UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
Commission File Number:........... 333-53987................................
JACKSON PRODUCTS, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2470881
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
2997 Clarkson Road, Chesterfield, Missouri 63017
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(314) 207-2700
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
38,530 shares of Class A Common Stock at February 28, 1999
8,526 shares of Class C Common Stock at February 28, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PART I.............................................................
Item 1 Business.............................................. 3
Item 2. Properties ........................................... 7
Item 3. Legal Proceedings..................................... 7
Item 4. Submission of Matters to a Vote of Secuirty Holders... 7
PART II............................................................
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters................................... 7
Item 6. Selected Financial Data............................... 8
Item 7. Management's Discussion and Analyisis of Financial
Condition and Results of Operations.................... 9
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.................................................. 12
Item 8. Financial Statements and Supplementary Data............ 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 36
PART III. ..........................................................
Item 10. Directors and Executive Officers....................... 36
Item 11. Executive Compensation................................. 37
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................. 40
Item 13. Certain Relationships and Related Transactions......... 41
Part IV.
Item 14. Exhibits, Financial Statement Schedules,and Reports
on Form 8-K............................................ 42
Signatures...................................................... 52
</TABLE>
2
<PAGE>
ITEM 1. BUSINESS
GENERAL
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. The Company currently focuses on two
product groups: (i) personal safety products, which represented approximately
61% of pro forma net sales in 1998, and (ii) highway safety products, which
represented approximately 39% of pro forma net sales in 1998.
The Acquisitions
On April 22, 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 has provided JPI with complementary product lines, additional
channels of distribution and new end-users. Allsafe and Silencio/Safety Direct
generated an aggregate of approximately $33.8 million of pro forma net sales in
1998.
On April 23, 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 technology base for both existing and new safety products and
an in-house source for its current liquid crystal shutter needs. Crystaloid
generated $11.0 million of pro forma net sales in 1998.
On July 22, 1998, the Company, through Allsafe, acquired all of the outstanding
capital stock of Kedman Company for a total purchase price of $9.2 million.
Kedman has a firm hold on its customer base through its service philosophies,
marketing plans and its "small business," personal touch. Its manufactured
products, (i.e. helmets, visors, headgear and screwdrivers) provide JPI with
additional products to its personal safety products group. The Allsafe
Acquisition, the Crystaloid Acquisition and the Kedman Acquisition are hereafter
referred to as "the Acquisitions".
Personal Safety Products
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, Contour Marker,
American Allsafe Co., Team Silencio, Huntsman 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 1998 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 is approximately $767 million in the U.S. in 1998,
and an additional $960 million within Europe in 1997. 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.
3
<PAGE>
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.
Personal safety products generated net sales of $110.6 million on a pro forma
basis for the Company in 1998. The Company's product offerings include welding
helmets and auto-darkening welding filter lenses, hardhats, face shields, safety
spectacles and prescription safety eyewear frames. 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 the Frost & Sullivan Report to have been in
excess of $767 million in 1998. 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 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 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. In 1997, the Company formed Lansec
Holding GmbH ("GmbH") to acquire several European businesses. The formation of
GmbH provided 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. The acquisition of American Allsafe
Company ("Allsafe")and Silencio/Safety Direct, Inc. ("Silencio/Safety Direct")
further expands the range of the Company's personal safety products and enhance
the Company's channels of distribution. The acquisition of 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. The
acquisition of Kedman Company, ("Kedman") expands the Company's presence in the
west and widens the current distribution channels.
Highway Safety Products
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 the Intermodal Surface Transportation
Efficiency Act ("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
40% increase over ISTEA.
4
<PAGE>
Highway safety products generated net sales of $71.7 million for the Company in
1998. 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.
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 and end-user levels
to create an effective pull-through of products to the market. The Company's
in-house sales forces are covered by incentive bonus plans 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, Italy, 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.
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. The Company has ongoing relationships with certain
suppliers of raw materials, however 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, Contour Market, American Allsafe Co., Team Silencio,
Huntsman and Lamba.
5
<PAGE>
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 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
does not believe it will incur significant material 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.
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
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.
6
<PAGE>
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.
EMPLOYEES
As of December 31, 1998, the Company had 957 employees. The Company had 20
employees represented by a union pursuant a collective bargaining agreement,
which will expire, at the option of either party, at the end of 1999.
ITEM 2. PROPERTIES
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> <C>
Chesterfield, Missouri Corporate Corporate and Administration 58,030 Leased 9/14/02
Belmont, Michigan Jackson Manufacturing and Distribution 148,100 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 8/31/01
Ede, Netherlands Lansec Distribution 1,962 Leased Monthly
Worcestershire, U.K. Lansec Distribution 3,900 Leased 12/31/01
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.
ITEM 3. 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.
ITEM 4. SUMBISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1998.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The only authorized, issued and outstanding classes of capital stock of the
Company is common stock, consisting of the Class A Common Stock and the Class C
Common Stock. There is no established trading market for the Company's common
stock.
The Company has not declared or paid any cash dividends on its common stock
since its formation in August 1995. The Company's financing agreements contain
restrictions on its ability to declare or pay dividends on its common stock.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the summary combined historical financial data of
(i) the Company's predecessor, Jackson Holding Company, for the periods 1994 and
January 1, 1995 to August 16, 1995; (ii) the Company for the periods August 17,
1995 to December 31, 1995, 1996, 1997 and 1998; and (iii) the pro forma
financial data for the year ended December 31, 1998. The pro forma financial
information was prepared as if each of the Acquisitions 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 financial statements and the related notes
thereto included elsewhere in this document.
<TABLE>
<CAPTION>
Predecessor The Company
--------------------- ---------------------------------------------------
January 1, August 17,
1995 to 1995 to Pro
August 16, December 31, Forma
1994 1995 1995 1996 1997 1998 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Statement of Operations Data:
Net sales....................... $92,838 $72,541 $ 37,558 $111,788 $123,417 $165,232 $182,250
Cost of sales................... 67,348 52,416 30,566 80,485 87,466 111,325 121,648
Selling, general & administrative
expenses........................ 12,337 9,640 4,965 14,440 15,205 27,566 31,816
Asset sales..................... -- -- -- 1,050 335 576 576
Amortization of intangibles..... 6,733 3,009 1,688 18,849 16,378 9,654 11,493
----- ----- ----- ------ ------ ----- ------
Operating income (loss)......... 6,420 7,476 339 (3,036) 4,033 16,111 16,717
Other expenses:
Interest expense............ (6,676) (5,279) (4,381) (11,306) (12,050) (15,803) (16,906)
Amortization of deferred
financing costs............. (765) (525) (340) (1,076) (1,261) (1,271) (1,271)
Other....................... (102) 14 14 (599) (401) (643) (594)
Sale of company expenses.... -- (4,391) -- -- -- -- --
----- ------ ----- ------ ------ ----- ------
Loss before income tax provision
and extraordinary item......... (1,123) (2,705) (4,368) (16,017) ( 9,679) ( 1,606) ( 2,054)
Income tax expense............. 700 -- -- 429 684 224 524
------ ------ ----- ------ ------ ----- -----
Loss before extraordinary item. (1,823) (2,705) (4,368) (16,446) (10,363) (1,830) (2,578)
Extraordinary item:
Loss due to early extinguishment
of debt........................ (1,914) (7,236) -- -- -- (7,558) (7,558)
------ ------ ----- ------ ------ ------ ------
Net loss....................... $(3,737) $(9,941) $(4,368) $(16,446) $(10,363) $( 9,338) $(10,136)
Other Data
EBITDA(1)....................... $16,894 $13,219 $ 7,209 $ 21,145 $24,660 $31,111 $34,001
Depreciation and amortization... 10,138 5,548 3,141 23,131 20,292 15,793 18,555
Capital expenditures............ 2,055 1,744 465 1,910 3,246 6,670 7,605
Ratio of earnings to fixed charges(2) -- -- -- -- -- -- --
Cash (used in)provided by
operating activities............. 7,104 2,774 7,410 6,833 10,313 15,417
Cash used in investing activities (44,485) (1,661) (129,154) (14,552) (5,890) (54,267)
Cash (used in)provided by
financing activities............. 35,694 (1,113) 121,619 7,719 (3,900) 38,654
Balance Sheet Data:
Cash............................ $ -- $ -- $ -- $ -- $ 523 $ 327
Total assets.................... 112,658 108,739 141,525 135,015 125,047 171,239
Remeemable preferred stock and
long-term debt,including current
portion......................... 79,488 80,953 122,771 134,194 133,452 190,389
Total stockholder's equity(deficit) 14,215 4,329 1,517 (17,738) (31,277) (47,712)
</TABLE>
(1) EBITDA represents operating income plus depreciation, amortization and
certain non-cash charges. 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.
8
<PAGE>
(2) In the computation of the ratio to fixed charges, earnings consist of income
before 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 $1,123 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 and $1,606 for 1998.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis of the Company's financial condition and
results should be read in conjunction with the "Selected Financial Data" and the
consolidated financial statements of the Company, including the notes thereto,
appearing elsewhere in this report. This report contains forward-looking
statements. Such forward-looking statements are identified by use of
forward-looking words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intent" and other similar expressions. These forward-looking
statements are subject to various assumptions, risks and uncertainties,
including but not limited to, changes in political and economic conditions,
demand for the Company's products, acceptance of new products, developments
affecting the Company's products and to those discussed in the Company's filings
with the Securities and Exchange Commission. Accordingly, acutal results could
differ materially from those contemplated by the forward-looking statements.
The Company, which was founded in 1932, operated as Jackson Holding Company from
April 1, 1993 to August 16, 1995. 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.
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. On July 22,
1998, the Company, through Allsafe, acquired all of the outstanding capital
stock of Kedman Company for a total purchase price of $9.2 million. Operating
results of Allsafe, Crystaloid and Kedman have been included in the financial
statements of the Company as of these dates.
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth certain financial information of the Company for
the years 1996, 1997 and 1998.
<CAPTION>
1996 1997 1998
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Net sales........................... $111,788 $123,417 $165,232
Cost of sales........................ 80,485 87,466 111,325
Selling, general & administrative.... 14,440 15,205 27,566
Operating income (loss).............. (3,036) 4,033 16,111
Income tax expense................... 429 684 224
</TABLE>
Fiscal year Ended December 31,1998 Compared to Fiscal Year Ended December
31,1997
Net sales - Net sales in 1998 increased 33.9% to $165.2 million from $123.4
million in 1997. The increase in sales resulted from the Acquisitions. The
Acquisitions and the Lansec Acquisition contributed $45.2 million in net sales
for the twelve months ended December 31, 1998. Had the Acquisitions occurred on
January 1, 1997, net sales would have declined slightly to $182.3 million for
1998 and 1997 as the strong growth in the highway, janitorial and avionics
markets was offset by a softening in industrial markets.
