of original issuance of the Notes
except as specifically permitted by the covenants of the Indenture as
described herein; or (iv) make any Restricted Investment (all such dividends,
distributions, purchases, redemptions, acquisitions, retirements, prepayments
and Restricted Investments being collectively referred to as "Restricted
Payments"), if, at the time of such Restricted Payment:
(a) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; or
(b)immediately after such Restricted Payment and after giving effect
thereto on a Pro Forma Basis, the Company shall not be able to issue $1.00
of additional Indebtedness pursuant to the first sentence of the
"Limitation on Incurrence of Indebtedness" covenant; or
(c)such Restricted Payment, together with the aggregate of all other
Restricted Payments made after the date of original issuance of the Notes,
without duplication, exceeds the sum of: (1) 50% of the aggregate
Consolidated Net Income (including, for this purpose, gains from Asset
Sales and, to the extent not included
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in Consolidated Net Income, any gain from a sale or disposition of a
Restricted Investment) of the Company (or, in case such aggregate is a
loss, 100% of such loss) for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing immediately after
the date of original issuance of the Notes and ended as of the Company's
most recently ended fiscal quarter at the time of such Restricted Payment;
plus (2) 100% of the aggregate net cash proceeds and the fair market value
of any property or securities (as determined by the Board of Directors in
good faith) received by the Company from the issue or sale of Capital Stock
or other Equity Interests of the Company subsequent to the date of original
issuance of the Notes (other than (x) Capital Stock or other Equity
Interests issued or sold to a Restricted Subsidiary and (y) the issuance or
sale of Disqualified Stock); plus (3) $5,000,000; plus (4) the amount by
which the principal amount of and any accrued interest on either (A) Senior
Indebtedness of the Company or (B) any Indebtedness of any Restricted
Subsidiary is reduced on the Company's consolidated balance sheet upon the
conversion or exchange other than by a Restricted Subsidiary subsequent to
the date of original issuance of the Notes of any Indebtedness of the
Company or any Restricted Subsidiary (not held by the Company or any
Restricted Subsidiary) for Capital Stock or other Equity Interests (other
than Disqualified Stock) of the Company (less the amount of any cash, or
the fair market value of any other property or securities (as determined by
the Board of Directors in good faith), distributed by the Company or any
Restricted Subsidiary (to persons other than the Company or any other
Restricted Subsidiary) upon such conversion or exchange); plus (5) if any
Non-Restricted Subsidiary is redesignated as a Restricted Subsidiary, the
value of the Restricted Payment that would result if such Subsidiary were
redesignated as a Non-Restricted Subsidiary at such time, as determined in
accordance with the second sentence of the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant; provided that for purposes of this
clause (5), the value of any redesignated Non-Restricted Subsidiary shall
be reduced by the amount that any such redesignation replenishes or
increases the amount of Restricted Investments permitted to be made
pursuant to clause (ii) of the next sentence.
Notwithstanding the foregoing, the Indenture shall not prohibit as
Restricted Payments:
(i)the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration, such payment would
comply with all covenants of such Indenture (including, but not limited to,
the "Limitation on Restricted Payments" covenant);
(ii)making Restricted Investments at any time, and from time to time, in
an aggregate outstanding amount of $15,000,000 after the date of original
issuance of the Notes (it being understood that if any Restricted
Investment after the date of original issuance of the Notes pursuant to
this clause (ii) is sold, transferred or otherwise conveyed to any person
other than the Company or a Restricted Subsidiary, the portion of the net
cash proceeds or fair market value of securities or properties paid or
transferred to the Company and its Restricted Subsidiaries in connection
with such sale, transfer or conveyance that relates or corresponds to the
repayment or return of the original cost of such a Restricted Investment
will replenish or increase the amount of Restricted Investments permitted
to be made pursuant to this clause (ii), so that up to $15,000,000 of
Restricted Investments may be outstanding under this clause (ii) at any
given time); provided that, without otherwise limiting this clause (ii),
any Restricted Investment in a Subsidiary made pursuant to this clause (ii)
is made for fair market value (as determined by the Board of Directors in
good faith);
(iii)the repurchase, redemption, retirement or acquisition of the
Company's stock from the executives, management, employees or consultants
of the Company or its Subsidiaries pursuant to the terms of any
subscription, stockholder or other agreement or plan, up to an aggregate
amount not to exceed $5,000,000;
(iv)any loans, advances, distributions or payments from the Company to
its Restricted Subsidiaries, or any loans, advances, distributions or
payments by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, in each case pursuant to intercompany Indebtedness,
intercompany management agreements and other intercompany agreements and
obligations;
(v)the purchase, redemption, retirement or other acquisition of the Notes
pursuant to the "--Change of Control" or "--Asset Sales" provisions of the
Indenture;
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(vi)the payment of (a) consulting, financial and investment banking fees
under the TJC Management Agreement, provided, that no Default or Event of
Default shall have occurred and be continuing or shall occur as a
consequence thereof, and the Company's Obligations to pay such fees under
the TJC Management Agreement shall be subordinated expressly to the
Company's Obligations in respect of the Notes, and (b) indemnities,
expenses and other amounts under the TJC Management Agreement;
(vii)the redemption, repurchase, retirement or other acquisition of any
Capital Stock or other Equity Interests of the Company or any Restricted
Subsidiary in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other
Capital Stock or other Equity Interests of the Company (other than any
Disqualified Stock) or the redemption, repurchase, retirement or other
acquisition of any Capital Stock or other Equity Interests of any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to the Company or a Subsidiary of
the Company) of other Capital Stock or other Equity Interests of such
Restricted Subsidiary; provided that, in each case, any net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition, and any Net Income resulting therefrom, shall be excluded from
clauses (c)(1) and (c)(2) of the preceding paragraph;
(viii)the defeasance, redemption or repurchase of pari passu or
Subordinated Indebtedness with the net cash proceeds from an issuance of
permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company) of Capital Stock or other
Equity Interests of the Company (other than Disqualified Stock); provided
that any net cash proceeds that are utilized for any such defeasance,
redemption or repurchase, and any Net Income resulting therefrom, shall be
excluded from clauses (c)(1) and (c)(2) of the preceding paragraph;
(ix)Restricted Investments made or received in connection with the sale,
transfer or disposition of any business, properties or assets of the
Company or any Restricted Subsidiary, provided that, if such sale, transfer
or disposition constitutes an Asset Sale, the Company complies with the
"Asset Sale" provisions of the Indenture;
(x)any Restricted Investment constituting securities or instruments of a
person issued in exchange for trade or other claims against such person in
connection with a financial reorganization or restructuring of such person;
(xi)payments in connection with the application of the net proceeds of
the Offering as described under "Use of Proceeds";
(xii)payments of fees, expenses and indemnities to the directors of the
Company and its Restricted Subsidiaries;
(xiii)payments in respect of the Crystaloid Holdback; and
(xiv)payments with respect to the SAR Agreements.
Limitation on Incurrence of Indebtedness. The Indenture provides that the
Company will not, and will not permit any Restricted Subsidiary to, issue any
Indebtedness (other than the Indebtedness represented by the Notes) unless the
Company's Cash Flow Coverage Ratio for its four full fiscal quarters next
preceding the date such additional Indebtedness is issued would have been at
least 2.0 to 1 determined on a Pro Forma Basis (including, for this purpose,
any other Indebtedness incurred since the end of the applicable four quarter
period) as if such additional Indebtedness and any other Indebtedness issued
since the end of such four quarter period had been issued at the beginning of
such four-quarter period.
The foregoing limitations will not apply to the issuance of:
(i)Indebtedness of the Company and/or its Restricted Subsidiaries under
the Credit Agreement in an aggregate principal amount outstanding on any
such date of issuance not exceeding $135,000,000; provided that the
aggregate principal amount of Indebtedness outstanding under this clause
(i) together with the aggregate principal amount of Indebtedness
outstanding under clause (iii) below shall not exceed $135,000,000 in
aggregate principal amount at any one time outstanding;
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(ii)Indebtedness of the Company and its Restricted Subsidiaries in
connection with capital leases, sale and leaseback transactions, purchase
money obligations, capital expenditures or similar financing transactions
relating to: (A) their properties, assets and rights as of the date of
original issuance of the Notes up to $5,000,000 in aggregate principal
amount at any one time outstanding, or (B) their properties, assets and
rights acquired after the date of original issuance of the Notes, provided
that the aggregate principal amount of such Indebtedness under this clause
(ii)(B) does not exceed 100% of the cost of such properties, assets and
rights;
(iii)additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount up to $25,000,000 (all or any
portion of which may be issued as additional Indebtedness under the Credit
Agreement); provided that the aggregate principal amount of Indebtedness
outstanding under this clause (iii) together with the aggregate principal
amount of Indebtedness outstanding under clause (i) above shall not exceed
$135,000,000 in aggregate principal amount at any one time outstanding; and
(iv)Other Permitted Indebtedness.
Notwithstanding the foregoing, no Restricted Subsidiary shall under any
circumstances issue a guarantee of any Indebtedness of the Company except for
guarantees issued by Restricted Subsidiaries pursuant to the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries" covenant,
provided that the foregoing will not limit or restrict guarantees issued by
Restricted Subsidiaries in respect of Indebtedness of other Restricted
Subsidiaries.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
described in clauses (i) through (iv) above or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that
complies with this covenant and such item of Indebtedness will be treated as
having been incurred pursuant to only one of such clauses or pursuant to the
first paragraph hereof. Accrual of interest, accretion or amortization of
original issue discount will not be deemed to be an incurrence of Indebtedness
for purposes of this covenant.
No Senior Subordinated Debt. The Indenture provides that (i) the Company
will not incur, create, issue, assume, guarantee or otherwise become liable
for any Indebtedness that is subordinate or junior in right of payment to any
Senior Indebtedness and senior in any respect in right of payment to the
Notes, and (ii) no Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Indebtedness and senior in any respect in right
of payment to the Note Guarantees.
Limitation on Liens. The Indenture provides that the Company shall not, and
shall not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien (other than
Permitted Liens) upon any property or asset now owned or hereafter acquired by
them, or any income or profits therefrom, or assign or convey any right to
receive income therefrom; provided that, in addition to creating Permitted
Liens on its properties or assets, the Company and any of its Restricted
Subsidiaries may create any Lien upon any of their properties or assets
(including, but not limited to, any Capital Stock of its Subsidiaries) if the
Notes are equally and ratably secured until such time as such obligations are
no longer secured by a Lien; and provided further that, in any case involving
a Lien securing Subordinated Indebtedness of the Company, such Lien is
subordinated to the Lien securing the Notes to the same extent that such
Subordinated Indebtedness is subordinated to the Notes.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective, any encumbrance or
restriction on the ability of any Restricted Subsidiary to: (a) pay dividends
or make any other distributions on its Capital Stock or any other interest or
participation in, or measured by, its profits, owned by the Company or any
Restricted
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Subsidiary, or pay any Indebtedness owed to, the Company or any Restricted
Subsidiary, (b) make loans or advances to the Company, or (c) transfer any of
its properties or assets to the Company, except for such encumbrances or
restrictions existing under or by reason of:
(i)applicable law;
(ii)Indebtedness permitted (A) under the first sentence of the first
paragraph of the "Limitation on Incurrence of Indebtedness" covenant, (B)
under clauses (i) and (iii) of the second paragraph of the "Limitation on
Incurrence of Indebtedness" covenant and clauses (i), (v), (vi), (vii),
(ix), (x) and (xi) of the definition of Other Permitted Indebtedness, or
(C) by agreements and transactions permitted under the "Limitation on
Restricted Payments" covenant;
(iii)customary provisions restricting subletting or assignment of any
lease or license of the Company or any Restricted Subsidiary;
(iv)customary provisions of any franchise, distribution or similar
agreement;
(v)any instrument governing Indebtedness or any other encumbrance or
restriction of a person acquired by the Company or any Restricted
Subsidiary at the time of such acquisition, which encumbrance or
restriction is not applicable to any person, or the properties or assets of
any person, other than the person, or the property or assets of the person,
so acquired;
(vi)Indebtedness or other agreements existing on the date of original
issuance of the Notes;
(vii)any Refinancing Indebtedness permitted under the "Limitation on
Incurrence of Indebtedness" covenant and clauses (i), (v), (vi), (vii),
(ix), (x) and (xi) of the definition of Other Permitted Indebtedness;
provided that the encumbrances and restrictions created in connection with
such Refinancing Indebtedness are no more restrictive in any material
respect with regard to the interests of the holders of Notes than the
encumbrances and restrictions in the refinanced Indebtedness;
(viii)any restrictions, with respect to a Restricted Subsidiary, imposed
pursuant to an agreement that has been entered into for the sale or
disposition of the stock, business, assets or properties of such Restricted
Subsidiary;
(ix)the terms of any Indebtedness of the Company incurred in connection
with the "Limitation on Incurrence of Indebtedness" covenant, provided that
the terms of such Indebtedness constitute no greater encumbrance or
restriction on the ability of any Restricted Subsidiary to pay dividends or
make distributions, make loans or advances or transfer properties or assets
than is otherwise permitted by this covenant; and
(x)the terms of purchase money obligations, but only to the extent such
purchase money obligations restrict or prohibit the transfer of the
property so acquired.
Nothing contained in this covenant shall prevent the Company from entering
into any agreement or instrument providing for the incurrence of Permitted
Liens or restricting the sale or other disposition of property or assets of
the Company or any of its Restricted Subsidiaries that are subject to
Permitted Liens.
Limitation on Transactions With Affiliates. The Indenture provides that
neither the Company nor any of its Restricted Subsidiaries may make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or dispose of any properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter into any or
amend any contract, agreement or understanding with, or for the benefit of, an
Affiliate (each such transaction or series of related transactions that are
part of a common plan are referred to as an "Affiliate Transaction"), except
in good faith and on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction on an arm's length basis from an unrelated person.
The Indenture further provides that the Company will not, and will not
permit any Restricted Subsidiary to, engage in any Affiliate Transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5,000,000 (including cash and non-cash
payments and benefits valued at
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their fair market value by the Board of Directors of the Company in good
faith) unless the Company delivers to the Trustee:
(i)a resolution of the Board of Directors of the Company stating that the
Board of Directors (including a majority of the disinterested directors, if
any) has, in good faith, determined that such Affiliate Transaction
complies with the provisions of the Indenture; and
(ii)(A) with respect to any Affiliate Transaction involving the
incurrence of Indebtedness, a written opinion of a nationally recognized
investment banking or accounting firm experienced in the review of similar
types of transactions, (B) with respect to any Affiliate Transaction
involving the transfer of real property, fixed assets or equipment, either
directly or by a transfer of 50% or more of the Capital Stock of a
Restricted Subsidiary which holds any such real property, fixed assets or
equipment, a written appraisal from a nationally recognized appraiser,
experienced in the review of similar types of transactions or (C) with
respect to any Affiliate Transaction not otherwise described in (A) and (B)
above, a written certification from a nationally recognized professional or
firm experienced in evaluating similar types of transactions, in each case,
stating that the terms of such transaction are fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
Notwithstanding the foregoing, this Affiliate Transactions covenant will not
apply to:
(i)transactions between the Company and any Restricted Subsidiary or
between Restricted Subsidiaries;
(ii)any other payments or transactions permitted pursuant to the
"Limitation on Restricted Payments" covenant;
(iii)(A) payments and transactions pursuant to employment agreements
between officers of the Company and its Restricted Subsidiaries and the
Company and its Restricted Subsidiaries and (B) reasonable compensation
paid to officers, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors
or executives; and
(iv)payments and transactions in connection with the Offering and the
application of the net proceeds therefrom as described under "Use of
Proceeds."
Limitation on Guarantees of Company Indebtedness by Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to guarantee any Indebtedness of the Company other than the
Notes (the "Other Company Indebtedness") unless (A) such Restricted Subsidiary
contemporaneously executes and delivers a supplemental indenture to the
Indenture providing for a guarantee of payment of the Notes then outstanding
by such Restricted Subsidiary to the same extent as the guarantee of payment
(the "Other Company Indebtedness Guarantee") of the Other Company Indebtedness
(including waiver of subrogation, if any) and (B) if the Other Company
Indebtedness guaranteed by such Restricted Subsidiary is (1) Senior
Indebtedness, the guarantee for the Notes shall be subordinated in right of
payment to the Other Company Indebtedness Guarantee to the same extent as the
Notes are subordinated to Senior Indebtedness of the Company and (2)
Subordinated Indebtedness, the guarantee for the Notes shall be senior in
right of payment to the Other Company Indebtedness Guarantee; provided that
the foregoing will not (i) limit or restrict guarantees issued by Restricted
Subsidiaries in respect of Indebtedness of other Restricted Subsidiaries or
(ii) apply to guarantees of Indebtedness under the Credit Agreement.
Each guarantee of the Notes created by a Restricted Subsidiary pursuant to
the provisions described in the foregoing paragraph shall be in form and
substance satisfactory to the Trustee and shall provide, among other things,
that it will be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer permitted by the Indenture of (a) all of
the Company's Capital Stock in such Restricted Subsidiary or (b) the sale of
all or substantially all of the assets of the Restricted Subsidiary and upon
the application of the Net Proceeds from such sale in accordance with the
requirements of the "Asset Sales" provisions described herein or (ii) the
release or discharge of the Other Company Indebtedness Guarantee that resulted
in the creation
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of such guarantee of the Notes, except a discharge or release by or as a
result of direct payment under such Other Company Indebtedness Guarantee.
Designation of Restricted and Non-Restricted Subsidiaries. The Indenture
provides that, subject to the exceptions described below, from and after the
date of original issuance of the Notes, the Company may designate any existing
or newly formed or acquired Subsidiary as a Non-Restricted Subsidiary;
provided that (i) either (A) the Subsidiary to be so designated has total
assets of $1,000,000 or less or (B) immediately before and after giving effect
to such designation on a Pro Forma Basis: (1) the Company could incur $1.00 of
additional Indebtedness pursuant to the first sentence of the "Limitation on
Incurrence of Indebtedness" covenant determined on a Pro Forma Basis, and (2)
no Default or Event of Default shall have occurred and be continuing, and (ii)
all transactions between the Subsidiary to be so designated and its Affiliates
remaining in effect are permitted pursuant to the "Limitation on Transactions
with Affiliates" covenant. Any Investment made by the Company or any
Restricted Subsidiary which is redesignated from a Restricted Subsidiary to a
Non-Restricted Subsidiary shall thereafter be considered as having been a
Restricted Payment (to the extent not previously included as a Restricted
Payment) made on the day such Subsidiary is designated a Non-Restricted
Subsidiary in the amount of the greater of (i) the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
Equity Interests of such Subsidiary held by the Company and its Restricted
Subsidiaries on such date, and (ii) the amount of the Investments determined
in accordance with GAAP made by the Company and any of its Restricted
Subsidiaries in such Subsidiary.
A Non-Restricted Subsidiary may be redesignated as a Restricted Subsidiary.
The Company may not, and may not permit any Restricted Subsidiary to, take any
action or enter into any transaction or series of transactions that would
result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of a Non-Restricted Subsidiary or otherwise,
but not including through the creation of a new Restricted Subsidiary) unless,
immediately before and after giving effect to such action, transaction or
series of transactions on a Pro Forma Basis, (a) the Company could incur at
least $1.00 of additional Indebtedness pursuant to the first sentence of
"Limitation on Incurrence of Indebtedness" and (b) no Default or Event of
Default shall have occurred and be continuing.
The designation of a Subsidiary as a Restricted Subsidiary or the removal of
such designation is required to be made by a resolution adopted by a majority
of the Board of Directors of the Company stating that the Board of Directors
has made such designation in accordance with the Indenture, and the Company is
required to deliver to the Trustee such resolution together with an Officers'
Certificate certifying that the designation complies with the Indenture. Such
designation will be effective as of the date specified in the applicable
resolution, which may not be before the date the applicable Officers'
Certificate is delivered to the Trustee.
Additional Note Guarantees. The Indenture will provide that, if any
Restricted Subsidiary of the Company that is a Domestic Subsidiary guarantees
any Indebtedness under the Credit Agreement, then such Restricted Subsidiary
shall become a Guarantor and execute a Supplemental Indenture and deliver an
Opinion of Counsel, in accordance with the terms of the Indenture.
MERGER OR CONSOLIDATION
The Indenture provides that the Company shall not consolidate or merge with
or into, or sell, convey or otherwise dispose of all or substantially all of
its assets to, any person (any such consolidation, merger or sale being a
"Disposition") unless: (a) the successor corporation of such Disposition or
the corporation to which such Disposition shall have been made is a
corporation organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (b) the successor corporation of
such Disposition or the corporation to which such Disposition shall have been
made expressly assumes the Obligations of the Company, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Indenture and the Notes; (c) immediately after such Disposition, no
Default or Event of Default shall exist; and (d) the corporation formed by or
surviving any such Disposition, or the corporation to which such Disposition
shall have been made, shall (i) have Consolidated Net Worth (immediately after
the Disposition but prior to giving any pro forma effect to
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purchase accounting adjustments or Restructuring Charges resulting from the
Disposition) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the Disposition, (ii) be permitted immediately
after the Disposition by the terms of the Indenture to issue at least $1.00 of
additional Indebtedness determined on a Pro Forma Basis, and (iii) have a Cash
Flow Coverage Ratio, for the four fiscal quarters immediately preceding the
applicable Disposition, and determined on a Pro Forma Basis, equal to or
greater than the actual Cash Flow Coverage Ratio of the Company for such four
quarter period. The limitations in the Indenture on the Company's ability to
make a Disposition described in this paragraph do not restrict the Company's
ability to sell less than all or substantially all of its assets, such sales
being governed by the "Asset Sales" provisions of the Indenture as described
herein. The Indenture provides that the Company shall not lease all or
substantially all of its assets to any person.
Prior to the consummation of any proposed Disposition, the Company shall
deliver to the Trustee an Officers' Certificate to the foregoing effect and an
opinion of counsel stating that the proposed Disposition and such supplemental
indenture comply with the Indenture.
PROVISION OF FINANCIAL INFORMATION TO HOLDERS OF NOTES
So long as the Notes are outstanding, whether or not the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Company and the Guarantors shall submit for filing with the Commission (unless
the Commission will not accept such filing) the annual reports, quarterly
reports and other documents relating to the Company and its Restricted
Subsidiaries that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) if the Company were subject to such
reporting requirements. The Company and the Guarantors will also provide to
all holders of Notes and file with the Trustee copies of such annual reports,
quarterly reports and other documents required to be furnished to stockholders
generally under the Exchange Act. In addition, the Company and the Guarantors
have agreed that, for so long as any Notes remain outstanding, they will
furnish to the Holders and to securities analysts employed by the Initial
Purchasers and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that an Event of Default is: (a) a default for 30
days in payment of interest or Liquidated Damages, if any, on the Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(b) a default in payment when due of principal or premium, if any, with
respect to the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (c) the failure of the Company to comply with
any of its other agreements or covenants in, or provisions of, such Indenture
or the Notes outstanding under such Indenture and the Default continues for
the period, if applicable, and after the notice specified in the next
paragraph; (d) a default by the Company or any Restricted Subsidiary under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any Restricted Subsidiary (or the payment of which is guaranteed by
the Company or any Restricted Subsidiary), whether such Indebtedness or
guarantee now exists or shall be created hereafter, if (1) either (A) such
default results from the failure to pay principal of or interest on any such
Indebtedness at or after the final maturity thereof (after giving effect to
any extensions thereof) and such default continues for 30 days beyond any
applicable grace period, or (B) as a result of such default the maturity of
such Indebtedness has been accelerated prior to its expressed maturity, and
(2) the principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay principal
or interest thereon at final maturity, or, because of the acceleration of the
maturity thereof, aggregates in excess of $10,000,000; (e) a failure by the
Company or any Restricted Subsidiary to pay final judgments (not covered by
insurance) aggregating in excess of $5,000,000 which judgments a court of
competent jurisdiction does not rescind, annul or stay within 45 days after
their entry and the Default or an Event of Default continues for such period
and after the notice specified in the next paragraph; (f) certain events of
bankruptcy or insolvency involving the Company or any Significant Subsidiary
and (g) except as permitted by the Indenture, any Note Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for
any reason to
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be in full force and effect or any Guarantor, or any Person acting of behalf
of any Guarantor, shall deny or disaffirm its obligations under its Note
Guarantee. In the case of any Event of Default pursuant to clause (a) or (b)
above occurring by reason of any willful action (or inactions) taken (or not
taken) by or on behalf of the Company with the intention of avoiding payment
of the premium that the Company would have to pay pursuant to a redemption of
Notes as described under "--Redemption of Notes--Optional Redemption," an
equivalent premium shall also become and be immediately, due and payable to
the extent permitted by law.
