<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------------
DAY INTERNATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3069 31-1436349
(STATE OR OTHER JURISDICTION OF INCORPORATION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
---------------------------
P.O. BOX 338
130 WEST SECOND STREET
DAYTON, OHIO 45401-0338
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
---------------------------
DENNIS R. WOLTERS
P.O. BOX 338
130 WEST SECOND STREET
DAYTON, OHIO 45401-0338
(937) 224-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------------
COPY TO:
ANDREW L. SOMMER
DEBEVOISE & PLIMPTON
875 THIRD AVENUE
NEW YORK, NEW YORK 10022
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: (As soon
as practicable after this Registration Statement becomes effective.)
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Amount to Be Proposed Proposed
Title of Each Class Registered Maximum Offering Maximum Aggregate Amount of
of Securities to Be Registered Price Per Share(1) Offering Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 1/2% Senior Subordinated Notes due
2008.......................... $115,000,000 100% $115,000,000 $33,925
- ----------------------------------------------------------------------------------------------------------------
12 1/4% Senior Exchangeable Preferred
Stock due 2010................. $ 35,000,000 100% $ 35,000,000 $10,325
================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 5, 1998
PROSPECTUS
DAY INTERNATIONAL GROUP, INC.
OFFER TO EXCHANGE
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL EXISTING NOTES (AS DEFINED BELOW)
AND 12 1/4% SENIOR EXCHANGEABLE PREFERRED STOCK DUE 2010
FOR ANY AND ALL EXISTING EXCHANGEABLE PREFERRED STOCK (AS DEFINED
BELOW)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED.
Day International Group, Inc., a Delaware corporation (the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
Letter of Transmittal (the "Letter of Transmittal") to exchange up to
$115,000,000 aggregate principal amount of its 9 1/2% Senior Subordinated Notes
due 2008 (the "New Notes") and up to 35,000 shares of its 12 1/4% Senior
Exchangeable Preferred Stock due 2010, par value $.01 per share, liquidation
preference $1,000 per share (the "New Exchangeable Preferred Stock"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement of which this Prospectus is a part,
for a like principal amount of its issued and outstanding 9 1/2% Senior
Subordinated Notes due 2008 (the "Existing Notes") and its issued and
outstanding 12 1/4% Senior Exchangeable Preferred Stock due 2010 (the "Existing
Exchangeable Preferred Stock") and the New Notes and the Existing Notes, as the
case may be, are referred to herein as the "Notes." The New Exchangeable
Preferred Stock and the Existing Exchangeable Preferred Stock, as the case may
be, are referred to herein as the "Exchangeable Preferred Stock." The Existing
Notes and the Existing Exchangeable Preferred Stock are referred to herein as
"Existing Securities." The New Notes and the New Exchangeable Preferred Stock
are referred to herein as "New Securities" (and together with the Existing
Securities, the "Securities"). The Existing Notes and the Existing Exchangeable
Preferred Stock were originally issued and sold in a transaction that was exempt
from registration under the Securities Act (the "Offerings") and resold to
certain qualified institutional buyers in reliance on, and subject to the
restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A"). The terms of the New Securities are identical in all material respects
to the terms of the Existing Securities for which they may be exchanged pursuant
to the Exchange Offer, except that (i) the New Securities will have been
registered under the Securities Act, and thus will not bear restrictive legends
restricting their transfer pursuant to the Securities Act and (ii) holders of
New Securities will not be entitled to registration rights that holders of the
Existing Securities have under the Registration Rights Agreement (as defined)
except under limited circumstances.
Interest on each New Note issued pursuant to the Exchange Offer will
accrue from the last interest payment date on which interest was paid on the
Existing Notes surrendered in exchange therefor or, if no interest has been
paid, from the original date of issuance of the Existing Notes.
Interest on the Notes will be payable semiannually on March 15 and
September 15 of each year, commencing on September 15, 1998. The Notes will
mature on March 15, 2008. Except as described below, the Company may not redeem
the Notes prior to March 15, 2003. On or after such date, the Company may redeem
the Notes, in whole or in part, at any time at the redemption prices set forth
herein together with accrued and unpaid interest, if any, to the date of
redemption. In addition, at any time and from time to time prior to March 15,
2001, the Company may redeem up to 33 1/3% of the original aggregate principal
amount of the Notes with the Net Cash Proceeds (as defined) of one or more
Public Equity Offerings (as defined) at the redemption price of 109.50% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon to
the date of redemption, provided that at least 66 2/3% of the original aggregate
principal amount of the Notes remains outstanding after each such redemption.
The Notes will not be subject to any sinking fund requirement. Upon the
occurrence of a Change of Control (as defined), (i) the Company will have the
option, prior to March 15, 2003, to redeem the Notes, in whole, at a redemption
price equal to 100% of the principal amount thereof plus the Applicable Premium
(as defined), together with accrued and unpaid interest, if any, to the date of
redemption, and (ii) if the Company has not redeemed the Notes, the Company will
be required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of repurchase. See "Description of the Notes."
The Notes are unsecured and are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) of the Company, including
the Company's 11 1/8% Senior Subordinated Notes due 2005. The Notes rank pari
passu with any future Senior Subordinated Indebtedness (as defined) of the
Company and rank senior to all Subordinated Indebtedness (as defined) of the
Company. The Indenture (as defined) permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. The
Company's aggregate outstanding indebtedness, including the Notes, is
approximately $252.5 million, of which amount approximately $137.5 million ranks
senior to the Notes. See "Description of the Notes -- Ranking."
Each share of Exchangeable Preferred Stock will have a liquidation
preference of $1,000 per share. All dividends will be cumulative from the date
of issuance of the Existing Exchangeable Preferred Stock and will be payable
quarterly in arrears on March 15, June 15, September 15, and December 15 of each
year commencing on June 15, 1998. On or before March 15, 2003, the Company may,
at its option, pay dividends in cash or in additional fully-paid and
non-assessable shares of Exchangeable Preferred Stock having an aggregate
liquidation preference equal to the amount of such dividends. Thereafter,
dividends may be paid in cash only. It is not expected that the Company will pay
any dividends in cash for the period ending on or prior to March 15, 2003. On
any scheduled dividend payment date, the Company may, at its option, but subject
to certain conditions, exchange all but
<PAGE> 3
not less than all of the shares of the Exchangeable Preferred Stock for the
Company's 12 1/4% Subordinated Exchange Debentures Due 2010 (the "Exchange
Debentures").
The Company will be required, subject to certain conditions, to redeem all
of the Exchangeable Preferred Stock or the Exchange Debentures, as the case may
be, on March 15, 2010. Except as described below, the Company may not redeem the
Exchangeable Preferred Stock or the Exchange Debentures prior to March 15, 2003.
On or after such date, the Company may, at its option, redeem the Exchangeable
Preferred Stock or the Exchange Debentures, in whole or in part, for cash, at
the redemption prices set forth herein together with, in the case of the
Exchangeable Preferred Stock, all accumulated and unpaid dividends to the date
of redemption, or in the case of the Exchange Debentures, all accrued and unpaid
interest to the date of redemption. In addition, at any time and from time to
time prior to March 15, 2001, the Exchangeable Preferred Stock and the Exchange
Debentures may be redeemed, in whole or in part, for cash, with the proceeds of
one or more Public Equity Offerings at the redemption price of 112.25% of the
liquidation preference thereof, together with accumulated and unpaid dividends,
if any, to the date of redemption. Upon the occurrence of a Change of Control,
the Company will be required to make an offer to purchase the Exchangeable
Preferred Stock or the Exchange Debentures, for cash, at a price equal to 101%
of the liquidation preference or aggregate principal amount (as the case may be)
thereof, together with, in the case of the Exchangeable Preferred Stock, all
accumulated and unpaid dividends to the date of purchase, or in the case of the
Exchange Debentures, all accrued and unpaid interest to the date of Purchase.
See "Description of the Exchangeable Preferred Stock and Exchange Debentures."
The Exchange Offer is not conditioned upon any minimum number of Existing
Securities tendered. The Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, unless extended by the Company (such time and date
as it may be so extended, the "Expiration Date"). The date of acceptance for
exchange of the Existing Securities will be the first business day following the
Expiration Date, upon surrender of the Existing Securities. Existing Securities
tendered pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date; otherwise such tenders are irrevocable. New Securities to
be issued in exchange for properly tendered Existing Securities will be
delivered through the facilities of The Depository Trust Company by the Exchange
Agents (as defined herein) promptly after the acceptance thereof.
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
The date of this Prospectus is , 1998.
2
<PAGE> 4
[This page intentionally left blank.]
3
<PAGE> 5
The Existing Securities were originally issued and sold in a transaction
that was exempt from registration under the Securities Act (the "Offerings") and
resold to certain qualified institutional buyers in reliance on, and subject to
the restrictions imposed pursuant to, Rule 144A under the Securities Act ("Rule
144A") and outside the United States in accordance with Regulation S of the
Securities Act ("Regulation S"). Based on interpretations by the staff of the
Securities and Exchange Commission (the "Commission") as set forth in no-action
letters issued to third parties in other transactions (including Exxon Capital
Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated
(available June 5, 1991), K-III Communications Corporation (available May 14,
1993) and Shearman & Sterling (available July 2, 1993)), the Company believes
that New Securities issued pursuant to the Exchange Offer in exchange for the
Existing Securities may be offered for resale, resold and otherwise transferred
by holders thereof (other than any such holder which is (i) an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, (ii) a
broker-dealer who acquired Existing Securities directly from the Company or
(iii) a broker-dealer who acquired Existing Notes or Existing Exchangeable
Preferred Stock as a result of market-making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that (a) such New Securities are acquired in the
ordinary course of such holder's business, (b) at the time of the commencement
of the Exchange Offer such holder has no arrangement with any person to
participate in a distribution of the New Securities and (c) such holder is not
engaged in, and does not intend to engage in, a distribution of the New Notes or
the New Exchangeable Preferred Stock. Any holder who is an "affiliate" of the
Company, or any holders of Existing Securities which, at the time of the
commencement of the Exchange Offer, are engaged in, intend to engage in, or have
an arrangement to engage in, a distribution of the New Securities may not rely
on the applicable interpretations of the Staff of the Commission set forth in
the above-mentioned interpretive letters, will not be permitted or entitled to
tender such Existing Securities, and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction unless such sale is made pursuant to any exemption
from such requirements. In addition, since the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the Staff of the Commission would make a similar determination with respect
to the Exchange Offer as in such other circumstances. Each holder of Existing
Securities that desires to participate in the Exchange Offer will be required to
make certain representations described in "The Exchange Offer -- Terms of the
Exchange Offer."
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer in exchange for Existing Securities, where such
Existing Securities were acquired by such broker-dealer as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act and
that it has not entered into any arrangement or understanding with the Company
or an affiliate of the Company to distribute the New Securities in connection
with any resale of such New Securities. A broker-dealer that acquired Existing
Securities in a transaction other than as part of its market-making activities
or other trading activities will not be able to participate in the Exchange
Offer. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Securities received in exchange
for Existing Securities, as the case may be, where such Existing Securities were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company has agreed that, for a period of 90 days after
the Expiration Date (as defined herein), it will make this Prospectus available
to any broker-dealer for use in connection with any such resale. Any holder that
cannot rely upon such interpretations must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. See "The Exchange Offer" and "Plan of
Distribution."
The New Notes and the New Exchangeable Preferred Stock will each be
represented by one or more Global Securities (as defined) registered in the name
of a nominee of The Depository Trust Company, as Depositary. Beneficial interest
in the Global Securities will be shown on, and transfers will be effected only
through, records maintained by the Depositary and its participants. See
"Description of New Notes -- Book-Entry, Delivery and Form."
There has not previously been any public market for the New Securities.
The Company does not intend to list the New Securities on any securities
exchange or to seek approval for quotation through any automated
4
<PAGE> 6
quotation system. There can be no assurance that an active market for the New
Notes or the New Exchangeable Preferred Stock will develop. Moreover, to the
extent that Existing Securities are tendered and accepted in the Exchange Offer,
a holder's ability to sell untendered, and tendered but unaccepted, Existing
Securities could be adversely affected. See "Risk Factors -- Absence of Public
Market; Restrictions on Transfer."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses of the Exchange Offer. No dealer manager
is being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE, NOR WILL THE COMPANY ACCEPT
SURRENDER FOR EXCHANGE FROM HOLDERS OF EXISTING SECURITIES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
---------------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term includes any amendments thereto, the "Registration Statement") on Form S-4
under the Securities Act, with respect to the New Securities offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information included in the Registration Statement and
the exhibits and schedules thereto. Statements contained in this Prospectus as
to the contents of any contract or other document referred to herein or therein
and filed as an exhibit to the Registration Statement are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company, the New Securities, reference is hereby
made to the Registration Statement and the exhibits and schedules thereto.
The Company is currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pursuant to the Indenture and the Certificate of
Designation, the Company has agreed to file with the Commission and provide to
the holders of the Securities annual reports and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act.
Reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material can also be obtained at
prescribed rates by writing to the Commission, Public Reference Section, Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and such
material is contained on the worldwide web site maintained by the Commission at
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Current Reports on Form 8-K dated January 29, 1998,
February 23, 1998 and April 24, 1998, which were previously filed with the
Commission pursuant to the Exchange Act (File No. 33-93644), are incorporated
herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the Exchange Offer shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents (not including exhibits
to such documents, unless such exhibits are specifically incorporated by
reference in such documents), are available without charge upon writing or oral
request directed to: David B. Freimuth, Vice President and Chief Financial
Officer, Day International Group, Inc., P.O. Box 338, 130 West Second Street,
Dayton, Ohio 45401-0338 (Telephone: (937) 224-4000).
5
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and pro forma financial data and notes thereto,
included elsewhere in this Prospectus. Unless otherwise stated in this
Prospectus or unless the context otherwise requires, references to the "Company"
include the Company and each of its subsidiaries. 9500 dayGraphica(R), 4000
dayGraphica(R), 3610 dayGraphica(R), 3000 Patriot(R), 8500 AccuDot(R), 3500
Discovery(R), 8891, 8889 NewsMaker(R), David M Special Edition(R), UV 8100
Resister(R), Ultra-Vee(R), QuantaLith(R) Blue, QuantaLith(R) Gold, Micro-Ce1(R)
Green, Sticky Bak(R) 8413, 8420, 8495, 250 Boxer(R), David M QL Purple Ultra
Vee(R), and t3000 Revolution(R) are products using registered trademarks of the
Company.
THE COMPANY
The Company is one of the world's leading producers of precision
engineered rubber products, specializing in the design and customization of
consumable image transfer products for the graphic arts (printing) industry and
fiber handling products for the textile industry. The Company's printing
components division ("Image Transfer") is the world's largest designer,
manufacturer and marketer of high-quality printing blankets and sleeves for use
in offset printing. The Company estimates that in 1997 it had the number one
market share in printing blankets and sleeves in the United States and Canada
and worldwide with approximately a 44% share and a 32% share in each market,
respectively. The Company's textiles component division ("Textiles") is one of
the largest U.S. manufacturers and marketers of precision engineered rubber
cots, aprons and other fabricated rubber fiber handling components sold to
textile yarn spinners worldwide. The Company estimates that in 1997 its share of
the U.S. market for spinning cots and aprons was approximately 42%. In 1997,
Image Transfer and Textiles contributed 79% and 21%, respectively, of the
Company's total sales.
The Company's sales and EBITDA (earnings before interest expense, other
income or expense, income taxes, depreciation and amortization) have grown at an
average compounded annual rate of 7.0% and 7.5%, respectively, from 1988 to
1997. The Company's sales increased from $120.3 million for the year ended
December 31, 1994 to $166.3 million for the year ended December 31, 1997,
representing a compounded annual growth rate of 11.4%, while the Company's
EBITDA increased from $31.3 million to $42.5 million during this period,
representing a compounded annual growth rate of 10.7%.
Printing blankets are highly engineered products manufactured to narrow
tolerances and precise specifications. They are composed of multiple layers of
fabric, rubber and adhesives which determine performance features on the
printing press and overall quality of the printing job. Printing sleeves are
highly engineered "tubular" blankets designed to operate at speeds 20% to 30%
faster than those of standard presses. Blankets and sleeves accept ink from
cylindrical printing plates and transfer it to a broad range of paper stocks and
other substrates. Blankets and sleeves are a major determinant of the quality of
the image resolution and consistency of the printed material, as they are
required to perform consistently over a broad range of press speeds and printing
pressures with a wide variety of papers, inks and other chemicals. Blankets and
sleeves are consumable and are replaced at regular intervals depending on the
process used and printing requirements. Due to the importance of blankets and
sleeves in determining the overall quality of the printing job, and because
their cost typically represents less than 1% of the cost of the printed page,
price is a secondary factor in the end-user's purchase decision.
Offset is the primary printing process for long-run, high-speed
applications, such as the printing of magazines, annual reports, catalogs,
direct mail and newspapers. Flexographic and digital, two other printing
processes, are currently used primarily in short-run, lower speed applications,
such as for printing brochures and packaging material. According to industry
sources, in 1996 the United States and Canadian markets for offset, flexographic
and digital printing were estimated at $118 billion, $45 billion and $12
billion, respectively (measured by value of material printed). The Company
believes that applications for image transfer products within flexographic and
digital printing processes will increase significantly and that advances in
digital technologies will complement offset printing processes. The Company
believes that it is an industry leader in the development of printing blankets,
sleeves and belts for use in digital printing. The
<PAGE> 8
Company is currently developing sleeves for use in the flexographic process, as
well as exploring other approaches to entering the flexographic sleeve market.
Due to the large number of offset printing presses installed in the United
States, management expects that the offset process will continue to be the
method of choice for high-quality, low-cost long runs, and currently nearly all
of the sales of Image Transfer are generated by products designed for use in
offset printing.
The Company, through its Textiles division, 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 United States as the
most technologically advanced producer of textile products in the world.
According to industry sources, yarn production in the United States increased
approximately 36% from 1988 to 1996, with exports increasing even more rapidly
during that period. 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 has the broadest line of cots and aprons and related products of any
domestic manufacturer.
The Company's principal executive office is located at 130 West Second
Street, Suite 1700, Dayton, Ohio 45401-0338 Telephone: ((937) 224-4000).
COMPETITIVE POSITION WITHIN THE INDUSTRY
Over the past decade, in the opinion of management, the volume of material
printed by the offset process has grown more rapidly than the value of such
material, primarily due to demand for increasingly diverse, as well as higher
volumes of, printed material coupled with increased efficiencies in the printing
process. Blankets and sleeves are consumable, and the need for their replacement
depends largely on the volume and variety of printed material. As a result, the
demand for blankets and sleeves, particularly advanced high-performance
products, has outpaced the general growth of offset printing.
Image Transfer sales have increased at the average compounded annual rate
of 8.1% from 1988 to 1997, and Textiles sales have increased at the average
compounded annual rate of 3.5% over this period. The Company believes that its
market share has grown over this period as a result of its emphasis on providing
superior customer and technical service, a broad product line and constant
technological innovation which meets the changing needs of its customers.
Because of its value-added products and continued efficiency gains in
manufacturing and administration, the Company has steadily improved its
operating margins. The Company believes that its strong financial performance
has been due to its following competitive strengths.
Leading Market Share. The Company estimates that it holds the number one
domestic and worldwide market position in printing blankets and sleeves and a
leading market position in cots and aprons for the textile industry. The Company
has increased its worldwide market share in printing blankets and sleeves from
approximately 23% in 1992 to 32% in 1997. Accordingly, the Company's products
enjoy significant brand name recognition. In addition, the Company's products
are installed on a large number of offset printing presses throughout the world,
which results in significant repeat orders as those products are replaced at the
end of their life cycle.
Long-Standing and Interactive Customer Relationships. The Company's sales
force has strong customer relationships and technical expertise which enables it
to promote effectively the Company's products. In Image Transfer, the Company's
sales force calls on end-users as well as value-added distributors. The Company
has been able to generate "pull-through" demand for its products by educating
their end-users on the superior performance characteristics of the Company's
products and providing them with exceptional technical service. The Company's
technical service and sales forces also help provide solutions to complex
printing problems, which can only be addressed by a thorough understanding of
the offset printing process. Their efforts are enhanced by a proprietary
database that allow the sales professionals to be more informed, on a daily
basis, about a customer's need for replacement products and the suitability of
the Company's products for a particular application. The Company's competitive
edge is enhanced by long-standing relationships with a large number of printers,
such as R.R. Donnelley & Sons Co., World Color Press, Inc., Quebecor Printing,
Inc., Treasure Chest Advertising Company, Inc., BPCC (U.K.) and the Springer
Group (Germany); textile companies, such
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as Burlington Industries, Inc., Springs Industries, Inc., Milliken & Company and
Alice Manufacturing; and manufacturers of fiberglass products, such as PPG
Industries, Inc. and Owens-Corning.