Cost of sales - Cost of sales in 1998 increased 27.3% to $111.3 million from
$87.5 million in 1997, primarily as a result of the increase in net sales. Cost
of sales as a percentage of sales decreased to 67.4% from 70.9% due to various
cost reduction programs and higher margins associated with the acquired
companies.
Selling, general & administrative expenses- Selling, general and administrative
expenses in 1998 increased 81.3% to $27.6 million from $15.2 million due to the
Acquisitions. Selling, general & administrative expenses as a percentage of net
sales increased to 16.7% from 12.3% due to the acquisition of GmbH. GmbH
expenses as a percentage of sales are high relative to the other divisions
coupled with increased corporate administrative expenses associated with the
Acquisitions and the requirements of being a SEC registrant.
9
<PAGE>
Operating income - Operating income in 1998 increased to $16.1 million from $4.0
million in 1997 due to the Acquisitions and a reduction in amortization expenses
as certain intangibles were fully amortized during 1997.
Income tax expense - Income tax expense in 1998 decreased to $0.2 million from
$0.7 million. 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in 1998, 1997 and 1996 was $15.4 million,
$10.3 million and $6.8 million, respectively. Changes in working capital
resulted in a source of cash of $0.9 million and use of cash of $1.0 million and
$2.0 million in 1998, 1997 and 1996, respectively.
Cash used in investing activities in 1998, 1997 and 1996 was $54.3 million, $5.9
million and $14.6 million respectively. The 1998 period includes $47.8 million
expended for the acquisition of businesses. 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 in 1998, 1997 and 1996 were
$6.7 million, $3.2 million and $1.9 million, respectively.
Net cash provided by financing activities in 1998 was $38.7 million. Net cash
used by financing activities was $3.9 million in 1997. The Acquisitions were
financed with the proceeds of the Senior Subordinated Notes and the New Credit
Facility. (See below). 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 December 31, 1998 there was $10.2 million outstanding on the
revolving credit facility and $1.4 million of letters of credit outstanding
resulting in availability of $18.4 million. At December 31, 1998 there was $65.8
million outstanding on the acquisition facility resulting in availability of
$29.2 million.
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 of each year. 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").
10
<PAGE>
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 on a going forward basis.
Historically, the Company's capital expenditures have been approximately $3.5
million per annum. The Company anticipates that its capital expenditure
requirements for 1999 will be approximately $5.0 million. 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.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European union
established fixed conversion rates between their existing soverign currencies
and the euro. The participating countries have agreed to adopt the euro as their
common legal currency as of that date while still utilizing their local currency
until January 1, 2002.
The Company has began to assess the potential impact to the Company that may
result from the Euro covnersion. In addition, to tax accounting considerations,
the Company is also assessing other areas including the following: (1) the
technical challenges to adapt information technology and other systems to
accommodate euro-denominated transactions, (ii) the competitive impact of
cross-border price transparency, which may make it more difficult for businesses
to charge different prices for the same products on a country-by-country basis,
(iii) the impact on currency exchange costs and currency exchange rate risk, and
(iv) the impact on existing contracts. While the Company will continue to assess
the impact of the information, management does not believe that the introduction
of the euro will have a material adverse effect on the Company's financial
condition or results of operation.
NEW ACCOUNTING STANDARDS
In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133) "Accounting for Derivative
Instruments and Hedging Activities". The statement standardizes the accounting
for derivative instruments by requiring that an entity recognize these items as
assets or liabilities in the statement of financial position and measure them at
fair value. SFAS No. 133 becomes effective for fiscal years beginning after June
15, 1999; however, the Company does not believe the adoption of this statement
will have a material impact on its financial statements.
YEAR 2000 COMPLIANCE
Management has initiated a comprehensive study and program to prepare the
Company's computer systems, manufacturing systems and facility systems, and the
related systems applications for the Year 2000. As it relates to desktop
hardware and software systems, the Company has begun a desktop update and
standardization effort which will address Year 2000 compliance issues. The
Company is utilizing both internal and external resources to identify, correct
or reprogram the systems for the Year 2000 compliance. Additionally, the Company
is developing a contingency plan to attempt to address Year 2000 concerns beyond
the year 2000. The Company expects these efforts to be substantially completed
by September 30, 1999.
The Company has initiated formal communication with its suppliers and large
customers to determine the extent and steps they are taking to be Year 2000
compliant. To date, no significant issues have been identified that management
has not addressed; however there can be no guarantee that the systems of other
companies on which the Company's businesses rely will be converted in a timely
way and would not have an adverse effect on the Company's businesses.
Maintenance or modification costs associated with Year 2000 will be expensed as
incurred, while the costs of new software will be capitalized and amortized over
the software's useful life. The Company currently does not expect the amounts
required to be incurred to have a material effect on its financial condition,
result of operations or liquidity. The costs of the project are immaterial, and
the date on which the Company believes it will be complete with Year 2000
modifications are based on management's current best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes (desktop hardware and
software), the availability of new software and the ability of the Company's
customers and suppliers to be Year 2000 compliant.
11
<PAGE>
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. 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.
SUBSEQUENT EVENT
On December 22, 1998, the Company entered into a non-binding letter of intent to
purchase the assets of Morton Traffic Markings, a division of Morton
International, Inc. This acquisition is subject to management's due diligence
and is tentatively scheduled to close in April 1999.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In general, the Company's results of operations are affected by changes in
exchange rates. Subject to market conditions, the Company prices its products in
Europe and Canada in local currency. While many of the Company's selling and
distribution costs are also denominated in these currencies, a large portion of
product costs are U.S. Dollar denominated. As a result , a decline in the value
of the U.S. Dollar relative to other currencies can have a negative effect on
the profitability of the Company. As a result of the acquisition of GmbH, the
Company's operations are also affected by changes in exhange rates relative to
the German Deutsche mark, Italia Lira, British Pound, French Franc, Netherland's
Guilder and the Euro. A decline in the value of any of these currencies relative
to other currencies can have a negative impact on the profitability of the
Company. The Company estimates that these exchange rate changes had the effect
of increasing profitabilty by $0.2 million for the year ended December 31, 1998.
The Company is exposed to market risk from changes in interest rates. The
Company's exposure to interest rate risk consists of its floating rate Credit
Agreement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) Index to Financial Statements
Page
Independent Auditors Report................................................ 4
Consolidated Balance Sheets-December 31, 1998 and 1997..................... 5
Consolidated Statement of Operations-Year Ended December 31, 1998 and 1997. 6
Consolidated Statements of Stockholder's Equity (Deficit)- Years Ended
December 31, 1998 and 1997................................................ 7
Notes to Consolidated Financial Statements................................ 8
12
<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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' deficit,
and cash flows for each of the years in the three-year period ended December 31,
1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
St. Louis, Missouri,
February 8, 1999
13
<PAGE>
<TABLE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
(In thousands, except
share data)
<S> <C> <C>
ASSETS
Current assets:
Cash ................................................................................................... $ 327 $ 523
Accounts receivable, net of allowance for doubtful accounts of $651 and $404 in
1998 and 1997, respectively ......................................................................... 18,479 14,888
Inventories ............................................................................................ 34,275 22,837
Prepaid expenses ....................................................................................... 746 409
--- ---
Total current assets .............................................................................. 53,827 38,657
Property, plant and equipment, net........................................................................... 34,362 20,818
Intangibles ................................................................................................. 75,242 60,050
Deferred financing costs .................................................................................... 7,372 5,180
Other noncurrent assets ..................................................................................... 436 342
--- ---
$ 171,239 $ 125,047
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term obligations ............................................................ $ -- $ 6,120
Accounts payable ....................................................................................... 15,313 11,432
Other accrued liabilities .............................................................................. 6,056 5,201
Accrued interest ....................................................................................... 3,044 2,102
Accrued taxes .......................................................................................... 1,075 534
------- ------
Total current liabilities ......................................................................... 25,488 25,389
------- ------
Long-term debt .............................................................................................. 190,389 106,381
Other non-current liabilities ............................................................................... 3,074 3,603
Series A cumulative, 13.25%, exchangeable preferred stock, $.01 par value; 2,000
shares authorized, 1,700 shares issued and outstanding at December 31, 1997
(liquidation value of $23,065 in 1997)....................................................................... -- 20,951
Stockholders' deficit:
Class A common stock, $.01 par value; 100,000 shares authorized 38,530 and
40,000 shares issued and outstanding at December 31, 1998 and 1997, respectively.................. -- --
Class C common stock, $.01 par value; 15,000 shares authorized; 8,526 shares
issued and outstanding at December 31, 1998 and 1997.............................................. -- --
Additional paid-in capital ............................................................................. 2,952 7,102
Accumulated other comprehensive income.................................................................. 59 (106)
Loans due on common stock .............................................................................. (343) (343)
Accumulated deficit .................................................................................... (50,380) (37,930)
------- ------
Total stockholders' deficit ....................................................................... (47,712) (31,277)
------- -------
$ 171,239 $ 125,047
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
<TABLE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net sales........................................ $165,232 $123,417 $111,788
Operating expenses:
Cost of sales............................... 111,325 87,466 80,485
Selling, general and administrative......... 27,566 15,205 14,440
Write-down of assets........................ 576 335 1,050
Amortization of intangibles................. 9,654 16,378 18,849
------- ------- -------
Total operating expenses......................... 149,121 119,384 114,824
------- ------- -------
Operating income (loss).......................... 16,111 4,033 (3,036)
Other:
Interest expense............................ (15,803) (12,050) (11,306)
Amortization of deferred financing costs.... (1,271) (1,261) (1,076)
Other....................................... (643) (401) (599)
------- ------- -------
Loss before income tax provision and
extraordinary item............................... (1,606) (9,679) (16,017)
Income tax expense............................... 224 684 429
------ ------ -------
Loss before extraordinary item................... (1,830) (10,363) (16,446)
Extraordinary item-loss due to early extinguishment
of debt, net of taxes............................ (7,558) ---- ----
------- -------- -------
Net loss......................................... $(9,388) $(10,363) $(16,446)
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Years Ended December 31, 1998 and 1997
<CAPTION>
Accumulated Loans
Class A Class C Additional Other Com- Due On
Common Common Paid-In prehensive Common Accumulated
Stock Stock Capital Income Stock Deficit Total
------ ------ -------- -------- ------ -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Repurchase of common stock....... -- -- (4,150) -- -- -- (4,150)
Accrued dividends-preferred
stock......................... -- -- -- -- -- (2,609) (2,609)
Accretion of preferred stock..... -- -- -- -- -- (453) (453)
Cumulative translation
adjustment.................... -- -- -- 165 -- -- 165
Net loss......................... -- -- -- -- -- (9,388) (9,388)
------ ------ ------ ------ ------ ------ -------
Balance, December 31, 1998....... $-- $-- $2,952 $ 59 $(343) $(50,380) $(47,712)
====== ====== ====== ====== ====== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<TABLE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997 and 1996
<CAPTION>
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item........................................ $(1,830) $(10,363) $(16,446)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation........................................................ 4,770 3,914 4,282
Write down of assets................................................ 576 335 1,050
Net gain on sale of assets.......................................... -- (298) --
Amortization of deferred financing costs, intangibles, and debt
discount......................................................... 11,023 17,706 19,989
Changes in operating assets and liabilities net of effects of
acquisitions:
Accounts receivable.............................................. 2,826 (409) (7)
Inventories...................................................... (2,338) (4,725) 378
Accounts payable................................................. 855 3,169 (286)
Accrued and other liabilities.................................... (478) 611 (2,327)
Accrued interest................................................. 942 31 159
Accrued taxes.................................................... (67) 459 54
Other, net....................................................... (862) (117) (13)
------ ------ -----
Net cash provided by operating activities............................. 15,417 10,313 6,833
------ ------ -----
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired....................... (47,752) (2,461) (14,947)
Deferral of acquisition price, net of payments ....................... (105) (1,695) 2,125
Capital expenditures, net............................................. (6,670) (3,246) (1,910)
Proceeds from sale of assets.......................................... 260 1,512 180
------- ------ -------
Net cash used in investing activities................................. (54,267) (5,890) (14,552)
------- ------ -------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations....................... 204,332 -- 13,634
Repurchase of common stock, net of loan repayments ................... (4,150) (20) (53)
Repurchase of preferred stock......................................... (23,998) -- --
Financing costs ...................................................... (8,300) -- (856)
Repayment premium of long-term obligations............................ (2,210) -- --
Repayment of long-term obligations.................................... (127,020) (3,880) (5,006)
-------- ------ -------
Net cash (used in) provided by financing activities................... 38,654 (3,900) 7,719
-------- ------ ------
Increase (decrease) in cash.............................................. (196) 523 --
Cash, beginning of year.................................................. 523 -- --
------ ------ ------
Cash, end of year........................................................ $ 327 $ 523 $--
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
17
<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 all of the outstanding common stock of Jackson
Holding Company (Holding). On August 16, 1995, Jackson Acquisition Corp.