A Default or Event of Default under clause (c) (other than an Event of
Default arising under the "Merger or Consolidation" covenant which shall be an
Event of Default with the notice but without the passage of time specified in
this paragraph) is not an Event of Default under the Indenture until the
Trustee or the holders of at least 25% in principal amount of the Notes then
outstanding notify the Company of the Default and the Company does not cure
the Default within 30 days after receipt of the notice. A Default or Event of
Default under clause (f) of the preceding paragraph will result in the Notes
automatically becoming due and payable without further action or notice.
Upon the occurrence of an Event of Default, the Trustee or the holders of at
least 25% in principal amount of the then outstanding Notes may declare all
Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice") and the same shall become
immediately due and payable or, if there are any amounts outstanding under the
Credit Agreement, shall become immediately due and payable upon the first to
occur of an acceleration under the Credit Agreement and five business days
after receipt by the Company and the Representative under the Credit Agreement
of such Acceleration Notice, but only if such Event of Default is continuing.
The holders of a majority in principal amount of the Notes then outstanding
under the Indenture, by notice to the Trustee, may rescind any declaration of
acceleration of such Notes and its consequences (if the rescission would not
conflict with any judgment or decree) if all existing Events of Default (other
than the nonpayment of principal of or interest on such Notes that shall have
become due by such declaration) shall have been cured or waived. Subject to
certain limitations, holders of a majority in principal amount of the Notes
then outstanding under the Indenture may direct the Trustee in its exercise of
any trust or power. Holders of the Notes may not enforce the Indenture, except
as provided therein. The Trustee may withhold from holders of Notes notice of
any continuing Default or Event of Default (except a Default or an Event of
Default in payment of principal, premium, if any, or interest or Liquidated
Damages, if any) if the Trustee determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding may on behalf of all holders of such Notes waive any existing
Default or Event of Default under the Indenture and its consequences, except a
continuing Default in the payment of the principal of, or premium, if any, or
interest or Liquidated Damages, if any, on, such Notes, which may only be
waived with the consent of each holder of the Notes affected.
Upon any payment or distribution of assets of the Company and its
subsidiaries in a liquidation, dissolution, reorganization or similar
proceeding, including a Default under clause (f) above involving certain
events of bankruptcy or insolvency of the Company or a Significant Subsidiary,
there may not be sufficient assets remaining to satisfy the claims of any
Holders of Notes given the subordination of the Notes to Senior Indebtedness
and the obligations of the Subsidiaries of the Company.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon an officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default.
NO PERSONAL LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS AND
SUBSIDIARIES
No officer, employee, director, stockholder or Subsidiary of the Company
shall have any liability for any Obligations of the Company under the Notes or
the Indenture, or for any claim based on, in respect of, or by reason of, such
Obligations or the creation of any such Obligation, except, in the case of a
Subsidiary, for an
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express guarantee or an express creation of any Lien by such Subsidiary of the
Company's Obligations under the Notes issued in accordance with the Indenture.
Each holder of the Notes by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for
issuance of the Notes. The foregoing waiver may not be effective to waive
liabilities under the Federal securities laws and the Commission is of the
view that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company at any time may terminate all its and the Guarantors'
obligations under the Notes, the Note Guarantees and the Indenture ("legal
defeasance option"), except for certain obligations (including those with
respect to the defeasance trust (as defined herein) and obligations to
register the transfer or exchange of the Notes, to replace mutilated,
destroyed, lost or stolen Notes and to maintain a registrar and paying agent
in respect of the Notes). The Company at any time may terminate (1) its
obligations under the "Change of Control" and "Asset Sales" provisions
described herein and the covenants described under "Certain Covenants" and
certain other covenants in the Indenture, (2) the operation of clauses (c),
(d), (e) and (f) contained in the first paragraph of the "Events of Default
and Remedies" provisions described herein and (3) the limitations contained in
clauses (c) and (d) under the "Merger or Consolidation" provisions described
herein (collectively, a "covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes shall not be accelerated
because of an Event of Default specified in clauses (c), (d), (e) or (f) in
the first paragraph under the "Events of Default and Remedies" provisions
described herein or because of the Company's failure to comply with clauses
(c) and (d) under the "Merger or Consolidation" provisions described herein.
To exercise either defeasance option with respect to the Notes outstanding,
the Company must irrevocably deposit in trust (the "defeasance trust") with
the Trustee money or U.S. Government Obligations (as defined in the Indenture)
for the payment of principal of, premium, if any, and unpaid interest and
Liquidated Damages, if any, on the Notes then outstanding to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including the passage of 91 days and the delivery to the Trustee of an opinion
of counsel to the effect that holders of such Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such deposit and
defeasance and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable federal income tax law).
TRANSFER AND EXCHANGE
Holders of Notes may transfer or exchange their Notes in accordance with the
Indenture, but the Registrar may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and to pay any taxes
and fees required by law or permitted by the Indenture, in connection with any
such transfer or exchange. Neither the Company nor the Registrar is required
to issue, register the transfer of, or exchange (i) any Note selected for
redemption or tendered pursuant to an Offer, or (ii) any Note during the
period between (a) the date the Trustee receives notice of a redemption from
the Company and the date the Notes to be redeemed are selected by the Trustee
or (b) a record date and the next succeeding interest payment date. The
registered holder of a Note will be treated as its owner for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Notes then outstanding under such Indenture, and any existing Default or
Event of Default (other than a payment default) or compliance with any
provision may be
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waived with the consent of the holders of a majority in principal amount of
the Notes then outstanding under the Indenture. Without the consent of any
holder of Notes, the Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption by a successor corporation of the
Company's obligations to the holders of Notes in the case of a Disposition, to
comply with the Trust Indenture Act, or to make any change that does not
materially adversely affect the legal rights of any holder of Notes.
Without the consent of each holder of Notes affected, the Company may not
(i) reduce the principal amount of Notes whose holders must consent to an
amendment to the Indenture or a waiver under the Indenture; (ii) reduce the
rate of or change the interest payment time of the Notes, or alter the
redemption provisions with respect thereto (other than the provisions relating
to the covenants described above under the caption "--Mandatory Offers to
Purchase Notes--Change of Control" and "--Asset Sales") or the price at which
the Company is required to offer to purchase the Notes; (iii) reduce the
principal of or change the fixed maturity of the Notes; (iv) make the Notes
payable in money other than stated in the Notes; (v) make any change in the
provisions concerning waiver of Defaults or Events of Default by holders of
the Notes, or rights of holders of the Notes to receive payment of principal
or interest; or (vi) waive any default in the payment of principal of,
premium, if any, or unpaid interest on, or Liquidated Damages, if any, with
respect to the Notes. In addition, any amendment to the provisions of Article
10 of the Indenture (which relate to subordination) will require the consent
of the Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee, if
it becomes a creditor of the Company, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act) it must eliminate such conflict or resign.
The holders of a majority in principal amount of the Notes then outstanding
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and has not been cured), the Trustee will be required, in the exercise of its
power, to use the degree of care and skill of a prudent person in similar
circumstances in the conduct of its own affairs. Subject to the provisions of
the Indenture, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the holders of
the Notes, unless such holders shall have offered to the Trustee security and
indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
The Notes sold to QIBs initially will be in the form of one or more
registered global Notes without interest coupons (collectively, the "Rule 144A
Global Notes"). Upon issuance, the Rule 144A Global Notes will be deposited
with the Trustee, as custodian for DTC, in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to the accounts of
DTC's Direct and Indirect Participants (as defined). The Notes being offered
and sold in offshore transactions in reliance on Regulation S, if any,
initially will be in the form of one or more temporary, registered, global
book-entry Notes without interest coupons (the "Regulation S Temporary Global
Notes"). The Regulation S Temporary Global Notes will be deposited with the
Trustee, as custodian for DTC, in New York, New York, and registered in the
name of a nominee of DTC (a "Nominee") for credit to the accounts of Indirect
Participants at the Euroclear and CEDEL. During the 40-day period commencing
on the day after the later of the offering date and the original date of
original issuance of the Notes (the "40-Day Restricted Period"), beneficial
interests in the Regulation S Temporary Global Note may be held only through
Euroclear or CEDEL, and, pursuant to DTC's procedures, Indirect Participants
that hold a beneficial interest in the Regulation S Temporary Global Note will
not be able to transfer such interest to a person that takes delivery thereof
in the form of an interest in the Rule 144A Global Notes. Within a reasonable
time after the expiration of the 40-Day Restricted Period, the Regulation S
Temporary Global Notes will be exchanged for
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one or more permanent global Notes (the "Regulation S Permanent Global Notes"
and, collectively with the Regulation S Temporary Global Notes, the
"Regulation S Global Notes") upon delivery to DTC of certification of
compliance with the transfer restrictions applicable to the Notes and pursuant
to Regulation S as provided in the Indenture. After the 40-Day Restricted
Period, (i) beneficial interests in the Regulation S Permanent Global Notes
may be transferred to a person that takes delivery in the form of an interest
in the Rule 144A Global Notes and (ii) beneficial interests in the Rule 144A
Global Notes may be transferred to a person that takes delivery in the form of
an interest in the Regulation S Permanent Global Notes; provided, in each
case, that the certification requirements described below are complied with.
See "--Transfers of Interests in One Global Note for Interests in Another
Global Note." All registered global Notes are referred to herein collectively
"Global Notes."
Notes sold to Accredited Investors that agree to comply with the transfer
restrictions and other conditions described herein will be represented
initially by definitive Notes in registered certificated form without interest
coupons ("Certificated Notes").
Beneficial interests in all Global Notes and all Certificated Notes, if any,
will be subject to certain restrictions on transfer and will bear a
restrictive legend as described under "Notice to Investors." In addition,
transfer of beneficial interests in any Global Notes will be subject to the
applicable rules and procedures of DTC and its Direct or Indirect Participants
(including, if applicable, those of Euroclear and CEDEL), which may change
from time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be
exchanged for Notes in certificated form in certain limited circumstances. See
"--Transfer of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes may
be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and
settlement of transactions in those securities between Direct Participants
through electronic book-entry changes in accounts of Participants. The Direct
Participants include securities brokers and dealers (including the Initial
Purchaser), banks, trust companies, clearing corporations and certain other
organizations, including Euroclear and Cedel. Access to DTC's system is also
available to other entities that clear through or maintain a direct or
indirect, custodial relationship with a Direct Participant (collectively, the
"Indirect Participants"). DTC may hold securities beneficially owned by other
persons only through the Direct Participants or Indirect Participants and such
other persons' ownership interest and transfer of ownership interest will be
recorded only on the records of the Direct Participant and/or Indirect
Participant, and not on the records maintained by DTC.
DTC has also advised the Company that, pursuant to DTC's procedures, (i)
upon deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Notes allocated by the Initial Purchasers to
such Direct Participants, and (ii) DTC will maintain records of the ownership
interests of such Direct Participants in the Global Notes and the transfer of
ownership interests by and between Direct Participants. DTC will not maintain
records of the ownership interests of, or the transfer of ownership interests
by and between, Indirect Participants or other owners of beneficial interests
in the Global Notes. Direct Participants and Indirect Participants must
maintain their own records of the ownership interests of, and the transfer of
ownership interests by and between, Indirect Participants and other owners of
beneficial interests in the Global Notes.
Investors in the Rule 144A Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in
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the Regulation S Temporary Global Notes must initially hold their interests
therein directly through Euroclear or CEDEL or indirectly through
organizations that are participants in Euroclear or CEDEL. After the
expiration of the 40-Day Restricted Period (but not earlier), investors may
also hold interests in the Regulation S Permanent Global Notes through
organizations other than Euroclear and CEDEL that are Direct Participants in
the DTC system. Morgan Guaranty Trust Company of New York, Brussels office, is
the operator and depository of Euroclear, and Citibank, N.A. is the operator
and depository of CEDEL (each, a "Nominee" of Euroclear and CEDEL,
respectively). Therefore, they will each be recorded on DTC's records as the
holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests of, and transfers of ownership interests by and between,
their own customer's securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any Global Notes,
including those of customers' securities accounts held through Euroclear or
CEDEL, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or CEDEL may also be subject to the
procedures and requirements of such systems.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit
or curtail the ability to transfer beneficial interests in a Global Note to
such persons. Because DTC can act only on behalf of Direct Participants, which
in turn act on behalf of Indirect Participants and others, the ability of a
person having a beneficial interest in a Global Note to pledge such interest
to persons or entities that are not Direct Participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Regulation S
Temporary and Regulation S Permanent Global Notes" and "--Transfers of
Interests in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "--TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Notes are registered (including Notes represented
by Global Notes) as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever. Payments in
respect of the principal, premium, Liquidated Damages, if any, and interest on
Global Notes registered in the name of DTC or its nominee will be payable by
the Trustee to DTC or its nominee as the registered holder under the
Indenture. Consequently, neither the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for
(i) any aspect of DTC's records or any Direct Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Direct Participant's or Indirect
Participant's records relating to the beneficial ownership interests in any
Global Note or (ii) any other matter relating to the actions and practices of
DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to
the beneficial owners of the Notes will be governed by standing instructions
and customary practices between them and will not be the responsibility of
DTC, the Trustee or the Company. Neither the Company nor the Trustee will be
liable for any delay by DTC or its Direct Participants or Indirect
Participants in identifying the beneficial owners of the Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee as the registered owner of the
Notes for all purposes.
Except for trades involving only Euroclear or CEDEL participants, interests
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and, therefore, transfers between
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Direct Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in immediately available funds. Transfers
between Indirect Participants (other than Indirect Participants who hold an
interest in the Notes through Euroclear or CEDEL) who hold an interest through
a Direct Participant will be effected in accordance with the procedures of
such Direct Participant but generally will settle in immediately available
funds. Transfers between and among Indirect Participants who hold interests in
the Notes through Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the Notes
described herein, cross-market transfers between Direct Participants in DTC,
on the one hand, and Indirect Participants who hold interests in the Notes
through Euroclear or CEDEL, on the other hand, will be effected by Euroclear
or CEDEL's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL; however, delivery of instructions relating to
cross-market transactions must be made directly to Euroclear or CEDEL, as the
case may be, by the counterparty in accordance with the rules and procedures
of Euroclear or CEDEL, as the case may be, and within their established
deadlines (Brussels time for Euroclear and UK time for CEDEL). Indirect
Participants who hold interest in the Notes through Euroclear and CEDEL may
not deliver instructions directly to Euroclear's or CEDEL's Nominee. Euroclear
or CEDEL will, if the transaction meets its settlement requirements, deliver
instructions to its respective Nominee to deliver or receive interests on
Euroclear's or CEDEL's behalf in the relevant Global Note in DTC, and make or
receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities account of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will
be credited, and any such crediting will be reported to the relevant Euroclear
or CEDEL Direct Participant during the European business day immediately
following the settlement date of DTC in New York. Although recorded in DTC's
accounting records as of DTC's settlement date in New York, Euroclear and
CEDEL customers will not have access to the cash amount credited to their
accounts as a result of a sale of an interest in a Regulation S Permanent
Global Note to a DTC Participant until the European business day for Euroclear
or CEDEL immediately following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
as to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC
reserves the right to exchange Global Notes (without the direction of one or
more of its Direct Participants) for Certificated Notes, and to distribute
such Certificated Notes to its Direct Participants. See "--Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to
facilitate transfers of interests in the Regulation S Permanent Global Notes
and in the Rule 144A Global Notes among Direct Participants, Euroclear and
CEDEL, they are under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company, the Initial Purchaser or the Trustee will have any responsibility for
the performance by DTC, Euroclear or CEDEL or their respective Direct and
Indirect Participants of their respective obligations under the rules and
procedures governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
REGULATION S TEMPORARY AND REGULATION S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Regulation S Temporary
Global Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as
the case may be, with a certificate in the form
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required by the Indenture certifying that such Indirect Participant is either
not a U.S. Person (as defined) or has purchased such interests in a
transaction that is exempt from the registration requirements under the
Securities Act, and Euroclear or CEDEL, as the case may be, must provide to
the Trustee (or the Paying Agent, if other than the Trustee) a certificate in
the form required by the Indenture prior to any exchange of such beneficial
interests for beneficial interests in Regulation S Permanent Global Notes.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a
U.S. Person (other than an estate governed by foreign law and of which at
least one executor or administrator is a non-U.S. Person who has sole or
shared investment discretion with respect to its assets), (iv) any trust of
which any trustee is a U.S. Person (other than a trust of which at least one
trustee is a non-U.S. Person who has sole or shared investment discretion with
respect to its assets and no beneficiary of the trust (and no settler, if the
trust is revocable) is a U.S. Person), (v) any agency or branch of a foreign
entity located in the United States, (vi) any non-discretionary or similar
account (other than an estate or trust) held by a dealer or other fiduciary
for the benefit or account of a U.S. Person, (vii) any discretionary or
similar account (other than an estate or trust) held by a dealer or other
fiduciary organized, incorporated or (if an individual) resident in the United
States (other than such an account held for the benefit or account of a non-
U.S. Person), (viii) any partnership or corporation organized or incorporated
under the laws of a foreign jurisdiction and formed by a U.S. person
principally for the purpose of investing in securities not registered under
the Securities Act (unless it is organized or incorporated and owned, by
"accredited investors" within the meaning of Rule 501(a) under the Securities
Act who are not natural persons, estates or trusts); provided that the term
"U.S. Person" shall not include (A) a branch or agency of a U.S. Person that
is located and operating outside the United States for valid business purposes
as a locally regulated branch or agency engaged in the banking or insurance
business, (B) any employee benefit plan established and administered in
accordance with the law, customary practices and documentation of a foreign
country and (C) the international organizations set forth in Section 902(o)(7)
of Regulation S under the Securities Act and any other similar international
organizations, and their agencies, affiliates and pension plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL
NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Regulation S Temporary Global Note
through Euroclear or CEDEL will not be permitted to transfer its interest to a
U.S. Person who takes delivery in the form of an interest in Rule 144A Global
Notes. After the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in Regulation S Permanent Global Notes will
be permitted to transfer its interest to a U.S. Person who takes delivery in
the form of an interest in Rule 144A Global Notes only upon receipt by the
Trustee of a written certification from the transferor to the effect that such
transfer is being made in accordance with the restrictions on transfer set
forth under "Notice to Investors" and set forth in the legend printed on the
Regulation S Permanent Global Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof
in the form of an interest in the Regulation S Temporary Global Notes. After
the expiration of the 40-Day Restricted Period, a Direct or Indirect
Participant who holds an interest in Rule 144A Global Notes may transfer its
interests to a person who takes delivery in the form of an interest in
Regulation S Permanent Global Notes only upon receipt by the Trustee of a
written certification from the transferor to the effect that such transfer is
being made in accordance with Rule 904 of Regulation S.
Transfers involving an exchange of a beneficial interest in Regulation S
Global Notes for a beneficial interest in Rule 144A Global Notes or vice versa
will be effected by DTC by means of an instruction originated by the Trustee
through DTC Deposit/Withdraw at Custodian (DWAC) system. Accordingly, in
connection with such transfer, appropriate adjustments will be made to reflect
a decrease in the principal amount of the one Global Note and a corresponding
increase in the principal amount of the other Global Note, as applicable. Any
beneficial interest in the one Global Note that is transferred to a person who
takes delivery in the form of an interest in the
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other Global Note will, upon transfer, cease to be an interest in such first
Global Note and become an interest in such other Global Note and, accordingly,
will thereafter be subject to all transfer restrictions and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for Certificated Notes if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee
in writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, the Company will notify the
Trustee in writing that, upon surrender by the Direct and Indirect
Participants of their interest in such Global Note, Certificated Notes will be
issued to each person that such Direct and Indirect Participants and DTC
identify as being the beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by
such Direct Participant (for itself or on behalf of an Indirect Participant),
but only upon at least 20 days' prior written notice given to the Trustee by
or on behalf of DTC in accordance with customary DTC procedures. Certificated
Notes delivered in exchange for any beneficial interest in any Global Note
will be registered in the names, and issued in any approved denominations,
requested by DTC on behalf of such Direct or Indirect Participants (in
accordance with DTC's customary procedures).
In all cases described herein, Certificated Notes will bear the restrictive
legend referred to in "Notice to Investors," unless the Company determines
otherwise in compliance with applicable law.
Neither the Company nor the Trustee will be liable for any delay by the
holder of the Global Notes or DTC in identifying the beneficial owners of
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or
DTC for all purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may only be transferred if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an
opinion of counsel) confirming that, in connection with such transfer, it has
complied with the restrictions on transfer described under "Notice to
Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes represented
by the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the holder of such Global Note. With
respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately
available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Guarantors and the Initial Purchasers will enter into the
Registration Rights Agreement on or prior to the Closing Date. Pursuant to the
Registration Rights Agreement, the Company and the Guarantors will agree to
file with the Commission the Exchange Offer Registration Statement on the
appropriate form under the Securities Act with respect to the Exchange Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of Transfer Restricted Securities pursuant
to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for
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Exchange Notes. If (a) the Company and the Guarantors are not required to file
the Exchange Offer Registration Statement or permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (b) any Holder of Transfer Restricted Securities
notifies the Company within the specified time period that (i) it is
prohibited by law or Commission policy from participating in the Exchange
Offer, (ii) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (iii) it is a broker-dealer and
owns Notes acquired directly from the Company or an affiliate of the Company,
the Company and the Guarantors will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the Holders thereof
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company and the
Guarantors will use their reasonable best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until (a) the date on which such Note has been exchanged by a
person other than a broker-dealer for an Exchange Note in the Exchange Offer,
(b) following the exchange by a broker-dealer in the Exchange Offer of a Note
for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (c) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (d) the date on which such Note is distributed to
the public pursuant to Rule 144 under the Act.
The Registration Rights Agreement will provide that (a) the Company and the
Guarantors will file an Exchange Offer Registration Statement with the
Commission on or prior to 90 days after the Closing Date, (b) the Company and
the Guarantors will use their reasonable best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission on or prior
to 150 days after the Closing Date, (c) unless the Exchange Offer would not be
permitted by applicable law or Commission policy, the Company will commence
the Exchange Offer and use its reasonable best efforts to issue on or prior to
60 business days after the date on which the Exchange Offer Registration
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Notes tendered prior thereto in the Exchange Offer and (d) if
obligated to file the Shelf Registration Statement, the Company and the
Guarantors will use their reasonable best efforts to file the Shelf
Registration Statement with the Commission on or prior to 90 days after such
filing obligation arises and to cause the Shelf Registration to be declared
effective by the Commission on or prior to 150 days after such obligation
arises. If (a) the Company and the Guarantors fail to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above, a "Registration
Default"), then the Company and the Guarantors will pay Liquidated Damages to
each Holder of Notes, with respect to the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$.05 per week per $1,000 principal amount of Notes held by such Holder. The
amount of the Liquidated Damages, if any, will increase by an additional $.05
per week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages, if any, for all Registration Defaults of $.40
per week per $1,000 principal amount of Notes. All accrued Liquidated Damages,
if any, will be paid by the Company on each Damages Payment Date (as defined
in the Registration Rights Agreement) to the Global Note Holder by wire
transfer of immediately available funds or by federal funds check and to
Holders of Certificated Securities by wire transfer to the accounts specified
by them or by mailing checks to their registered addresses if no such accounts
have been specified. Following the cure of all Registration Defaults, the
accrual of Liquidated Damages, if any, will cease.
Holders of Notes will be required to make certain representations to the
Company and the Guarantors (as described in the Registration Rights Agreement)
in order to participate in the Exchange Offer and will be
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required to deliver certain information to be used in connection with the
Shelf Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the Registration Rights
Agreement in order to have their Notes included in the Shelf Registration
Statement and benefit from the provisions regarding Liquidated Damages set
forth above.
Payment of Liquidated Damages is the sole remedy available to the holders of
Notes in the event that the Company and the Guarantors do not comply with the
deadlines set forth in the Registration Rights Agreement with respect to the
conduct of the Exchange Offer or the registration of the Notes for resale
under a Shelf Registration Statement.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture for the definition of all other terms used
in the Indenture.
"Affiliate" means any of the following: (i) any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company; (ii) any spouse, immediate family member or other
relative who has the same principal residence as any person described in
clause (i) above; (iii) any trust in which any such persons described in
clause (i) or (ii) above has a beneficial interest; and (iv) any corporation
or other organization of which any such persons described above collectively
own 50% or more of the equity of such entity.