Product Innovation and Proprietary Technology. The Company historically
has been at the forefront of technological advances and has consistently led in
the development and marketing of new products. Over the last several years, a
number of the Company's developments have improved the surface and compressible
layers of the printing blanket, resulting in enhanced image resolution, improved
durability and increased printing consistency. These developments have resulted
in increased demand for advanced and high-performance products, which command
premium prices. The Company often works directly with manufacturers of standard
and alternative technology printing presses to develop advanced products to meet
the requirements for new technologies and machines. For example, in 1993, the
Company and Heidelberg Web Press, the world's leading manufacturer of printing
presses, introduced a unique printing sleeve for Heidelberg's M-3000 high-speed
press. The Company currently has the leading market share of this sleeve. The
Company recently introduced the 4000 dayGraphica(R) blanket, which utilizes a
new manufacturing process and increases the usable surface area of the blanket,
resulting in reduced paper waste. Moreover, the Company has been developing
advanced products for the rapidly-growing high-speed air-jet spinning market.
The Company employs 24 engineers, chemists and other technical personnel
dedicated to research and development, and holds 26 active U.S. patents and 48
active foreign patents for several proprietary technologies.
Broad Product Line. The Company maintains the broadest and most
application-specific product line for printing blankets and sleeves, providing
optimal high-performance solutions to a wide variety of customer applications
and requirements. In addition, the Company has been expanding its product line
for newspaper printing, a market historically underserved by the Company. The
recently acquired David M brand of printing blankets is complementary to the
Company's long-standing Day brand. Textiles offers over 3,000 SKUs, the broadest
product line of cots and aprons of any domestic manufacturer.
Experienced Management Team. The Company's senior management has extensive
experience in the industry and possesses a deep understanding of the
technological and market dynamics of the printing and textile industries. The
ten most senior managers average approximately 19 years of industry experience
and approximately 12 years with the Company. In addition, since June 1995, the
Company's management has successfully operated a highly leveraged company while
improving production efficiency and product quality, generating strong growth in
sales and EBITDA, as well as successfully acquiring and integrating the David M
Company.
BUSINESS STRATEGY
The Company intends to enhance its leadership position by taking advantage
of growth opportunities in both Image Transfer and Textiles. The Company's
strategy is to (i) continue strengthening its core businesses, reinforcing its
position as the leading supplier of printing blankets and sleeves to the offset
printing industry and cots and aprons to the textile industry, (ii) capitalize
on opportunities in the rapidly-growing digital and flexographic printing
processes, (iii) increase its international presence, (iv) expand its product
line by introducing and offering complementary products, and (v) continue
improving manufacturing processes.
Reinforce Market Leadership in its Core Businesses. The Company plans to
increase further its market share and sales through continued product innovation
and selective acquisitions that will expand the Company's product line and
customer base. The Company will continue to work closely with end-users to
develop innovative products, processes and technologies that meet evolving
customer needs while enhancing its mix of high value-added, high-margin
products. In Image Transfer, it recently introduced the 3610 dayGraphica(R),
which enhances the print quality of certain presses, and the Mini-Gap(TM), which
conforms to new higher-speed press designs. In Textiles, it has developed cots
and aprons that can be utilized by the more advanced yarn spinning equipment.
The Company also plans to pursue selective strategic acquisitions such as that
of David M Company, which has better positioned the Company to target the
smaller sheetfed, forms and packaging printers previously underserved by the
Company.
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Capitalize on Opportunities in Developing Processes. The demand for
digital and flexographic printing processes is expected to grow rapidly. The
Company has been working in partnership with significant printing industry
partners in the development of these technologies and has produced a number of
prototypes and is evaluating the production of others. The Company expects to
complete in 1998 an Advanced Development Center for consumable Image Transfer
products, which will be equipped with specialized and dedicated machines to
provide rapid design and prototype capability for components to be used by the
new digital press technology. The Company has already made significant progress
in the development of products for digital printing and is well-positioned to
benefit from the expected increases in digital printing. The Company is also
pursuing the opportunity of supplying replaceable sleeves for the flexographic
printing process.
Increase International Presence. The Company intends to increase its
presence in international markets, particularly in the Pacific Rim, Latin
America and Europe. Management believes that these markets provide significant
growth opportunities because the Company's market share is lower in certain of
these areas and because they are expected to grow more rapidly than the
Company's existing principal markets. The Company's strategy is to seek to
penetrate targeted markets through the expansion of its international sales
force and distribution channels. Similar efforts by the Company resulted in the
Company increasing its market share in Europe for blankets and sleeves from 13%
in 1992 to 24% in 1997. The Company will also pursue joint ventures with
strategically-located partners and consider international acquisition
opportunities.
Expand Product Lines and Offer Complementary Products. The Company will
seek to expand its offering of complementary products, such as press room
chemicals, through distribution arrangements and strategic acquisitions and
joint ventures. Management believes that carefully-selected acquisitions and
joint ventures will allow the Company to diversify its customer base, improve
absorption of corporate overhead and enhance its position as the leading
supplier to the printing industry.
Continue Improving Manufacturing Processes. The Company prides itself on
providing high-quality products while maintaining its position as a low-cost
producer. The Company expects that additional process and manufacturing
improvements will continue to lower its costs and to strengthen its competitive
position. The Company intends to improve further its profitability through
productivity gains developed by process- focused teams at each of its
facilities. For example, in Image Transfer, the Company will continue to gain
efficiencies through the implementation of its new rubber-layer construction
process on additional production lines. The Company has also developed a new
proprietary bonding process that is expected to reduce costs across the Image
Transfer product line. In Textiles, the Company will complete the automation of
the cot finishing process. To encourage productivity improvements, the Company
ties a portion of each associate's total compensation to a performance bonus
based on achieving certain profit targets.
THE ACQUISITION
GSD Acquisition Corp., a Delaware corporation ("GSD") owned by Greenwich
Street Capital Partners, L.P. ("Greenwich Street") and certain of its affiliates
and SG Capital Partners, LLC ("SG," and collectively with Greenwich Street, the
"Investors"), acquired (the "Acquisition") approximately 93.9% of the common
stock of the Company (on a fully-diluted basis) from American Industrial
Partners Capital Fund, L.P., American Industrial Partners Capital Fund II, L.P.
(together, "AIP"), certain affiliates of AIP and certain management stockholders
on January 16, 1998 (the "Acquisition Closing Date"). As part of the
Acquisition, certain management stockholders of the Company (the "Management
Stockholders") agreed to retain common stock and options to acquire common stock
of the Company (collectively, the "Management Rollover Interests") representing
approximately 6.1% of the Company's common stock (on a fully-diluted basis). The
purchase price for the Acquisition was $362.5 million, subject to certain
adjustments, which totalled $142.6 million, as described under "The Acquisition
and Related Transactions."
In connection with the Acquisition, the Company repaid on the Acquisition
Closing Date all of the outstanding principal and accrued interest under its
senior credit facilities (the "Old Senior Credit Facilities"). In addition, the
Company made the requisite payments to certain members of its management
pursuant to their incentive bonus arrangements. The Company's existing 11 1/8%
Senior Subordinated Notes due 2005 (the "2005 Notes"), in the outstanding
principal amount of $100 million, remained outstanding following the
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<PAGE> 11
Acquisition. The Acquisition and related expenses were financed principally by
(i) approximately $81.9 million of capital provided by the Investors to GSD,
(ii) a $140 million credit facility (the "GSD Credit Facility") provided to GSD
by Societe Generale, and (iii) a $60 million senior secured credit facility (the
"Senior Secured Credit Facility") provided to the Company by Societe Generale,
consisting of a $40 million term loan facility (the "Term Loan Facility"), and a
$20 million revolving credit facility (the "Revolving Credit Facility") of which
$0 was drawn on the Acquisition Closing Date. For a detailed description of the
sources and uses of funds for the Acquisition, see "The Acquisition and Related
Transactions."
Following the Acquisition, the Company sought and obtained the consent
(the "Consent Solicitation") of the registered holders of the 2005 Notes, among
other things, (i) to permit the Company to assume GSD's indebtedness under the
GSD Credit Facility, (ii) to permit the Company to immediately thereafter
refinance such assumed indebtedness through the issuance of the Securities and
the application of the proceeds of the Offerings, and (iii) to eliminate all of
the applicable provisions of the Indenture governing the 2005 Notes (the "2005
Indenture") that subordinate the 2005 Notes in right of payment to any senior
indebtedness of the Company (the "Proposed Amendments"). Adoption of the
Proposed Amendments required the consent of the registered holders of at least a
majority in principal amount of the 2005 Notes outstanding (the "Requisite
Consents"). The receipt of Requisite Consents was a condition to (a) the
assumption by the Company of GSD's indebtedness under the GSD Credit Facility
and (b) the purchase of the Securities by the Initial Purchaser and the
consummation of the Offerings. On March 18, 1998, the Company made a consent
payment to the registered holders of the 2005 Notes whose duly executed consent
was received prior to the expiration date of the Consent Solicitation and who
did not revoke their consent. The consent payment was $65 in cash for each
$1,000 principal amount of the 2005 Notes.
Immediately following the receipt of the Requisite Consents and the
effectiveness of the Proposed Amendments, the Company assumed GSD's indebtedness
under the GSD Credit Facility, issued and sold the Securities to the Initial
Purchaser and applied the proceeds of the Offerings to discharge the
indebtedness under the GSD Credit Facility. Immediately thereafter, GSD was
liquidated (the "GSD Liquidation") and the Investors became direct stockholders
of the Company. At that time, the equity ownership of the Company was
restructured to reflect the increase in the Company's leverage associated with
these transactions, with the result that the Management Stockholders and the
Investors now own 14.1% and 85.9%, respectively, of the Company's common stock
(on a fully-diluted basis).
USE OF PROCEEDS
The net proceeds of the Offerings, together with certain other sources of
financing, were used to (i) repay all amounts outstanding under the GSD Credit
Facility of approximately $142.8 million and (ii) make a portion of the consent
payment for the Consent Solicitation.
OWNERSHIP
Greenwich Street is a private direct equity investment fund organized in
1994 to provide long-term capital for and make acquisitions in companies in a
variety of industries. Greenwich Street invests in management buyouts, leveraged
acquisitions, international investment opportunities and minority investments.
Greenwich Street and certain of its affiliates own 100% of G-IV, LLC, a Delaware
limited liability company, which together with SG owns 85.9% of the fully
diluted equity of the Company, with the balance of such equity owned by certain
members of management.
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THE EXCHANGE OFFERING
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Registration Agreement .......................... The Existing Notes and the Existing Exchangeable Preferred Stock
were issued on March 18, 1998 to Societe Generale Securities
Corporation (the "Initial Purchaser"). The Initial Purchaser
resold the Existing Notes and the Existing Exchangeable
Preferred Stock to certain qualified institutional buyers in
reliance on, and subject to the restrictions imposed pursuant
to, Rule 144A of the Securities Act, and outside the United
States in accordance with Regulation S of the Securities Act.
In connection therewith, the Company and the Initial Purchaser
entered into the Registration Rights Agreement, dated March 18,
1998 (the "Registration Rights Agreement"), providing, among
other things, for the Exchange Offer. See "The Exchange Offer."
The Exchange Offer............................... New Notes are being offered in exchange for an equal
principal amount of Existing Notes. As of the date hereof,
$115,000,000 aggregate principal amount of Existing
Notes is outstanding. Existing Notes may be tendered only
in integral multiples of $1,000.
New Exchangeable Preferred Stock is being offered in exchange for an
equal liquidation preference of Existing Exchangeable Preferred Stock. As
of the date hereof, $35,000,000 aggregate liquidation preference of
Existing Exchangeable Preferred Stock is outstanding. Existing
Exchangeable Preferred Stock may be tendered only in integral
multiples of $1,000.
Resale of New Notes and
New Exchangeable
Preferred Stock................................ Based on interpretations by the Staff of the Commission as set forth
in no-action letters issued to third parties (including Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley & Co. Incorporated (available June 5, 1991), K-III
Communications Corporation (available May 14, 1993) and
Shearman & Sterling (available July 2, 1993)), the Company
believes that the New Securities issued pursuant to the
Exchange Offer may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder
that is a broker-dealer or an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that (i) such New
Securities are acquired in the ordinary course of business,
(ii) at the time of the commencement of the Exchange Offer such
holder has no arrangement or understanding with any person to
participate in a distribution of the New Securities and (iii)
such holder is not engaged in, and does not intend to engage
in, a distribution of the New Securities. By tendering
Existing Securities in exchange for New Securities, each holder
will represent to the Company that:
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(i) it is not an affiliate of the Company, (ii) any New Securities
to be received by it will be acquired in the ordinary course of
business and (iii) at the time of the commencement of the Exchange
Offer it had no arrangement or understanding with any person to
participate in a distribution of the New Securities and, if such
holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, a distribution of New Securities. If a holder
of Existing Securities is unable to make the foregoing
representations, such holder may not rely on such interpretations of
the Staff of the Commission as set forth in such no-action letters,
will not be permitted or entitled to tender such Existing Securities
and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary
resale transaction.
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer in exchange for Existing Securities,
where such Existing Securities were acquired by such broker-dealer
as a result of market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act and that it has not entered into
any arrangement or understanding with the Company or an affiliate of
the Company to distribute the New Securities in connection with any
resale of such New Securities. A broker-dealer that acquired
Existing Securities in a transaction other than as part of its
market-making activities or other trading activities will not be
able to participate in the Exchange Offer. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New
Securities where such Existing Notes or Existing Preferred Stock
were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that,
starting on the Expiration Date, and ending on the close of business
90 days after the Expiration Date, it will make this Prospectus
available to any participating broker-dealer for use in connection
with any such resale. See "Plan of Distribution."
To comply with the securities laws of certain jurisdictions, it may
be necessary to qualify for sale or register the New Securities
prior to offering or selling such New Notes or New Exchangeable
Preferred Stock. The Company has agreed, pursuant to the
Registration Agreement and subject to certain specified limitations
therein, to register or qualify the New Notes and the New
Exchangeable Preferred Stock for offer or sale under the securities
or "blue sky" laws of such jurisdictions as may be necessary to
permit the holders of New Notes or New Exchangeable Preferred
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Stock to trade the New Securities without any material restrictions
or limitations under the securities laws of the several states of
the United States.
Consequences of Failure to
Exchange Existing Notes or Existing
Exchangeable Preferred Stock................... Upon consummation of the Exchange Offer, subject to
certain limited exceptions, holders of Existing Securities
who do not exchange their Existing Securities for New
Securities in the Exchange Offer will no longer be entitled
to registration rights and will not be able to offer or sell
their Existing Securities, unless such Existing Securities
are subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the Company
will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See
"The Exchange Offer--Terms of the Exchange Offer" and
"--Consequences of Failure to Exchange."
Expiration Date.................................. 5:00 p.m., New York City time, on , 1998 (30
calendar days following the commencement of the
Exchange Offer), unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the latest date
and time to which the Exchange Offer is extended.
Interest on the New Notes........................ The New Notes will accrue interest at a rate of 9 1/2% per
annum from the Issue Date (as defined herein) of the
Existing Notes. Interest on the New Notes is payable on
March 15 and September 15 of each year, commencing on
September 15, 1998.
Dividends of the New Exchangeable
Preferred Stock................................ All dividends of the New Exchangeable Preferred Stock will be
cumulative from the Issue Date (as defined herein) of the Existing
Exchangeable Preferred Stock. Dividends will be payable quarterly in
arrears on March 15, June 15, September 15, and December 15 of each
year, commencing on June 15, 1998.
Conditions to the
Exchange Offer................................. The Exchange Offer is not conditioned upon any minimum
principal amount of Existing Securities being tendered for
exchange. However, the Exchange Offer is subject to
certain customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Except for the requirements of applicable federal and state
securities laws, there are no federal or state regulatory
requirements to be complied with or obtained by the
Company in connection with the Exchange Offer.
Procedures for Tendering Existing
Notes and Existing Exchangeable
Preferred Stock................................ Each holder of Existing Notes or Existing Exchangeable
Preferred Stock wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, or a
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facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with any other required
documentation to the Noteholders' Exchange Agent (as defined herein)
or the Exchangeable Preferred Stock Exchange Agent (as defined
herein), as the case may be, at the address set forth herein and
effect a tender of Existing Notes or Existing Exchangeable Preferred
Stock pursuant to the procedures for book-entry transfer as provided
for herein. See "The Exchange Offer--Procedures for Tendering" and
"--Book Entry Transfer."
Guaranteed Delivery
Procedures..................................... Holders of Existing Notes or Existing Exchangeable
Preferred Stock who wish to tender their Existing Notes or
their Existing Exchangeable Preferred Stock and who
cannot deliver their Existing Notes or Existing
Exchangeable Preferred Stock, as the case may be, and a
properly completed Letter of Transmittal or any other
documents required by the Letter of Transmittal to the
Noteholders' Exchange Agent or the Exchangeable
Preferred Stock Exchange Agent, as the case may be, prior
to the Expiration Date may tender their Existing Notes or
their Existing Exchangeable Preferred Stock according to
the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights................................ Tenders of Existing Notes or Existing Exchangeable
Preferred Stock may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. To
withdraw a tender of Existing Notes or Existing
Exchangeable Preferred Stock, a written or facsimile
transmission notice of withdrawal must be received by the
Noteholders' Exchange Agent or the Exchangeable
Preferred Stock Exchange Agent, as the case may be, at the
address set forth herein under "The Exchange
Offer--Exchange Agents" prior to 5:00 p.m., New York
City time, on the Expiration Date.
Acceptance of Existing Notes and
Existing Exchangeable Preferred Stock..
and Delivery of New Notes and New
Exchangeable Preferred Stock................... Subject to certain conditions, any and all Existing Notes or
Existing Exchangeable Preferred Stock that are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date will be
accepted for exchange. The New Notes and the New
Exchangeable Preferred Stock issued pursuant to the
Exchange Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Certain U.S. Tax
Consequences................................... The exchange of Existing Notes for New Notes or Existing
Exchangeable Preferred Stock for New Exchangeable
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Preferred Stock, as the case may be, should not constitute
a taxable exchange for U.S. federal income tax purposes.
See "Certain Federal Income Tax Considerations."
Noteholders' Exchange Agent...................... The Bank of New York is serving as exchange agent for the
holders of Existing Notes (the "Exchange Agent") in
connection with the Exchange Offer.
Exchangeable Preferred Stock Exchange
Agent............................................ The Bank of New York is serving as exchange agent for the
holders of Exchangeable Preferred Stock in connection
with the Exchange Offer (the "Exchangeable Preferred
Stock Exchange Agent" and together with the Noteholders'
Exchange Agent, the "Exchange Agents," and each an
"Exchange Agent").
Trustee.......................................... The Bank of New York is serving as trustee (the "Trustee")
for the Noteholders.
Fees and Expenses................................ All expenses incident to the Company's consummation of
the Exchange Offer and compliance with the Registration
Rights Agreement will be borne by the Company. See
"The Exchange Offer--Fees and Expenses."
Use of Proceeds.................................. The Company will not receive any proceeds from the
Exchange Offer. The net proceeds from the Offerings,
together with certain other sources of financings were used
to (i) repay all amounts outstanding under the GSD Credit
Facility, approximately $142.7 million as of March 18,
1998, and (ii) make a portion of the consent payment for
the Consent Solicitation. See "Use of Proceeds."
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SUMMARY OF TERMS OF THE NEW NOTES AND THE NEW EXCHANGEABLE PREFERRED STOCK
THE NOTES
<S> <C>
Maturity......................................... March 15, 2008.
Interest Payment Dates........................... March 15 and September 15 of each year, commencing
September 15, 1998.
Sinking Fund..................................... None.
Optional Redemption.............................. Except as described below, the Company may not redeem
the Notes prior to March 15, 2003. On or after such date,
the Company may redeem the Notes, in whole or in part, at
the redemption prices set forth herein together with accrued
and unpaid interest, if any, to the date of redemption. In
addition, at any time and from time to time on or prior to
March 15, 2001, the Company may redeem up to 33 1/3% of
the original aggregate principal amount of the Notes with
the Net Cash Proceeds (as defined) of one or more Public
Equity Offerings (as defined) following which there is a
Public Market (as defined) at a redemption price equal to
109.5% of the principal amount of the Notes to be
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redeemed, together with accrued and unpaid interest, if any,
to the date of redemption, provided that at least 66 2/3% of
the original aggregate principal amount of the Notes
remains outstanding after each such redemption. See
"Description of the Notes -- Optional Redemption."
Change of Control................................ Upon the occurrence of a Change of Control (as defined),
(i) the Company will have the option, at any time prior to
March 15, 2003, to redeem the Notes, in whole, at a
redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium (as defined), together
with accrued and unpaid interest, if any, to the date of
redemption, and (ii) if the Company does not redeem the
Notes, or if such Change of Control occurs on or after
March 15, 2003, the Company will be required to make an
offer to repurchase the Notes held by such holder at a price
equal to 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the Notes -- Change of
Control."
