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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Period Ended December 31, 1996
Commission File No.33-93644
DAY INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1436349
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(State of Incorporation) (IRS Employer Identification No.)
333 West First Street, Dayton, Ohio 45402
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(Address of principal executive offices)
Registrant's telephone number, including area code: (513) 224-4000
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
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. Yes X No
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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 the 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]
<TABLE>
<S> <C>
At the close of business on March 21, 1997:
Number of shares of Common Stock outstanding 51,555.5
Aggregate market value of the Company's voting
stock held by non-affiliates $0
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DOCUMENTS INCORPORATED BY REFERENCE - None.
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Except as otherwise stated, the information contained in this report is given as
of December 31, 1996, the end of the Registrant's last fiscal year.
SAFE HARBOR STATEMENT
Certain information contained in this report, particularly information regarding
future economic performance and finances, plans and objectives of management,
is forward-looking. In some cases, information regarding certain important
factors that could cause actual results to differ materially from any such
forward-looking statement appear together with such statement. In addition, the
following factors, in addition to other possible factors not listed, could
affect the Company's actual results and cause such results to differ materially
from those expressed in forward-looking statements. These factors include the
effects of leverage, including the limitations imposed by the Company's various
debt instruments; risk related to significant operations in foreign countries;
competition in the Company's markets; the impact of environmental regulations;
cyclicality of the Company's customer base; the potential for technological
obsolescence; and other factors set forth under the caption "Risk Factors"
below.
PART I
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ITEM 1. BUSINESS
GENERAL
Day International Group, Inc. ("Day" or the "Company") is one of the world's
leading producers of precision engineered rubber products, specializing in the
design and customization of components used by a broad customer base in the
printing and textile industries. Day's printing business ("Printing") is one of
the world's largest designers, manufacturers and marketers of high-quality
printing blankets for use in the offset printing industry. The Company estimates
that in 1996 it held the number one market share in printing blankets in the
United States and worldwide with approximately a 37% share and a 26% share in
each market, respectively. The Company believes that its textile business
("Textiles") is the largest U.S. manufacturer and marketer of precision
engineered rubber cots, aprons and other fabricated rubber components sold to
textile yarn spinners worldwide. Based on data complied by the American Textile
Manufacturers Institute, the Company estimates that in 1996 its share of the
U.S. market for cots and aprons was approximately 62%. The Company has
continuously improved its operations through technological innovation and has
reported increased sales every year since 1982.
On December 31, 1996, Day acquired certain of the net assets of the David M
Company ("David M"), a division of Flint Ink Corporation for $11.3 million.
David M manufactures a complete line of printing blankets used in offset
printing applications in its Longwood, Florida facility. David M will operate as
a division of Day and will continue manufacturing in the Florida facility. The
acquisition of David M complements Day's existing markets and product lines. Day
intends to maintain David M's brand name and product lines and will continue to
utilize David M's existing sales force and distribution network. The acquisition
of David M increases Day's share of the domestic and worldwide printing blanket
markets to approximately 43% and 30%, respectively.
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The printing blanket, a highly engineered product manufactured to narrow
tolerances and precise specifications, is composed of multiple layers of fabric,
rubber and adhesives which determine performance features and overall quality,
including image resolution, consistency, durability and ink and chemical
compatibility. Printing blankets accept ink from cylindrical printing plates and
transfer it to a broad range of paper stocks and other substrates. The
performance characteristics of the printing blanket are critical to the quality
of the printing job, as printing blankets are required to perform consistently
over a broad range of press speeds and printing pressures with a wide variety of
papers and inks. Due to the importance of the printing blanket in determining
the overall quality of the printing job, and because the cost of the printing
blanket typically represents less than 1% of the cost of the printed page, the
price of the blanket is a secondary factor in the end user's purchase decision.
The Company has long-standing relationships with a large number of end users,
including R.R. Donnelley & Sons Co., World Color Press, Inc., Quebecor Printing
Inc. and Treasure Chest Advertising Company, Inc. (Big Flower Press, Inc.). In
1996, Printing contributed approximately 76% of the Company's sales.
Offset printing technology is a printing method that transfers a high-quality
image from a plate to a rubber printing blanket and then to paper. Offset
technology is utilized primarily in long-run, high-speed applications such as
the printing of magazines, annual reports, catalogs, direct mail and newspapers.
The Company also manufactures highly engineered rubber rollers known as cots and
flexible belts known as aprons for utilization in yarn spinning machinery. Cots
and aprons are used to draw and twist fibers into yarn. Industry reports
characterize the U.S. as the largest and most technologically advanced producer
of textile products in the world. As a result of technological improvements in
automated high-speed spinning frames, customers are demanding cots and aprons of
higher quality and greater flexibility to meet their specialized needs and are
willing to pay a premium for cots and aprons that meet these standards. The
Company is known throughout the world as a leader in technological innovation
and quality and is the only domestic manufacturer of a full line of cots and
aprons and related products. The Company has long-standing relationships with a
large number of customers, including Burlington Industries Inc., Springs
Industries, Inc. and fiberglass producers such as PPG Industries Inc. and
Owens-Corning Fiberglas Corp. In 1996, Textiles contributed approximately 24% of
the Company's sales.
The Company's domestic and international sales forces have developed strong
customer relationships and possess technical expertise, which enables them to
promote the quality and benefits of the Company's products. In Printing, the
Company's sales force calls on end users as well as value-added distributors
known as converters who typically purchase rolls of uncut printing blankets from
the Company and then cut, finish and package the blankets prior to sale and
delivery to dealers or end users. By educating end users as to the superior
performance characteristics of the Company's products and by providing
exceptional technical service, the Company has been able to create "pull
through" demand for its products from end users who typically place orders
through converters. In Textiles, the Company's sales force markets its products
directly to textile mills in the U.S. and Europe, and the Company utilizes
independent sales agents to market its products in Latin America and the Pacific
Rim.
Business Strategy
The Company believes that competition in the printing and textile industries is
based primarily on quality, performance and service. Accordingly, throughout its
businesses, the Company emphasizes superior customer service and technological
innovation through state-of-the-art research and development. The
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Company's strategy is to strengthen its position as one of the world's leading
producers and designers of precision engineered rubber components for the
printing and textile industries. Specifically, the Company's strategy centers
upon:
Superior Product Performance and Leading Market Share. Due to the superior
performance characteristics of its products, the Company believes that it holds
the number one domestic and worldwide market position in printing blankets and a
leading market position in cots and aprons and other textile components.
Accordingly, the Company's products enjoy significant brand name recognition.
The Company's strategy has been to utilize its technical expertise to develop
high-performance products which command premium prices in the marketplace.
Product Innovation and Proprietary Technology. The Company historically has been
at the forefront of technological advances and is committed to maintaining its
position as an industry leader through continued product innovation. Over the
last several years, a number of developments have been successfully undertaken
to improve the surface and compressible layers of the printing blanket,
resulting in enhanced image resolution, improved durability and printing
consistency. For example, in 1993, the Company and Heidelberg Harris, the
world's leading manufacturer of printing presses, introduced a unique tubular
printing sleeve for Heidelberg Harris new M-3000 high-speed press. The Company
also introduced a complete new line of newspaper printing blankets and lined
soft cots.
Customer Service. The Company believes that the effective implementation of its
integrated approach to marketing, sales and distribution distinguishes it from
its competitors. The Company's Printing sales force works directly with end
users to identify those printing blankets which best suit each end user's
particular needs. The sales force also works in partnership with end users in
formulating solutions to complex printing problems which can only be addressed
by a thorough understanding of the chemical interaction between the printing
blanket, paper and ink.
Operating Discipline. The Company prides itself on providing high-quality
products while maintaining its position as a low-cost producer. The Company
plans to further improve its profitability through continued productivity gains
developed by process-focused teams at each of its facilities. The Company
expects that additional process and manufacturing improvements will continue to
lower its costs and to strengthen its competitive position. To encourage
productivity improvements, the Company ties a portion of each associate's total
compensation to a performance bonus.
Pursuit of Growth Opportunities. The Company is aggressively pursuing growth
opportunities in its core businesses as evidenced by its acquisition of David M.
The Company also believes that planned product introductions and improvements
should enable it to increase its worldwide and domestic market shares. Finally,
the Company plans to continue its penetration of international markets, with a
particular focus on Europe and the Pacific Rim.
PRINTING
INDUSTRY
In an effort to maintain offset printing's technological advantages, press
manufacturers have continually invested in research and development to introduce
improved presses that lower printing costs by operating
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at faster run speeds, offering enhanced flexibility and reducing setup time.
Additionally, many of the advancements made in the pre-press area have
complemented this trend. The Heidelberg Harris M-3000 press is an example of the
next generation of offset printing presses that increase the maximum web speed
to 3,000 feet of paper per minute versus the industry norm of 2,000 feet of
paper per minute. Industry reports forecast alternative technologies to provide
some short-run print jobs with enhanced quality and increased flexibility, but
few rival the print quality, flexibility, price and speed of offset technology.
In addition to lowering costs, offset printers are constantly striving to
improve the quality of their printed product. The cost of the printing blanket
represents less than 1% of the overall cost of the printed page, but is critical
to the quality of the product and the efficiency of the printing press. The
factors most critical to the printer are the image resolution, which is
achievable with a particular printing blanket, the consistency of the printing
output over long printing runs, the number of images which can be printed by the
printing blanket over its useful life relative to its cost and the ability of
the printing blanket to operate within prescribed parameters utilizing a variety
of papers, inks and chemicals.
PRODUCTS
The Company offers a full line of high-quality, name brand printing blankets to
both web-fed (continuous roll) and sheet-fed (individual sheet) printers. The
Company's printing blankets are used to print newspapers, magazines, business
forms, packaging and other printed material. As a result of the superior
quality, reliability and value of the Company's printing blankets and the
customer service it provides, the Company is able to command premium prices for
its products.
The Company's leading printing blankets are the dayGraphica 9500(R), Patriot
3000(R), Discovery 3500(R), Accu-Dot 8500(R) and Newsmaker(TM) lines which
produce high-quality images, particularly on high-speed printing presses.
Introduced in 1986 and utilizing improved surface characteristics resulting in
enhanced print quality, the dayGraphica(R) line still represents a unique
technology and is favored in many applications. The Patriot 3000(TM) and the
Discovery 3500(R) address customer demands for a more versatile and durable
product adaptable to changes in the chemicals used in the printing process and
constitute a significant portion of the Company's sales. The Accu-Dot(R) line is
a line of general purpose printing blankets. Newsmaker(TM) is a complete line of
blankets developed and sold specifically for newspaper printing.
The Company believes that it is one of the leading innovators of product and
process technology in the printing blanket industry. The Company maintains
high-quality products by integrating ideas from its research and development
staff with input from its sales force, printers, distributors and
process-focused work teams. Given the exacting specifications such as dot
uniformity and fidelity, chemical compatibility, product life and start-up time
that a printing blanket must meet, the Company believes that it is well-
positioned to continue market penetration as a result of its product development
capabilities.
In addition to its traditional line of printing blankets, the Company is one of
two global licensees to manufacture tubular, seamless printing sleeves for
Heidelberg Harris, the world's leading manufacturer of printing presses. The
Heidelberg Harris M-3000 press represents the next generation of high-speed
presses with a maximum web speed of 3,000 feet of paper per minute versus the
industry norm of 2,000 feet of paper per minute. The Company has the leading
share of this market.
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Printing also manufactures and sells two lines of specialty products consisting
of pre-inked porous rolls for use in business machines, automated bank teller
machines, ticket machines and credit card imprinters and cast urethane mats used
by the box board corrugating industry as a backing material in cutting
operations.
SALES AND DISTRIBUTION
The Company's sales forces call directly on all of the leading end users in
their markets and promote the quality and technical features of the Company's
products to pressroom foremen, purchasing agents, plant managers and press
operators who then order the Company's products from an authorized distributor
(converter or dealer).
The Company distributes the majority of its products through domestic and
international distributors who buy printing blanket rolls. These distributors
cut, fabricate and ship blankets to customer orders, maintain inventory and
carry receivables. The sales force works closely with the distributors through
joint calling efforts on end users and training programs. The Company believes
that it has one of the most effective networks of converters and dealers in the
industry.
TEXTILES
INDUSTRY
Yarn spinning machinery uses a combination of rollers (cots) and flexible belts
(aprons) to draw and twist fibers into yarn in a process known as drafting.
Large spinning mills (mills with over 50,000 spindles) require 200,000 cots and
aprons (2 cots and 2 aprons per spindle) to equip the spinning frames. Yarn
manufacturers require a wide range of cot and apron sizes and constructions to
handle cotton, synthetic and blended fibers. Cots and aprons are differentiated
by mill conditions, machine types and original equipment manufacturer ("OEM")
specifications. The type and quality of cots and aprons impact yarn quality,
while product life and performance is impacted by surface finish, lap resistance
and the ability to withstand ozone exposure, fiber chemicals, wear and physical
deformation.
The industry has undergone significant changes in recent years with
technological improvements in machinery resulting in productivity improvements
at the textile mill level. In the U.S., a significant amount of ring spinning
and shuttle loom capacity has been replaced by fully automated open-end, air-jet
and high-speed spinning frames and looms. Automated high-speed spinning frames
produce 40% more yarn per spindle than traditional spinning frames. As more
high-quality yarn is produced at higher speeds, the consumption of cots and
aprons per position increases correspondingly. As a result of these increasing
demands, cots and aprons must be of higher quality and therefore command a
premium price compared to traditional ring spinning cots and aprons.
PRODUCTS
As the only domestic manufacturer of a full line of cots and aprons, the Company
offers its customers both general purpose and specialty cots and aprons
recognized in the marketplace under the DAYtex(R) brand. General purpose cots
and aprons include a full line of products designed for "short staple" fibers
(such as cotton) and "long staple" fibers (such as wool) while specialty cots
and aprons include glass-
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forming aprons, carpet cots and drawing cots. The Company provides
high-quality, precision engineered products that deliver superior value to its
customers.
The Company is currently developing and testing several new products including a
high-speed spinning apron. The Company's technology has been used to develop
specialty lines of aprons including glass-forming aprons, which are used to
make glass fiber from liquid glass, and texturizing aprons, which are used to
finish certain types of synthetic threads. Textiles also makes bolsters, "rub"
aprons and rubber shrinkage blankets for use in pre-shrinking processes, such as
that used for denim, as well as rubber-covered industrial rollers for textile
and other industrial applications. In addition, the Company also sells custom
rubber compounds to several wire coaters in Europe.
SALES AND DISTRIBUTION
The sales force markets its products directly to end users, primarily textile
mills, and OEMs, calling on virtually every textile mill in the U.S. and Europe.
The Company believes that its sales professionals differentiate themselves from
the competition by their ability to work directly with customers to solve
problems on the mill floor, providing the Company with knowledge of industry
trends, which in turn creates opportunities for product development.
The Company will continue to capitalize on the shift towards higher value-added,
higher-margin products and plans to emphasize its full line of products and U.S.
manufacturing presence to domestic textile producers. Internationally, the
Company will continue to focus on the Pacific Rim and Latin America through the
use of independent sales agents.
RAW MATERIALS
Rubber polymers and woven fabrics are major components in the Company's
products. Various woven fabrics, which are combined with rubber and other
materials, represented over 40% of all raw materials purchases during 1996 and
1995. Raw material purchases accounted for approximately half of all costs of
goods sold for the Company's products during the same period. The Company
purchases its raw material requirements from a number of suppliers on a purchase
order basis.
TECHNOLOGY
The Company continues to believe that research and development is key to
maintaining its leading market position. In 1996, technology expenditures were
approximately 2% of the Company's sales.
In addition to its extensive patent and trademark portfolio, the Company also
licenses certain intellectual property rights from third parties and owns a wide
array of unpatented proprietary technology. In the aggregate, these patents,
patent applications, trademarks and licenses are of material importance to the
Company's business.
COMPETITION
The Company competes with a number of firms in the printing and textile
components industries, with the main factors being quality, performance and
service. While the Company competes with a number of
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manufacturers of offset printing blankets, its primary competitors are Reeves
Industries, Inc. and Polyfibron Technologies, Inc. which, together with the
Company, accounted for in excess of 70% of the U.S. market and approximately 60%
of the worldwide market in 1996, based on Company estimates. Each of these firms
has a comparable worldwide geographic distribution network. The Company also
competes against a limited number of smaller manufacturers.
In Textiles, the Company's principal competitor is Armstrong World Industries
Inc. The Company also competes with other smaller manufacturers, such as
Premtec, Inc., Hokushin Corporation, Yamauchi USA Corp. and Berkol Ag.
INTERNATIONAL OPERATIONS
The Company's principal international manufacturing facility is located in
Dundee, Scotland which produces products for both Printing and Textiles. The
Company also has a manufacturing facility in Lerma, Mexico that produces
Printing products for local use and export to the U.S. The Company also
maintains sales and distribution facilities in France, Germany, Hong Kong and
Italy.
ENVIRONMENTAL MATTERS
The Company's facilities in the United States are subject to federal, state and
local environmental requirements, including those governing discharges to the
air and water, the handling and disposal of solid and hazardous wastes, and the
remediation of contamination associated with releases of hazardous substances.
The Dundee, Scotland facility is subject to United Kingdom and local
environmental requirements, as well as the environmental requirements
promulgated by the European Community. The Lerma, Mexico facility is subject to
Mexican environmental requirements.
The Company believes that it is currently in compliance with environmental
requirements except as would not be expected to have a material adverse effect
on the Company. Nevertheless, the Company's operations involve the handling of
toluene and other hazardous substances and, as is the case with manufacturers in
general, if a release of hazardous substances occurs on or from the Company's
facilities, the Company may be held liable and may be required to pay the cost
of remedying the condition. The amount of any such liability could be material.
The Company has made, and will continue to make, expenditures to comply with
current and future environmental requirements. Environmental requirements are
becoming increasingly stringent, and therefore the Company's expenditures for
environmental compliance may increase in the future.
Solvent air emissions at the Company's Dundee, Scotland facility currently
exceed U.K. limits, and the Company will be required to initiate a plan for air
controls in 1997 to comply with additional air emission requirements promulgated
by the European Community. The Company believes that capital expenditures for
such control equipment will be between $0.6 and $0.7 million
ASSOCIATES
Currently, the Company employs approximately 958 associates worldwide, of which
approximately 615 are employed in the U.S. The Company's associates in Dundee,
Scotland are represented by a labor union
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which has entered into a collective bargaining agreement with the Company, which
agreement expires in November 1997. The Company's associates in Mexico are
covered by a statutory labor agreement. None of the Company's U.S. associates
are covered by a collective bargaining agreement. To encourage productivity
improvements, a portion of each associate's total compensation is tied to a
performance bonus. The Company considers its associate relations to be good.
RISK FACTORS
Current and prospective investors should carefully consider the following
factors in addition to the other information set forth in this Report related to
investing in the Notes.
LEVERAGE
The Company is highly leveraged. At December 31, 1996, the Company's
indebtedness was $152.9 million and its stockholders' equity was $52.7 million.
In addition, subject to the restrictions in the Credit Agreement and the Notes,
the Company and its subsidiaries may incur additional indebtedness (including
additional Senior Indebtedness, as defined in the Notes) from time to time to
finance acquisitions or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes; (ii) the Company's ability to obtain additional debt
financing in the future for working capital, capital expenditures, research and
development or acquisitions may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in its
industries and economic conditions generally.
The Company's ability to pay principal and interest on the Notes and to satisfy
its other debt obligations will depend upon its future operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, certain of which are beyond its control, as well as the
availability of revolving credit borrowings under the Credit Agreement or a
successor facility. The Company anticipates that its operating cash flow,
together with borrowing under the Credit Agreement, will be sufficient to meet
its operating expenses and to service its debt requirements as they become due.
However, the Company may be required to refinance a portion of the principal of
the Notes prior to their maturity and, if the Company is unable to service its
indebtedness, it will be forced to take actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There is no assurance that
any of these remedies can be effected on satisfactory terms, if at all.
SUBORDINATION OF NOTES
The Notes are subordinated in right of payment to all Senior Indebtedness of the
Company. In addition, the Guarantee is subordinated to all Guarantor Senior
Indebtedness, including the guarantee of indebtedness under the Credit
Agreement. The Notes and the Guarantee are also effectively subordinated to all
of the indebtedness of the non-Guarantor subsidiaries of the Guarantor, and such
non-Guarantor subsidiaries are not obligated or otherwise required to make funds
available, whether through dividends, other distributions or otherwise, to the
Guarantor or the Company for repayment of the Notes. In 1996,
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the Company's UK subsidiary ("Day U.K") entered into credit facilities with a UK
bank that will provide a $1.6 million line of credit and two five year term
loans totaling $4.8 million as part of the Credit Agreement. As long as these
borrowings are outstanding, Day U.K. will be subject to restrictions on its
ability to pay dividends and make other distributions to the Guarantor. See Note
D of "Notes to Consolidated Financial Statements" of the Company for the year
ended December 31, 1996 and the period June 7, 1995 through December 31, 1995 in
Item 8 of this Report.
In addition, in the event of bankruptcy, liquidation or reorganization of the
Company or the Guarantor, the assets of the Company and the Guarantor will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Securities then outstanding. The aggregate
principal amount of Senior Indebtedness of the Company, as of December 31, 1996,
was $52.9 million. Additional Senior Indebtedness may be incurred by the Company
from time to time, subject to certain restrictions.
RISK OF CANCELLATION OF GUARANTEE UPON FRAUDULENT CONVEYANCE
The Guarantor guarantees the due and punctual payment of principal of; premium,
if any, and interest on the Notes and the performance of the other obligations
of the Company under the Notes. The Guarantee is a general unsecured obligation
of the Guarantor and is subordinated in right of payment to all Guarantor Senior
Indebtedness, including the Guarantor's guarantee of indebtedness under the
Credit Agreement.
It is possible that creditors of the Guarantor may challenge the Guarantee as a
fraudulent conveyance under relevant federal and state statutes, and, under
certain circumstances (including a finding that the Guarantor was insolvent at
the time the Guarantee was issued), a court could hold that the obligations of
the Guarantor under the Guarantee may be voided or are subordinate to other
obligations of the Guarantor. In addition, it is possible that the amount for
which the Guarantor is liable under the Guarantee may be limited. The measure of
insolvency for purposes of the foregoing may vary depending upon the law of the
jurisdiction that is being applied. Generally, however, a company would be
considered insolvent if the sum of its debts is greater than all of its property
at a fair valuation or if the present fair salable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts as they become absolute and mature. The Notes provides that the
obligations of the Guarantor under the Guarantee will be limited to amounts
which will not result in the Guarantee being a fraudulent conveyance under
applicable law.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Notes restrict, among other things, the Company's and its subsidiaries'
ability to incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, incur indebtedness that is subordinate in
right of payment to any Senior Indebtedness and senior in right of payment to
the Notes, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of substantially all of the assets of the
Company. In addition, the Credit Agreement contains other and more restrictive
covenants and prohibits the Company and its subsidiaries from prepaying other
indebtedness (including the Notes). The Credit Agreement also requires the
Company to maintain specified financial ratios and satisfy certain financial
condition tests. The Company's ability to meet those financial ratios and tests
can be affected by events beyond its control, and there can be no assurance that
the Company will meet those tests. A breach
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of any of these covenants could result in a default under the Credit Agreement
and/or the Notes. Upon the occurrence of an event of default under the Credit
Agreement, the lenders could elect to declare all amounts outstanding under the
Credit Agreement, together with accrued interest, to be immediately due and
payable. If the Company were unable to repay those amounts, the lenders could
proceed against the collateral granted to them to secure that indebtedness. If
the Senior Indebtedness were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full that indebtedness
and the other indebtedness of the Company, including the Notes. Substantially
all the assets of the Company and its domestic subsidiaries are pledged as
security under the Credit Agreement.
RISKS OF SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures and markets its products worldwide through several
foreign subsidiaries and independent agents. The Company's worldwide operations
are subject to the risks normally associated with foreign operations, including,
but not limited to, the disruption of markets, changes in export or import laws,
restrictions on currency exchanges, and the modification or introduction of
other governmental policies with potentially adverse effects.
Approximately 28% of the Company's 1996 sales were derived from products sold
outside the U.S. in currencies other than the U.S. dollar. The U.S. dollar value
of these revenues varies with currency exchange rate fluctuations, and the
Company may be exposed to gains or losses based upon such fluctuations.
Significant increases in the value of the U.S. dollar relative to certain
foreign currencies could have an adverse effect on the Company's ability to meet
interest and principal obligations on its U.S. dollar-denominated debt.
IMPACT OF ENVIRONMENTAL REGULATION
The Company is subject to a broad range of federal, state, local and foreign
environmental requirements, including those governing discharges to the air and
water, the handling and disposal of solid and/or hazardous wastes and the
remediation of contamination associated with releases of hazardous substances.
There can be no assurances that the Company will not incur significant costs in
the future to comply with such requirements. New rules to be promulgated under
the federal Clean Air Act by the year 2000 may require the Company to make
capital expenditures. The Company estimates that such capital expenditures could
be approximately $2 million in or after the year 2001. The Company's operations
involve the handling of toluene and other hazardous substances, and, as is
generally the case with manufacturers, if a release of hazardous substances
occurs on or from the Company's facilities, the Company may be held liable and
may be required to pay the cost of remedying the condition. The amount of any
such liability could be material. Pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), and/or similar state laws,
the Company was named a potentially responsible party ("PRP") at the Verona Well
Field, Michigan site and entered into a consent decree to settle that liability.
The Company's former parent was named a PRP at four other waste disposal sites,
has settled its liability by consent decree at all four of the sites without
liability to the Company. Groundwater contamination exists at the Company's
Three Rivers, Michigan facility. The Company's former parent and its parent have
agreed to complete the ongoing remedial and corrective actions and/or to
indemnify, subject to certain limitations, the Company for the costs associated
with these and certain other environmental matters. If both of these parties
fail to fulfill their indemnification obligations, the Company may be deemed
liable for such costs of environmental remediation and/or penalties, which could
be material.
11
<PAGE> 12
CYCLICAL INDUSTRY CUSTOMER BASE
Many of the end users of the Company's products typically experience cyclical
fluctuations in revenues and earnings. Accordingly, there can be no assurance
that the Company will not experience declining revenues in the future.
PROSPECT OF TECHNOLOGICAL OBSOLESCENCE
If new technologies that could effectively compete with offset printing in the
high-speed, long-run segment of the printing industry are developed and widely
adopted, the Company's printing business could be adversely affected. There can
be no assurance that demand for offset printing presses will remain strong or
will continue to grow in the future. Most alternative printing technologies have
the potential to compete with offset printing in the future with respect to some
short-run print jobs by providing enhanced quality and increased flexibility.
RISK OF INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control as defined in the Notes (such as, for example, the
acquisition of a majority of the outstanding voting stock of the Company by a
third party), the Company is required to offer to purchase all outstanding
Securities at 101% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages (as defined in the Notes), if any, to the date
of purchase. The source of funds for any such purchase will be the Company's
available cash or cash generated from operating or other sources, including
borrowing, sales of assets, sales of equity or funds provided by a new
controlling person. However, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to make any required
repurchases of Notes tendered, or that, if applicable, restrictions in the
Credit Agreement will allow the Company to make such required repurchases. The
effect of such requirements may make it more difficult or delay attempts by
others to obtain control of the Company.
LACK OF ESTABLISHED PUBLIC TRADING MARKET
The Notes are currently owned by a relatively small number of beneficial owners.
The Company does not intend to list the Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. The initial purchasers of the
Notes currently make a market in the Notes, but they are not obligated to do so
and may discontinue such market making at any time. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act. Accordingly, no assurance can be given that an active public
or other market will develop for the Notes or as to the liquidity of the trading
market for the Notes. If a trading market does not develop or is not maintained,
holders of the Notes may experience difficulty in reselling the Notes or may be
unable to sell them at all. If a market for the Notes develops, any such market
may be discontinued at any time.
If a public trading market develops for the Notes, future trading prices of such
securities will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the Notes may trade at a discount from their principal amount.
12
<PAGE> 13
DEPENDENCE ON GOODWILL AND INTANGIBLE ASSETS
At December 31, 1996, approximately 61% of the total assets of the Company are
goodwill and intangible assets. As a result, in the event of a liquidation or
insolvency of the Company, available funds may not be sufficient to repay
indebtedness, including the Notes.
ITEM 2. PROPERTIES
The Company operates five state-of-the-art, strategically located manufacturing
facilities in Asheville, North Carolina; Three Rivers, Michigan; Lerma, Mexico;
Dundee, Scotland; and the recently acquired Longwood, Florida facility and
believes that all of the Company's global sales can be sourced through these
facilities. The Company has recently upgraded and consolidated its manufacturing
operations, all of which are ISO 9002 certified. The Company also owns or leases
warehouse and sales office facilities in the U.S., Europe, Mexico and Hong Kong.