"Asset Sale" means the sale, lease, conveyance or other disposition by the
Company or a Restricted Subsidiary of assets or property whether owned on the
date of original issuance of the Notes or thereafter acquired, in a single
transaction or in a series of related transactions; provided that Asset Sales
will not include such sales, leases, conveyances or dispositions in connection
with (i) the sale or disposition of any Restricted Investment, (ii) any Equity
Offering by (a) the Company or (b) any Restricted Subsidiary if the proceeds
therefrom are used to make mandatory prepayments of Indebtedness under the
Credit Agreement or Indebtedness of the Restricted Subsidiaries or to redeem
Notes as described above in "Optional Redemption," (iii) the sale or lease of
equipment, inventory, accounts receivable or other assets in the ordinary
course of business, (iv) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any
kind, (v) the grant of any license of patents, trademarks, registration
therefor and other similar intellectual property, (vi) a transfer of assets by
the Company or a Restricted Subsidiary to the Company or another Restricted
Subsidiary, (vii) the designation of a Restricted Subsidiary as a Non-
Restricted Subsidiary pursuant to the "Designation of Restricted and Non-
Restricted Subsidiaries" covenant, (viii) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company as
permitted under "Merger or Consolidation," (ix) the sale or disposition of
obsolete equipment or other obsolete assets, (x) Restricted Payments permitted
by the "Limitations on Restricted Payments" covenant, or (xi) the exchange of
assets for other non-cash assets that (a) are useful in the business of the
Company and its Restricted Subsidiaries and (b) have a fair market value at
least equal to the fair market value of the assets being exchanged (as
determined by the Board of Directors in good faith).
"Board of Directors" means the Company's board of directors or any
authorized committee of such board of directors.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock, including any preferred
stock.
"Cash Flow Coverage Ratio" means, for any given period and person, the ratio
of (i) EBITDA, divided by (ii) the sum of Consolidated Interest Expense and
all dividend payments on any series of preferred stock of such person (except
dividends paid or payable in additional shares of Capital Stock (other than
Disqualified Stock) and except for accrued and unpaid dividends with respect
to preferred stock outstanding on the date of original issuance of the Notes),
in each case, without duplication; provided that, if any such calculation
includes any period during which an acquisition or sale of a person or the
incurrence or repayment of Indebtedness occurred, then such calculation for
such period shall be made on a Pro Forma Basis.
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"Change of Control" means the occurrence of each of the following: (i) any
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Existing Stockholders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of
all securities that such person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the Company; and
(ii) the Company consolidates with, or merges with or into, another person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is converted
into or exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock)
of the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (B) immediately after such transaction no
"person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act), excluding the Existing Stockholders, is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 50% of the total Voting Stock of the surviving or transferee
corporation; and (iii) during any consecutive two-year period, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
are entitled to vote to elect such new director and were either directors at
the beginning of such period or persons whose election as directors or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of
a sale, lease, transfer, conveyance or other disposition of less than all of
the assets of the Company and its Subsidiaries to another person may be
uncertain.
"Commission" means the Securities and Exchange Commission.
"Consolidated Interest Expense" means, for any given period and person, the
aggregate of the interest expense in respect of all Indebtedness of such
person and its Restricted Subsidiaries for such period, on a consolidated
basis, determined in accordance with GAAP (including amortization of original
issue discount on any such Indebtedness, all non-cash interest payments, the
interest portion of any deferred payment obligation and the interest component
of capital lease obligations, but excluding amortization of deferred financing
fees if such amortization would otherwise be included in interest expense);
provided that, for the purpose of the Cash Flow Coverage Ratio, Consolidated
Interest Expense shall be calculated on a Pro Forma Basis; and provided
further that any premiums, fees and expenses (including the amortization
thereof) payable in connection with the Offering and the application of the
net proceeds therefrom or any other refinancing of Indebtedness will be
excluded.
"Consolidated Net Income" means, for any given period and person, the
aggregate of the Net Income of such person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that: (i) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded; and (ii) Consolidated Net Income of any person will not
include, without duplication, any deduction for (A) any increased amortization
or depreciation resulting from the write-up of assets pursuant to Accounting
Principles Board Opinion Nos. 16 and 17, as amended or supplemented from time
to time, (B) the amortization of all intangible assets (including amortization
attributable
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to inventory write-ups, goodwill, debt and financing costs, and Incentive
Arrangements), (C) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (D) any
extraordinary or nonrecurring charges relating to any premium or penalty paid,
write-off or deferred financing costs or other financial recapitalization
charges in connection with redeeming or retiring any Indebtedness prior to its
stated maturity, and (E) any Restructuring Charges; and provided further that
for purposes of determining the Cash Flow Coverage Ratio, Consolidated Net
Income shall be calculated on a Pro Forma Basis.
"Consolidated Net Worth" with respect to any person means, as of any date,
the consolidated equity of the common stockholders of such person (excluding
the cumulated foreign currency translation adjustment), all determined on a
consolidated basis in accordance with GAAP, but without any reduction in
respect of the payment of dividends on any series of such person's preferred
stock if such dividends are paid in additional shares of Capital Stock (other
than Disqualified Stock); provided that Consolidated Net Worth shall also
include, without duplication, (a) the amortization of all write-ups of
inventory, (b) the amortization of all intangible assets (including
amortization of goodwill, debt and financing costs, and Incentive
Arrangements), (c) any non-capitalized transaction costs incurred in
connection with actual or proposed financings, acquisitions or divestitures
(including, but not limited to, financing and refinancing fees), (d) any
increased amortization or depreciation resulting from the write-up of assets
pursuant to Accounting Principles Board Opinion Nos. 16 and 17, as amended and
supplemented from time to time, (e) any extraordinary or nonrecurring charges
or expenses relating to any premium or penalty paid, write-off or deferred
financing costs or other financial recapitalization charges incurred in
connection with redeeming or retiring any Indebtedness prior to its stated
maturity, (f) any Restructuring Charges, and (g) any extraordinary or non-
recurring charge arising out of the implementation of SFAS 106 or SFAS 109;
and provided further that Consolidated Net Worth shall be calculated on a Pro
Forma Basis.
"Credit Agreement" means the Credit Agreement, dated the Closing Date, among
the Company, certain of its Subsidiaries, the lenders party thereto and
BankBoston, N.A., as agent, together with all loan documents and instruments
thereunder (including, without limitation, any guarantee agreements and
security documents), in each case as such agreements may be amended, modified,
extended, restated, replaced, or (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including, without limitation, increasing the amount of
available borrowings thereunder, and all Obligations with respect thereto, in
each case, to the extent permitted by the "Limitation on Incurrence of
Indebtedness" covenant, or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders.
"Crystaloid Holdback" means an amount equal to $500,000 plus accrued
interest thereon, payable in accordance with the terms of the stock purchase
agreement, dated as of March 31, 1998, relating to the Crystaloid Acquisition.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Credit Agreement and (b) any other Senior Indebtedness permitted
under the Indenture the principal amount of which is $25.0 million or more and
that has been designated by the Company and, for so long as the Credit
Agreement is in effect, the Representative in a written notice to the Trustee
as "Designated Senior Indebtedness."
"Disqualified Stock" means any Capital Stock that by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part on, or
prior to, the maturity date of the Notes.
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"Domestic Subsidiary" of a Person means any direct or indirect Subsidiary of
such Person that is organized under the laws of any jurisdiction within the
United States, any district or territoriality thereof and The Commonwealth of
Puerto Rico.
"EBITDA" means, for any given period and person, the sum of, without
duplication, Consolidated Net Income, plus (a) the portion of Net Income
attributable to the minority interests in its Restricted Subsidiaries, to the
extent not included in calculating Consolidated Net Income, plus (b) any
provision for taxes based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income, plus
(c) Consolidated Interest Expense, to the extent deducted in computing
Consolidated Net Income, plus (d) the amortization of all intangible assets,
to the extent such amortization was deducted in computing Consolidated Net
Income (including, but not limited to, inventory write-ups, goodwill, debt and
financing costs, and Incentive Arrangements), plus (e) any non-capitalized
transaction costs incurred in connection with actual or proposed financings,
acquisitions or divestitures (including, but not limited to, financing and
refinancing fees, including those in connection with the Offering, to the
extent deducted in computing Consolidated Net Income), plus (f) all
depreciation and all other non-cash charges (including, without limitation,
those charges relating to purchase accounting adjustments and LIFO
adjustments), to the extent deducted in computing Consolidated Net Income,
plus (g) any interest income, to the extent such income was not included in
computing Consolidated Net Income, plus (h) all dividend payments on preferred
stock (whether or not paid in cash) to the extent deducted in computing
Consolidated Net Income, plus (i) any extraordinary or nonrecurring charge or
expense arising out of the implementation of SFAS 106 or SFAS 109 to the
extent deducted in computing Consolidated Net Income, plus (j) to the extent
not covered in clause (e) above, fees paid or payable in respect of the TJC
Management Agreement to the extent deducted in computing Consolidated Net
Income, plus (k) the net loss of any person, other than those of a Restricted
Subsidiary, to the extent deducted in computing Consolidated Net Income, plus
(l) net losses in respect of any discontinued operations as determined in
accordance with GAAP, to the extent deducted in computing Consolidated Net
Income plus (m) payments made in connection with SAR Agreements and grants of
stock options plus (n) the portion of Net Income attributable to the minority
interests in other persons to the extent received in cash by the Company or
its Restricted Subsidiaries.; provided that if any such calculation includes
any period during which an acquisition or sale of a person or the incurrence
or repayment of Indebtedness occurred, then such calculation for such period
shall be made on a Pro Forma Basis.
"Equity Interests" means Capital Stock or partnership interests or warrants,
options or other rights to acquire Capital Stock or partnership interests (but
excluding (i) any debt security that is convertible into, or exchangeable for,
Capital Stock or partnership interests, and (ii) any other Indebtedness or
Obligation); provided that Equity Interests will not include any Incentive
Arrangements or obligations or payments thereunder.
"Equity Offering" means a public or private offering by the Company for cash
of Capital Stock or other Equity Interests and all warrants, options or other
rights to acquire Capital Stock, other than (i) an offering of Disqualified
Stock or (ii) Incentive Arrangements or obligations or payments thereunder.
"Existing Stockholders" means (a) The Jordan Company and its affiliates, and
their respective principals, partners and employees, former employees, family
members of any of the foregoing and trusts for the benefit of any of the
foregoing, including, without limitation, MCIT PLC, Leucadia National
Corporation and Jordan Industries, Inc., and their respective Subsidiaries and
(b) the officers and directors of the Company on the date of original issuance
of the Notes and their respective affiliates and family members and trusts for
the benefit of any of the foregoing.
"GAAP" means generally accepted accounting principles, consistently applied,
as of the date of original issuance of the Notes. All financial and accounting
determinations and calculations under the Indenture will be made in accordance
with GAAP.
"Guarantors" means (i) each of the Domestic Subsidiaries of the Company on
the date of the Indenture and (ii) any other Subsidiary that executes a Note
Guarantee in accordance with the provisions of the Indenture, and their
respective successors and assigns.
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"Hedging Obligations" means, with respect to any person, the Obligations of
such persons under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) foreign exchange
contracts, currency swap agreements or similar agreements, and (iii) other
agreements or arrangements designed to protect such person against
fluctuations, or otherwise to establish financial hedges in respect of,
exchange rates, currency rates or interest rates.
"Incentive Arrangements" means any earn-out agreements, stock appreciation
rights, "phantom" stock plans, employment agreements, non-competition
agreements, subscription and stockholders agreements and other incentive and
bonus plans and similar arrangements made in connection with acquisitions of
persons or businesses by the Company or the Restricted Subsidiaries or the
retention of executives, officers or employees by the Company or the
Restricted Subsidiaries.
"Indebtedness" means, with respect to any person, any indebtedness, whether
or not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or representing the deferred and unpaid balance
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade
payable, and any Hedging Obligations, if and to the extent such indebtedness
(other than a Hedging Obligation) would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with GAAP,
and also includes, to the extent not otherwise included, the guarantee of
items that would be included within this definition; provided that
"Indebtedness" will not include any Incentive Arrangements or obligations or
payments thereunder.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy or similar case or proceeding, or any reorganization, receivership,
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, or (ii) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company.
"Investment" means any capital contribution to, or other debt or equity
investment in, any Person.
"issue" means create, issue, assume, guarantee, incur or otherwise become
directly or indirectly liable for any Indebtedness or Capital Stock, as
applicable; provided that any Indebtedness or Capital Stock of a person
existing at the time such person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be issued
by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary.
For this definition, the terms "issuing," "issuer," "issuance" and "issued"
have meanings correlative to the foregoing.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell and any filing of or
agreement to give any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
or loss, together with any related provision for taxes, realized in connection
with any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions).
"Net Proceeds" means, with respect to any Asset Sale, the aggregate amount
of cash proceeds (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, and including
any amounts received as disbursements or withdrawals from any escrow or
similar account established in connection with any such Asset Sale, but, in
either such case, only as and when so received) received by the Company or any
of its Restricted Subsidiaries in respect of such Asset Sale, net of (i) the
cash expenses of such Asset Sale (including,
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without limitation, the payment of principal of, and premium, if any, and
interest on, Indebtedness required to be paid as a result of such Asset Sale
(other than the Notes) and legal, accounting, management and advisory and
investment banking fees and sales commissions), (ii) taxes paid or payable as
a result thereof, (iii) any portion of cash proceeds that the Company
determines in good faith should be reserved for post-closing adjustments, it
being understood and agreed that on the day that all such post-closing
adjustments have been determined, the amount (if any) by which the reserved
amount in respect of such Asset Sale exceeds the actual post-closing
adjustments payable by the Company or any of its Restricted Subsidiaries shall
constitute Net Proceeds on such date, (iv) any relocation expenses and
pension, severance and shutdown costs incurred as a result thereof, and (v)
any deduction or appropriate amounts to be provided by the Company or any of
its Restricted Subsidiaries as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company or such Restricted Subsidiary after such sale or other
disposition thereof, including, without limitation, pension and other post-
employment benefit liabilities and liabilities related to environmental
matters or against any indemnification obligations associated with such
transaction.
"Non-Restricted Subsidiary" means any Subsidiary of the Company other than a
Restricted Subsidiary.
"Obligations" means, with respect to any Indebtedness, all principal,
interest (including post-petition interest thereon), premiums, penalties,
fees, indemnities, expenses (including legal fees and expenses), reimbursement
obligations (contingent or otherwise) and other liabilities payable to the
holder of such Indebtedness under the documentation governing such
Indebtedness, and any other claims of such holder arising in respect of such
Indebtedness.
"Other Permitted Indebtedness" means:
(i) Indebtedness of the Company and its Restricted Subsidiaries existing
as of the date of original issuance of the Notes and all related
Obligations as in effect on such date;
(ii) Indebtedness of the Company and its Restricted Subsidiaries in
respect of bankers acceptances and letters of credit (including,
without limitation, letters of credit in respect of workers'
compensation claims) issued in the ordinary course of business, or
other Indebtedness in respect of respect to reimbursement-type
obligations regarding workers' compensation claims;
(iii) Refinancing Indebtedness, provided that: (A) the principal amount
of such Refinancing Indebtedness shall not exceed the outstanding
principal amount of Indebtedness (including unused commitments)
extended, refinanced, renewed, replaced, substituted or refunded,
plus any amounts incurred to pay premiums, fees and expenses in
connection therewith; (B) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being
extended, refinanced, renewed, replaced, substituted or refunded;
provided that this limitation in this clause (B) does not apply to
Refinancing Indebtedness of Senior Indebtedness; and (C) in the
case of Refinancing Indebtedness of Subordinated Indebtedness, such
Refinancing Indebtedness shall be subordinated to the Notes at
least to the same extent as the Subordinated Indebtedness being
extended, refinanced, renewed, replaced, substituted or refunded;
(iv) intercompany Indebtedness of and among the Company and its
Restricted Subsidiaries (excluding guarantees by Restricted
Subsidiaries of Indebtedness of the Company not issued in compliance
with the "Limitation on Guarantees of Company Indebtedness by
Restricted Subsidiaries" covenant);
(v) Indebtedness of the Company and its Restricted Subsidiaries incurred
in connection with making permitted Restricted Payments under
clauses (iii), (iv) (but only to the extent that such Indebtedness
is provided by the Company or a Restricted Subsidiary) or (x) of the
second sentence of the "Limitation on Restricted Payments" covenant;
provided that any Indebtedness incurred pursuant to this clause (v)
is expressly subordinated in right of payment to the Notes;
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(vi) Indebtedness of any Non-Restricted Subsidiary created after the date
of original issuance of the Notes, provided that such Indebtedness
is nonrecourse to the Company and its Restricted Subsidiaries and
the Company and its Restricted Subsidiaries have no Obligations with
respect to such Indebtedness;
(vii) Indebtedness of the Company and its Restricted Subsidiaries under
Hedging Obligations;
(viii) Indebtedness of the Company and its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertently (except in
the case of daylight overdrafts, which will not be, and will not
be deemed to be, inadvertent) drawn against insufficient funds in
the ordinary course of business;
(ix) Indebtedness of any person at the time it is acquired as a
Restricted Subsidiary, provided that such Indebtedness was not
issued by such person in connection with or in anticipation of such
acquisition;
(x) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary, if the Indebtedness so guaranteed is
permitted under the Indenture;
(xi) guarantees by a Restricted Subsidiary of Indebtedness of the
Company, if the Indebtedness so guaranteed is permitted under the
Indenture and, to the extent required by the "Limitation on
Guarantees of Company Indebtedness by Restricted Subsidiaries"
covenant, guarantees of the Notes by such Restricted Subsidiary;
(xii) guarantees by the Company of Indebtedness of any Restricted
Subsidiary, if the Indebtedness so guaranteed is permitted under
the Indenture;
(xiii) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar
bonds in the ordinary course of business;
(xiv) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase
price adjustments and similar obligations in connection with the
sale or disposition of any of their business, properties or assets;
and
(xv) Indebtedness of the Company represented by the Notes and
Indebtedness of the Guarantors represented by the Note Guarantees.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities of the Company that are subordinated to all Senior Indebtedness
(and any debt securities issued in exchange for Senior Indebtedness) to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Indebtedness.
"Permitted Liens" means:
(a) with respect to the Company and its Restricted Subsidiaries,
(1) Liens for taxes, assessments, governmental charges or claims which
are being contested in good faith by appropriate proceedings
promptly instituted and diligently conducted and if a reserve or
other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor;
(2) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by
appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP
shall have been made therefor;
(3) Liens incurred on deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and
other types of social security;
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(4) Liens incurred on deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal
bonds, government contracts, performance and return of money bonds
and other obligations of a like nature incurred in the ordinary
course of business (exclusive of obligations for the payment of
borrowed money);
(5) easements, rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the
business of the Company or any of its Restricted Subsidiaries
incurred in the ordinary course of business;
(6) Liens (including extensions, renewals and replacements thereof) upon
property acquired (the "Acquired Property") after the date of
original issuance of the Notes, provided that: (A) any such Lien is
created solely for the purpose of securing Indebtedness
representing, or issued to finance, refinance or refund, the cost
(including the cost of construction) of the Acquired Property, (B)
the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of the cost of the Acquired Property, (C) such Lien
does not extend to or cover any property other than the Acquired
Property and any improvements on such Acquired Property, and (D) the
issuance of the Indebtedness to purchase the Acquired Property is
permitted by the "Limitation on Incurrence of Indebtedness"
covenant;
(7) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with
the importation of goods;
(8) judgment and attachment Liens not giving rise to an Event of
Default;
(9) leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of its
Restricted Subsidiaries;
(10) Liens securing Indebtedness under Hedging Obligations;
(11) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements;
(12) Liens arising out of consignment or similar arrangements for the
sale of goods entered into by the Company or its Restricted
Subsidiaries in the ordinary course of business;
(13) any interest or title of a lessor in property subject to any capital
lease obligation or operating lease;
(14) Liens arising from filing Uniform Commercial Code financing
statements regarding leases;
(15) Liens existing on the date of original issuance of the Notes and any
extensions, refinancings, renewals, replacements, substitutions or
refundings thereof;
(16) any Lien granted to the Trustee and any substantially equivalent
Lien granted to any trustee or similar institution under any
indenture for Senior Indebtedness permitted by the terms of the
Indenture; and
(17) additional Liens at any one time outstanding in respect of
properties or assets where aggregate fair market value does not
exceed $10,000,000 (the fair market value to be determined on the
date such Lien is granted on such properties or assets);
(b) with respect to the Restricted Subsidiaries,
(1) Liens securing Restricted Subsidiaries' reimbursement Obligations
with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and
proceeds thereof;
(2) Liens securing Indebtedness issued by Restricted Subsidiaries if
such Indebtedness is (A) under the Credit Agreement, or (B)
permitted by the first sentence of the "Limitation on Incurrence of
Indebtedness" covenant, clauses (i), (ii) or (iii) of the second
sentence of the "Limitation on
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Incurrence of Indebtedness" covenant, or clauses (i), (iii) (to the
extent the Indebtedness subject to such Refinancing Indebtedness was
subject to Liens), (vi), (vii), (ix) or (x) of the definition of
Other Permitted Indebtedness;
(3) Liens securing intercompany Indebtedness issued by any Restricted
Subsidiary to the Company or another Restricted Subsidiary; and
(4) Liens securing guarantees by Restricted Subsidiaries of Indebtedness
issued by the Company if such guarantees permitted by clause (xi)
(but only in respect of the property, rights and assets of the
Restricted Subsidiaries issuing such guarantees) of the definition
of Other Permitted Indebtedness;
(c) with respect to the Company,
(1) Liens securing Indebtedness issued by the Company if such
Indebtedness is (A) under the Credit Agreement, or (B) if such
Indebtedness is permitted by the "Limitation on Incurrence of
Indebtedness" covenant (including, but not limited to, Indebtedness
issued by the Company under the Credit Agreement pursuant to clause
(i) and/or clause (iii) of the second sentence of "Limitation on
Incurrence of Indebtedness" covenant);
(2) Liens securing Indebtedness of the Company if such Indebtedness is
permitted by clauses (i), (iii) (to the extent the Indebtedness
subject to such Refinancing Indebtedness was subject to Liens) or
(vii) of the definition of Other Permitted Indebtedness;
(3) Liens securing guarantees by the Company of Indebtedness issued by
Restricted Subsidiaries if such Indebtedness is permitted by the
"Limitation on Incurrence of Indebtedness" covenant (including, but
not limited to, Indebtedness issued by Restricted Subsidiaries under
the Credit Agreement pursuant to clause (i) and/or clause (iii) of
the second sentence of the "Limitation on Incurrence of
Indebtedness" covenant) and if such guarantees are permitted by
clause (xii) (but only in respect of Indebtedness issued by the
Restricted Subsidiaries under the Credit Agreement pursuant to the
"Limitation on Incurrence of Indebtedness" covenant) of the
definition of Other Permitted Indebtedness; and
(4) Liens securing the Company's reimbursement obligations with respect
to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof.
provided that, notwithstanding any of the foregoing, the Permitted Liens
referred to in clause (c) of this definition shall not include any Lien on
Capital Stock of Restricted Subsidiaries held directly by the Company (as
distinguished from Liens on Capital Stock of Restricted Subsidiaries held by
other Restricted Subsidiaries) other than Liens securing (A) Indebtedness of
the Company issued under the Credit Agreement pursuant to the "Limitation on
Incurrence of Indebtedness" covenant and any permitted Refinancing Indebtedness
of such Indebtedness, and (B) guarantees by the Company of Indebtedness issued
by Restricted Subsidiaries under the Credit Agreement pursuant to the
"Limitation on Incurrence of Indebtedness" covenant and any permitted
Refinancing Indebtedness of such Indebtedness.
"Pro Forma Basis" means, for purposes of determining Consolidated Net Income
in connection with the Cash Flow Coverage Ratio (including in connection with
the "Limitation on Restricted Payments" covenant, the "Designation of
Restricted and Non-Restricted Subsidiaries" covenant, the "Merger or
Consolidation" covenant, the incurrence of Indebtedness pursuant to the first
sentence of the "Limitation on Incurrence of Indebtedness" covenant and
Consolidated Net Worth for purposes of the "Merger or Consolidation" covenant)
giving pro forma effect to (x) any acquisition or sale of a person, business or
asset, related incurrence, repayment or refinancing of Indebtedness or other
related transactions, including any Restructuring Charges which would otherwise
be accounted for as an adjustment permitted by Regulation S-X under the
Securities Act or on a pro forma basis under GAAP, or (y) any incurrence,
repayment or refinancing of any Indebtedness and the application of the
proceeds therefrom, in each case, as if such acquisition or sale and related
transactions,
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restructurings, consolidations, cost savings, reductions, incurrence,
repayment or refinancing were realized on the first day of the relevant period
permitted by Regulation S-X under the Securities Act or on a pro forma basis
under GAAP. Furthermore, in calculating the Cash Flow Coverage Ratio, (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of
the determination date and which will continue to be so determined thereafter
shall be deemed to have accrued at a fixed rate per annum equal to the rate of
interest on such Indebtedness in effect on the determination date, (2) if
interest on any Indebtedness actually incurred on the determination date may
optionally be determined at an interest rate based upon a factor of a prime or
similar rate, a eurocurrency interbank offered rate, or other rates, then the
interest rate in effect on the determination date will be deemed to have been
in effect during the relevant period, and (3) notwithstanding clause (1)
above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to interest rate swaps
or similar interest rate protection Hedging Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Redeemable Preferred Stock" means preferred stock that by its terms or
otherwise is required to be redeemed or is redeemable at the option of the
holder thereof on, or prior to, the maturity date of the Notes.