purchased all of the outstanding stock of Holding for $129,000 (the JPI
Acquisitions), with Holding the surviving corporation. Prior to the JPI
Acquisition, Holding owned 100% of the outstanding common stock of Jackson
Products, Inc. Immediately following the JPI Acquisition, Jackson Products, Inc.
was merged into Holding with Holding being the surviving corporation and renamed
Jackson Products, Inc. (the Company).
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. The Company owns 100% of the outstanding common stock of
Flex-O-Lite, Inc.; OSD Envizion, Inc. (OSD); Lansec Holding GmbH (GmbH);
American Allsafe Company (Allsafe); Silencio Safety Direct, Inc. (Silencio),
Crystaloid Technologies Inc. (Crystaloid) and Kedman Company (Kedman).
Flex-O-Lite, Inc. is engaged in the manufacture, design, and distribution of
highway and industrial safety products. 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. Allsafe is engaged
in the manufacture, design and distribution of safety products to industrial,
construction, janitorial, healthcare and food service customers. Silencio is
engaged in the manufacture, design and distribution of hearing protection
products for the sporting industry. Crystaloid is engaged in the manufacture and
design of liquid crystal displays and filters for mid-market manufacturers of
industrial, commercial and aviation equipment. Kedman is engaged in developing
safety products for the welding industry.
(2) Acquisitions
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. On October 29, 1997, GmbH acquired all of
the outstanding stock of Lansec GmbH and Lansec S.A. for $2,461 (the Lansec
Acquisition). 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 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 $14,251 and $2,034 were recorded in connection with the OSD Acquisition
and Lansec Acquisition, respectively, and are being amortized over 2-15 years
On April 22, 1998, the Company, through its subsidiary, Jackson Acquisition,
Inc., acquired all of the outstanding capital stock of Allsafe and Silencio for
$29,100 (the Allsafe Acquisition). On April 23, 1998, the Company, through its
subsidiary, Crystaloid acquired all of the outstanding capital stock of
Crystaloid Electronics, Inc., for $6,500 (the Crystaloid Acquisition), $500 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 and April 23, 1998,
respectively. The results of operations of the acquired businesses have been
included in the consolidated financial statements since their respective
acquisition dates. Intangible assets totaling $11,594 and $4,331 were recorded
in connection with the Allsafe Acquisition and Crystaloid Acquisition,
respectively, and are being amortized over 3-15 years.
On July 22,1998, Allsafe acquired all of the outstanding capital stock of Kedman
( the Kedman Acquisition) for a total purchase price of $9,200. The Kedman
Acquisition was accounted for using the purchase method of accounting.
Accordingly, total purchase cost for this transaction has been allocated to the
assets and liabilities of the Company based on their respective fair values.
18
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The results of operations of the acquired business have been included in the
consolidated financial statements since the acquisition date. Intangible assets
totaling $6,197 were recorded in connection with the Kedman Acquisition. The
Allsafe Acquisition, the Crystaloid Acquisition and the Kedman Acquisition are
hereinafter collectively referred to as (the Acquisitions).
The unaudited proforma consolidated statement of operations of the Company for
the twelve months ended December 31, 1998 and 1997 gives effect to: (i) the
Acquisitions and (ii) the refinancing (See discussion in Note 7) as if each had
occurred on the first day of the period presented. Assuming the Acquisitions
occurred on January 1, 1997 pro forma consolidated net sales would have been
$182,250 and $183,005 for twelve months ended December 31, 1998 and 1997,
respectively. Pro forma consolidated net loss before extraordinary items would
have been $2,578 and $11,051 for the twelve months ended December 31, 1998 and
1997, respectively. These amounts represent unaudited data and in management's
opinion and 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. All material intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the reported amounts of
revenues and expenses 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,
1998, 1997 and 1996 totaled $14,789, $11,952 and $11,803, respectively. Taxes
paid for the years ended December 31, 1998, 1997 and 1996 totaled $215, $224 and
$375, 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 year ended December 31, 1998 the Company had one major customer whose
purchases exceeded 10% of net sales. The percentage of net sales to this
customer totaled 11%. For the year ended December 31, 1997 and 1996, the Company
had two major customers whose purchases exceeded 10% of net sales. The
percentage of net sales to these customers represented 12% and 13% respectively
for the period ended December 31, 1997 and 12% and 12% respectively, for the
period ended December 31, 1996. The outstanding accounts receivable balance
related to those customers represented 9% and 19% of the accounts receivable
balances at December 31, 1998 and 1997, respectively.
19
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method or the average cost 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 are
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. In connection with the Acquisitions, the Company
recorded fees and expenses totaling $8,300. These costs relate to the
refinancing of debt, included in deferred financing costs, and are being
amortized over the term of the related debt instruments.
Related-Party Transactions
In connection with the August 1995 JPI Acquisition, the Company entered into a
Management Services Agreement (Agreement) with The Jordan Company (Jordan), an
affiliate of the Company. In connection with the Acquisitions, the Company and
Jordan agreed to amend the Agreement. The Agreement provides that the Company
shall pay Jordan an annual fee of higher of (i) $600 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, 1998,
1997 and 1996, the Company expensed $775, $699 and $550, respectively, related
to the Agreement. These amounts are included in other expense.
In connection with the August 1995 JPI Acquisition, the Company loaned certain
employees $427, of which $343 is outstanding as of December 31, 1998. 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 an increase
in stockholders' deficit 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 9.50%
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.
20
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Accordingly, 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. 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.
Segment Reporting
Effective January 1, 1998, the Company adopted SFAS No. 131, Diclosure about
Segments of an Enterprise. The Company operates in one segment which is the
manufacture, design, and distribution of safety products. Therefore, the
adoption of SFAS No. 131 has not impacted the Company's consolidated financial
statements.
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials............... $ 13,319 $9,780
Work-in-process............. 4,516 4,455
Finished goods.............. 16,440 8,602
------ -----
$34,275 $22,837
======= =======
</TABLE>
(5) Property, Plant, and Equipment
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land............................. $1,418 $ 844
Buildings and improvements....... 12,149 9,763
Machinery and equipment.......... 33,167 18,513
------ ------
46,734 29,120
Less accumulated depreciation.... 12,372 8,302
------ -----
$34,362 $20,818
======= =======
</TABLE>
Depreciation expense totaled $ 4,770, $3,914 and $4,282 for the years ended
December 31, 1998, 1997 and 1996, respectively.
21
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(6) Intangibles
Intangibles consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Goodwill................................. $91,404 $67,488
Customer lists........................... 15,362 15,362
Patents, technology agreement, and other. 14,114 14,114
------ ------
120,880 96,964
Less accumulated amortization............ 45,638 36,914
------ ------
$75,242 $60,050
======= =======
</TABLE>
(7) Long-term Obligations
Long-Term obligations consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Term loans........................... $ --- $65,095
Acquisition loans................... 65,800 ---
Revolver............................. 10,231 13,900
12.25% senior subordinated notes..... --- 34,000
9.50% senior subordinated notes...... 115,000 ---
Unamortized debt discount............ (642) (494)
---- ----
190,389 112,501
Less current maturities.............. --- 6,120
------ -----
$190,389 $106,381
======== ========
</TABLE>
Credit Agreement
In connection with the Acquisitions, the Company refinanced its revolving credit
facility and term loans, repurchased a portion of common stock and repurchased
all of the issued and outstanding preferred stock. Additionally, a portion of
the refinancing proceeds was utilized to pay a prepayment premium on its
preferred stock. In conjunction with the Acquisitions, the Company recorded
$7,558 of extraordinary expense for the year December 31, 1998 consisting of (i)
the write-off of $5,348 in deferred financing costs and (ii) a $2,210 prepayment
premium on its senior subordinated notes.
On April 22, 1998, the Company entered into a $125,000 Credit Agreement with
BankBoston, NA, as agent, and Mercantile Bank National Association, as co-agent,
that is comprised of a $30,000 revolving working capital facility and a $95,000
acquisition facility. The Revolver provides that up to $5,000 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.
22
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
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. For the quarters ending June 30, 2001 through March 31, 2003, the
Company is required to pay 3.125% of the Acquisition loan outstanding on April
30, 2001. For the quarters ending April 1, 2003 through March 31, 2004 the
Company is required to pay 18.75% of the outstanding principal balance
outstanding on April 30, 2001 with the unpaid balance 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 working capital facility and the acquisition
facility. 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 average interest rate on the outstanding borrowings was 7.54% at
December 31, 1998.
The Company is currently in compliance with all of the financial covenants
contained in the Credit Agreement. At December 31, 1998 there was $10,231
outstanding on the revolving credit facility and $1,385 of letters of credit
outstanding resulting in availability of $18,384.