The size and location of each of the Company's significant facilities is
summarized below:
<TABLE>
<CAPTION>
Owned/
Location Size (Sq. Ft.) Leased
-------- -------------- ------
<S> <C> <C>
Manufacturing:
Asheville, NC 240,580 Owned
Dundee, Scotland 101,000 Owned
Lerma, Mexico 45,000 Owned
Three Rivers, MI 57,943 Owned
Longwood, FL 43,568 Owned
Warehouse/Sales Office:
Dayton, OH 11,700 Leased
Elk Grove, IL 5,000 Leased
Greenville, SC 10,100 Owned
Hong Kong 3,100 Leased
Milan, Italy (Erba) 600 Leased
Nashville, TN 5,000 Leased
Paris, France 12,771 Leased
Reutlingen, Germany 4,037 Leased
Stockport, England 5,200 Owned
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings arising
in the ordinary course of business. None of the matters in which the Company is
currently involved, either individually or in the aggregate, is expected to have
a material adverse effect on the Company's business, results of operations, cash
flows or financial condition.
The Company's former parent and Day International, Inc. are parties to consent
decrees with respect to certain environmental matters. See "Environmental
Matters" in Item 1 of this Report.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of March 21, 1997, there were 34 holders of record of shares of common stock,
par value $.01 per share, of the Company (the "Common Stock"). Sale or transfer
of the Common Stock is subject to the terms of a Stockholders Agreement which
all stockholders have signed. There is no established trading market for the
Common Stock. The Company has never paid or declared a cash dividend on the
Common Stock.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data were derived from, and should
be read in conjunction with the historical consolidated financial statements of
the Company. The financial data for the years ended December 31, 1992, 1993,
1994, and the 157 days ended June 6, 1995, represent results of operations of
the Company prior to the Acquisition ("Predecessor"), and the financial data for
the 208 days ended December 31, 1995 and the year ended December 31, 1996,
represent the results of operations of the Company subsequent to the
Acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and accompanying notes
thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
Predecessor Company
----------- -------
157 Days 208 Days
Ended Ended
June 6, December 31,
1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $ 107,140 $ 107,724 $ 120,288 $ 55,454 $ 73,103 $ 136,814
Costs of goods sold 64,027 65,342 70,996 33,935 47,503 84,602
--------- --------- --------- --------- --------- ---------
Gross profit 43,113 42,382 49,292 21,519 25,600 52,212
Selling, general and
administrative expenses 22,122 21,366 22,741 11,257 13,340 24,577
Amortization of intangibles 5,250 5,261 5,212 2,258 3,688 6,474
--------- --------- --------- --------- --------- ---------
Operating income 15,741 15,755 21,339 8,004 8,572 21,161
Interest expense 9,130 15,373
Amortization of deferred
financing fees 567 1,000
Other (income) expense (b) (425) (222) (453) (577) 952 (219)
---- ---- ---- ---- --- ----
Income (loss) before income taxes
and effect of changes in accounting 16,166 15,977 21,792 8,581 (2,077) 5,007
Provision (benefit) for income taxes 7,216 7,149 9,205 3,488 (850) 2,000
----- ----- ----- ----- ---- -----
Income (loss) before effect of
changes in accounting 8,950 8,828 12,587 5,093 (1,227) 3,007
Effect of changes in accounting (a) 1,167
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 7,783 $ 8,828 $ 12,587 $ 5,093 $ (1,227) $ 3,007
========= ========= ========= ========= ========= =========
BALANCE SHEET DATA:
Fixed assets, net of accumulated
depreciation and amortization $ 27,845 $ 26,415 $ 25,162 $ 24,677 $ 44,496 $ 45,289
Total assets 146,488 144,119 144,252 139,537 228,823 237,886
Long-Term Debt 51,250 52,116
Subordinated Long-Term Debt 100,000 100,000
Stockholders' equity 117,915 118,324 117,128 114,780 49,861 52,734
</TABLE>
(a) Effective January 1, 1992, the Company adopted SFAS No. 109, "Accounting
for Income Taxes" and SFAS No.106, "Employers' Accounting for
postretirement Benefits Other than Pensions." See Note 1 of the notes to
Financial Statements.
(b) Includes a bridge commitment fee, which resulted in a non-recurring
expense of $1.0 million for the 208 days ended December 31, 1995.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, cost of
goods sold, gross profit, selling, general and administrative expense
("SG&A"), amortization of intangibles and operating income in millions of
dollars and as a percentage of net sales.
<TABLE>
<CAPTION>
Year Ended Year Ended
---------- 157 Days Ended 208 Days Ended ----------
December 31, 1994 June 6, 1995 December 31, 1995 December 31, 1996
----------------- ------------ ----------------- -----------------
$ % $ % $ % $ %
- - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................. $ 120.3 100.0% $ 55.4 100.0% $ 73.1 100.0% $ 136.8 100.0%
Cost of goods sold ........ 71.0 59.0 33.9 61.2 47.5 65.0 84.6 61.8
---- ---- ---- ---- ---- ---- ---- ----
Gross profit .............. 49.3 41.0 21.5 38.8 25.6 35.0 52.2 38.2
SG&A ...................... 22.7 18.9 11.2 20.2 13.3 18.2 24.6 18.0
Amortization of intangibles 5.2 4.3 2.3 4.2 3.7 5.0 6.5 4.7
--- --- --- --- --- --- --- ---
Operating income .......... $ 21.3 17.7% $ 8.0 14.4% $ 8.6 11.8% $ 21.2 15.5%
======== ==== ======= ==== ======= ==== ======== ====
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1995
Net sales increased to $136.8 million for the year ended December 31, 1996 from
$128.5 million for the comparable period in 1995, an increase of $8.3 million or
6.5%. The Company's net sales were adversely impacted by changes in foreign
currency translation rates, which amounted to $1.2 million. Printing's sales
increased to $103.6 million for the year ended December 31, 1996 from $95.2
million for the comparable period in 1995, an increase of $8.4 million or 8.8%,
as a result of increased sales from new products, such as the NewsMaker(TM)
series for the newspaper market, higher sales of tubular sleeves and increased
demand for the Company's existing products in the U.S., Latin America and the
Pacific Rim and a modest price increase. Foreign currency translation rate
changes adversely impacted Printing sales by $1.0. Textiles' sales remained
relatively constant at $33.2 million for the year ended December 31, 1996
compared to $33.3 million in 1995. Changes in foreign currency translation rates
reduced Textiles' sales by $0.2 million. Domestic sales increases offset reduced
European sales with export sales to Latin America and the Pacific Rim remaining
relatively constant.
Gross profit increased to $52.2 million for the year ended December 31, 1996
from $47.1 million in 1995, an increase of $5.1 million or 10.8%. As a
percentage of net sales, gross profit increased to 38.2% for the year ended
December 31, 1996 from 36.7% for the comparable period in 1995. Gross profit in
1996 increased by $3.3 million or 6.7% as a result of increased volume and
productivity enhancements through process improvements and a modest price
increase, offset by changes in foreign currency translation rates, higher costs
of material and labor and a shift in sales to markets with typically lower
margins. Also, gross profit in 1995 was adversely impacted by $2.3 million for
sales of finished goods inventory which were purchased at market values as a
result of the Acquisition. SG&A remained virtually constant at $24.6
16
<PAGE> 17
million for the year ended December 31, 1996 compared with $24.5 million for
1995. Stand alone costs related to the acquisition were $0.5 million higher in
1996 and changes in currency translation rates reduced SG&A costs by $0.2
million in 1996. As a percentage of net sales, SG&A decreased to 18.0% from
19.1%.
Amortization of intangibles increased to $6.5 million for the year ended
December 31, 1996 from $6.0 million in 1995, an increase of $0.5 million as a
result of purchase accounting from the Acquisition.
Operating income increased to $21.2 million for the year ended December 31, 1996
from $16.6 million for the comparable period in 1995, an increase of $4.6
million or 27.7%, of which $2.3 million relates to the higher costs of goods
sold in 1995 resulting from the sale of finished goods inventory which were
purchased at market values as a result of the Acquisition. The remaining $2.3
million increase in operating income results from increased sales volumes and
productivity enhancements offset by additional amortization and depreciation and
stand alone costs primarily as a result of the Acquisition. As a percentage of
net sales, operating income increased to 15.5% for the year ended December 31,
1996 from 12.9% for the comparable period in 1995.
Not included in the above table, other (income) expense in 1995 includes a $1.0
million bridge loan fee.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1994
Net sales increased to $128.5 million for the twelve months ended December 31,
1995 from $120.3 million for the comparable period in 1994, an increase of $8.2
million or 6.8%. The Company's net sales were favorably impacted by changes in
foreign currency translation rates, which amounted to $1.6 million, or 19.5%, of
the increase in revenues. Printing's sales increased to $95.2 million for the
twelve months ended December 31, 1995 from $88.9 million for the comparable
period in 1994, an increase of $6.3 million or 6.7%, as a result of increased
sales from new products, such as the NewsMaker(TM) series for the newspaper
market, higher sales of tubular sleeves and increased demand for the Company's
existing products in Europe. Also, foreign currency translation rate changes
contributed $0.6 million of the increase. Textiles' sales increased to $33.3
million for the twelve months ended December 31, 1995 from $31.4 million for
comparable period in 1994, an increase of $1.9 million or 6.1%. Approximately
$1.0 million of this increase is related to foreign currency translation rates
with the remainder attributable to increased exports to Latin America and the
Pacific Rim and further market share gains in Europe.
Gross profit decreased to $47.1 million for the twelve months ended December 31,
1995 from $49.3 million for the comparable period in 1994, a decrease of $2.2
million or 4.5%. As a percentage of net sales, gross profit decreased to 36.7%
for the twelve months ended December 31, 1995 from 41.0% for the comparable
period in 1994. Gross profit increased by $1.6 million or 3.2% as a result of
increased volume and productivity enhancements such as the new continuous
spreading and automated cot finishing equipment, offset by changes in foreign
currency translation rates, a shift in sales mix and higher material and labor
costs. Gross profit was also adversely impacted by $2.3 million for sales of
finished goods inventory which were purchased at market values as a result of
the Acquisition, and by $1.5 million as a result of higher depreciation,
primarily as a result of the Acquisition.
SG&A increased to $24.5 million for the twelve months ended December 31, 1995
from $22.7 million for the comparable period in 1994, an increase of $1.8
million or 7.9%, primarily as a result of higher sales
17
<PAGE> 18
volumes and stand alone costs of $0.6 million as a result of the Acquisition.
The Company's expenses were affected by changes in currency translation rates,
which amounted to $0.7 million, or 38.9%, of the increase in SG&A. As a
percentage of net sales, SG&A increased to 19.1% from 18.9%.
Amortization of intangibles increased to $6.0 million for the twelve months
ended December 31, 1995 from $5.2 million for the comparable period in 1994, an
increase of $0.8 million as a result of purchase accounting from the
Acquisition.
Operating income decreased to $16.6 million for the twelve months ended December
31, 1995 from $21.3 million for the comparable period in 1994, a decrease of
$4.7 million or 22.1%. Operating income decreased by $5.2 million as a result of
higher cost of goods sold, additional amortization and depreciation and stand
alone costs primarily as a result of the Acquisition. As a percentage of net
sales, operating income decreased to 12.9% for the twelve months ended December
31, 1995 from 17.7% for the comparable period in 1994. Operating income,
excluding the Acquisition related costs, increased $.5 million or 2.3% to $21.8
million for the twelve months ended December 31, 1995.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
The Company conducts a significant amount of business and has operating and
sales facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located, the stand-alone
nature of the operations, the Company's net asset exposure, forward foreign
exchange contract practices and pricing flexibility. Thus, while changes in
foreign currency values do affect earnings, the longer term economic effect of
these changes should not have a material adverse effect on the Company's
financial condition, results of operations or liquidity. Foreign currency gains
and losses, included in other income-net, were a $0.1 million loss in 1996, a
$0.3 million gain in 1995 and a $0.1 million gain in 1994.
Certain of the Company's international subsidiaries make purchases in foreign
currencies, mainly intercompany transactions. As a result, they are subject to
transaction exposures that arise from foreign exchange movements between the
date that the foreign currency transaction is recorded and the date it is
consummated. The Company has entered into forward foreign exchange contracts to
protect it against such foreign exchange movements. The contract value of these
foreign exchange contracts was $1,762,000 and $1,550,000 at December 31, 1996
and December 31, 1995, respectively. These contracts generally expire within
three to six months. These contracts are through internationally recognized
financial institutions with high credit ratings; however, the Company is exposed
to credit-related losses in the event of non-performance by counterparties to
the forward contracts.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated funds from its operations and its working
capital requirements have not exhibited seasonal fluctuations. Utilizing
converters to distribute the majority of its products, the Company is able to
maintain relatively minimal levels of working capital as the converters carry
large amounts of inventory and finance receivables. Under the Company's US
Credit Agreement which expires
18
<PAGE> 19
in 2002, the Company has a $30 million term loan at December 31, 1996 along with
a $47 million revolving line of credit, of which $18.5 million was outstanding
at December 31, 1996. Under the Company's UK Credit Agreement which also expires
in 2002, the Company has two term loans totaling $4.8 million at December 31,
1996 along with a $1.6 million revolving line of credit, none of which was
outstanding at December 31, 1996. In addition, in conjunction with the
Acquisition, the Company issued $100 million of Senior Subordinated Notes
("Notes") which become due in 2005. The Company believes it has adequate
financing from these facilities along with cash flows from operating activities
to support its operations.
Cash Flow From Operating Activities. Cash flows from operations for year ended
December 31, 1996 and the year ended December 31, 1995 were $18.1 million and
$15.3 million, respectively. Cash flows from operations in 1996 were unfavorably
impacted by a $0.2 million working capital increase and $7.5 million of
additional cash paid for interest. For the year ended December 31, 1995, cash
flows from operations were unfavorably impacted by a $0.8 million working
capital increase and $8.0 million of cash paid for interest partially offset by
increased depreciation and amortization of $5.2 million, as a result of the
Acquisition.
Cash Flows From Investing Activities. The Company's expenditures for plant,
property and equipment were $5.2 million in 1996 compared to $3.6 million in
1995 and 1994. The Company believes that historical capital spending levels are
sufficient to maintain its leading market position. The Company expects to fund
its annual capital expenditures of $4.0 million to $7.0 million over the next
several years from cash flow from operations. On December 31, 1996 the Company
acquired certain net assets of the David M Company, a division of Flint Ink
Corporation, for $11.3 million in cash which was funded out of the Company's
existing US Credit Agreement.
Cash Flows From Financing Activities. Concurrent with the Acquisition, the
Company entered into a US Credit Agreement with certain banks. The US Credit
Agreement has a maximum borrowing capacity of $77 million and is secured by the
assets of the Company and its domestic subsidiaries, as well as 65% of the stock
of each foreign subsidiary. As of December 31, 1996, the Company had
approximately $22.0 million of availability under the US Credit Agreement. The
Company does not have any scheduled repayment requirements until 1999. In 1996,
the Company entered into a UK Credit Agreement with a UK bank. The UK Credit
Agreement provides for two term loans totaling $4.8 million and a $1.6 million
line of credit. Scheduled repayments on the term loans are due in quarterly
payments of $201 with a final payment of $684 due in 2002. The entire $1.6
million line of credit was available at December 31, 1996. The Company believes
that it will generate sufficient cash flow from operations to meet debt service,
working capital and capital expenditure requirements, although no assurance can
be given that it will be able to do so.
ENVIRONMENTAL MATTERS
The Company will incur expenditures as a result of environmental laws and
regulations. The Company estimates that in 1997 it will spend approximately $1.0
million in capital expenditures for solvent recovery, wastewater treatment, air
monitoring and related projects to comply with environmental requirements.
Environmental requirements are becoming increasingly stringent, and therefore
the Company's expenditures for environmental compliance may increase in the
future.
19
<PAGE> 20
New rules to be promulgated under the 1990 amendments to the federal Clean Air
Act governing emissions of hazardous air pollutants may require implementation
of additional air emission control measures at the Company's Three Rivers,
Michigan and Asheville, North Carolina facilities. Because the applicable
requirements are not scheduled to be promulgated until 2000, it is difficult to
estimate the costs of any additional controls that might be required with any
certainty. The Company currently believes that the total capital expenditures to
install additional control equipment at these facilities are not likely to
exceed $2 million and would be incurred between 2001 and 2003.
Solvent air emissions at the Company's Dundee, Scotland facility currently
exceed U.K. limits, and the Company will be required to initiate a plan for air
controls in 1997 to comply with additional air emission requirements promulgated
by the European Community. The Company believes that capital expenditures for
such control equipment will be between $0.6 million and $0.7 million.
On July 25, 1988, the Michigan Department of Natural Resources ("MDNR") and the
Company's former parent, entered into a consent decree with respect to certain
conditions of groundwater contamination at and emanating from the Company's
Three Rivers, Michigan facility. The Company is not a party to the consent
decree. The contamination is believed to be the result of leaks from underground
tanks at the facility that were removed in 1984. Pursuant to the consent decree,
the Company's former parent installed a groundwater extraction and treatment
system at the facility in 1989. The consent order requires that the Company's
former parent continue to operate the system until certain cleanup levels have
been achieved; such cleanup is currently expected to take seven to ten more
years, at a cost of approximately $0.1 million per year. MDNR has recently
raised certain concerns regarding the effectiveness of the system. As a result,
the Company's former parent may have to make modifications to the system or take
further action to identify and address sources of the contamination in onsite
soils. As of December 31, 1996, the Company has recorded accruals of
approximately $1.1 million to reflect future costs associated with this clean-up
and, based on the reports of its independent consultant, the Company believes
that such accruals are adequate. The Company has been indemnified with respect
to these costs and expects to receive reimbursement after amounts are expended.
If however, the Company's former parent fails to fulfill its indemnification
obligations, the Company may be deemed liable for these costs and the costs
could be material. This risk is mitigated in part, because substantial capital
costs have already been expended to install the groundwater extraction and
treatment system.
Like many manufacturers, the Company's facilities generate wastes that contain
hazardous substances. As a result of the disposal of such wastes prior to the
Acquisition, the Company's former parent was named a "potentially responsible
party" pursuant to CERCLA and/or similar state laws at the following waste
disposal sites: the Seaboard Chemical Corporation Site, North Carolina; the
Wayne Reclamation Site, Indiana; the Liquid Disposal, Inc. Site, Michigan; and
the Thermo Chem Site, Michigan. Similarly, the Company was named a PRP at the
Verona Well Field Site, Michigan. The Company's former parent or the Company
entered into consent decrees that settled its liability at these sites, subject
to standard reopener provisions as are found in consent decrees under CERCLA.
The Company expects that no expenditures will be made by the Company with
respect to these matters. The Company's former parent have agreed to retain
ongoing responsibility for and indemnify the Company with respect to these waste
disposal locations. Claims under this offsite disposal indemnity are not subject
to time or dollar limitations. Because the liability scheme under CERCLA is
retroactive, the Company may receive notices of potential CBRCLA liability in
the future, and such liability could be material.
20
<PAGE> 21
Subject to certain limitations, the Company's former parent and its parent have
agreed to indemnify the Company for certain other environmental compliance and
liability issues associated with the Company's business. These matters include
certain exceedances of sewer discharge permit limits at the Asheville, North
Carolina facility, certain remedial actions previously completed by Day
International, Inc. at the Asheville, North Carolina facility, and liabilities
associated with an underground toluene tank at the Lerma, Mexico facility which
has been removed and disposed of. There can be no assurances the Company's
former parent or its parent will have the ability to indemnify the Company for
all the environmental conditions for which they have retained responsibility
when requested by the Company. If the Company's former parent or its parent are
unable to honor their indemnification obligations, the Company would likely be
responsible for such matters and the cost of addressing such matters could be
material. The Company does not maintain insurance coverage for environmental
matters.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DAY INTERNATIONAL GROUP, INC.
Year ended December 31, 1996 and the
period from June 7, 1995 through December 31, 1995:
Independent Auditors' Report 22
Consolidated Balance Sheets 23-24
Consolidated Statements of Operations 25
Consolidated Statements of Stockholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28-43
DAY INTERNATIONAL, INC.
Period from January 1, 1995 through June 6, 1995:
Independent Auditors' Report 44
Consolidated Balance Sheet 45-46
Consolidated Statement of Income 47
Consolidated Statement of Cash Flows 48
Notes to Consolidated Financial Statements 49-58
Year ended December 31, 1994:
Report of Independent Accountants 59
Consolidated Statement of Income 60
Consolidated Statement of Cash Flows 61
Notes to Consolidated Financial Statements 62-68
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Day International Group, Inc.
We have audited the accompanying consolidated balance sheets of Day
International Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1996 and the period from June 7, 1995
(date of acquisition) through December 31, 1995. Our audit also included the
financial statement schedule listed in the Index at Item 14(a)2 for the year
ended December 31, 1996 and the period ended December 31, 1995. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Day International Group, Inc. at
December 31, 1996 and 1995, and the results of their operations and their cash
flows for the year ended December 31, 1996 and the period from June 7, 1995
through December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
February 21, 1997
Dayton, Ohio
22
<PAGE> 23
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,433 $ 3,769
Accounts receivable:
Trade (less allowance for doubtful accounts of $982 and $1,248) 16,788 15,054
Other 383 553
Inventories (Note C) 16,355 15,237
Prepaid expenses and other current assets 3,630 866
Deferred tax assets (Note E) 3,389 1,975
----- -----
Total current assets 45,978 37,454
PROPERTY, PLANT AND EQUIPMENT (Note A):
Land 2,025 2,327
Buildings 10,183 13,953
Machinery and equipment 34,692 27,718
Construction in progress 5,098 2,420
----- -----
51,998 46,418
Less accumulated depreciation (6,709) (1,922)
------ ------
45,289 44,496
OTHER ASSETS:
Goodwill and other intangible assets (Note B) 145,018 145,446
Note receivable (Note K) 1,155 1,079
Other assets 446 348
--- ---
146,619 146,873
------- -------
TOTAL ASSETS $ 237,886 $ 228,823
========= =========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,453 $ 5,882
Accrued associate related costs 7,929 6,996
Other accrued expenses 6,075 4,118
Interest payable 1,068 1,212
Current maturities of long-term debt (Note D) 803
--- -----
Total current liabilities 23,328 18,208
LONG-TERM AND SUBORDINATED LONG-TERM DEBT (Note D) 152,116 151,250
DEFERRED TAX LIABILITIES (Note E) 3,513 2,202
OTHER LONG-TERM LIABILITIES (Notes J and K) 6,195 7,302
COMMITMENTS AND CONTINGENCIES (Note K)
----- -----
Total liabilities 185,152 178,962
STOCKHOLDERS' EQUITY (Note H):
Preferred Shares, $.0 1 per share par value, 10,000 shares authorized,
none outstanding
Common Shares, $.0l per share par value, 100,000 shares authorized,
51,555 shares - 1996 and 51,600 shares - 1995 issued and outstanding 1 1
Additional paid-in-capital 51,531 51,599
Retained earnings (Accumulated deficit) 1,780 (1,227)
Foreign currency translation adjustment (578) (512)
---- ----
Total stockholders' equity 52,734 49,861
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 237,886 $ 228,823
========= =========
</TABLE>
24
<PAGE> 25
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM
JUNE 7,1995 THROUGH DECEMBER 31,1995 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NET SALES $ 136,814 $ 73,103
COST OF GOODS SOLD (including inventory fair value
adjustments of $2,287 in 1995) 84,602 47,503
--------- ---------
GROSS PROFIT 52,212 25,600
SELLING, GENERAL AND ADMINISTRATIVE 23,657 12,885
AMORTIZATION OF INTANGIBLES 6,474 3,688
MANAGEMENT FEES (Note G) 920 455
--------- ---------
OPERATING PROFIT 21,161 8,572
OTHER EXPENSES:
Interest Expense (including amortization of deferred
financing costs of$1,000 in 1996 and $567 in 1995) 16,373 9,697
Other (income) expense - net (Note D) (219) 952
--------- ---------
16,154 10,649
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 5,007 (2,077)
INCOME TAXES (BENEFIT) (Note E) 2,000 (850)
--------- ---------
NET INCOME (LOSS) $ 3,007 $ (1,227)
========= =========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND PERIOD FROM
JUNE 7,1995 THROUGH DECEMBER 31,1995 (DOLLAR AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained Foreign
Common Shares Additional Earnings/ Currency
------------------- Paid-In (Accumulated Translation
Shares Amount Capital Deficit) Adjustment
<S> <C> <C> <C> <C>
Sale of common shares 51,600 $ 1 $51,599 $ $
Net loss (1,227)
Foreign currency translation
adjustment (512)
------ ------- ------- ------- -------
December 31, 1995 51,600 1 51,599 (1,227) (512)
Sale of common shares 73 73
Purchase of common shares (118) (141)
Net income 3,007
Foreign currency translation
adjustment (66)
------ ------- ------- ------- -------
December 31, 1996 51,555 $ 1 $51,531 $ 1,780 $ (578)
====== ======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM
JUNE 7, 1995 THROUGH DECEMBER 31, 1995 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 3,007 $ (1,227)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 4,384 2,415
Amortization of goodwill and intangibles 10,724 8,310
Deferred income taxes 146 (1,247)
Change in assets and liabilities, net of effect of David M acquisition:
Accounts receivable (125) 280
Inventories 909 1,512
Prepaid expenses and other current assets 236 472
Accounts payable and other accrued expenses (1,218) 4,400
--------- ---------
Net cash provided by operating activities 18,063 14,915
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for Day International, Inc., net of cash acquired (203,993)
Cash paid for net assets of David M (11,285)
Capital expenditures (5,221) (2,082)
Other (1,107)
--------- ---------
Net cash used in investing activities (17,613) (206,075)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common shares 73 51,600
Purchase of common shares (141)
Proceeds from term loan 30,000
Net proceeds from revolving credit facility 1,241 21,250
Issuance of senior subordinated notes 100,000
Payment of financing costs (7,802)
--------- ---------
Net cash provided by financing activities 1,173 195,048
EFFECT OF EXCHANGE RATE CHANGES ON CASH 41 (119)
--------- ---------
CASH AND CASH EQUIVALENTS:
Net increase in cash and cash equivalents 1,664 3,769
Cash and cash equivalents at beginning of period 3,769
--------- ---------
Cash and cash equivalents at end of period $ 5,433 $ 3,769
========= =========
CASH PAID FOR:
Income Taxes $ 1,620 $ 892
========= =========
Interest $ 15,517 $ 7,963
========= =========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 28
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31,1996 AND PERIOD FROM JUNE 7, 1995
THROUGH DECEMBER 31, 1995 (DOLLAR AMOUNTS IN THOUSANDS)
- -------------------------------------------------------------------------------
A. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Day International Group, Inc. and subsidiaries ("Day" or "the Company") is a
designer and manufacturer of precision engineered rubber components for the
printing and textile industries. Day's printing components business is a
designer, manufacturer and marketer of high-quality printing blankets used
in the offset printing industry. Day's textile components business is a
manufacturer and marketer of precision engineered rubber cots and aprons
sold to textile yarn spinners and other engineered rubber products sold to
diverse markets. Sales are made through Day's organization, distributors and
representatives.
In connection with the Stock Purchase Agreement dated April 11, 1995, as
amended, among Day International Group, Inc., M.A. Hanna Company, and
Cadillac Plastics Group, Inc., the Share Purchase Agreement dated April 11,
1995, as amended, among Day International Group, Inc. and Cadillac Plastics
Limited, and an Asset Purchase Agreement dated April 11, 1995, as amended,
among Day International Group, Inc. and Day International (Canada) Limited
(collectively, the "Acquisition Agreement") Day acquired the stock or net
assets, as appropriate, from M.A. Manna and its subsidiaries, related to the
precision engineered rubber components business, effective June 6, 1995 for
$211.8 million in cash (net of cash acquired of $2.5 million). The
acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No.16. The purchase price has been
allocated to the net assets acquired based on their fair market values as
follows:
<TABLE>
<S> <C>
Current assets $ 36,685
Property, plant and equipment 44,990
Other assets 1,624
Goodwill and other intangible assets 151,469
Current liabilities (16,128)
Postretirement benefits and other long-term liabilities (6,845)
---------
Total Purchase Price $ 211,795
=========
</TABLE>
The preliminary purchase price allocation for property, plant and equipment
at December 31, 1995 was reduced in 1996 by approximately $6.6 million when
the final appraisals on the domestic land and buildings were completed.
On December 31, 1996, the Company acquired certain net assets of the
David M division of Flint Ink Corporation for $11.3 million in cash. The
acquisition has been accounted for as a purchase in accordance with
Accounting Principles Board Opinion No.16. Pro form a results of operations
have not been presented because the results of this acquisition were not
significant.
28
<PAGE> 29
B. SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLE OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its domestic and foreign subsidiaries. All
significant intercompany transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all highly
liquid investments with an original purchased maturity of three months or
less.
INVENTORIES are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation is computed using the straight-line method over their
estimated useful lives. Buildings are depreciated over 25 years and
machinery and equipment are depreciated between 5 and 10 years.
LONG-LIVED ASSETS - In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.121, 'Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets and certain intangibles
be reviewed for impairment whenever events or circumstances indicate that
the carrying value of an asset may not be recoverable. This statement also
requires that long-lived assets and certain intangible assets to be disposed
of be reported at the lower of their carrying amount or fair value less
costs to sell. The adoption of this statement had no impact on the financial
statements of the Company.
GOODWILL AND OTHER INTANGIBLES - Goodwill represents the excess of cost over
the fair value of the net assets acquired and is being amortized on the
straight line basis over 40 years. The Company assesses the recoverability
of goodwill and other intangibles by determining whether the amortization of
the respective balances over their remaining lives can be recovered through
projected undiscounted cash flows.