Subsidiary Guarantees............................ The Notes will be unconditionally guaranteed on an
unsecured, senior subordinated basis by each Domestic
Subsidiary of the Company and each newly acquired or
created Domestic Subsidiary that is a Significant
Subsidiary. As of the date hereof, the Company's only
Domestic Subsidiary (as defined), Day International, Inc.,
a Delaware Corporation and a wholly owned subsidiary of
the Company ("Day International, Inc." or "Day"),
guaranteed the Notes. See "Description of the Notes --
Note Guarantees."
Ranking.......................................... The Notes will be unsecured and will be subordinated in
right of payment to all existing and future Senior
Indebtedness (as defined) of the Company, including the
Senior Secured Credit Facility and the 2005 Notes, and will
be effectively subordinated to all obligations of the Foreign
Subsidiaries of the Company. The Notes will rank pari
passu with any future Senior Subordinated Indebtedness
(as defined) of the Company and will rank senior to all
other Subordinated Indebtedness (as defined) of the
Company. The Indenture (as defined) permits the Company
to incur additional indebtedness, including Senior
Indebtedness, subject to certain limitations. The Company
has outstanding $37.5 million of secured Senior
Indebtedness under the Senior Secured Credit Facility
(exclusive of unused commitments) and $100.0 million of
unsecured Senior Indebtedness under the 2005 Notes and
no Senior Subordinated Indebtedness other than the
indebtedness represented by the Existing Notes. See
"Description of the Notes -- Ranking."
Restrictive Covenants............................ The indenture under which the Notes will be issued (the
"Indenture") will limit: (i) the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries (as defined); (ii) the layering of indebtedness;
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(iii) the payment of dividends on, and redemption of, capital stock
of the Company and its Restricted Subsidiaries and the redemption of
certain subordinated obligations of the Company and its Restricted
Subsidiaries; (iv) investments; (v) sales of assets and Restricted
Subsidiary stock; (vi) certain transactions with affiliates; (vii)
the sale or issuance of capital stock of Restricted Subsidiaries;
(viii) the creation and existence of liens; and (ix) consolidations,
mergers and transfers of all or substantially all of the Company's
assets. The Indenture will also prohibit certain restrictions on
distributions from Restricted Subsidiaries. However, all of these
limitations and prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the Notes --
Certain Covenants" and "Description of the Notes -- Merger and
Consolidation."
THE EXCHANGEABLE PREFERRED STOCK
Dividends........................................ All dividends will be cumulative from the date of issuance
of the Exchangeable Preferred Stock and will be payable
quarterly in arrears on March 15, June 15, September 15
and December 15 of each year, commencing on June 15,
1998. On or before March 15, 2003, the Company may, at
its option, pay dividends in cash or in additional fully paid
and non-assessable shares of Exchangeable Preferred Stock
having an aggregate liquidation preference equal to the
amount of such dividends. After March 15, 2003, dividends
may be paid only in cash.
Mandatory Redemption............................. The Company is required, subject to certain conditions, to
redeem all of the Exchangeable Preferred Stock
outstanding on March 15, 2010 at a redemption price equal
to 100% of the liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to the date
of redemption.
Optional Redemption.............................. Except as described below, the Company may not redeem
the Exchangeable Preferred Stock prior to March 15, 2003.
On or after such date, the Company may, at its option
redeem the Exchangeable Preferred Stock, in whole or in
part, at the redemption prices set forth herein together with
accumulated and unpaid dividends, if any, to the date of
redemption. In addition, at any time and from time to time
prior to March 15, 2001, the Company, at its option, may
redeem the Exchangeable Preferred Stock, in whole or in
part, with the Net Cash Proceeds of one or more Public
Equity Offerings following which there is a Public Market
at a redemption price equal to 112.25% of the liquidation
preference thereof, together with accumulated and unpaid
dividends, if any, to the date of redemption.
Change of Control................................ Upon the occurrence of a Change of Control, the Company
will be required to make an offer to purchase the
Exchangeable Preferred Stock for cash at a purchase price
of 101% of the liquidation preference thereof, together with
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all accumulated and unpaid dividends to the date of
purchase.
Ranking.......................................... The Exchangeable Preferred Stock will rank (i) senior to all
other classes of Capital Stock of the Company established
after the issue date of the Exchangeable Preferred Stock
which do not expressly provide that such classes rank on a
parity with the Exchangeable Preferred Stock as to
dividends and distributions upon the liquidation, winding
up and dissolution of the Company and (ii) subject to
certain conditions, on a parity with any class of Capital
Stock established after the date of issuance of the
Exchangeable Preferred Stock the terms of which expressly
provide that such class or series will rank on a parity with
the Exchangeable Preferred Stock as to dividends and
distributions upon the liquidation, winding up and
dissolution of the Company. Creditors of the Company will
have priority over the Exchangeable Preferred Stock with
respect to claims on the assets of the Company. See
"Description of the Exchangeable Preferred Stock and
Exchange Debentures -- Exchangeable Preferred Stock --
Rank."
Certain Covenants................................ The Certificate of Designation for the issuance of the
Preferred Stock will limit: (i) the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries; (ii) the redemption or repurchase of Junior
Securities or Parity Securities (each as defined) and the
payment of dividends thereon; (iii) certain investments;
(iv) consolidations or mergers; and (v) certain transactions
with affiliates. However, all these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
Exchangeable Preferred Stock and Exchange Debentures --
Exchangeable Preferred Stock -- Certain Covenants."
THE EXCHANGE DEBENTURES
Maturity......................................... March 15, 2010.
Interest......................................... Interest on the Exchange Debentures will be payable semi-
annually in cash (or on or prior to, March 15, 2003, in
additional Exchange Debentures, at the option of the
Company) in arrears on March 15 and September 15 of
each year, commencing with the first such date after the
Exchange Date.
Optional Redemption.............................. Except as described below, the Company may not redeem
the Exchange Debentures prior to March 15, 2003. On or
after such date, the Company may, at its option, redeem the
Exchange Debentures, in whole or in part, at the
redemption prices set forth herein together with accrued
and unpaid interest, if any, to the date of redemption. In
addition, at any time and from time to time on or prior to
March 15, 2001, the Company may, at its option, redeem
</TABLE>
13
<PAGE> 20
<TABLE>
<S> <C>
the Exchange Debentures, in whole or in part, with the Net Cash
Proceeds of one or more Public Equity Offerings following which
there is a Public Market at a redemption price equal to 112.25% of
the principal amount of the Exchange Debentures to be redeemed,
together with accrued and unpaid interest, if any, to the date of
redemption.
Change of Control................................ Upon the occurrence of a Change of Control, subject to
certain restrictions in the Company's debt instruments, the
Company will be required to make an offer to repurchase
the Exchange Debentures held by such holder at a price
equal to 101% of the principal amount thereof, together
with accrued and unpaid interest, if any, to the date of
repurchase.
Ranking.......................................... The Exchange Debentures will be unsecured and will be
subordinated in right of payment to all existing and future
Exchange Debenture Senior Indebtedness (as defined) of
the Company, including the Senior Secured Credit Facility,
the 2005 Notes and the Notes, and will be effectively
subordinated to all obligations of the subsidiaries of the
Company. The Exchange Debentures will rank senior to all
other Exchange Debenture Subordinated Indebtedness of
the Company. The Exchange Debenture Indenture (as
herein defined) permits the Company to incur additional
indebtedness, including Exchange Debenture Senior
Indebtedness, subject to certain limitations. See "Risk
Factors" and "Description of the Exchangeable Preferred
Stock and Exchange Debentures -- Exchange Debentures
-- Subordination and Ranking."
Restrictive Covenants............................ The indenture under which the Exchange Debentures will
be issued (the "Exchange Debenture Indenture") will limit:
(i) the incurrence of additional indebtedness by the
Company and its Restricted Subsidiaries (as defined); (ii)
the payment of dividends on, and redemption of, capital
stock of the Company and its Restricted Subsidiaries and
the redemption of certain subordinated obligations of the
Company and its Restricted Subsidiaries; (iii) investments;
(iv) sales of assets and Restricted Subsidiary stock; (v)
certain transactions with affiliates; (vi) the sale or issuance
of capital stock of Restricted Subsidiaries; (vii) the creation
and existence of liens; and (viii) consolidations, mergers
and transfers of all or substantially all of the Company's
assets. The Exchange Debenture Indenture will also
prohibit certain restrictions on distributions from Restricted
Subsidiaries. However, all of these limitations and
prohibitions are subject to a number of important
qualifications and exceptions. See "Description of the
Exchangeable Preferred Stock and Exchange Debentures--
Exchange Debentures -- Certain Covenants."
</TABLE>
14
<PAGE> 21
RISK FACTORS
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" for risks involved with an investment in
the Securities. The risk factors include: (i) Substantial Leverage and Debt
Service Obligations; (ii) Impact of Subordination of Notes; (iii) Impact of
Subordination of Equity Interests; (iv) Impact of Security under Senior Secured
Credit Facility; (v) Impact of Restrictive Financing Covenants; (vi) Impact of
Change of Control; (vii) Fraudulent Conveyance Considerations; (viii) Dividend
Restrictions on Exchangeable Preferred Stock; (ix) Risks Associated with
International Operations; (x) Impact of Significant Competition; (xi)
Environmental Matters; (xii) Impact of Technological Change; (xiii) Reliance on
Material Customer; (xiv) Year 2000 Compliance; (xv) Dependence on Key Personnel;
(xvi) Absence of Public Market; Restriction on Transfer; and (xvii) Certain Tax
Considerations for Holders of Exchangeable Preferred Stock. See "Risk Factors."
15
<PAGE> 22
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary financial data of the Company for
each of the five fiscal years, during the period ended December 31, 1997. The
summary financial data set forth below with respect to the years ended December
31, 1997 and 1996, the period from June 7, 1995 through December 31, 1995 and
the period from January 1, 1995 through June 6, 1995 are derived from the
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Deloitte & Touche LLP, independent auditors. The summary
financial data with respect to years ended December 31, 1993 and 1994 are
derived from the Company's consolidated financial statements for such years. The
financial data for the years ended December 31, 1993 and 1994 and the 157 days
ended June 6, 1995 represent the results of operations of the Company prior to
its acquisition by AIP on June 6, 1995 (the "AIP Acquisition"), and the
financial data for the 208 days ended December 31, 1995 and the years ended
December 31, 1996 and 1997 represent the results of operations of the Company
subsequent to the AIP Acquisition.
The pro forma financial data set forth below have been derived from the
Unaudited Pro Forma Financial Information and the related notes thereto included
elsewhere in this Prospectus. The pro forma statement of operations for the
fiscal year ended December 31, 1997 gives effect to the Acquisition and related
transactions (including the Offerings) as though each had occurred as of January
1, 1997. The pro forma balance sheet as of December 31, 1997 gives effect to the
Acquisition and related transactions (including the Offerings) as though each
had occurred as of December 31, 1997. The pro forma data does not purport to be
indicative of the Company's financial condition or the results that would have
actually been obtained had such transactions been consummated as of the assumed
dates and for the periods presented, nor are they indicative of the Company's
results of operations or financial condition for any future period or date. The
pro forma adjustments, as described in the notes to the Unaudited Pro Forma
Financial Information, are based on available information and upon certain
adjustments which management believes are reasonable.
The summary financial data below should be read in conjunction with
"Unaudited Pro Forma Financial Information," "Selected Historical Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus.
16
<PAGE> 23
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(PREDECESSOR)
--------------------------------------------
157 DAYS
ENDED
FISCAL YEAR FISCAL YEAR JUNE 6,
1993 1994 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $ 107,724 $ 120,288 $ 55,454
Cost of goods sold ................... 65,342 70,996 33,935
--------- --------- ---------
Gross profit ......................... 42,382 49,292 21,519
Selling, general and
administrative expenses ............ 21,366 22,741 11,257
Compensation and related
transaction costs .................. -- -- --
Amortization of intangibles .......... 5,261 5,212 2,258
Management fees ...................... -- -- --
--------- --------- ---------
Operating income (loss) .............. 15,755 21,339 8,004
Interest expense ..................... -- -- --
Other (income) expense ............... (222) (453) (577)
--------- --------- ---------
Income (loss) before income
taxes .............................. 15,977 21,792 8,581
Provision (benefit) for income
taxes .............................. 7,149 9,205 3,488
--------- --------- ---------
Net income (loss) .................... $ 8,828 $ 12,587 $ 5,093
========= ========= =========
STATEMENT OF CASH FLOWS:
Cash flows provided by (used in)
operating activities ............... 15,837 20,335 419
Cash flows provided by (used in)
investing activities ............... (7,024) 1,555 (1,565)
Cash flows provided by (used in)
financing activities ............... (546) 263 532
OTHER FINANCIAL DATA:
EBITDA(e) ............................ $25,542 $31,276 $12,382
Capital expenditures ................. 3,724 3,564 1,565
Depreciation ......................... 4,526 4,725 2,120
Amortization ......................... 5,261 5,212 2,258
BALANCE SHEET DATA (AT END OF PERIOD):
Fixed assets, net of
accumulated depreciation and
amortization ....................... $ 26,415 $ 25,162 $ 24,667
Total assets ......................... 144,119 144,252 139,537
Long-term and subordinated long-
term debt (including current
maturities) ........................ -- -- --
Redeemable preferred stock ........... -- -- --
Stockholders' equity (deficit) ....... 118,324 117,128 114,780
PRO FORMA DATA:
Cash interest expense ................
Ratio of total debt to EBITDA ........
Ratio of EBITDA to cash interest
expense ............................
Ratio of EBITDA less capital
expenditures to cash interest
expense ............................
Ratio of earnings to fixed charges ... 55.10 91.42 86.81
Ratio of earnings to fixed charges
and preferred stock dividends ...... 55.10 91.42 86.81
</TABLE>
<TABLE>
<CAPTION>
(COMPANY)
-------------------------------------------------------------------
208 DAYS
ENDED
DECEMBER 31, FISCAL YEAR FISCAL YEAR PRO FORMA
1995 1996 1997(a) 1997(b)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $ 73,103 $ 136,814 $ 166,286 $ 166,286
Cost of goods sold ................... 47,503 84,602 103,035 103,035
--------- --------- --------- ---------
Gross profit ......................... 25,600 52,212 63,251 63,251
Selling, general and
administrative expenses ............ 12,885 23,657 28,629 28,340
Compensation and related
transaction costs .................. -- -- -- 17,789(c)
Amortization of intangibles .......... 3,688 6,474 3,315 3,315
Management fees ...................... 455 920 896 975
--------- --------- --------- ---------
Operating income (loss) .............. 8,572 21,161 30,411 12,832
Interest expense ..................... 9,697 16,373 15,926 27,350
Other (income) expense ............... 952(d) (219) 629 629
--------- --------- --------- ---------
Income (loss) before income
taxes .............................. (2,077) 5,007 13,856 (15,147)
Provision (benefit) for income
taxes .............................. (850) 2,000 5,939 (2,662)
--------- --------- --------- ---------
Net income (loss) .................... $ (1,227) $ 3,007 $ 7,917 $ (12,485)
========= ========= ========= =========
STATEMENT OF CASH FLOWS:
Cash flows provided by (used in)
operating activities ............... 14,915 18,063 19,671
Cash flows provided by (used in)
investing activities ............... (206,075) (17,613) (2,504)
Cash flows provided by (used in)
financing activities ............... 195,048 1,173 (21,701)
OTHER FINANCIAL DATA:
EBITDA(e) ............................ $18,730 $ 35,269 $ 42,510 $ 42,720
Capital expenditures ................. 2,082 5,221 5,124 5,124
Depreciation ......................... 2,415 4,384 5,238 5,238
Amortization ......................... 8,310 10,724 7,827 9,070
BALANCE SHEET DATA (AT END OF PERIOD):
Fixed assets, net of
accumulated depreciation and
amortization ....................... $ 44,496 $ 45,289(f) $ 44,792 $ 44,792
Total assets ......................... 228,823 237,886(f) 225,527 242,961
Long-term and subordinated long-
term debt (including current
maturities) ........................ 151,250 152,919(f) 130,883 255,126
Redeemable preferred stock ........... -- -- -- 32,986
Stockholders' equity (deficit) ....... 49,861 52,734(f) 60,189 (87,776)
PRO FORMA DATA:
Cash interest expense ................ $25,141
Ratio of total debt to EBITDA ........ 6.0x
Ratio of EBITDA to cash interest
expense ............................ 1.7x
Ratio of EBITDA less capital
expenditures to cash interest
expense ............................ 1.5x
Ratio of earnings to fixed charges ... --(g) 1.30 1.86 --(g)
Ratio of earnings to fixed charges
and preferred stock dividends ...... --(g) 1.30 1.86 --(g)
</TABLE>
See Notes to Summary Historical and Pro Forma Financial Information
17
<PAGE> 24
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
- ------------------
(a) The Company acquired the David M Company on December 31, 1996 for $9.8
million (including a payment of $450 to AIP for its assistance in this
acquisition, which was allocated to the purchase price). This acquisition
was accounted for as a purchase and financial data for the 1997 fiscal
year include the assets and results of operations of the David M Company.
(b) For an explanation of the pro forma adjustments, see "Unaudited Pro Forma
Financial Information." The pro forma adjustments are based on available
information and upon certain assumptions the Company believes are
reasonable.
(c) Compensation and related transaction costs are comprised of the following:
<TABLE>
<S> <C>
Executive Incentive Bonus Arrangements, including payroll taxes........................ $ 7,536
Expenses associated with the Consent Solicitation...................................... 1,000
Expenses associated with employee stay on bonuses...................................... 600
Compensation attributed to stock options rolled over by management--fully vested....... 8,215
Compensation attributed to stock options exercised..................................... 438
-----------
Total.................................................................................. $ 17,789
===========
</TABLE>
The expenses represent non-recurring costs associated with the Acquisition
and the Consent Solicitation.
(d) Includes a bridge commitment fee, which resulted in a non-recurring
expense of $1.0 million for the 208 days ended December 31, 1995.
(e) EBITDA, as presented, represents earnings before interest expense,
other (income) expense, income taxes, depreciation and
amortization. EBITDA is included because management understands
that such information is considered by certain investors to be an
additional basis on which to evaluate the Company's ability to pay
interest, repay debt and make capital expenditures. Excluded from
EBITDA are interest expense, other income, income taxes,
depreciation and amortization, each of which can significantly
affect the Company's results of operations and liquidity and should
be considered in evaluating the Company's financial performance.
1997 Pro Forma EBITDA excludes pro forma compensation and related
transaction costs of $17,789 (see Note (c) above) because they are
non-recurring costs. EBITDA is not intended to represent and
should not be considered more meaningful than, or an alternative
to, measures of operating performance as determined in accordance
with generally accepted accounting principles.
(f) Balance sheet data for 1996 includes the assets of the David M
Company since it was acquired on December 31, 1996.
(g) Pro Forma 1997 earnings were inadequate to cover fixed charges by $15.1
million. Pro forma 1997 earnings were inadequate to cover fixed charges
and preferred stock dividends by $22.3 million. In 1995, earnings were
inadequate to cover fixed charges and preferred stock dividends by $2.1
million. Excluding the compensation and related transaction costs
identified in Note (c) above, the pro forma 1997 ratio of earnings to
fixed charges would have been 1.1x. Pro Forma 1997 earnings were
inadequate to cover fixed charges and preferred stock dividends, excluding
the compensation and related transaction costs identified in Note (c)
above, by approximately $4.5 million.
The ratio of earnings to fixed charges has been calculated by dividing
earnings before income taxes and fixed charges by fixed charges. Fixed
charges include interest expense, including amortization of deferred
financing costs and one-third of operating lease payments which are deemed
to be representative of the interest factor. The ratio of earnings to
fixed charges and preferred stock dividends is calculated in a manner
similar to the ratio of earnings to fixed charges with the inclusion of
preferred stock dividends, grossed up for income taxes, as a fixed charge.
18
<PAGE> 25
RISK FACTORS
In addition to the other information contained in this Prospectus, before
tendering their Existing Securities for New Securities, holders of Existing
Securities should consider carefully the following factors, which are generally
applicable to the Existing Securities and the New Securities.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Offerings and the other transactions described under
"The Acquisition and Related Transactions," the Company is highly leveraged. The
Company's aggregate indebtedness is approximately $252.5 million (including the
Notes) and the aggregate liquidation preference of the Exchangeable Preferred
Stock is $35.0 million (which, subject to certain conditions, may be exchanged
for Exchange Debentures). In comparison, the Company's outstanding indebtedness
as of December 31, 1997 was $130.9 million. See "Capitalization."
The level of the Company's indebtedness could have important consequences
to holders of the Securities, including: (i) a substantial portion of the
Company's cash flow from operations must be dedicated to debt service and will
not be available for other purposes; (ii) the Company's ability to obtain
additional debt financing in the future for working capital, capital
expenditures, research and development or acquisitions may be limited; and (iii)
the Company's level of indebtedness could limit its flexibility in reacting to
changes in its industries and economic conditions generally.