Senior Subordinated Notes
On April 16, 1998, the Company offered $115,000 aggregate principal amount of
Senior Subordinated 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. 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 Notes are
callable on or after April 15, 2001, in whole or from time to time in part, at
the option of the Company, at a call price of 105% commencing April 15, 2001;
103% commencing April 15, 2002; 102% commencing April 15, 2003; and 100%
commencing April 14, 2004.
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,
1998.
The net proceeds of the issuance of the Notes totaled $114,273. The difference
between the face value and the net proceeds from issue is being amortized over 7
years, the term of the notes.
In connection with the Acquisitions and the refinancing, the Company repaid the
$34,000 of 12.25% Senior Subordinated Notes that were issued on August 15, 1995
and due on August 15, 2004. As indicated previously, with the repayment of these
notes, the Company incurred a prepayment penalty of $2,210.
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.
(8) 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).
23
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
In connection with the financing for the August 1995 JPI 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. On April 22, 1998, in connection with the Acquisitions and the
refinancing, the Company repurchased all of the outstanding preferred stock at
$23, 998.
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 certain conditions. Upon the sale of Common Stock
pursuant to a public offering of Class B common stock, each share of Class C
common stock will be converted into one share of Class A common stock.
In connection with the Acquisitions and the refinancing, the Company repurchased
$4,150 of common stock and warrants from an institutional holder.
Warrants
In connection with the August 1995 JPI Acquisition, the Company issued, on a
post-stock split basis, 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. In connection with the Acquisitions and the
refinancing, the Company repurchased 6,761.53 warrants from an institutional
investor.
Stock Option Plan
In connection with the August 1995 JPI 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 on a post-stock split basis. 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>
1998 1997 1996
---- ---- ----
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Beginning of year......................... 3,198.04 $100.00 1,704.14 $100.00 1,724.14 $100.00
Granted................................... --- --- 1,503.90 100.00 10.00 100.00
Exercised................................. --- --- --- --- --- ---
Cancelled................................. --- 100.00 10.00 100.00 30.00 100.00
----- ------ ----- ------ ----- ------
End of year............................... 3,198.04 $100.00 3,198.04 $100.00 1,704.14 $100.00
Exercisable at the end of year............ 1,488.81 $100.00 849.18 $100.00 424.59 $100.00
======== ======= ====== ======= ====== =======
Weighted average fair value of options
Granted................................ $ N/A $ 63.70 $ _____
======= ======= =======
</TABLE>
24
<PAGE>
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: risk free interest rate of 6.5%; expected dividend yield
of 0%; expected life of ten years and expected volatility of 0%. The weighted
average contractual life of the options outstanding at December 31, 1998 was 7.5
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 SFAS No. 123,
Accounting for Stock-Based Compensation, additional compensation expense would
have been recorded of $54, $34 and $11 for 1998, 1997 and 1996, respectively.
(9) Income Taxes
Current income tax expense for the year ended December 31, 1998 consisted of
$216 and $221 for state and foreign income taxes, respectively offset by state
tax refunds of $213. Current income tax expense for the year ended December 31,
1997 consisted of $40, $310, and $334 for federal, state and foreign income
taxes, respectively. Current income tax expense for the year ended December 31,
1996 consisted of $215 and $214 for state and foreign taxes, respectively.
Reconciliation between the statutory income tax provision and effective tax
provision is summarized below for the years ended December 31, 1998, 1997 and
1996: <TABLE> <CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory rate (34%)................... $(3,116) $(3,291) $(5,446)
Amortization of goodwill and other..... 1,003 4,778 5,435
State income tax refunds............... (213) --- ---
Change in valuation allowance.......... 2,550 (803) 440
----- ---- ----
Income tax provision................... $ 224 $ 684 $ 429
======== ====== =======
</TABLE>
The tax effects of significant temporary differences, representing deferred tax
assets and the deferred tax liability, as of December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $ 9,839 $ 7,912
Receivables....................................... 194 125
Accrued liabilities............................... 1,558 680
Postretirement benefits........................... 690 739
Inventory......................................... 642 373
Intangibles....................................... 1,010 392
------ ------
13,963 10,221
Valuation allowance.................................... (12,626) (10,076)
------- ------
Net deferred tax assets................................ 1,337 145
Deferred tax liability property-plant, and equipment... (1,337) (145)
------ ------
Net deferred taxes..................................... $ --- $ ---
======= =======
</TABLE>
The Company establishes valuation allowances and continually reviews the
adequacy of the allowance, recognizing benefits only as reassessment indicates
that it is more likely than not that benefits will be realized. The increase in
the valuation allowance during 1998 was a result of changes in temporary
differences and an increase in the net operating loss carryforwards. The
decrease during 1997 was the result of a decrease in net operating loss
carryforwards resulting from taxable income and changes in temporary
differences. At December 31, 1998 and 1997, 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, 1998, the Company had net operating loss
carryforwards (NOL) of approximately $25,890 for U.S. federal income tax
purposes which begin to expire in 2009 to the extent not previously utilized.
Approximately $12,328 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 $13,562 is available
without restriction.
25
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
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 health care and other benefits to certain
qualifying retirees. As of January 1, 1998 the Company amended its plan to
restrict new participants. 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, 1998 and 1997 includes the following components:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost... $108 $78
Interest cost.. 70 58
Other.......... (50) (57)
--- ---
NPPBC.......... $128 $79
==== ====
</TABLE>
The Plan's status as of December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Actuarial present value of benefit obligation:
Fully eligible active participants................... $ 98 $ 98
Other active participants............................ 869 861
Retirees............................................. 40 40
Unrecognized net gain................................ 781 1,187
Unrecognized prior service cost...................... 29 23
------- ------
Accumulated postretirement benefit obligation (APBO)...... $1,817 $2,209
======= =======
</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 1999 down to 5.5% in 2009 and
thereafter. The effect of a 1% annual increase in these assumed rates would
increase the APBO at December 31, 1998 by approximately $320 and the service and
interest cost components of the NPPBC for the years ended December 31, 1998 and
1997 by approximately $54. 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.
(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 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, 1998
are as follows:
1999.................. $1,483
2000.................. 1,258
2001.................. 742
2002.................. 660
2003 and thereafter... 416
Rent expense for the years ended December 31, 1998, 1997 and 1996 totaled
$1,547, $1,462 and $1,300, respectively.
(12) Sale of Assets
During 1998, the Company decided to consolidate certain production lines;
thereby closing its Elwood, Indiana facility. During December 1998, the Company
recorded a loss on the sale of assets of $576. Additionally, on December 30,
1998 the Company completed the sale of this facility for $260. In addition, the
Company incurred $503 of expenses related to the closure of this facility,
primarily related to severance costs.
26
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(13)Subsequent Event
On December 22, 1998, the Company entered into a non-binding letter of intent to
purchase the assets of Morton Traffic Markings, a division of Morton
International, Inc. This acquisition is subject to management's due diligence
and is tentatively scheduled to close late April of 1999.
(14) Condensed Consolidating Financial Information
Financial information regarding the Guarantors for the years ended December 31,
1998, 1997 and 1996 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. Kedman was acquired in 1998 and incorporated by its predecessors
in September 1961. Silencio was acquired in 1998 and incorporated by its
predecessors in May 1996. Allsafe was acquired in 1998 and was incorporated in
March 1998. Crystaloid was acquired in 1998 and incorporated in March 1998. OSD
was incorporated in October 1996. Flex-O-Lite was acquired in 1994 by the
Company's predecessor. Disclosures concerning the operations of GmbH, 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)
27
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1998
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ -- $ -- $ 327 $ -- $ 327
Accounts receivable, net 3,565 13,427 1,487 -- 18,479
Inventories 8,162 25,011 1,444 (342) 34,275
Prepaid expenses 259 407 80 -- 746
-------------- --------------- ------------- ------------- ---------------
Total current assets 11,986 38,845 3,338 (342) 53,827
Property, plant and equipment 11,385 22,779 198 -- 34,362
Intangibles 13,968 58,628 2,646 -- 75,242
Note receivable 48,271 9,229 -- (57,500) --
Deferred financing costs 7,372 -- -- -- 7,372
Investment in subsidiaries 24,094 -- -- (24,094) --
Other noncurrent assets -- 436 -- -- 436
-------------- --------------- ------------- ------------- ---------------
$ 117,076 $ 129,917 $ 6,182 $ (81,936) $ 171,239
============== =============== ============= ============= ===============
LIABILITIES AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to parent $ -- $ 53,971 $ 3,529 $ (57,500) $ --
Accounts payable 3,580 10,932 801 -- 15,313
Accrued and other liabilities 3,717 1,533 806 -- 6,056
Accrued interest 3,044 -- -- -- 3,044
Accrued taxes 1,075 -- -- -- 1,075
-------------- --------------- ------------- ------------- ---------------
Total current liabilities 11,416 66,436 5,136 (57,500) 25,488
-------------- --------------- ------------- ------------- ---------------
Long-term debt 190,389 -- -- -- 190,389
Other noncurrent liabilities 3,074 -- -- -- 3,074
Due to parent (40,374) 38,600 1,774 -- --
Stockholders' deficit
Common stock -- 1 -- (1) --
Additional paid-in capital 2,951 34,499 -- (34,498) 2,952
Accumulated other comprehensive income -- (238) 297 -- 59
Loans due on common stock (343) -- -- -- (343)
Accumulated deficit (50,037) (9,381) (1,025) 10,063 (50,380)
-------------- --------------- ------------- ------------- ---------------
Total stockholders' deficit (47,429) 24,881 (728) (24,436) (47,712)
-------------- --------------- ------------- ------------- ---------------
$ 117,076 $ 129,917 $ 6,182 $ (81,936) $ 171,239
============== =============== ============= ============= ===============
</TABLE>
28
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31, 1998
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------------ -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 46,876 $ 122,385 $ 8,746 $ (12,775) $ 165,232
Operating expenses:
Cost of sales 30,441 87,654 5,688 (12,458) 111,325
Selling, general and administrative 9,868 13,749 3,949 -- 27,566
Write-down of assets -- 576 -- -- 576
Amortization of intangibles 1,166 8,272 216 -- 9,654
------------ ------------- ------------ ------------- ---------------
41,475 110,251 9,853 (12,458) 149,121
------------ ------------- ------------ ------------- ---------------
Operating income (loss) 5,401 12,134 (1,107) (317) 16,111
Other:
Interest expense, net (13,516) (2,287) -- -- (15,803)
Amortization of deferred financing costs (1,271) -- -- -- (1,271)
Other 8,962 (9,687) 82 -- (643)
------------ ------------- ------------ ------------- ---------------
Income (loss) before income tax
provision, equity in earnings of
subsidiaries and extraordinary item (424) 160 (1,025) (317) (1,606)
Income tax expense 3 221 -- -- 224