Deferred financing costs of $6,235 at December 31, 1996 (net of accumulated
amortization of$l,567) are being amortized using an effective interest rate
method over the lives of the related debt.
Goodwill and other intangibles are being amortized using the straight line
method, as follows:
<TABLE>
<CAPTION>
LIFE
<S> <C> <C>
Goodwill $ 104,380 40 years
Employment agreements 6,803 1.7 years
Deferred financing costs 7,802 5 to 7 years
Printing technology 27,946 11.5 years
Textile compound formulas 5,247 30 years
Unpatented technology 9,529 20 years
--------
Total intangibles 161,707
Less accumulated amortization (16,689)
---------
$ 145,018
=========
</TABLE>
29
<PAGE> 30
REVENUE RECOGNITION - Day recognizes revenue when the product is shipped.
Reserves for product returns, based upon historical experience, are also
recognized upon shipment.
FOREIGN CURRENCY TRANSLATION - The functional currency is the local currency
of Day's respective international subsidiaries. Accordingly, foreign
currency assets and liabilities are translated into U.S. dollars at the
period end exchange rates. Foreign currency revenues and expenses are
translated at the average exchange rates for the period. Translation gains
and losses are recorded in the accumulated translation adjustment account in
shareholders' equity. Transaction gains and losses are recorded in the
consolidated statement of operations for the period.
CONCENTRATION OF CREDIT RISK - A majority of Day's textile operations U.S.
sales are concentrated in the southeastern part of the U.S. Day's printing
and textile receivables are from a diverse group of customers in the
printing and textile industry and such receivables are generally unsecured.
Day maintains a reserve for potential losses.
Certain of Day's international subsidiaries make purchases in foreign
currencies. As a result, they are subject to transaction exposures that
arise from foreign exchange movements between the date that the foreign
currency transaction is recorded and the date it is consummated. Day has
entered into forward foreign exchange contracts to protect itself against
such foreign currency movements. The contract value, which approximates
market, of these foreign exchange contracts was $1,762 and $1,550 at
December 31, 1996 and 1995, respectively.
Day is exposed to credit-related losses in the event of nonperformance by
counterparties to the forward contracts. No counterparties are expected to
fail to meet their obligations given their credit ratings, therefore Day
does not obtain collateral for these instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of the Company's
long-term debt which consists of a variable rate Credit Agreement and
11 1/8% Senior Subordinated Debt approximates fair value. The carrying
amounts of all other current assets and liabilities as reported in the
consolidated balance sheets at December 31, 1996 and 1995, which qualify
as financial instruments, approximated fair value.
MANAGEMENT ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
C. INVENTORIES
Inventories as of December 31, 1996 and 1995 consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished Goods $ 9,118 $ 7,661
Work In Progress 4,115 4,732
Raw Materials 3,122 2,844
------- -------
$16,355 $15,237
======= =======
</TABLE>
30
<PAGE> 31
D. LONG-TERM AND SUBORDINATED LONG-TERM DEBT
Long-term and subordinated long-term debt as of December 31, 1996 and 1995
consists of:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
US Credit Agreement $ 48,500 $ 51,250
UK Credit Agreement 4,419
11-1/8% Senior Subordinated Notes 100,000 100,000
--------- --------
152,919 151,250
Less: Current maturities of long-term debt (803)
--------- --------
$ 152,116 $151,250
========= ========
</TABLE>
The US Credit Agreement consists of a $47,000 revolving line of credit and a
$30,000 term loan with a group of banks. The revolving line of credit
includes a $12,500 letter of credit subfacility ($6,474 of letters of credit
were outstanding at December 31, 1996) and a $2,000 swingline loan
subfacility. The maximum amounts available under the revolving line of
credit are reduced by $7,000 in June 1997, $10,000 in June 1998 and $10,000
in June 1999 adjusted by a factor of excess cash flows, as defined in the
Credit Agreement. At December 31, 1996, interest on $10,500 of the revolving
line of credit was based on the banks' base rate plus 1.00% (9.25% at
December 31, 1996) and interest on $8,000 of the revolving line of credit
was based on the LIBOR rate plus 2.25% (7.75% at December31, 1996). At
December 31, 1996, $22,026 was available under the Credit Agreement. The
Credit Agreement requires a commitment fee of 1/2% a year on the unused
portion of the revolving line of credit. The term loan is a seven year loan
with quarterly principle payments of $2,500 beginning September, 1999 with
the final installment due June 2002. Interest on the term loan is based on
the banks' base rate plus 1.50% (9.75% at December 31, 1996) or the LIBOR
rate plus 2.75% ( 8.37% at December 31, 1996). At December 31, 1996,
interest on the term loan was based on the LIBOR rate. Interest rates on
LIBOR borrowings are fixed for one, two, three or six month periods at the
Company's discretion. The weighted average interest rate on the Credit
Agreement for the year ended December 31, 1996 and 1995 was 8.46% and 8.86%,
respectively.
The 11-1/8% Senior Subordinated Notes are due June 1, 2005 with interest
payable semi-annually.
The US Credit Agreement and the Senior Subordinated Notes contain various
financial and other covenants which place limits on, among other things,
asset sales, dividends and distributions of the Company's or its
subsidiaries' capital stock, the purchase, redemption, acquisition of
capital stock of the Company or its affiliates or any subsidiaries, and the
incurrence of certain additional indebtedness. The Company's wholly-owned
subsidiary, Day International, Inc., has guaranteed the Credit Agreement and
the Senior Subordinated Notes and pledged all its assets, except its
investments in its foreign subsidiaries, as collateral on these agreements.
In 1996, the Company's UK subsidiary entered into credit facilities with a
UK bank that provides a $1,601 line of credit and two five year term loans
totaling $4,821. Interest on the line of credit is at the bank's base rate
plus 1% (7.00% at December 31, 1996) payable monthly. Principal payments on
the term loans are due in equal quarterly installments of $201 with a final
payment of $684 due in May 2002. Interest on the term loans is at either the
bank's base rate plus 1% (7.00% at December 31, 1996) or the LIBOR rate plus
1% (6.63% at December 31, 1996) payable monthly. At December 31, 1996,
$1,601 was available under the UK Credit Agreement. All borrowings are
secured by guarantees from the Company's US subsidiary
31
<PAGE> 32
and by letters of credit obtained under the overall Credit Agreement. The
credit facilities also contain certain financial covenants related to the UK
subsidiary.
In conjunction with the acquisition, the Company entered into an agreement
that would provide temporary financing in the event the Senior Subordinated
Notes were not in place by the closing date. This temporary financing was
ultimately not required. As a result, fees and related costs associated with
this temporary financing of $1,019 were charged to other expense in the
period June 7, 1995 through December 31, 1995.
E. INCOME TAXES
Significant components of deferred tax assets (liabilities) as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Domestic:
Current:
Accounts receivable reserves $ 489 $ 508
Inventory reserves 533 530
Other reserves 638 632
Net operating loss carryforward 1,284
AMT credit carryforward 200
------- -------
3,144 1,670
------- -------
Long-term:
Depreciation (1,477) (225)
Amortization (531) 38
Other postretirement benefits 250 76
------- -------
(1,758) (111)
------- -------
Total domestic deferred tax assets 1,386 1,559
------- -------
Foreign:
Current:
Inventories (177) (130)
Other 422 435
------- -------
245 305
Long-term:
Plant and equipment (1,873) (2,091)
Pension 118
------- -------
(1,755) (2,091)
------- -------
Total foreign deferred tax liabilities (1,510) (1,786)
------- -------
Net deferred tax liabilities $ (124) $ (227)
======= =======
</TABLE>
32
<PAGE> 33
Income tax expense (benefit) consists of the following for the year ended
December 31, 1996 and the period from June 7, 1995 through
December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current:
Domestic:
Federal $ $ 209
State and local 583 50
Foreign 1,251 138
------- -------
1,834 397
------- -------
Deferred:
Domestic:
Federal 324 (1,359)
State and local 48 (200)
Foreign (206) 312
------- -------
166 (1,247)
------- -------
$ 2,000 $ (850)
======= =======
</TABLE>
The foreign deferred tax expense primarily results from differences in
accounting for fixed assets and from the utilization of net operating loss
carryforwards.
The income tax expense (benefit) differs from the statutory rate for the
year ended December 31, 1996 and period June 7, 1995 through December 31,
1995 as a result of the following: 1996 1995
<TABLE>
<S> <C> <C>
Provision at the federal statutory rate $ 1,702 $ (707)
Foreign tax rate differential (169) (63)
State and local taxes, net of federal income tax effect 417 (99)
Non-deductible expenses 57 118
Other (7) (99)
------- -------
$ 2,000 $ (850)
======= =======
</TABLE>
Income (loss) before income taxes includes $ 3,571 and $1,510 of income from
international operations for the year ended December 31, 1996 and period
June 7, 1995 through December 31, 1995, respectively. Day has not provided
deferred taxes on the undistributed earnings of foreign subsidiaries because
the earnings are deemed permanently reinvested. US net operating loss
carryforwards of approximately $3,300 expire through 2011.
33
<PAGE> 34
F. BUSINESS OPERATIONS
Net sales and income (loss) before income taxes (benefit) for the year ended
December 31, 1996 and the period from June 7, 1995 through December 31, 1995
and identifiable assets as of December 31, 1996 and 1995 by geographic area
are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------
Income
(Loss)
Before
Income Identifiable
Net Sales Taxes Assets
--------- ----- ------
<S> <C> <C> <C>
Domestic $ 83,819 $ (3,461) $ 195,792
Europe 33,664 2,025 30,454
Other International 24,288 6,443 11,640
Interarea (4,957)
--------- --------- ---------
$ 136,814 $ 5,007 $ 237,886
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------
Income
(Loss)
Before
Income Identifiable
Net Sales Taxes Assets
--------- --------- ---------
<S> <C> <C> <C>
Domestic $ 46,537 $ (5,260) $ 186,024
Europe 18,289 478 30,415
Other International 11,231 2,705 12,384
Interarea (2,954)
--------- --------- ---------
$ 73,103 $ (2,077) $ 228,823
========= ========= =========
</TABLE>
Sales between geographic areas are generally priced to recover cost plus an
appropriate mark-up for profit.
G. RELATED PARTY TRANSACTIONS
In accordance with a management services agreement, the Company is required
to pay American Industrial Partners, an affiliate of the controlling
shareholders of Day, an annual management fee of $800 plus expenses, payable
semi-annually. The agreement expires in June, 2005 or if there is a change
in control of the Company.
34
<PAGE> 35
H. STOCKHOLDERS' EQUITY AND STOCK BASED COMPENSATION PLAN
The Company has a stock option plan permitting the grant of up to 3,730
options to purchase common shares to officers and key employees. The options
vest nine years from the grant date; however, vesting is accelerated if the
Company achieves certain performance objectives and expire ten years from
grant date. As of December 31, 1996, 2,605 options have been granted under
the plan with an exercise price of $1,000 a share, 2,530 options expire in
2005 and 75 options expire in 2006. The following table summarizes activity
in the Company's stock option plan:
<TABLE>
<CAPTION>
1996 1995
---- ----
Excercise Excercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at beginning of period 2,730 $ 1,000
Granted 75 $ 1,000 2,730 $ 1,000
Exercised (18) $ 1,000
Canceled (182) $ 1,000
------ ------- ------ -------
Outstanding at end of period 2,605 $ 1,000 2,730 $ 1,000
====== ======= ====== =======
Exercisable at end of period 862 283
====== ======
Weighted-average fair value of
options granted during the year
using the Black-Scholes options-
pricing model $ 662 $ 462
======= =======
Weighted-average assumptions used
for grants:
Expected dividend yield 0% 0%
Expected life of options 9 years 9 years
Risk-free interest rate 7% 7%
</TABLE>
The Company measures compensation cost for stock options issued to employees
using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees." In October 1995, the Financial Accounting Standards
Board issued SFAS No.123, "Accounting for Stock-Based Compensation," which
the Company was required to adopt in 1996. Pursuant to the new standard,
companies are encouraged, but not required, to adopt the fair value method
of accounting for stock options and similar equity instruments. Had
compensation costs been determined based on the fair value method of SFAS
No.123 the Company's net earnings would have been reduced by $214 in 1996
and $107 in 1995.
35
<PAGE> 36
I. RETIREMENT PLANS
The Company has non-contributory defined benefit plans covering certain
associates of its UK and German subsidiaries. Benefits under these plans are
based primarily on years of service and qualifying compensation during the
final years of employment. Plan assets include marketable equity securities.
The Company's funding policy complies with the requirements of local laws
and regulations.
Day also sponsors defined contribution plans for certain of its associates,
which provide for Company contributions of a specified percentage of each
associate's total compensation.
The funded status of the Company's defined benefit plans at December 31,
1996 and 1995 is as follows:
<TABLE>
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including
vested benefits of $9,347 and $8,332 $ 9,493 $ 8,472
======== ========
Projected benefit obligation $ 10,636 $ 9,365
Plan assets at fair value 10,652 8,994
-------- --------
Plan assets (in excess of) less than
projected benefits (16) 371
Unrecognized net actuarial gain (loss) 438 (19)
-------- --------
Accrued pension cost $ 422 $ 352
======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 7.5% and an assumed long-term rate of increase in compensation of
5%. The assumed long-term rate of return on plan assets is 8.5%.
A summary of the components of net periodic pension cost for the defined
benefit plans and for the defined contribution plans for the year ended
December 31, 1996 and the period from June 7, 1995 through December 31, 1995
is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Defined benefit plans:
Service cost $ 433 $ 256
Interest cost 701 381
Actual return on plan assets (1,006) (810)
Net amortization and deferral 265 418
------- -------
Net periodic pension cost 393 245
Defined contribution plans 1,247 690
------- -------
Total pension expense $ 1,640 $ 935
======= =======
</TABLE>
36
<PAGE> 37
J. OTHER POSTRETIREMENT BENEFITS
Day provides certain contributory health care and life insurance benefits
for certain U.S. associates. Those associates may become eligible for these
postretirement benefits if they retire on or after age 55 with at least ten
years of service.
The status of Day's plan at December 31, 1996 and 1995, which is unfunded,
is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 891 $ 785
Fully eligible active plan participants 87 101
Other active plan participants 2,756 2,431
------- -------
3,734 3,317
Unrecognized net loss (79) (125)
------- -------
Accrued postretirement benefit obligation $ 3,655 $ 3,192
======= =======
</TABLE>
Approximately $57 of accrued postretirement benefit obligation is included
in accrued associate related costs at December 31, 1996 and 1995,
respectively.
The weighted-average assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost rate trend) is assumed to be 10%
and decreasing gradually to 5.25% in 2006 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would have increased the accumulated benefit obligation by $766
at December 31, 1996 and the interest and service cost would have been $139
higher for the year ended December 31, 1996.
A discount rate of 7.5% was used in determining the accumulated obligation.
Net periodic postretirement benefit costs include the following components
for the year ended December 31, 1996 and the period from June 7, 1995
through December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Service cost $348 $206
Interest cost 263 136
---- ----
Net periodic postretirement benefit costs $611 $342
==== ====
</TABLE>
37
<PAGE> 38
K. LEASE COMMITMENTS AND CONTINGENCIES
The Company leases certain warehouses, transportation equipment and office
equipment under operating leases with terms of 1 to 10 years. Rental expense
for the year ended December 31, 1996 and the period from June 7, 1995
through December 31, 1995 was $811 and $412, respectively. At December 31,
1996, future minimum lease commitments for noncancelable operating leases
are:
<TABLE>
<S> <C>
1997 $ 647
1998 350
1999 52
2000 11
2001 9
Thereafter 9
------
Total $1,078
======
</TABLE>
There are currently no environmental claims against the Company for the
costs of environmental remediation measures taken or to be taken. The
Company is operating under a consent decree related to its Michigan
manufacturing facility for environmental matters which occurred prior to the
acquisition. Independent environmental consultants have assessed the
environmental matters. Based on this assessment and management's best
estimates of the liability associated with these matters, reserves for such
liabilities have been established and no insurance recoveries have been
anticipated in determining the reserves. The Company's previous parent and
its parent, M.A Hanna, have agreed to indemnify the Company for certain
costs associated with these matters. At December 31, 1996, a $1,079
indemnification receivable is recorded. Management believes that this
receivable is fully realizable. In management's opinion, the aforementioned
claims will be resolved without material adverse effect on the operations,
financial position or cash flows of the Company.
L. SUPPLEMENTAL CONSOLIDATING INFORMATION
As described in Note A, in April 1995, the Company purchased Day from M.A.
Hanna. The acquisition was financed through equity, term and revolving
credit facilities and senior subordinated debt (the "Notes"). In connection
with the Acquisition, Day International, Inc. ("Day International" or
"Guarantor") became a wholly-owned subsidiary of the Company (which has no
assets or operations other than its investment in Day international) and
provided a full and unconditional guarantee of the Notes. The wholly-owned
foreign subsidiaries of Day International are not guarantors with respect to
the Notes and are not anticipated to have any credit arrangements senior to
the Notes except for the UK Credit Agreement of the UK subsidiary as
described in Note D. All of the assets of Day International and its parent,
other than the assets of the wholly- owned foreign non guarantor
subsidiaries, are pledged as collateral on the Notes. The only intercompany
elimination's are the normal intercompany eliminations with regard to
intercompany sales and the Company's investment in the wholly owned non
guarantor subsidiaries. In 1996, intercompany notes were put in place
through a dividend which effectively transfers the interest expense from Day
International Group, Inc. to Day International, Inc. The following are the
supplemental combined condensed balance sheets as of December 31, 1996 and
1995, the supplemental combined condensed statements of operations and cash
flows for the year ended December 31, 1996 and the period from June 7, 1995
through December 31, 1995 with the investments in the subsidiaries accounted
for using the equity method. Separate complete financial statements of the
Guarantor are not presented because management has determined that they are
not material to the investors.
38
<PAGE> 39
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
December 31,1996
<TABLE>
<CAPTION>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash & cash equivalents $ 2,757 $ (726) $ 3,402 $ 5,433
Accounts receivable- net 9,139 8,032 17,171
Inventories 10,780 5,575 16,355
Other assets 6,118 901 7,019
------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,757 25,311 17,910 - 45,978
Intercompany 148,500 583 $(149,083) -
Property, plant and equipment - net 36,112 9,177 45,289
Investment in subsidiaries 62,410 19,218 (81,628) -
Intangible and other assets 141,320 5,299 146,619
------------------------------------------------------------------
TOTAL ASSETS $ 213,667 $ 222,544 $ 32,386 $(230,711) $ 237,886
==================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 4,878 $ 2,919 $ (344) $ 7,453
Current maturities of long-term debt 803 803
Accrued associate related costs
and other expenses $ 1,068 10,703 3,301 15,072
------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,068 15,581 7,023 (344) 23,328
Intercompany 10,787 137,536 415 (148,738) -
Long-term and
subordinated long-term debt 148,500 3,616 152,116
Long-term post retirement
benefits and other 6,921 2,787 9,708
Total stockholders' equity 53,312 62,506 18,545 (81,629) 52,734
------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 213,667 $ 222,544 $ 32,386 $(230,711) $ 237,886
==================================================================
</TABLE>
39
<PAGE> 40
Day International Group, Inc.
Supplemental Combining Condensed Balance Sheet
December 31,1995
<TABLE>
<CAPTION>
DAY DAY
International International Non Guarantor
Group, Inc. Inc. (Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash & cash equivalents $ 403 $ 87 $ 3,279 $ 3,769
Accounts receivable - net 7,651 7,956 15,607
Inventories 9,473 5,764 15,237
Other assets 20 1,761 1,060 2,841
------------------------------------------------------------------
TOTAL CURRENT ASSETS 423 18.972 18,059 - 37,454
Intercompany 7,697 $ (7,697) -
Property, plant and equipment - net 35,510 8,986 44,496
Investment in subsidiaries 210,684 17,193 (227,877) -
Intangible and other assets 140,143 6,730 146,873
------------------------------------------------------------------
TOTAL ASSETS $ 211,107 $ 219,515 $ 33,775 $ (235,574) $ 228,823
==================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Accounts payable $ 77 $ 3,204 $ 2,702 $ (101) $ 5,882
Accrued associate related costs
and other expenses 1,354 7,198 3,774 12,326
------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,431 10,402 6,476 (101) 18,208
Intercompany 8,053 (8,064) 7,607 (7,596) -
Long-term and
subordinated long-term debt 151,250 151,250
Long-term post retirement
benefits and other 6,493 3,011 9,504
Total stockholders' equity 50,373 210,684 16,681 (227,877) 49,861
------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 211,107 $ 219,515 $ 33,775 $ (235,574) $ 228,823
==================================================================
</TABLE>
40
<PAGE> 41
Day International Group, Inc.
Supplemental Combining Condensed Statement of Operations
Year ended December 31,1996
<TABLE>
<CAPTION>
DAY DAY
International, International, Non Guarantor
Group, Inc. Inc.(Guarantor) Subsidiaries Eliminations Consolidated
----------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 101,284 $ 35,530 $ - $ 136,814
Cost of goods sold 60,838 23,764 84,602
------------------------------------------------------------------
Gross profit 40,446 11,766 - 52,212
Selling, general and administrative 36 15,904 7,717 23,657
Amortization of intangibles 6,291 183 6,474
Management fees 920 920
------------------------------------------------------------------
Operating income (36) 17,331 3,866 - 21,161
Other expenses (income):
Equity in earnings of subsidiaries (2,976) (2,526) 5,502 -
Interest expense - 16,078 295 16,373
Other (income) expense (87) (132) (219)
------------------------------------------------------------------
Income before income taxes 3,027 3,911 3,571 (5,502) 5,007
Income taxes 20 935 1,045 2,000
------------------------------------------------------------------
Net Income $ 3,007 $ 2,976 $ 2,526 $ (5,502) $ 3,007
==================================================================
</TABLE>
Day International Group, Inc.
Supplemental Combining Condensed Statement of Operations
Period from June 7,1995 through December 31,1995
<TABLE>
<CAPTION>
DAY DAY
International, International, Non Guarantor
Group, Inc. Inc.(Guarantor) Subsidiaries Eliminations Consolidated
----------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 51,974 $ 21,129 $ - $ 73,103
Cost of goods sold 33,357 14,146 47,503
------------------------------------------------------------------
Gross profit - 18,617 6,983 - 25,600
Selling, general and administrative 100 7,799 4,986 12,885
Amortization of intangibles 3,634 54 3,688
Management fees 455 455
------------------------------------------------------------------
Operating income (100) 6,729 1,943 - 8,572
Other expenses (income):
Equity in earnings of subsidiaries (4,267) (1,133) 5,400 -
Interest expense 9,130 567 9,697
Other (income) expense (223) 815 360 952
------------------------------------------------------------------
Income (loss) before income
taxes (benefit) (4,740) 6,480 1,583 (5,400) (2,077)
Income taxes (benefit) (3,513) 2,213 450 (850)
------------------------------------------------------------------
Net Income (Loss) $ (1,227) $ 4,267 $ 1,133 $ (5,400) $ (1,227)
==================================================================
</TABLE>
41
<PAGE> 42
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
Year ended December 31, 1996
<TABLE>
<CAPTION> DAY DAY
International International, Non Guarantor
Group, Inc. Inc.(Guarantor) Subsidiaries Eliminations Consolidated
----------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income $ 3,007 $ 2,976 $ 2,526 $ (5,502) $ 3,007
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 13,589 1,519 15,108
Equity in earnings of subsidiaries (2,976) (2,526) 5,502 -
Deferred income taxes and other 88 (456) 514 146
Change in operating assets
and liabilities (343) 696 (57) (494) (198)
------------------------------------------------------------------
Net cash provided by (used in)
operating activities (312) 14,823 3,532 20 18,063
Investing activities:
Cash paid for David M (11,285) (11,285)
Capital expenditures (3,968) (1,253) (5,221)
Other (2,665) 921 637 (1,107)
------------------------------------------------------------------
Net cash used in investing activities - (17,918) (332) 637 (17,613)
Financing Activities:
Sale of common shares 73 73
Purchase of common shares (141) (141)
Net proceeds from revolving credit
facility (2,750) 3,991 - 1,241
------------------------------------------------------------------
Net cash provided by (used in)
financing activities (2,818) - 3,991 - 1,173
Intercompany transfers and dividends 5,484 2,282 (7,109) (657) -
Effects of exchange rates on cash 41 41
------------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash
and cash equivalents 2,354 (813) 123 - 1,664
Cash and cash equivalents at
beginning of period 403 87 3,279 3,769
------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 2,757 $ (726) $ 3,402 $ - $ 5,433
==================================================================
</TABLE>
42
<PAGE> 43
Day International Group, Inc.
Supplemental Combining Condensed Statement of Cash Flows
Period from June 7, 1995 through December 31, 1995
<TABLE>
<CAPTION>
DAY DAY
International International, Non Guarantor
Group, Inc. Inc.(Guarantor) Subsidiaries Eliminations Consolidated
------------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (1,227) $ 4,267 $ 1,133 $ (5,400) $ (1,227)
Adjustments to reconcile net
income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amortization 9,828 897 10,725
Equity in earnings of subsidiaries (4,267) (1,133) 5,400 -
Deferred income taxes and other (3,514) 2,580 (313) (1,247)
Change in operating assets
and liabilities 1,411 2,804 1,346 1,103 6,664
------------------------------------------------------------------
Net cash provided by (used in)
operating activities (7,597) 18,346 3,063 1,103 14,915
Investing activities:
Cash paid for Day International, Inc. (203,564) (429) (203,993)
Capital expenditures (1,018) (1,064) (2,082)
------------------------------------------------------------------
Net cash used in investing
activities (203,564) (1,018) (1,493) - (206,075)
Financing Activities:
Sale of common shares 51,600 51,600
Proceeds from term loan 30,000 30,000
Net proceeds from revolving credit
facility 21,250 21,250
Issuance of senior subordinated notes 100,000 100,000
Payment of financing costs (7,802) (7,802)
------------------------------------------------------------------
Net cash provided by financing
activities 195,048 - - - 195,048
Intercompany transfers 16,516 (17,241) 1,828 (1,103) -
Effects of exchange rates on cash (119) (119)
------------------------------------------------------------------
Cash and Cash Equivalents:
Net increase in cash and
cash equivalents 403 87 3,279 - 3,769
------------------------------------------------------------------
Cash and cash equivalents at
end of period $ 403 $ 87 $ 3,279 $ - $ 3,769
==================================================================
</TABLE>
43
<PAGE> 44
INDEPENDENT AUDITORS' REPORT
Board of Directors
Day International, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of Day
International, Inc. (a wholly-owned subsidiary of M.A. Hanna Company) and
subsidiaries ("Day") as of June 6, 1995, and the related consolidated statements
of income and cash flows for the period January 1, 1995, through June 6, 1995.
Our audit also included the financial statement schedule listed in the Index at
Item 14(a)2 for the period ended June 6, 1995. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Day at June 6, 1995, and the
results of their operations and their cash flows for the period January 1, 1995,
through June 6, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
August 17, 1995
Dayton, Ohio
44
<PAGE> 45
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 6, 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,894
Accounts receivable:
Trade (less allowance for doubtful accounts of $1,270) 15,658
Other 630
Inventories:
Finished goods 8,690
Work in process 4,511
Raw materials and supplies 3,822
Notes receivable from and advances to affiliates (Note E) 6,619
Prepaid expenses and other current assets 807
Deferred income taxes (Note C) 2,239
--------
Total current assets 47,870
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land 720
Buildings 10,976
Machinery and equipment 37,686
Construction in progress 2,095
--------
51,477
Less accumulated depreciation 26,800
--------
24,677
OTHER ASSETS:
Goodwill and other intangibles (Note B) 66,661
Other 329
--------
66,990
--------
$139,537
========
</TABLE>
See notes to consolidated financial statements.
45
<PAGE> 46
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES:
Accounts payable $ 6,438
Accrued associate related costs 5,877
Other accrued expenses 2,712
--------
Total current liabilities 15,027
Commitments and contingent liabilities (Notes I and J)
OTHER LIABILITIES:
Other postretirement benefits (Note H) 3,585
Deferred income taxes (Note C) 4,191
Other 1,954
--------
Total other liabilities 9,730
STOCKHOLDER'S EQUITY (Notes E and F):
Equity 117,873
Accumulated translation adjustment (3,093)
--------
114,780
--------
$139,537
========
</TABLE>
46
<PAGE> 47
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET SALES $55,454
COSTS AND EXPENSES:
Cost of goods sold 33,935
Selling, general and administrative 11,257
Amortization of intangibles 2,258
Other income - net (Note K) (577)
-------
46,873
-------
INCOME BEFORE INCOME TAXES 8,581
INCOME TAXES (Note C) 3,488
-------
NET INCOME $ 5,093
=======
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 48
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995 (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,378
Deferred income taxes (1,613)
Changes in assets and liabilities:
Receivables (915)
Inventories (2,212)
Prepaid expenses and other current assets (697)
Accounts payable, accruals and other (3,615)
-------
Net cash provided by operating activities 419
CASH FLOWS USED IN INVESTING ACTIVITIES -
Capital expenditures (1,565)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes receivable and advances 6,015
Net change in equity (5,483)
-------
Net cash provided by financing activities 532
EFFECT OF EXCHANGE RATE CHANGES ON CASH 31
-------
CASH AND CASH EQUIVALENTS:
Decrease (583)
Beginning of year 5,477
-------
End of year $ 4,894
=======
CASH PAID DURING THE YEAR -
Income taxes $ 377
=======
</TABLE>
See notes to consolidated financial statements.