The Company's ability to pay principal and interest on the Notes and
dividends on the Exchangeable Preferred Stock and to satisfy its other debt
obligations, including its debt obligations under the 2005 Notes, 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 Revolving Credit Facility (which is subject to borrowing
base limitations) or a successor facility. The Company anticipates that its
operating cash flow, together with borrowing under the Revolving Credit
Facility, will be sufficient to meet its operating expenses and capital
expenditures and to service its debt requirements as they become due. However,
there can be no assurance that the Company's cash flow, availability under the
Revolving Credit Facility and other capital resources will be sufficient for
payment of principal of and interest on its indebtedness, including the Senior
Secured Credit Facility, the 2005 Notes and the Notes, for the payment of
periodic cash dividends on the Exchangeable Preferred Stock, for any redemption
of the Exchangeable Preferred Stock for cash, or if the Exchange Debentures have
been issued, the payment of principal of or cash interest on the Exchange
Debentures. If the Company's cash flow, availability under the Revolving Credit
Facility and other capital resources are insufficient to fund the Company's debt
service obligations, the Company may be forced to reduce or delay capital
expenditures, to sell assets, to restructure or refinance its indebtedness, or
to seek additional equity capital. There can be no assurance that any of such
measures could be implemented on satisfactory terms or, if implemented, would be
successful or would permit the Company to meet its debt service obligations.
IMPACT OF SUBORDINATION OF NOTES
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes will be subordinated in right of payment,
as set forth in the Indenture, to the payment when due of all existing and
future Senior Indebtedness of the Company, including all amounts owing under the
Senior Secured Credit Facility and the 2005 Notes. Consequently, in the event of
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to the Company, the assets of the Company will be available to pay
obligations on the Notes only after all Senior Indebtedness (including the
Senior Secured Credit Facility and the 2005 Notes) has been paid in full, and
there can be no assurance that there will be sufficient assets remaining to pay
amounts due on any or all of the Notes. See"--Substantial Leverage and Debt
Service Obligations" above and "Description of Certain Senior Indebtedness" and
"Description of the Notes" below.
19
<PAGE> 26
IMPACT OF SUBORDINATION OF EQUITY INTERESTS
The Exchangeable Preferred Stock will rank junior to all Indebtedness and
other obligations of the Company (including the Notes). The Exchange Debentures,
if issued, will be unsecured obligations of the Company and will be subordinated
in right of payment to all existing and future Exchange Debenture Senior
Indebtedness (as defined), including the Notes. Consequently, in the event of
bankruptcy, liquidation, dissolution, reorganization or similar proceeding with
respect to the Company, payments may be made with respect to the Exchangeable
Preferred Stock only after the assets of the Company have been used to satisfy
all its obligations to its creditors (including the Notes), or if the Exchange
Debentures have been issued, only after all of the Exchange Debenture Senior
Indebtedness (including the Notes) has been paid in full. See "-- Substantial
Leverage" above, and "Description of Certain Senior Indebtedness" and
"Description of the Exchangeable Preferred Stock and Exchange Debentures" below.
IMPACT OF SECURITY UNDER SENIOR SECURED CREDIT FACILITY
The Indenture permits the Company to incur or have outstanding certain
secured indebtedness, including indebtedness under the Senior Secured Credit
Facility, which is secured by a first priority security interest in
substantially all of the tangible and intangible assets of the Company and Day,
including, without limitation, intellectual property, owned U.S. real property,
all of the Capital Stock of Day and each of the Company's existing and
subsequently acquired or organized direct and indirect domestic subsidiaries,
and 65% of the capital stock of each of Day's existing and subsequently acquired
or organized direct foreign subsidiaries. Accordingly, if an event of default
occurs under the Senior Secured Credit Facility, the lenders thereunder will
have a prior right to the assets of the Company and such subsidiaries, and may
foreclose upon such collateral to the exclusion of the holders of the Notes,
notwithstanding the existence of an event of default with respect thereto. In
such event, such assets would first be used to repay in full amounts outstanding
under the Senior Secured Credit Facility, resulting in all or a portion of the
Company's assets and such subsidiaries' assets being unavailable to satisfy the
claims of the holders of the Notes and other unsecured indebtedness.
IMPACT OF RESTRICTIVE FINANCING COVENANTS
The Senior Secured Credit Facility and the 2005 Indenture contain a number
of significant covenants that restrict the operations of the Company. The
Company is required to comply with specified financial ratios and tests,
including minimum fixed charge coverage ratios, maximum leverage ratios and
minimum EBITDA requirements. There can be no assurance that the Company will be
able to comply with such covenants or restrictions in the future. The Company's
ability to comply with such covenants and other restrictions may be affected by
events beyond its control, including prevailing economic, financial and industry
conditions. The breach of any such covenants or restrictions could result in a
default under the Senior Secured Credit Facility or the 2005 Indenture that
would permit the lenders thereto to declare all amounts outstanding thereunder
to be immediately due and payable, together with accrued and unpaid interest,
and the commitments of the lenders under the Revolving Credit Facility to make
further extensions of credit thereunder could be terminated. See "Description of
Certain Senior Indebtedness." The Indenture, the Certificate of Designation for
the Exchangeable Preferred Stock and the Exchange Debenture Indenture also
contain covenants that will restrict the operations of the Company. See
"Description of the Notes" and "Description of the Exchangeable Preferred Stock
and Exchange Debentures."
IMPACT OF CHANGE OF CONTROL
The occurrence of certain of the events that would constitute a Change of
Control may result in a default, or otherwise require repayment of indebtedness,
under the Senior Secured Credit Facility, the 2005 Notes and the Notes, and
redemption of the Exchangeable Preferred Stock or, in the case of the Exchange
Debentures, repayment of indebtedness under the Exchange Debentures. In
addition, the Senior Secured Credit Facility and the 2005 Indenture prohibit the
repayment of indebtedness of the Notes by the Company in such an event, unless
and until such time as the indebtedness under the Senior Secured Credit Facility
and the 2005 Notes
20
<PAGE> 27
are repaid in full. The Company's failure to make such repayments in such
instances would result in a default under the Senior Secured Credit Facility and
the 2005 Notes. The inability to repay the indebtedness under the Senior Secured
Credit Facility or the 2005 Notes, if accelerated, would also constitute an
event of default under the Indenture, which could have materially adverse
consequences to the Company and to the holders of the Notes. Future indebtedness
of the Company may also contain restrictions or repayment requirements with
respect to certain events or transactions that could constitute a Change of
Control. In the event of a Change of Control, there can be no assurance that the
Company would have sufficient assets to satisfy all of its obligations under the
Senior Secured Credit Facility, the 2005 Notes or the Notes, or with respect to
the Exchangeable Preferred Stock or the Exchange Debentures, as the case may be.
See "Description of Certain Senior Indebtedness" and "Description of the Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence of indebtedness by the Company, such as the Notes and the
Exchange Debentures, may be subject to review under Federal bankruptcy law or
relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is
commenced by or on behalf of unpaid creditors of the Company. Under these laws,
if, in a bankruptcy or reorganization case or a lawsuit by or on behalf of
unpaid creditors of the Company, a court were to find that, at the time the
Company incurred indebtedness, including the Notes, or in the case of the
Exchange Debentures, upon the exchange of the Exchangeable Preferred Stock into
the Exchange Debentures, (i) the Company incurred such indebtedness with the
intent of hindering, delaying or defrauding current or future creditors or (ii)
(a) the Company received less than reasonably equivalent value or fair
consideration for incurring such indebtedness and (b) the Company (1) was
insolvent or was rendered insolvent by reason of the Acquisition or the
Offerings or the other transactions described under "The Acquisition and Related
Transactions," or in the case of the Exchange Debentures, upon the exchange of
the Exchangeable Preferred Stock into the Exchange Debentures, (2) was engaged,
or about to engage, in a business or transaction for which its assets
constituted unreasonably small capital, (3) intended to incur, or believed that
it would incur, debts beyond its ability to pay as such debts matured (as all of
the foregoing terms are defined in or interpreted under the relevant fraudulent
transfer or conveyance statutes) or (4) was a defendant in an action for money
damages, or had a judgment for money damages docketed against it (if, in either
case, after final judgment the judgment is unsatisfied), then such court could
avoid or subordinate the amounts owing under the Notes, or in the case of the
Exchange Debentures, the amounts owing under the Exchange Debentures, to
presently existing and future indebtedness of the Company and take other actions
detrimental to the holders of the Notes or the Exchange Debentures, or both, as
the case may be.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law of the jurisdiction that is being applied in
any such proceeding. Generally, however, the Company would be considered
insolvent if, at the time it incurred the indebtedness, either (i) the sum of
its debts (including contingent liabilities) is greater than its assets, at a
fair valuation, or (ii) the present fair saleable value of its assets is less
than the amount required to pay the probable liability on its total existing
debts and liabilities (including contingent liabilities) as they become absolute
and matured. There can be no assurance as to what standards a court would use to
determine whether the Company was solvent at the relevant time, or whether,
whatever standard was used, the Notes or the Exchangeable Preferred Stock or the
Exchange Debentures, as the case may be, would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the initial borrowings, counsel for the Company and
counsel for the lenders will not express any opinion as to the applicability of
Federal or state fraudulent transfer and conveyance laws.
The Company believes that at the time it initially incurred the
obligations constituting the Existing Notes, the Company (i) was (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run its businesses effectively and (c) incurring debts within its
ability to pay as the same mature or become due and (ii) had sufficient assets
to satisfy any probable money judgment against it in any pending action. The
Company believes that at the time the indebtedness constituting the New Notes
will be incurred initially by the Company, the Company (i) will be (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run its business effectively and (c) incurring debts within its
ability to pay as the same mature or become due and (ii) will have sufficient
assets to satisfy any probable money judgment against it
21
<PAGE> 28
in any pending action. In reaching the foregoing conclusions, the Company has
relied upon its analyses of internal cash flow projections and estimated values
of assets and liabilities of the Company. There can be no assurance, however,
that a court passing on such questions would reach the same conclusions.
DIVIDEND RESTRICTIONS ON EXCHANGEABLE PREFERRED STOCK
The Senior Secured Credit Facility prohibits the payment of cash dividends
on the Exchangeable Preferred Stock or the redemption, purchase or other
acquisition of any Exchangeable Preferred Stock by the Company for cash. In
addition, the 2005 Indenture and the Indenture restrict the ability of the
Company to pay cash dividends on, or redeem, purchase or otherwise acquire, the
Exchangeable Preferred Stock for cash. Moreover, under Delaware law, a dividend
may be paid out of the Company's surplus or net profits for the fiscal year in
which the dividend is declared and/or the preceding year, provided the board of
directors approves the payment of such dividend. There can be no assurances that
the Company will be able to generate a surplus or net profits after making its
payments under the Senior Secured Credit Facility, the 2005 Notes or the Notes,
to other creditors or for any other reason. As a result, the Company does not
expect to be able to pay cash dividends on the Exchangeable Preferred Stock or
redeem, purchase or otherwise acquire any Exchangeable Preferred Stock for cash
in the foreseeable future.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
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 international
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 39% of the Company's 1997 sales were derived from products
sold outside the United States. 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 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. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Risks Associated with
International Operations."
IMPACT OF SIGNIFICANT COMPETITION
The Company's primary competitors are Reeves International, Inc.
("Reeves") and Polyfibron Technologies, Inc. ("Polyfibron") in Image Transfer,
and Armstrong World Industries Inc. ("Armstrong") in Textiles. See "Business --
Competition." Some of the Company's competitors may have greater financial and
other resources than the Company and may consequently have more operating
flexibility and a greater ability to expand production capacity and increase
research and development expenditures.
ENVIRONMENTAL MATTERS
The Company is subject to a broad range of Federal, state, local and
foreign environmental laws and regulations, 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. The Company believes that its operations are in compliance with
environmental requirements, except as would not be expected to have a material
adverse effect on the Company or as otherwise stated herein. However, there can
be no assurances that environmental requirements will not change in the future
or that the Company will not incur significant costs in the future to comply
with such requirements. In addition, the Company's operations involve the
handling of toluene and other hazardous substances, and if a release of
hazardous substances occurs on or from the Company's facilities, the Company may
be required to pay the
22
<PAGE> 29
cost of remedying any condition caused by such release, which costs could be
material. 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 total approximately $2.5 million,
which the Company intends to begin incurring in 1998 rather than waiting until
2000. In addition, in connection with the AIP Acquisition, M.A. Hanna Company
("Hanna") and its wholly-owned subsidiary, Cadillac Plastics Group, Inc.
("CPG"), the former parent of the Company, agreed to maintain ongoing
responsibility for and indemnify the Company with respect to certain violations
of environmental laws and regulations relating to the period before the AIP
Acquisition. If Hanna and CPG are unable to honor their obligations, the Company
would likely be responsible for such matters and the cost of addressing them
could be material. See "Business -- Environmental Matters."
IMPACT OF TECHNOLOGICAL CHANGE
Currently, nearly all of the sales of Image Transfer are generated by
products designed for use on offset presses. Flexographic and digital, two other
printing processes, are currently used primarily in short-run, lower speed
applications. It is generally expected that the demand for these processes will
grow rapidly and that they will be used for an increasing amount of printing
jobs. If these other technologies develop so that they compete effectively with
offset printing in the high-speed, long-run segment of the printing industry,
and such technologies are widely adopted, the business of Image Transfer could
be adversely affected. There can be no assurance that the Company will be able
to effectively develop products for these technologies or to maintain its market
leadership if such processes replace offset printing to any significant extent.
The Company recognizes the growth potential of alternative technologies and is
actively seeking to capitalize on opportunities presented by these processes by
being an industry leader in the development of printing blankets, sleeves and
belts for those processes.
RELIANCE ON MATERIAL CUSTOMER
Sales made to National Offset Blanket ("National Offset"), a major U.S.
converter, accounted for approximately 11% of the Company's sales in 1997,
although sales to this customer accounted for less than 10% of the Company's
sales in 1995 and 1996. The Company's sales to National Offset are not governed
by a written contract between the parties. In the event that National Offset was
to significantly reduce or terminate its purchases of blankets and sleeves from
the Company, the Company's financial condition or results of operations could be
adversely affected. The Company has not received any indication that National
Offset intends to discontinue or otherwise substantially reduce its relationship
with the Company.
YEAR 2000 COMPLIANCE
While the Company's computer and information systems are able to
accommodate the "year 2000" dating changes necessary to permit correct recording
of year dates for 2000 and later years, the Company has formed a task force to
address all year 2000 issues and is in the process of evaluating and correcting
all year 2000 issues. The initial assessment indicates that the Company does not
have a significant year 2000 issue, and management believes that the cost of
addressing its year 2000 issues will not be material. The Company believes it
will be able to achieve year 2000 compliance by the end of 1999, and does not
anticipate any material disruption in its operations as the result of any
failure by the Company to be in compliance, although no assurance to such effect
can be given. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve year 2000 compliance, the
Company's business or operations could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part on the Company's senior
management and its ability to attract and retain other highly qualified
management personnel. There can be no assurance that the
23
<PAGE> 30
Company will be successful in hiring or retaining key personnel. The Company has
entered into employment agreements with certain of its senior managers. See
"Management."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
To the extent that Existing Securities are tendered and accepted in the
Exchange Offer, the trading market for the remaining untendered or tendered but
not accepted Existing Securities could be adversely affected. Because the
Company anticipates that most holders of Existing Securities will elect to
exchange such Existing Securities for New Securities due to the absence of
restrictions on the resale of New Securities under the Securities Act, the
Company anticipates that the liquidity of the market for any Existing Securities
remaining after the consummation of the Exchange Offer may be substantially
limited. The New Notes and the New Exchangeable Preferred Stock are new
securities for which there presently is no established market. Although the
Initial Purchaser has informed the Company that it currently intends to make a
market in the New Notes and the New Exchangeable Preferred Stock, the Initial
Purchaser is not obligated to do so and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the New Securities. The
Company does not intend to apply for listing of the New Securities on any
securities exchange or for quotation of the New Securities through the National
Association of Securities Dealers Automated Quotation System. See "Transfer
Restrictions" and "Plan of Distribution.
The liquidity of, and trading market for, the New Securities also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such liquidity
and trading markets independent of the financial performance of, and prospects
for, the Company.
CERTAIN TAX CONSIDERATIONS FOR HOLDERS OF EXCHANGEABLE PREFERRED STOCK
Distributions on the Exchangeable Preferred Stock made out of the
Company's current or accumulated earnings and profits, as determined under U.S.
federal income tax principles, will be taxable as ordinary income whether paid
in cash or in additional shares of New Exchangeable Preferred Stock. In
addition, holders may be required to treat a portion of the difference between
the redemption price and issue price of the Exchangeable Preferred Stock
("Preferred Stock Discount") as constructive distributions that are includible
in income on an economic accrual basis. If shares of Exchangeable Preferred
Stock (including additional shares of Exchangeable Preferred Stock distributed
by the Company in lieu of cash dividend payments) bear Preferred Stock Discount,
such shares generally will have different tax characteristics than other shares
of New Exchangeable Preferred Stock and might trade separately, which might
adversely affect the liquidity of such shares. See "United States Federal Tax
Considerations -- The Exchangeable Preferred Stock; Taxation of U.S.
Holders -- Preferred Stock Discount."
Holders should also note that if shares of Exchangeable Preferred Stock
are exchanged for Exchange Debentures and the stated redemption price at
maturity of such Exchange Debentures exceeds their issue price by more than a de
minimis amount, the Exchange Debentures will be treated as having original issue
discount equal to the entire amount of such excess. Exchange Debentures issued
on or before March 15, 2003, when the Company has the option to pay interest on
the Exchange Debentures in additional Exchangeable Preferred Stock, will have
original issue discount. Each holder of Exchange Debentures with original issue
discount will be required to include in gross income an amount equal to the sum
of the daily portions of the original issue discount for all days during the
taxable year in which such holder holds the Exchange Debentures, regardless of
the holder's regular method of accounting and regardless of whether interest is
paid by the Company in cash or in additional Exchange Debentures. See "United
States Federal Tax Considerations -- The Exchangeable Preferred Stock; Taxation
of U.S. Holders -- Original Issue Discount."
24
<PAGE> 31
USE OF PROCEEDS
The net proceeds of the Offerings, together with certain other sources of
financing, were used to (i) repay all amounts outstanding under the GSD Credit
Facility of approximately $142.8 million and (ii) make a portion of the consent
payment for the Consent Solicitation.
25
<PAGE> 32
THE ACQUISITION AND RELATED TRANSACTIONS
THE ACQUISITION
On the Acquisition Closing Date, GSD, a Delaware corporation owned by the
Investors, completed the acquisition of approximately 93.9% of the common stock,
par value $.01 per share (the "Common Stock"), of the Company from AIP, certain
affiliates of AIP and certain management stockholders. As part of the
Acquisition, the Management Stockholders agreed to retain the Management
Rollover Interests (i.e., Common Stock and options to acquire Common Stock)
representing approximately 6.1% of the Common Stock (on a fully-diluted basis).
See "Ownership of Capital Stock" and "Certain Transactions."
The purchase price for the Acquisition was (x) $362.5 million plus (y) the
Option Amount (as defined below) minus (z) the Adjustments (as defined below).
The Adjustments were: (i) approximately $32.1 million, representing the
outstanding amount of the principal and accrued interest under the Company's Old
Senior Credit Facilities as of the Acquisition Closing Date, (ii) approximately
$101.4 million, representing the principal and accrued interest under the 2005
Notes as of the Closing Date, (iii) approximately $7.4 million, representing all
amounts paid or payable as of the Acquisition Closing Date to Messrs. Dennis R.
Wolters, David B. Freimuth, William B. Branson and Thomas J. Koenig pursuant to
four separate agreements (collectively, the "Executive Incentive Bonus
Arrangements") previously entered into between each such individual and the
Company, and (iv) approximately $4.6 million, representing certain transaction
costs of the Company in connection with the Acquisition, as well as certain
other adjustments agreed to by the parties to the Acquisition. The Option Amount
was $3 million and represented the aggregate exercise price of all options to
acquire Common Stock which were outstanding as of the Acquisition Closing Date.
In connection with the consummation of the Acquisition, AIP caused the
Company to repay all of the outstanding principal and accrued interest under the
Old Senior Credit Facilities as of the Acquisition Closing Date, to terminate
these facilities and to pay all amounts which became payable under the Executive
Incentive Bonus Arrangements as a result of the completion of the Acquisition.