"Refinancing Indebtedness" means (i) Indebtedness of the Company and its
Restricted Subsidiaries issued or given in exchange for, or the proceeds of
which are used to, extend, refinance, renew, replace, substitute or refund any
Indebtedness permitted under this Indenture or any Indebtedness issued to so
extend, refinance, renew, replace, substitute or refund such Indebtedness,
(ii) any refinancings of Indebtedness issued under the Credit Agreement, and
(iii) any additional Indebtedness issued to pay premiums and fees in
connection with clauses (i) and (ii).
"Representative" means the agent or other representative in respect of the
Credit Agreement.
"Restricted Investment" means any Investment in any person; provided that
Restricted Investments will not include: (i) Investments in marketable
securities and other negotiable instruments permitted by the Indenture; (ii)
any Incentive Arrangements; (iii) Investments in the Company; (iv) Investments
in any Restricted Subsidiary (provided that any Investment in a Restricted
Subsidiary was made for fair market value (as determined by the Board of
Directors in good faith)); or (v) other Investments in an aggregate amount not
to exceed $15,000,000 at any time outstanding. The amount of any Restricted
Investment shall be the amount of cash and the fair market value at the time
of transfer of all other property (as determined by the Board of Directors in
good faith) initially invested or paid for such Restricted Investment, plus
all additions thereto, without any adjustments for increases or decreases in
value of or write-ups, write-downs or write-offs with respect to, such
Restricted Investment.
"Restricted Subsidiary" means (i) any domestic Subsidiary of the Company
existing on the date of original issuance of the Notes, and (ii) any other
Subsidiary of the Company formed, acquired or existing after the date of
original issuance of the Notes that is designated as a "Restricted Subsidiary"
by the Company pursuant to a resolution approved a majority of the Board of
Directors, provided that the term Restricted Subsidiary shall not include any
Subsidiary of the Company that has been redesignated by the Company pursuant
to a resolution approved by a majority of the Board of Directors as a Non-
Restricted Subsidiary in accordance with the "Designation of Restricted and
Non-Restricted Subsidiaries" covenant, unless such Subsidiary shall have
subsequently been redesignated a Restricted Subsidiary in accordance with
clause (ii) of this definition.
"Restructuring Charges" means any charges or expenses in respect of
restructuring or consolidating any business, operations or facilities, any
compensation or headcount reduction, or any other cost savings, of any persons
or businesses either alone or together with the Company or any Restricted
Subsidiary, as permitted by GAAP or Regulation S-X under the Securities Act.
"SAR Agreements" means stock appreciation rights agreements, dated on or
prior to the date of the Indenture, between the Company and each of Robert H.
Elkin, Christopher T. Paule and Mark R. Hefty, providing for, under certain
circumstances, an aggregate payment to such persons of up to 3.0% of the
equity value of the Company.
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"Senior Indebtedness" means, with respect to any Person, (a) all
Indebtedness of such Person outstanding under the Credit Agreement and all
guarantees thereof and all Hedging Obligations with respect thereto, (b) any
other Indebtedness of such person permitted to be incurred under the terms of
the Indenture, provided that Senior Indebtedness shall not include any
Indebtedness which by the terms of the instrument creating or evidencing the
same is subordinated or junior in right of payment to any other Senior
Indebtedness in any respect, and (c) all Obligations (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowable claim under applicable law) with respect to the
foregoing, in each case, whether outstanding on the date of the Indenture or
thereafter incurred. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (i) any liability for federal,
state, local or other taxes owed or owing by the Company, (ii) any
Indebtedness of such Person to any of its Subsidiaries or other Affiliates
(other than pursuant to the Credit Facility), (iii) any trade payables or
other liability to trade creditors arising in the ordinary course of business
(including guarantees thereof or instruments evidencing such liabilities) or
(iv) any Indebtedness that is incurred in violation of the Indenture.
"SFAS 106" means Statement of Financial Accounting Standards No. 106.
"SFAS 109" means Statement of Financial Accounting Standards No. 109.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in clause (2) of the definition
of such term in Rule 1-02 of Regulation S-X under the Securities Act and the
Exchange Act.
"Subordinated Indebtedness" means all Obligations with respect to
Indebtedness if the instrument creating or evidencing the same, or pursuant to
which the same is outstanding, designates such Obligations as subordinated or
junior in right of payment to Senior Indebtedness.
"Subsidiary" of any person means any entity of which the Equity Interests
entitled to cast at least a majority of the votes that may be cast by all
Equity Interests having ordinary voting power for the election of directors or
other governing body of such entity are owned by such person (regardless of
whether such Equity Interests are owned directly by such person or through one
or more Subsidiaries).
"TJC Management Agreement" means the Management Consulting Agreement,
between the Company and The Jordan Company Management Corporation, as in
effect on the date of the Indenture.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect the board of directors.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the sum of the product(s)
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other requirement payment of principal,
including payment at final maturity, in respect thereof, by (b) the number of
years (calculated to the nearest one-twelfth) which will elapse between such
date and the making of such payment.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account as a result
of market-making activities or other trading activities in connection with the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 120 days after
the Expiration Date, it will make available a prospectus meeting the
requirements of the Securities Act to any broker-dealer for use in connection
with any such resale. In addition, until December 15, 1998, all dealers
effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing
of options on the New Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers of any such New Notes. Any broker-dealer that resells
New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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CERTAIN TAX CONSIDERATIONS
The following general discussion is a summary of the material U.S. federal
income tax considerations relevant to the acquisition, ownership and
disposition of the Notes acquired in the Offering, but does not purport to be
a complete analysis of all potential tax effects. The discussion is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service (the "IRS") rulings and pronouncements
and judicial decisions all in effect as of the date hereof, and all of which
are subject to change at any time. Any such change may be applied
retroactively in a manner that could adversely affect a holder of the Notes.
The discussion does not address all of the U.S. federal income tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances or to holders subject to special rules (such as
certain financial institutions, insurance companies, dealers in securities,
foreign corporations, nonresident alien individuals and persons holding the
Notes as part of a "straddle," "hedge" or "conversion transaction"). Moreover,
the effect of any applicable state, local or foreign tax laws is not
discussed. The discussion deals only with Notes held as "capital assets"
within the meaning of Section 1221 of the Code.
The Company has not sought and will not seek any rulings from the IRS with
respect to any position of the Company discussed below. There can be no
assurance that the IRS will not take a different position from the Company
concerning aspects of the tax consequences of the acquisition, ownership or
disposition of the Notes or that any such position would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER
TAX LAWS.
U.S. HOLDERS
The following is a general discussion of certain U.S. federal income and tax
consequences of ownership of the Notes by a beneficial owner of the Notes who
is a U.S. Holder and who holds the Notes as a capital asset. For purposes of
this discussion, a "U.S. Holder" means a citizen or resident (as defined in
Section 7701(b) of the Code) of the United States, a corporation, partnership
or other entity created or organized in the United States or any political
subdivision thereof, an estate whose income is includible in gross income for
U.S. federal income tax purposes regardless of its source, or a trust if (i) a
court within the United States is able to exercise primary supervision over
the administration of the trust and (ii) one or more U.S. persons have the
authority to control all substantial decisions of the trust.
Interest Income and Gain on Disposition
Interest payable on the Notes will be includible in the income of a U.S.
Holder in accordance with such holder's regular method of accounting. If a
Note is redeemed, sold or otherwise disposed of, a U.S. Holder generally will
recognize gain or loss equal to the difference between the amount realized on
the sale or other disposition of such Note (to the extent such amount does not
represent accrued but unpaid interest, which will be taxed as ordinary
interest income) and such holder's tax basis in the Note. Such gain or loss
generally will be capital gain or loss, provided that the U.S. Holder has held
the Note as a capital asset. In general, the maximum tax rate for non-
corporate taxpayers on capital gains is 20% for most capital assets (including
the Notes) held for more than 18 months. Capital gain on such assets for non-
corporate holders having a holding period of more than one year but not more
than 18 months will be subject to a maximum tax rate of 28%.
Information Reporting and Backup Withholding
A U.S. Holder of a Note may be subject to "backup withholding" at a rate of
31% with respect to certain "reportable payments," including interest payments
and, under certain circumstances, principal payments on the Notes. These
backup withholding rules apply if the holder, among other things, (i) fails to
furnish a social
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security number or other taxpayer identification number ("TIN") certified
under penalties of perjury within a reasonable time after the request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly the
receipt of interest or (iv) under certain circumstances, fails to provide a
certified statement, signed under penalties of perjury, that the TIN furnished
is the correct number and that such holder is not subject to backup
withholding. A holder who does not provide the Company with its correct TIN
also may be subject to penalties imposed by the IRS. Any amount withheld from
a payment to a holder under the backup withholding rules is creditable against
the holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS. Backup withholding will not apply,
however, with respect to payments made to certain holders, including
corporations and tax-exempt organizations, provided their exemptions from
backup withholding are properly established.
The Company will report to U.S. Holders and to the IRS the amount of any
"reportable payments" for each calendar year and the amount of U.S. federal
income tax withheld, if any, with respect to such payments.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income and estate
tax consequences relevant to a Non-U.S. Holder. As used herein, a "Non-U.S.
Holder" is any holder other than a U.S. Holder. For purposes of withholding
tax on interest discussed below, a Non-U.S. Holder includes a non-resident
fiduciary of an estate or trust. In addition, for purposes of the following
discussion, interest and gain on the sale, exchange or other disposition of a
Note generally will be considered to be "U.S. trade or business income" if
such income or gain is (i) effectively connected with the conduct of a U.S.
trade or business or (ii) in the case of most treaty residents, attributable
to a permanent establishment (or, in the case of an individual, a fixed base)
in the United States.
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning U.S. trade or business income and backup
withholding:
(a) Generally, interest paid to a Non-U.S. Holder of a Note that is not
U.S. trade or business income will not be subject to U.S. tax if the
interest qualifies as "portfolio interest. " Interest on the Notes
generally will qualify as portfolio interest if (i) the beneficial owner
does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote within
the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) the beneficial owner is not a controlled foreign
corporation that is related to the Company through stock ownership within
the meaning of the Code, (iii) the beneficial owner is not a bank receiving
interest on an extension of credit made pursuant to a loan agreement made
in the ordinary course of its business and (iv) the beneficial owner
satisfies the statement requirement (described generally below) set forth
in section 871(h) and section 881(c) of the Code and the regulations
thereunder;
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. Holder upon the sale,
exchange or retirement of a Note; and
(c) a Note beneficially owned by an individual who at the time of his or
her death is not a citizen or resident (as specifically defined for U.S.
estate tax purposes) of the United States will not be subject to U.S.
federal estate tax at the time of such individual's death, provided that
the interest thereon qualifies as portfolio interest and was not U.S. trade
or business income.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of a Note, or a financial institution holding the Note on behalf of such
owner, must provide, in accordance with specified procedures, the Company, or
a paying agent, as the case may be, with a statement to the effect that the
beneficial owner is not a U.S. person. Currently these requirements will be
met if (1) the beneficial owner provides his or her name and address, and
certifies, under penalties of perjury, that he or she is not a U.S. person
(which certification may be made on an IRS Form W-8) or (2) a securities
clearing organization, bank or other financial institution that holds customer
securities in the ordinary course of its trade or business (a "Financial
Institution") and holds the Note on behalf of a beneficial owner thereof,
certifies, under penalties of perjury, that such certificate has been received
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by it or by a Financial Institution between it and the beneficial owner and
furnishes the payor with a copy thereof. Under recently finalized Treasury
regulations (the "Final Regulations"), the statement requirement referred to
in (a)(iv) above also may be satisfied with other documentary evidence for
interest paid after December 31, 1999 with respect to an offshore account or
through certain foreign intermediaries. The Final Regulations generally will
require, in the case of Notes held by a foreign partnership, that the
certificate described above be provided by the partners rather than by the
foreign partnership, and that the partnership provide certain information,
including a U.S. TIN.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest made to such
Non-U.S. Holder will be subject to 30% withholding unless the beneficial owner
of the Note provides the Company or its paying agent, as the case may be, with
a properly executed (1) IRS Form 1001 (or successor form) claiming an
exemption from withholding or a reduction in withholding under the benefit of
a tax treaty or (2) IRS Form 4224 (or successor form) stating that interest
paid on the Note is not subject to withholding because it is U.S. trade or
business income. Under the Final Regulations, Non-U.S. Holders generally will
be required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS Form
4224, although alternative documentation may be applicable in certain
situations.
U.S. trade or business income, although exempt from the withholding tax
discussed above, will be subject to U.S. federal income tax on a net income
basis at applicable graduated individual or corporate rates. In addition, if
such holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30% (or lower treaty rate) of its effectively connected earnings
and profits for the taxable year, subject to adjustments. For this purpose,
interest on a Note will be included in such foreign corporation's earnings and
profits.
Any gain or income realized upon the sale, exchange or retirement of a Note
generally will not be subject to U.S. federal income tax unless (i) such gain
is U.S. trade or business income, or (ii) in the case of a Non-U.S. Holder who
is an individual, such individual is present in the United States for 183 days
or more in the taxable year of such sale, exchange or retirement, and certain
other conditions are met.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to withholding, or that is exempt from U.S.
withholding pursuant to a tax treaty, or interest that is exempt from U.S. tax
under the portfolio interest exception. Copies of these information returns
may also be made available under the provisions of a specific treaty or
agreement to the tax authorities of the country in which the Non-U.S. Holder
resides.
Treasury Regulations provide that backup withholding and additional
information reporting will not apply to payments of principal on the Notes by
the Company to a Non-U.S. Holder if the holder certifies as to its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption
(provided that neither the Company nor any paying agent has actual knowledge
that the holder is a U.S. person or that the conditions of any other exemption
are not, in fact, satisfied).
The payment of the proceeds from the disposition of Notes to or through the
U.S. office of any broker, U.S. or foreign, will be subject to information
reporting and possible backup withholding at a rate of 31% unless the owner
certifies as to its Non-U.S. Holder status under penalty of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the holder is a U.S. person or that the conditions of
any other exemption are not, in fact, satisfied. The payment of the proceeds
from the disposition of a Note to or through a non-U.S. office of a non-U.S.
broker that is not a U.S. related person will not be subject to information
reporting or backup withholding. In the case of the payment of proceeds from
the disposition of a Note to or through a non-U.S. office of a broker that is
either a U.S. person or a U.S. related person, information reporting is
required on the payment unless the broker has documentary evidence in its
files that the owner is a Non-U.S. Holder and the broker has no knowledge to
the contrary. Backup withholding will not apply to payments made through
foreign offices of a broker that is not a U.S. person or a U.S. related person
(absent actual knowledge
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that the payee is a U.S. person). For purposes of this paragraph, a "U.S.
related person" is (i) a "controlled foreign corporation" for U.S. federal
income tax purposes, (ii) a foreign person 50% or more of whose gross income
from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business or (iii) with respect
to payments made after December 31, 1999, a foreign partnership that, at any
time during its taxable year, is 50% or more (by income or capital interest)
owned by U.S. persons or is engaged in the conduct of a U.S. trade or
business. The Final Regulations provide certain presumptions under which a
Non-U.S. Holder will be subject to backup withholding and information
reporting unless the Non-U.S. Holder provides a certification as to its non-
U.S. Holder status.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
LIQUIDATED DAMAGES
The treatment of interest described above with respect to the Notes is based
in part upon the Company's determination that, as of the date of issuance of
the Notes, the possibility that Liquidated Damages would be paid to holders of
the Notes pursuant to a Registration Default will be remote. See "Description
of Notes--Registration Rights; Liquidated Damages" The IRS may take a
different position, which could affect the timing and character of interest
income reported by holders of the Notes. While not free from doubt, if such
Liquidated Damages are in fact paid, the Company believes the Liquidated
Damages will be taxable to a holder as ordinary income in accordance with such
holder's method of accounting.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of a Note for an Exchange Note pursuant to the Exchange Offer
will not be taxable to an exchanging holder for U.S. federal income tax
purposes. As a result (i) an exchanging holder will not recognize any gain or
loss on the exchange, (ii) the holding period for the Exchange Note will
include the holding period for the Note and (iii) the holder's basis in the
Exchange Note will be the same as its basis in the Note.
The Exchange Offer will result in no U.S. federal income tax consequences to
a nonexchanging holder of Notes.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSTITUTE TAX ADVICE
AND IS NOT BASED UPON ANY OPINION OF COUNSEL. ACCORDINGLY, EACH INVESTOR
SHOULD CONSULT ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF
PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED
CHANGES IN APPLICABLE LAWS.
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LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Mayer,
Brown & Platt, New York, New York.
EXPERTS
The consolidated financial statements of (i) Jackson Products, Inc. and
subsidiaries as of December 31, 1997 and 1996, for the years ended December
31, 1997 and 1996, and for the period from August 17, 1995 (inception) to
December 31, 1995 and (ii) Jackson Holding Company and subsidiary for the
period from January 1, 1995 to August 16, 1995, have been included herein and
in the registration statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The combined financial statements of American Allsafe Company and
Silencio/Safety Direct, Inc. (wholly-owned subsidiaries of NCH Corporation) as
of April 30, 1997 and for the year then ended, have been included herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the New Notes, reference is hereby made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to in the Registration
Statement are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Upon consummation of the Exchange Offer, the Company will
become subject to the periodic and other informational requirements of the
Exchange Act. Periodic reports and other information filed by the Company with
the Commission may be inspected at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, or at its regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York, New York 10048 at prescribed rates. Such materials may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
98
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated statement of operations of the Company
for 1997 and the six months ended June 30, 1998 gives effect to: (i) the
Acquisitions; (ii) the acquisition of Lansec; and (iii) the Offering as if
each had occurred on the first day of the period presented for Statements of
Operations Data and Other Data.
The unaudited pro forma adjustments contained herein are based upon
historical information, preliminary estimates and certain assumptions
management deems appropriate. The Company believes that the assumptions used
in the pro forma financial statements provide a reasonable basis on which to
present such statements. The pro forma financial statements are provided for
information purposes only and should not be construed to be indicative of the
Company's results of operations or financial position had the Offerings and
the other events described above been consummated on or as of the dates
assumed, and are not intended to project the Company's results of operations
or its financial position for any future period or as of any future date. The
pro forma financial statements of the Company and accompanying notes should be
read in conjunction with the other financial statements and the notes thereto
appearing elsewhere in this Prospectus.
P-1
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
THE ALLSAFE CRYSTALOID PRO FORMA PRO
COMPANY/(1)//(2)/ ACQUISITION/(1)/ ACQUISITION/(2)/ ADJUSTMENTS/(3)/ FORMA
----------------- ---------------- ---------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Net sales............... $78,680 $9,882 $2,896 $ -- $91,458
Operating expenses;
Cost of sales......... 53,104 6,117 2,206 -- 61,427
Selling, general and
administrative....... 11,965 2,419 533 -- 14,917
Amortization of
intangibles.......... 3,763 12 -- 897 4,672
------- ------ ------ ------- -------
68,832 8,548 2,739 897 81,016
Operating income (loss). 9,848 1,334 157 (897) 10,442
Other
Interest expense...... (7,056) -- (75) (1,243) (8,374)
Amortization of
deferred financing
costs................ (757) -- -- -- (757)
Other................. (363) 14 -- -- (349)
------- ------ ------ ------- -------
Income (loss) before
income tax provision
and extraordinary item. 1,672 1,348 82 (2,140) 962
Income tax expense...... 313 -- -- -- 313
------- ------ ------ ------- -------
Income (loss) before
extraordinary
item(/4/).............. $ 1,359 $1,348 $ 82 $(2,140) $ 649
======= ====== ====== ======= =======
</TABLE>
- --------
(1) The Allsafe Acquisition column represents results of operations for
Allsafe for the period from January 1, 1998 through April 22, 1998. The
results of operations for the period from April 23, 1998 through June 30,
1998 are included in the results of operations of "The Company". All
amounts are based upon unaudited financial statements.
(2) The Crystaloid Acquisition column represents results of operations for
Crystaloid for the period from January 1, 1998 through April 23, 1998. The
results of operations for the period from April 24, 1998 through June 30,
1998 are included in the results of operations of "The Company". All
amounts are based upon unaudited financial statements.
(3) Gives effect to (i) the increase in interest expense associated with an
average increase in net borrowings for the Acquisitions, and assumes a
weighted average interest rate of 8.0% on the New Credit Facility and a
9.5% interest rate on the Notes; (ii) an increase in amortization expense
associated with the excess of the Allsafe and Crystaloid purchase price
over the allocated fair market value of the assets and liabilities.
Allsafe's and Crystaloid's intangibles are amortized over a five and three
year life respectively.
(4) Nonrecurring charges consisting of $7.6 million were charged to operations
upon the closing of the Transactions and are not reflected in the
unaudited pro forma consolidated statements of operations. The charges
reflect (i) the write-off of existing deferred financing fees of $4,870;
(ii) the write-off of the unamortized debt discount of $478 and (iii)
premium on the repayment of the Prior Notes of $2,210.
P-2
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
THE ALLSAFE LANSEC CRYSTALOID PRO FORMA PRO FORMA
COMPANY/(1)/ ACQUISITION/(2)/ ACQUISITION/(1)/ ACQUISITION ADJUSTMENTS 1997
------------ ---------------- ---------------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $123,417 $32,479 $9,137 $8,569 $ -- $173,602
Operating expenses:
Cost of sales......... 87,466 21,306 7,506 6,736 -- 123,014
Selling, general and
administrative....... 15,205 7,739 1,594 1,387 216 (/3/) 26,141
Write-down of assets.. 335 -- -- -- -- 335
Amortization of
intangibles.......... 16,378 -- -- -- 3,557(/4/) 19,935
-------- ------- ------ ------ ------- --------
Operating income (loss). 4,033 3,434 37 446 (3,773) 4,177
Other expense (income):
Interest expense(/5/). 12,050 -- 52 213 4,435 16,750
Amortization of
deferred financing
costs................ 1,261 -- -- -- (271) 990
Other................. 401 648 (137) -- -- 912
-------- ------- ------ ------ ------- --------
Income (loss) before
income tax provision
and extraordinary
items.................. (9,679) 2,786 122 233 (7,937) (14,475)
Income tax expense...... 684 -- 51 72 -- 807
-------- ------- ------ ------ ------- --------
Income (loss) before
extraordinary
items(/6/)............. $(10,363) $ 2,786 $ 71 $ 161 $(7,937) $(15,282)
======== ======= ====== ====== ======= ========
</TABLE>
- --------
(1) Due to the immateriality of Lansec's results of operations subsequent to
its acquisition, the Company's results for 1997 do not give effect to the
operations of Lansec, which was acquired by the Company on October 29,
1997. The Lansec Acquisition column represents the results of operations
for the twelve months ended December 31, 1997.
(2) The results of operations for Allsafe for the twelve months ended December
31, 1997 are based upon the audited financial statements for Allsafe for
the twelve months ended April 30, 1997, included elsewhere in this
Offering Circular, the unaudited financial statements of Allsafe for the
eight months ended December 31, 1997 and the unaudited financial
statements of Allsafe for the eight months ended December 31, 1996.
(3) Represents increased selling, general and administrative expenses as a
result of the Lansec acquisition.
(4) Represents an increase in amortization expense associated with the excess
of cost over the net tangible assets acquired for the Allsafe Acquisition
and the Crystaloid Acquisition. These intangibles consists primarily of
patents and goodwill and are amortized over their estimated useful lives
of 3 to 15 years.
(5) Reflects an increase in interest expense associated with an average
increase in net borrowings for the Acquisitions, and assumes a weighted
average interest rate of 8.0% on the New Credit Facility and a 9.50%
interest rate on the Notes.
(6) Nonrecurring charges consisting of $7.8 million were charged to operations
upon the closing of the Transactions and are not reflected in the
unaudited pro forma consolidated statement of operations. The charges
reflect (i) the write-off of existing deferred financing fees of $5,180,
(ii) the write-off of the unamortized debt discount of $494 and (iii)
premium on the repayment of the Prior Notes of $2,210.