48
<PAGE> 49
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
PERIOD JANUARY 1, 1995 THROUGH JUNE 6,1995
- --------------------------------------------------------------------------------
A. NATURE OF OPERATIONS AND BASIS OF PREPARATION
Day International, Inc. and subsidiaries ("Day") is a designer and
manufacturer of precision engineered rubber components for the printing and
textile industries. Day's printing components business is a designer,
manufacturer and marketer of high-quality printing blankets used in the
offset printing industry. Day's textile components business is a manufacturer
and marketer of precision engineered rubber cots and aprons sold to textile
yarn spinners and other engineered rubber products sold to diverse markets.
Sales are made through Day's organization, distributors and representatives.
The consolidated financial statements of Day have been prepared in connection
with the Stock Purchase Agreement dated April 11, 1995, as amended, among Day
International Group, Inc., M.A. Hanna Company, and Cadillac Plastics Group,
Inc., the Share Purchase Agreement dated April 11, 1995, as amended, between
Day International Group, Inc. and Cadillac Plastics Limited, and an Asset
Purchase Agreement dated April 11, 1995, as amended, between Day
International Group, Inc. and Day International (Canada) Limited
(collectively, the "Acquisition Agreement"). Pursuant to the terms of such
agreement, M.A. Hanna Company has the right to propose adjustments to the
final purchase price. Any adjustments proposed which are not resolved by Day
International Group, Inc. and M.A. Hanna Company are to be resolved by the
final, conclusive and binding determination of a third party.
The consolidated financial statements of Day include the accounts of Day's
U.S. operations; Day International (U.K.) Limited; Day International France,
S.A.R.L.; Day International GmbH; Day International de Mexico, S.A. de C.V.;
Day International Pty. Limited, and the printing and textile division of Day
International (Canada) Limited.
B. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include all highly
liquid investments with an original purchased maturity of three months or
less.
INVENTORIES are stated at the lower of cost or market, cost being determined
on the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT - Depreciation is computed principally by the
straight-line method at rates sufficient to depreciate the cost of the assets
over their estimated productive lives. Buildings and machinery and equipment
are depreciated over 25 years and between 5 and 10 years, respectively.
49
<PAGE> 50
GOODWILL AND OTHER INTANGIBLES - Goodwill and other intangibles are being
amortized using the straight-line method over 40 years for goodwill and
trademarks and 9 years for patents. Accumulated amortization was $40,741,000.
The carrying value of goodwill and other intangibles is evaluated if
circumstances indicate a possible impairment in value. If undiscounted cash
flows over the remaining amortization period indicate that goodwill and other
intangibles may not be recoverable, the carrying value of goodwill and other
intangibles will be reduced by the estimated shortfall of cash flows on a
discounted basis.
INCOME TAXES - The tax provision for Day has been determined on a separate
return basis. All income taxes paid and currently payable by Hanna on Day's
behalf will be settled through the equity account of Day. Day recognizes
taxes on differences between the financial reporting and tax basis of assets
and liabilities using presently enacted tax rates and laws and provides for a
valuation allowance on deferred assets, if required.
FOREIGN CURRENCY TRANSLATION - The functional currency is the local currency
of Day's respective international subsidiaries. Accordingly, foreign currency
assets and liabilities are translated into U.S. dollars at the period-end
exchange rate. Foreign currency revenues and expenses are translated at the
average exchange rate for the period. Equity is translated at historical
rates. Foreign currency translation gains and losses are recorded in the
accumulated translation adjustment account in equity.
CONCENTRATION OF CREDIT RISK - Approximately 85% of Day's textile operations
U.S. sales were concentrated in the southeastern part of the U.S. Day's
printing and textile receivables were from a diverse group of customers in
the printing and textile industry and such receivables are generally
unsecured. Day maintains an allowance for potential losses.
Certain of Day's international subsidiaries make purchases in foreign
currencies. As a result, they are subject to transaction exposure that arises
from foreign exchange movements between the date that the foreign currency
transaction is recorded and the date it is consummated. Day has entered into
forward foreign exchange contracts to protect itself against such foreign
exchange movements. The contract value of these foreign exchange contracts is
$1,479,000 at June 6, 1995.
Day is exposed to credit-related losses in the event of nonperformance by
counterparties to the forward contracts. Day usually does not obtain
collateral for these instruments.
REVENUE RECOGNITION - Day recognizes revenue and reserves for product
returns, based on historical experience, when product is shipped.
CONSOLIDATION - All significant intercompany transactions have been
eliminated in consolidation.
50
<PAGE> 51
C. INCOME TAXES
Significant components of Day's deferred tax assets (liabilities) as of June
6, 1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Basis differences from purchase accounting $(3,846)
Tax over book depreciation (1,873)
-------
Gross deferred tax liabilities (5,719)
Receivable reserves 495
Inventory reserves 471
Accrued insurance 211
Other postretirement benefits 1,421
Other reserves and accruals 1,062
Operating loss carryforwards 177
-------
Gross deferred tax assets 3,837
Deferred tax assets valuation allowance (70)
-------
Net deferred tax liabilities $(1,952)
=======
</TABLE>
For financial reporting purposes, a valuation allowance was recorded to
offset the deferred tax asset of $70,000 related to operating loss
carryforwards in Italy, which expire between 1995 and 1998. During the period
January 1, 1995 through June 6, 1995, the valuation allowance was decreased
by $7,000 due to utilization of this operating loss carryforward.
The provision for income taxes consists of the following for the period
January 1, 1995 through June 6, 1995.
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Current:
Federal $ 3,664
State 600
Foreign 788
-------
5,052
Deferred:
Federal (1,139)
State (75)
Foreign (350)
-------
(1,564)
-------
$ 3,488
=======
</TABLE>
51
<PAGE> 52
The provision for income taxes differs from the amount computed by applying
U.S. statutory federal income tax rate for the period January 1, 1995 through
June 6, 1995, are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Provision at statutory tax rate $ 2,396
State income taxes 341
Foreign 438
Goodwill amortization 325
Other - net (12)
-------
$ 3,488
=======
</TABLE>
Income before income taxes includes $1,730,000 for the period January 1, 1995
through June 6, 1995 from international operations. Day has not provided
deferred taxes on undistributed earnings of foreign subsidiaries because the
earnings are deemed permanently reinvested, and the determination of
liability is not practicable.
D. BUSINESS OPERATIONS
Net sales and income before income taxes for the period January 1, 1995
through June 6, 1995 and identifiable assets as of June 6, 1995 by geographic
area are as follows (in thousands):
<TABLE>
<CAPTION>
INCOME
BEFORE
INCOME IDENTIFIABLE
1995 NET SALES TAXES ASSETS
<S> <C> <C> <C>
Domestic $ 33,316 $ 6,052 $ 88,763
Europe 15,808 646 24,465
Other international 8,873 1,883 26,309
Interarea (2,543)
-------- ------- --------
$ 55,454 $ 8,581 $139,537
======== ======= ========
</TABLE>
Sales between geographic areas are generally priced to recover cost plus an
appropriate mark-up for profit.
E. RELATED PARTY TRANSACTIONS
Direct third party expenses incurred by Hanna on behalf of Day, including
legal costs and insurance premiums, have been charged to Day based on the
fair value of the services performed. No allocation of Hanna's general
corporate costs have been reflected in these consolidated financial
statements since Day is managed as a stand-alone business, and management
believes that any such amounts would not be material to Day's results of
operations. While management believes that this is a reasonable method, the
amounts that would have been or will be incurred on a separate company basis
could differ from the estimated amounts due to economies of scale realized by
Day and differences in management techniques and organization.
In 1995, Day purchased compounded rubber products from Hanna affiliates in
the amount of $.9 million.
At June 6, 1995, Day International (Canada) Ltd. had a note receivable of
$5.9 million from a Hanna affiliate, with an interest rate of 5%, due in
December 1995.
52
<PAGE> 53
F. STOCKHOLDER'S EQUITY
Equity is affected by earnings and cash and non-cash transfers between Day
and Hanna. Day cash receipts are transferred into Hanna bank accounts, and
Day disbursements are funded from Hanna bank accounts on Day's behalf. Also,
certain other transactions between Day and Hanna divisions, such as payroll,
income and payroll taxes, fringe benefits, and direct charges for legal and
other professional fees, are settled through Day's equity account. Day has
historically generated a positive cash flow and Hanna has never charged any
interest on its investment in Day. Therefore, in preparation of these
consolidated financial statements, no debt or interest charges are reflected.
The change in equity reflecting such activity for the period is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995
<S> <C>
Balance, January 1 $118,263
Net income 5,093
Day cash receipts transferred to Hanna (40,523)
Day disbursements paid by Hanna 30,776
Domestic taxes transferred to Hanna 4,264
--------
Balance, June 6 $117,873
========
</TABLE>
The change in accumulated translation adjustment is as follows (in
thousands):
<TABLE>
<CAPTION>
1995
<S> <C>
Balance, January 1 $(1,135)
Translation adjustment (1,958)
-------
Balance, June 6 $(3,093)
=======
</TABLE>
G. PENSION
Day has non-contributory defined benefit plans covering certain associates of
Day International (U.K.) Limited and Day International GmbH. Benefits for
these plans are based primarily on years of service and qualifying
compensation during the final years of employment. Plan assets include
marketable equity securities. Day's funding policy complies with the
requirements of local laws and regulations.
Day also sponsors defined contribution plans for certain of its associates,
which provide for company contributions of a specified percentage of each
associate's total compensation.
53
<PAGE> 54
The following sets forth the funded status of Day's defined benefit plans at
June 6, 1995 (in thousands):
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including
vested benefits of $6,251 $6,400
======
Projected benefit obligation $7,527
Plan assets at fair value 6,630
------
Projected benefits in excess of plan assets 897
Unrecognized net assets 322
Unrecognized prior service cost (361)
Unrecognized net actuarial gains (242)
------
Accrued pension cost recognized in balance sheet $ 616
======
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 8.25% and an assumed long-term rate of increase in compensation of
5%. The assumed long-term rate of return on plan assets is 8.5%.
A summary of the components of net periodic pension cost for the defined
benefit plans and the total contribution charged to expense for the defined
contribution plans for the period January 1, 1995 through June 6, 1995 is as
follows (in thousands):
<TABLE>
<S> <C>
Defined benefit plans:
Service cost $ 194
Interest cost and projected benefit obligation 234
Return on plan assets 70
Net amortization and deferral (370)
-----
Net periodic pension cost 128
Defined contribution plans 669
-----
$ 797
=====
</TABLE>
H. OTHER POSTRETIREMENT BENEFITS
Day provides certain contributory health care and life insurance benefits for
certain U.S. associates. Those associates may become eligible for these
postretirement benefits if they retire on or after age 55 with at least ten
years of service.
54
<PAGE> 55
The status of the Day's plan, which is unfunded at June 6, 1995 is as follows
(in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 962
Fully eligible active plan participants 118
Other active plan participants 2,175
------
3,255
Unrecognized actuarial gain 384
------
Accrued postretirement benefit obligation $3,639
======
</TABLE>
Accrued postretirement benefit obligation of approximately $54,000 is
included in the accompanying consolidated balance sheet caption accrued
associate related costs.
The weighted-average assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is assumed to be 12.0%
and, decreasing gradually to 6.25% in 2007 and remaining at that level
thereafter. A one percentage point increase in the assumed health care cost
trend rate would have increased the accumulated benefit obligation by
$300,000 at June 6, 1995.
A discount rate of 8.25% was used in determining the accumulated obligation.
Net periodic postretirement benefit costs include the following components
for the period January 1, 1995 through June 6, 1995 (in thousands):
<TABLE>
<S> <C>
Service cost $153
Interest cost 119
Amortization of unrecognized actuarial gain (5)
----
$267
====
</TABLE>
I. LEASE COMMITMENTS
Rental expense under operating leases for certain warehouses, automobiles and
office equipment was $300,000 for the period January 1, 1995 through June 6,
1995. Certain of the Day's leases have options to renew, and there are no
significant contingent rentals.
As of June 6, 1995, future minimum lease commitments for noncancelable
operating leases are (in thousands):
<TABLE>
<S> <C>
1995 (June 7, through December 31, 1995) $ 285
1996 442
1997 288
1998 55
1999 14
Thereafter 26
------
$1,110
======
</TABLE>
55
<PAGE> 56
J. CONTINGENCIES
Claims have been made against Day for the costs of environmental remediation
measures taken or to be taken. Day has established total reserves for such
liabilities of $1,298,000 which it believes are probable and reasonably
estimable. In determination of the reserves, insurance recoveries have not
been anticipated. In management's opinion, the aforementioned claims will be
resolved without material adverse effect on the results of operations,
financial position or cash flows of Day.
K. OTHER INCOME - NET
Other income - net includes the following for the period January 1, 1995
through June 6, 1995 (in thousands):
<TABLE>
<S> <C>
Interest income $(185)
Foreign currency gain (140)
Other (252)
-----
$(577)
=====
</TABLE>
L. SUPPLEMENTAL CONSOLIDATING INFORMATION
As described in Note A, in April 1995, the Company purchased Day from M.A.
Hanna. The acquisition was financed through equity, term and revolving credit
facilities and senior subordinated debt (the "Notes"). In connection with the
Acquisition, Day became a wholly-owned subsidiary of the Company (which has
no assets or operations other than its investment in Day) and provided a full
and unconditional guarantee of the Notes. The wholly-owned foreign
subsidiaries of Day are not guarantors with respect to the Notes and are not
anticipated to have any credit arrangements senior to the Notes except for
the UK Credit Agreement of the UK subsidiary as described in Note D. All of
the assets of Day and its parent, other than the assets of the wholly-owned
foreign non guarantor subsidiaries, are pledged as collateral on the Notes.
The only intercompany elimination's are the normal intercompany eliminations
with regard to intercompany sales and the Company's investment in the wholly
owned non guarantor subsidiaries. The following are the supplemental combined
condensed balance sheet as of June 6, 1995, the supplemental combined
condensed statements of operations and cash flows for the period from January
1, 1995 through June 6, 1995 with the investments in the subsidiaries
accounted for using the equity method. Separate complete financial statements
of the Guarantor are not presented because management has determined that
they are not material to the investors.
56
<PAGE> 57
Day International, Inc.
Supplemental Combining Condensed Balance Sheet
June 6, 1995
<TABLE>
<CAPTION>
DAY
International Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Cash & cash equivalents $ 1,105 $ 3,789 $ 4,894
Accounts receivable - net 8,102 8,186 16,288
Inventories 10,152 6,871 17,023
Other assets 2,410 996 $ 6,259 9,665
-----------------------------------------------------------
TOTAL CURRENT ASSETS 21,769 19,842 6,259 47,870
Intercompany 34,230 6,619 (40,849) --
Property, plant and equipment - net 20,382 4,295 24,677
Investment in subsidiaries 18,171 (18,171) --
Intangible and other assets 66,937 272 (219) 66,990
-----------------------------------------------------------
TOTAL ASSETS $161,489 $ 31,028 $(52,980) $139,537
===========================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ 3,637 $ 3,041 $ (240) $ 6,438
Accrued associate related costs
and other expenses 5,361 3,588 (360) 8,589
-----------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,998 6,629 (600) 15,027
Intercompany 5,535 (5,535) --
Long-term post retirement
benefits and other 9,256 693 (219) 9,730
Total stockholder's equity 143,235 18,171 (46,626) 114,780
-----------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $161,489 $ 31,028 $(52,980) $139,537
===========================================================
</TABLE>
57
<PAGE> 58
Day International, Inc.
Supplemental Combining Condensed Statement of Income
Period January 1, 1995 through June 6,1995
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 39,690 $ 24,177 $ (8,413) $ 55,454
Cost of goods sold 23,829 18,519 (8,413) 33,935
-----------------------------------------------------------
Gross profit 15,861 5,658 -- 21,519
Selling, general and administrative 6,776 4,481 11,257
Amortization of intangibles 2,258 2,258
-----------------------------------------------------------
Operating income 6,827 1,177 -- 8,004
Other expenses (income):
Equity in earnings of subsidiaries (1,426) 1,426 --
Other (income) expense 110 (687) (577)
-----------------------------------------------------------
Income before income taxes 8,143 1,864 (1,426) 8,581
Income taxes 3,050 438 3,488
-----------------------------------------------------------
Net Income $ 5,093 $ 1,426 $ (1,426) $ 5,093
===========================================================
</TABLE>
Day International, Inc.
Supplemental Combining Condensed Statement of Cash Flows
Period January 1, 1995 through June 6,1995
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 5,093 $ 1,426 $ (1,426) $ 5,093
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,021 357 4,378
Equity in earnings of subsidiaries (1,426) 1,426 --
Deferred income taxes and other (1,265) (348) (1,613)
Change in operating assets and liabilities (5,084) (2,355) (7,439)
-----------------------------------------------------------
Net cash provided by (used in) operating activities 1,339 (920) -- 419
Investing activities:
Capital expenditures (1,213) (352) (1,565)
-----------------------------------------------------------
Net cash used in investing activities (1,213) (352) -- (1,565)
Financing Activities:
Net change in notes receivable and advances 5,890 125 6,015
Net change in equity (5,483) (5,483)
-----------------------------------------------------------
Net cash provided by financing activities 407 125 -- 532
Effects of exchange rates on cash 31 31
-----------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 533 (1,116) -- (583)
Cash and cash equivalents at beginning of period 572 4,905 5,477
-----------------------------------------------------------
Cash and cash equivalents at end of period $ 1,105 $ 3,789 $ -- $ 4,894
===========================================================
</TABLE>
58
<PAGE> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholder of Day International, Inc.
In our opinion, the accompanying consolidated statements of income and cash
flows present fairly, in all material respects, the results of operations and
cash flows of Day International, Inc. (a wholly-owned subsidiary of M.A. Hanna
Company) and its subsidiaries (as described in Note 1 to these consolidated
financial statements) for the year ended December 31, 1994, in conformity with
generally accepted accounting principles, These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan an perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management. And evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Day International, Inc. for any period
subsequent to December 31, 1994.
PRICE WATERHOUSE LLP
Cleveland, Ohio
May 1, 1995
59
<PAGE> 60
DAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
(IN THOUSANDS)
<S> <C>
Net Sales $ 120,288
Costs and Expenses:
Cost of goods sold 70,996
Selling, general and administrative expense 22,741
Amortization of intangibles 5,212
Other income - net (453)
---------
98,496
---------
Income before Income Taxes 21,792
Income taxes 9,205
---------
Net Income $ 12,587
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
60
<PAGE> 61
DAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
----
(IN THOUSANDS)
<S> <C>
Cash Provided from (Used for) Operations
Net income $ 12,587
Depreciation and amortization 9,937
Deferred income taxes (1,697)
Changes in operating assets and liabilities:
Receivables (2,225)
Inventories (1,291)
Prepaid expenses (250)
Trade payables and other accruals 2,811
Other 463
--------
Net operating activities 20,335
Cash Provided from (Used for) Investing Activities
Capital expenditures (3,564)
Sale of short-term securities 4,305
Other 814
--------
Net investing activities 1,555
Cash Provided from (Used for) Financing Activities
Increase in notes receivable and advances (12,583)
Payments received on notes receivable and advances 1,153
Day cash receipts transferred to Hanna (89,171)
Day disbursements paid by Hanna 65,139
Domestic taxes transferred to Hanna 10,239
--------
Net financing activities (25,223)
Effect of exchange rate changes on cash 253
--------
Cash and Cash Equivalents
Decrease (3,080)
Beginning of year 8,557
--------
End of year $ 5,477
========
Cash Paid During Year
Income taxes $ 1,029
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
61
<PAGE> 62
DAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
l. Basis of Preparation and Significant Accounting Policies
(a) Basis of presentation and nature of operations
Day International, Inc. ("Day") is a designer and manufacturer of precision
engineered rubber components for the printing and textile industries. Day's
printing components division is a designer, manufacturer and marketer of
high-quality printing blankets used in the offset printing industry. Day's
textile components division is a manufacturer and marketer of precision
engineered rubber cots and aprons sold to textile yarn spinners and other
engineered rubber products sold to diverse markets. Sales are made through Day's
organization, distributors and representatives.
The consolidated financial statements of Day represent a combination of the
accounts of Day's U.S. operations; Day International (U.K.) Limited; Day
International France S.A.R.L; Day International GmbH; Day International de
Mexico, S.A. de C.V.; Day International Pty. Limited and the printing and
textile division of Day International (Canada) Limited Collectively, these
entities are wholly-owned subsidiaries of M.A. Hanna Company ("Hanna").
All significant intercompany transactions have been eliminated in
consolidation.
(b) Significant accounting policies
Inventories
Inventories are states at the lower of cost or market, cost being
determined on the first-in, first-out (FIFO) method.
Depreciation
Depreciation is computed principally by the straight-line method at rates
sufficient to depreciate the cost of the assets over their estimated productive
lives. Buildings and machinery and equipment are depreciated over 25 years and
between 5 and 10 years, respectively.
Goodwill and Other Intangibles
Goodwill and other intangibles are being amortized using the straight-line
method over 40 years for goodwill and trademarks and nine years for patents and
other intangibles.
Income Taxes
The tax provision for Day has been determined on a separate return basis.
62
<PAGE> 63
Foreign Currency Translation
The functional currency is the local currency of Day's respective
international subsidiaries. Foreign currency revenues and expenses are
translated at the average exchange rate for the period. Foreign currency
translation gains and losses are recorded in the accumulated translation
adjustment account.
Revenue Recognition
Day recognizes revenue and reserves for product returns, based upon
historical experience, when product is shipped. Sales returns are accounted for
as a reduction to sales and an increase in the reserves.
2. SUBSEQUENT EVENT
In April 1995, Hanna announced it had entered into an agreement to sell its
printing and textile business to American Industrial partners ("AIP"). The
agreement is contingent upon AIP securing financing and regulatory and other
approvals. Hanna expects that this transaction will close in June 1995. These
financial statements represent Day's historic accounts and do not include any
adjustments that may be required by AIP connection with their purchase.
3. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31 , 1994
------------------
(in thousands)
<S> <C>
Current:
Federal $ 8,675
State 1,564
International 663
--------
10,902
Deferred
Federal (1,807)
State (332)
International 442
--------
(1,697)
--------
$ 9,205
========
</TABLE>
Day is included in the consolidated U.S. tax return of Hanna. Consolidated
current and deferred income tax expense was allocated to Day as if Day filed tax
returns on a separate return basis.
63
<PAGE> 64
The provision for income taxes differs from the amount computed by applying
the U.S. statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Year Ended
December 3l. 1994
-----------------
(in thousands)
<S> <C>
Provision at statutory tax rate $7,627
State income taxes 803
Goodwill amortization 640
Other- net 135
------
$9,205
======
</TABLE>
4. BUSINESS SEGMENTS
The Company operates in one business segment - highly engineered, precisely
gauged polymer/fabric composite products - due to similarities in the design,
manufacturing, sales and management processes for the printing and textile
components of the business. Net sales by product line for the year ended
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31.1994
----------------
(in thousands)
<S> <C>
Printing components $ 88,914
Textile components 31,374
--------
$120,288
========
</TABLE>
Net sales and operating income by geographic area for 1994 are as follows:
<TABLE>
<CAPTION>
Operating
Net Sales Income
<S> <C> <C>
Domestic $ 78,876 $16,942
Europe 27,930 1,454
Other Internat 19,590 3,396
Interarea (6,108)
--------- -------
$ 120,288 $21,792
========= =======
</TABLE>
Interarea sales are generally priced to recover cost plus an appropriate
mark-up for profit.
5. RELATED PARTY TRANSACTIONS
Direct expenses incurred by Hanna on behalf of Day, including legal costs
and insurance premiums, have been charged to Day based on the fair value of the
services performed. No allocation of Hanna's general corporate costs have been
reflected in these consolidated financial statements since Day is managed as a
stand-alone business , and management believes that any such amounts would not
be material to Day's results of operations. While management believes that this
is a reasonable method, the amounts that would have been or will be incurred on
a separate company basis could differ from the estimated amounts due to
economics of scale realized by Day and differences in management techniques and
organization.
In 1994, Day purchased compounded rubber products from Hanna affiliates in
the amount of $1,162,000.
64
<PAGE> 65
6. PENSION AND OTHER POSTRETIREMENT BENEFITS
Day has non-contributory defined benefit plans covering certain associates
at Day International (U.K.) Limited and Day International GmbH. Benefits for
these plans are based primarily on years of service and qualifying compensation
during the final years of employment. Plan assets include marketable equity
securities. Day's funding policy complies with the requirements of local laws
and regulations.
Day also sponsors defined contribution plans for certain of its associates,
which provide for company contributions of a specified percentage of each
associate's total compensation.
A summary of the components of net periodic pension cost for the defined
contribution plans follows:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
(in thousands)
<S> <C>
Defined benefit plans:
Service cost $ 448
Interest cost on projected benefit obligation 539
Return on plan assets 161
Net amortization and deferral (853)
-----
Net periodic pension cost 295
Defined contribution plans 603
-----
$ 898
=====
</TABLE>
In addition to providing pension benefits, Day provides certain
contributory health care and life insurance benefits for retired U.S.
associates. Associates of the U.S. company may become eligible for these
postretirement benefits if they retire on or after age 55 with at least ten
years of service.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
(in thousands)
<S> <C>
Service Cost $383
Interest Cost 229
----
Net periodic postretirement benefit cost $612
====
</TABLE>
The weighted-average assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is assumed to be 12.0% and
decreasing gradually to 6.25% in 2007 and remaining at the level thereafter. A
one percentage point increase in the assumed health care cost trend rate would
have increased the aggregate service and interest costs components of net
periodic postretirement benefit costs for 1994 by $136,000.
7. LEASE COMMITMENTS
Rental expense under operating leases for certain warehouses,
transportation equipment and office equipment was $723,000 in 1994. Certain of
Day's leases have options to renew, and there are no significant contingent
rentals.
65
<PAGE> 66
At December 31, 1994, future minimum lease commitments for noncancelable
operating leases are:
<TABLE>
<CAPTION>
Amount
------
(in thousands)
<S> <C>
1995 $371
1996 226
1997 128
1998 12
1999 9
Thereafter 22
----
$768
====
</TABLE>
8. CONTINGENCIES
In 1988, Cadillac Plastics Group ("Day's Parent") entered into a consent
decree, to which Day was not a party, with the Michigan Department of Natural
Resources with respect to certain groundwater contamination conditions at Day's
Three Rivers facility. The decree requires Day's Parent to continue to operate a
groundwater extraction and treatment system for seven to ten years, at an
approximate cost of $100,000 per year. In addition, claims have been made
against Day for other environmental matters including being names as one of many
"potentially responsible parties" under the "Superfund" statutes. Independent
environmental consultants have assessed the environmental matters. Based upon
this assessment and management's best estimate of the liability associated with
these matters, Day has accrued $1.2 million. In management's opinion, the
aforementioned claims will be resolved without a material adverse effect on the
results of operations, financial position or cash flows of Day. Day's Parent and
Hanna have agreed to indemnify Day for certain of the costs associated with
these matters.
9. OTHER INCOME - NET
Other income -- net includes the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1994
-----------------
(in thousands)
<S> <C>
Interest income $(348)
Foreign currency (gain) loss (129)
Other 24
-----
$(453)
=====
</TABLE>
10. SUPPLEMENTAL COMBINED CONDENSED FINANCIAL STATEMENTS
As described in Note 2, in April 1995, Hanna entered into an agreement to
sell the Company to AIP. The acquisition will be financed through equity, term
and revolving credit facilities and senior subordinated debt (the "Notes"). In
connection with the Acquisition, the Company will have no assets or operations
other than its investment in the Company) and will provide a full and
unconditional guarantee of the Notes. The wholly-owned foreign subsidiaries of
the Company will not be guarantors with respect to the Notes and are not
anticipated to have any credit arrangements senior to the Notes except for an
anticipated $6 million borrowing by the U.K. subsidiary under the Credit
Agreement. All of the assets of Company and its parent, other than the assets of
the wholly-owned foreign non-guarantor subsidiaries, are pledged as collateral
on the Notes. The only intercompany
66
<PAGE> 67
eliminations are the normal intercompany eliminations with regard to
intercompany sales. The following are the supplemental combining statement of
income and cash flows for the year ended December 31, 1994. A separate complete
financial statement of the Company is not presented because management has
determined it is not material to the investors.
Day International, Inc.