In addition, in connection with the Acquisition, (a) the Investors entered into
a Stockholders Agreement (the "GSD Stockholders Agreement") providing for
certain rights and restrictions with respect to the capital stock of GSD and (b)
GSD and the Management Stockholders entered into a separate Stockholders
Agreement (the "Interim Stockholders Agreement") providing for comparable rights
and restrictions with respect to the capital stock of the Company. As further
described below under "-- Refinancing; GSD Liquidation," upon the approval of
the Proposed Amendments, GSD was liquidated and the Investors became direct
stockholders of the Company, whereupon the GSD Stockholders Agreement and the
Interim Stockholders Agreement were superseded by a new Stockholders Agreement
(the "Stockholders Agreement") providing for certain rights and restrictions
with respect to the management of the Company and transfers of capital stock in
the Company and for certain rights to cause the Company to register such capital
stock under the Securities Act. See "Management" and "Ownership of Capital
Stock."
The Acquisition and related expenses were financed principally by (i)
approximately $81.9 million of new capital provided by the Investors to GSD,
(ii) the $140.0 million GSD Credit Facility provided to GSD by Societe Generale,
(iii) the $60.0 million Senior Secured Credit Facility provided to the Company
by Societe Generale, consisting of the $40.0 million Term Loan Facility, and the
$20.0 million Revolving Credit Facility of which $0 was drawn down on the
Acquisition Closing Date, and (iv) the Management Stockholders retention of the
Management Rollover Interests, which had an aggregate value (based on the
purchase price in the Acquisition) of approximately $10.6 million. In addition,
the 2005 Notes remained outstanding following the Acquisition. See "Description
of Certain Senior Indebtedness."
26
<PAGE> 33
The following table sets forth the sources and uses of funds for the
Acquisition as of the Acquisition Closing Date:
<TABLE>
<CAPTION>
($ IN
SOURCES AT CLOSING MILLIONS)
<S> <C>
Senior Secured Credit Facility:
Revolving Credit Facility.................................... $ 0.0
Term Loan Facility........................................... 40.0
2005 Notes..................................................... 100.0
GSD Credit Facility............................................ 140.0
Management Rollover Interests.................................. 10.6
New Common Equity from Investors............................... 81.9
-------
Total Sources........................................ $ 372.5
=======
</TABLE>
<TABLE>
<CAPTION>
($ IN
USES AT CLOSING MILLIONS)
<S> <C>
Acquisition..................................................... $ 206.4
2005 Notes...................................................... 100.0
Repayment of Old Senior Credit Facilities....................... 32.1
Management Rollover Interests................................... 10.6
Executive Incentive Bonus Arrangements.......................... 7.4
Fees and Expenses(a)............................................ 13.9
Excess Cash..................................................... 2.1
-------
Total Uses............................................ $ 372.5
=======
</TABLE>
- ------------------
(a) Includes GSD's and seller's expenses.
REFINANCING; GSD LIQUIDATION
Following the Acquisition, the Company sought and obtained the consent of
the registered holders of its 2005 Notes, among other things, (i) to permit the
Company to assume GSD's indebtedness under the GSD Credit Facility, (ii) to
permit the Company to immediately thereafter refinance such assumed indebtedness
through the issuance of the Securities and the application of the proceeds of
the Offerings and (iii) to eliminate all of the applicable provisions of the
2005 Indenture that subordinate the 2005 Notes in right of payment to any senior
indebtedness of the Company. Adoption of the Proposed Amendments required the
consent of the registered holders of at least a majority in principal amount of
the 2005 Notes outstanding. The receipt of Requisite Consents was a condition to
(x) the assumption by the Company of GSD's indebtedness under the GSD Credit
Facility and (y) the purchase of the Securities by the Initial Purchaser and the
consummation of the Offerings. On March 18, 1998, the Company made a consent
payment to the registered holders of the 2005 Notes whose duly executed consent
was received prior to the expiration date of the Consent Solicitation and who
did not revoke their consent. The consent payment was $65 in cash for each
$1,000 principal amount of the 2005 Notes. The aggregate amount of the consent
payments was $6.5 million. See "Description of Certain Senior Indebtedness."
Immediately following the receipt of the Requisite Consents and the
effectiveness of the Proposed Amendments, the Company assumed GSD's indebtedness
under the GSD Credit Facility, issued and sold the Existing Securities to the
Initial Purchaser and applied the proceeds of the Offerings to discharge the
indebtedness under the GSD Credit Facility. Immediately thereafter, GSD was
liquidated and the Investors became direct stockholders of the Company. At that
time, the equity ownership of the Company was
27
<PAGE> 34
restructured to reflect the increase in the Company's leverage associated with
these transactions, with the result that the Management Stockholders now own
approximately 14.1% of the Common Stock and the Investors now own approximately
85.9% of the Common Stock (on a fully-diluted basis). In conjunction with these
transactions, the Company (i) intends to adopt a stock option plan (the "1998
Option Plan") providing for the grant of up to 7,885 shares of Common Stock of
the Company to certain of its officers and key employees, subject to certain
performance and other conditions and (ii) has entered into a Management
Agreement (the "Management Agreement") providing for the Investors to provide
management and other services to the Company, in consideration of which the
Company will pay to the Investors an annual fee of $950,000 plus reasonable
out-of-pocket expenses. See "Management," "Ownership of Capital Stock" and
"Certain Transactions."
28
<PAGE> 35
CAPITALIZATION
The following table sets forth the historical capitalization of the
Company at December 31, 1997 and as adjusted on a pro forma basis after giving
effect to the Offerings, the Acquisition and the other transactions described
under "The Acquisition and Related Transactions." This table should be read in
conjunction with the "Use of Proceeds," "Unaudited Pro Forma Financial
Information," "Selected Historical Financial Data" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31, 1997
--------------------------
Historical As Adjusted
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents ............................................... $ 780 $ --(a)
========= =========
Long-term and subordinated long-term debt (including current portion): ..
Old Senior Credit Facilities(b) ....................................... 30,883 --
Senior Secured Credit Facility:
Revolving Credit Facility(c) ....................................... -- 542(a)
Term Loan Facility ................................................. -- 40,000
2005 Notes ............................................................ 100,000 100,000
The Notes(d) .......................................................... -- 114,584
--------- ---------
Total long-term and subordinated long-term debt(e) ............ 130,883 255,126
--------- ---------
Exchangeable Preferred Stock ............................................ -- 32,986(f)
Total Stockholders' Equity (Deficit)(g) ................................. 60,189 (87,776)
--------- ---------
Total capitalization .................................................. $ 191,072 $ 200,336
========= =========
</TABLE>
- ------------------
(a) The consummation of the Acquisition, the repayment of the GSD Credit
Facility, and the Offerings and the other transactions after December 31,
1997 has resulted in the incurrence of additional borrowings and interest,
including $1.2 million in connection with the repayment of the Old Senior
Credit Facilities and $2.8 million of interest on the GSD Credit Facility.
(b) On the Acquisition Closing Date, all amounts outstanding under the Old
Senior Credit Facilities were paid and such facilities were terminated.
(c) A $20.0 million revolving credit facility, of which $0 was drawn on the
Acquisition Closing Date. Borrowings under the Revolving Credit Facility
are available for working capital and general corporate purposes, and are
subject to a borrowing base test. See "Description of Certain Senior
Indebtedness -- The Senior Secured Credit Facility."
(d) Includes reduction for original issue discount.
(e) Does not include the $140.0 million GSD Credit Facility, as this
obligation is assumed to have been repaid with the proceeds of the
Offerings.
(f) Amount is net of $1.9 million of costs associated with the issuance of the
Exchangeable Preferred Stock and the original issue discount.
(g) Additional paid-in capital and retained earnings have been charged $60.9
million and $79.1 million, respectively. See note (8) to Notes to
Unaudited Pro Forma Consolidated Balance Sheet.
29
<PAGE> 36
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1997 and the Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1997 of the Company have been
prepared to reflect the Acquisition and the other transactions described in "The
Acquisition and Related Transactions" (including the Offerings) impacting the
Company as a result of the Acquisition. The Unaudited Pro Forma Consolidated
Balance Sheet has been prepared as if the transactions occurred on December 31,
1997 and the Unaudited Pro Forma Consolidated Statement of Operations has been
prepared as if the transactions occurred as of January 1, 1997. The Pro Forma
Consolidated Financial Information is unaudited and does not purport to be
indicative of the Company's financial condition or the results that would have
actually been obtained had such transactions been consummated as of the assumed
dates and for the periods presented, nor are they indicative of the Company's
results of operations or financial condition for any future period or date. The
pro forma adjustments, as described in the Notes to the Unaudited Pro Forma
Consolidated Balance Sheet and the Notes to the Unaudited Pro Forma Consolidated
Statement of Operations, are based on available information and upon certain
assumptions which management believes are reasonable. The Unaudited Pro Forma
Financial Information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto included elsewhere in
this Prospectus.
The unaudited pro forma financial data has been derived by the application
of pro forma adjustments to the Company's historical consolidated financial
statements. The Acquisition does not require a change in the Company's
historical basis of accounting since the Company's 2005 Notes remained
outstanding following the Acquisition. The pro forma financial statements also
assume that the Consent Solicitation will be approved and therefore, the 2005
Notes will remain outstanding.
30
<PAGE> 37
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- ASSETS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DAY INTERNATIONAL PRO FORMA
GROUP, INC. PRO FORMA DAY INTERNATIONAL
CONSOLIDATED ADJUSTMENTS GROUP, INC.
----------------- -------------- -----------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS ....................... $ 780 $ (780)(1) $ --
ACCOUNTS RECEIVABLE:
TRADE (LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS OF 21,593 -- 21,593
$1,055)
OTHER ........................................ 379 -- 379
INVENTORIES ..................................... 16,501 -- 16,501
DEFERRED TAX ASSETS ............................. 1,938 -- 1,938
PREPAID EXPENSES AND OTHER CURRENT ASSETS ....... 1,457 -- 1,457
--------- --------- ---------
TOTAL CURRENT ASSETS .................... 42,648 (780) 41,868
PROPERTY, PLANT AND EQUIPMENT
LAND ............................................ 2,023 -- 2,023
BUILDINGS ....................................... 10,648 -- 10,648
MACHINERY AND EQUIPMENT ......................... 39,999 -- 39,999
CONSTRUCTION IN PROGRESS ........................ 3,716 -- 3,716
--------- --------- ---------
56,386 -- 56,386
LESS ACCUMULATED DEPRECIATION ................... (11,594) -- (11,594)
--------- --------- ---------
44,792 -- 44,792
GOODWILL AND OTHER INTANGIBLE ASSETS ............ 136,722 11,964(2) 148,686
NOTE RECEIVABLE ................................. 890 -- 890
DEFERRED TAX ASSETS ............................. -- 6,250(3) 6,250
OTHER ASSETS .................................... 475 -- 475
--------- --------- ---------
TOTAL ASSETS ...................................... $ 225,527 $ 17,434 $ 242,961
========= ========= =========
</TABLE>
31
<PAGE> 38
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET --
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DAY INTERNATIONAL PRO FORMA
GROUP, INC. PRO FORMA DAY INTERNATIONAL
CONSOLIDATED ADJUSTMENTS GROUP, INC.
----------------- ------------ -----------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
ACCOUNTS PAYABLE ........................... $ 7,743 $ -- $ 7,743
ACCRUED ASSOCIATE RELATED COSTS ............ 8,177 -- 8,177
OTHER ACCRUED EXPENSES ..................... 3,694 -- 3,694
INCOME TAXES PAYABLE ....................... 1,618 -- 1,618
INTEREST PAYABLE ........................... 1,013 (45)(4) 968
CURRENT MATURITIES OF LONG-TERM DEBT ....... 774 1,768 (5) 2,542
--------- ------- -------
TOTAL CURRENT LIABILITIES .......... 23,019 1,723 24,742
LONG-TERM AND SUBORDINATED LONG-TERM ......... 130,109 122,475 (5) 252,584
DEBT
DEFERRED TAX LIABILITIES ..................... 5,688 -- 5,688
OTHER LONG-TERM LIABILITIES .................. 6,522 8,215 (6) 14,737
--------- ------- -------
TOTAL LIABILITIES .................. 165,338 132,413 297,751
COMMITMENTS AND CONTINGENCIES
EXCHANGEABLE PREFERRED STOCK ................. -- 32,986 (7) 32,986
STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED SHARES ........................... -- -- --
COMMON SHARES .............................. 1 -- 1
ADDITIONAL PAID-IN CAPITAL ................. 51,959 (60,868)(8) --
8,909 (9)
RETAINED EARNINGS .......................... 9,697 (16,874)(10) (86,309)
(79,132)(8)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT .... (1,468) -- (1,468)
--------- ------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 60,189 (147,965) (87,776)
--------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...
(DEFICIT)................................... $ 225,527 17,434 $ 242,961
========= ======= =======
</TABLE>
32
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) The increase (decrease) in cash and cash equivalents results from the
following:
<TABLE>
<CAPTION>
Sources:
<S> <C>
Drawdown on the Revolving Credit Facility ............................... $ 542
New Term Loan Facility .................................................. 40,000
New Notes ............................................................... 114,584
Exchangeable Preferred Stock ............................................ 34,886
Cash contributed by GSD ................................................. 3,264
---------
Total Sources ................................................... 193,276
Uses:
Repayment of Old Senior Credit Facilities, including accrued interest ... 30,928
Consent fee payable to the holders of the 2005 Notes .................... 6,500
Assumption and repayment of the GSD Credit Facility ..................... 140,000
Executive Incentive Bonus Arrangements, including payroll taxes ......... 7,536
Fees and expenses ....................................................... 9,092
---------
Total Uses ...................................................... 194,056
---------
Increase (decrease) in Cash ..................................... $ (780)
=========
(2) Consists of the following amounts:
Write off of deferred financing costs on the Old Senior Credit Facilities $ (728)
Consent fee payable to holders of the 2005 Notes ........................ 6,500
Fees and expenses ....................................................... 6,192
---------
$ 11,964
=========
</TABLE>
(3) Represents the deferred tax benefit related to the expenses resulting from
the Acquisition and the Consent Solicitation (see footnote 10).
(4) Represents the repayment of the accrued interest on the Old Senior Credit
Facilities.
(5) Represents the net effect of repayment of the Old Senior Credit
Facilities, borrowings under the new $60 million Senior Secured Credit
Facility, the issuance of the new $115 million Senior Subordinated Notes,
less original issue discount of $416 and the drawdown on the Revolving
Credit Facility of $542.
(6) Represents amounts payable to management who rolled over stock options.
(7) Represents the issuance of $35 million of Exchangeable Preferred Stock
less the costs associated with the issuance of $1,900 and original issue
discount of $114.
(8) Represents the assumption of the GSD Credit Facility. Additional paid-in
capital and retained earnings have been charged $60,868 and $79,132,
respectively.
(9) Represents additional paid-in capital from GSD related to the cash
contribution of $3,264, deferred financing costs of $5,207 plus the
compensation expense related to the exercise of 142.5 options of $438.
(10) Represents the following expenses as a result of the Acquisition and the
Consent Solicitation:
<TABLE>
<S> <C>
Executive Incentive Bonus Arrangements, including payroll taxes .................. $ 7,536
Writeoff of deferred financing costs of Old Senior Credit Facilities ............. 728
Expenses associated with the Consent Solicitation ................................ 1,000
Expenses at GSD contributed to the Company ....................................... 5,207
Compensation attributable to stock options rolled over by management--fully vested 8,215
Compensation expenses related to stock options exercised ......................... 438
--------
23,124
Tax benefit relating to the above expenses, net of deferred tax allowance ........ (6,250)
--------
$ 16,874
========
</TABLE>
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA DAY
DAY INTERNATIONAL PRO FORMA INTERNATIONAL
GROUP, INC. ADJUSTMENTS GROUP, INC.
----------- ----------- ----------
<S> <C> <C> <C>
NET SALES ....................... $166,286 $ -- $ 166,286
COST OF GOODS SOLD .............. 103,035 -- 103,035
-------- -------- ---------
GROSS PROFIT .................... 63,251 -- 63,251
SELLING, GENERAL AND
ADMINISTRATIVE ................ 28,629 (289)(1) 28,340
COMPENSATION AND RELATED
TRANSACTION COSTS ............. -- 17,789(2) 17,789
AMORTIZATION OF INTANGIBLES ..... 3,315 -- 3,315
MANAGEMENT FEES ................. 896 79(3) 975
-------- -------- ---------
OPERATING PROFIT ................ 30,411 (17,579) 12,832
OTHER EXPENSES:
INTEREST EXPENSE .............. 15,926 11,424(4) 27,350
OTHER (INCOME) EXPENSE-- NET .. 629 -- 629
-------- -------- ---------
16,555 11,424 27,979
-------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) ..................... 13,856 (29,003) (15,147)
INCOME TAXES (BENEFIT) .......... 5,939 (8,601)(5) (2,662)
-------- -------- ---------
NET INCOME (LOSS) ............... 7,917 (20,402)(6) (12,485)
PREFERRED STOCK DIVIDENDS ....... -- (4,288)(7) (4,288)
AMORTIZATION OF PREFERRED STOCK
ISSUANCE COSTS ................ -- (167)(8) (167)
-------- -------- ---------
NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS ........... $ 7,917 $(24,857) $ (16,940)
======== ======== =========
</TABLE>
34
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
(1) Represents the elimination of the former Chairman's salary of $289.
(2) Represents the following expenses:
<TABLE>
<S> <C>
Executive Incentive Bonus Arrangements, including payroll taxes................ $7,536
Expenses associated with the Consent Solicitation.............................. 1,000
Expenses associated with employee stay on bonuses.............................. 600
Compensation attributable to stock options rolled over by management 8,215
-- fully vested.................................................................
Compensation expense related to stock options exercised........................ 438
------
$17,789
=======
</TABLE>
(3) Represents the change in the management fee from $800 a year plus expenses
to $950 a year plus expenses.
(4) Represents the following additional interest expense:
<TABLE>
<S> <C>
Elimination of Old Senior Credit Facilities amortization of deferred $ (356)
financing costs..............................................................
Amortization of the new deferred financing costs............................... 1,557
Elimination of interest expense on Old Senior Credit Facilities................ (3,835)
Interest expense on new Senior Secured Credit Facility......................... 3,091
Interest on the new Senior Subordinated Notes.................................. 10,925
Amortization of original issue discount on new Senior Subordinated 42
Notes.......................................................................... -------
$11,424
=======
</TABLE>
A 0.5% increase or decrease in the interest rate on the Senior Secured
Credit Facility would change pro forma interest expense by $203.
(5) Represents the tax effect of the expenses reflected herein.
(6) The pro forma statement of operations excludes a pre-tax extraordinary
loss of $5,935 relating to deferred financing costs associated with the
GSD Credit Facility and the Old Senior Credit Facilities. This loss will
be recorded by the Company in its first quarter of 1998, which is when the
related debt will be repaid.
(7) Represents cumulative Exchangeable Preferred Stock dividends relating to
the Exchangeable Preferred Stock at an annual rate of 12 1/4%.
(8) Represents amortization relating to the Exchangeable Preferred Stock
issuance costs and the original issue discount.
35
<PAGE> 42
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary financial data of the Company for
each of the five fiscal years, during the period ended December 31, 1997. The
summary financial data set forth below with respect to the years ended December
31, 1997 and 1996, the period from June 7, 1995 through December 31, 1995 and
the period from January 1, 1995 through June 6, 1995 are derived from the
Consolidated Financial Statements included elsewhere in this Prospectus, which
have been audited by Deloitte & Touche LLP, independent auditors. The summary
financial data with respect to the years ended December 31, 1993 and 1994 are
derived from the Company's consolidated financial statements for such years. The
financial data for the years ended December 31, 1993 and 1994 and the 157 days
ended June 6, 1995 represent the results of operations of the Company prior to
the AIP Acquisition, and the financial data for the 208 days ended December 31,
1995 and the years ended December 31, 1996 and 1997 represents the results of
operations of the Company subsequent to the AIP Acquisition.