P-3
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Jackson Products, Inc.--Audited
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets--December 31, 1997 and 1996................. F-3
Consolidated Statements of Operations--Years Ended December 31, 1997
and 1996 and period from August 17, 1995 (inception) to December 31,
1995................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)--Years Ended
December 31, 1997 and 1996 and period from August 17, 1995 (inception)
to December 31, 1995................................................... F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1997 and
1996 and period from August 17, 1995 (inception) to December 31, 1995.. F-6
Notes to Consolidated Financial Statements.............................. F-7
Jackson Products, Inc.--Unaudited
Consolidated Balance Sheet--June 30, 1998............................... F-26
Consolidated Statements of Operations--Six Months Ended June 30, 1998
and 1997............................................................... F-27
Consolidated Statements of Cash Flows--Six Months Ended June 30, 1998
and 1997............................................................... F-28
Notes to Consolidated Financial Statements.............................. F-29
Jackson Holding Company (Predecessor)--Audited
Independent Auditors' Report............................................ F-36
Consolidated Statement of Operations--January 1, 1995 to August 16,
1995................................................................... F-37
Consolidated Statement of Stockholders' Equity--January 1, 1995 through
August 16, 1995....................................................... F-38
Consolidated Statement of Cash Flows--January 1, 1995 through August 16,
1995................................................................... F-39
Notes to Consolidated Financial Statements.............................. F-40
American Allsafe Company and Silencio/Safety Direct, Inc.--Audited
Independent Auditors' Report............................................ F-48
Combined Balance Sheets--April 22, 1998 and April 30, 1997.............. F-49
Combined Statements of Earnings--Period from May 1, 1997 to April 22,
1998 and Years Ended April 30, 1997 and 1996........................... F-50
Combined Statements of Stockholders' Equity--Period from May 1, 1997 to
April 22, 1998 and Years Ended April 30, 1997 and 1996................. F-51
Combined Statements of Cash Flows--Period from May 1, 1997 to April 22,
1998 and Years Ended April 30, 1997 and 1996........................... F-52
Notes to Combined Financial Statements.................................. F-53
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jackson Products, Inc.:
We have audited the accompanying consolidated balance sheets of Jackson
Products, Inc. and subsidiaries (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1997 and
1996 and for the period from August 17, 1995 (inception) through December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jackson
Products, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years ended December
31, 1997 and 1996 and for the period from August 17, 1995 (inception) through
December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri,
March 27, 1998, except for note 14
as to which the date is April 16, 1998.
F-2
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT SHARE
DATA)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 523 $ --
Accounts receivable, net of allowance for doubtful
accounts of $404 and $467 in 1997 and 1996 respectively. 14,888 13,003
Inventories.............................................. 22,837 19,074
Prepaid expenses......................................... 409 240
-------- --------
Total current assets................................... 38,657 32,317
Property, plant and equipment.............................. 20,818 21,863
Intangibles................................................ 60,050 74,394
Deferred financing costs................................... 5,180 6,441
Other noncurrent assets ................................... 342 --
-------- --------
$125,047 $135,015
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Current maturities of long-term obligations.............. $ 6,120 $ 6,080
Accounts payable......................................... 11,432 7,783
Other accrued liabilities................................ 5,201 5,218
Accrued interest......................................... 2,102 2,071
Accrued taxes............................................ 534 22
-------- --------
Total current liabilities.............................. 25,389 21,174
-------- --------
Long-term debt............................................. 106,381 110,235
Other non-current liabilities.............................. 3,603 3,465
Series A cumulative, 13.25%, exchangeable preferred stock,
$.01 par value; 2,000 shares authorized, 1,700 shares
issued and outstanding (liquidation value of $23,065 and
$20,287 in 1997 and 1996, respectively) .................. 20,951 17,879
Stockholders' deficit:
Class A common stock, $.01 par value; 100,000 shares
authorized; 40,000 shares issued and outstanding at
December 31, 1997 and 1996.............................. -- --
Class C common stock, $.01 par value; 15,000 shares
authorized; 8,526 and 9,048 shares issued and
outstanding at December 31, 1997 and 1996,
respectively............................................ -- --
Additional paid-in capital............................... 7,102 7,154
Cumulative translation adjustment........................ (106) (22)
Loans due on common stock................................ (343) (375)
Accumulated deficit...................................... (37,930) (24,495)
-------- --------
Total stockholders' deficit............................ (31,277) (17,738)
-------- --------
$125,047 $135,015
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROMAUGUST 17, 1995
(INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 17,
DECEMBER 31, TO
------------------ DECEMBER 31,
1997 1996 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales............................. $123,417 $111,788 $37,558
Operating expenses:
Cost of sales....................... 87,466 80,485 30,566
Selling, general and administrative. 15,205 14,440 4,965
Write-down of assets................ 335 1,050 --
Amortization of intangibles......... 16,378 18,849 1,688
-------- -------- -------
Total operating expenses.............. 119,384 114,824 37,219
Operating income (loss)............... 4,033 (3,036) 339
Other:
Interest expense.................... (12,050) (11,306) (4,381)
Amortization of deferred financing
costs.............................. (1,261) (1,076) (340)
Other............................... (401) (599) 14
-------- -------- -------
Loss before income tax provision...... (9,679) (16,017) (4,368)
Income tax expense.................... 684 429 --
-------- -------- -------
Net loss.............................. $(10,363) $(16,446) $(4,368)
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD
FROM AUGUST 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
CLASS CLASS LOANS
A C ADDITIONAL CUMULATIVE DUE ON
COMMON COMMON PAID-IN TRANSLATION COMMON ACCUMULATED
STOCK STOCK CAPITAL ADJUSTMENT STOCK DEFICIT TOTAL
------ ------ ---------- ----------- ------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock.................. $ 40 $ 10 $4,863 $ -- $(427) $ -- $ 4,486
Issuance of warrants.... -- -- 3,230 -- -- -- 3,230
Issuance of preferred
stock.................. -- -- (894) -- -- -- (894)
Accrued dividends--
preferred stock........ -- -- -- -- -- (845) (845)
Accretion of preferred
stock.................. -- -- -- -- -- (106) (106)
Cumulative translation
adjustment............. -- -- -- 14 -- -- 14
Net loss................ -- -- -- -- -- (4,368) (4,368)
---- ---- ------ ----- ----- -------- --------
Balance, December 31,
1995................... 40 10 7,199 14 (427) (5,319) 1,517
Reverse stock split..... (40) (10) 50 -- -- -- --
Repurchase of common
stock.................. -- -- (140) -- 60 -- (80)
Sale of common stock.... -- -- 45 -- (8) -- 37
Accrued dividends--
preferred stock........ -- -- -- -- -- (2,442) (2,442)
Accretion of preferred
stock.................. -- -- -- -- -- (288) (288)
Cumulative translation
adjustment............. -- -- -- (36) -- -- (36)
Net loss................ -- -- -- -- -- (16,446) (16,446)
---- ---- ------ ----- ----- -------- --------
Balance, December 31,
1996................... -- -- 7,154 (22) (375) (24,495) (17,738)
Repurchase of common
stock.................. -- -- (52) -- 32 -- (20)
Accrued dividends--
preferred stock........ -- -- -- -- -- (2,778) (2,778)
Accretion of preferred
stock.................. -- -- -- -- -- (294) (294)
Cumulative translation
adjustment............. -- -- -- (84) -- -- (84)
Net loss................ -- -- -- -- -- (10,363) (10,363)
---- ---- ------ ----- ----- -------- --------
Balance, December 31,
1997................... $-- $-- $7,102 $(106) $(343) $(37,930) $(31,277)
==== ==== ====== ===== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
PERIOD FROM AUGUST 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 17,
DECEMBER 31, TO
------------------ DECEMBER 31,
1997 1996 1995
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................... $(10,363) $(16,446) $ (4,368)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............... 3,914 4,282 1,453
Write down of assets........................ 335 1,050 --
Net gain on sale of assets.................. (298) -- --
Amortization of deferred financing costs,
intangibles, and debt discount............. 17,706 19,989 2,048
Changes in operating assets and liabilities
net of effects of acquisitions:
Accounts receivable........................ (409) (7) 4,775
Inventories................................ (4,725) 378 4,058
Accounts payable........................... 3,169 (286) (1,267)
Accrued and other liabilities.............. 611 (2,327) (1,297)
Accrued interest........................... 31 159 1,912
Accrued taxes.............................. 459 54 (37)
Other, net................................. (117) (13) 133
-------- -------- --------
Net cash provided by operating activities.... 10,313 6,833 7,410
Cash flows from investing activities:
Acquisition of businesses.................... (2,461) (14,947) (129,000)
Deferral of acquisition price, net of
payments ................................... (1,695) 2,125 --
Capital expenditures......................... (3,246) (1,910) (465)
Proceeds from sale of assets................. 1,512 180 311
-------- -------- --------
Net cash used in investing activities........ (5,890) (14,552) (129,154)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term
obligations................................. -- 13,634 115,153
Repurchase of common stock, net of loan
repayments ................................. (20) (53) --
Equity proceeds ............................. -- -- 22,219
Financing costs ............................. -- (856) (8,200)
Repayment of long-term obligations........... (3,880) (5,006) (7,553)
-------- -------- --------
Net cash (used in) provided by financing
activities.................................. (3,900) 7,719 121,619
-------- -------- --------
Increase (decrease) in cash and cash
equivalents.................................. 523 -- (125)
Cash and cash equivalents, beginning of
period....................................... -- -- 125
-------- -------- --------
Cash and cash equivalents, end of period...... $ 523 $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) THE COMPANY
Jackson Acquisition Corp., a Delaware corporation, was formed on July 27,
1995 for the purpose of acquiring (the Acquisition) all of the outstanding
common stock of Jackson Holding Company (Holding). On August 17, 1996, Jackson
Acquisition Corp. purchased all of the outstanding stock of Holding for
$129,000, with Holding the surviving corporation. Prior to the Acquisition,
Holding owned 100% of the outstanding common stock of Jackson Products, Inc.
Immediately following the Acquisition, Jackson Products, Inc. was merged into
Holding with Holding being the surviving corporation and renamed Jackson
Products, Inc. (the Company). The acquisition was accounted for using the
purchase method of accounting. Accordingly, total purchase cost was allocated
to the assets and liabilities of the Company based on their respective fair
values. Intangible assets totaling approximately $80,662 were recorded in
connection with the acquisition and are being amortized over 5-15 years.
The Company is engaged in the manufacture, design, and distribution of
safety equipment used primarily in the cutting and welding, construction, and
general industrial markets. In addition, the Company manufactures electric
welding accessories and precision layout and measuring tools used in the
cutting and welding industry.
The Company owns 100% of the outstanding common stock of Flex-O-Lite, Inc.;
OSD Envizion, Inc. (OSD); and Lansec Holding GmbH (GmbH). Flex-O-Lite, Inc. is
engaged in the manufacture, design, and distribution of highway and industrial
safety products in addition to reflective glass beads used in highway and
industrial applications. OSD is engaged in the manufacture and design of auto-
darkening filter lenses for welding helmets. GmbH is engaged in the assembly
and distribution of safety equipment in Europe.
(2) ACQUISITIONS
On October 29, 1997, GmbH acquired all of the outstanding stock of Lansec
GmbH and Lansec S.A. for $2,461 (the Lansec Acquisition). On October 22, 1996,
the Company acquired all of the outstanding stock of OSD for $14,947 (the OSD
Acquisition). As of December 31, 1996, $2,125 of the purchase price was
payable in 1997 based upon certain performance requirements which were met and
paid during 1997. The OSD Acquisition and the Lansec Acquisition were
accounted for using the purchase method of accounting. Accordingly, total
purchase cost for each of these transactions has been allocated to the assets
and liabilities of the Company based on their respective fair values. The
determination of the final fair values of assets acquired and liabilities
assumed resulted in certain adjustments from initially recorded values at
December 31, 1996 and 1995. The results of operations of the acquired
businesses have been included in the consolidated financial statements since
their respective acquisition dates, except for Lansec, whose results
subsequent to the acquisition were immaterial to 1997. Intangible assets
totaling approximately $14,251 and $2,034 were recorded in connection with the
OSD Acquisition and Lansec Acquisition, respectively.
Had the Lansec Acquisition and the OSD Acquisition occurred at the beginning
of their respective years of acquisition, pro forma net sales would have been
$133,300 and $127,000 for 1997 and 1996, respectively, and the pro forma net
loss would have been $10,400 and $14,400 for 1997 and 1996, respectively.
These amounts represent unaudited data and in management's opinion are not
indicative of actual results had the acquisitions been consummated at the
beginning of the respective fiscal years.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Flex-O-Lite, Inc., OSD, and GmbH. All
material intercompany balances and transactions have been eliminated in
consolidation.
F-7
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with initial maturities of
three months or less to be cash equivalents. Interest paid for the years ended
December 31, 1997 and 1996 and for the period from August 17, 1995 through
December 31, 1995 totaled $11,952, $11,083, and $2,449, respectively. Taxes
paid for the years ended December 31, 1997 and 1996 and for the period from
August 17, 1995 through December 31, 1995 totaled $224, $375, and $37,
respectively.
Revenue and Accounts Receivable
The Company recognizes revenue upon shipment of merchandise to its
customers. The Company's sales are primarily North American, with customers
generally located throughout the United States, Canada, and Europe.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. For the years ended December 31, 1997 and 1996 and for the period
from August 17, 1995 through December 31, 1995, the Company had two major
customers, each of whose purchases exceeded 10% of net sales. The percentage
of net sales to these customers totaled 12% and 13% respectively, for the
period ended December 31, 1997; 12% and 12% respectively, for the period ended
December 31, 1996; and 12% and 16% respectively for the period from August 17,
1995 through December 31, 1995. The outstanding accounts receivable balance
related to those customers represented 19% of the accounts receivable balances
at December 31, 1997 and 1996.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Elements of cost in inventory
include raw materials, direct labor, and manufacturing overhead.
Property, Plant, and Equipment
Property, plant, and equipment acquired through the purchases of businesses
is recorded at fair value. Subsequent additions and improvements to property,
plant, and equipment are capitalized at cost.
Depreciation is calculated using the straight-line method. The average
estimated lives utilized in calculating depreciation are as follows: buildings
and improvements, 7-40 years; and machinery and equipment, 2-18 years.
Leasehold improvements, which are included in buildings and improvements, are
depreciated over the shorter of the term of the respective lease or the life
of the respective improvement.
Intangibles
The excess of cost over the net tangible assets acquired consists of
patents, customer lists, technology-related agreements, and goodwill, and is
amortized on a straight-line basis over periods from 2-15 years. The Company
periodically re-evaluates the carrying value of its intangibles and its other
long-term assets based on the expected undiscounted cash flows over the
remaining life of the related assets.
Deferred Financing Costs
Deferred financing costs, consisting of fees and other expenses associated
with the debt financing, are amortized over the term of the related debt using
the effective interest method.
F-8
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Related-Party Transactions
In connection with the Acquisition and obtaining the related financing, the
Company entered into a Management Services Agreement (Agreement) with The
Jordan Company (Jordan), an affiliate of the Company. The Agreement provides
that the Company shall pay Jordan an annual fee of the higher of (i) $550 or
(ii) 2.5% of the Company's annual Earnings Before Interest Taxes Depreciation
and Amortization (EBITDA) as defined in the Agreement. For the years ended
December 31, 1997 and 1996 and for the period from August 17, 1995 through
December 31, 1995, the Company expensed $699, $550, and $207, respectively,
related to the Agreement. These amounts are included in other expense.
In connection with the Acquisition, the Company loaned certain employees
$427, of which $343 is outstanding as of December 31, 1997. All of the loans
are due upon the earlier of March 31, 2006, or within 90 days after a borrower
ceases to be an employee of the Company. The loans relate to the purchase of
common stock of the Company, are collateralized by the pledge of common shares
of the Company, may be prepaid in part or in full without notice or penalty,
and are represented by nonrecourse promissory notes which bear interest at a
rate per annum of 7%. The loans have been recorded as a reduction of
stockholders' equity in the consolidated financial statements.
Financial Instruments
The fair market value of those long-term obligations which carry variable
rates approximates carrying value since the interest rates are periodically
adjusted for changes in market interest rates. The fair market value of the
12.25% senior subordinated notes approximates carrying value as the rates
approximate those which could be obtained for similar issues with similar
maturities given the Company's overall financial condition.
The fair market values of the Company's other financial instruments included
in the consolidated balance sheets approximate the carrying values of the
financial instruments.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. The provision for income taxes includes federal and state income
taxes currently payable and those deferred because of temporary differences
between the financial statements and tax basis of assets and liabilities.
Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Comprehensive Income." SFAS No. 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The provisions of the Statement however, need not be applied to
immaterial items. The Company's comprehensive loss is impacted only by foreign
currency translation adjustments, which are immaterial in nature.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................ $ 9,780 $ 8,051
Work-in-process.......................................... 4,455 3,542
Finished goods........................................... 8,602 7,481
------- -------
$22,837 $19,074
======= =======
</TABLE>
F-9
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Land.................................................... $ 844 $ 844
Buildings and improvements.............................. 9,763 8,698
Machinery and equipment................................. 18,513 17,736
------- -------
29,120 27,278
Less accumulated depreciation........................... 8,302 5,415
------- -------
$20,818 $21,863
======= =======
</TABLE>
Depreciation expense totaled $3,657, $4,283, and $1,453 for the years ended
December 31, 1997 and 1996 and for the period from August 17, 1995 through
December 31, 1995, respectively.
(6) INTANGIBLES
Intangibles, net of accumulated amortization, consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Goodwill............................................. $ 67,488 $ 65,454
Customer lists....................................... 15,362 15,362
Patents, technology agreement, and other............. 14,114 14,114
-------- --------
96,964 94,930
Less accumulated amortization........................ 36,914 20,536
-------- --------
$ 60,050 $ 74,394
======== ========
(7) DEFERRED FINANCING COSTS
In connection with the Acquisition and the OSD Acquisition, the Company
recorded fees and expenses totaling $9,056. Costs of $7,856 related to debt
financing are included in deferred financing costs and are being amortized over
the term of the related debt instruments using the effective interest method.
Costs of $1,200 related to the issuance of the Company's common stock have been
recorded as a reduction in additional paid-in capital in the consolidated
financial statements.
(8) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Term loans........................................... $ 65,095 $ 69,975
Revolver............................................. 13,900 12,901
12.25% senior subordinated notes..................... 34,000 34,000
Unamortized debt discount............................ (494) (561)
-------- --------
112,501 116,315
Less current maturities.............................. 6,120 6,080
-------- --------
$106,381 $110,235
======== ========
</TABLE>
F-10
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, the schedule of principal payments is as follows:
<TABLE>
<S> <C>
1998........................................................... $ 6,120
1999........................................................... 6,150
2000........................................................... 7,000
2001........................................................... 11,630
2002........................................................... 15,985
Thereafter..................................................... 66,110
Unamortized debt discount...................................... (494)
--------
$112,501
========
</TABLE>
Credit Agreement
In connection with the Acquisition, the Company entered into a Credit
Agreement dated as of August 16, 1995. In connection with the OSD Acquisition,
the Company entered into a Second Amendment to the Credit Agreement dated as
of October 21, 1996 (collectively the "Credit Agreement"). Borrowings under
the Credit Agreement are secured by first priority mortgages and liens on
substantially all of the assets of the Company.
The Credit Agreement consists of a $25,000 Term A loan, a $23,000 Term B
loan, a $16,000 Term C loan, a $10,000 Term D loan (collectively, the "Term
Loans"), and a $28,000 revolving credit facility (Revolver). The Revolver
provides that up to $5,000 of such facility may be used for the issuance of
letters of credit and lender guaranties. There are letters of credit and
lender guaranties totaling $2,285 outstanding as of December 31, 1997. The
Credit Agreement also contains several financial covenants, which require the
Company to maintain certain financial ratios and restrict the Company's
ability to incur indebtedness, make capital expenditures, and pay dividends.
The Company was in compliance with these covenants at December 31, 1997. The
commitment fee on the unused portion of the Revolver is 1/2% per annum,
payable quarterly.
Mandatory principal payments on the Term Loans are due in quarterly
installments beginning on December 1, 1996, with the final installment due on
September 1, 2003. The Revolver is due on September 1, 2003. The Credit
Agreement requires annual prepayments on the Term Loans on a date 130 days
following the end of each fiscal year, beginning with the year ended December
31, 1997, based on Excess Cash Flow (as defined in the Credit Agreement).
Through March 31, 1997, borrowings under the Credit Agreement bear interest,
at the option of the Company, at a rate per annum equal to (i) the Base Rate
(as defined in the Credit Agreement) plus 1.25% for the Revolver and Term A
loan; the Base Rate plus 1.75% for the Term B loan; and Base Rate plus 2.25%
for the Term C and Term D loans; or (ii) the LIBOR Rate (as defined in the
Credit Agreement) plus 2.75% for the Revolver and Term A loan; the LIBOR Rate
plus 3.25% for the Term B loan; and the LIBOR Rate plus 3.75% for the Term C
and Term D loan. For each fiscal quarter following March 31, 1997, the factor
added to either the Base Rate or the LIBOR Rate will be adjusted based on the
ratio of the Company's Total Debt to Operating Cash Flow (as defined in the
Credit Agreement). The average interest rate on outstanding borrowings was
9.4% and 9.1% at December 31, 1997 and 1996, respectively.
Senior Subordinated Notes
The 12.25% Senior Subordinated Notes due August 15, 2004 (the "Notes"), were
issued in connection with the Acquisition pursuant to an agreement dated
August 16, 1995, among Jackson Acquisition Corp. and the purchasers named
within the agreement. The Notes represent unsecured general obligations of the
Company and are subordinated to all Senior Indebtedness (as defined in the
Credit Agreement) of the Company.
F-11
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Notes mature on August 15, 2004. Commencing February 15, 1996, interest
on the Notes is payable semiannually on February 15 and August 15. The Notes
bear interest at the rate of 12.25% per annum. The Notes may not be redeemed
prior to August 15, 2000, except in the event of a public offering of the
Company or in the event of a Change of Control (as defined in the Credit
Agreement). The Notes are callable on or after August 15, 2000, in whole or
from time to time in part, at the option of the Company, at a call price of
105% commencing August 15, 2000; 102.5% commencing August 15, 2001; and 100%
commencing August 15, 2002.
The Notes require the Company to maintain certain financial ratios and
restrict the incurrence of additional indebtedness by the Company; the payment
of dividends and other distributions with respect to the Company's capital
stock; the creation of liens on the assets of the Company to secure certain
subordinated debt; and certain mergers, sales of assets, and transactions with
affiliates. The Company was in compliance with these covenants at December 31,
1997.
The net proceeds of the issuance of the Notes totaled $33,353. The
difference between the face value and the net proceeds from issue is being
amortized over nine years.
Interest Rate Cap
The Company utilizes an interest rate cap agreement to reduce the impact of
increases in interest rates on its floating rate debt. The interest rate cap
agreement was purchased on December 1, 1997 and expires December 1, 1999, and
entitles the Company to receive from a counterparty an amount, if any, by
which the selected market interest rate exceeds the strike rate stated in the
agreement. The interest rate cap has a notional amount of $50,000 and a strike
rate of 7%. Any amounts received related to the agreement are recorded as
adjustments to interest expense.
(9) STOCKHOLDERS' DEFICIT AND PREFERRED STOCK
On July 1, 1996, the Company amended its Certificate of Incorporation to
reflect the 100-to-1 reverse stock split of all authorized and issued common
and preferred stock. Following this stock split, the authorized capital stock
of the Company consists of 100,000 shares of Class A common stock, 45,000
shares of Class B common stock, 15,000 shares of Class C common stock
(collectively the "Common Stock"), and 2,000 shares of Series A Cumulative
13.25% Exchangeable Preferred Stock (the "Preferred Stock").
In connection with the financing for the Acquisition, the Company issued, on
a post-stock split basis, 40,000 shares of Class A common stock, 10,000 shares
of Class C common stock, and 1,700 shares of Preferred Stock.
Common Stock
Dividends are payable equally on shares of all classes of common stock in
amounts as and when declared by the Company's Board of Directors, subject to
legally available funds and restrictions contained in certain agreements.
Holders of Class A and Class C common stock are entitled to one vote per share
on all matters submitted to a vote of stockholders.
Upon the sale of shares of Class B common stock and pursuant to a public
offering, each share of Class B common stock will be converted into one share
of Class A common stock. In addition, each holder of Class B common stock may,
at their option, convert each share of Class B common stock into Class A
common stock at any time, subject to applicable banking and other regulations.
Upon the sale of Common Stock pursuant to a public offering, each share of
Class C common stock will be converted into one share of Class A common stock.
F-12
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants
In connection with the Acquisition, the Company issued warrants to purchase
34,482.76 shares of common stock at an exercise price of $100 per share. These
warrants may be exercised at any time prior to their expiration date of August
15, 2005. The proceeds from the sale of these warrants ($100 per warrant) have
been recorded as additional paid-in capital in the consolidated financial
statements. No warrants have been exercised since their issuance.