Supplemental Combining Condensed Statement of Operations
For the year ended December 31,1994
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc. (Guarantor) Subsidiaries Eliminations Consolidated
---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 90,302 $45,784 $(15,798) $ 120,258
Cost of goods sold 52,568 34,226 (15,798) 70,996
------------------------------------------------------------
Gross profit 37,734 11,558 -- 49,292
Selling, general and administrative 14,841 7,900 22,741
Amortization of intangibles 5,212 5,212
------------------------------------------------------------
Operating income 17,681 3,658 -- 21,339
Other expenses (income):
Equity in earning of subsidiaries (3,018) 3,018 --
Other (income) expense 12 (465) (453)
------------------------------------------------------------
Income before income taxes 20,687 4,123 (3,018) 21,792
Income taxes 8,100 1,105 9,205
------------------------------------------------------------
Net Income $ 12,587 $ 3,018 $ (3,018) $ 12,587
============================================================
</TABLE>
67
<PAGE> 68
Day International, Inc.
Supplemental Combining Condensed Statement of Cash Flows
Year Ended December 31, 1994
<TABLE>
<CAPTION>
DAY
International, Non Guarantor
Inc (Guarantor) Subsidiaries Eliminations Consolidated
--------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net Income $ 12,587 $ 3,018 $ (3,018) $ 12,587
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,183 754 9,937
Equity in earning of subsidiaries (3,018) 3,018 --
Deferred income taxes and other (1,697) (1,697)
Change in operating assets and liabilities (1,323) 831 (492)
-------------------------------------------------------------
Net cash provided by operating activities 15,732 4,603 -- 20,335
Investing activities:
Purchase of short term securities 4,305 4,305
Capital expenditures (2,612) (952) (3,564)
Other 1,017 (203) 814
-------------------------------------------------------------
Net cash provided by (used in) investing activities (1,595) 3,150 -- 1,555
Financing Activities:
Net change in notes receivable and advances (11,430) (11,430)
Net change in equity (13,793) (13,793)
-------------------------------------------------------------
Net cash (used in) financing activities (13,793) (11,430) -- (25,223)
Effects of exchange rates on cash 253 253
-------------------------------------------------------------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents 344 (3,424) -- (3,080)
Cash and cash equivalents at beginning of period 228 8,329 8,557
-------------------------------------------------------------
Cash and cash equivalents at end of period $ 572 $ 4,905 $ -- $ 5,477
=============================================================
</TABLE>
68
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages (as of March 21, 1997) and a brief account
of the business experience of each person who is a director or executive officer
of the Company and the Guarantor. Each person holds the same position at the
Company and the Guarantor.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dennis R. Wolters ..... 50 Chief Executive Officer, President and Director
John R. Elia .......... 49 Vice President, Operations, Printing
David B. Freimuth ..... 44 Vice President and Chief Financial Officer
Burnell R. Roberts .... 69 Director
W. Richard Bingham .... 61 Director
Theodore C. Rogers .... 62 Director
Lawrence W. Ward, Jr .. 44 Director and Secretary
Robert L. Purdum ...... 61 Director and Chairman of the Board
</TABLE>
Dennis R. Wolters was named President of the Company in June 1990. Previously,
he was President of Printing from 1989 to June 1990, Executive Vice President of
Printing from 1986 to 1989 and Director of Business Development from 1983 to
1986.
John R. Elia was named Vice President of Operations for Printing in 1995 - Mr.
Elia also heads the quality improvement process and was the technical leader on
ISO 9000 certification. From 1992 to 1995 he was Vice President of Manufacturing
for Printing. Mr. Elia was director of Textile Manufacturing from 1990 until
1992.
David B. Freimuth was named Vice President and Chief Financial Officer in 1995.
He was named Controller of the Company in 1987 and since that time he has been
responsible for all accounting functions for the domestic and international
operations of the Company.
Bumell R. Roberts is the former Chairman and Chief Executive Officer of The Mead
Corporation ("Mead"), a paper products company. He was named President of Mead
in 1981 and served as Chairman and Chief Executive Officer from 1982 until 1992.
From 1992 until 1993, Mr. Roberts served as a director of Mead. Mr. Roberts
joined American Industrial Partners ("Partners") in 1993, and is (i) a limited
partner of American Industrial Partners, L.P. ("AIP-LP"), the general partner of
AIP I, (ii) a limited partner of American Industrial Partners II, L.P.
("AIPII-LP"), the general partner of AIP II, (iii) a stockholder of American
Industrial Partners Management Company, Inc. ("AIPMC"), the ultimate general
partner of AIP I, and (iv) a stockholder of American Industrial Partners
Corporation ("AIPCorp."),
69
<PAGE> 70
the ultimate general partner of AIP II. Mr. Roberts is also a director of Armco
Inc. ("Armco"), Perkin- Elmer Corp., Sweetheart Holdings Inc. ("Sweetheart"),
DPL Inc., Universal Protective Packaging, Inc. and Rayonier, Inc.
W. Richard Bingham co-founded Partners and has been a director and officer of
the firm since 1989. He is also a general partner and a limited partner of
AIP-LP, a limited partner of AIPII-LP, and a stockholder, officer and director
of AIPMC and AIP Corp. Prior to co-founding Partners, Mr. Bingham was a Managing
Director of Shearson Lehman Brothers Inc. from 1984 until late 1987. Prior to
joining Shearson Lehman Brothers, Mr. Bingham was Director of the Corporate
Finance Department, member of the Board, and, most recently, head of Mergers and
Acquisitions at Lehman Brothers Kuhn Loeb Inc. Prior thereto, he directed
investment banking operations at Kuhn Loeb & Company where he was a Partner and
member of the Board and Executive Committee. Mr. Bingham is also a director of
Sweetheart, Easco Corporation ("Easco") and RBX Corporation ("RBX"). He formerly
served on the boards of Avis, Inc., ITT Life Insurance Corporation and Valero
Energy Corporation.
Theodore C. Rogers co-founded Partners and has been a director and officer of
the firm since 1989. He is also a general partner and a limited partner of
AIP-LP, a limited partner of AIPII-LP, and a stockholder, officer and director
of AIPMC and AIPCorp. From 1980 to 1987, he served as Chairman, President and
Chief Executive Officer of NL Industries, Inc., a petroleum service and chemical
company. Mr. Rogers is a former director of Allied Stores Corporation,
Allied-Signal Inc., Parsons Corporation, MCorp and Southwest Bancshares Inc. He
is currently a director of Easco, Sweetheart, RBX and Derby International.
Lawrence W. Ward, Jr. has been an employee of Partners since 1992. From 1989 to
1992, he was Vice President and Chief Financial Officer of Plantronics, Inc., a
telecommunications equipment company, and from 1980 to 1989, he held several
investment banking positions at Kidder, Peabody & Co., Incorporated, including
Senior Vice President. Mr. Ward is currently a director of Easco and RBX.
Robert L. Purdum retired as Chairman of Armco in 1994. From November 1990 to
1993, Mr. Purdum was Chairman and Chief Executive Officer of Armco. Mr. Purdum
has been a director of Partners since joining the firm in 1994 and is a limited
partner of AIP-LP and AIPII-LP and a stockholder of AIPMC and AIPCorp. Mr.
Purdum is also a director of Holophane Corporation, Berlitz International, Inc.
and GMI Engineering & Management Institute, Inc.
Directors do not receive compensation for their services as directors, with the
exception of the Chairman of the Board, who receives $100,000 per year.
70
<PAGE> 71
EMPLOYMENT AGREEMENTS
Mr. Wolters is a party to a three-year employment agreement with Day
International, Inc., and various members of management are party to two-year
employment agreements with the Guarantor. Each associate who is subject to an
employment agreement received a sales fulfillment incentive fee upon the
consummation of the Acquisition. Mr. Wolters' incentive fee was two times his
base salary, while the other managers' incentive fees were equal to their
respective base salaries, in both cases adjusted up or down according to the
purchase price of the Acquisition. Subject to certain exceptions, in the event
any such executive is terminated by the Guarantor, each employment agreement
provides that the executive is entitled to a lump sum equal to the greater of
(i) such executive's total base compensation and minimum incentive bonus
compensation payable from the date of termination to the last day of the
executive's respective employment period or (ii) 150% of the sum of the
executive's annual base compensation and minimum annual incentive bonus
compensation.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for 1996
for Mr. Wolters and the other executive officers of the Company.
<TABLE>
<CAPTION>
ALL
ANNUAL COMPENSATION OTHER
--------------------- LONG-TERM COMPEN-
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION($)(a) SATION ($)
--------------------------- ---------- --------- ------------------- ----------
<S> <C> <C> <C> <C>
Dennis R. Wolters, President and 186,667 77,063 29,178 13,442
Chief Executive Officer
John R. Elia, Vice President 87,567 16,246 11,087 28,567
David B. Freimuth, Vice President 90,000 19,265 7,586 7,662
<FN>
(a) Represents compensation received in 1996 under a Hanna long-term incentive
plan. The Company has replaced the Hanna long-term incentive plan with a
stock option program. No options were awarded to the officers in 1996.
</TABLE>
71
<PAGE> 72
The following table sets forth information concerning the compensation for 1995
for Mr. Wolters and the three other officers of the Company.
<TABLE>
<CAPTION>
ALL
ANNUAL COMPENSATION OTHER
------------------- LONG-TERM COMPEN-
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION($)(a) SATION ($)(b)
--------------------------- ---------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
Dennis R. Wolters, President and 156,564 234,985 128,604 602,408
Chief Executive Officer
James W. Mann, Vice President 91,000 84,249 61,719 198,326
John R. Elia, Vice President 74,300 58,200 39,133 196,817
David B. Freimuth, Vice President 79,822 50,063 28,702 194,008
<FN>
(a) The Company's management participated in a Hanna long-term incentive plan
which the Company has replaced with a new stock option program.
(b) Includes sale incentive awards from Hanna related to the sale of the
Company.
</TABLE>
The following table sets forth information concerning the options/stock
appreciation rights granted in 1995 for Mr. Wolters and the other executive
officers of the Company.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year (a)
-----------------------------------------
Number of % of Total
Securities Options/
Underlying SARs Grant
Options/ Granted to Exercise Date
SARS Employees in or Base Expiration Present
NAME AND PRINCIPAL POSITION Granted (#) Fiscal Year Price Date Value (b)
--------------------------- ---------- ------------ ------- ---------- --------
<S> <C> <C> <C> <C> <C>
Dennis R. Wolters, President and
Chief Executive Officer 1,200 44.0% $1,000 2005 $462
James W. Mann, Vice President 200 7.3% 1,000 2005 462
John R. Elia, Vice President 200 7.3% 1,000 2005 462
David B. Freimuth, Vice President 200 7.3% 1,000 2005 462
</TABLE>
(a) The options vest nine years from date of grant, however, vesting is
accelerated if the Company achieves certain performance objectives.
(b) The grant date present value calculated using Black-Scholes pricing model.
72
<PAGE> 73
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 21, 1997, there were 34 holders of record of shares of Common Stock.
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March 21, 1997, assuming the exercise of options
exercisable within 60 days of the date hereof, by (i) each person who is known
by the Company to be the beneficial owner of more than 5% of the Common Stock,
(ii) each of the Company's directors and the named executives in the Summary
Compensation Table and (iv) all directors and executive officers as a group. To
the knowledge of the Company, each stockholder has sole voting and investment
power as to the shares shown unless otherwise noted.
<TABLE>
<CAPTION>
NAME NUMBER(1) PERCENTAGE(1)
---- --------- -------------
<S> <C> <C>
American Industrial Partners Capital Fund, L.P.(2) 32,500 63.00%
American Industrial Partners Capital Fund II, L.P.(2) 17,500 33.90%
Dennis R. Wolters 300 *
David B. Freimuth 100 *
John R. Elia 100 *
Burnell R. Roberts 75 *
Robert L. Purdum 30 *
Lawrence W. Ward, Jr. 10 *
W. Richard Bingham (3) 50,000 97.00%
Theodore C. Rogers(3) 50,000 97.00%
All directors and executive officers as a group (11 persons) 50,805 98.50%
</TABLE>
* Represents less than 1%
(1) Based upon 51,555.5 shares of Common Stock outstanding.
(2) The address of AIP I and AIP II is One Maritime Plaza, Suite 2475, San
Francisco, CA 94111.
(3) 32,500 of such shares are held of record by AIP I, and 17,500 of such shares
are held of record by AIP II. Messrs. Bingham and Rogers are general
partners of AIP-LP (the general partner of AIP I) and shareholders of AIPMC
(the general partner of AIP-LP) and AIPCorp. (the general partner of
AIPII-LP, which in turn is the general partner of AIP II) and therefore
share investment and voting power with respect to the securities owned by
AIP I and AIP II, but each disclaim beneficial ownership of any shares of
Common Stock of the Company. The business address of Mr. Bingham is One
Maritime Plaza, Suite 2525, San Francisco, CA 94111, and the business
address of Mr. Rogers is 551 Fifth Avenue, Suite 3800, New York, NY 10176.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In accordance with a management services agreement, the Company is required to
pay American Industrial Partners, an affiliate of the controlling shareholders
of Day, an annual management fee of $800,000, plus expenses, payable
semi-annually. The agreement expires in June, 2005 or if there is a change in
control of the Company.
All stockholders have entered into a Stockholders Agreement which provides for
the election of directors and restrictions on the sale or transfer of the common
stock of the Company.
73
<PAGE> 74
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are incorporated by reference as part of this Report at Item 8
hereof.
DAY INTERNATIONAL GROUP, INC.
Year ended December 31, 1996 and the
period from June 7, 1995 through December 31, 1995:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
DAY INTERNATIONAL, INC.
Period from January 1.1995 through June 6, 1995:
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Year ended December 31, 1994:
Independent Accountants' Report
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
74
<PAGE> 75
(a)(2) FINANCIAL STATEMENT SCHEDULES
Year ended December 31 , 1996 and periods ended June 6, 1995 and December
31, 1995:
Independent Auditors' Report - At pages 22 and 44 of this Report.
Schedule II - Valuation and Qualifying accounts (At page 77 of this
Report).
Year ended December 31, 1994:
Independent Accountants' Report - At page 78 of this Report.
Schedule II - Valuation and Qualifying accounts (At page 79 of this
Report).
The information required to be submitted in Schedules I, III, IV and V for
Day International Group, Inc. and consolidated subsidiaries has either been
shown in the financial statements or notes, or is not applicable or required
under Regulation S-X, and, therefore, those schedules have been omitted.
(b) REPORTS ON FORM 8-K
No report on Form 8-K was filed during the quarter ended December 31, 1996.
(c) EXHIBITS. SEE INDEX TO EXHIBITS
(d) SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES
PURSUANT TO SECTION 12 OF THE ACT
No annual report covering the Company's last fiscal year, and no proxy
statement, form of proxy or other proxy soliciting material, has been sent
to security holders of the Company.
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Day International Group, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Day International Group, Inc.
(Registrant)
Date: March 24, 1997 By: /s/ Dennis R Wolters
-------------------------
Dennis R. Wolters
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Day International
Group, Inc. and in the capacities and on the dates indicated.
Date: March 24, 1997 By: /s/ Dennis R Wolters
-------------------------
Dennis R. Wolters
President, Chief Executive Officer and
Director (Principal Executive Officer)
Date: March 24, 1997 By: /s/ David B. Freimuth
-------------------------
David B. Freimuth
Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
Date: March 24, 1997 By: /s/ Burnell P. Roberts
-------------------------
Burnell P. Roberts
Director
Date: March 24, 1997 By: /s/ W. Richard Bingham
-------------------------
W. Richard Bingham
Director
Date: March 24, 1997 By: /s/ Theodore C. Rogers
-------------------------
Theodore C. Rogers
Director
Date: March 24, 1997 By: /s/ Lawrence W. Ward, Jr.
-------------------------
Lawrence W. Ward, Jr.
Director
Date: March 24, 1997 By: /s/ Robert L. Purdum
-------------------------
Robert L. Purdum
Director
76
<PAGE> 77
DAY INTERNATIONAL GROUP, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ------------------------------------------ -------- --------
ADDITIONS
-----------------------------------------
ALLOWANCE FOR BALANCE AT CHARGED TO DEDUCTIONS BALANCE
DOUBTFUL BEGINNING COSTS AND CURRENCY FROM AT END
ACCOUNTS OF PERIOD EXPENSES ACQUIRED TRANSLATION RESERVES OF PERIOD
------------- --------- ---------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Period Ended:
December 31, 1996 $ (1,248) $ (118) $ (50) $ 25 $ 409 $ (982)
============== =========== ========= ========== =========== ==============
December 31, 1995 $ (1,258) $ (130) $ - $ 1 $ 139 $ (1,248)
============== =========== ========= ========== =========== ==============
June 6,1995 $ (1,153) $ (138) $ - $ (39) $ 60 $ (1,270)
============== =========== ========= ========== =========== ==============
</TABLE>
77
<PAGE> 78
Report of Independent Accountants
---------------------------------
on Financial Statement Schedule
-------------------------------
To the Board of Directors and Stockholder of
Day International, Inc.
Our audit of the consolidated financial statements of Day International, Inc.
and its subsidiaries referred to in our report dated May 1, 1995 appearing on
page 59 of this Annual Report on Form 10-K also included an audit of the
Financial Statement Schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this Financial Statement Schedule of Day International, Inc. and its
subsidiaries presents fairly, in all material respects, the information set
forth therein as of December 31, 1994 and for the year then ended when read in
conjunction with the related consolidated financial statements. We have not
audited the consolidated financial statements of Day International, Inc. for any
period subsequent to December 31, 1994.
Price Waterhouse LLP
Cleveland, Ohio
May 1, 1995
78
<PAGE> 79
DAY INTERNATIONAL, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ----------------------- -------- --------
ADDITIONS
-----------------------
ALLOWANCE FOR BALANCE AT CHARGED TO DEDUCTIONS BALANCE
DOUBTFUL BEGINNING COSTS AND CURRENCY FROM AT END
ACCOUNTS OF PERIOD EXPENSES TRANSLATION RESERVES OF PERIOD
------------- ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Period Ended:
December 31, 1994 $ (919) $ (439) $ 226 $ (21) $ (1,153)
========== ========= ======== ========== ============
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Page No.
--------
<S> <C> <C>
(3) Articles of Incorporation and By-Laws:
3.1 Certificate of Incorporation of Day International Group, Inc. ("Group") *
3.2 By-Laws of Group *
3.3 Certificate of Incorporation of Day International, Inc. (the "Guarantor") *
3.4 By-Laws of the Guarantor *
(4) Instruments Defining Rights of Security Holders, including Indentures:
4.1 Indenture dated June 6, 1995 among Registrant, the Guarantor and
American Bank National Association *
4.2 Registration Rights Agreement dated as of June 6, 1995 among Group,
the Guarantor, Donaldson, Lufkin & Jenrette Securities Corporation,
NationsBanc Capital Markets, Inc. *
(10) Material Contracts:
10.1 Purchase Agreement dated as of May 25, 1995 among Group, the Guarantor
(as of June 6, 1995) Donaldson, Lufkin & Jenrette Securities Corporation and
NationsBanc Capital Markets, Inc. *
10.2 Stockholders Agreement dated as of June 6, 1995 among Group,
American Industrial Partners Capital Fund, L.P., American
Industrial Partners Capital Fund II, L.P., and certain other
signatories thereto. *
10.3 Credit Agreement dated as of June 6, 1995 among Group, the Guarantor,
NationsBank of Texas, N.A. (the "Agent"). *
10.4 Security Agreement dated as of June 6, 1995 among the Guarantor, certain
subsidiaries signatory thereto from time to time and the Agent. *
10.5 Pledge and Security Agreement dated as of June 6, 1995 among Group
and the Agent. *
10.6 Pledge and Security Agreement dated as of June 6, 1995 among the
Guarantor and the Agent. *
10.7 Employment Agreement dated December 9, 1994 between the Guarantor
and Dennis R. Wolters. *
10.8 Form of Employment Agreement between the Guarantor with certain
members of management. *
10.9 Stock Purchase Agreement dated April 11, 1995 among Group, M.A. Hanna
Company and Cadillac Plastic Group, Inc., as amended. *
10.10 Share Purchase Agreement dated April 11, 1995 between Group and
Cadillac Plastic Limited, as amended. *
10.11 Asset Purchase Agreement between Day International (Canada) Limited
and Group, as amended. *
10.12 Management Agreement dated as of June 6, 1995 between Group, the
Guarantor and American Industrial Partners. *
10.13 Stock Option Plan **
10.14 Bank of Scotland Credit Agreement ***
10.15 Amendment No.1 to Credit Agreement dated June 6, 1995 ***
10.16 Amendment No.2 to Credit Agreement dated June 6, 1995 82-87
</TABLE>
80
<PAGE> 81
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
10.17 Amendment to Stock Option Plan 88-89
10.18 Asset Purchase Agreement between Day International, Inc. and
Flint Ink Corporation dated December 31, 1996 90-134
(21) Subsidiaries 135
(27) Financial Data Schedule 136
</TABLE>
* Incorporated by reference to the Group's Registration Statement on Form S-4
(Reg. No.33-93644).
** Incorporated by reference to the Group's Form 10K for the period ended
December 31, 1995.
*** Incorporated by reference to the Group's Form 10Q for the quarterly period
ended June 30, 1996.
81
<PAGE> 1
EXHIBIT 10.16
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "SECOND AMENDMENT")
dated as of November 15, 1996, is to that Credit Agreement dated as of June 6,
1995 as amended by that First Amendment to Credit Agreement dated as of July 2,
1996 (as amended and modified hereby and as further amended and modified from
time to time hereafter, the "CREDIT AGREEMENT"; terms used but not otherwise
defined herein shall have the meanings assigned in the Credit Agreement), by and
among DAY INTERNATIONAL GROUP, INC., a Delaware corporation (the "BORROWER"),
certain Subsidiaries of the Borrower, as Guarantors, the Lenders party thereto,
and NATIONSBANK OF TEXAS, N.A., as Agent (the "AGENT").
WITNESSETH
----------
WHEREAS, the Lenders have, pursuant to the terms of the Credit Agreement,
made available to the Borrower an $80,000,000 credit facility;
WHEREAS, the Borrower wishes to amend the Credit Agreement to modify
certain provisions contained therein;
WHEREAS, the Required Lenders have agreed to the requested changes on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended in the following respects:
1. The definition of "PERMITTED INVESTMENTS" in Section 1.1 of
the Credit Agreement is hereby amended and restated in its entity to read as
follows:
"PERMITTED INVESTMENTS" means Investments which are (i) cash
or Cash Equivalents, (ii) accounts receivable created, acquired or made
in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms, (iii) supplies, inventory or
other assets of any kind or nature (other than those constituting a
Capital Expenditure) acquired or made in the ordinary course of
business, (iv) loans to directors, officers, employees, agents,
customers or suppliers in the ordinary course for reasonable business
expenses in an aggregate maximum principal amount at any one time
outstanding of not more than $1,000,000, (v) subject to the limitations
on Capital Expenditures in Section 8.6 hereof, (A) Investments by a
Credit Party in a Credit party and (B) Investments by a Foreign
Subsidiary in another Foreign Subsidiary or in a Credit Party, (vi) (A)
Investments by a Credit Party in a Foreign Subsidiary (subject to the
limitations on Capital Expenditures in Section 8.6 hereof) to be used
solely for Capital
1
<PAGE> 2
Expenditures for such Foreign Subsidiary, and not to exceed, in the
aggregate, (1) $750,000 during 1995, (2) $2,000,000 during 1996 and (3)
$1,500,000 during 1997 and each year thereafter and (B) Investments by
a Credit Party in a Foreign Subsidiary if 100% of the Net Proceeds are
concurrently used by such Foreign Subsidiary to purchase the
outstanding equity securities of another Foreign Subsidiary from a
Credit Party, and the resulting Investment by such first Foreign
Subsidiary in such second Foreign Subsidiary, (vii) purchases or
redemptions of capital stock from directors, officers or employees as
provided in Section 8.8(b) hereof, (viii) any Investment occurring as a
result of any and all interest rate protection agreements, if any,
(including swaps, collars and hedges) and currency hedges, (ix) any
pledges or deposits permitted by Section 8.2 hereof to the extent
considered an Investment, (x) evidences of Indebtedness from officers
or directors of the Borrower or any Subsidiary of the Borrower which
represent payment in whole or in part for shares of the capital stock
of the Borrower, (xi) Investments made in connection with the
Acquisition as set forth on SCHEDULE 8.9 attached hereto, (xii) Capital
Expenditures in accordance with Section 8.6 hereof, (xiii) Investments
in connection with the acquisition of David M. Company in an aggregate
amount not to exceed the sum of (A) $11,250,000 for the purchase of
assets, subject to purchase accounting adjustments PLUS (B) $750,000 in
fees associated with the acquisition, (xiv) other Investments not to
exceed, in the aggregate, $6,000,000 during the term of this Credit
Agreement; provided that to the extent such Investment made pursuant to
this subparagraph (xiv) is an advance, loan or other extension of
credit is repair then such repaid funds can be reinvested in accordance
with the terms hereof and such $6,000,000 limitation shall only be
reduced by the amount not to repaid and (xv) Investments in Day
International France S.A.R.L., Day International (Canada Holdings),
Ltd. and Day International (BRD), GMBH for use as working capital, not
to exceed, at any one time $600,000 in aggregate.
2. Section 8.6 entitled "Capital Expenditures" is hereby amended
and restated in its entirety to read as follows:
8.6 CAPITAL EXPENDITURES The Borrower and its Subsidiaries on
a consolidated basis shall not make Capital Expenditures (excluding
intercompany items) that, in the aggregate, exceed (a) from the Closing
Date to December 31, 1995, $3,000,000, (b) for fiscal year 1996,
$6,500,000, (c) for fiscal year 1997, $6,000,000 and (d) for any fiscal
year thereafter, $5,500,000; provided, however, that in addition to the
amounts set forth above (i) a Credit party may use the Net Proceeds
from the issuance of capital stock or a capital contribution to make
additional Capital Expenditures to the extent such Net Proceeds are not
required to be forwarded to the Lenders pursuant to Section 3.3(b)
hereof, (ii) the Borrower or its Subsidiaries may use the Net Proceeds
from the disposition of assets (as the result of a Recovery Event or
otherwise) to make additional Capital Expenditures in conformance with
Section 8.5(v) above and (iii) the Borrower and its Subsidiaries shall
be permitted to carry forward (to the immediately succeeding fiscal
year only) the lesser of (A) the unused portion of the amount for each
such year shown in the "Amount" column for such year or (B) fifty
percent (50%) of the amount for such year shown in the "Amount" column
for such year. For purposes hereof Capital
2
<PAGE> 3
Expenditures shall first be applied against the amounts carried-over
from the prior year and then to the amount permitted for the year in
which they are made. Notwithstanding anything contained herein to the
contrary, the carry-over amount for any year shall be limited if, and
to the extent, that the making or incurrence of such Capital
Expenditures in the original year would have been prohibited or
resulted in a Default hereunder (including by reason of the Fixed
Charge Coverage Ratio).
B. The Borrower hereby represents and warrants that:
(i) any and all representations and warranties made by the
Borrower and contained in the Credit Agreement (other than those which
expressly relate to a prior period) are true and correct in all
material respects as of the date of this Second Amendment; and
(ii) No Default or Event of Default currently exists and is
continuing under the Credit Agreement as of the date of this Second
Amendment.
C. The effectiveness of this Second Amendment is conditioned
upon receipt by the Agent of the following:
1. Copies of this Second Amendment executed by the Credit
Parties and the Required Lenders;
2. Copies of the resolutions of the Credit Parties
approving the terms and authorizing execution and delivery of this
Second Amendment;
3. Legal opinion of counsel to the Credit Parties in a
form acceptable to the Agent;
4. Executed copy of the purchase agreement and other
acquisition documents (including all environmental reports, insurance
documentation and appraisals) in connection with the acquisition of
David M. Company by the Borrower, the terms and conditions of which
shall be acceptable to the Agent and the Required Lenders; and
5. Such agreements, documents and instruments (including
mortgages and deeds of trust) as deemed necessary and appropriate by
the Agent in order to attach and perfect the Lenders' security interest
in the assets of David M. Company as set forth in the Collateral
Documents, including, without limitation, (i) the stock certificates
evidencing the stock pledged pursuant to the Pledge Agreements, along
with duly executed stock powers attached thereto, (ii) all instruments
and chattel paper held by David M. Company, (iii) UCC financing
statements and (iv) patent and trademark filings.
D. The Borrower will execute such additional documents as are
reasonably requested by the Agent to reflect the terms and conditions of this
Second Amendment.
3
<PAGE> 4
E. The Borrower and the Guarantors, as applicable, affirm the liens and
security interests created and granted in the Credit Agreement and the other
Credit Documents and agree that this Second Amendment shall in no manner
adversely affect or impair such liens and security interests.
F. The Guarantors acknowledge and consent to all of the terms and
conditions of this Second Amendment and agree that this Second Amendment does
not operate to reduce or discharge the Guarantors' obligations under the Credit
Agreement or the other Credit Documents. The Guarantors acknowledge and agree
that the Guarantors have no claims, counterclaims, offsets, credits or defenses
to the Credit Documents and the performance of the Guarantors' obligations
thereunder or if the Guarantors have any such claims, counterclaims, offsets,
credits or defenses to the Credit Documents or any transaction related to the
Credit Documents, the same are hereby waived, relinquished and released in
consideration of the Lender's execution and delivery of this Second Amendment.
G. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits) remain in full force and effect.
H. The Borrower agrees to pay all reasonable costs and expenses in
connection with the preparation, execution and delivery of this Second
Amendment, including without limitation the reasonable fees and expenses of the
Agent's legal counsel.