The summary financial data below should be read in conjunction with
"Unaudited Pro Forma Financial Information," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
(PREDECESSOR) (COMPANY)
------------------------------------------------------------------------------------
157 DAYS 208 DAYS
ENDED ENDED
FISCAL YEAR FISCAL YEAR JUNE 6, DECEMBER 31, FISCAL YEAR FISCAL YEAR
1993 1994 1995 1995 1996 1997(a)
---- ---- ---- ---- ---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................. $ 107,724 $ 120,288 $ 55,454 $ 73,103 $ 136,814 $166,286
Cost of goods sold .................... 65,342 70,996 33,935 47,503 84,602 103,035
--------- --------- --------- --------- --------- --------
Gross profit .......................... 42,382 49,292 21,519 25,600 52,212 63,251
Selling, general and administrative
expenses ............................ 21,366 22,741 11,257 12,885 23,657 28,629
Amortization of intangibles ........... 5,261 5,212 2,258 3,688 6,474 3,315
Management fees ....................... -- -- -- 455 920 896
--------- --------- --------- --------- --------- --------
Operating income ...................... 15,755 21,339 8,004 8,572 21,161 30,411
Interest expense ...................... -- -- -- 9,697 16,373 15,926
Other (income) expense ................ (222) (453) (577) 952(b) (219) 629
--------- --------- --------- --------- --------- --------
Income (loss) before income taxes ..... 15,977 21,792 8,581 (2,077) 5,007 13,856
Provision (benefit) for income
taxes ............................... 7,149 9,205 3,488 (850) 2,000 5,939
--------- --------- --------- --------- --------- --------
Net income (loss) ..................... $ 8,828 $ 12,587 $ 5,093 $ (1,227) 3,007 $ 7,917
========= ========= ========= ========= ========= ========
STATEMENT OF CASH FLOWS:
Cash flows provided by (used in)
operating activities ................ 15,837 20,335 419 14,915 18,063 19,671
Cash flows provided by (used in)
investing activities ................ (7,024) 1,555 (1,565) (206,075) (17,613) (2,504)
Cash flows provided by (used in)
financing activities ................ (546) 263 532 195,048 1,173 (21,701)
OTHER FINANCIAL DATA:
EBITDA(c) ............................. $ 25,542 $ 31,276 $ 12,382 $ 18,730 $ 35,269 $ 42,510
Capital expenditures .................. 3,724 3,564 1,565 2,082 5,221 5,124
Depreciation .......................... 4,526 4,725 2,120 2,415 4,384 5,238
Amortization .......................... 5,261 5,212 2,258 8,310 10,724 7,827
BALANCE SHEET DATA (AT END OF PERIOD):
Fixed assets, net of accumulated
depreciation and amortization ....... $ 26,415 $ 25,162 $ 24,667 $ 44,496 $ 45,289(d) $ 44,792
Total assets .......................... 144,119 144,252 139,537 228,823 237,886(d) 225,527
Long-term and subordinated long-term
debt (including current maturities).. -- -- -- 151,250 152,919(d) 130,883
Stockholders' equity .................. 118,324 117,128 114,780 49,861 52,734(d) 60,189
</TABLE>
- ------------------
(a) The Company acquired the David M Company on December 31, 1996 for $9.8
million (including a payment of $450 to AIP for its assistance in this
acquisition, which was allocated to the purchase price). This acquisition
was accounted for as a purchase and financial data for the 1997 fiscal
year include the assets and results of operations of the David M Company.
36
<PAGE> 43
(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.
(c) EBITDA, as presented, represents earnings before interest expense, other
(income) expense, income taxes, depreciation and amortization. EBITDA is
included because management understands that such information is
considered by certain investors to be an additional basis on which to
evaluate the Company's ability to pay interest, repay debt and make
capital expenditures. Excluded from EBITDA are interest expense, other
income, income taxes, depreciation and amortization, each of which can
significantly affect the Company's results of operations and liquidity and
should be considered in evaluating the Company's financial performance.
EBITDA is not intended to represent and should not be considered more
meaningful than, or an alternative to, measures of operating performance
as determined in accordance with generally accepted accounting principles.
(d) Balance sheet data for 1996 includes the assets of the David M Company
since it was acquired on December 31, 1996.
37
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Historical
Financial Data" and the Consolidated Financial Statements and notes thereto
included elsewhere in this Prospectus.
As a result of the Acquisition, the Company entered into new financing
arrangements, including the Senior Secured Credit Facility, and thereafter
issued the Notes and the Exchangeable Preferred Stock. Accordingly, the results
of operations for periods subsequent to the Acquisition Closing Date may not be
comparable to prior periods. Also see "Risk Factors," "The Acquisition and
Related Transactions," "Unaudited Pro Forma Financial Information,"
"Capitalization" and "Description of Certain Senior Indebtedness."
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>
208 DAYS ENDED
157 DAYS ENDED DECEMBER 31, YEAR ENDED YEAR ENDED
JUNE 6, 1995 1995 DECEMBER 31, 1996 DECEMBER 31, 1997
------------------ ------------------- -------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................. $ 55.4 100.0% $ 73.1 100.0% $136.8 100.0% $166.3 100.0%
Cost of goods sold ........ 33.9 61.2 47.5 65.0 84.6 61.8 103.0 62.0
------ ------ ------ ------ ------ ------ ------ ------
Gross profit .............. 21.5 38.8 25.6 35.0 52.2 38.2 63.3 38.0
SG&A(a) ................... 11.2 20.2 13.3 18.2 24.6 18.0 29.5 17.8
Amortization of intangibles 2.3 4.2 3.7 5.0 6.5 4.7 3.3 2.0
------ ------ ------ ------ ------ ------ ------ ------
Operating income .......... $ 8.0 14.4% $ 8.6 11.8% $ 21.2 15.5% $ 30.4 18.3%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(a) Includes the following management fees paid to AIP: $0.455 million in the
208 days ended December 31, 1995; $0.92 million in 1996; and $0.896
million in 1997.
COMPARISON OF RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
Net sales increased to $166.3 million for the year ended December 31, 1997
from $136.8 million for the comparable period in 1996, an increase of $29.5
million or 21.6%. Sales in 1997 were negatively impacted by $2.5 million as a
result of foreign currency translation rate changes. Image Transfer's sales
increased to $132.0 million for the year ended December 31, 1997 from $103.6
million for the comparable period in 1996, an increase of $28.4 million or
27.4%. Image Transfer's sales were negatively impacted by $2.3 million as a
result of the impact of foreign currency translation rate changes. Image
Transfer sales generated by the David M Company, which was acquired by the
Company on December 31, 1996, amounted to $18.6 million, or 14.1% of 1997 sales
of Image Transfer. Excluding sales of the David M Company, Image Transfer's
sales increased $9.8 million or 9.5% in 1997. The increased sales volumes
resulted from increased sales of tubular sleeves and increased demand for the
Company's existing products in Europe, the United States and Mexico, offset by
lower sales to the Pacific Rim and Latin America. Textiles' sales increased to
$34.3 million for the year ended December 31, 1997 compared to $33.2 million in
1996, an increase of $1.1 million or 3.3%. Textile sales were negatively
impacted by $0.2 million as a result of the impact of foreign currency
translation changes.
Gross profit increased to $63.3 million for the year ended December 31,
1997 from $52.2 million in 1996, an increase of $11.1 million or 21.3%. The
acquisition of David M accounted for $5.5 million of the 1997 gross profits. As
a percentage of net sales, gross profit decreased slightly to 38.0% for the year
ended December 31, 1997 from 38.2% for the comparable period in 1996. This
slight decline was due to the lower gross margin of David M compared with that
of the rest of the Company's operations; excluding the David
38
<PAGE> 45
M Company, gross profit as a percentage of sales increased to 39.1% in 1997.
This gross profit improvement was primarily the result of increased volume and
productivity enhancements gained through process improvements. Foreign currency
translation rate changes reduced gross profit by $0.4 million.
SG&A increased to $29.5 million for the year ended December 31, 1997
compared with $24.6 million for 1996, an increase of $4.9 million or 19.9%.
David M accounted for $3.2 million. As a percentage of net sales, SG&A decreased
to 17.8% from 18.0% mainly as a result of European SG&A expenses remaining
relatively constant while sales increased 17.3%. Changes in foreign currency
translation rates reduced SG&A costs by $0.6 million in 1997.
Amortization of intangibles decreased to $3.3 million for the year ended
December 31, 1997 from $6.5 million in 1996, a decrease of $3.2 million as a
result of certain employment agreements becoming fully amortized in 1997.
Operating income increased to $30.5 million for the year ended December
31, 1997 from $21.2 million for the comparable period in 1996, an increase of
$9.3 million or 43.9%. David M contributed $2.3 million to the 1997 operating
income, while $3.2 million of 1997 operating income relates to the reduction in
the amortization of intangibles. The remaining $3.8 million increase results
from increased sales volumes and productivity enhancements. As a percentage of
net sales, operating income increased to 18.3% for the year ended December 31,
1997 from 15.5% for the comparable period in 1996.
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. Image
Transfer'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 United States,
Latin America and the Pacific Rim, and a modest price increase. Foreign currency
translation rate changes adversely impacted Image Transfer sales by $1.0
million. 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 AIP Acquisition. SG&A remained virtually constant at $24.6 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 AIP 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 that were
purchased at market values as a result of the AIP Acquisition. The remaining
$2.3 million increase in operating income
39
<PAGE> 46
results from increased sales volumes and productivity enhancements offset by
additional amortization and depreciation and stand alone costs primarily as a
result of the AIP 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 table under "-- Basis of Presentation" above, 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. Image Transfer'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 that were purchased at market values as a result of
the AIP Acquisition, and by $1.5 million as a result of higher depreciation,
primarily as a result of the AIP 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 of 7.9%, primarily as a result of higher sales volumes and stand alone
costs of $0.6 million as a result of the AIP 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 resulting from the purchase accounting of the
AIP 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 AIP 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 costs related to the AIP Acquisition, increased $.5
million or 2.3% to $21.8 million for the twelve months ended December 31, 1995.
40
<PAGE> 47
RISKS ASSOCIATED WITH INTERNATIONAL 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 $0.3 million loss in 1997, a
$0.1 million loss in 1996 and a $0.3 million gain in 1995.
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 approximately $2.3 million at
December 31, 1997, approximately $1.8 million at December 31, 1996 and
approximately $1.6 million at December 31, 1995. These contracts generally
expire within three to twelve 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.
On the Acquisition Closing Date, the Company repaid all of the outstanding
principal and accrued interest under its Old Senior Credit Facilities ($32.1
million) and entered into the $60 million Senior Secured Credit Facility,
consisting of a $40 million Term Loan Facility (all of which was drawn on such
date) and a $20 million Revolving Credit Facility (of which $0 was drawn on such
date). The proceeds of the Term Loan Facility were applied to finance the
Acquisition and related transactions, including the repayment of the Company's
obligations under the Old Senior Credit Facilities. The availability of the
Revolving Credit Facility is subject to various conditions precedent typical for
bank loans of this type, including the maintenance by the Company of a borrowing
base. Scheduled repayments of principal under the Term Loan Facility are $2
million in 1998; $5 million in 1999; $8 million in 2000; $11 million in 2001;
and $14 million in 2002.
The Company anticipates that its operating cash flow, together with
borrowing under the Revolving Credit Facility, will be sufficient to meet its
operating expenses and capital expenditures and to service its debt requirements
as they become due. See also "Risk Factors -- Substantial Leverage."
Cash Flows From Operating Activities. Cash flows from operations for years
ended December 31, 1997, 1996 and 1995 were $19.7 million, $18.1 million and
$15.3 million, respectively. Cash flows from operations in 1997 were unfavorably
impacted by a $5.1 million increase in working capital. The increase in working
capital in 1997 is mainly a result of the increased sales volumes, especially in
Europe, as working capital as a percent of sales has remained relatively
constant. Cash flows from operations for 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 AIP Acquisition.
41
<PAGE> 48
Cash Flows From Investing Activities. The Company's expenditures for
plant, property and equipment were $5.1 million in 1997, $5.2 million in 1996
and $3.6 million in 1995. 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 $6.0 million to $8.0 million
over the next several years from cash flow from operations. On December 31, 1996
the Company acquired certain assets of the David M Company for $11.3 million in
cash which was funded out of the Company's Old Senior Credit Facilities. In
1997, the Company received a purchase price adjustment of $1.5 million in cash
related to certain changes in David M's working capital as of the closing date.
Cash Flows From Financing Activities. Concurrent with the AIP Acquisition
in 1995, the Company entered into a credit agreement with certain U.S. banks.
The U.S. credit agreement had a maximum borrowing capacity of $70 million as of
December 31, 1997 and was secured by the assets of the Company and its domestic
subsidiaries, as well as 65% of the stock of each foreign subsidiary. The
Company did not have any scheduled repayment requirements until 1999. Also in
connection with the AIP Acquisition, the Company issued the 2005 Notes. In 1996,
the Company entered into a credit agreement with a U.K. bank. The U.K. credit
agreement provided for two term loans totaling $4.6 million and a $1.5 million
line of credit. Scheduled repayments on the term loans were due in quarterly
payments of $194,000. The entire $1.5 million line of credit was available at
December 31, 1997.
YEAR 2000 COMPLIANCE
The Company has formed a task force to address all year 2000 issues and is
in the process of evaluating and correcting all year 2000 issues. The initial
assessment indicates that the Company does not have a significant year 2000
issue, and currently management believes that the cost of addressing its year
2000 issues will not be material.
ENVIRONMENTAL EXPENDITURES
The Company has made, and will continue to make, expenditures to comply
with current and future requirements of environmental laws and regulations. The
Company estimates that in 1995, 1996 and 1997 it spent approximately $0.1
million, $0.2 million and $0.6 million, respectively, in capital expenditures
for solvent recovery, wastewater treatment, air monitoring and related projects
to comply with environmental requirements.
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 U.S.
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 $2.5 million. Although
such requirements are not required to be promulgated before 2000, the Company
intends to begin installing the necessary equipment in 1998 to mitigate future
spending requirements resulting from the Clean Air Act.
Solvent air emissions from the Dundee, Scotland facility have periodically
exceeded the regulatory limit for such emissions, and in 1997 the Company began
to initiate a plan for air controls and install a solvent recovery system in
order to control the solvent emissions and comply with the regulatory limit. The
Company believes that capital expenditures for such equipment will total
approximately $1.4 million and will be incurred in 1998.
Capital expenditures in 1998 relating to environmental matters are
estimated at approximately $2.5 million, which include anticipated expenditures
related to solvent air emissions at the Dundee facility. In incurring
expenditures for compliance with environmental requirements, the Company intends
to use the best- available technology in anticipation of the requirements of the
new Clean Air Act.
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Based on environmental assessments conducted by independent environmental
consultants in connection with the Acquisition, except as otherwise stated
herein, the Company believes that its operations are currently in compliance
with environmental laws and regulations, except as would not be expected to have
a material adverse effect on the Company. However, there can be no assurances
that environmental requirements will not change in the future or that the
Company will not incur significant costs in the future to comply with such
requirements. In addition, the Company's operations involve the handling of
toluene and other hazardous substances, and if a release of hazardous substances
occurs on or from the Company's facilities, the Company may be required to pay
the cost of remedying any condition caused by such release, the amount of which
could be material.
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BUSINESS
GENERAL
The Company is one of the world's leading producers of precision
engineered rubber products, specializing in the design and customization of
consumable image-transfer products for the graphic arts (printing) industry and
fiber handling products for the textile industry. Image Transfer, the Company's
printing components division, is the world's largest designer, manufacturer and
marketer of high-quality printing blankets and sleeves for use in offset
printing. The Company estimates that in 1997 it had the number one market share
in printing blankets and sleeves in the United States and Canada and worldwide
with approximately a 44% share and a 32% share in each market, respectively.
Textiles, the Company's textiles component division, is one of the largest U.S.
manufacturers and marketers of precision engineered rubber cots, aprons and
other fabricated rubber fiber handling components sold to textile yarn spinners
worldwide. The Company estimates that in 1997 its share of the U.S. market for
spinning cots and aprons was approximately 42%. In 1997, Image Transfer and
Textiles contributed 79% and 21%, respectively, of the Company's total sales.
Printing blankets are highly engineered products manufactured to narrow
tolerances and precise specifications. They are composed of multiple layers of
fabric, rubber and adhesives which determine performance features on the
printing press and overall quality of the printing job. Printing sleeves are
highly engineered "tubular" blankets designed to operate at speeds 20% to 30%
faster than those of standard presses. Blankets and sleeves accept ink from
cylindrical printing plates and transfer it to a broad range of paper stocks and
other substrates. Blankets and sleeves are a major determinant of the quality of
the image resolution and consistency of the printed material, as they are
required to perform consistently over a broad range of press speeds and printing
pressures with a wide variety of papers, inks and other chemicals. Blankets and
sleeves are consumable and are replaced at regular intervals depending on the
process used and printing requirements. Due to the importance of blankets and
sleeves in determining the overall quality of the printing job, and because
their cost typically represents less than 1% of the cost of the printed page,
price is a secondary factor in the end-user's purchase decision.
Offset is the primary printing process for long-run, high-speed
applications, such as the printing of magazines, annual reports, catalogs,
direct mail and newspapers. Flexographic and digital, two other printing
processes, are currently used primarily in short-run, lower speed applications,
such as for printing brochures and packaging material. According to industry
sources, in 1996 the United States and Canadian markets for offset, flexographic
and digital printing were estimated at $118 billion, $45 billion and $12
billion, respectively (measured by value of material printed). The Company
believes that applications for image transfer products within flexographic and
digital printing processes will increase significantly and that advances in
digital technologies will complement offset printing processes. The Company
believes that it is an industry leader in the development of printing blankets,
sleeves and belts for use in digital printing. The Company is currently
developing sleeves for use in the flexographic process, as well as exploring
other approaches to entering the flexographic sleeve market. Due to the large
number of offset printing presses installed in the United States, management
expects that the offset process will continue to be the method of choice for
high-quality, low-cost long runs, and currently nearly all of the sales of Image
Transfer are generated by products designed for use in offset printing.
The Company, through its Textiles division, 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 United States as the
most technologically advanced producer of textile products in the world.
According to industry sources, yarn production in the United States increased
approximately 36% from 1988 to 1996, with exports increasing even more rapidly
during that period. 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 has the broadest line of cots and aprons and related products of any
domestic manufacturer.
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COMPETITIVE POSITION WITHIN THE INDUSTRY
Over the past decade, in the opinion of management, the volume of material
printed by the offset process has grown more rapidly than the value of such
material, primarily due to demand for increasingly diverse, as well as higher
volumes of, printed material coupled with increased efficiencies in the printing
process. Blankets and sleeves are consumable, and the need for their replacement
depends largely on the volume and variety of printed material. As a result, the
demand for blankets and sleeves, particularly advanced high-performance
products, has outpaced the general growth of offset printing.
Image Transfer sales have increased at the average compounded annual rate
of 8.1% from 1988 to 1997, and Textiles sales have increased at the average
compounded annual rate of 3.5% over this period. The Company believes that its
market share has grown over this period as a result of its emphasis on providing
superior customer and technical service, a broad product line and constant
technological innovation which meets the changing needs of its customers.
Because of its value-added products and continued efficiency gains in
manufacturing and administration, the Company has steadily improved its
operating margins. The Company believes that its strong financial performance
has been due to its following competitive strengths.
Leading Market Share. The Company estimates that it holds the number one
domestic and worldwide market position in printing blankets and sleeves and a
leading market position in cots and aprons for the textile industry. The Company
has increased its worldwide market share in printing blankets and sleeves from
approximately 23% in 1992 to 32% in 1997. Accordingly, the Company's products
enjoy significant brand name recognition. In addition, the Company's products
are installed on a large number of offset printing presses throughout the world,
which results in significant repeat orders as those products are replaced at the
end of their life cycle.
Long-Standing and Interactive Customer Relationships. The Company's sales
force has strong customer relationships and technical expertise which enables it
to promote effectively the Company's products. In Image Transfer, the Company's
sales force calls on end-users as well as value-added distributors. The Company
has been able to generate "pull-through" demand for its products by educating
their end-users on the superior performance characteristics of the Company's
products and providing them with exceptional technical service. The Company's
technical service and sales forces also help provide solutions to complex
printing problems, which can only be addressed by a thorough understanding of
the offset printing process. Their efforts are enhanced by a proprietary
database that allow the sales professionals to be more informed, on a daily
basis, about a customer's need for replacement products and the suitability of
the Company's products for a particular application. The Company's competitive
edge is enhanced by long-standing relationships with a large number of printers,
such as R.R. Donnelley & Sons Co., World Color Press, Inc., Quebecor Printing,
Inc., Treasure Chest Advertising Company, Inc., BPCC (U.K.) and the Springer
Group (Germany); textile companies, such as Burlington Industries, Inc., Springs
Industries, Inc., Milliken & Company and Alice Manufacturing; and manufacturers
of fiberglass products, such as PPG Industries, Inc. and Owens-Corning.
Product Innovation and Proprietary Technology. The Company historically
has been at the forefront of technological advances and has consistently led in
the development and marketing of new products. Over the last several years, a
number of the Company's developments have improved the surface and compressible
layers of the printing blanket, resulting in enhanced image resolution, improved
durability and increased printing consistency. These developments have resulted
in increased demand for advanced and high-performance products, which command
premium prices. The Company often works directly with manufacturers of standard
and alternative technology printing presses to develop advanced products to meet
the requirements for new technologies and machines. For example, in 1993, the
Company and Heidelberg Web Press, the world's leading manufacturer of printing
presses, introduced a unique printing sleeve for Heidelberg's M-3000 high-speed
press. The Company currently has the leading market share of this sleeve. The
Company recently introduced the 4000 day Graphica(R) blanket, which utilizes a
new manufacturing process and increases the usable surface area of the blanket,
resulting in reduced paper waste. Moreover, the Company has been developing
advanced products for the rapidly-growing high-speed air-jet spinning market.