Stock Option Plan
In connection with the Acquisition, the Company adopted a nonqualified stock
option plan (the Option Plan) for its officers and key employees. Under the
Option Plan, eligible participants may receive incentive and nonqualified
options to purchase shares of the Company's Class C common stock. Options are
exercisable at such time an option is earned and vested. Generally, options
become exercisable at a rate of 20% for each full year of employment from the
date of grant and may be exercised only if the holder is an employee of the
Company. No options have been exercised since the adoption of the Option Plan.
All options currently outstanding have an exercise price of $100 per share.
All options expire on the earlier of (i) 10 years from date of grant; (ii)
90 days from the employee's termination date; or (iii) one year from the
employee's termination due to death or disability.
The following is a summary of options granted and outstanding:
<TABLE>
<CAPTION>
PERIOD FROM AUGUST 17
YEARS ENDED DECEMBER 31, TO DECEMBER 31,
1997 1996 1995
----------------- ----------------- -----------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period..... 1,704.14 $ 100.00 1,724.14 $100.00 -- $ --
Granted................. 1,503.90 100.00 10.00 100.00 1,724.14 100.00
Exercised............... -- -- -- -- -- --
Cancelled............... 10.00 100.00 30.00 100.00 -- 100.00
-------- -------- -------- ------- ----------- ----------
End of period........... 3,198.04 $ 100.00 1,704.14 $100.00 1,724.14 $ 100.00
-------- -------- -------- ------- ----------- ----------
Exercisable at the end
of period.............. 849.18 $ 100.00 424.59 $100.00 -- $ 100.00
======== ======== ======== ======= =========== ==========
Weighted average fair
value of options
granted................ $ 63.70 $ -- $ 100.00
-------- ------- ----------
</TABLE>
The weighted average fair value of options granted is estimated on the date
of grant using the Black-Scholes options pricing model with the following
assumptions for 1997 and 1995: risk free interest rate of 6.5%; expected
dividend yield of 0%; expected life of ten years and expected volatility of
0%. Use of the Black-Scholes options pricing model for 1996 results in a non-
meaningful fair value.
The weighted average contractual life of the options outstanding at December
31, 1997 was 8.5 years.
The Company has elected to continue to measure compensation cost using the
intrinsic value method as prescribed by Accounting Principles Board (APB)
Opinion No. 25 and has recorded no compensation expense relative to the
issuance of its stock options. Had the Company applied the principles of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, compensation expense would have been $44, $34 and
$11 for 1997, 1996 and the period from August 17 to December 31, 1995,
respectively.
F-13
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Preferred Stock
The Preferred Stock has a Liquidation Preference (as defined) of $10,000 per
share, plus accretion due to dividends at the rate of 13.25%, compounded
semiannually on February 15 and August 15, commencing February 15, 1996. The
Board of Directors may declare a dividend at any time, commencing February 15,
1996, provided that the Liquidation Preference, following the declaration of
any dividend, equals $10,000 per share or greater. The Preferred Stock is
exchangeable at any time, at the option of the Company, for 13.25% Senior
Subordinated Notes, due August 15, 2005. The 13.25% Senior Subordinated Notes
would contain the same rights, restrictions, and other terms as the Notes.
The Company may redeem the Preferred Stock, in whole or in part, commencing
August 15, 2000, at $10,600 per share plus accrued dividends; commencing
August 15, 2001, at $10,300 per share plus accrued dividends; and commencing
August 15, 2002, at $10,000 per share plus accrued dividends. Prior to August
15, 2000, the Company may redeem up to 680 shares of Preferred Stock with
proceeds of a public offering, at $11,200 per share plus accrued dividends. In
the event of a Change of Control (as defined), each share of Preferred Stock
may be redeemed by the Company, at the option of the holder, at $10,100 per
share, plus accrued dividends. The Company shall redeem all outstanding shares
of Preferred Stock on August 15, 2005, at $10,000 per share plus accrued
dividends. Accrued dividends on the Company's preferred stock totaled $6,065
and $3,287 at December 31, 1997 and 1996, respectively.
The net proceeds of the issuance of Preferred Stock in connection with the
Acquisition totaled $14,198. The difference between the liquidation value at
issuance and the net proceeds from issue is being accreted over 10 years.
The holders of Preferred Stock have no voting rights with the exception of
certain matters such as amendment of the Company's Certificate of
Incorporation or By-Laws, authorization of additional capital stock senior to
the Preferred Stock, or the sale or other disposition of substantially all of
the Company's assets.
(10) INCOME TAXES
Current income tax expense for the year ended December 31, 1997 consisted of
$40, $310, and $334 for federal, state and local, and foreign income taxes,
respectively. Current income tax expense for the year ended December 31, 1996
consisted of $-0-, $215, and $214 for federal, state and local, and foreign
taxes, respectively. There was no current income tax expense for the period
from August 17, 1995 through December 31, 1995. There was no deferred income
tax expense during 1997, 1996 or for the period from August 17, 1995 through
December 31, 1995.
Reconciliation between the statutory income tax provision and effective tax
provision is summarized below for the years ended December 31, 1997 and 1996
and for the period from August 17, 1995 through December 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Statutory rate (34%)........................... $(3,291) $(5,446) $(1,485)
Amortization of goodwill and other............. 4,778 5,435 1,425
Change in valuation allowance.................. (803) 440 60
------- ------- -------
Income tax provision........................... $ 684 $ 429 $ --
======= ======= =======
</TABLE>
F-14
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of significant temporary differences, representing deferred
tax assets and the deferred tax liability, as of December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 7,912 $ 8,725
Receivables........................................... 125 157
Accrued liabilities................................... 680 665
Postretirement benefits............................... 739 738
Inventory............................................. 373 363
Other................................................. 392 476
-------- -------
10,221 11,124
Valuation allowance..................................... (10,076) (10,879)
-------- -------
Net deferred tax assets................................. 145 245
Deferred tax liability property, plant, and equipment... (145) (245)
-------- -------
Net deferred taxes...................................... $ -- $ --
======== =======
</TABLE>
The Company establishes valuation allowances in accordance with SFAS No. 109
and continually reviews the adequacy of the allowance, recognizing benefits
only as their reassessment indicates that it is more likely than not that
benefits will be realized. The valuation allowance of net deferred taxes
decreased by $803 in 1997 and increased by $1,134 in 1996. The reduction in
1997 was a result of changes in temporary differences and a decrease in the
net operating loss carryforwards due to taxable income. The increase during
1996 was the result of an increase in net operating loss carryforwards and
changes in temporary differences. At December 31, 1997 and 1996, the Company
concluded that it did not meet the requirement that it was more likely than
not that the benefits would be realized. At December 31, 1997, the Company had
net operating loss carryforwards (NOL) of approximately $22,602 for U.S.
federal income tax purposes which begin to expire in 2009 to the extent not
previously utilized. Approximately $13,564 of the NOL is restricted in
availability subject to an annual limitation of approximately $1,236 under
Section 382 of the Internal Revenue Code. The remaining balance of
approximately $9,038 is available without restriction.
(11) RETIREMENT BENEFIT PLANS
Retirement benefits are provided to substantially all employees under a
discretionary profit sharing and contributory retirement plan under Section
401(k) of the Internal Revenue Code.
The Company provides postretirement health care and other benefits to
certain qualifying retirees. The Company does not fund retiree health care
benefits in advance and has the right to modify these benefits in the future.
Net periodic postretirement benefit cost (NPPBC) for the years ended December
31, 1997 and 1996 and for the period from August 17, 1995 through December 31,
1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $ 78 $ 73 $ 79
Interest cost............................................. 58 49 52
Other..................................................... (57) (61) 3
---- ---- ----
NPPBC..................................................... $ 79 $ 61 $134
==== ==== ====
</TABLE>
F-15
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Plan's status as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Actuarial present value of benefit obligation:
Fully eligible active participants........................ $ 98 $ 40
Other active participants................................. 861 693
Retirees.................................................. 40 42
Unrecognized net gain..................................... 1,187 1,332
Unrecognized prior service cost........................... 23 24
------ ------
Accumulated postretirement benefit obligation (APBO)........ $2,209 $2,131
====== ======
</TABLE>
The APBO was determined by application of the terms of the Plan, together
with relevant actuarial assumptions for active employees. Health care cost
trends are projected at annual rates ranging from 7.5% in 1998 down to 5.5% in
2019 and thereafter. The effect of a 1% annual increase in these assumed rates
would increase the APBO at December 31, 1997 by approximately $267 and the
service and interest cost components of the NPPBC for the years ended December
31, 1997 and 1996 by approximately $42. The assumed discount rate used in
determining the APBO was 7.5%. The APBO is included in other noncurrent
liabilities on the consolidated balance sheets.
(12) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain legal actions from time to time related
to the normal conduct of its business. Management believes that liabilities,
if any, resulting from litigation will not materially affect the consolidated
financial position or results of operations of the Company.
Future minimum lease payments under all operating leases with initial or
remaining noncancelable lease terms in excess of one year at December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998................................................................ $966
1999................................................................ 919
2000................................................................ 448
2001................................................................ 416
2002 and thereafter................................................. 250
</TABLE>
Rent expense for the years ended December 31, 1997 and 1996 and for the
period from August 17, 1995 through December 31, 1995 totaled $1,462, $1,300,
and $534, respectively.
(13) SALE OF ASSETS HELD FOR DISPOSAL
During 1996, the Company decided to divest its arrowboard product line in
LaMirada, California. The Company recorded a $1,050 charge to operations to
reduce the carrying value of inventory and property, plant, and equipment to
their estimated fair values. During July 1997, the Company completed the sale
of this product line and recorded an additional loss on sale of assets of
$335.
(14) SUBSEQUENT EVENTS
On April 16, 1998, the Company offered $115 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the
"Offering"). The Notes will bear interest at the rate of 9 1/2% per annum,
payable semi-annually in arrears on April 15 and October 15 of each year,
commencing October 15,
F-16
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1998. The payment of principal, premium, interest and liquidated damages on
the Notes will be unconditionally guaranteed, jointly and severally, on a
senior subordinated basis by American Allsafe Company, a Delaware corporation,
Crystaloid Technologies, Inc., a Delaware corporation, OSD Envizion, Inc., a
Delaware corporation, Flex-O-Lite, Inc., a Delaware corporation and
Silencio/Safety Direct, Inc., a Nevada Corporation, as guarantors
(collectively, the "Guarantors"). Simultaneously with the Offering, the
Company entered into a credit agreement (the "New Credit Facility") with
BankBoston, N.A. and Mercantile Bank National Association, which will provide
for a line of credit in the aggregate amount of $125.0 million, consisting of
an acquisition line facility in the principal amount of $95.0 million and a
revolving credit facility in the principal amount of $30.0 million.
Pursuant to certain stock purchase agreements, in March 1998 the Company,
through its subsidiaries, Jackson Acquisition, Inc. and Crystaloid
Technologies, Inc., agreed to acquire i) all of the outstanding capital stock
of American Allsafe Company and Silencio/Safety Direct, Inc. for $29.5 million
(the "Allsafe Acquisition") and ii) all of the outstanding capital stock of
Crystaloid Electronics, Inc. for $6.5 million (the "Crystaloid Acquisition"),
$0.5 million of which is payable in 18 months subject to certain conditions.
These acquisitions closed on April 21, 1998 and April 22, 1998 respectively.
Financial information regarding the Guarantors as of December, 1997 and 1996
and for the years ended December 31, 1997 and 1996 and for the period from
August 17, 1995 (inception) through December 31, 1995 is presented below for
purposes of complying with the reporting requirements of the Guarantor
Subsidiaries. The financial information regarding the Guarantors is being
presented through condensed consolidating financial statements since the
guarantees are full and unconditional and are joint and several. Guarantor
financial statements have not been presented because management does not
believe that such financial statements are material to investors. Crystaloid
Technologies, Inc. was incorporated in April 1998. OSD Envizion, Inc. was
incorporated in October 1996. Flex-O-Lite, Inc. was acquired in 1994 by the
Company's predecessor. Disclosures concerning the operations of Lansec, the
only non-Guarantor Subsidiary, prior to December 31, 1997 have not been
presented because its operations are not material.
(Note 14 continued on next page)
F-17
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ -- $ -- $ 523 $ -- $ 523
Accounts receivable,
net................... 7,565 8,426 1,476 (2,579) 14,888
Inventories............ 8,064 14,322 476 (25) 22,837
Prepaid expenses....... 256 104 49 -- 409
------- ------- ------ -------- --------
Total current assets. 15,885 22,852 2,524 (2,604) 38,657
Property, plant and
equipment............. 11,625 9,035 158 -- 20,818
Intangibles............ 16,836 41,179 2,035 -- 60,050
Deferred financing
costs................. 5,180 -- -- -- 5,180
Investment in
subsidiaries.......... 25,180 -- -- (25,180) --
Other noncurrent
assets................ -- 342 -- -- 342
------- ------- ------ -------- --------
$74,706 $73,408 $4,717 $(27,784) $125,047
======= ======= ====== ======== ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
--------------------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Current maturities of
long-term debt........ $ 6,120 $ -- $ -- $ -- 6,120
Accounts payable....... 3,743 7,493 196 -- 11,432
Accrued and other
liabilities........... 2,949 855 1,397 -- 5,201
Accrued interest....... 2,102 -- -- -- 2,102
Accrued taxes.......... 482 -- 52 -- 534
------- ------- ------ -------- --------
Total current
liabilities......... 15,396 8,348 1,645 -- 25,389
Long-term debt, less
current maturities..... 106,381 -- -- -- 106,381
Other noncurrent
liabilities............ 3,368 -- 235 -- 3,603
Due to parent........... (40,244) 39,986 2,837 -- --
Preferred stock......... 20,951 -- -- -- 20,951
Stockholders' deficit
Common stock........... -- 1 -- (1) --
Additional paid-in
capital............... 7,102 34,499 -- (34,499) 7,102
Cumulative translation
adjustment............ -- (106) -- -- (106)
Loans due on common
stock................. (343) -- -- -- (343)
Accumulated deficit.... (37,905) (9,320) -- 9,295 (37,930)
------- ------- ------ -------- --------
Total stockholders'
equity (deficit).... (31,146) 25,074 -- (25,205) (31,277)
------- ------- ------ -------- --------
$74,706 $73,408 $4,717 $(27,784) $125,047
======= ======= ====== ======== ========
</TABLE>
F-18
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales.................... $ 47,759 $83,033 $(7,375) $123,417
Operating expenses:
Cost of sales.............. 32,257 62,594 (7,385) 87,466
Selling, general and
administrative............ 8,876 6,329 -- 15,205
Write-down of assets -- 335 -- 335
Amortization of
intangibles............... 13,185 3,193 -- 16,378
--------- ------- ------- --------
54,318 72,451 (7,385) 119,384
Operating income (loss) ..... (6,559) 10,582 10 4,033
Other:
Interest expense........... (12,050) -- -- (12,050)
Amortization of deferred
financing costs........... (1,261) -- -- (1,261)
Other...................... 6,996 (7,397) -- (401)
--------- ------- ------- --------
Income (loss) before income
tax provision............... (12,874) 3,185 10 (9,679)
Income tax expense........... 540 144 -- 684
Equity earnings (loss) in
subsidiaries................ 3,041 -- (3,041) --
--------- ------- ------- --------
Net income (loss)............ $ (10,373) $ 3,041 $(3,031) $(10,363)
========= ======= ======= ========
</TABLE>
F-19
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES CONSOLIDATED
------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating
activities................................. $ 1,328 8,985 10,313
------- ------ ------
Cash flows from investing activities:
Capital expenditures........................ (2,168) (1,078) (3,246)
Acquisition of business..................... (2,461) -- (2,461)
Deferral of acquisition price, net of
payments................................... (1,695) -- (1,695)
Proceeds from sale of assets ............... 708 804 1,512
------- ------ ------
Net cash used in investing activities...... (5,616) (274) (5,890)
------- ------ ------
Cash flows from financing activities:
Repayment of long-term obligations ......... (3,880) -- (3,880)
Repayment of common stock, net of loan
payments .................................. (20) -- (20)
------- ------ ------
Net cash used in financing activities...... (3,900) -- (3,900)
------- ------ ------
Net increase (decrease) in cash and cash (8,188) 8,711 523
equivalents................................ ======= ======
Cash and cash equivalents, beginning of period................... --
------
Cash and cash equivalents, end of period........................ $ 523
======
</TABLE>
F-20
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents..... $ -- $ -- $ -- $ --
Accounts receivable, net...... 4,321 8,682 -- 13,003
Inventories................... 6,911 12,199 (36) 19,074
Prepaid expenses.............. 192 48 -- 240
------- ------- -------- --------
Total current assets........ 11,424 20,929 (36) 32,317
Property, plant and
equipment.................... 11,014 10,849 -- 21,863
Intangibles................... 22,522 51,872 -- 74,394
Deferred financing costs...... 6,441 -- -- 6,441
Investment in subsidiaries.... 22,139 -- (22,139) --
------- ------- -------- --------
$73,540 $83,650 $(22,175) $135,015
======= ======= ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
DEFICIT
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Current maturities of long-
term debt.................... $ 6,080 $ -- $ -- $ 6,080
Accounts payable.............. 2,771 5,012 -- 7,783
Accrued and other
liabilities.................. 4,427 791 -- 5,218
Accrued interest.............. 2,071 -- -- 2,071
Accrued taxes................. 22 -- -- 22
------- ------- -------- --------
Total current liabilities... 15,371 5,803 -- 21,174
Long-term debt, less current
maturities.................... 110,235 -- -- 110,235
Other noncurrent liabilities... 3,465 -- -- 3,465
Due to parent.................. (55,730) 55,730 -- --
Preferred stock................ 17,879 -- -- 17,879
Stockholders' deficit
Common stock.................. -- 1 (1) --
Additional paid-in capital.... 7,154 34,499 (34,499) 7,154
Cumulative translation
adjustment................... -- (22) -- (22)
Loans due on common stock..... (375) -- -- (375)
Accumulated deficit........... (24,459) (12,361) 12,325 (24,495)
------- ------- -------- --------
Total stockholders' deficit. (17,680) 22,117 (22,175) (17,738)
------- ------- -------- --------
$73,540 $83,650 $(22,175) $135,015
======= ======= ======== ========
</TABLE>
F-21
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales..................... $ 43,236 $72,509 $(3,957) $111,788
Operating expenses:
Cost of sales............... 29,036 55,370 (3,921) 80,485
Selling, general and
administrative............. 7,807 6,633 -- 14,440
Write-down of assets........ 1,050 -- -- 1,050
Amortization of intangibles. 16,196 2,653 -- 18,849
-------- ------- ------- --------
54,089 64,656 (3,921) 114,824
Operating income (loss)....... (10,853) 7,853 (36) (3,036)
Other:
Interest expense............ (11,306) -- -- (11,306)
Amortization of deferred
financing costs............ (1,076) -- -- (1,076)
Other....................... 8,860 (9,459) -- (599)
-------- ------- ------- --------
Income (loss) before income
tax.......................... (14,375) (1,606) (36) (16,017)
Income tax expense............ 215 214 -- 429
Equity earnings (loss) in
subsidiaries................. (1,820) -- 1,820 --
-------- ------- ------- --------
Net income (loss)............. $(16,410) $(1,820) $ 1,784 $(16,446)
======== ======= ======= ========
</TABLE>
F-22
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net cash provided by operating
activities:.................... $ 3,870 2,215 748 6,833
-------- ----- --- -------
Cash flows from investing
activities:
Capital expenditures............ (1,210) (700) -- (1,910)
Acquisition of business......... (14,947) -- -- (14,947)
Deferral of acquisition price,
net of payments................ 2,125 -- -- 2,125
Proceeds from sale of assets.... 180 -- -- 180
-------- ----- --- -------
Net cash used in investing
activities.................... (13,852) (700) -- (14,552)
-------- ----- --- -------
Cash flows from financing
activities:
Proceeds from borrowings........ 13,634 -- -- 13,634
Repurchase of common stock, net
of loan payments............... (53) -- -- (53)
Financing costs................. (856) -- -- (856)
Repayment of long term
obligations.................... (5,006) -- -- (5,006)
-------- ----- --- -------
Net cash provided by financing
activities.................... 7,719 -- -- 7,719
-------- ----- --- -------
Net increase (decrease) in cash (2,263) 1,515 748 --
and cash equivalents........... ======== ===== ===
Cash and cash equivalents, beginning of period................... --
-------
Cash and cash equivalents, end of period....................... $ --
=======
</TABLE>
F-23
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FROM AUGUST 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales...................... $15,766 $ 21,792 $ -- $37,558
Operating expenses:
Cost of sales................ 11,294 19,272 -- 30,566
Selling, general and
administrative.............. 2,950 2,015 -- 4,965
Amortization of intangibles.. 1,268 420 -- 1,688
------- -------- ------- -------
15,512 21,707 -- 37,219
Operating income .............. 254 85 -- 339
Other:
Interest expense............. (4,381) -- -- (4,381)
Amortization of deferred
financing costs............. (340) -- -- (340)
Other........................ 10,640 (10,626) -- 14
------- -------- ------- -------
Income (loss) before income tax
provision..................... 6,173 (10,541) -- (4,368)
Income tax expense............. -- -- -- --
Equity in earnings (loss) in
subsidiaries.................. (10,541) -- 10,541 --
------- -------- ------- -------
Net inocme (loss).............. $(4,368) $(10,541) $10,541 $(4,368)
======= ======== ======= =======
</TABLE>
F-24
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) SUBSEQUENT EVENTS (CONT.)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
FROM AUGUST 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARY CONSOLIDATED
-------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash (used in) provided by operating
activities.................................. $10,098 (2,688) 7,410
-------- ------ --------
Cash flows from investing activities:
Capital expenditures......................... (408) (57) (465)
Acquisition of business...................... (129,000) -- (129,000)
Proceeds from sale of assets ................ 311 -- 311
-------- ------ --------
Net cash used in investing activities....... (129,097) (57) (129,154)
-------- ------ --------
Cash flows from financing activities:
Proceeds from borrowings..................... 115,153 -- 115,153
Equity proceeds ............................. 22,219 -- 22,219
Financing costs.............................. (8,200) -- (8,200)
Repayment of long-term obligations........... (7,553) -- (7,553)
-------- ------ --------
Net cash provided by financing activities... 121,619 -- 121,619
-------- ------ --------
Net increase (decrease) in cash and cash 2,620 (2,745) (125)
equivalents................................. ======== ====== ========
Cash and cash equivalents, beginning of period................... 125
--------
Cash and cash equivalents, end of period........................ $ --
========
</TABLE>
F-25
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998
<TABLE>
<CAPTION>
1998
--------
<S> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.......................................... $ 471
Accounts receivable, net of allowance for doubtful accounts of
$622.............................................................. 28,046
Inventories........................................................ 31,871
Prepaid expenses................................................... 437
--------
Total current assets............................................. 60,825
Property, plant, and equipment....................................... 30,797
Intangibles.......................................................... 72,821
Deferred financing costs............................................. 7,053
Other noncurrent assets ............................................. 551
--------
$172,047
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable................................................... $ 15,335
Accrued and other liabilities...................................... 6,439
Accrued interest................................................... 2,598
Accrued taxes...................................................... 1,330
--------
Total current liabilities........................................ 25,702
--------
Long-term debt....................................................... 187,620
Other noncurrent liabilities......................................... 3,370
Stockholders' deficit:
Class A Common Stock, $.01 par value; 100,000 shares authorized;
38,530 shares issued and outstanding at June 30, 1998............. --
Class C common stock, $.01 par value; 15,000 shares authorized;
8,526 shares issued and outstanding at June 30, 1998.............. --
Additional paid-in capital......................................... 2,952
Cumulative translation adjustment.................................. (62)
Loans due on common stock.......................................... (343)
Accumulated deficit................................................ (47,192)
--------
Total stockholders' deficit...................................... (44,645)
--------
$172,047
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net sales.................................................... $78,680 $62,264
Operating expenses:
Cost of sales.............................................. 53,104 44,227
Selling, general and administrative........................ 11,965 7,631
Write down of assets....................................... -- 335
Amortization of intangibles................................ 3,763 9,334
------- -------
Total operating expenses..................................... 68,832 61,527
Operating income............................................. 9,848 737
Other:
Interest expense, net...................................... (7,056) (6,022)
Amortization of deferred financing costs................... (757) (635)
Other...................................................... (363) (243)
------- -------
Income (loss) before income tax provision and extraordinary
item........................................................ 1,672 (6,163)
Income tax expense........................................... 313 122
------- -------
Net earnings (loss) before extraordinary item................ 1,359 (6,285)
Extraordinary item
Loss due to early extinguishment of debts, net of tax...... (7,558) --
------- -------
Net loss..................................................... $(6,199) $(6,285)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary item............. $ 1,359 $(6,285)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation............................................. 2,462 2,595
Write down of assets..................................... -- 335
Amortization of deferred financing costs, intangibles and
debt discount........................................... 4,562 10,004
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable..................................... (8,319) (5,509)
Inventories............................................. (1,373) (2,940)
Accounts payable........................................ 2,412 2,384
Accrued and other liabilities........................... 72 502
Accrued interest........................................ 496 98
Accrued taxes........................................... 1 --
Other, net.............................................. (442) (9)
--------- -------
Net cash provided operating activities.................... 1,230 1,175
Cash flows from investing activities:
Capital expenditures...................................... (1,895) (1,178)
Acquisition of business, including direct expenses........ (36,259) (2,000)
Deferral of acquisition price, net of payments............ 132 --
Proceeds from sale of assets.............................. -- 1,167
--------- -------
Net cash used in investing activities..................... (38,022) (2,011)
--------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations........... 195,103 929
Repurchase of common stock, net of loan payments.......... (4,150) (20)
Repurchase of preferred stock............................. (23,998) --
Financing costs........................................... (7,500) --
Prepayment premium of long-term obligations............... (2,210) --
Repayment of long-term obligations........................ (120,505) --
--------- -------
Net cash provided by financing activities................. 36,740 909
--------- -------
Net increase (decrease) in cash............................ (52) 73
Cash and cash equivalents, beginning of period............. 523 --
--------- -------
Cash and cash equivalents, end of period................... $ 471 $ 73
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
include all normal recurring adjustments which are, in the opinion of
management of the registrant, necessary for a fair statement of the operating
results for the six month periods ending June 30, 1998 and 1997. These
financial statements have been prepared in accordance with the instructions to
Form 10-Q and therefore do not include all information and footnotes necessary
for a fair presentation of financial position, results of operations, and
changes in cash flows in conformity with generally accepted accounting
principles.