Equity in earnings of subsidiaries (1,086) -- -- 1,086 --
Extraordinary item - loss due
to early extinguishment of debt (7,558) -- -- -- (7,558)
------------ ------------- ------------ ------------- ---------------
Net income (loss) $ (9,071) $ (61) $ (1,025) $ 769 $ (9,388)
============ ============= ============ ============= ===============
</TABLE>
29
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 1998
<TABLE>
<CAPTION>
Parent Guarantor Non Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by (used in) operating activities $ 8,630 $ 10,246 $ (1,966) $ (1,493) $ 15,417
----------- ------------- --------------- ------------- -------------
Cash flows from investing activities:
Acquisition of business, including direct expenses (47,752) -- -- -- (47,752)
Deferral of acquisition price, net of payments 500 -- (605) -- (105)
Capital expenditures (1,679) (4,819) (172) -- (6,670)
Proceeds from sale of assets -- 260 -- -- 260
----------- ------------- --------------- ------------- -------------
Net cash used in investing activities (48,931) (4,559) (777) -- (54,267)
----------- ------------- --------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term obligations 204,332 -- -- -- 204,332
Repurchase of common stock, net of loan payments (4,150) -- -- -- (4,150)
Repurchase of preferred stock (23,998) -- -- -- (23,998)
Financing costs (7,903) (397) -- -- (8,300)
Prepayment premium of long-term obligations (2,210) -- -- -- (2,210)
Repayment of long-term obligations (127,020) -- -- -- (127,020)
----------- ------------- --------------- ------------- -------------
Net cash provided by (used in) financing activities 39,051 (397) -- -- 38,654
----------- ------------- --------------- ------------- -------------
Net increase (decrease) in cash $ (1,250) $ 5,290 $ (2,743) $ (1,493) (196)
=========== ============= =============== =============
Cash, beginning of year 523
-------------
Cash, end of year $ 327
=============
</TABLE>
30
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Non-
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ -- $ -- $ 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
=========== ============= =========== ============= ==============
LIABILITIES AND
STOCKHOLDERS' DEFICIT
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 (2,579) --
Preferred stock 20,951 -- -- -- 20,951
Stockholders' deficit:
Common stock -- 1 -- (1) --
Additional paid-in capital 7,102 34,499 -- (34,499) 7,102
Accumulated other comprehensive income -- (106) -- -- (106)
Loans due on common stock (343) -- -- -- (343)
Accumulated deficit (37,905) (9,320) -- 9,295 (37,930)
----------- ------------- ----------- ------------- --------------
Total stockholders' deficit (31,146) 25,074 -- (25,205) (31,277)
----------- ------------- ----------- ------------- --------------
$ 74,706 $ 73,408 $ 4,717 $ (27,784) $ 125,047
=========== ============= =========== ============= ==============
</TABLE>
31
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Non
Parent Guarantor Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
<S> <C> <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, net (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 and equity in earnings
of subsidiaries (12,874) 3,185 -- 10 (9,679)
Income tax expense 540 144 -- -- 684
Equity in earnings of subsidiaries 3,041 -- -- (3,041) --
-------------- -------------- ------------- --------------- ----------------
Net income (loss) $ (10,373) $ 3,041 $ -- $ (3,031) $ (10,363)
============== ============== ============= =============== ================
</TABLE>
32
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries Consolidated
------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $ 1,328 $ 8,985 $ 10,313
------------ --------------- --------------
Cash flows from investing activities:
Acquisition of business (2,461) -- (2,461)
Deferral of acquisition, net of payments (1,695) -- (1,695)
Capital expenditures (2,168) (1,078) (3,246)
Proceeds from the 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)
Repurchase of common stock, net of loan payments (20) -- (20)
------------ --------------- --------------
Net cash used in financing activities (3,900) -- (3,900)
------------ --------------- --------------
Net increase (decrease) in cash $ (8,188) $ 8,711 523
============ ===============
Cash, beginning of year --
--------------
Cash, end of year $ 523
==============
</TABLE>
33
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENT 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)
------------- ------------- ------------ -------------
Loss before income tax provision and equity
in earnings (loss) of subsidiaries (14,375) (1,606) (36) (16,017)
Income tax expense 215 214 -- 429
Equity in earnings (loss) of subsidiaries (1,820) -- 1,820 --
------------- ------------- ------------ -------------
Net income (loss) $ (16,410) $ (1,820) $ 1,784 $ (16,446)
============= ============= ============ =============
</TABLE>
34
<PAGE>
JACKSON PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(continued)
(14) Condensed Consolidating Financial Information (con't)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
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:
Acquisition of business (14,947) -- -- (14,947)
Deferral of acquisition price, net of payments 2,125 -- -- 2,125
Capital expenditures (1,210) (700) -- (1,910)
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 --
============= ============= ============
Cash, beginning of year --
---------------
Cash, end of year $ --
===============
</TABLE>
35
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
The following sets forth the names and ages of the Company's directors and
certain officers and the positions they hold.
<CAPTION>
<S> <C> <C> <C>
Name Age Position with Company
---- --- ---------------------
Robert H. Elkin 53 Director, Chairman Chief Executive Officer
Christopher T. Paule 35 Vice President, Chief Financial Officer and Secretary
Mark R. Hefty 47 President, Jackson Division
Lincoln M. Kennedy 63 President, American Allsafe
Allan A. Huning 61 President, Flex-O-Lite
John W. Jordan II 52 Director
David W. Zalaznick 45 Director
A. Richard Caputo, Jr. 33 Director and Vice President
Jonathan F. Boucher 42 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 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 October 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.
Lincoln M.Kennedy. Mr. Kennedy has served as President of American Allsafe since
1981. From 1975 to 1981, Mr. Kennedy served as General Manager of the Industrial
Division of American Safety Equipment. From 1964 to 1975, he served as Director
of Operations at Pennsylvania Optical Company, Redding, Pennsylvania.
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 director of The Jordan Company, LLC, 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 director of The Jordan Company, LLC,
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.
A. Richard Caputo, Jr. Mr. Caputo has served as a Director of the Company since
August 1995. Mr. Caputo has been a managing director of The Jordan Company, LLC,
since 1990. Mr. Caputo is also a director of AmeriKing, Inc., GFSI Holdings,
Inc. and GFSI, Inc., as well as other privately held companies.
36
<PAGE>
Jonathan F. Boucher. Mr. Boucher has served as a Director of the Company since
August 1995. Mr. Boucher has been a managing director of The Jordan Company,
LLC, 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.
ITEM 11. 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, Chairman and Chief Executive
Officer, Christopher T. Paule, Vice President and Chief Financial Officer,
Lincoln M. Kennedy, President, Allsafe, Allan A. Huning, President, Flex-O-Lite
and Mark R. Hefty, President, Jackson Division.
<TABLE>
Summary Compensation Table
<CAPTION>
Annual
Fiscal Compensation All other
Position Year Salary Bonus Compensation (1)
- -------- ---- ------ ----- ----------------
<S> <C> <C> <C> <C>
Robert H. Elkin............................. 1998 401,086 248,400 21,847
Chariman and Chief Executive Officer........ 1997 347,591 222,507 20,195
1996 338,755 136,000 20,195
Christopher T. Paule........................ 1998 167,850 84,480 10,923
Vice President and Chief Financial Officer.. 1997 126,363 83,151 6,326
1996 118,993 59,000 6,000
Lincoln M. Kennedy (2)...................... 1998 111,240 50,000 5,309
President, American Allsafe.................
Allan A. Huning............................. 1998 144,364 7,000 12,592
President, Flex-O-Lite...................... 1997 139,970 70,570 12,084
1996 136,075 10,000 13,626
Mark R. Hefty (3)........................... 1998 176,986 --------- 11,028
President, Jackson Division................. 1997 30,438 18,699 1,500
</TABLE>
(1) Other annual compensation consists of car allowance and defined contribution
payments paid by the Company.
(2) Lincoln Kennedy was employed as of April 22, 1998. (3) Mark Hefty was
employed as of October 30, 1997.
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
and Chief Executive 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)
was $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.
On April 22, 1998, the Company and Mr. Elkin agreed to amend this employment
agreement. The amended agreement provides 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.
37
<PAGE>
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) was $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. On April 22,
1998, the Company and Mr. Paule agreed to amend this employment agreement. The
amended agreement provides 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.
Kennedy Employment Agreement. Mr. Kennedy has an employment and non-interference
agreement with the Company which provides for Mr. Kennedy's employment as
President of Allsafe. The initial term of the employment agreement terminates on
May 6, 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 90 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 was
$153,300 for 1998, and he may be awarded a bonus, at the sole discretion of the
Board, which amounts are inclusive of any compensation, fees, salary, bonuses or
other payments to Mr. Kennedy by any of the subsidiaries or affiliates of the
Company or affiliates of The Jordan Company. Under the employment agreement, if
Mr. Kennedy '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. Kennedy's
employment is terminated voluntarily or for reasons of Cause, no severance
payment is made. Under the terms of the agreement, Mr. Kennedy 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 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) was $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.
38
<PAGE>
Hefty Employment Agreement. Mr. Hefty has an employment and non-interference
agreement with the Company which provides for Mr. Hefty's employment as
President of Jackson. 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) was $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.
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
In April 1998 the Company entered 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 from April 22, 1998. Stock Option Plan
The Company 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 December 31, 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 December 31, 1998, 1,488.81 shares were
vested. In addition, up to 639.598 shares will vest in 1999, up to 639.602
shares will vest in 2000, up to 215.00 shares will vest in 2001 and up to 215.03
shares will vest in 2002.
39
<PAGE>
ITEM 12. SECURITY OWNERSHIP AND CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The table below sets forth certain information, as of December 31, 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 December 31, 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.
(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.
40
<PAGE>
(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 Relationships and
Related 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. 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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
was 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.
41
<PAGE>
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 December 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 December 31,
1998, payments on all of the loans by the employee stockholders were current.
DIRECTOR'S 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements appearing in
Item 8, which is incorporated herein by reference.
(2) Financial Statements Schedule
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are not applicable and therefore have been omitted, or the
information has been included in the consolidated financial statements or is
considered immaterial.
(3) Exhibits
A list of the exhibits included as part of this Form 10-K is set forth below.
42
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Description Numbered
Page
1 Purchase Agreement, dated as of April 16, 1998, *
by and among Jackson Products,Inc. (the "Registrant"),
Jefferies & Company, Inc. and Goldman, Sachs & Co.