I. This Second Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Second Amendment to produce or
account for more than one such counterpart.
J. This Second Amendment and the Credit Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
4
<PAGE> 5
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Second Amendment to Credit Agreement to be duly executed under seal and
delivered as of the date and year first above written.
BORROWER: DAY INTERNATIONAL GROUP, INC.
- --------
By /s/ David B. Freimuth
------------------------
Name David B. Freimuth
----------------------
Title V.P. - CFO
----------------------
GUARANTORS: DAY INTERNATIONAL, INC.
- ----------
By /s/ David B. Freimuth
------------------------
Name David B. Freimuth
----------------------
Title V.P. - CFO
----------------------
BANKS: NATIONSBANK OF TEXAS, N.A.,
- ----- individually in its capacity
as a Lender and in its
capacity as Agent
By /s/ Chas A. McDonell
------------------------
Name Chas A. McDonell
------------------------
Title Vice President
------------------------
BANK OF SCOTLAND
By /s/ Catherine M. Omffrey
------------------------
Name Catherine M. Omffrey
----------------------
Title Vice President
----------------------
MIDLAND BANK PLC
By /s/ Gina Sidorsky
------------------------
Name Gina Sidorsky
----------------------
Title Director
----------------------
5
<PAGE> 6
BANK ONE, DAYTON, NA
By /s/ John B. Middleberg
---------------------
Name John B. Middleberg
--------------------
Title Vice President
--------------------
PNC BANK, OHIO, NATIONAL
ASSOCIATION
By /s/ Warren F. Weber
---------------------
Name Warren F. Weber
--------------------
Title AVP
--------------------
THE PROVIDENT BANK
By /s/ Alan R. Henning
---------------------
Name Alan R. Henning
--------------------
Title Vice President
--------------------
U.S. NATIONAL BANK OF OREGON
By /s/ Chris J. Karlin
----------------------
Name Chris J. Karlin
---------------------
Title Vice President
---------------------
NATIONAL CITY BANK
By /s/ Barry C. Robinson
----------------------
Name Barry C. Robinson
---------------------
Title Vice President
---------------------
6
<PAGE> 1
EXHIBIT 10.17
DAY INTERNATIONAL GROUP, INC.
AMENDMENT TO STOCK OPTION PLAN
WHEREAS, the Board of Directors of Day International Group,
Inc. (the "Corporation") deems it advisable and in the best interest of the
Corporation for the Corporation to amend the Stock Option Plan of the
Corporation dated as of June 6, 1995 (the "Option Plan") to provide for an
acceleration of the vesting of Options amended thereunder upon the occurrence of
any transaction constituting a "Company Sale" thereunder in the manner provided
for herein.
NOW, THEREFORE, BE IT RESOLVED, that the Option Plan be, and
it hereby is, amended by adding new Sections 6.7 and 6.8 to the Option Plan,
which shall read in their entirety as follows:
"6.7 CLOSING OPTION VESTING ON COMPANY SALE. If a Company Sale
is consummated prior to January 1, 2000, then that portion of the
Closing Options held by a Participant that would, in the aggregate,
have vested for all Fiscal Years ended after the date of such Company
Sale is consummated (not to exceed 22.22% of such Closing Options for
any such Fiscal Year) if the Performance Level for such Fiscal Year was
equal to the product of (a) 100 and (b) a fraction, (i) the numerator
of which is the actual cumulative EBITDA for the Company and its
Subsidiaries during the period beginning January 1, 1995 and ending on
the last day of the latest Fiscal Year ended before such Company Sale
is consummated (treated for this purpose as a single accounting period)
and (ii) the denominator of which is the sum of the Plan Targets for
all such Fiscal Years included in such period, will vest immediately
prior to the consummation of such Company Sale.
"6.8 BOARD OPTION VESTING ON COMPANY SALE. If a Company Sale
is consummated on or prior to the last day of the third consecutive
Fiscal Year beginning after the Fiscal Year in which any Board Option
is awarded (with respect to such Board Option, the "Board Option Plan
End Date"), then that portion of such Board Option held by a
Participant that would, in the aggregate, have vested for all Fiscal
Years ended on or before the related Board Option Plan End Date and
after the date of such Company Sale is consummated (not to exceed 25%
of such Board Options for any such Fiscal Year) if the Performance
Level for such Fiscal Year was equal to the product of (a) 100 and (b)
a fraction, (i) the numerator of which is the actual cumulative EBITDA
for the Company and its Subsidiaries during the period beginning
January 1 of the Fiscal Year in which such Board Option was awarded and
ending on the last day of the latest Fiscal Year ended before such
Company Sale is consummated (treated for this purpose as a single
accounting period) and (ii) the denominator of which is the sum of the
Plan Targets for all such Fiscal Years included in such period, will
vest immediately prior to the consummation of such Company Sale."
<PAGE> 2
RESOLVED, FURTHER, that the president, any vice president, the
treasurer and the secretary and such other officers of the Corporation as shall
be designated by the president (the "Proper Officers") be, and hereby are,
authorized, empowered and directed to take all such further action as may be
necessary or advisable to implement or give further effect to the resolutions
adopted herein.
<PAGE> 1
EXHIBIT 10.18
ASSET PURCHASE AGREEMENT
BETWEEN
DAY INTERNATIONAL, INC.
AND
FLINT INK CORPORATION
December 31, 1996
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. DEFINITIONS....................................................1
2. PURCHASE AND SALE..............................................8
-----------------
(a) PURCHASE AND SALE OF ASSETS...........................8
---------------------------
(b) EXCLUDED ASSETS......................................10
---------------
(c) ASSUMPTION OF LIABILITIES............................10
-------------------------
(d) PURCHASE PRICE.......................................10
--------------
(e) PURCHASE PRICE ADJUSTMENT............................10
-------------------------
(f) THE CLOSING..........................................11
-----------
(g) DELIVERIES AT THE CLOSING............................11
-------------------------
(h) PURCHASE PRICE ALLOCATION............................11
-------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLER......................11
----------------------------------------
(a) ORGANIZATION OF SELLER...............................12
----------------------
(b) AUTHORIZATION OF TRANSACTION.........................12
----------------------------
(c) NONCONTRAVENTION.....................................12
----------------
(d) FINANCIAL STATEMENTS.................................12
--------------------
(e) RECENT EVENTS........................................13
-------------
(f) TANGIBLE ASSETS......................................13
---------------
(g) INTELLECTUAL PROPERTY................................14
---------------------
(h) CONTRACTS............................................16
---------
(i) TAX MATTERS..........................................18
-----------
(j) LITIGATION...........................................18
----------
(k) PRODUCT WARRANTY.....................................18
----------------
(l) LABOR AND EMPLOYMENT MATTERS.........................18
----------------------------
(m) EMPLOYEE BENEFITS....................................19
-----------------
(n) ENVIRONMENT, HEALTH, AND SAFETY......................20
-------------------------------
(o) INTERNATIONAL TRADE..................................21
-------------------
(p) LEGAL COMPLIANCE.....................................21
----------------
(q) BROKERS' FEES........................................21
-------------
(r) FULL DISCLOSURE......................................21
---------------
4. REPRESENTATIONS AND WARRANTIES OF BUYER.......................22
---------------------------------------
(a) ORGANIZATION OF BUYER................................22
---------------------
(b) AUTHORIZATION OF TRANSACTION.........................22
----------------------------
(c) NONCONTRAVENTION.....................................22
----------------
(d) BROKERS' FEES........................................22
-------------
(e) SECTION 3(g) DISCLOSURE. ...........................23
-----------------------
5. COVENANTS OF THE PARTIES......................................23
------------------------
(a) GENERAL..............................................23
-------
(b) CLOSING DATE BALANCE SHEET...........................23
--------------------------
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
(c) CONFIDENTIALITY......................................23
---------------
(d) LITIGATION SUPPORT...................................23
------------------
(e) TRANSFERRED EMPLOYEES................................23
---------------------
(f) DEFINED CONTRIBUTION PLAN............................24
-------------------------
(g) ENVIRONMENTAL MATTERS................................24
---------------------
(h) PRODUCT RETURNS......................................25
---------------
(i) COLLECTION OF ACCOUNTS...............................25
----------------------
(j) RECORD RETENTION.....................................25
----------------
(k) GOVERNMENT CONTRACT BID..............................26
-----------------------
6. CONDITIONS TO OBLIGATION TO CLOSE.............................27
---------------------------------
(a) CONDITIONS TO OBLIGATION OF BUYER....................27
---------------------------------
(b) CONDITIONS TO OBLIGATION OF SELLER...................28
----------------------------------
7. INDEMNIFICATION...............................................29
---------------
(a) SURVIVAL.............................................29
--------
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER......29
-----------------------------------------------
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER.....30
------------------------------------------------
(d) MATTERS INVOLVING THIRD PARTIES......................30
-------------------------------
(e) MATTERS INVOLVING THE PARTIES........................31
-----------------------------
8. MISCELLANEOUS.................................................31
-------------
(a) PRESS RELEASES AND ANNOUNCEMENTS.....................31
--------------------------------
(b) NO THIRD PARTY BENEFICIARIES.........................32
----------------------------
(c) ENTIRE AGREEMENT.....................................32
----------------
(d) SUCCESSION AND ASSIGNMENT............................32
-------------------------
(e) COUNTERPARTS.........................................32
------------
(f) HEADINGS.............................................32
--------
(g) NOTICES..............................................32
-------
(h) GOVERNING LAW........................................33
-------------
(i) AMENDMENTS AND WAIVERS...............................33
----------------------
(j) SEVERABILITY.........................................34
------------
(k) EXPENSES.............................................34
--------
(l) CONSTRUCTION.........................................34
------------
(m) INCORPORATION OF EXHIBITS AND SCHEDULES..............34
---------------------------------------
(n) SPECIFIC PERFORMANCE.................................35
--------------------
(o) CERTAIN TAXES AND COSTS..............................35
-----------------------
(p) DISCLAIMER REGARDING ACQUIRED ASSETS.................35
------------------------------------
(q) DISCLAIMER REGARDING FORWARD-LOOKING INFORMATION.....36
------------------------------------------------
</TABLE>
EXHIBITS
Exhibit A Financial Statements
Exhibit B Sales Representative Agreement
<PAGE> 4
Exhibit FS-1 Adjustments for determining Non-Cash Working Capital
SCHEDULES
Real Property Schedule
Equipment Schedule
Vehicles Schedule
Intellectual Property Schedule
Contract Schedule
Excluded Assets Schedule
Seller's Inventor Practices Schedule
Disclosure Schedule
Consents Schedule
Schedule of Additional Indemnified Matters
<PAGE> 5
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "AGREEMENT") is entered into as of
December 31, 1996, by and between DAY INTERNATIONAL, INC., a Delaware
corporation (the "BUYER"), and FLINT INK CORPORATION, a Michigan corporation
(the "SELLER"). Buyer and Seller are referred to collectively herein as the
"PARTIES" and each individually as a "PARTY."
RECITALS:
Buyer desires to purchase from Seller, and Seller desires to sell to
Buyer, certain assets of the Seller that are used in the Business (as defined
below), and in connection with the consummation of that transaction, both the
Parties desire to enter into certain related agreements.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"1995 STATEMENTS" has the meaning set for in Section 3(d) below.
"ACQUIRED ASSETS" has the meaning set forth in Section 2(a) below.
"ADJUSTED CLOSING NON-CASH WORKING CAPITAL" means the amount, whether
positive or negative, equal to the difference of (a) the Non-cash Current Assets
of the Division as reflected on the Closing Date Balance Sheet (as adjusted to
reflect the matters and adjustments described on EXHIBIT FS-1) minus (b) the
Current Liabilities of the Division as reflected on the Closing Date Balance
Sheet (as adjusted to reflect the matters and adjustments described on EXHIBIT
FS-1). The Servicom Receivable shall be recorded as a Current Asset at its
discounted value as of December 31, 1996, assuming payments of $7,600 per month,
using a discount rate of 8% per annum, compounding annually.
"ADJUSTED INITIAL NON-CASH WORKING CAPITAL" means the amount, whether
positive or negative, equal to the difference of (a) the Non-cash Current Assets
of the Division as reflected on the June 30, 1996 Balance Sheet (as adjusted to
reflect the matters and adjustments described on EXHIBIT FS-1) minus (b) the
Current Liabilities of the Division as reflected on the June 30, 1996 Balance
Sheet (as adjusted to reflect the matters and adjustments described on EXHIBIT
FS-1). The Servicom Receivable shall be recorded as a Current Asset at its
discounted value as of December 31, 1996, assuming payments of $7,600 per month,
using a discount rate of 8% per annum, compounding annually.
"ADVERSE CONSEQUENCES" means any and all charges, complaints, actions,
suits,
<PAGE> 6
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses
(including lost profits), expenses, and fees, including all reasonable
attorneys' fees and court costs (but excluding indirect, incidental and
consequential damages actually incurred by the party seeking indemnification).
"AFFILIATE" an "affiliate" or, or person "affiliated" with, a
specified person, is a Person that directly, or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is Under Common Control with,
the Person specified.
"AGREEMENT" has the meaning set forth in the preface above.
"ASSUMED EMPLOYEE LIABILITIES" means liabilities for (a) accrued
overtime, (b) accrued Divisional salesman's commissions, (c) incentive pay for
E. G. Mills (including retention pay liabilities under that certain agreement
dated August 21, 1996, between Seller and Ewell G. Mills) and Herbert Mycroft,
(d) accrued vacation pay, and (e) any payroll tax expense associated with
clauses (a)-(d) above, in each case incurred in the Ordinary Course of Business
in respect of employees of the Division to the extent such liabilities are on
the Closing Date Balance Sheet.
"ASSUMED LIABILITIES" means (a) all trade accounts payable of the
Division outstanding on the Closing Date, incurred in the Ordinary Course of
Business of the Division and reflected on the Closing Date Balance Sheet, (b)
the Assumed Employee Liabilities (c) the commission payable in respect of duty
drawback, not to exceed $20,000, to the extent on the Closing Date Balance
Sheet, and (d) those executory obligations of Seller under the licenses,
sublicenses, leases, subleases, contracts and other arrangements that are
included among the Acquired Assets either (i) to furnish goods, services or
other non-cash benefits to another Person after Closing, or (ii) to pay for
goods, services and other non-cash benefits that another Person will furnish to
it after Closing; PROVIDED, HOWEVER, that the Assumed Liabilities shall not
include any Excluded Liabilities.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"BENEFIT PLAN" has the meaning set forth in Section 3(m)(i) below.
"BOOKS AND RECORDS" has the meaning set forth in Section 2(a)(x)
below.
"BUSINESS" means the manufacturing, sales and distribution of printing
blankets, including Quanta Lith Blue and Green sheet-fed printing blankets.
"BUSINESS EMPLOYEE" means any employee of the Division (whether
part-time or full-time, temporary or permanent, exempt or non-exempt) who is
employed by the Division and
-2-
<PAGE> 7
whose primary duties relate to, or who spends a majority of his compensable time
involved in, the operation of the Business.
"BUYER" has the meaning set forth in the preface above.
"BUYER INDEMNIFIED PARTY" or "BUYER INDEMNIFIED PARTIES" has the
meaning set forth in Section 8(b) below.
"CLAIMS" has the meaning set forth in Section 2(a)(ix) below.
"CLOSING" has the meaning set forth in Section 2(f) below.
"CLOSING DATE" has the meaning set forth in Section 2(f) below.
"CLOSING DATE BALANCE SHEET" means an audited statement of the net
assets of the Division purchased hereunder of the Division as of the Closing
Date, prepared in accordance with GAAP, applying the accounting principles used
by Seller in the preparation of the Financial Statements.
"CLOSING PAYMENT" has the meaning set forth in Section 2(d) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONFIDENTIAL INFORMATION" means any proprietary, confidential or
nonpublic information concerning Seller, the operation of the Division or the
conduct of the Business supplied in writing by Seller to Buyer.
"CONTRACTS" has the meaning set forth in Section 2(a)(viii) below.
"CONTROL" (including, with correlative meaning, the terms,
"CONTROLLING" "CONTROLLED BY," and UNDER COMMON CONTROL") means, with respect to
any Person, the ability of another Person to control or direct the actions and
policies of such first Person, either directly or through one or more
intermediaries, whether by ownership of voting securities, by contract or
otherwise.
"CURRENT LIABILITIES" means the current liabilities of the Division as
reflected in the balance sheet of the Division in the Ordinary Course of
Business, consistent with past practice; provided, however that Current
Liabilities shall not include any Excluded Liabilities.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 3 below.
"DIVISION" means the David M Company division of the Seller.
-3-
<PAGE> 8
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, state,
local and foreign statutes, regulations, ordinances and similar provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
"EQUIPMENT" has the meaning set forth in Section 2(a)(iv) below.
"ERISA" has the meaning set forth in Section 3(m)(i) below.
"EXCLUDED ASSETS" has the meaning set forth in Section 2(b) below.
"EXCLUDED LIABILITIES" means (a) any liability or obligation of the
Seller not related to the Division or the Business, (b) any Liability for Taxes
(including federal, state, local and foreign income, franchise, gross receipts
taxes or other taxes based on or measured by income) of the Division (other than
Taxes (excluding taxes based on or measured by income) for which an (and only to
the extent of such) accrual is reflected on the Closing Date Balance Sheet), (c)
any Liability arising with respect to or in connection with any Benefit Plan and
any other "employee benefit plan" (as such term is defined in Section 3(3) of
ERISA) at any time maintained or contributed to by (or required to be maintained
or contributed to by) any entity that, together with Seller, is treated as a
single employer under Section 414 of the Code, (d) any Liability of the Seller
in respect of indebtedness for money borrowed or the deferred purchase price of
any property or services (other than the Assumed Liabilities), (e) except to the
extent specifically included in the definition of Assumed Liabilities, payroll
(or payroll related expenses), profit sharing, bonuses, commissions, vacation,
savings, pension, health or post-retirement benefits provided by Seller to
Business Employees, (f) Liability arising out of the death or injury of any
person or damage to property as a result of the ownership, possession or use by
any Person of any product manufactured or sold by the Business prior to Closing,
(g) any intercompany liability of the Division to the Seller or its Affiliates
and (h) any liability or obligation of the Seller arising prior to Closing (or
the Basis for which arose prior to Closing) for: (i) any breach of contract,
breach of warranty, tort, infringement, or violation of law, (ii) any charge,
complaint, action, suit, proceeding, hearing, investigation, claim or demand,
(iii) all employment-related liabilities and claims with respect to the Business
Employees and former Business Employees (including any Transferred Employees),
(iv) any Liability (including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages, and
attorneys' fees) arising under any Environmental and Safety Requirements
relating to the Real Property or the conduct of the Business, (v) the currency
risk sharing arrangement contained in Article IV, Section A.4. of the Amended
and Restated
-4-
<PAGE> 9
Converter Distributor Agreement between Seller and Charles Openshaw
and Sons, Ltd, dated September 1992 with respect to sales made prior to Closing,
(vi) Liabilities relating to international trade matters including U.S. export
controls, embargos and antibribery provisions, and (vii) Liabilities relating to
the European joint venture proposed in the letter dated September 14, 1992 to
Charles Openshaw and Sons, Ltd. Notwithstanding the foregoing, the Assumed
Employee Liabilities shall not constitute Excluded Liabilities.
"FACILITIES" means the facilities of the Division located at 201
Valentine Way, Longwood, Florida 32750.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 3(d)
below.
"FISCAL YEAR" means, with respect to any Person, the annual accounting
period adopted by such Person for financial reporting purposes.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GOVERNMENT CONTRACT BID" means the bid for a government contract
dated April 26, 1996 (identified as Requisition/Purchase Request No. 96SK-0026 &
96SK-0037) in the name of the Division, as contractor, to supply
Elastomeric-Coated Fabric (Drawsheet) to the Department of the Treasury, Bureau
of Engraving & Printing.
"HAZARDOUS MATERIAL" shall mean anything that is a "hazardous
substance" pursuant to the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA"), any substance that is a
"solid waste" or "hazardous waste" pursuant to the federal Resource Conservation
and Recovery Act, any pesticide, pollutant, contaminant, toxic chemical,
petroleum product or byproduct, asbestos, polychlorinated biphenyl or any
radioactive substance the use, transportation, storage or disposal of which is
regulated by any Federal, state or local law, rule or regulation.
"INDEMNIFIED PARTY" has, with respect to each of Section 7(d) and
Section 7(e), the meaning set forth in such Section.
"INDEMNIFYING PARTY" has, with respect to each of Section 7(d) and
Section 7(e), the meaning set forth in such Section.
"INTELLECTUAL PROPERTY" means all (a) patents, patent applications,
patent and invention disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate names and
registrations and applications for registration thereof, (c) copyrights and
registrations and applications for registration thereof, (d) mask works and
registrations and applications for registration thereof, (e) proprietary
computer software, data, and documentation, (f) trade secrets and confidential
business information (including ideas,
-5-
<PAGE> 10
formulas, compositions, inventions (whether patentable or unpatentable and
whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (g) other
proprietary rights, and (h) copies and tangible embodiments thereof (in whatever
form or medium).
"INVENTORY" has the meaning set forth in Section 2(a)(iii) below.
"IRS" means the Internal Revenue Service.
"JUNE 30, 1996 BALANCE SHEET" has the meaning set forth in Section
3(d) below.
"KNOWLEDGE" means actual knowledge after reasonable investigation.
"LIABILITY" means any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due), including any liability for Taxes.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
charge, or other lien.
"NON-CASH CURRENT ASSETS" means all inventory, Receivables, duty
receivables, petty cash, employee advances, and deposits of the Division
reflected on the balance sheet of the Division as a current asset in the
Ordinary Course of Business, consistent with past practice.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"OTHER AGREEMENT" means the Sales Representative Agreement.
"PARTY" or "PARTIES" has the meaning set forth in the preface above.
"PERMITS" has the meaning set forth in Section 2(a)(vi) below.
"PERSON" means an individual, a partnership, a joint venture, a
corporation, an association, a joint stock company, a limited liability company,
a trust, an unincorporated organization or a government or any department or
agency or political subdivision thereof.
"PURCHASE PRICE" has the meaning set forth in Section 2(d) below.
"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in Section 2(e)
below.
-6-
<PAGE> 11
"RECEIVABLES" has the meaning set forth in Section 2(a)(ii) below.
"REAL PROPERTY" has the meaning set forth in Section 2(a)(i) below.
"RELEASE" shall have the meaning set forth in the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980.
"RETURNED PRODUCT" means any product of the Division manufactured and
sold by the Division (including intracompany sales to Seller or its Affiliates
by the Division and sales to distributors, dealers and converters) prior to the
Closing that is returned to Buyer by any customer, dealer, distributor or
converter after the Closing for refund, credit or replacement (or which is
returnable but which is not returned to Buyer on account of a concession, credit
or refund granted to such customer) under the terms of any warranty issued (or
guaranteed) by the Seller in connection therewith or due to defect, failure to
meet specifications or other quality problems with such product.
"RETURNED PRODUCT COST" means, with respect to any Returned Product,
an amount equal to (a) the aggregate amount refunded or credited by Buyer to its
customer in respect of such Returned Product in the case of Returned Product not
replaced by Buyer, or (b) the aggregate price that would otherwise be charged by
Buyer to its customers for product which is delivered by Buyer to its customer
in replacement of such Returned Products (less any amount paid by such customer
in respect of such Returned Product). Any refunds or credits which exceed the
cost to the customer of such product or which do not bear a reasonably direct
relationship to the loss suffered by the customer on account of such defect
shall not constitute Returned Product Cost.
"SALES REPRESENTATIVE AGREEMENT" means the Sales Representative
Agreement to be entered into between Buyer and Seller on the Closing Date, the
form of which is attached hereto as EXHIBIT B.
"SECTION 5(i) PAYMENTS" has the meaning set forth in Section 5(l)
below.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SELLER" has the meaning set forth in the preface above.
"SELLER INDEMNIFIED PARTY" or "SELLER INDEMNIFIED PARTIES" has the
meaning set forth in Section 8(c) below.
"SEPTEMBER 30, 1996 STATEMENTS" has the meaning set forth in Section
3(d) below.
"SERVICOM RECEIVABLE" means the indebtedness evidenced by a letter
from the
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Division to Servicom Pacific, dated November 23, 1996.
"SUBSIDIARY" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of sufficient
securities to elect directors having a majority of the voting power of the board
of directors of such corporation.
"SWDA" has the meaning set forth in Section 3(o)(v) below.
"TAX" means any federal, state, local, or foreign license, payroll,
employment, excise, severance, stamp, occupation, premium, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum, estimated, or other tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim or refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TITLE COMPANY" has the meaning set forth in Section 6(a)(viii) below.
"TRANSFERRED EMPLOYEE" has the meaning set forth in Section 5(e)
below.
"TRANSFER TAXES" has the meaning set forth in Section 8(o) below.
"TRANSFER TAX RETURNS" has the meaning set forth in Section 8(o)
below.
"VEHICLES" has the meaning set forth in Section 2(a)(v) below.
"WARN ACT" means the Worker Adjustment Retraining and Notification Act
of 1988, as amended.
2 PURCHASE AND SALE.AND SALE
(a) PURCHASE AND SALE OF ASSETS. On and subject to the terms and
conditions of this Agreement, at the Closing, Seller shall convey, sell,
transfer, assign and deliver to Buyer, and Buyer shall purchase from Seller all
right, title and interest of Seller on the Closing Date in and to all of the
assets, properties and rights, tangible or intangible, of Seller (other than the
Excluded Assets) that are located at the Facilities, are used primarily by the
Business or are otherwise listed or described on any Schedule referred to in
this Section 2(a) (collectively, the "ACQUIRED ASSETS"), including the
following:
(i) all real property, leaseholds and subleaseholds therein,
buildings, improvements, fixtures and fittings thereon, and easements,
licenses, rights-of-way and
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other appurtenances thereto that are listed or described on the REAL
PROPERTY SCHEDULE (collectively, the "REAL PROPERTY");
(ii) all accounts receivable and notes receivable of the Seller
that arise with respect to the Division or the conduct of the Business
including the Servicom Receivable (collectively, the "RECEIVABLES");
(iii) Seller's inventory of supplies and service parts, raw
materials, component parts, work in process, scrap and finished goods
which constitute, or are used primarily in the manufacture, assembly,
service or repair of, the products of the Business, whether
manufactured by Seller or purchased from a third party, and whether
located at the Facilities, at another of the Seller's facilities, at
any warehouse or storage facility, in the custody of any customer,
supplier, fabricator or other Person, or in transit (collectively, the
"INVENTORY");
(iv) all machinery, equipment, spare parts, patterns, racking,
pallets, pallet jacks, forklift and other material-handling equipment,
office furniture, furnishings, fixtures, business machines,
laboratory, data processing, office and telephone equipment, office
and administrative supplies, environmental control equipment,
maintenance and janitorial equipment and all other tangible personal
property that is located at the Facilities or is used primarily by the
Business, including the property listed or described on the EQUIPMENT
SCHEDULE (collectively, the "EQUIPMENT");
(v) the motor vehicles, railroad cars and other rolling stock
listed or described on the VEHICLES SCHEDULE (collectively, the
"VEHICLES");
(vi) all franchises (if any), licenses, permits, consents and
certificates of any regulatory, administrative or other government
agency or body issued to or held by Seller that are necessary to the
conduct of the Business (to the extent the same may be transferred to
Buyer) (collectively, the "PERMITS");
(vii) all Intellectual Property used primarily in the conduct of
the Business, goodwill associated therewith, licenses, sublicenses,
agreements and permissions granted and obtained with respect thereto,
and rights thereunder, remedies against infringement thereof, and
rights to protection of interests therein under the laws of all
jurisdictions, including all Intellectual Property listed on the
INTELLECTUAL PROPERTY SCHEDULE;
(viii) all contracts, leases, agreements, contract rights,
license agreements, franchise rights and agreements (if any), policies
(if any), purchase and sales orders, quotations and other executory
commitments of Seller related substantially exclusively to the
operation of the Business that are listed on the CONTRACTS SCHEDULE
(collectively, the "CONTRACTS");
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(ix) all deposits, prepaid expenses, employee advances, claims,
causes of action, choses in action, rights of recovery and rights of
recoupment or set-off of whatever kind or description of Seller to or
against any Person arising out of or relating to the Business or the
Acquired Assets (collectively, the "CLAIMS"); and
(x) all books, records, ledgers, files, documents,
correspondence, lists, drawings, plans, papers, briefs, creative
materials, advertising and promotional materials, instructional
manuals, studies, reports and other written materials in existence on
the Closing Date and relating substantially exclusively to the
Business, the Business Employees or the Acquired Assets (collectively,
the "BOOKS AND RECORDS"); PROVIDED, that Seller may retain originals
of accounting and tax records and provide copies thereof to Buyer.
Notwithstanding the foregoing, to the extent that the assignment hereunder of
any permit, lease, license, sublease, sublicense, right, claim, cause of action
or other asset shall require the consent of any third party or parties (or in
the event that any of the same shall be nonassignable), neither this Agreement
nor any action taken pursuant hereto shall constitute an assignment or an
agreement to assign if such assignment or attempted assignment would constitute
a breach thereof or result in the loss or diminution thereof.