The Company employs 24 engineers, chemists and other technical personnel
dedicated to research and development, and holds 26 active U.S. patents and 48
active foreign patents for several proprietary technologies.
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Broad Product Line. The Company maintains the broadest and most
application-specific product line for printing blankets and sleeves, providing
optimal high-performance solutions to a wide variety of customer applications
and requirements. In addition, the Company has been expanding its product line
for newspaper printing, a market historically underserved by the Company. The
recently acquired David M brand of printing blankets is complementary to the
Company's long-standing Day brand. Textiles offers over 3,000 SKUs, the broadest
product line of cots and aprons of any domestic manufacturer.
Experienced Management Team. The Company's senior management has extensive
experience in the industry and possesses a deep understanding of the
technological and market dynamics of the printing and textile industries. The
ten most senior managers average approximately 19 years of industry experience
and approximately 12 years with the Company. In addition, since June 1995, the
Company's management has successfully operated a highly leveraged company, while
improving production efficiency and product quality, generating strong growth in
sales and EBITDA, as well as successfully acquiring and integrating the David M
Company.
BUSINESS STRATEGY
The Company intends to enhance its leadership position by taking advantage
of growth opportunities in both Image Transfer and Textiles. The Company's
strategy is to (i) continue strengthening its core businesses, reinforcing its
position as the leading supplier of printing blankets and sleeves to the offset
printing industry and cots and aprons to the textile industry, (ii) capitalize
on opportunities in the rapidly-growing digital and flexographic printing
processes, (iii) increase its international presence, (iv) expand its product
line by introducing and offering complementary products, and (v) continue
improving manufacturing processes.
Reinforce Market Leadership in its Core Businesses. The Company plans to
increase further its market share and sales through continued product innovation
and selective acquisitions that will expand the Company's product line and
customer base. The Company will continue to work closely with end-users to
develop innovative products, processes and technologies that meet evolving
customer needs while enhancing its mix of high value-added, high-margin
products. In Image Transfer, it recently introduced the 3610 day Graphica(R),
which enhances the print quality of certain presses, and the Mini-Gap(TM), which
conforms to new higher-speed press designs. In Textiles, it has developed cots
and aprons that can be utilized by the more advanced yarn spinning equipment.
The Company also plans to pursue selective strategic acquisitions such as that
of David M Company, which has better positioned the Company to target the
smaller sheetfed, forms and packaging printers previously underserved by the
Company.
Capitalize on Opportunities in Developing Processes. The demand for
digital and flexographic printing processes is expected to grow rapidly. The
Company has been working in partnership with significant printing industry
partners in the development of these technologies and has produced a number of
prototypes and is evaluating the production of others. The Company expects to
complete in 1998 an Advanced Development Center for consumable Image Transfer
products, which will be equipped with specialized and dedicated machines to
provide rapid design and prototype capability for components to be used by the
new digital press technology. The Company has already made significant progress
in the development of products for digital printing and is well-positioned to
benefit from the expected increases in digital printing. The Company is also
pursuing the opportunity of supplying replaceable sleeves for the flexography
printing process.
Increase International Presence. The Company intends to increase its
presence in international markets, particularly in the Pacific Rim, Latin
America and Europe. Management believes that these markets provide significant
growth opportunities because the Company's market share is lower in certain of
these areas and because they are expected to grow more rapidly than the
Company's existing principal markets. The Company's strategy is to seek to
penetrate targeted markets through the expansion of its international sales
force and distribution channels. Similar efforts by the Company resulted in the
Company increasing its market share in Europe for blankets and sleeves from 13%
in 1992 to 24% in 1997. The Company will also pursue joint ventures with
strategically-located partners and consider international acquisition
opportunities.
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Expand Product Lines and Offer Complementary Products. The Company will
seek to expand its offering of complementary products, such as press room
chemicals, through distribution arrangements and strategic acquisitions and
joint ventures. Management believes that carefully-selected acquisitions and
joint ventures will allow the Company to diversify its customer base, improve
absorption of corporate overhead and enhance its position as the leading
supplier to the printing industry.
Continue Improving Manufacturing Processes. The Company prides itself on
providing high-quality products while maintaining its position as a low-cost
producer. The Company expects that additional process and manufacturing
improvements will continue to lower its costs and to strengthen its competitive
position. The Company intends to improve further its profitability through
productivity gains developed by process- focused teams at each of its
facilities. For example, in Image Transfer, the Company will continue to gain
efficiencies through the implementation of its new rubber-layer construction
process on additional production lines. The Company has also developed a new
proprietary bonding process that is expected to reduce costs across the Image
Transfer product line. In Textiles, the Company will complete the automation of
the cot finishing process. To encourage productivity improvements, the Company
ties a portion of each associate's total compensation to a performance bonus
based on achieving certain profit targets.
IMAGE TRANSFER
Industry
Industry sources estimate that the size of the offset printing market
(measured by value of material printed using the offset printing process) was
approximately $118 billion in 1996 and is forecasted to grow to approximately
$128 billion in 2002. In an effort to maintain offset printing's technological
and cost advantages, press manufacturers have continually invested in research
and development to introduce improved presses that are more efficient by
operating at faster run speeds, offering enhanced flexibility and reducing setup
time. Industry sources estimate that annual sales of new offset presses will be
approximately $10 billion in 1998, with a 20 year average life expectancy of
each press. The Heidelberg M-3000 press is an example of the next generation of
offset printing presses which have increased the maximum web speed to 3,000 feet
of paper per minute versus the industry norm of 2,000 feet of paper per minute.
In addition to lowering costs, offset printers are constantly striving to
improve the quality of their printed product. The cost of the printing blankets
and sleeves represents less than 1% of the overall cost of the printed page, but
they are 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 or sleeve,
the consistency of the printing output over long printing runs, the number of
images that can be printed by the printing blanket or sleeve over its useful
life relative to its cost, and the ability of the printing blanket or sleeve to
operate within prescribed parameters utilizing a variety of substrates, inks and
chemicals. As a result, high-quality blankets and sleeves will continue to be
important in achieving maximum press performance by both the new and the
existing installed equipment.
Industry reports forecast that alternative printing processes, such as
digital and flexography, will provide some short-run print jobs with enhanced
quality and increased flexibility. Digital printing, the electronic conveyance
of image to substrate, is estimated to grow by approximately 14% to 16% over the
next five years (based on various industry sources). Currently, this process is
used primarily for short runs, such as for the printing of specialized catalogs,
brochures and price lists. Developments in digital technology are expected to
impact the printing industry, in general, and the offset process, in particular,
in two different ways.
Digital laser technology is being used to image thermally the offset plate
for existing and new offset presses in place of the traditional film-based
imaging method. The principal benefit of these methods is expected to be the
elimination of certain pre-press activities involving the preparation of film
and plates. Approximately 15% of all offset plates are digitally-imaged from
computer-generated image creation and storage devices. Within the next ten
years, it is expected that the percentage of plates which are digitally imaged
will increase to 80%. This shift in technology will have a positive impact on
the offset process through improved print quality, reduced set-up times, and
shorter run length capability. These advances will benefit
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the Company because a transfer medium, such as a printing blanket or sleeve,
between the plate and the substrate will continue to be required. In conjunction
with the companies working on these new printing machine technologies, the
Company is developing blankets, sleeves and belts to address the strong demand
generated by digital enhancements to the offset process.
In addition to its use in the pre-press process, digital technology is
used in some types of new reproduction equipment. Most of this equipment
combines the ability to create the image on the press (direct to press) with the
traditional forms of offset reproduction using a blanket or sleeve. However,
some of this new equipment uses processes, such as electro-photography, that
create the image digitally and transfer it directly to paper without the use of
a blanket or sleeve. Although such approaches are viable, currently their cost
benefits diminish rapidly in long printing runs (run lengths in excess of 1,000
copies) as the color and quality of the printed image in long runs do not
compare favorably with those printed by the offset process. This market,
commonly called Short Run Color Printing, is driven by the demand for color
documents and personalization of documents. This market is expected to grow at a
faster rate than the traditional offset demand, but will create incremental
demand and not replace offset.
Flexographic printing uses a raised image flexible plate on a cylinder or
replaceable sleeve, which permits printing on a variety of substrates such as
plastic, paper and cardboard and generally results in the image being
transferred to be of high quality. As measured by the value of image transfer
products sold, the current size of this market is estimated at approximately $50
million and is forecasted to grow at an annual rate of 6% to 8%. This process is
primarily associated with the packaging market but is also used for catalogs and
periodicals. The flexible plates are used on many short run repeat jobs, and are
therefore taken on and off the press several times a month. Many flexographic
printers produce thousands of different images, and each of the images requires
its own plate which may be mounted on a replaceable carrier sleeve. The Company
intends to focus on providing the replaceable carrier sleeves which are standard
equipment on flexographic presses.
Despite advancements in these other technologies, few rival the print
quality, flexibility, price and speed of offset technology. Management expects
that the offset process will remain the method of choice for high-quality low
cost long runs. This is evidenced by the $10 billion dollars of annual sales of
new presses. In addition, the large installed base of offset printing presses,
including approximately 300,000 presses in the United States alone, creates a
substantial cost for switching to alternative technologies should those
technologies rival offset printing at some time in the future.
Products
The Company offers a full line of high-quality, name brand printing
blankets and sleeves to both web-fed (continuous roll) and sheet-fed (individual
sheet) offset printers under the Day and David M brands. The Company's printing
blankets and sleeves are used to print magazines, advertising material, business
forms, packaging, newspapers and other printed material. As a result of the
superior quality, reliability and value of the Company's printing blankets and
sleeves and its customer service, the Company is able to command premium prices
for its products.
The following table lists the Company's principal products for offset
printing as well as the market segments served by these products:
MARKET SEGMENT PRODUCT LINE
Magazines/Periodicals/Catalogs...................9500 dayGraphica(R)
4000 dayGraphica(R)
AccuDot(R)
3500 Discovery(R)
t3000 Revolution(R)
QuantaLith(R) Gold
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MARKET SEGMENT PRODUCT LINE
Directories/Book Printing/Inserts................3000 Patriot(R)
AccuDot(R)
Discovery 3500(R)
t3000 Revolution(R)
QuantaLith(R) Blue
Market Promotion.................................3000 Patriot(R)
t3000 Revolution(R)
Annual Reports...................................3000 Patriot(R)
Newspapers.......................................NewsMaker(R)
David M Special Edition(R)
Business Forms...................................Sticky Bak(R)
Packaging........................................Boxer(R)
QuantaLith(R) Blue
Specialty Plastics...............................UV 8100 Resister(R)
David M QL Purple Ultra Vee(R)
The Company's leading printing blankets are the 9500 dayGraphica(R), 4000
dayGraphica(R), 3000 Patriot(R), 3610 dayGraphica(R), 8500 AccuDot(R),
QuantaLith(R) Gold and QuantaLith(R) Blue lines which produce high-quality
images, particularly on high-speed printing presses. The dayGraphica(R) product,
introduced in 1986 and utilizing improved surface characteristics resulting in
enhanced print quality, represented the most significant industry-wide product
advancement in compressible printing blankets in over ten years. The 4000
dayGraphica(R) was introduced in 1997. The 3000 Patriot(R) line was introduced
in 1992 to address customer demands for a more versatile and durable high volume
product adaptable to changes in the chemicals used in the printing process. In
1995, the Company introduced the 3500 Discovery(R), the next generation of the
Patriot(R), which is a premium-priced, more durable product. The 8500 AccuDot(R)
line is a line of general purpose printing blankets. In addition to its
traditional line of printing blankets, the Company is one of two global
licensees to manufacture tubular, seamless printing sleeves for use on
Heidelberg Harris M-3000 web presses, the next generation of high-speed presses.
David M products are principally sold to small and medium-sized printers,
packaging companies and other specialty printers.
The Company believes that it is one of the leading innovators of product
and process technology in the printing blanket and sleeve 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 performance requirements, 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 capture increased market share as a result of its product
performance and product development capabilities.
Products for digital printing are still principally under development and
are not yet produced on a commercial basis. In addition, the Company is
evaluating the production of other prototypes for new short-run color printing
processes.
The Company's current products for flexographic printing are primarily for
the packaging market. The Company has manufactured and sold a number of
prototypes of composite sleeves that include integral cushioning, as compared
with the traditional approach in which the photopolymer plate must be mounted to
a sleeve with a separate cushion component. The base technology for the
flexographic sleeve has the potential for use in other printing segments as well
(e.g., gravure and offset), which may expand the market segments for sleeve
technology.
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Image Transfer 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. The Company also offers printing accessories such as
fountain solutions, washes, cylinder packing papers and aluminum bars for
mounting blankets onto press cylinders to its customers. These Image Transfer
components generated $5 million of sales in 1997.
Sales and Distribution
Image Transfer has adopted an integrated approach to product development,
marketing, sales and distribution. This division has 24 sales professionals in
the United States, with an average of over 24 years of industry experience and
have strong customer relationships and superior technical expertise. The
international sales force includes 21 sales professionals in Australia, Canada,
France, Germany, Hong Kong, Italy, Mexico and the United Kingdom.
Image Transfer'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
value-added dealer. These dealers, known as converters, typically purchase rolls
of uncut printing blankets from the Company and then cut, finish and package the
blankets for sale to dealers or end-users. In addition, the sales and technical
associates work directly with large endusers to identify the printing blankets
and sleeves that best suit that printer's particular needs and formulate
solutions to complex printing problems. In 1997, approximately 95% of sales of
printing blankets and sleeves were made through value-added converters and
dealers whose efforts are supported by the Company's sales and technical
professionals.
The Company's proprietary database profiles each customer's press
operations and service history on a daily basis, allowing the sales
professionals to be more informed about product replacement needs and the
suitability of the Company's products for a particular customer. Domestic and
international operations for Image Transfer are supported by 24 marketing,
technical and customer service personnel.
The Company intends to encourage more active promotion of Company products
to the medium and small print shops currently not called on directly by the
Company's sales professionals. In addition, the Company is working directly with
the corporate purchasing departments of several large printers that have
expressed an interest in working more closely with their suppliers to create new
technological solutions to increase printing speed and ensure product
compatibility.
The Company distributes its blankets through 42 U.S. and approximately 60
international converters who buy printing blanket rolls, cut rolls to customized
orders, store inventory and hold receivables. The sales force works closely with
converters and dealers, 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) typically
require 200,000 cots and aprons (two cots and two 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.
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Based on industry reports, the Company estimates that the worldwide market
for specialized high-quality textile spinning products was approximately $59
billion in 1997 and expects it to grow at a rate of approximately 2% in each of
the next three years. 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 United States, 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
With the broadest line of cots and aprons of any domestic manufacturer,
the Company offers its customers both general purpose and specialty cots and
aprons recognized in the marketplace under the DAYtex(R) brand, with over 3,000
different SKUs. 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-forming aprons,
carpet cots and drawing cots. The Company provides high-quality, precision
engineered products that deliver superior value to its customers. As a result,
Textiles has been an industry leader in quality and performance, allowing the
Company to command premium pricing for its products.
Because of changes in the spinning process, increasing textile machine
speeds and other rigorous process demands, spinning industry suppliers are
constantly challenged to improve the precision, quality and consistency of their
products. The Company continues to introduce highly engineered cots and aprons
targeted to the high-speed ring and air-jet spinning markets. Products such as
aluminum-lined cots provide improved rigidity and tolerance and have been widely
accepted in the marketplace. Although fewer cots are used on these machines, the
cots that are used are replaced more frequently, are more technologically
advanced and command higher prices compared to traditional ring spinning cots.
Textiles' product development has allowed the Company to diversify into
new markets. The Company has developed 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
filaments. Textiles also makes bolsters, "rub" aprons and rubber shrinkage
blankets for use in pre-shrinking processes, such as those 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 Company believes that the quality, technical proficiency and
experience of its Textiles sales force distinguishes its marketing efforts from
those of any other competitor. In the United States, Textiles' nine sales
professionals, with an average of 28 years of industry experience, have
extensive knowledge of the spinning and weaving process.
The sales force markets its products directly to end-users, primarily
textile mills, and OEMs, calling on virtually every textile mill in the United
States 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, thereby providing the
Company with knowledge of industry trends, which in turn creates opportunities
for product development. The Company recently signed a collaborative technology
and marketing agreement with Coimbatore Cots and Coatings, a division of Lakshmi
Machine Works in India. The Company will receive royalties for products sold in
the Indian market that use the Company's technology. In addition, the Company
has exclusive worldwide distribution rights for products manufactured by
Coimbatore Cots and Coatings that use the Company's technology.
51
<PAGE> 58
The Company will continue to capitalize on the shift towards higher
value-added, higher-margin products and plans to emphasize its broad product
line and U.S. manufacturing presence to domestic textile producers.
Internationally, the Company plans to focus on the Pacific Rim and Latin America
through the use of independent sales agents, while its sales force will continue
to increase its calling efforts in Europe.
MANUFACTURING AND FACILITIES
The Company operates five state-of-the-art, strategically located
manufacturing facilities in Asheville, North Carolina; Three Rivers, Michigan;
Lerma, Mexico; Longwood, Florida; and Dundee, Scotland. The Company believes
that it has sufficient capacity at its manufacturing facilities to meet its
production needs for the foreseeable future, and further believes that all its
sales worldwide can be sourced through these facilities. All of the Company's
manufacturing facilities are ISO 9002 certified. The Company also owns or leases
warehouse and sales offices in the United States, Europe and Hong Kong. The
Company's significant facilities are listed below:
<TABLE>
<CAPTION>
OWNED/
LOCATION SIZE (SQ. FT.) LEASED
-------- -------------- ------
<S> <C> <C>
Manufacturing:
Asheville, NC.................................. 240,600 Owned
Dundee, Scotland............................... 101,000 Owned
Lerma, Mexico.................................. 45,000 Owned
Longwood, FL................................... 43,600 Owned
Three Rivers, MI............................... 58,000 Owned
Warehouse/Sales Office:
Dayton, OH..................................... 10,500 Leased
Elk Grove, IL.................................. 5,000 Leased
Greenville, SC................................. 20,000 Owned
Hong Kong, China............................... 3,100 Leased
Milan, Italy (Erba)............................ 600 Leased
Moscow, Russia................................. 1,000 Leased
Nashville, TN.................................. 5,000 Leased
Paris, France.................................. 12,800 Leased
Reutligen, Germany............................. 4,000 Leased
Stockport, England............................. 5,200 Owned
</TABLE>
CUSTOMERS
In Image Transfer, end-users generally place orders for printing blankets
and sleeves through 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 for sale to dealers or end-users. As a result, most of
the sales of Image Transfer are to converters. The Company, however, has
long-standing relationships with a large number of blue-chip printers and has
been able to generate "pull-through" demand for its products from these
end-users by educating them on the superior performance characteristics of the
Company's products and providing them with exceptional technical service. The
printers with whom the Company has had a long-standing relationship include R.R.
Donnelley & Sons Co., World Color Press, Inc., Quebecor Printing, Inc., Treasure
Chest Advertising Company, Inc., BPCC (U.K.) and the Springer Group (Germany).
Textiles also has strong and long-standing relationships with a large
number of companies. Textiles' principal customers include Burlington
Industries, Inc., Springs Industries, Inc., Milliken & Company and
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<PAGE> 59
Alice Manufacturing, textile companies, as well as certain manufacturers of
fiberglass products, such as PPG Industries, Inc. and Owens-Corning.
National Offset, a major U.S. converter, accounted for approximately 11%
of the Company's sales for the year ended December 31, 1997, although sales to
this customer accounted for less than 10% of the Company's sales in 1995 and
1996. No other customer has accounted for more than 10% of the Company's sales
in any of the past three years.
RAW MATERIALS
Rubber polymers are a key component in all of the Company's products.
Various fabrics, combined with rubber, represented over 40% of all raw materials
purchases in each of 1996 and 1997. Raw material purchases accounted for
approximately 50% of 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, and the Company believes that there are
sufficient sources of supply for the foreseeable future.
RESEARCH AND DEVELOPMENT
The Company's research and development staff consists of 24 full-time
associates. The Company is currently implementing several product and process
improvement initiatives developed in conjunction with the Company's sales force,
customers and process-focused work teams. The Company holds 26 active U.S.
patents, 48 active foreign patents and 31 U.S. registered trademarks.
Approximately 23% of these U.S. and foreign patents have been granted in the
last five years.
In addition to its extensive patent and trademark portfolio, the Company
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. The Company continuously files patent applications, and some
recently-filed patent applications could have a material impact. The Company's
U.S. patents have remaining terms ranging from one to 17 years.
COMPETITION
The Company competes with a number of manufacturers in the printing and
textiles components industries, with the main competitive factors being quality,
performance and service. While the Company competes with a number of
manufacturers of offset printing blankets and sleeves, the principal competitors
of Image Transfer are Reeves and Polyfibron, which, together with the Company,
accounted for in excess of 82% of the U.S. and Canadian market and approximately
64% of the worldwide market in 1997, based on Company estimates. Each firm has a
comparable worldwide geographic distribution network.