2.1 Stock Purchase Agreement, dated as of March 30, 1998,
by and among Jackson Acquisition, Inc., NCH Corporation,
American Allsafe Company and Silencio/Safety Direct, Inc.++ *
2.2 Stock Purchase Agreement, dated as of March 31, 1998, by
and among Crystaloid Technologies, Inc., the Management
Sellers party thereto, Dahl Partners Incorporated and
Crystaloid Electronics Company++ *
2.3 Stock Purchase Agreement, dated as of June 12, 1998 by and
among American Allsafe Company, the sellers party thereto
and Kedman Company++ **
2.4 First Amendment to Stock Purchase Agreement, dated as of
June 12, 1998 by and among American Allsafe Company,
the sellers party thereto and Kedman Company **
2.5 Second Amendment to Stock Purchase Agreement, dated as
of July 22, 1998 by and among American Allsafe Company,
the sellers party thereto and Kedman Company **
2.6 Third Amendment to Stock Purchase Agreement, dated as of
July 22, 1998 by and among American Allsafe Company, the
sellers party thereto and Kedman Company **
2.7 Real Property Purchase Agreement, dated as of June 12,
1998 by and among American Allsafe Company and certain
stockholders of Kedman Company **
3.1 Amended and Restated Certificate of Incorporation of the
Registrant *
3.2 Bylaws of the Registrant *
4.1 Indenture, dated as of April 22, 1998, between the Registrant
and State Street Bank and Trust Company, as Trustee *
4.2 Form of Global Series A Senior Note *
4.3 Form of Global Series B Senior Note *
4.4 Registration Rights Agreement, dated as of April 22, 1998,
by and among the Registrant, Jefferies & Company, Inc. and
Goldman, Sachs & Co. *
4.5 Supplemental Indenture, dated as of April 24, 1998,
between the Registrant and State Street Bank and Trust Company,
as Trustee *
4.6 Stockholders Agreement, dated as of August 16, 1995, by and among
the Registrant and its stockholders *
4.7 First Amendment to Stockholders Agreement, dated as of March 1,
1996, by and among the Registrant and its stockholders *
4.8 Second Amendment to Stockholders Agreement, dated as of July 1,
1996, by and among the Registrant and its stockholders *
4.9 Third Amendment to Stockholders Agreement, dated as of June 1,
1997, by and among the Registrant and its stockholders *
4.10 Jackson Products, Inc. 1995 Management Stock Option Plan,
dated as of August 16,1995 *
4.11 First Amendment to 1995 management Stock Option Plan, dated as
of June 1, 1997 *
4.12 Form of Stock Option Agreement *
4.13 Jordan Investors Subscription Agreement, dated as of August 16,
1995, by and among the Registrant and certain stockholders
named therein *
4.14 Advisor Subscription Agreement, dated as of August 16, 1995,
between the Registrant and Safety Partners, L.P *
43
<PAGE>
4.15 Management Subscription Agreement, dated as of August 16, 1995,
by and among the Registrant and certain stockholders named therein *
4.16 First Amendment to Management Subscription Agreement, dated
March 1, 1996, by and among the Registrant and certain
stockholders named therein *
4.17 Second Amendment to Management Subscription Agreement, dated
as of December 1,1996, by and among the Registrant and certain
stockholders named therein *
4.18 Form of Non-Recourse Promissory Note between the Registrant and
certain of its stockholders *
4.19 Form of Stock Pledge Agreement between the Registrant and
certain of its stockholders *
4.20 Securities Purchase Agreement, dated as of August 16, 1995,
by and among the Registrant and certain stockholders named therein *
4.21 First Amendment to Securities Purchase Agreement, dated as
of July 1, 1996, by and among the Registrant and certain stockholders
named therein *
4.22 Form of Warrant of the Registrant *
10.1(a)Credit Agreement, dated as of April 22, 1998, by and
among the Registrant, BankBoston, N.A., as Agent, Mercantile
Bank National Association, as Co-agent, the other lenders party
thereto, and BancBoston Securities, Inc., as Syndication Agent
and Arranger *
10.1(b)Amendment No. 1 to Credit Agreement, dated as of June 19, 1998,
by and among the Registrant, BankBoston, N.A., as Agent,
Mercantile Bank National Association, as Co-Agent, the other
lenders party thereto, and BancBoston Securities, Inc., as
Syndication Agent and Arranger *
10.2 Revolving Note in the aggregate principal amount of $19,500,000 *
10.3 Revolving Note in the aggregate principal amount of $10,500,000 *
10.4 Acquisition Note in the aggregate principal amount of $61,750, 000 *
10.5 Acquisition Note in the aggregate principal amount of $33,250,000 *
10.6 Guaranty, dated as of April 22, 1998, by and among Flex-O-Lite,
Inc., OSD Envizion, Inc., Crystaloid Technologies, Inc., Jackson
Acquisition, Inc., American Allsafe Company, Silencio/Safety Direct,
Inc. and BankBoston, N.A., as Agent *
10.7 Stock Pledge Agreement, dated as of April 22, 1998, by and
between the Registrant and BankBoston, N.A., as Agent *
10.8 Stock Pledge Agreement (Subsidiaries), dated as of April 22, 1998,
by and between Flex-O-Lite, Inc. and BankBoston, N.A., as Agent *
10.9 Stock Pledge Agreement (Subsidiaries), dated as of April 22, 1998,
by and between Jackson Acquisition, Inc. and BankBoston, N.A., as Agent *
10.10 Security Agreement, dated as of April 22, 1998, by and between
the Registrant and BankBoston, N.A., as Agent *
10.11 Security Agreement (Subsidiaries), dated as of April 22, 1998 by
and among Flex-O-Lite, Inc., OSD Envizion, Inc., Crystaloid
Technologies, Inc., Jackson Acquisition, Inc., American Allsafe
Company, Silencio/Safety Direct, Inc. and BankBoston, N.A., as Agent *
10.12 Patent Collateral Assignment and Security Agreement, dated as of
April 22, 1998, by and between the Registrant and BankBoston,
N.A., as Agent *
10.13 Patent Collateral Assignment and Security Agreement, dated as of
April 22, 1998, by and between Flex-O-Lite, Inc. and BankBoston,
N.A., as Agent *
10.14 Patent Collateral Assignment and Security Agreement, dated as of
April 22, 1998, by and between OSD Envizion, Inc. and BankBoston,
N.A., as Agent *
10.15 Patent Collateral Assignment and Security Agreement, dated as
of April 22, 1998, by and between American Life Allsafe Company
and BankBoston, N.A., as Agent *
44
<PAGE>
10.16 Patent Collateral Assignment and Security Agreement, dated as of
April 22, 1998, by and between Silencio/Safety Direct, Inc. and
BankBoston, N.A., as Agent *
10.17 Patent Collateral Assignment and Security Agreement, dated as of
April 22, 1998,by and between Crystaloid Technologies, Inc. and
BankBoston, N.A., as Agent *
10.18 Trademark Collateral Assignment and Security Agreement, dated
as of April 22, 1998, by and between the Registrant and BankBoston,
N.A., as Agent *
10.19 Trademark Collateral Assignment and Security Agreement, dated as
of April 22, 1998, by and between Flex-O-Lite, Inc. and
BankBoston, N.A., as Agent *
10.20 Trademark Collateral Assignment and Security Agreement, dated as
of April 22, 1998, by and between OSD Envizion, Inc. and
BankBoston, N.A., as Agent *
10.21 Trademark Collateral Assignment and Security Agreement, dated
as of April 22,1998, by and between American Allsafe Company and
BankBoston, N.A., as Agent *
10.22 Trademark Collateral Assignment and Security Agreement, dated as
of April 22, 1998, by and between Silencio/Safety Direct, Inc. and
BankBoston, N.A., as Agent *
10.23 Trademark Collateral Assignment and Security Agreement, dated as
of April 22, 1998, by and between Crystaloid Technologies, Inc.
and BankBoston, N.A., as Agent *
10.24 Form of Indemnification Agreement, dated as of August 16, 1995,
between the Registrant and its directors *
10.25 TJC Management Consulting Agreement, dated as of August 16, 1995,
by and among,the Registrant, Flex-O-Lite, Inc. and TJC Management
Corporation *
10.26 Employment and Non-Interference Agreement, dated as of August 16,
1995, by and between the Registrant and Robert H. Elkin *
10.27 Amendment to Employment Agreement, dated as of April 22, 1998, by
and between the Registrant and Robert H. Elkin *
10.28 Employment and Non-Interference Agreement, dated as of August 16,
1995, by and between the Registrant and Christopher T. Paule *
10.29 Amendment to Employment Agreement, dated as of April 22, 1998, by
and between the Registrant and Christopher T. Paule *
10.30 Employment and Non-Interference Agreement, dated as of August 16,
1995, by and between Flex-O-Lite, Inc. and Allan Huning *
10.31 Employment and Non-Interference Agreement, dated as of April 22,
1998, by and between the Registrant and Mark R. Hefty *
10.32 Employment and Non-Interference Agreement, dated as of April 22,
1998, by and between the Registrant, Crystaloid Technologies,
Inc. and Edward D. Surjan, Jr. *
10.33 Employment and Non-Interference Agreement, dated as of April 22,
1998, by and between the Registrant, Crystaloid Technologies,
Inc. and Edward M. Stiles *
10.34 Employment and Non-Interference Agreement, dated as of April 22,
1998, by and between the Registrant, Crystaloid Technologies, Inc.
and Michael A. Fout *
10.35 Employment and Non-Interference Agreement, dated as of April 22,
1998, by and between the Registrant, Crystaloid Technologies, Inc.
and Gregory J. Putman *
10.36 Employment and Non-Interference Agreement, dated as of April 22, 1998,
by between American Allsafe Company and Lincoln M. Kennedy *
10.37 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant and Robert H. Elkin *
10.38 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant and Christopher T. Paule *
10.39 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant and Mark R. Hefty *
10.40 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant, Crystaloid Technologies, Inc. and
Edward D. Surjan, Jr. *
45
<PAGE>
10.41 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant, Crystaloid Technologies, Inc. and
Edward M. Stiles *
10.42 Stock Appreciation Rights Agreement, dated as of April 22, 1998,
between the Registrant, Crystaloid Technologies, Inc. and
Michael A. Fout *
10.43 Intercompany Management Consulting Agreement, dated as of August 16,
1995, by and among the Registrant and its subsidiaries *
12 Statements regarding computation of ratios 21 List of Subsidiaries
of the Registrant *
25 Statement on Form T-1 of eligibility of the Trustee under the Trust
Indenture Act *
27 Financial Data Schedule
++ The schedules and exhibits to this agreement have not been filed pursuant to
Item 601(b)(2) of Regulation S-K. Such schedules and exhibits will be filed
supplementally upon the request of the Securities and Exchange Commission.
* Incorporated by reference to the exhibits filed with the Registration
Statement on Form S-4 of the Registrant filed with the Securities and
Exchange Commission on September 11, 1998 (Commission File No. 333-53987)
and all supplements thereto.