(b) EXCLUDED ASSETS. Notwithstanding Section 2(a), the following
assets, properties and rights, tangible or intangible, of Seller (collectively,
the "EXCLUDED ASSETS") are expressly excluded from this purchase and sale and
are not included in the Acquired Assets:
(i) all cash (other than petty cash), cash equivalents, marketable
securities, short-term investments and accounts receivable and notes
receivable (other than the Receivables);
(ii) Seller's corporate charter, qualifications to conduct business as
a foreign corporation, arrangements with registered agents relating to
foreign qualifications, taxpayer and other identification numbers, seals,
minute books, stock transfer books, blank stock certificates, and other
documents relating to the organization, maintenance and existence of Seller
as a corporation;
(iii) any capital stock or securities of any Subsidiary of Seller;
(iv) Seller's rights under or pursuant to this Agreement;
(v) intercompany receivables from Seller or its Affiliates to the
Division; and
(vi) any of Seller's assets listed on the EXCLUDED ASSETS SCHEDULE.
(c) ASSUMPTION OF LIABILITIES. On and subject to the terms and
conditions of
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this Agreement, at the Closing, Buyer shall assume and become responsible for
all of the Assumed Liabilities as of the Closing Date.
(d) PURCHASE PRICE. In consideration for its purchase of the
Acquired Assets, Buyer agrees to (i) assume the Assumed Liabilities and (ii) pay
to Seller an aggregate amount (the "PURCHASE PRICE") equal to $11,218,000 (the
"CLOSING PAYMENT"), as adjusted after the Closing Date pursuant to the
provisions of Section 2(e). On the Closing Date, Buyer shall assume the Assumed
Liabilities and pay to Seller the Closing Payment. The Closing Payment shall be
paid on the Closing Date by a wire transfer of immediately available funds
(denominated in U.S. dollars) to The Northern Trust Company, Chicago, Illinois,
ABA# 071000152, Account # 90050.
(e) PURCHASE PRICE ADJUSTMENT. Within sixty (60) days after the
Closing Date, Buyer shall deliver to Seller (i) the Closing Date Balance Sheet
and (ii) Buyer's calculation of the Adjusted Initial Non-Cash Working Capital
and the Adjusted Closing Non-Cash Working Capital. For purposes of this Section,
inventory will be valued using Seller's standard practices and procedures
including specifically those procedures related to obsolete, slow moving and off
standard inventory. Such practices and procedures are described in the SELLER'S
INVENTORY PRACTICES SCHEDULE. Seller may object to Buyer's calculations and
Buyer and Seller shall cooperate in good faith and shall use reasonable efforts
to resolve any such objections, but if they do not obtain a final resolution
within sixty (60) days after Buyer has delivered the items described in clauses
(i) and (ii) above, Buyer and Seller will select an accounting firm mutually
acceptable to them to resolve any remaining objections. If Buyer and Seller are
unable to agree on the choice of an accounting firm, they will select a
so-called "big six" accounting firm by lot (after excluding Deloitte & Touche).
The fees and expenses of such accounting firm shall be borne equally by the
Parties, and the determination of such accounting firm will be conclusive and
binding upon the Parties. If the Adjusted Closing Non-Cash Working Capital is
greater than the Adjusted Initial Non-Cash Working Capital, then the Buyer shall
remit to Seller the amount of such excess, and if the Adjusted Closing Non-Cash
Working Capital is less than the Adjusted Initial Non-Cash Working Capital, then
the Seller shall remit to Buyer the amount of such deficiency, in each case by a
wire transfer of immediately available funds (denominated in U.S. dollars) to
the recipient's account within three business days after such amounts are
finally determined pursuant to this Section 2(e), with interest on such amount
from and after the Closing Date through but excluding the date of payment at 8%
per annum. Any payments to Buyer pursuant to this Section 2(e) shall be paid
Provident Bank, Cincinnati, Ohio, ABA# 042000424, credit Day International,
Inc., Account# 0847-965.
(f) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of Kirkland &
Ellis, 655 Fifteenth Street, N.W., Suite 1200, Washington, D.C. 20005,
commencing at 10:00 a.m. local time on the date of this Agreement (the
"CLOSING DATE").
(g) DELIVERIES AT THE CLOSING. At the Closing, (i) Seller will
deliver to Buyer
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the various certificates, instruments, and documents referred to in Section 7(a)
below; (ii) Buyer will deliver to Seller the various certificates, instruments,
and documents referred to in Section 7(b) below; (iii) Seller will execute,
acknowledge (if appropriate), and deliver to Buyer any deed, assignments, and
bills of sale (in recordable form where appropriate and accompanied by any
necessary third party consents) and such other instruments of sale, transfer,
conveyance, and assignment as Buyer and its counsel may reasonably request; (iv)
Buyer will execute and deliver to Seller an assumption of the Assumed
Liabilities; and (v) Buyer will deliver to Seller the Closing Payment.
(h) PURCHASE PRICE ALLOCATION. The Parties agree to cooperate in the
preparation and filing of an asset acquisition statement (Form 8594) and
supplements thereto as applicable and to allocate the Purchase Price among the
Acquired Assets for all purposes (including financial accounting and tax
purposes) in accordance with such allocation.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer that the statements contained
in this Section 3 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though then made and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3), except as set forth in the disclosure schedule
attached to this Agreement and initialed by the Parties as of the date hereof
(the "DISCLOSURE SCHEDULE").
(a) ORGANIZATION OF SELLER. Seller is a corporation validly existing
and in good standing under the laws of the State of Michigan. Seller has full
power and authority to own or lease the properties and assets used in the
operation of the Division and the conduct of the Business as currently
conducted. Seller is duly qualified to transact business as a foreign or alien
corporation in each jurisdiction where the ownership of assets of the Business,
the operation of the Division or the conduct of the Business requires Seller to
so qualify.
(b) AUTHORIZATION OF TRANSACTION. Seller has full corporate power and
authority to execute and deliver this Agreement and the Other Agreements and to
perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the Other Agreements by Seller have been duly
authorized by all necessary corporate action on behalf of Seller (including
approval by the board of directors of Seller). This Agreement constitutes a
valid and legally binding obligation of Seller, enforceable against Seller in
accordance with its terms and conditions. Each of the Other Agreements will,
upon its execution and delivery by all the parties thereto, constitute a valid
and legally binding obligation of Seller, enforceable against Seller in
accordance with its terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement and the Other Agreements by Seller, nor the consummation of the
transactions contemplated hereby and thereby, will (i) violate any statute,
regulation, rule, judgment, order,
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decree, stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which Seller is subject or any provision of the
certificate of incorporation or bylaws of Seller, (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, or other agreement, instrument or arrangement to which Seller is a
party or by which it is bound or to which any of the Acquired Assets is subject
or (iii) result in the imposition of any Lien upon any of the Acquired Assets.
Seller is not obligated to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement and the Other Agreements.
(d) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT A are the
following financial statements for the Division (collectively, the "FINANCIAL
STATEMENTS"): (i) a reviewed, unaudited balance sheet as at, and reviewed,
unaudited statements of income for the twelve months ended December 31, 1995
(the "1995 STATEMENTS"), (ii) a reviewed balance sheet as at June 30, 1996 (the
"JUNE 30, 1996 BALANCE SHEET"), and (iii) an audited balance sheet as at, and
audited statements of income and cash flows for, the nine months ended September
30, 1996 (the "SEPTEMBER 30, 1996 STATEMENTS"). The Financial Statements have
been prepared in accordance with GAAP and Seller's accounting procedures (which
are consistent with GAAP) applied on a consistent basis throughout the periods
covered thereby, and fairly present the financial condition and the operating
results of the Division at the dates and for the periods covered thereby (in
each case, applying a materiality standard determined by reference to the
Division and the Business rather than the Seller and its consolidated
operations), and are consistent with the books and records of Seller with
respect to the Division (which books and records are correct and complete);
PROVIDED, HOWEVER, that the unaudited Financial Statements may lack footnotes
and other presentation items.
(e) RECENT EVENTS. Since December 31, 1995 there has not been any
material adverse change in the business, assets, liabilities, financial
condition, operations, results of operations, or, to the Seller's Knowledge,
prospects of the Business. Without limiting the generality of the foregoing,
since that date, except as consented to by Buyer in writing pursuant to Section
5(d) hereto:
(i) Seller has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, used principally in the operation of the
Division or the conduct of the Business (other than sales from inventory
for fair consideration in the Ordinary Course of Business);
(ii) Seller has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to any of the Acquired Assets;
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(iii) Seller has not made any loan to, or entered into any other
transaction with, any of the Business Employees outside the Ordinary Course
of Business giving rise to any claim or right on its part against the
individual or on the part of the individual against it;
(iv) Seller has not granted any increase outside the Ordinary Course
of Business in the base compensation of any of the Business Employees;
(v) Seller has not adopted any (A) bonus, (B) profit-sharing, (C)
incentive compensation, (D) pension, (E) retirement, (F) medical,
hospitalization, life, or other insurance, (G) severance, or (H) other
plan, contract, or commitment for any of the Business Employees, or
modified or terminated any existing such plan, contract, or commitment;
(vi) Seller has not made any other change in employment terms for
any of the Business Employees;
(vii) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Business or the Acquired Assets; and
(viii) Seller has not committed to any of the foregoing.
(f) TANGIBLE ASSETS. Seller owns, or has good and valid leasehold
interest, license or right in each of the Acquired Assets, free and clear of all
Liens, encroachments, defects in title or restrictions on transfer. Except for
the carbon bed replacement for the solvent recovery unit, to the Knowledge of
Seller (which shall be limited to the Knowledge of the corporate executives of
Seller other than E.G. Mills), the machinery, equipment, vehicles, furniture,
fixtures and other similar tangible assets included among the Acquired Assets
are in good condition and repair, ordinary wear and tear excepted. Section 3(f)
of the Disclosure Schedule sets forth a legal description of each parcel of the
Real Property. Seller is not a party to any lease, sublease, occupancy agreement
or similar agreement or arrangement covering any real property (other than
leases of real property that are not included among the Acquired Assets). To the
Knowledge of Seller (which shall be limited to the Knowledge of the corporate
executives of Seller other than E.G. Mills), the buildings, improvements,
fixtures and fittings located at the Real Property are in good condition and
repair, ordinary wear and tear excepted. The Real Property and all buildings,
improvements, fixtures and fittings located thereon conform in all material
respects to all applicable building, zoning and other laws, ordinances, rules,
and regulations. All permits, licenses and other approvals necessary to the
current occupancy and use of the Real Property have been obtained or applied
for, are in full force and effect, and, to Seller's Knowledge, have not been
violated in any material respect. Section 3(f) of the Disclosure Schedule sets
forth a list of all such permits, licenses and other approvals. Seller has not
received any notice, report or other information regarding any actual or alleged
violation of any
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permit, license or other approval necessary to the current occupancy and use of
the Real Property. There exists no material violation of any covenant,
condition, restriction, easement, agreement or order affecting any portion of
the Real Property. All improvements located on the Real Property have direct
access to a public road adjoining such Real Property. No such improvements or
accessways encroach on land not included in the Real Property and no such
improvement is dependent for its access, operation or utility on any land,
building or other improvement not included in the Real Property. There is no
pending or, to the Seller's Knowledge, any threatened condemnation proceeding
affecting any portion of the Real Property.
(g) INTELLECTUAL PROPERTY.
(i) Seller owns, or has the right to use pursuant to license,
sublicense, agreement or permission, all Intellectual Property necessary
for the operation of the Business as presently conducted and, with respect
to the printing blanket products listed on Section 3(g) of the Disclosure
Schedule, as presently proposed to be conducted. Each such item of
Intellectual Property owned or used by Seller immediately prior to the
Closing hereunder will be owned or available for use by Buyer on identical
terms and conditions immediately after the Closing. Seller has taken all
necessary and appropriate action to protect each item of Intellectual
Property that it owns or uses in connection with the Business.
(ii) Seller has not, in connection with the operation of the Business,
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with, any Intellectual Property rights of third parties, and
Seller has not received any charge, complaint, claim, or notice alleging
any such interference, infringement, misappropriation, or violation. To
Seller's Knowledge, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with, any Intellectual
Property rights of Seller with respect to the Intellectual Property used
primarily in the operation of the Business.
(iii) Section 3(g) of the Disclosure Schedule identifies each patent
or registration which has been issued to Seller with respect to any of its
Intellectual Property used primarily in the Business, identifies each
pending patent application or application for registration which Seller has
made with respect to any of its Intellectual Property used primarily in the
Business, and identifies each license, sublicense, agreement, or other
permission which Seller has granted to any third party with respect to any
of its Intellectual Property used primarily in the Business (together with
any exceptions). Seller has made available to Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
sublicenses, agreements, and permissions (as amended to date) and has made
available to Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each
such item. With respect to each item of Intellectual Property used
primarily in the Business that Seller owns:
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(A) Seller possesses all right, title, and interest in and
to the item;
(B) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
(C) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending or, to the Seller's
Knowledge, is threatened, which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(D) Seller has not agreed to indemnify any person or entity
for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(iv) Section 3(g) of the Disclosure Schedule also identifies each item
of Intellectual Property used by Seller primarily in the Business that any third
party owns and that Seller has a right to use pursuant to license, sublicense,
agreement, or permission. Seller has supplied Buyer with correct and complete
copies of all material licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each such item of used Intellectual Property:
(A) the license, sublicense, agreement, or permission
covering the item is valid and in full force and effect;
(B) the license, sublicense, agreement, or permission will
continue to be valid and in full force and effect on identical terms
immediately following the Closing;
(C) neither Seller, nor, to Seller's Knowledge, any other
party to the license, sublicense, agreement, or permission is in
breach or default thereof, no event has occurred which with notice or
lapse of time would constitute a breach or default thereof by Seller,
or, to the Seller's Knowledge, constitute a breach or a default
thereof by any other party thereto, and no event has occurred that
would permit termination, modification, or acceleration thereunder by
any other party thereto;
(D) Seller has not repudiated, and to the Seller's
Knowledge, no other party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with
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respect to the underlying license;
(F) to the Seller's Knowledge, the underlying item of
Intellectual Property is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
(G) no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand is pending to which Seller is a party,
or, to the Seller's Knowledge, is pending against any other Person or
is threatened, which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property; and
(H) Seller has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(h) CONTRACTS. Section 3(h) of the Disclosure Schedule lists the
following contracts, agreements, and other written arrangements to which Seller
is a party:
(i) agreements or instruments imposing a Lien on any of the Acquired
Assets;
(ii) any letters of credit or similar arrangements relating to the
Division;
(iii) guaranties of any obligation for borrowed money or otherwise,
other than endorsements made for collection, and any other similar or
related type of agreement relating to the Division;
(iv) any bonus, pension, profit sharing, retirement and other forms of
deferred compensation plans for any Business Employees;
(v) any health and welfare, insurance and other employee benefit plans
(including retiree health plans) for any Business Employees;
(vi) any employment agreements with any Business Employee or other
person on a full-time or consulting basis providing for an annual
compensation in excess of $25,000 or providing for the payment of any cash
or other compensation upon the sale of the Division or any collective
bargaining agreement relating to any of the Business Employees with any
union or other employee representatives;
(vii) any management, consulting or advisory agreements, severance
plans or arrangements for any present or former Business Employees;
(viii) any non-disclosure agreements and non-compete agreements
binding present and former Business Employees;
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(ix) any agreement under which the Division (or the Seller on behalf
of the Division) is lessee of or holds or operates any real property or any
personal property for which the annual rental exceeds $25,000;
(x) any agreement under which the Division (or the Seller on behalf of
the Division) is lessor of or permits any third party to hold or operate
any property, real or personal, for which the annual rental exceeds
$25,000;
(xi) any agreement or group of related agreements between the Division
(or the Seller on behalf of the Division) and the same party for the sale
or purchase of products or services under which the undelivered balance of
such products and services exceeds $25,000 as of 12:00 p.m. on December 30,
1996;
(xii) any other agreement or group of related agreements between the
Division (or the Seller on behalf of the Division) and the same party
continuing over a period of more than six months from the date or dates
thereof, not terminable by it on 30 days' or less notice without penalty or
involving more than $25,000;
(xiii) any agreement relating to ownership of or investments in any
business or enterprise (including investments in joint ventures and
minority equity investments) by the Division (or the Seller on behalf of
the Division);
(xiv) any powers of attorney granted by or on behalf of the Division
(including those granted to customs brokers) and other agency agreements;
(xv) any agreement which prevents the Division (or the Seller on
behalf of the Division) from disclosing confidential information or which
prohibits the Division (or the Seller on behalf of the Division) from
freely engaging in business anywhere in the world;
(xvi) any sales distribution agreements, franchise agreements and
advertising agreements relating to the Division;
(xvii) any indemnity agreement against or in favor of the Seller
relating to the Division; and
(xviii) (A) any other written agreement material to the Business or
the Division and (B) any oral agreements which in the aggregate involve
amounts of more than $100,000, require the delivery of goods or services
with aggregate values exceeding $100,000, or which otherwise imposes
limitations or burdens on the operation of the Business that could
reasonably be expected to cause a loss or damage to the Buyer of more than
$100,000.
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Seller has delivered to Buyer a true and complete copy of each written
arrangement listed in Section 3(h) of the Disclosure Schedule (as amended to
date), PROVIDED that each item listed in Section 3(h) of the Disclosure Schedule
shall be deemed delivered if it is located on the Real Property, has been made
available to Buyer and is not inconsistent with copies of such documents
actually delivered to the Buyer or its representatives. With respect to each
written arrangement so listed: (A) the written arrangement is valid and in full
force and effect; (B) Seller is not, and to the Seller's Knowledge, no other
party thereto is, in breach or default of a material term thereof; (C) no event
has occurred which, with notice, or lapse of time or both, would constitute a
breach or default thereof by Seller, or to the Seller's Knowledge, constitute a
breach or default thereof by any other party thereto; (D) no event has occurred
that would permit termination, modification, or acceleration thereof by any
other party thereto; and (E) Seller has not repudiated, and to the Seller's
Knowledge, no other party thereto has repudiated any provision thereof. Seller
is not a party to any verbal contract, agreement, or other arrangement which, if
reduced to written form, would be required to be listed in Section 3(h) of the
Disclosure Schedule under the terms of this Section 3(h).
(i) TAX MATTERS. The Division has (or the Seller, with respect to
the Division has) filed all Tax Returns that it was required to file. All such
Tax Returns were correct and complete in all respects. All Taxes owed by the
Division (whether or not shown on any Tax Return) have been or will be paid as
due. There are no Liens on any of the assets of the Division that arose in
connection with any failure (or alleged failure) to pay any Tax. The Seller has,
with respect to the Division, withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any Business
Employee, independent contractor, creditor, stockholder, or other third party
that has performed services for the Division.
(j) LITIGATION. Section 3(j) of the Disclosure Schedule sets
forth each instance in which, with respect to the operation of the Division, the
conduct, acts, omissions or status of any Business Employees, the conduct of the
Business or the ownership or use of the Acquired Assets, Seller (i) is subject
to any unsatisfied judgement, order, decree, stipulation, injunction, or charge
or (ii) is a party or, to the Seller's Knowledge, is threatened to be made a
party to any charge, complaint, action, suit, proceeding, hearing, or
investigation of or in any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator.
(k) PRODUCT WARRANTY. No product manufactured, sold, leased, or
delivered by the Business is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease
or the standard terms of Seller's extended product warranty. Section 3(k) of the
Disclosure Schedule includes copies of the standard terms and conditions of sale
or lease for each of the products sold by the Business (containing applicable
guaranty, warranty, and indemnity provisions).
(l) LABOR AND EMPLOYMENT MATTERS. None of the Business Employees
are represented by and Seller is not with respect to the Division, party to any
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collective bargaining agreement with any labor organization. With respect to the
Division, to Seller's Knowledge, (i) no labor organization or group of employees
has filed any representation petition or made any written or oral demand for
recognition; (ii) no union organizing campaigns are underway and no other
question concerning representation exists; and (iii) no labor strike, work
stoppage or slowdown, or other material labor dispute is underway or to Seller's
Knowledge threatened. With respect to the Division, Seller has not implemented
any plant closing or layoff of employees that could implicate the WARN Act, or
any similar state or local law or regulation, and no such layoffs will be
implemented before Closing without advance notification to Purchaser. With
respect to the Division, Seller has complied with all foreign, federal, state or
local laws and regulations regulating employers or the terms and conditions of
its employees' employment, including laws regulating employee wages and hours,
employment discrimination, employee civil rights, equal employment opportunity
and employment of foreign nationals.
(m) EMPLOYEE BENEFITS.
(i) With respect to current and former Business Employees,
their spouses and dependents, Section 3(m) of the Disclosure Schedule
contains an accurate and complete list of (A) each "employee benefit
plan" (as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
contributed to, maintained or sponsored by Seller since January 1,
1991, or with respect to which Seller has any liability or potential
liability; and (B) each other retirement, deferred compensation,
severance, stock, bonus, incentive, fringe benefit, welfare benefit or
other employee benefit plan or arrangement of any kind, contributed
to, maintained or sponsored by Seller since January 1, 1991, or with
respect to which Seller has any liability or potential liability. Each
item listed on Section 3(m) of the Disclosure Schedule is referred to
herein as a "Benefit Plan."
(ii) Each Benefit Plan that is intended to be qualified
within the meaning of Section 401(a) of the Code has received a
determination from the IRS that such Benefit Plan is qualified under
Section 401(a) of the Code, and nothing has occurred since the date of
such determination that could reasonably be expected to adversely
affect the qualification of such Benefit Plan.
(iii) Except as set forth on Section 3(m) of the Disclosure
Schedule, (i) there has been no application for or waiver of the
minimum funding standards imposed by Section 412 of the Code with
respect to any Benefit Plan; (ii) no asset of Seller that is to be
acquired by Buyer pursuant to this Agreement is or could be subject to
any Lien under ERISA or the Code; (iii) Seller has not incurred any
liability under Title IV of ERISA (other than for contributions not
yet due) or to the Pension Benefit Guaranty Corporation (other than
for payment of premiums not yet due); and (iv) Seller has not incurred
any liability on account of a "partial withdrawal" or a "complete
withdrawal" (within the meaning of Sections 4205 and 4203,
respectively, of ERISA) from any "multiemployer plan" (as such term is
defined in Section 3(37) of ERISA), no such
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liability has been asserted, and, to the Seller's Knowledge, there are
no events or circumstances which could result in any such liability
being asserted.
(iv) Seller does not have any liability with respect to any
"employee benefit plan" (as defined in section 3(3) of ERISA) solely
by reason of being treated as a single employer under section 414 of
the Code with any trade, business or entity other than Seller.
(n) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Seller is in compliance in all material respects with
all Environmental and Safety Requirements applicable to the Real
Property or the Facilities, the operation of the Division or the
conduct of the Business, including Environmental and Safety
Requirements established under that certain Developer's Commitment
Agreement between the Seller and Seminole County, dated August 25,
1993 relating to the Real Property.
(ii) Seller has applied for or obtained and complied with,
and is in compliance in all material respects with, all permits,
licenses and other authorizations that may be required pursuant to
Environmental and Safety Requirements for the occupation and use of
the Facilities, the operation of the Division or the conduct of the
Business. Section 3(n) of the Disclosure Schedule sets forth a list of
all such permits, licenses and other authorizations.
(iii) As applicable to the Real Property or the Facilities,
the operation of the Division or the conduct of the Business, since
January 1, 1991, Seller has not received any notice, report or other
information regarding any actual or alleged violation of Environmental
and Safety Requirements, or any Liabilities or any investigatory,
remedial or corrective obligations arising under Environmental and
Safety Requirements.
(iv) To the Seller's Knowledge, there are no underground
storage tanks, asbestos-containing materials in any form or condition,
materials or equipment containing polychlorinated biphenyls, or
landfills, surface impoundments, or disposal areas located on the Real
Property or at any of the Facilities.
(v) To the Seller's Knowledge, neither this Agreement nor
the consummation of the transaction that is the subject of this
Agreement will result in any obligations for site investigation or
cleanup, or notification to or consent of government agencies or third
parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements.
(vi) As applicable to the Real Property or the Facilities, the
operation of the
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Division or the conduct of the Business, Seller has not, either
expressly or by operation of law, assumed or undertaken any Liability,
including any obligation for corrective or remedial action, of any
other Person relating to Environmental and Safety Requirements.
(o) INTERNATIONAL TRADE. With respect to the operation of the
Division and the conduct of the Business, Seller (i) has complied with and is in
compliance in all material respects with, all federal, state, local and foreign
statutes, Executive Orders, regulations, rules, directives, decrees, ordinances
and similar provisions having the force or effect of law, all judicial and
administrative orders and determinations, and all common law concerning the
importation of merchandise, the exportation of products and technology, the
terms and conduct of international transactions, making or receiving
international payments, including the Tariff Act of 1930 as amended and other
laws administered by the United States Customs Service, regulations issued or
enforced by the United States Customs Service, the Export Administration Act of
1979 as amended, the Export Administration Regulations, the International
Emergency Economic Powers Act, the Arms Export Control Act, the International
Traffic in Arms Regulations, any other export controls administered by an agency
of the United States government, Executive Orders of the President regarding
embargoes and restrictions on trade with designated countries and persons, the
embargoes and restrictions administered by the U.S. Office of Foreign Assets
Control, the Foreign Corrupt Practices Act, the antiboycott regulations
administered by the United States Department of Commerce, the antiboycott
regulations administered by the United States Department of the Treasury,
legislation and regulations of other countries implementing the North American
Free Trade Agreement, antidumping and countervailing duty laws and regulations,
restrictions by other countries on holding foreign currency and repatriating
funds, and other laws and regulations adopted by the governments or agencies of
other countries relating to the same subject matter as the United States
statutes and regulations described above; (ii) holds, and has maintained in
satisfactory condition, all of the permits, licenses, bonds, approvals,
certificates, registrations and other authorizations required by United States,
foreign and international authorities for the conduct of its Business in, and
its import and export activities with, the United States and foreign
jurisdictions, and (iii) has not received any notice, whether in the form of
claims, reports, notices, assessments, letters, forms or written requests for
additional information, alleging a violation of or asserting any Liability under
any laws, treaties, ordinances, rules, permits, licenses, tariffs, rulings,
requirements, directives, regulations or other provisions pertaining to the
importation into, or the direct or indirect export from, the United States or
any foreign jurisdiction of goods or technology.
(p) LEGAL COMPLIANCE. As applicable to the Real Property or the
Facilities, the operation of the Division or the conduct of the Business, Seller
is in compliance in all material respects with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign governments (and
all agencies thereof), and no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, demand, or notice has been filed or commenced
against Seller alleging any failure to comply with any such law or regulation.
(q) BROKERS' FEES. Seller has no obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for
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which Buyer could become liable or obligated.
(r) FULL DISCLOSURE. None of the statements made in this Section
3, the Financial Statements, any Schedule, Exhibit or certificate prepared or
delivered by Seller in accordance with the terms hereof or any document or
statement in writing that has been supplied to Buyer by or on behalf of Seller
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements and information contained herein or therein not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants to Seller that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
then made and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 4), except as set forth in the Disclosure
Schedule.
(a) ORGANIZATION OF BUYER. Buyer is a corporation validly
existing and in good standing under the laws of the State of Delaware.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full corporate power
and authority to execute and deliver this Agreement and the Other Agreements and
to perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the Other Agreements by Buyer has been duly
authorized by all necessary corporate action on behalf of Buyer (including
approval by the board of directors of Buyer). This Agreement constitutes the
valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with its terms and conditions. Each of the Other Agreements will be,
upon its execution and delivery by all the parties hereto, a valid and legally
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms and conditions.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and the Other Agreements by Buyer, nor the consummation of the
transactions contemplated hereby and thereby, will (i) violate any statute,
regulation, rule, judgment, order, decree, stipulation, injunction, charge, or
other restriction of any government, governmental agency, or court to which
Buyer is subject or any provision of the certificate of incorporation or bylaws
of Buyer, (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, or other agreement,
instrument or arrangement to which Buyer is a party or by which it is bound or
to which any of its assets is subject, or (iii) result in the imposition of any
lien upon any of the Acquired Assets (except for Liens imposed by Buyers
lender's in connection with the transactions contemplated by this Agreement).
Buyer is not obligated to give any notice to, make any filing with, or obtain
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any authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement and the Other Agreements.
(d) BROKERS' FEES. Buyer has no obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Seller could become liable or
obligated.
(e) SECTION 3(g) DISCLOSURE. Based solely on its conversations
with Mr. E.G. Mills, Buyer has no actual knowledge that the representation of
Seller in Section 3(g)(i), as it pertains to the three new products listed on
Section 3(g)(i), of the Disclosure Schedule is inaccurate.
5. COVENANTS OF THE PARTIES.
The Parties agree as follows:
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 7 below).
(b) CLOSING DATE BALANCE SHEET. Each party hereto will provide
the other party and its representatives reasonable access at all reasonable
times, and in a manner so as not to materially interfere with the normal
business operations of the party providing access to all facilities, books,
records and personnel of such party necessary for preparation and review of the
Closing Date Balance Sheet.