(2) INVENTORY
Inventories at June 30, 1998 consist of the following:
<TABLE>
<S> <C>
Raw materials........................................................ $13,838
Work-in-process...................................................... 4,419
Finished goods....................................................... 13,614
-------
$31,871
=======
</TABLE>
(3) INTANGIBLE ASSETS
The excess of cost over the net tangible assets acquired consists of
patents, customer lists, technology-related agreements, and goodwill, and is
amortized on a straight-line basis over periods from 2-15 years. The Company
periodically re-evaluates the carrying value of its intangibles and its other
long-term assets based on the expected undiscounted cash flows over the
remaining life of the related assets.
(4) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Comprehensive Income." SFAS No. 130
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The provisions of the SFAS No. 130 however, need not be applied to
immaterial items. The Company's comprehensive loss is impacted only by
immaterial foreign currency translation adjustments.
(5) ACQUISITIONS
On April 22, 1998, the Company, through its subsidiary, Jackson Acquisition,
Inc. acquired all of the outstanding capital stock of American Allsafe Company
and Silencio/Safety Direct, Inc. for $29.1 million, as adjusted, (the "Allsafe
Acquisition"). On April 23, 1998, the Company, through its subsidiary,
Crystaloid Technologies, Inc. acquired all of the outstanding capital stock of
Crystaloid Electronics, Inc., for $6.5 million (the "Crystaloid Acquisition"),
$0.5 million of which is payable in 18 months subject to certain conditions.
The Allsafe Acquisition and the Crystaloid Acquisition were accounted for
using the purchase method of accounting. Accordingly, total purchase costs for
each of these transactions has been allocated to the assets and liabilities of
the Company based on their respective fair values at April 22, 1998. The
results of operations of the acquired businesses have been included in the
consolidated financial statements since their respective acquisition dates.
Intangible assets totaling approximately $10,875 and $3,715 were recorded in
connection with the Allsafe Acquisition and Crystaloid Acquisition,
respectively.
The following unaudited pro forma consolidated financial information of the
Company for the six months ended June 30, 1998 and 1997 gives effect to: (i)
the Allsafe Acquisition and the Crystaloid Acquisition; (ii) the acquisition
of Lansec; and (iii) the refinancing as if each had occurred on the first day
of the period presented. Assuming the Allsafe Acquisition and the Crystaloid
Acquisition occurred on January 1, 1997 pro forma consolidated net sales would
have been $91.5 million and $82.0 million for 1998 and 1997, respectively; the
pro
F-29
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
forma consolidated net loss would have been $6.9 million and $17.7 million for
the six months ended June 30, 1998 and 1997, respectively; and the pro forma
consolidated net income before extraordinary items would have been $0.7
million for the six months ended June 30, 1998 and a net loss of $9.8 million
for the six months ended June 30, 1997. These amounts represent unaudited data
and in management's opinion are not indicative of actual results had the
acquisitions been consummated at the beginning of the respective fiscal years.
(6) FINANCING ACTIVITIES
In connection with the refinancing and the Allsafe Acquisition and the
Crystaloid Acquisition, the Company recorded $7.6 million of extraordinary
expense for the period ended June 30, 1998 consisting of the write-off of
deferred financing costs, unamortized debt discount and a prepayment in
premiums. Additionally, a portion of the refinancing proceeds were utilized to
repay senior debt, senior subordinated notes, preferred stock and the
repurchase of common stock from an institutional investor.
Credit Agreement
In connection with the Acquisitions, the Company entered into a credit
agreement (the "New Credit Facility") with BankBoston, N.A. and Mercantile
Bank National Association, which will provide for a line of credit in the
aggregate amount of $125.0 million consisting of an acquisition line facility
in the principal amount of $95.0 million and a revolving credit facility in
the principal amount of $30.0 million. The New Credit Facility also contains
several financial covenants, which require the Company to maintain certain
financial ratios and restrict the Company's ability to incur indebtedness. The
Company was in compliance with these covenants at June 30, 1998. The
commitment fee on the unused portion of the Revolver and the Acquisition
Facility is 1/2% per annum, payable quarterly.
Borrowings under the Credit Agreement bear interest, at the option of the
Company, at a rate per annum equal to (i) the Base Rate (as defined in the
Credit Agreement) plus 0.75% for the Revolver and the Acquisition Facility or
(ii) the LIBOR Rate (as defined in the Credit Agreement) plus 2.25% for the
Revolver and the Acquisition Facility. For each fiscal quarter following June
30, 1998, the factor added to either the Base Rate or the LIBOR Rate will be
adjusted based on the ratio of the Company's Total Debt to Operating Cash Flow
(as defined in the Credit Agreement). The average interest rate on the
outstanding borrowings was 7.91% at June 30, 1998.
Senior Subordinated Notes
On April 16, 1998, the Company offered $115.0 million aggregate principal
amount of Senior Subordinated Notes (the "Notes") due April 15, 2005 (the
"Offering"). The Notes bear interest at the rate of 9 1/2% per annum, payable
semi-annually in arrears on April 15 and October 15 on each year, commencing
October 15, 1998. The payment of principal, premium, interest and liquidated
damages on the Notes are unconditionally guaranteed, jointly and severally, by
the Company's domestic subsidiaries ("Guarantors").
(7) SUBSEQUENT EVENTS
On July 22, 1998, American Allsafe Company, a wholly owned subsidiary of the
Company acquired all of the outstanding capital stock of Kedman Company for a
total purchase price of approximately $10 million.
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Financial information regarding the Guarantors as of June 30, 1998 and 1997,
and for the six months ended June 30, 1998 and 1997 is presented below for the
purpose of complying with the reporting requirements of the Guarantors
Subsidiaries. The financial information regarding the Guarantors is being
presented through condensed consolidating financial statements since the
guarantees are full and unconditional and are joint and several. Guarantor
financial statements have not been presented because management does not
believe that such financial statements are material to investors.
(Note 8 continued on following page)
F-30
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CON'T)
CONDENSED CONSOLIDATING BALANCE SHEETS
JUNE 30, 1998
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ------------ ---------- ------------ ------------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash
equivalents........... $ -- $ -- $ 471 $ -- $ 471
Accounts receivable,
net................... 5,776 20,217 2,053 -- 28,046
Inventories............ 8,184 22,752 1,112 (177) 31,871
Prepaid expenses....... 164 252 21 -- 437
-------- -------- ------ -------- --------
Total current assets. 14,124 43,221 3,657 (177) 60,825
Property, plant and
equipment............. 11,133 19,501 163 -- 30,797
Intangibles............ 14,771 55,525 2,525 -- 72,821
Note receivable from
subsidiaries.......... 38,592 -- -- (38,592) --
Deferred financing
costs................. 7,053 -- -- -- 7,053
Investment in
subsidiaries.......... 28,113 -- -- (28,113) --
Other noncurrent
assets................ -- 522 29 -- 551
-------- -------- ------ -------- --------
$113,786 $118,769 $6,374 $(66,882) $172,047
======== ======== ====== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
DEFICIT
- -----------------------------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Notes payable to
parent................ $ -- $ 35,513 $3,079 $(38,592) $ --
Accounts payable....... 2,176 12,195 964 -- 15,335
Accrued and other
liabilities........... 3,496 1,869 1,074 -- 6,439
Accrued interest....... 2,598 -- -- -- 2,598
Accrued taxes.......... 482 638 210 -- 1,330
-------- -------- ------ -------- --------
Total current
liabilities......... 8,752 50,215 5,327 (38,592) 25,702
Long-term debt, less
current maturities..... 187,620 -- -- -- 187,620
Other noncurrent
liabilities............ 3,370 -- -- -- 3,370
Due to parent........... (41,550) 40,366 1,184 -- --
Stockholders' deficit
Common stock........... -- 1 -- (1) --
Additional paid-in
capital............... 2,951 34,499 -- (34,498) 2,952
Cumulative translation
adjustment............ -- (141) 79 -- (62)
Loans due on common
stock................. (343) -- -- -- (343)
Accumulated deficit.... (47,014) (6,171) (216) 6,209 (47,192)
-------- -------- ------ -------- --------
Total stockholders'
deficit............. (44,406) 28,188 (137) (28,290) (44,645)
-------- -------- ------ -------- --------
$113,786 $118,769 $6,374 $(66,882) $172,047
======== ======== ====== ======== ========
</TABLE>
F-31
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CON'T)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
NON
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $23,751 $55,575 $4,959 $(5,605) $78,680
Operating expenses:
Cost of sales......... 15,270 40,125 3,162 (5,453) 53,104
Selling, general and
administrative....... 5,088 4,921 1,956 -- 11,965
Amortization of
intangibles.......... 550 3,213 -- -- 3,763
------- ------- ------ ------- -------
20,908 48,259 5,118 (5,453) 68,832
Operating income ....... 2,843 7,316 (159) (152) 9,848
Other
Interest expense, net. (6,519) (537) -- -- (7,056)
Amortization of
deferred financing
costs................ (757) -- -- -- (757)
Other................. 3,162 (3,500) (25) -- (363)
------- ------- ------ ------- -------
Income (loss) before
income tax provision... (1,271) 3,279 (184) (152) 1,672
Income tax expense...... 151 130 32 -- 313
Equity earnings in
subsidiaries........... 2,933 -- -- (2,933) --
Extraordinary item
Loss due to early
extinguishment of
debts (7,558) -- -- -- (7,558)
------- ------- ------ ------- -------
Net income (loss)....... $(6,047) $ 3,149 $ (216) $(3,085) $(6,199)
======= ======= ====== ======= =======
</TABLE>
F-32
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CON'T)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
-------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net cash (used in)
provided by operating
activities............ 4,250 3,709 (4,540) (2,270) 1,230
-------- ------ ------ ------ --------
Cash flows from
investing activities:
Capital expenditures... (846) (1,030) (19) -- (1,895)
Acquisition of business
including direct
costs................. (36,259) -- -- -- (36,259)
Deferral of acquisition
price, net of
payments.............. 500 -- (368) -- 132
-------- ------ ------ ------ --------
Net cash used in
investing activities... (36,605) (1,030) (387) -- (38,022)
-------- ------ ------ ------ --------
Cash flows from
financing activities:
Proceeds from issuance
of long-term
obligations........... 195,103 -- -- -- 195,103
Repurchase of common
stock, net of loan
payments.............. (4,150) -- -- -- (4,150)
Retirement of preferred
stock................. (23,998) -- -- -- (23,998)
Financing costs........ (7,103) (397) -- -- (7,500)
Prepayment premium of
long-term obligations. (2,210) -- -- -- (2,210)
Repayment of long-term
obligations........... (120,505) -- -- -- (120,505)
-------- ------ ------ ------ --------
Net cash (used in)
provided by financing
activities............. 37,137 (397) -- -- 36,740
======== ====== ====== ====== ========
Net decrease in cash.... (52)
Cash and cash
equivalents, beginning
of period.............. 523
--------
Cash and cash
equivalents, end of
period................. $ 471
========
</TABLE>
F-33
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CON'T)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales...................... $22,900 $42,824 $(3,460) $62,264
Operating expenses:
Cost of sales................ 15,374 32,318 (3,465) 44,227
Selling, general and
administrative.............. 4,402 3,229 -- 7,631
Write down of assets......... -- 335 -- 335
Amortization of intangibles.. 7,239 2,095 -- 9,334
------- ------- ------- -------
27,015 37,977 (3,465) 61,527
Operating income............... (4,115) 4,847 5 737
Other
Interest expense, net........ (6,022) -- -- (6,022)
Amortization of deferred
financing costs............. (635) -- -- (635)
Other........................ 3,186 (3,429) -- (243)
------- ------- ------- -------
Income (loss) before income tax
provision..................... (7,586) 1,418 5 (6,163)
Income tax expense............. 44 78 -- 122
Equity earnings in
subsidiaries.................. 1,340 -- (1,340) --
------- ------- ------- -------
Net income (loss).............. $(6,290) $ 1,340 $(1,335) $(6,285)
======= ======= ======= =======
</TABLE>
F-34
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flow from operating activi-
ties:
Net cash (used in) provided by
operating activities........... (202) 2,757 (1,784) 1,175
---- ------ ------ ------
Cash flows from investing activ-
ities:
Capital expenditures.......... (825) (353) -- (1,178)
Acquisition of business....... -- (2,000) -- (2,000)
Deferral of acquisition....... -- -- -- --
Proceeds from the sale of as-
sets......................... 363 804 -- 1,167
---- ------ ------ ------
Net cash used in investing ac-
tivities....................... (462) (1,549) -- (2,011)
---- ------ ------ ------
Financing activities
Repayment of long-term obliga-
tions........................ 929 -- -- 929
Repayment of common stock, net
of loan payments............. (20) -- -- (20)
---- ------ ------ ------
Net cash provided from financing
activities..................... 909 -- -- 909
==== ====== ====== ======
Net increase in cash and cash
equivalents.................... 73
Cash and cash equivalents, be-
ginning of period.............. --
------
Cash and cash equivalents, end
of period...................... $ 73
======
</TABLE>
F-35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jackson Holding Company:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Jackson Holding Company (a Delaware
Corporation) and subsidiary (the Company) for the period from January 1, 1995
to August 16, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Jackson Holding Company and subsidiary for the period from January 1,
1995 to August 16, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
St. Louis, Missouri
March 27, 1998
F-36
<PAGE>
JACKSON HOLDING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM JANUARY 1, 1995 TO AUGUST 16, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Net sales............................................................. $72,541
Operating expenses:
Cost of sales....................................................... 52,416
Selling, general, and administrative................................ 9,640
Amortization of intangibles......................................... 3,009
-------
65,065
-------
Operating income...................................................... 7,476
Other income (expense):
Interest expense.................................................... (5,279)
Amortization of deferred financing costs............................ (525)
Other............................................................... 14
Sale of company expenses............................................ (4,391)
-------
Loss before income tax provision and extraordinary item............... (2,705)
Income tax expense.................................................... --
-------
Loss before extraordinary item........................................ (2,705)
Extraordinary item--loss due to early extinguishment of debt.......... (7,236)
Net loss.............................................................. $(9,941)
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-37
<PAGE>
JACKSON HOLDING COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 1 TO AUGUST 16, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS CLASS
A C CUMULATIVE, ADDITIONAL CUMULATIVE
COMMON COMMON 8% PREFERRED PAID-IN TRANSLATION ACCUMULATED
STOCK STOCK STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
------ ------ ------------ ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... $184 $15 $538 $19,888 $(7) $ (6,403) $14,215
Accrued dividends--
preferred stock........ -- -- 62 -- -- (62) --
Cumulative translation
adjustment............. -- -- -- -- 55 -- 55
Net loss................ -- -- -- -- -- (9,941) (9,941)
---- --- ---- ------- --- -------- -------
Balance at August 16,
1995................... $184 $15 $600 $19,888 $48 $(16,406) $ 4,329
==== === ==== ======= === ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
JACKSON HOLDING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM JANUARY 1, 1995 TO AUGUST 16, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss............................................................. $(9,941)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Extraordinary item.................................................. 7,236
Sale of company expenses............................................ 4,391
Depreciation........................................................ 2,542
Amortization of deferred financing costs, intangibles, and debt
discount........................................................... 3,617
Changes in operating assets and liabilities
Accounts receivable............................................... (4,494)
Inventories....................................................... (509)
Accounts payable.................................................. 1,109
Accrued and other liabilities..................................... (1,803)
Accrued interest.................................................. 231
Accrued taxes..................................................... 123
Other, net........................................................ 272
-------
Net cash provided by operating activities............................ 2,774
-------
Cash flows from investing activities:
Capital expenditures................................................. (1,744)
Other................................................................ 83
-------
Net cash used in investing activities................................ (1,661)
-------
Cash flows from financing activities--Repayment of long-term
obligations.......................................................... (1,113)
-------
Net cash used in financing activities................................ (1,113)
-------
Change in cash and cash equivalents................................... --
Cash and cash equivalents, beginning of period........................ --
-------
Cash and cash equivalents, end of period.............................. $ --
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-39
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 16, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) THE COMPANY
Jackson Holding Company (the Company), a Delaware corporation, was formed on
February 24, 1993, for the purpose of acquiring the assets and certain
liabilities of Jackson Products, Inc. (Jackson) (the Acquisition). The Company
had no operations prior to the Acquisition. Jackson is engaged in the
manufacture, design, and distribution of safety equipment used primarily in
the cutting and welding, construction, and general industrial markets. In
addition, Jackson manufactures electric welding accessories and precision
layout and measuring tools used in the cutting and welding industry.
Jackson owns 100% of the outstanding common stock of Flex-O-Lite, Inc. Flex-
O-Lite, Inc. is engaged in the manufacture, design, and distribution of
highway and industrial safety products. In addition, Flex-O-Lite, Inc.
manufactures and distributes reflective glass beads used in highway and
industrial applications.
(2) ACQUISITIONS
On March 25, 1994 Jackson purchased all of the outstanding common stock of
Flex-O-Lite, Inc. (Flex-O-Lite) for $33,344 (the Flex-O-Lite Acquisition). On
October 18, 1994, Jackson purchased the assets and rights to manufacture the
electronic quick change lens used in the welding industry for $9,200 (the EQC
Acquisition).
The total costs of the Flex-O-Lite Acquisition and the EQC Acquisition were
as follows:
<TABLE>
<CAPTION>
FLEX-O-LITE EQC TOTAL
----------- ------ -------
<S> <C> <C> <C>
Purchase price................................. $33,344 $9,200 $42,544
Transaction fees and expenses.................. 3,500 375 3,875
------- ------ -------
$36,844 $9,575 $46,419
======= ====== =======
</TABLE>
The Flex-O-Lite Acquisition and the EQC Acquisition were accounted for using
the purchase method of accounting. Accordingly, total purchase cost has been
allocated to the assets and liabilities based on their respective fair values.
The results of operations have been included in the consolidated financial
statements since the date of acquisition. Intangible assets totaling
approximately $4,798 and $8,950 were recorded in connection with the Flex-O-
Lite Acquisition and EQC Acquisition, respectively.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company;
its wholly owned subsidiary, Jackson; and Jackson's wholly owned subsidiary,
Flex-O-Lite, Inc. All material intercompany balances and transactions have
been eliminated in consolidation.
The consolidated statements of operations, stockholders' equity and cash
flows presented are for the period from January 1, 1995 through August 16,
1995.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
F-40
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Consolidated Statement of Cash Flows
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid investments purchased with initial maturities of
three months or less to be cash equivalents. Interest paid for the period
ended August 16, 1995 was $4,962. Taxes refunded for the period ended August
16, 1995 was $123.
Revenue and Accounts Receivable
The Company recognizes revenue upon shipment of merchandise to its
customers. The Company's sales are primarily North American, with customers
generally located throughout the United States, Canada, and Europe.
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company performs
ongoing credit evaluations of its customers and generally does not require
collateral. The Company had two major customers, each of whose purchases
exceeded 10% of net sales. For the period ended August 16, 1995, the two
customers accounted for 22% of net sales. The outstanding accounts receivable
balance related to those customers represented 17% of the accounts receivable
balance at August 16, 1995.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method. Elements of cost in inventory
include raw materials, direct labor, and manufacturing overhead.
Property, Plant, and Equipment
Property, plant, and equipment acquired through the purchases of businesses
is recorded at fair value. Subsequent additions and improvements to property,
plant, and equipment are capitalized at cost.
Depreciation is calculated using the straight-line method. The average
estimated lives utilized in calculating depreciation are as follows: buildings
and improvements, 7-40 years; and machinery and equipment, 2-18 years.
Leasehold improvements, which are included in buildings and improvements, are
depreciated over the shorter of the term of the respective lease or the life
of the respective improvement.
Intangibles
The excess of cost over the net tangible assets acquired consists primarily
of noncompetition agreements, customer lists, assembled work force,
distributor relationships, computer software, organizational costs,
trademarks, and goodwill. These intangible assets are amortized on a straight-
line basis over periods from 5-40 years.
Related-Party Transactions
In connection with the Acquisition, the Company entered into a Management
Agreement (Agreement) that requires Thermadyne Industries, Inc. (Thermadyne),
a preferred stockholder of the Company, to perform management services for the
Company. Thermadyne is entitled to an annual management fee equal to 1/4 of 1%
of Jackson's annual net revenues not to exceed $100. This management agreement
was terminated on July 31, 1995. In addition, Thermadyne was issued 20,000
shares of the Company's 8% Cumulative Senior Preferred Stock.
During the period ended August 16, 1995, the Company had sales of $1,902 to
Thermadyne subsidiaries and as of August 16, 1995, had trade accounts
receivable balances of $467 from Thermadyne subsidiaries.
F-41
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The fair market value of those long-term obligations which carry variable
rates approximates carrying value since the interest rates are periodically
adjusted for changes in market interest rates. The fair market value of the
12.25% senior subordinated notes approximates carrying value as the rates
approximate those which could be obtained for similar issues with similar
maturities given the Company's overall financial condition.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. The provision for income taxes includes federal and state income
taxes currently payable and those deferred because of temporary differences
between the financial statements and tax basis of assets and liabilities.
(4) INVENTORIES
Inventories consist of the following:
<TABLE>
<S> <C>
Raw materials..................................................... $ 7,278
Work-in-process................................................... 3,879
Finished goods.................................................... 10,933
LIFO reserve...................................................... (486)
-------
$21,604
=======
</TABLE>
(5) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, net consists of the following:
<TABLE>
<S> <C>
Land.............................................................. $ 1,245
Buildings and improvements........................................ 7,671
Machinery and equipment........................................... 23,637
-------
32,553
Less accumulated depreciation..................................... 6,750
-------
$25,803
=======
</TABLE>
Depreciation expense totaled $2,542 for the period from January 1, 1995
through August 16, 1995.
F-42
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) INTANGIBLES
Intangibles, net of accumulated amortization, consist of the following:
<TABLE>
<S> <C>
Goodwill.......................................................... $15,796
Customer lists.................................................... 21,000
Noncompetition agreements, technology, and other.................. 20,540
-------
57,336
Less accumulated amortization..................................... 14,680
-------
$42,656
=======
</TABLE>
(7) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<S> <C>
Term loans........................................................ $51,203
Revolver.......................................................... 12,250
12.75% senior subordinated notes.................................. 17,500
-------
80,953
Less current maturities........................................... 5,897
-------
$75,056
=======
</TABLE>
Credit Agreement
The Company has a Credit Agreement which consists of a $39,600 Term A loan,
a $20,000 Term B loan, (collectively, the "Term Loans"), and a $25,000
revolving credit facility (the "Revolver"). The Revolver provides that up to
$3,500 of such facility may be used for the issuance of letters of credit and
lender guaranties. Letters of credit and lender guaranties totaling $1,488
were outstanding at August 16, 1995. Borrowings under the Credit Agreement are
secured by first priority mortgages and liens on all of the assets of Jackson
and are guaranteed by the Company. The Credit Agreement also contains several
financial covenants, which require Jackson to maintain certain financial
ratios and restrict the Company's ability to incur indebtedness, make capital
expenditures, and pay dividends. The Company was in compliance with these
covenants at August 16, 1995. The commitment fee on the unused portion of the
Revolver is 1/2% per annum, payable quarterly.