** Incorporated by reference to the exhibits filed with the Current Report on
Form 8-K of the Registrant with the Securities and Exchange Commission on
August 6, 1998 (Commission File No. 333-53987) and all supplements thereto.
46
<PAGE>
AMENDMENT AGREEMENT NO. 1
to that certain
REVOLVING CREDIT AND ACQUISITION LOAN AGREEMENT
This AMENDMENT AGREEMENT NO. 1 (this "Amendment") dated as of June 19, 1998, is
among (a) Jackson Products, Inc. (the "Borrower"), (b) BankBoston, N.A. and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (collectively, the "Banks"), (c) BankBoston, N.A. as agent
(the "Agent") for itself and the other Banks, and (d) Mercantile Bank National
Association, as co-agent (the "Co-Agent").
WHEREAS, the Borrower, the Banks, the Agent and the Co-Agent are parties to that
certain Revolving Credit and Acquisition Loan Agreement, dated as of April 22,
1998 (as amended and in effect from time to time, the "Credit Agreement"),
pursuant to which the Banks, upon certain terms and conditions, have agreed to
make loans to, and issue letters of credit for the benefit of, the Borrower; and
WHEREAS, the Borrower has requested that the Agent, the Co-Agent and the Banks
agree, and the Agent, the Co-Agent and the Banks have agreed, on the terms and
subject to the conditions set forth herein, to amend certain of the terms and
provisions of the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
S1. Defined Terms. Capitalized terms which are used herein without definition
and which are defined in the Credit Agreement shall have the same meanings
herein as in the Credit Agreement.
S2. Amendments to the Credit Agreement. The Credit Agreement is hereby amended
as follows:
(a) Section 1.1 of the Credit Agreement is amended as follows:
(i) the definition of "Drawdown Date" is hereby amended by inserting the words ,
any Swing Line Loan" immediately following the words "Revolving Credit Loan" in
the first line thereof.
(ii) the definition of "Loans" is hereby amended by inserting the words ", the
Swing Line Loans" immediately following the words "Revolving Credit Loans" in
the first line thereof.
(iii) the definition of "Notes" is hereby amended by inserting the words ", the
Swing Line Note" immediately following the words "Revolving Credit Notes" in the
first line thereof.
(iv) the following definition will be inserted after the definition of
"Ineligible Securities":
"Initial Public Offering. The initial underwritten public offering of the common
stock of the Borrower registered under the Securities Act of 1933."
(v) the following definition will be inserted after the definition of "Maximum
Drawing Amount":
"Maximum Swing Line Loan Amount. See S2.10 hereof".
(vi) the following definition will be inserted after the definition of "Stock
Purchase Agreements":
"Stockholders Agreement. The Stockholders Agreement, dated or to be dated on or
prior to the Closing Date among the Borrower and the other parties thereto, in
the form delivered to the Agent on or prior to the Closing Date."
(vii) the following definitions will be inserted after the definition of
"Subsidiary": "Swing Line Bank. BankBoston, N.A.
Swing Line Loan Maturity Date. With respect to any Swing Line Loan, the date
specified by the Borrower in the Loan Request relating thereto as to the
maturity date of such Swing Line Loan, which shall in no event be later than the
Revolving Credit Loan Maturity Date.
Swing Line Loans. Any Loan made by the Swing Line Bank pursuant to S2.10 hereof.
Swing Line Note. See S2.10 hereof."
(b) the heading of Section 2 is amended by deleting the word "FACILITY" and
replacing it with the words "AND SWING LINE FACILITIES".
(c) Section 2.1 of the Credit Agreement is amended by inserting the words", plus
the outstanding amount of the Swing Line Loans" after the word "requested)" in
the twelfth line thereof.
47
<PAGE>
(d) Section 2.3 of the Credit Agreement is amended by deleting the penultimate
sentence thereof and replacing it with the following sentence:
"Upon the effective date of any termination the Borrower shall pay to the Agent
for the respective accounts of the Banks the full amount of the Revolving Credit
Loans and the Swing Line Loans then outstanding and the full amount of any
interest and fees then accrued. Upon the effective date of any reduction, the
Borrower shall pay to the Agent for the respective accounts of the Banks the
full amount of any commitment fee then accrued on the amount of the reduction."
(e) Section 2.6 of the Credit Agreement is amended by inserting the
parenthetical "(other than Swing Line Loans)" after the words "Base Rate Loans"
in the fifth line thereof.
(f) Section 2.8.1 of the Credit Agreement is amended by (i) inserting the
parenthetical "(or upon fulfillment of the conditions precedent to the making of
a Swing Line Loan pursuant to S2.10)" after the word "amount" in the sixth line
thereof; and (ii) inserting the words "and the Swing Line Bank shall make
available to the Borrower the aggregate amount of funds otherwise available
under S2.10, if any" after the words "by the Banks" in the tenth line thereof.
(g) Section 2 of the Credit Agreement is amended by inserting the following
section after Section 2.9 thereof:
"S2.10. The Swing Line Loans. (a) Subject to the terms and conditions
hereinafter set forth, upon notice by the Borrower made to the Swing Line Bank
in accordance with S2.10(b) hereof, the Swing Line Bank agrees to lend to the
Borrower Swing Line Loans on any Business Day from the Closing Date until the
Maturity Date in an aggregate principal amount not to exceed $3,000,000 (the
"Maximum Swing Line Loan Amount"). Except for Swing Line Loans for interest and
fees owed to the Swing Line Bank, each Swing Line Loan shall be in a minimum
amount equal to $100,000. Notwithstanding any other provisions of this Agreement
and in addition to the limit set forth above, at no time shall the aggregate
principal amount of all outstanding Swing Line Loans exceed the Total Commitment
then in effect minus the sum of (i) the aggregate principal amount of all
Revolving Credit Loans outstanding and (ii) the aggregate Maximum Drawing Amount
of all Letters of Credit outstanding.
(b)Notice of Borrowing. When the Borrower desires the Swing Line Bank to make a
Swing Line Loan, it shall send to the Agent and the Swing Line Bank a Loan
Request, which shall set forth the principal amount of the proposed Swing Line
Loan and the Swing Line Loan Maturity Date relating thereto, which shall in no
event be later than the Revolving Credit Loan Maturity Date. Each such Loan
Request must be received by the Swing Line Bank not later than 2:00 p.m.
(Central time) on the date of the proposed borrowing. Each Loan Request shall be
irrevocable and binding on the Borrower and shall obligate the Borrower to
borrow the Swing Line Loan from the Swing Line Bank on the proposed Drawdown
Date thereof. Upon satisfaction of the applicable conditions set forth in this
Agreement, on the proposed Drawdown Date the Swing Line Bank shall make the
Swing Line Loan available to the Borrower on the proposed Drawdown Date by
wiring funds in the amount of the Swing Line Loan to the Borrower's account
maintained with the Co-Agent at its head office; provided that the Swing Line
Bank shall not advance any Swing Line Loans after it has received notice from
any Bank that a Default or Event of Default has occurred and stating that no new
Swing Line Loans are to be made until such Default or Event of Default has been
cured or waived in accordance with the provisions of this Agreement. The Swing
Line Bank shall not be obligated to make any Swing Line Loans at any time when
any Bank is a Delinquent Bank unless the Swing Line Bank has entered into
arrangements satisfactory to it to eliminate the Swing Line Bank's risk with
respect to such Delinquent Bank, including by cash collateralizing such
Delinquent Bank's Commitment Percentage of the outstanding Swing Line Loans and
any such additional Domestic Swing Line Loans to be made.
(c)Interest on Swing Line Loans. Each Swing Line Loan shall be a Base Rate Loan
and, except as otherwise provided in S6.11 hereof, shall bear interest from the
Drawdown Date thereof until repaid in full at the rate per annum equal to the
Base Rate plus the Applicable Margin, which shall be paid quarterly in arrears
on the last day of each calendar quarter.
(d)Repayment of Swing Line Loans. The Borrower shall repay each outstanding
Swing Line Loan on or prior to the Swing Line Loan Maturity Date relating
thereto. Upon notice by the Swing Line Bank on any Business Day (whether before
or on the Revolving Credit Loan Maturity Date), each of the Banks hereby agrees
to make payments to the Agent, for the account of the Swing Line Bank, on the
next succeeding Business Day following such notice, in an amount equal to such
Bank's Commitment Percentage of the aggregate amount of all Swing Line Loans
outstanding. The parties hereto agree that such payments made to the Agent for
the account of the Swing Line Bank shall constitute Revolving Credit Loans made
to the Borrower hereunder, and shall be a Base Rate Loan. The proceeds thereof
shall be applied directly to the Swing Line Bank to repay the Swing Line Bank
for such outstanding Swing Line Loans. Each Bank hereby absolutely,
unconditionally and irrevocably agrees to make such Revolving Credit Loans upon
one Business Day's notice as set forth above, notwithstanding (i) that the
amount of such Loan may not comply with the applicable minimums set forth in
S2.6 hereof, (ii) the failure of the Borrower to meet the conditions set forth
in SS12 or 13 hereof, (iii) the occurrence or continuance of a Default or an
Event of Default hereunder, (iv) the date of such Loan, and (v) the Total
Commitment in effect at such time. In the event that it is impracticable for
48
<PAGE>
such amounts to be paid to the Agent or the Swing Line Bank or such Loan to be
made for any reason on the date otherwise required above, then each Bank hereby
agrees that it shall forthwith purchase (as of the date such payment and such
Loan would have been made, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the Swing Line
Bank, and the Swing Line Bank shall sell to each Bank, such participations in
the Swing Line Loans (including all accrued and unpaid interest thereon)
outstanding as shall be necessary to cause the Banks to share in such Swing Line
Loans pro rata based on their respective Commitment Percentages (without regard
to any termination of the Total Commitment) by making available to the Swing
Line Bank an amount equal to such Bank's participation in the Swing Line Loans;
provided that (x) all interest payable on the Swing Line Loans shall be for the
account of the Swing Line Bank as a funding and administrative fee until the
date as of which the respective participation is purchased (unless paid to the
Swing Line Bank pursuant to clause (y) below), and (y) at the time any purchase
of such participation is actually made, the purchasing Bank shall be required to
pay the Swing Line Bank interest on the principal amount of the participation so
purchased for each day from and including the date such Loan would otherwise
have been made until the date of payment for such participation at the rate of
interest in effect applicable to Base Rate Loans during such period.
(e)The Swing Line Note.The obligation of the Borrower to repay the Swing Line
Loans made pursuant to this Agreement and to pay interest thereon as set forth
in this Agreement shall be evidenced by a promissory note of the Borrower with
appropriate insertions substantially in the form of ExhibitA-3 attached hereto
(the " Swing Line Note"), dated the Closing Date and payable to the order of the
Swing Line Bank in a principal amount stated to be the lesser of (i) the Maximum
Swing Line Loan Amount, or (ii) the aggregate principal amount of Swing Line
Loans at any time advanced by the Swing Line Bank and outstanding thereunder.