(c) CONFIDENTIALITY. Seller agrees that, except as may be
required by law, for a period of five years, it will not disclose or use, and it
will cause its officers, directors, employees, representatives, agents, and
their advisers not to disclose or use any proprietary, confidential or
non-public information within its control that in any way relates to operation
of the Division or the conduct of the Business.
(d) LITIGATION SUPPORT. In the event and for so long as any Party
actively is contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand in connection with (i) any
transaction contemplated by this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Division, the Business or the Acquired Assets or any matter
described in Section 7(b), 7(c) or 7(d), the other Party will cooperate with the
contesting or defending Party and its
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counsel in the contest or defense, make available reasonable access to its
personnel, and provide such testimony and reasonable access to its books and
records as shall be necessary in connection with the contest or defense, all at
the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 7 below).
(e) TRANSFERRED EMPLOYEES. As of the Closing Date, Buyer shall
offer employment to Business Employees constituting at least ninety percent
(90%) of the Business Employees who, as of the Closing Date, are actively
employed on a full-time basis by Seller, at wages or salaries and with employee
benefits substantially similar to those afforded to other similarly-situated
employees of Buyer. Those employees who accept such offers of employment as of
the Closing Date shall be referred to herein as "TRANSFERRED EMPLOYEES." Nothing
in this Agreement shall limit Buyer's ability at its cost and risk to terminate
the employment of any Transferred Employee at any time and for any reason,
including without cause or be construed to modify any "at-will" employment
policy of Buyer. With respect to the Transferred Employees, Buyer shall
recognize all service with Seller or predecessor companies for periods prior to
Closing for all employment and benefit purposes including, but not limited to,
length of continuous service benefits, eligibility, vesting and termination.
Buyer may require each Business Employee to pass its standard drug test for
controlled substance use before hiring. Any person rejected for failing such
test shall count towards Buyer's employment obligation hereunder.
(f) DEFINED CONTRIBUTION PLAN.
(i) Effective as of the Closing Date, the Transferred Employees
shall cease participation in the "Flint Ink Corporation Profit-Sharing
and Benefit Plan" (the "SELLER'S 401(K) PLAN"), and Seller shall cause
the Transferred Employees to be fully vested in their account balances
thereunder.
(ii) Seller shall make a contribution to the Seller's 401(k) Plan
of the amounts of any salary reduction contributions, employee
after-tax contributions and profit sharing contributions attributable
to or payable on account of any Transferred Employee under the terms
of the Seller's 401(k) Plan for any time period ending on the Closing
Date, in accordance with the terms of the Seller's 401(k) Plan.
(g) ENVIRONMENTAL MATTERS. (i) Seller shall, at its sole cost and
expense and as required by Environmental and Safety Requirements
prepare and implement a Spill Control and Countermeasures Plan for
Facilities. If Seller breaches the foregoing covenant and fails to
cure such breach after thirty (30) days written notice, or if in order
to avoid material adverse consequences attributable to any delays by
Seller in honoring the foregoing covenant, Buyer reasonably elects to
take any of the actions set forth in the preceding sentence in order
to cure such default or to avoid such adverse consequences, Seller
shall reimburse Buyer for all reasonable expenses incurred by Buyer in
connection
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therewith.
(ii) In the event any disclosure made by Seller hereunder or any
investigation conducted by Buyer before or within eighteen months
after Closing reveals the presence as of the Closing Date on, about or
under (including in the groundwater) any real property included within
the Acquired Assets of any Hazardous Material which is required to be
removed or remediated by any Environmental and Safety Requirement in
effect as of the Closing Date, Seller shall, at its cost and expense,
remove or remediate, or otherwise address, such contamination as
required by such law or regulation or as may otherwise be approved in
writing by the applicable governmental authorities. Solely to the
extent that any remediation of such Hazardous Material will result in
the imposition of a deed or other restriction on the facility which
would have a significant adverse impact on Buyer's continued use of
the facility as an industrial site, for the use substantially as
conducted as of Closing, Seller agrees to seek Buyer's approval of
such remediation. Buyer's approval shall not be unreasonably withheld.
To the extent Seller is responsible for remediation in accordance with
this Section 5(g), Seller will remain liable for such remediation
until such time as the appropriate governmental agencies approve all
required remediation efforts at the site and Seller completes said
remediation efforts, at which time Seller's liability for such
remediation shall cease. Buyer agrees to cooperate with Seller during
Seller's remediation efforts, if any is required hereunder, including
providing Seller and its contractors/subcontractors with reasonable
access to the site. If the appropriate governmental authorities
determine no remediation is required with respect to any environmental
condition identified in accordance with this Section, Seller's
liability for remediation shall cease with respect to such condition.
(iii) Seller will label all hazardous waste on the site as of
the date of Closing and shall remove such waste, using Seller's
appropriate identification numbers, as soon as practicable after
Closing. Seller shall bear all costs and expenses arising out of the
generation, transportation or disposal of any such hazardous waste and
any off-site disposal of Hazardous Material prior to Closing.
(h) PRODUCT RETURNS. Seller shall pay Buyer the Returned
Product Cost in respect of Buyer's repurchasing, replacing or issuing credits to
customers in respect of, Returned Products to the extent that aggregate Returned
Product Cost in respect of Returned Products during the first 6 months after the
Closing Date exceed the amount of the reserve for product returns, and related
reserves for allowances and concessions due to Returned Products, reflected on
the Closing Date Balance Sheet. From and after the Closing Date until June 30,
1997, Buyer will provide Seller with a monthly notice of all such returns (which
shall state the amount of the Returned Product Cost therefor and shall set forth
in reasonable detail the basis for such amount) and will retain samples of all
Returned Products returned to Buyer (other than those returned by Seller) for
Seller's inspection. Seller shall pay Buyer the amount of the Returned Product
Cost in immediately available funds promptly after receiving Buyer's notice
thereof. Seller shall be entitled (i) to all such Returned Products which are
actually returned to the Buyer or (ii) to a
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refund for the scrap or resale value of such Returned Products which are
returned to the Buyer.
(i) COLLECTION OF ACCOUNTS. Seller will promptly remit any
payments it receives in respect of Receivables in the form received (excepting
any necessary indorsement which may be without warranty or recourse) to Buyer.
(j) RECORD RETENTION. Each Party retaining custody of any
original records or materials pursuant to Section 2(a)(x) hereof shall, prior to
destroying or disposing of any such records or materials, notify the other Party
of its intention to destroy or dispose of such materials and, at the written
request and cost of such other Party, shall deliver such materials to the other
Party; PROVIDED, HOWEVER, that Buyer shall have no obligation under this Section
5(j) to provide Seller with (i) any materials for which Seller cannot establish
a legitimate need to obtain such materials and (ii) any material which is
Buyer's good faith judgment is proprietary to its business or is otherwise
sensitive or confidential in nature. Notwithstanding the foregoing, Seller shall
be entitled to access to records or materials of the Division in the possession
of Buyer that it reasonably requests in connection with Section 7 hereof,
subject to reasonable confidentiality provisions; provided, that Buyer shall not
be required to provide access to material protected by the attorney-client
privilege.
(k) GOVERNMENT CONTRACT BID. Seller will act diligently in
providing information or materials requested by the United States government
pertaining to the Government Contract Bid, and diligently will take all other
such action as may reasonably be required to effect the assignment of the
Government Contract Bid to Buyer.
(l) OTHER TRANSITION ARRANGEMENTS
(a) Seller shall pay all trade payables reflected on the
Closing Date Balance Sheet in accordance with their terms unless Buyer provides
notice to Seller that the amount payable is disputed by Buyer, in which case the
disputed amount shall not be paid until Seller is directed to make such payment
by Buyer. Buyer shall reimburse Seller for all such payments. Seller shall be
entitled to offset against the amounts owed hereunder by Buyer any amounts
collected by Seller which Seller is obligated to remit to Buyer under section
5(i) of this Agreement (the "Section 5(i) Payments"). Seller shall provide Buyer
with a monthly report detailing the amounts paid hereunder, the amounts offset
by Section 5(i) Payments and reasonable detail identifying the specific accounts
payable paid during the reporting period aging of accounts payable. Buyer shall
reimburse Seller for amounts due to Seller under this Section 5(a) within 5
business days of receiving such report. Seller shall also provide Buyer with any
information regarding such accounts payable which Buyer reasonably requests.
(b) Seller shall maintain the accounts receivable ledger for the
Division, in respect of accounts receivable reflected on the Closing Date
Balance Sheet, on its present accounting system until the 90th day following the
Closing at which time all information regarding any accounts receivable shall be
transferred to Buyer in a manner reasonably
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satisfactory to Buyer. Prior to said date Buyer shall be entitled to reports of
the accounts receivable, aging information and other pertinent information
whenever reasonably requested to the extent that such information is maintained
by Seller under its current ledger system for the accounts receivable of the
Division.
(c) In the event that (1) Buyer receives an invoice in respect of
services or goods which were delivered or provided to Seller prior to the
Closing and (2) such invoice was not reflected as an account payable or as a
Current Liability on the Closing Date Balance Sheet, Seller shall pay such
invoice or reimburse Buyer if Buyer pays such invoice promptly after notice by
Buyer of the invoice or the payment by Buyer.
(d) Buyer shall provide office space, secretarial services,
telephone and routine supplies for Dennis Kloth (who will not be a Transferred
Employee) for up to three months from the Closing or for such shorter period
that Mr. Kloth remains an employee of Seller. During such period, Mr. Kloth will
be available to answer questions relating to the financial operations of the
Division by Seller. Mr. Kloth shall not be an employee of Buyer and Seller shall
continue to be responsible for all liabilities resulting from Mr. Kloth's
employment.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) Seller shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) Seller shall have obtained and delivered to Buyer all consents,
authorizations, approvals of governmental agencies or third parties listed
on the CONSENTS SCHEDULE;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable judgment,
order, decree, stipulation, injunction, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement, (B)
cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the right of
Buyer to own, operate, or control the Acquired Assets or conduct the
Business in the manner in which it has heretofore been conducted (and no
such judgment, order, decree, stipulation, injunction, or charge shall be
in effect);
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(v) the Seller shall have entered into the Other Agreement, and the
same shall be in full force and effect;
(vi) since December 31, 1995, there shall not have been any material
adverse change in the assets, liabilities, financial condition, operating
results, business or prospects of the Division or the Business;
(vii) Seller shall have delivered to Buyer a certificate to the effect
that each of the conditions specified above in Section 6(a)(i)-(vi) is
satisfied in all respects;
(viii) Buyer shall have obtained title insurance (or a binding
commitment to provide title insurance) from a title insurance company
selected by Buyer (the "TITLE COMPANY") insuring the marketable title in
and to the Real Property in fee simple free and clear of all liens,
defects, claims, leases, rights of possession or other encumbrances
including such endorsements and affirmative coverages as Buyer shall
reasonably require, subject to title exceptions and defects which when
taken together do not in any material way interfere with the existing use
of the Real Property and do not adversely affect the merchantability of
title thereto. Seller shall provide all such affidavits and indemnities as
the Title Company reasonably shall require in order to afford such
coverages and shall bear 50% of the cost of obtaining such title insurance.
(ix) Buyer at its cost shall order and shall have received a current
survey of the Real Property conforming to the Minimum Standard Detail
Requirements jointly established and approved in 1992 by ALTA and ACSM
certified to the Buyer and other Persons it may designate, disclosing the
location of all improvements, easements, party walls, sidewalks, roadways,
utility lines, showing access to public streets and roads directly or by
means of easements or licenses, and showing no encroachments or
encumbrances;
(x) Buyer shall have obtained on terms and conditions satisfactory to
it all of the financing it needs in order to consummate the transactions
contemplated hereby and fund the working capital requirements of Buyer
after the Closing; and
(xi) all actions to be taken by Seller in connection with consummation
of the transactions contemplated hereby and all certificates, opinions,
instruments, and other documents required to effect the transactions
contemplated hereby are satisfactory in form and substance to Buyer.
Buyer may waive any condition specified in this Section 6(a) if it executes a
writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF SELLER. The obligation of Seller to
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consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction wherein an
unfavorable judgment, order, decree, stipulation, injunction, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation
(and no such judgment, order, decree, stipulation, injunction, or
charge shall be in effect);
(iv) Buyer shall have delivered to Seller a certificate to the
effect that each of the conditions specified above in Section
6(b)(i)-(iii) is satisfied in all respects;
(v) Buyer shall have provided Seller with a Florida resale
exemption certificate with respect to the inventory included among the
Acquired Assets;
(vi) Buyer shall have entered into the Other Agreement, and the
same shall be in full force and effect; and
(vii) All actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby are satisfactory in form
and substance to Seller.
Seller may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. INDEMNIFICATION.
(a) SURVIVAL. All representations and warranties of Buyer and
Seller contained in this Agreement shall survive the Closing, regardless of any
investigation made by or on behalf of the other Party or the Knowledge of any of
its officers, directors, controlling persons, employees, agents or
representatives and shall continue thereafter in full force and effect for the
following periods: (i) the representations and warranties of the Seller
contained is Sections 3(a), (b), (c) and (q) and by the Buyer in Sections 4(a),
(b), (c) and (d) shall survive the Closing and continue in full force and effect
indefinitely; (ii) the representations and warranties of Seller
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<PAGE> 35
contained in Section 3(n) shall survive the Closing and continue in full force
and effect for a period of five years; (iii) the representations and
warranties of Seller contained in Section 3(i) shall survive until the
expiration of all applicable statutes of limitations (or any waiver or
extension thereof); and (iv) all of the other representations and warranties,
of Buyer and Seller contained in this Agreement shall survive the Closing and
continue in full force and effect for a period of two years thereafter.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF BUYER. Seller agrees to
indemnify Buyer and its officers, directors, stockholders, successors and
assigns (each, a "BUYER INDEMNIFIED PARTY"; collectively, the "BUYER INDEMNIFIED
PARTIES") from and against the entirety of any Adverse Consequences that any
Buyer Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by: (i) any breach of any of Seller's
representations and warranties contained in this Agreement (so long as the Buyer
Indemnified Party makes a written claim for indemnification therefor within the
applicable survival period); (ii) any breach of any of Seller's covenants
contained in this Agreement; (iii) the Excluded Liabilities; (iv) any
Liabilities arising pursuant to the WARN Act other than Liabilities that arise
as a result of Buyer's breach of its obligations under Section 5(e) hereof; (v)
any Liabilities arising as a result of the parties' non-compliance with any bulk
transfer laws applicable to the transactions contemplated hereby (except to the
extent arising out of Buyer's failure to discharge any Assumed Liabilities);
(vi) the violation of Environmental and Safety Requirements by the Seller or in
connection with the Business prior to the Closing; (vii) the presence or Release
of Hazardous Material at or on the Acquired Assets prior to Closing, to the
extent such Adverse Consequences arise under Environmental and Safety
Requirements; (viii) the Release of Hazardous Material at, on or from any
property other than the Acquired Assets, to the extent such Hazardous Material
has been used, generated, treated, stored, disposed of or transported by or on
behalf of the Seller or in connection with the Business prior to Closing and
such Adverse Consequences arise under Environmental and Safety Requirements; and
(ix) the matters listed on the SCHEDULE OF ADDITIONAL INDEMNIFIED MATTERS;
provided, however, that Seller shall not have any obligation to indemnify Buyer
under Section 7(b)(i) for any breach of a representation or warranty hereunder
unless and only to the extent that Buyer has suffered Adverse Consequences by
reason of all breaches of Seller's representations and warranties contained in
this Agreement which in the aggregate exceed $50,000; and, PROVIDED, FURTHER,
that except as specifically provided in Section 5(g) above or on the SCHEDULE OF
ADDITIONAL INDEMNIFIED MATTERS, Seller shall have no obligation to take, pay
for, reimburse or indemnify Buyer with respect to any action or Adverse
Consequence that may be necessary now or in the future (i) to remediate or
otherwise bring the real property included within the Acquired Assets into
compliance with any Environmental and Safety Requirement adopted after or
otherwise not in effect on the Closing Date, (ii) to bring any Acquired Asset
other than real property into compliance with any applicable Environmental and
Safety Requirement in effect on the Closing Date or becoming effective
thereafter or (iii) to permit Buyer to comply with any Environmental and Safety
Requirement with respect to operation of the Business after Closing.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF SELLER. Buyer agrees to
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<PAGE> 36
indemnify Seller and its officers, directors, stockholders, successors and
assigns (each, a "SELLER INDEMNIFIED PARTY", collectively, the "SELLER
INDEMNIFIED PARTIES") from and against the entirety of any Adverse Consequences
that any Seller Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by: (i) the breach of any of Buyer's
representations and warranties contained in this Agreement (so long as the
Seller Indemnified Party makes a written claim for indemnification therefor
within the applicable survival period); (ii) the breach of any of Buyer's
covenants contained in this Agreement; (iii) any Assumed Liability, (iv) any
misuse or wrongful release of any information contained in records related to
any Business Employee provided to Buyer pursuant to Section 2(a)(x) or (v) any
violation of any Environmental and Safety Requirements, to the extent the Basis
for which arises after the Closing.
(d) MATTERS INVOLVING THIRD PARTIES. Subject to Section 7(a), if any
third party shall notify any Party with respect to any matter which may give
rise to a claim for indemnification under this Section 7 by such Party (the
"INDEMNIFIED PARTY") against the other Party (the "INDEMNIFYING PARTY"), then
the Indemnified Party shall notify the Indemnifying Party thereof promptly;
PROVIDED, HOWEVER, that no delay on the part of the Indemnified Party in
notifying the Indemnifying Party shall relieve the Indemnifying Party from any
liability or obligation hereunder unless (and then solely to the extent that)
the Indemnifying Party can demonstrate that it was damaged by such delay. If,
within 15 days after the Indemnified Party has given notice pursuant to the
preceding sentence, the Indemnifying Party gives written notice to the
Indemnified Party acknowledging that the Indemnified Party is entitled to
indemnification hereunder with respect to such matter and stating that the
Indemnifying Party is assuming the defense thereof, (A) the Indemnifying Party
will defend the Indemnified Party against the matter with counsel (and, with
respect to environmental matters, consultants and contractors) chosen by the
Indemnifying Party (and reasonably satisfactory to the Indemnified Party), (B)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense (except that the Indemnifying Party will be responsible for the fees and
expenses of the separate co-counsel to the extent that the counsel the
Indemnifying Party has selected has a preexisting conflict of interest and the
Indemnified Party provides notice of such conflict promptly after it is
discovered), (C) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the matter without the
written consent of the Indemnifying Party, and (D) the Indemnifying Party will
not consent to the entry of any judgment with respect to the matter, or enter
into any settlement which does not include a provision whereby the plaintiff or
claimant in the matter releases the Indemnified Party from all Liability with
respect thereto, without the written consent of the Indemnified Party. If, by 15
days after the Indemnified Party has given notice pursuant to the first sentence
of this Section 7(d), the Indemnifying Party has failed to give written notice
to the Indemnified Party acknowledging the Indemnified Party's right to
indemnification hereunder with respect thereto and assuming the defense thereof,
the Indemnified Party may defend against, or enter into any settlement with
respect to, the matter in any manner it reasonably may deem appropriate without
prejudice to the Indemnified Party's right to indemnity from the Indemnifying
Party.
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<PAGE> 37
(e) MATTERS INVOLVING THE PARTIES. In the event that any Party hereto
(the "INDEMNIFIED PARTY") asserts a claim for indemnification hereunder (but
excluding claims arising under Section 7(d) hereof) against the other Party
hereto (the "INDEMNIFYING PARTY"), the Indemnified Party shall give written
notice to the Indemnifying Party specifying, in reasonable detail, the Basis for
the assertion of the claim and the amount of the claim asserted. Such assertion
of liability shall be deemed accepted by the Indemnifying Party and the amount
of such claim shall be deemed a valid claim, conclusive and binding on the
Indemnifying Party, unless, within twenty (20) days after the Indemnified Party
gives written notice to the Indemnifying Party of such claim, the Indemnifying
Party gives written notice to the Indemnified Party contesting the Basis for, or
the amount of, such claim. If such notice is given by the Indemnifying Party,
then the Parties shall use reasonable efforts to reach agreement with respect to
such claim. If the Parties cannot reach agreement with respect to such claim
within twenty (20) days after the Indemnifying Party gives notice of its
objections as provided above, the contested assertion of the claim may be
referred by either Party to arbitration in Cleveland, Ohio, in accordance with
the rules of the American Arbitration Association then in effect. The
determination made in accordance with such rules shall be delivered in writing
to the parties thereto and shall be conclusive and binding upon the Parties, and
the amount of the claim (if any) determined to exist shall be a valid claim.
8. MISCELLANEOUS.
(a) PRESS RELEASES AND ANNOUNCEMENTS. Except for any disclosures Buyer
or Seller reasonably determines to be required by law, Buyer and Seller will
agree in advance upon the timing and content of all announcements regarding any
aspect of the transaction contemplated by this Agreement, whether to the public
or to the Business Employees.
(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns. No statement or agreement contained herein is
intended as, and no such statement or agreement should be construed as, an offer
of employment by Buyer to any employee of Seller.
(c) ENTIRE AGREEMENT. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, that may have related in any way to the subject matter
hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. This Agreement shall not be assignable by
either Party without the prior written consent of the other Party hereto;
PROVIDED, HOWEVER, that Buyer may assign its rights hereunder (i) to any
Affiliate (provided such Affiliate agrees in writing to be bound by the
provisions hereof), (ii) to any Person in connection with a sale of all or
substantially all of the business, capital stock or
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<PAGE> 38
assets of Buyer (or substantially all of the assets of Buyer engaged in the
Business); provided, that such Person assumes the Assumed Liabilities, and (iii)
to any Person providing financing to Buyer or its Affiliates.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO SELLER:
- -------------
Flint Ink Corporation
25111 Glendale Avenue
Detroit, Michigan 48239
Fax: (313) 538-0730
Attention: Mr. Leonard D. Frescoln
President and
Chief Operating Officer
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<PAGE> 39
IF TO BUYER:
------------
Day International, Inc.
333 West First Street
P.O. Box 338
Dayton, OH 45401-0338
Fax: (937) 226-0052
Attention: Mr. Dennis R. Wolters
President and CEO
WITH A COPY TO:
- ---------------
(which shall not constitute notice to Buyer)
American Industrial Partners
One Maritime Plaza
Suite 2475
San Francisco, CA 94111
Fax: (415) 788-5302
Attention: Lawrence W. Ward, Jr.
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the individual
for whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO (WITHOUT REGARD TO
THE CONFLICTS OF LAW PRINCIPLES THEREOF).
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. No waiver by any Party of any condition, default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent condition, default,
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
-35-
<PAGE> 40
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
(k) EXPENSES. Except as otherwise expressly provided herein, in any of
the Other Agreements, or in paragraph 5 of the Letter of Intent dated as of
October 16, 1996, each of Buyer and Seller will bear its own costs and expenses
(including accounting, investment banking, brokerage and legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. Seller will bear the costs (including accountants' fees and
expenses) of the review of the 1995 Statements and the June 30, 1996 Balance
Sheet and the audit of the September 30, 1996 Statements.
(l) CONSTRUCTION. The language used in this Agreement will be deemed
to be the language chosen by the Parties to express their mutual intent, and no
rule of strict construction shall be applied against any Party. Any reference to
any federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the context
requires otherwise. Nothing in the Disclosure Schedule shall be deemed adequate
to disclose an exception to a representation or warranty made herein unless the
Disclosure Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. The listing of a document or
other item on the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein provided that such item or
document is either listed or specifically referred to in the Section of the
Disclosure Schedule pertaining to that representation or warranty. The Parties
intend that each representation, warranty and covenant contained herein shall
have independent significance. If any Party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
(m) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Party would be damaged irreparably in the event any of the
provisions of this
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<PAGE> 41
Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Parties agrees that the
other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which it may be
entitled, at law or in equity.
(o) CERTAIN TAXES AND COSTS. Buyer shall pay (i) all
recording or registration fees relating to placing a mortgage on the Real
Property, (ii) except as otherwise provided herein (or in any schedule hereto),
all costs and expenses associated with transferring any existing permits to, or
issuing any new permits to, Buyer in connection with the consummation of the
purchase and sale contemplated hereby, (iii) the cost of obtaining an ALTA loan
policy covering the Real Property, if required, and (iv) the fees and expenses
of surveyors, title agents, environmental consultants and other representatives
conducting investigations of the facility prior to Closing on behalf of Buyer
or its lenders. Buyer and Seller shall each bear one-half of the cost of
recording and registering the deed (and any related documents) effecting or
evidencing the transfer of the Real Property from Seller to Buyer pursuant to
this Agreement. Seller shall be responsible for all transfer, documentary,
sales, use, stamp, registration and other such taxes and fees, including any
penalties and interest ("TRANSFER TAXES") incurred in connection with this
Agreement and for the expenses of filing all necessary Tax Returns and other
documentation ("TRANSFER TAX RETURNS") with respect to all such Transfer Taxes.
Transfer Tax Returns shall be filed and Transfer Taxes shall be paid when due
by the Party normally required by law to file such returns and pay such taxes.
If required by Applicable Law, the Parties will and will cause their Affiliates
to, join in the execution of any such Transfer Tax Returns. If the Closing does
not occur on December 31, 1996, real and personal property taxes or other
similar taxes assessed upon the Acquired Assets shall be prorated as of the
Closing Date between the Parties based upon their respective period of
ownership; provided, that the amount allocated to Buyer shall not exceed the
amount accrued in respect of such taxes on the Closing Date Balance Sheet.
(p) DISCLAIMER REGARDING ACQUIRED ASSETS. Except for the
representations and warranties made by Buyer in this Agreement, or in any
certificate delivered pursuant hereto, Buyer acknowledges that Seller has not
made, and Seller hereby expressly disclaims and negates, any representation or
warranty, express or implied, relating to the condition of any of the Acquired
Assets, including (i) any implied or express warranty of merchantability, (ii)
any implied or express warranty of fitness for a particular purpose, (iii) any
implied or express warranty of conformity to models or samples of materials,
(iv) any implied or express warranty of freedom from defects, whether known or
unknown, and (v) any and all implied warranties existing under applicable law,
it being the express intention of Buyer and Seller that, except as otherwise
stated in any of the representations and warranties made by Buyer in this
Agreement or in any certificate delivered pursuant hereto, the Acquired Assets
shall be acquired by or conveyed to Buyer as is and in their present condition
and state of repair.
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<PAGE> 42
(q) DISCLAIMER REGARDING FORWARD-LOOKING INFORMATION. Seller
hereby expressly negates and disclaims, and Buyer hereby waives and
acknowledges that Seller has not made any representation or warranty, express
or implied, relating to the earning power of the Business, the accuracy,
completeness, or materiality of any projections, forecasts, (pro forma)
financial information relating to the operation of the Business after the
Closing or any other forward-looking information (written or oral), now,
heretofore, or hereafter furnished to Buyer by or on behalf of Seller,
including any such information contained in any Information Memorandum
regarding the Business.
[END OF PAGE]
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 43
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
the date first above written.
DAY INTERNATIONAL, INC.
a Delaware corporation
By:___________________________
Dennis R. Wolters
President
FLINT INK CORPORATION
a Michigan corporation
By:___________________________
Title:________________________
<PAGE> 1
EXHIBIT 21
The active subsidiaries of Day International Group, Inc. are listed below, do
business under the name under which they are organized, and are included in the
consolidated financial statements of the Company. The names, jurisdiction of
incorporation of such subsidiaries, and percentage of voting securities owned by
the Company are set forth below.
<TABLE>
<CAPTION>
Jurisdiction in Percentage of Voting
Name of subsidiary which Incorporated Securities owned
------------------ ------------------ --------------------
<S> <C> <C>
Day International, Inc. Delaware 100%
Day Holdings I, Inc. Delaware 100%(1)
Day Holdings II, Inc. Delaware 100%(1)
Day International (U.K.) United Kingdom 100%(3)
Holdings Limited
Day International (U.K.), United Kingdom 100%(2)
Ltd.
Day International (Canada) Ontario, Canada 100%(1)
Holdings Limited
Day International France 100%(1)
France S.A.R.L
Day International Germany 100%(1)
(BRD) Gmbh
Day International de Mexico Mexico 100%(1)
S.A. de C.V.
</TABLE>
(1) Subsidiaries of Day International, Inc.
(2) Subsidiary of Day International (U.K.) Holdings Limited
(3) Subsidiary of Day Holdings I, Inc. and Day Holdings II, Inc.
82
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAY
INTERNATIONAL GROUP, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,433
<SECURITIES> 0
<RECEIVABLES> 18,153
<ALLOWANCES> 982
<INVENTORY> 16,355
<CURRENT-ASSETS> 45,978
<PP&E> 51,998
<DEPRECIATION> 6,709
<TOTAL-ASSETS> 237,886
<CURRENT-LIABILITIES> 23,328
<BONDS> 152,116
<COMMON> 1
0
0
<OTHER-SE> 52,733
<TOTAL-LIABILITY-AND-EQUITY> 237,886
<SALES> 136,814
<TOTAL-REVENUES> 136,814
<CGS> 84,602
<TOTAL-COSTS> 115,653
<OTHER-EXPENSES> (219)
<LOSS-PROVISION> 118
<INTEREST-EXPENSE> 16,373
<INCOME-PRETAX> 5,007
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 3,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,007
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