Mandatory principal payments on the Term Loans are due in quarterly
installments on January 1, April 1, July 1, and October 1, with the final
installment due on March 31, 2001. The Revolver is due on March 31, 2001. The
Credit Agreement requires annual prepayments on the Term Loans on a date one
hundred days following the end of each fiscal year, based on Excess Cash Flow
(as defined).
Through March 31, 1995, borrowings under the Credit Agreement bear interest,
at the option of Jackson, at a rate per annum equal to (i) the Base Rate (as
defined) plus 1.5%; or (ii) LIBOR Rate (as defined) plus 2.75% for the
Revolver and Term A loans, and LIBOR Rate plus 3.25% for the Term B loans. For
each fiscal quarter following March 31, 1995, the factor added to either the
Base Rate or the LIBOR Rate will be adjusted based on the ratio of the
Jackson's Total Debt to Operating Cash Flow (as defined). The average interest
rate on outstanding borrowings was 9.1% at as of August 16, 1995.
F-43
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Senior Subordinated Notes
The 12.25% Senior Subordinated Notes due 2003 (the "Notes") were issued in
connection with the Acquisition pursuant to an agreement dated April 12, 1993,
among the Company, Jackson, and the purchasers named within the agreement. The
Notes represent unsecured general obligations of the Company and are
subordinated to all Senior Indebtedness (as defined) of Jackson. The Notes are
guaranteed by the Company.
The Notes mature on April 30, 2003 and bear interest at the rate of 12.25%
per annum, payable quarterly on each January 31, April 30, July 31, and
October 31. The Notes may not be redeemed prior to April 30, 1997, except in
the event of a public offering of the Company or in the event of a Change of
Control (as defined). The Notes may be redeemed on or after May 1, 1997, in
whole or from time to time in part, at the option of Jackson, at a redemption
price of 107.80% in 1997 with annual reductions to 100% in 2002 and
thereafter. Jackson is required to redeem $2,500 of the aggregate principal
amount of the Notes at 100% of the principal amount thereof, plus accrued but
unpaid interest to the redemption date, commencing October 31, 2000, and each
six months thereafter until April 30, 2003.
The Notes require Jackson to maintain certain financial ratios and restrict
the incurrence of additional indebtedness by Jackson, the payment of
dividends, and other distributions with respect to Jackson's capital stock,
the creation of liens on the assets of Jackson to secure certain subordinated
debt, and certain mergers, sales of assets, and transactions with affiliates.
Jackson was in compliance with these covenants at August 16, 1995.
As discussed in Note 12 to the consolidated financial statements, the Term
Loans, the Revolver and the Notes were redeemed in full as part of the Merger
Agreement. In exchange for the early redemption, Jackson agreed to pay a 6%
prepayment penalty to all noteholders in connection with the transaction.
(8) STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 25,500,000 shares of
common stock, 1,523,103 shares of Class A common stock, and 5,000,000 shares
of preferred stock.
In connection with the financing for the Acquisition, the Company issued
14,761,608 shares of common stock and 1,213,484 shares of Class A Series I
common stock. In connection with the Flex-O-Lite Acquisition, the Company
issued 3,685,898 shares of common stock and 309,619 shares of Class A Series
II common stock.
Common Stock
Dividends are payable equally on shares of all classes of common stock in
amounts as and when declared by the Company's Board of Directors, subject to
legally available funds and restrictions contained in certain agreements. In
the event of any liquidation, dissolution, or winding up of the Company,
before any payment or distribution of the assets of the Company shall be made
to the holders of Class A common stock, each share of common stock shall be
entitled to a liquidation preference based on a formula set forth in the
Company's Certificate of Incorporation. Holders of common stock and Class A
common stock are entitled to one vote per share on all matters submitted to a
vote of stockholders.
Class A Series I common stock and Class A Series II common stock (the "Class
A common stock") may be converted into shares of common stock at the option of
the holder at any time. In addition, shares of Class A common stock (i) may be
converted into common stock at the option of the Company effective immediately
prior to the occurrence of a Triggering Event (as defined), or (ii) shall
automatically be converted into common stock on March 31, 2003. Such
conversions are based on a formula set forth in the Company's Certificate of
Incorporation.
F-44
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Option Plan
During 1993, the Company adopted a nonqualified incentive stock option plan
(the Option Plan) for its officers and key employees. Under the Option Plan,
eligible participants may receive incentive and nonqualified options to
purchase shares of the Company's common stock. Options are exercisable at such
time an option is earned and vested. Generally, options become exercisable at
a rate of 20% for each full year of employment from the date of grant and may
be exercised only if the holder is an employee of the Company. A total of
487,662 options were issued and outstanding during the period ended August 16,
1995. All options were exercised in connection with the transaction discussed
in Note 12.
The Company has elected to continue to measure compensation cost using the
intrinsic value method as prescribed by Accounting Principles Board (APB)
Opinion No. 25 and has recorded no compensation expense relative to the
issuance of its stock options. Had the Company applied the principles of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, compensation expense would not have been material to
the consolidated financial statements.
(9) INCOME TAXES
Reconciliation between the statutory income tax provision and effective tax
provision is summarized below for the period from January 1, 1995 through
August 16, 1995:
<TABLE>
<S> <C>
Statutory rate (35%)............................................. $(3,479)
Amortization of goodwill and other............................... 551
Other, net....................................................... 194
Change in valuation allowance.................................... 2,734
-------
Income tax expense............................................... $ --
=======
</TABLE>
The tax effects of significant temporary differences, representing deferred
tax assets and the deferred tax liability, as of August 16, 1995, are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards............................... $ 4,923
Receivables.................................................... 187
Accrued liabilities............................................ 1,721
Postretirement benefits........................................ 701
Other.......................................................... 1,401
-------
8,933
Valuation allowance.............................................. (8,412)
-------
Net deferred tax assets.......................................... 521
Deferred tax liability--inventory................................ (521)
-------
Net deferred taxes $ --
=======
</TABLE>
The Company establishes valuation allowances in accordance with SFAS No. 109
and continually reviews the adequacy of the allowance, recognizing benefits
only as its reassessment indicates that it is more likely than not that
benefits will be realized. The increase was the result of an increase in net
operating loss carryforwards and changes in temporary differences. At August
16, 1995, the Company had net operating loss carryforwards (NOL) of
approximately $14,065 for U.S. federal income tax purposes which begin to
expire in 2009 to the extent not previously utilized.
F-45
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) RETIREMENT BENEFIT PLANS
Retirement benefits are provided to substantially all employees under a
discretionary profit sharing and contributory retirement plan under Section
401(k) of the Internal Revenue Code.
The Company provides postretirement healthcare and other benefits to certain
qualifying retirees. The Company does not fund retiree healthcare benefits in
advance and has the right to modify these benefits in the future. Net periodic
postretirement benefit cost (NPPBC) for the period from January 1, 1995
through August 16, 1995 includes the following components:
<TABLE>
<S> <C>
Service cost.......................................................... $145
Interest cost......................................................... 85
Other................................................................. 65
----
NPPBC................................................................. $295
====
</TABLE>
The Plan's status as of August 16, 1995 is as follows:
<TABLE>
<S> <C>
Actuarial present value of benefit obligation:
Fully eligible active participants............................... $ 75
Other active participants........................................ 1,709
Retirees......................................................... 72
------
Accumulated postretirement benefit obligation (APBO)............... $1,856
======
</TABLE>
The APBO was determined by application of the terms of the plan, together
with relevant actuarial assumptions for active employees. Healthcare cost
trends are projected at annual rates ranging from 8.5% in 1996 down to 5.5% in
2009 and thereafter. The effect of a 1% annual increase in these assumed rates
would increase the APBO at August 16, 1995 by a total of $600 and the service
and interest cost components of the NPPBC for the period ended August 16, 1995
by a total of $120. The assumed discount rate used in determining the APBO was
7.5%. No assets have been segregated and restricted for payment of
postretirement benefits. The APBO is included in other noncurrent liabilities
on the consolidated balance sheet.
(11) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain legal actions from time to time related
to the normal conduct of its business. Management believes that liabilities,
if any, resulting from litigation will not materially affect the financial
position or results of operations of the Company.
Future minimum lease payments under all operating leases with initial or
remaining noncancelable lease terms in excess of one year at August 16, 1995
are as follows:
<TABLE>
<S> <C>
1995................................................................ $ 530
1996................................................................ 1,311
1997................................................................ 1,246
1998................................................................ 871
1999................................................................ 809
2000 and thereafter................................................. 427
</TABLE>
Rent expense for the period from January 1, 1995 through August 16, 1995 was
$1,037.
F-46
<PAGE>
JACKSON HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(12) SUBSEQUENT EVENT
On August 17, 1995, Jackson and Jackson Acquisition Corp., a nonaffiliated
company, entered into a Merger Agreement ("the Merger Agreement") providing
for the acquisition by Jackson Acquisition Corp. of all of the outstanding
common stock of Jackson at a purchase price of $129,000. Under the terms of
the Agreement, Jackson used the proceeds from the sale to repay the
outstanding principal balance of the Term Loans, the Revolver, the Notes and
related accrued interest. Expenses related to the early retirement of debt,
including write-off of deferred financing fees, have been reflected as an
extraordinary item in the consolidated financial statements.
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
NCH Corporation:
We have audited the accompanying combined balance sheets of American Allsafe
Company and Silencio/Safety Direct, Inc. (wholly-owned subsidiaries of NCH
Corporation) as of April 22, 1998 and April 30, 1997, and the related combined
statements of earnings, stockholders' equity and cash flows for the period
from May 1, 1997 to April 22, 1998 and the years ended April 30, 1997 and
1996. These combined financial statements are the responsibility of NCH
Corporation's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of American Allsafe
Company and Silencio/Safety Direct, Inc. as of April 22, 1998 and April 30,
1997, and the results of their operations and their cash flows for the period
from May 1, 1997 to April 22, 1998 and the years ended April 30, 1997 and 1996
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
September 9, 1998
F-48
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
COMBINED BALANCE SHEETS
APRIL 22, 1998 AND APRIL 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS 1998 1997
------ ------- -------
<S> <C> <C>
Current assets:
Cash......................................................... $ 76 $ 164
Accounts receivable--trade, net of allowance for doubtful
accounts of $200 and $247 in 1998 and 1997, respectively.... 4,119 4,249
Inventories (note 3)......................................... 6,365 5,238
Receivables from affiliates (note 10)........................ 54 4,005
Deferred income taxes (note 2)............................... 276 278
Prepaid expenses............................................. 34 46
------- -------
Total current assets....................................... 10,924 13,980
Property, plant and equipment, net (note 4).................... 6,547 7,578
Goodwill, net of accumulated amortization of $313 and $239 in
1998 and 1997, respectively .................................. 771 845
Other assets................................................... 374 377
------- -------
$18,616 $22,780
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Industrial revenue bonds (note 5)............................ $ -- $ 3,700
Accounts payable............................................. 1,532 1,063
Accrued expenses (note 6).................................... 598 671
Income taxes payable to Parent (note 2)...................... 863 646
------- -------
Total current liabilities.................................. 2,993 6,080
Deferred income taxes (note 2)................................. 674 591
Other noncurrent liabilities................................... -- 52
Stockholders' equity (note 7):
Common stock................................................. 520 520
Additional paid-in capital................................... 3,719 3,719
Retained earnings............................................ 10,710 11,818
------- -------
Total stockholders' equity................................. 14,949 16,057
------- -------
$18,616 $22,780
======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-49
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
COMBINED STATEMENTS OF EARNINGS
PERIOD FROM MAY 1, 1997 TO APRIL 22, 1998 AND YEARS ENDED APRIL 30, 1997 AND
1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
MAY 1,
1997 TO
APRIL 22,
1998 1997 1996
----------- ------- -------
<S> <C> <C> <C>
Net sales........................................... $32,185 $30,527 $28,924
Cost of sales....................................... 20,653 20,370 18,832
Marketing and administrative expenses (note 10)..... 8,465 8,252 7,427
------- ------- -------
29,118 28,622 26,259
------- ------- -------
Operating earnings................................ 3,067 1,905 2,665
Interest expense.................................... 188 220 280
------- ------- -------
Earnings before income taxes...................... 2,879 1,685 2,385
Provision for income taxes (note 2)................. 1,057 600 934
------- ------- -------
Net earnings...................................... $ 1,822 $ 1,085 $ 1,451
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-50
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM MAY 1, 1997 TO APRIL 22, 1998 AND YEARS ENDED APRIL 30, 1997 AND
1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance May 1, 1995.................. 500 $500 $3,539 $ 9,282 $13,321
Net earnings......................... -- -- -- 1,451 1,451
--- ---- ------ ------- -------
Balance, April 30, 1996.............. 500 500 3,539 10,733 14,772
Net earnings......................... -- -- -- 1,085 1,085
Issuance of common stock to Parent... 20 20 180 -- 200
--- ---- ------ ------- -------
Balance, April 30, 1997.............. 520 $520 $3,719 $11,818 $16,057
Intercompany dividends to Parent..... -- -- -- (2,930) (2,930)
Net earnings......................... -- -- -- 1,822 1,822
--- ---- ------ ------- -------
Balance at April 22, 1998............ 520 $520 $3,719 $10,710 $14,949
=== ==== ====== ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-51
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
COMBINED STATEMENTS OF CASH FLOWS
PERIOD FROM MAY 1, 1997 TO APRIL 22, 1998 AND YEARS ENDED APRIL 30, 1997 AND
1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
FROM
MAY 1,
1997 TO YEAR ENDED APRIL 30,
APRIL 22, ----------------------
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings................................ $ 1,822 $ 1,085 $ 1,451
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization.............. 1,070 1,053 1,029
Deferred income taxes...................... 85 (35) 105
Gain on sale of equipment.................. -- (8)
Other...................................... (52) -- (3)
Changes in operating assets and liabilities:
Accounts receivable (net).................. 130 (836) 309
Inventories................................ (1,127) 209 1,054
Intercompany receivables................... 3,951 (812) (1,973)
Prepaid expenses........................... 12 13 6
Accounts payable, accrued expenses and
income taxes payable...................... 613 441 24
Other noncurrent assets.................... 3 (100) 14
------- ---------- ----------
Net cash provided by operating
activities............................ 6,507 1,018 2,008
------- ---------- ----------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment.. (1,050) (1,173) (953)
Proceeds from sales of property, plant and
equipment.................................. -- (10) 10
------- ---------- ----------
Net cash used in investing activities.. (1,050) (1,183) (943)
------- ---------- ----------
Cash flows from financing activities:
Intercompany dividend to parent............. (1,845) -- --
Proceeds from issuance of stock to parent... -- 200 --
Repayment of long-term obligations.......... (3,700) -- (1,000)
------- ---------- ----------
Net cash provided by (used) in
financing activities.................. (5,545) 200 (1,000)
Net (decrease) increase in cash.............. (88) 35 65
Cash at beginning of year.................... 164 129 64
------- ---------- ----------
Cash at end of year.......................... $ 76 $ 164 $ 129
======= ========== ==========
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the year for:
Interest................................... $ 227 $ 219 $ 266
Income taxes............................... 826 964 936
Supplemental Schedule of Non-cash Investing
and Financing Activities:
Non-cash transfer of fixed assets to parent. $ 1,085 $ -- $ --
======= ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-52
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 22, 1998 AND APRIL 30, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Combination
The accompanying combined financial statements include the accounts of
American Allsafe Company and Silencio/Safety Direct, Inc., (collectively, the
"Company"), wholly owned subsidiaries of NCH Corporation (the "Parent").
Significant intercompany transactions and balances between these two
subsidiaries of the Parent have been eliminated. The accompanying combined
financial statements present the financial position, results of operations and
cash flows of the Company.
The Company was acquired by Jackson Products, Inc. on April 22, 1998.
Accordingly, the accompanying combined financial statements reflect the
activity of the Company from May 1, 1997 through April 22, 1998.
(b) Nature of Operations
The Company manufactures and markets head, eye and hearing protection, as
well as safety spectacles and personal safety products, to customers
throughout the United States.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Cash
Cash includes cash on hand and cash in banks.
(e) Inventories
Raw materials, sales supplies and purchased finished goods are stated at a
moving average cost, which approximates cost on a first-in, first-out basis
and is not in excess of market value. Manufactured finished goods are stated
at an amount approximating cost of manufacturing, which is not in excess of
net realizable value.
(f) Intercompany Receivables
The Company's cash funding needs are handled by the Parent for short-term
investing purposes. Also, any charges between the Company and the Parent or
other affiliates are recorded in intercompany accounts.
(g) Property, Plant and Equipment
These assets are recorded at cost. When these assets are disposed of, the
cost and related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is included in income during that year. The cost of
maintenance and repairs is charged to expense as incurred, whereas
expenditures that substantially increase the useful lives of plant or
equipment are capitalized.
(h) Depreciation
Depreciation on buildings and equipment is provided for financial statement
purposes using the straight-line method over the estimated useful lives of the
related assets. Depreciation on certain buildings and equipment is provided
for income tax purposes using accelerated methods.
F-53
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(i) Goodwill
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized using the straight-line method over an
estimated useful life of 15 years. The unamortized cost of impaired intangible
assets is charged to expense when impairment occurs.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation.
The amount of impairment, if any, is measured based on projected discounted
future operating cash flows. At this time, the Company believes that no
significant impairment of goodwill has occurred and that no reduction of the
estimated useful lives is warranted.
(j) Revenue Recognition
Revenue from products is recognized upon shipment. Reserves for sales
returns and allowances are recorded in the same period as the related
revenues.
(k) Advertising
Advertising costs are expensed as incurred. Advertising costs amounted to
approximately $964,000, $619,000 and $524,000 for the period ended April 22,
1998, and the years ended April 30, 1997 and 1996, respectively.
(l) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company files a consolidated federal income tax return with the Parent
and its subsidiaries. The income tax provision has been computed as if the
Company were filing a separate federal income tax return.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the Long-
Lived Assets to Be Disposed Of, on January 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount of fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position, results of
operations or liquidity.
F-54
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) INCOME TAXES
The following are the components of the provision for income taxes for the
period from May 1, 1997 to April 22, 1998 and the years ended April 30, 1997
and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR
ENDED
PERIOD FROM APRIL 30,
MAY 1, 1997 TO ----------
APRIL 22, 1998 1997 1996
-------------- ---- ----
<S> <C> <C> <C>
U.S. federal:
Current...................................... $ 852 $615 $711
Deferred..................................... 85 (35) 105
State-current.................................. 120 20 118
------ ---- ----
$1,057 $600 $934
====== ==== ====
</TABLE>
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
The components of deferred tax assets and liabilities as of April 22, 1998
and April 30, 1997 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 22, APRIL 30,
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................... $ 63 $ 80
Inventory reserves................................ 94 79
Accrued settlements............................... 119 119
Other noncurrent liabilities...................... -- 18
---- ----
276 296
Deferred tax liabilities--depreciation.............. 674 609
---- ----
Net deferred tax liability........................ $398 $313
==== ====
</TABLE>
Management believes a valuation allowance for the deferred tax asset is not
necessary as the full amount of deferred tax assets is considered realizable
in future periods.
The following is a reconciliation of the difference between the U.S.
statutory income tax rate and the effective tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate.................................... 34.0% 34.0% 34.0%
Effect of state income taxes, net of federal benefit... 4.2 0.6 4.9
Other.................................................. (1.5) 1.0 0.3
---- ---- ----
Effective income tax rate.............................. 36.7% 35.6% 39.2%
==== ==== ====
</TABLE>
(3) INVENTORIES
A summary of inventories at April 22, 1998 and April 30, 1997, net of
reserves of approximately $176,000 and $155,000 follows (in thousands of
dollars):
<TABLE>
<CAPTION>
APRIL 22, APRIL 30,
1998 1997
--------- ---------
<S> <C> <C>
Raw materials........................................ $2,670 $2,650
Finished goods....................................... 3,695 2,588
------ ------
$6,365 $5,238
====== ======
</TABLE>
F-55
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at April 22, 1998 and April 30, 1997 consists
of the following (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL APRIL
22, 30,
1998 1997
------- -------
<S> <C> <C>
Land................................................... $ 136 $ 200
Buildings.............................................. 3,259 4,633
Equipment.............................................. 12,479 11,503
------- -------
15,874 16,336
Accumulated depreciation............................... (9,327) (8,758)
------- -------
$ 6,547 $ 7,578
======= =======
</TABLE>
Depreciation charged to income was $996,000, $980,000 and $958,000 for the
period from May 1, 1997 to April 22, 1998 and the years ended April 30, 1997
and 1996, respectively. The estimated useful life of buildings is 25 to 40
years; equipment is 3 to 10 years.
(5) INDUSTRIAL REVENUE BONDS
At April 30, 1997, $3,700,000 of industrial revenue bonds which accrued
interest at 71.9% of the prime interest rate (8.25% at April 30, 1997) were
outstanding. In March 1998, the outstanding balance of the industrial revenue
bonds was retired. The bonds were secured by property and scheduled to mature
on December 1, 2005. Concurrently, with the retirement of the industrial
revenue bonds, property having a carrying value of approximately $1,100,000,
and which was previously securing a portion of the industrial revenue bonds,
was sold to a related party for a cash sales price approximating carrying
value.
(6) ACCRUED EXPENSES
Accrued expenses at April 22, 1998 and April 30, 1997 consist of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 22, APRIL 30,
1998 1997
--------- ---------
<S> <C> <C>
Accrued employee compensation........................ $240 $308
Accrued settlements.................................. 350 350
Other................................................ 8 13
---- ----
$598 $671
==== ====
</TABLE>
(7) CAPITAL STOCK
The Company has issued 520,000 shares of the 1,100,000 authorized shares of
$1 par value common stock to the Parent. Intercompany dividends of $2,930,000
were paid on this stock in 1998 and there are no related stock options.
(8) COMMITMENTS AND CONTINGENT LIABILITIES
At April 22, 1998 and April 30, 1997, the Company had leases for various
office and warehouse facilities. All of these agreements expired in the period
ended April 22, 1998 and were renewed under substantially the same terms
through fiscal year 2001. Total rent expense for the period ended April 22,
1998, and the years ended April 30, 1997 and 1996, was approximately $127,000,
$133,000 and $115,000 respectively.
F-56
<PAGE>
AMERICAN ALLSAFE COMPANY AND SILENCIO/SAFETY DIRECT, INC.
(WHOLLY-OWNED SUBSIDIARIES OF NCH CORPORATION)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining leases in excess of one year) as of April 22, 1998 are:
<TABLE>
<S> <C>
1999............................ $154,000
2000............................ 154,000
2001............................ 102,000
</TABLE>
The Company is from time to time involved in a variety of legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate liabilities, if any, resulting from these proceedings will not have a
material adverse effect on the Company's financial position or operating
results.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable, and
accrued expenses approximate fair value because of the short maturities of
these financial instruments.
(10) TRANSACTIONS WITH AFFILIATES
Certain of the Company's corporate administrative functions, including
accounting and data processing are provided by the Parent. The cost of these
administrative functions is allocated to the Company in proportion to the
budgeted net revenues of each company. Management believes this allocation
method is reasonable, however, such allocated costs may not necessarily be
indicative of the cost of obtaining such services if the Company operated on a
stand alone basis. General and administrative expenses include approximately
$431,000, $325,000 and $381,000 for the period ended April 22, 1998, and the
years ended April 30, 1997 and 1996, respectively, of these allocated
expenses.
F-57
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS OFFERING
CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF
OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 14
The Company............................................................... 21
Use of Proceeds........................................................... 23
Capitalization............................................................ 24
Selected Historical Financial Data........................................ 25
Management's Discussion and Analysis Of Results of Operations
and Financial Condition.................................................. 27
Business.................................................................. 31
Management................................................................ 43
Principal Stockholders.................................................... 47
Description of Certain Indebtedness....................................... 49
Certain Transactions...................................................... 50
The Exchange Offer........................................................ 51
Description of Notes...................................................... 60
Plan of Distribution...................................................... 93
Certain Tax Considerations................................................ 94
Legal Matters............................................................. 98
Experts................................................................... 98
Available Information..................................................... 98
Unaudited Pro Forma Consolidated Financial Statements..................... P-1
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$115,000,000
[LOGO OF JACKSON PRODUCTS, INC. APPEARS HERE]
JACKSON PRODUCTS, INC.
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2005
---------------------
PROSPECTUS
---------------------
September 16, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