The Borrower irrevocably authorizes the Swing Line Bank to make or cause to be
made, at or about the time of the Drawdown Date of any Swing Line Loan or at the
time of receipt of any payment of principal on the Swing Line Note, an
appropriate notation on the Record reflecting the making of such Swing Line Loan
or (as the case may be) the receipt of such payment. The outstanding amount of
the Swing Line Loans set forth on such Record shall be prima facie evidence of
the principal amount thereof owing and unpaid to the Swing Line Bank, but the
failure to record, or any error in so recording, any such amount on such Record
shall not limit or otherwise affect the actual amount of the obligations of the
Borrower hereunder or under the Swing Line Note to make payments of principal of
or interest on the Swing Line Note when due."
(h) Section 3.1 of the Credit Agreement is amended by inserting the words "and
Swing Line Loans" after the words "Revolving Credit Loans" in the third line
thereof.
(i) Section 3.2 of the Credit Agreement is amended by (i) inserting the words
"the Swing Line Loans," after the words "Revolving Credit Loans," in the second
line thereof; (ii) inserting the words "to the Swing Line Loans; third," after
the word "second" in the seventh line thereof; and (iii) deleting the word
"third" and replacing it with the word "fourth" in the seventh line thereof.
(j) Section 4.1.2 of the Credit Agreement is amended by deleting the reference
to "S14" and replacing it with "S13" in the thirty-sixth line thereof.
(k) Section 4.6 of the Credit Agreement is amended by inserting the words "after
the end of the Disbursement Period" following the word "Loan" in the last
sentence thereof.
(l) Section 5.1.1 of the Credit Agreement is amended by inserting the words ",
and (iv) the amount of all Swing Line Loans outstanding" after the words
"Revolving Credit Loans outstanding" in the fourth to the last line thereof.
(m) Section 5.6 of the Credit Agreement is amended by inserting the words
"quarterly in arrears" after the parenthetical "(in each case, a "Letter of
Credit Fee")" in the third line thereof.
(n) Section 9 of the Credit Agreement is amended by inserting the words ", the
Swing Line Bank has any obligation to make any Swing Line Loans" after the word
"Loans" in the third line thereof.
(o) Section 9.19 of the Credit Agreement is amended (i) by replacing the words
"the Borrower and the Agent" in the third line thereof with the words "the
Borrower and each of the Banks" and (ii) by inserting the word "Holdings" after
the word "Lansec" in the fifth line thereof.
(p) Section 10 of the Credit Agreement is amended by inserting the words ", the
Swing Line Bank has any obligation to make any Swing Line Loans" after the word
"Loans" in the third line thereof.
(q) Section 12 of the Credit Agreement is amended by inserting the words ", of
the Swing Line Bank to make any Swing Line Loans" after the words "Acquisition
Loan" in the second line thereof.
(r) Section 13 of the Credit Agreement is amended by inserting the words "of the
Swing Line Bank to make any Swing Line Loans" after the words "Acquisition
Loan," in the second line thereof.
49
<PAGE>
(s) Section 16.5.3 of the Credit Agreement is amended by deleting the word
"Loan" and replacing it with the words "Revolving Credit Loan or any Acquisition
Loans, to make available to the Swing Line Bank its pro rata share of any Swing
Line Loan" in the fourth line thereof.
(t) Section 18 of the Credit Agreement is amended by inserting the words ", the
making by the Swing Line Bank of the Swing Line Loans" after the words "any of
the Loans" in the sixth line thereof.
(u) Section 26 of the Credit Agreement is amended by (i) inserting the words
"the amount of the Acquisition Commitments of the Banks, the amount of principal
owing to the Banks" after the words "Commitments of the Banks" in the thirteenth
line thereof; (ii) deleting the word "and" after the words "may not be amended,"
in the eighteenth line thereof; (iii) inserting the words "and any Guarantor may
not be released (except in accordance with S10.5)" after the parenthetical
"(except in accordance with S10.5.2)," in the nineteenth line thereof; and (iv)
inserting the sentence "No amendment, waiver or consent shall, unless in writing
and signed by the Swing Line Bank in addition to the Banks required above to
take such action, affect the rights and obligations of the Swing Line Bank under
this Credit Agreement." after the words "of the Agent." in the twenty-second
line thereof.
S3. Affirmation and Acknowledgment of the Borrower and the Domestic
Subsidiaries. The Borrower and each of the Domestic Subsidiaries hereby affirm
and acknowledge to the Banks as follows:
(a) The Borrower hereby ratifies and confirms all of its Obligations to the
Banks, including, without limitation, the Loans, and the Borrower hereby affirms
its absolute and unconditional promise to pay to the Banks the Loans, the
Reimbursement Obligations, and all other amounts due under the Credit Agreement
as amended hereby. The Borrower hereby confirms that the Obligations are and
remain secured pursuant to the Security Documents and pursuant to all other
instruments and documents executed and delivered by the Borrower as security for
the Obligations.
(b) Each of the Domestic Subsidiaries hereby acknowledges the provisions of this
Amendment and hereby reaffirms its absolute and unconditional guaranty of the
Borrower's payment and performance of the Obligations as more fully described in
the Guaranty. Each of the Domestic Subsidiaries hereby confirms that its
obligations under the Guaranty are and remain secured pursuant to the Security
Documents to which it is a party.
S4. Representations and Warranties. The Borrower hereby represent and warrant to
the Banks as follows:
(a) The execution and delivery by the Borrower and each Domestic Subsidiary of
this Amendment, and the performance by the Borrower and each Domestic Subsidiary
of its obligations and agreements under this Amendment and the Credit Agreement
as amended hereby, are within the corporate authority of the Borrower and each
Domestic Subsidiary, have been duly authorized by all necessary corporate
proceedings on behalf of the Borrower and each Domestic Subsidiary, and do not
and will not contravene any provision of law, statute, rule or regulation to
which the Borrower and each Domestic Subsidiary is subject or any of the
Borrower's and each Domestic Subsidiary's charter, other incorporation papers,
by-laws or any stock provision or any amendment thereof or of any agreement or
other instrument binding upon the Borrower and each Domestic Subsidiary.
(b) This Amendment and the Credit Agreement as amended hereby constitute legal,
valid and binding obligations of the Borrower and each Domestic Subsidiary,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental agency or
authority is required to make valid and legally binding the execution, delivery
or performance by the Borrower or any Domestic Subsidiary of this Amendment or
the Credit Agreement as amended hereby.
(d) The representations and warranties contained in S8 of the Credit Agreement
are true and correct at and as of the date made and as of the date hereof,
except to the extent of changes resulting from transactions contemplated or
permitted by this Credit Agreement and the other Loan Documents and changes
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date.
(e) The Borrower and each Domestic Subsidiary has performed and complied in all
material respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the date
hereof, after giving effect to the provisions hereof, there exists no Event of
Default or Default.
S5. Effectiveness. This Amendment shall become effective upon the receipt by the
Agent of a fully executed counterpart hereof signed by each of the Borrower, the
Domestic Subsidiaries, the Agent, the Co-Agent and all of the Banks.
50
<PAGE>
S6. Miscellaneous Provisions.
(a) Except as otherwise expressly provided by this Amendment, all of the terms,
conditions and provisions of the Credit Agreement shall remain the same. It is
declared and agreed by each of the parties hereto that the Credit Agreement, as
amended hereby, shall continue in full force and effect, and that this Amendment
and the Credit Agreement shall be read and construed as one instrument.
(b) This Amendment is intended to take effect as an agreement under seal and
shall be construed according to and governed by the laws of the Commonwealth of
Massachusetts.
(c) This Amendment may be executed in any number of counterparts, but all such
counterparts shall together constitute but one instrument. In making proof of
this Amendment it shall not be necessary to produce or account for more than one
counterpart signed by each party hereto by and against which enforcement hereof
is sought.
(d) The Borrower hereby agrees to pay to the Agent, on demand by the Agent, all
reasonable out-of-pocket costs and expenses incurred or sustained by the Agent
in connection with the preparation of this Amendment (including reasonable legal
fees).
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first written above.
JACKSON PRODUCTS, INC.
By:_______________________
Title:
FLEX-O-LITE, INC.
By:_______________________
Title:
OSD ENVIZION, INC.
By:_______________________
Title:
CRYSTALOID TECHNOLOGIES,INC
By:_______________________
Title:
AMERICAN ALLSAFE COMPANY
By:_______________________
Title:
SILENCIO/SAFETY DIRECT,INC.
By:_______________________
Title:
BANKBOSTON, N.A.,
individually and as Agent
By:_______________________
Title:
MERCANTILE BANK NATIONAL
ASSOCIATION, individually
and as Co-Agent
By:_______________________
Title:
SANWA BUSINESS CREDIT CORP.
By:_______________________
Title:
BHF-BANK AKTIENGESELLSCHAFT
By:_______________________
Title:
51
<PAGE>
ANTARES LEVERAGED CAPITAL
CORP.
By:_______________________
Title:
COMERICA BANK
By:_______________________
Title:
FLEET NATIONAL BANK
By:_______________________
Title:
PARIBAS
By:_______________________
Title:
By:_______________________
Title:
FIRST SOURCE FINANCIAL LLP
by First Source Financial Inc.,
as Agent/Manager
By:_______________________
Title:
KEY CORPORATE CAPITAL INC.
By:_______________________
Title:
DEUTSCHE FINANCIAL
SERVICES CORP.
By:_______________________
Title:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACKSON PRODUCTS, INC.
(Registrant)
Date : 3/26/99 By:/s/ Christopher T. Paule
---------------------------
Christopher T. Paule
Vice President, Chief Financial
Officer and Chief Accounting Officer
52
<PAGE>
27.
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000906737
<NAME> JACKSON PRODUCTS, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 327
<SECURITIES> 0
<RECEIVABLES> 18,479
<ALLOWANCES> 651
<INVENTORY> 34,275
<CURRENT-ASSETS> 53,827
<PP&E> 46,734
<DEPRECIATION> 12,372
<TOTAL-ASSETS> 171,239
<CURRENT-LIABILITIES> 25,488
<BONDS> 190,389
0
0
<COMMON> 0
<OTHER-SE> (343)
<TOTAL-LIABILITY-AND-EQUITY> 171,239
<SALES> 165,232
<TOTAL-REVENUES> 165,232
<CGS> 111,325
<TOTAL-COSTS> 111,325
<OTHER-EXPENSES> 27,566
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,803
<INCOME-PRETAX> (1,606)
<INCOME-TAX> 224
<INCOME-CONTINUING> (1,830)
<DISCONTINUED> 0
<EXTRAORDINARY> (7,558)
<CHANGES> 0
<NET-INCOME> (9,388)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