In Textiles, the Company's principal competitor is Armstrong. Armstrong
closed its main U.S. manufacturing facility in 1995, leaving the Company with
the broadest line of cots and aprons of any domestic manufacturer. Textiles also
competes with other smaller manufacturers, such as Premtec, Inc., Hokushin
Corporation, Yamauchi and Berkol AG (Germany).
INTERNATIONAL OPERATIONS
The Company's principal international manufacturing facility is located in
Dundee, Scotland, which produces products for both Image Transfer and Textiles.
The Company also has a manufacturing facility in Lerma, Mexico, which produces
Image Transfer products primarily for the Mexican market as well as for export
to the United States. In addition, the Company maintains sales and distribution
facilities in England, France, Germany, Hong Kong, Italy and Russia.
53
<PAGE> 60
ENVIRONMENTAL MATTERS
The Company's facilities in the United States are subject to Federal,
state and local environmental laws and regulations, 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 Union. The Company's facility in Lerma,
Mexico is subject to Mexican environmental requirements. 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.
Based on environmental assessments conducted by independent environmental
consultants in connection with the Acquisition, except as otherwise stated
herein, the Company believes that its operations are currently in compliance
with environmental laws and regulations, except as would not be expected to have
a material adverse effect on the Company. However, there can be no assurances
that environmental requirements will not change in the future or that the
Company will not incur significant costs in the future to comply with such
requirements. In addition, the Company's operations involve the handling of
toluene and other hazardous substances, and if a release of hazardous substances
occurs on or from the Company's facilities, the Company may be required to pay
the cost of remedying any condition caused by such release, the amount of which
could be material.
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 U.S.
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 $2.5 million. Although
such requirements are not required to be promulgated before 2000, the Company
intends to begin installing the necessary equipment in 1998 to mitigate future
spending requirements resulting from the Clean Air Act.
Solvent air emissions from the Dundee, Scotland facility have periodically
exceeded the regulatory limit for such emissions, and in 1997 the Company began
to initiate a plan for air controls and install a solvent recovery system in
order to control the solvent emissions and comply with the regulatory limit. The
Company believes that capital expenditures for such equipment will total
approximately $1.4 million and will be incurred in 1998. The Dundee facility has
also had instances of non-compliance with wastewater discharge requirements,
though the Company believes that it is now in compliance with such requirements.
CPG is a party to a July 25, 1988 Consent Decree with the Michigan
Department of Natural Resources with regard to contamination at the Company's
Three Rivers, Michigan facility. CPG installed a groundwater remediation system
at the facility in 1989, and is required to operate such system until certain
cleanup levels are achieved (currently expected to take seven to ten more
years). As of December 31, 1997, the Company had recorded accruals of
approximately $900,000 to reflect future costs associated with this cleanup and,
based on the reports of its independent consultants, the Company believes that
such accruals are adequate. CPG has indemnified the Company for such costs and
the Company expects to be reimbursed after amounts are expended.
The Asheville, North Carolina facility has had some instances of exceeding
the zinc limit for wastewater discharged to the local publicly-owned treatment
works, due in part, the Company believes, to the very high levels of zinc in the
city tap water. As a result of past onsite release and disposal of hazardous
materials, the Asheville, North Carolina facility has been placed on the CERCLIS
list and the North Carolina Inactive Hazardous Sites Inventory, although the
Company has been informed that the CERCLIS listing for the Asheville facility
includes a designation of "No Further Remedial Action Planned."
54
<PAGE> 61
As a result of the disposal of hazardous substances prior to the AIP
Acquisition, CPG was named a "potentially responsible party" pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA")
and/or similar state laws at certain waste disposal sites. CPG or the Company
has entered into consent decrees at most of these sites, subject to standard
reopener provisions. The Company expects that no significant expenditures will
be made by the Company with respect to these matters. CPG has agreed to retain
ongoing responsibility for and indemnify the Company with respect to these waste
disposal locations. However, because liability under CERCLA is retroactive, the
Company may receive notices of potential CERCLA liability in the future, and
such liability could be material.
Subject to certain limitations, Hanna and CPG have agreed to indemnify the
Company for certain other environmental compliance and liability issues
associated with the Company's business, including certain liabilities associated
with an underground toluene tank at the Lerma, Mexico facility. If Hanna and CPG
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.
ASSOCIATES
The Company currently employs approximately 970 full-time associates
worldwide, of which approximately 600 are employed in the United States and
Canada. The Company's associates in Dundee, Scotland are represented by a labor
union which has entered into a collective bargaining agreement with the Company,
which agreement expires on January 1, 2001. The Company's employees in Mexico
are covered by statutory labor agreement. None of the Company's U.S. associates
is 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 employee relations to be good.
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 or
financial condition.
CPG and the Company are parties to consent decrees with respect to certain
environmental matters. Hanna and CPG have agreed to retain, be responsible for
and indemnify the Company with respect to these matters. See "-- Environmental
Matters" above.
55
<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and a brief account of the business
experience of each person who is a director or executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis R. Wolters......................... 51 Director; Chief Executive Officer and President
David B. Freimuth......................... 45 Vice President and Chief Financial Officer
John R. Elia.............................. 50 Vice President, Operations, Image Transfer
William B. Branson........................ 39 Vice President, General Manager, Textiles
Michael E. McLean......................... 48 Vice President, Technology, Planning and New Product
Development, Image Transfer
Dermot Healy.............................. 43 Managing Director, Europe
Michael P. Neroni......................... 33 National Sales Director, Image Transfer
Dwaine R. Brooks.......................... 55 Director, Human Resources and Assistant Secretary
Alfred C. Eckert III...................... 50 Director and Chairman of the Board
William C. Ferguson....................... 68 Director
James N. Lane............................. 46 Director
Christine K. Vanden Beukel................ 27 Director and Secretary
</TABLE>
Dennis R. Wolters has been the Chief Executive Officer of the Company
since the AIP Acquisition in June 1995, and the President of the Company since
1990. He joined the Company in 1983 as Director of Business Development and has
served in a number of positions with the Company since that time. Mr. Wolters
was named Executive Vice President of Image Transfer in 1986, President of Image
Transfer in 1989, President of the Company in June 1990, and Chief Executive
Officer of the Company following the AIP Acquisition in June 1995.
David B. Freimuth joined the Company in 1974 and assumed the position of
Vice President, 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.
John R. Elia was named Vice President of Operations for Image Transfer in
1995. Mr. Elia also heads the quality improvement process and was the technical
leader on ISO 9002 Certification. From 1992 to 1995 he was Vice President of
Manufacturing for Image Transfer. Mr. Elia was director of Textile Manufacturing
from 1990 until 1992.
William B. Branson assumed the position of Vice President, General
Manager, Textiles in August 1996. He previously held the position of Director,
Sales and Marketing, Image Transfer Products Division, Europe. From 1989 to 1995
he was responsible for worldwide marketing, Image Transfer, in addition to being
the Sales Manager for Latin America and the Pacific Rim.
Michael E. McLean joined the Company in 1976 and was named Vice President,
Technology, Planning and New Product Development for Image Transfer in 1997.
From 1989 to 1997 he was Director, Technology and Product Engineering, Image
Transfer. Mr. McLean has worked in Image Transfer Products Division's Product
Engineering and Research and Development departments since he joined the
Company.
Dermot Healy, Managing Director, European Operations, joined Day in
December 1996. Mr. Healy was previously employed by Renold PLC, since 1991, in
several capacities, most recently as Managing Director of the Milnrow and
Bradford operations. Renold PLC is a manufacturer and marketer of power
transmission products. Mr. Healy worked for Procter & Gamble, Pilkington Group
and Cookson Group -- Horsell Graphics as product manager and business
development manager and group development director.
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<PAGE> 63
Michael P. Neroni, National Sales Director, Image Transfer Products, was
named National Sales Director in 1994 and is responsible for the Image Transfer
Division's marketing and sales for North America. Mr. Neroni began his career
with the Company in 1987. He was a District Sales Manager until 1993 when he was
promoted to Manager of Printing Sales Operations.
Dwaine R. Brooks was named Director Human Resources for the Company's
worldwide operations in August 1990. Previously, he was the Manager of Human
Resources for the Asheville facility.
Alfred C. Eckert III has been the President of Greenwich Street since
January 1994. Since 1991, Mr. Eckert has been a general partner of Greycliff
Partners. From 1984 to 1991, Mr. Eckert was a general partner of Goldman, Sachs
& Co. He is a director of Eastgate Group Limited, Telex Communications, Inc.,
IPC Magazines, Georgia Gulf Corporation and HBO & Company.
William C. Ferguson retired as Chairman and Chief Executive Officer of
NYNEX in 1995, a position he had held since 1989. From 1987 to 1989, Mr.
Ferguson was Vice Chairman, then President and Chief Executive Officer of NYNEX.
Prior to that, from 1971 to 1983, Mr. Ferguson held a number of executive
positions with New York Telephone and Michigan Bell. Mr. Ferguson is also a
director of Best Foods Corporation, Corn Products International and General
Reinsurance Corporation.
James N. Lane has been Managing Director, Head of Merchant Banking of SG
Capital Partners, LLC since its inception in February 1997. SG is the General
Partner of a $400 million private equity fund for SG Americas, the merchant
banking activity for the Americas of Societe Generale, the largest private bank
in France with $360 billion in assets. Prior to that Mr. Lane was at Goldman,
Sachs & Co. from 1977 where he became a General Partner in 1986. Mr. Lane
co-managed the Leveraged Finance Group at Goldman in New York and moved to
London to co-head the European Corporate Finance Department, and later to
co-head the firm's global Principal Investment Area.
Christine K. Vanden Beukel joined Greenwich Street at its inception in
1994. Ms. Vanden Beukel previously worked in the investment banking division of
Smith Barney Inc. Ms. Vanden Beukel is also a director of Telex Communications,
Inc.
The Company expects that Mr. Ferguson will receive, as compensation for
his services as director, warrants to purchase up to 74 shares of Common Stock
that will vest in four equal installments, first on the grant date and then on
each of the first three anniversaries thereof. The terms of such warrants have
not yet been determined. None of the other directors will receive any
compensation for their services as directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
1997, 1996 and 1995 for Mr. Wolters and the four other most highly compensated
officers of the Company at the end of 1997.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) PAYOUTS(A) COMPENSATION
- --------------------------- ---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis R. Wolters, 1997 $193,333 $221,436 0 $20,534 $242,501(b)
President and Chief Executive Officer 1996 186,667 77,063 0 29,178 13,442
1995 156,564 234,985 1,200 128,604 602,408(c)
David B. Freimuth, 1997 101,667 58,615 110 6,703 166,355(b)
Vice President 1996 90,000 19,265 0 7,586 7,662
1995 79,822 50,063 200 28,702 194,008(c)
</TABLE>
57
<PAGE> 64
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) PAYOUTS(A) COMPENSATION
- --------------------------- ---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
William B. Branson, 1997 90,500 45,465 0 6,703 222,798(b)
Vice President 1996 90,442 34,296 0 6,419 11,530
1995 73,000 38,714 112.5 29,701 168,672(c)
Michael E. McLean, 1997 89,000 47,750 0 6,703 172,643(b)
Vice President 1996 86,833 15,596 0 7,586 16,166
1995 81,000 42,597 200 36,063 196,086(c)
Dwaine R. Brooks, 1997 76,567 45,590 0 6,703 202,563(b)
Director of Human Resources 1996 75,367 14,128 0 7,586 16,744
1995 65,500 37,610 112.5 36,063 150,763(c)
</TABLE>
- ------------------
(a) Represents compensation received under a Hanna long-term incentive plan.
The Company has replaced the Hanna long-term incentive plan with a stock
option program.
(b) Includes principally the balance of sales fulfillment incentive fees as a
result of the AIP Acquisition.
(c) Includes principally sale incentive awards from Hanna related to the sale
of the Company.
The following table sets forth information concerning the options/stock
appreciation rights granted in 1997 for Mr. Freimuth. None of the other named
executive officers were granted options/stock appreciation rights in 1997.
<TABLE>
<CAPTION>
Options/SAR Grants in Last Fiscal Year (a)
Number of
Securities Options/SARs Grant
Underlying Granted-to Date
Options/SARs Employees in Exercise or Expiration Present
NAME AND PRINCIPAL POSITION Granted (#) 1997 Base-Price Date Value (b)
--------------------------- ----------- ---- ---------- ---- ---------
<S> <C> <C> <C> <C> <C>
David B. Freimuth, Vice President...... 110 33.5% $1,200 2007 $3,354
</TABLE>
- ------------------
(a) The options were fully vested in connection with the Acquisition.
(b) The grant date present value calculated using Black-Scholes pricing model.
EMPLOYMENT AGREEMENTS
Each of Messrs. Wolters and Freimuth is a party to an employment agreement
with the Company, having a term of five years from the Acquisition Closing Date,
subject to annual renewals thereafter unless notice of non-renewal is given.
Under the employment agreements, each of Messrs. Wolters and Freimuth receives
annual base salaries of $200,000 and $105,000, respectively (subject to increase
by the Board of Directors), and an incentive bonus at 100% of plan target in an
amount equal to at least $200,000 and $55,000, respectively. The agreements also
contain certain non-competition and non-solicitation provisions. Subject to
certain exceptions, in the event that the executive is actually or
constructively terminated under the employment agreement by the Company without
cause, each employment agreement provides that the executive is entitled to
receive the following compensation: (i) accrued salary, (ii) pro-rata incentive
bonus for the year of termination, assuming that 100% of the annual plan target
was met, (iii) (a) in the event of a
58
<PAGE> 65
termination prior to the first anniversary of the Acquisition Closing Date, a
lump sum equal to three times the executive's base salary and annual incentive
bonus target, (b) in the event of a termination on or after the first
anniversary of the Acquisition Closing Date but before the end of the 5-year
term of the agreement, a lump sum equal to two times the executive's base salary
and annual incentive bonus target and (c) in the event of a termination on or
after the end of the 5-year term of the agreement, a lump sum equal to one times
base salary and annual incentive bonus target and (iv) continuation of benefits
and perquisites for one year following termination. As described in "The
Acquisition and Related Transactions" and "Certain Transactions," upon the
consummation of the Acquisition, each of Messrs. Wolters and Freimuth received
an incentive bonus pursuant to the Executive Incentive Bonus Arrangements. Mr.
Wolters' incentive bonus was $4,868,750 and Mr. Freimuth's incentive bonus was
$2,434,375. Each of Messrs. Wolters and Freimuth also serves as an officer of
GSD and, in consideration for the performance of such services, received signing
bonuses on the Acquisition Closing Date in the amounts of $198,566 and $99,283,
respectively.
Each of Messrs. Branson, McLean and Brooks is a party to an employment
agreement with the Company, having a term of two years from the Acquisition
Closing Date. Under the employment agreements, each of Messrs. Branson, McLean
and Brooks receives annual base salaries of $94,000, $91,000 and $78,500,
respectively (subject to increase by the Board of Directors), and an incentive
bonus at 100% of plan target in an amount equal to at least $43,000, $43,000 and
$40,000, respectively. The agreements also contain certain non-competition
provisions. Each of the employment agreements also provides for the payment of a
completion bonus in the amount of $50,000 if the executive remains employed with
the Company through the first anniversary of the Acquisition Closing Date.
Subject to certain exceptions, in the event that the executive is actually or
constructively terminated under the employment agreement by the Company without
cause, each employment agreement provides that the executive is entitled to
receive the following compensation: (i) accrued salary, (ii) pro-rata incentive
bonus for the year of termination, assuming that 100% of the annual plan target
was met, (iii) a lump sum equal to up to two times the executive's base salary
and annual incentive bonus target, assuming that 100% of the annual plan target
was met, and (iv) any portion of the $50,000 completion bonus earned but not yet
paid. As described below in "The Acquisition and Related Transactions" and
"Certain Transactions," upon the consummation of the Acquisition, Mr. Branson
also received an incentive bonus in the amount of $100,000.
1998 STOCK OPTION PLAN
The Company intends to adopt the 1998 Option Plan which will provide
incentives to officers and other key employees of the Company and will serve to
align their interests with those of stockholders. Under the 1998 Option Plan,
the Board will be authorized to award four different types of non-qualified
stock options: (i) service options, (ii) performance options, (iii) super
performance options and (iv) exit options. It is expected that under the 1998
Option Plan, unless otherwise provided by the Board, service options will vest
and become exercisable in five equal annual installments on each of the first
five anniversaries of the date of grant; performance and super performance
options will vest and become exercisable in annual installments based on the
achievement of annual EBITDA targets of the Company; and exit options will vest
and become exercisable based upon the internal rate of return of Greenwich
Street realized in connection with the disposition of its investment in the
Company. Regardless of the satisfaction of any performance goals, performance
options, super performance options and exit options will fully vest and become
exercisable on the ninth anniversary of the date of grant.
Initially, 25% of the shares of the Company's common stock outstanding
upon completion of the Consent Solicitation, calculated on a fully diluted
basis (estimated to be 7,885 shares of the Company's voting Common Stock
assuming that the total issued and outstanding common stock on a fully diluted
basis were 23,656 shares), will be authorized for issuance under the 1998 Option
Plan. In the event of certain changes in the Company's capital structure
affecting the common stock, the Board of Directors may make appropriate
adjustments in the number of shares then covered by options and, where
applicable, the exercise price of options under the 1998 Option Plan.
The Company anticipates that following the adoption of the 1998 Option
Plan, initial awards will be made. The Company expects that the per share
exercise price of an option will be equal to the per share price
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<PAGE> 66
of Common Stock in the Acquisition. The other terms of the initial awards,
however, have not been determined, including the persons who will be entitled to
participate in the 1998 Option Plan, although it is expected that all members of
senior management will be so entitled.
DAY STOCK OPTION PLAN
Certain employees, including each of the named executive officers, hold
options which were previously granted under the Day International Group, Inc.
Stock Option Plan (the "Day Option Plan"). In connection with the Acquisition,
all options granted under the Day Option Plan were fully vested and the Day
Option Plan was amended to provide that no further options may be awarded under
that plan. The following table sets forth the options of the named executive
officers which were vested in connection with the Acquisition. See also Note H
to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Number of Number of Options Number of Options
NAME Options(a) Previously Vested Vested in the Acquisition
- ---- ---------- ----------------- -------------------------
<S> <C> <C> <C>
Dennis R. Wolters 1,200.00 666.72 533.28
David B. Freimuth 200.00 111.12 88.88
110.00 27.50 82.50
William B. Branson 112.50 62.51 49.99
Michael E. McLean 200.00 111.12 88.88
Dwaine R. Brooks 112.50 62.51 49.99
</TABLE>
- ------------------
(a) All of the options in the table have a per share exercise price of $1,000,
except that 110 of the options of Mr. Freimuth have a per share exercise
price of $1,200.
60
<PAGE> 67
OWNERSHIP OF CAPITAL STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Currently, approximately 85.9% of the Common Stock (on a fully-diluted
basis) is owned by the Investors, and approximately 14.1% of the Common Stock
(on a fully-diluted basis) is owned by the Management Stockholders.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock, including options to acquire
Common Stock, after giving effect to the GSD Liquidation, by (i) each person (or
group of affiliated persons) known by the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock, (ii) each Director, (iii) the
Company's Chief Executive Officer and the Company's other named executive
officers (as determined in accordance with the rules of the Commission), and
(iv) all of the Company's executive officers and Directors as a group. Except as
indicated in the footnotes to this table, the Company believes that the persons
named in this table have sole voting and investment power with respect to all
the shares of stock indicated.
<TABLE>
<CAPTION>
NO. OF SHARES OF % OF
COMMON COMMON
NAME OF BENEFICIAL OWNER STOCK(a)(b) STOCK
- ------------------------ ----------- -----
<S> <C> <C>
Dennis R. Wolters....................................................... 1,500 6.3
David B. Freimuth....................................................... 410 1.7
Michael E. McLean....................................................... 213 0.9
John R. Elia............................................................ 200 0.8
Dwaine R. Brooks........................................................ 137.5 0.6
William B. Branson...................................................... 142.5 0.6
Alfred C. Eckert III(c)................................................. -- --
Christine K. Vanden Beukel(c)........................................... -- --
William C. Ferguson..................................................... -- --
James N. Lane(d)........................................................ -- --
All Directors and Executive Officers as a Group (15 persons)............ 3,324 14.1
SG Capital Partners, LLC(d)............................................. 3,385 14.3
Greenwich IV LLC(c)..................................................... 16,947 71.6
------ -----
Total.............................................................. 20,271 100.0
</TABLE>
- ------------------
(a) Beneficial ownership is determined in accordance with the rules of the
Commission and includes general voting power and/or investment power with
respect to securities. The numbers in this table reflect shares of Common
Stock subject to options and warrants that are currently exercisable or
that shall become exercisable within 60 days of the date of this
Prospectus. As of the date of this Prospectus, the number of such shares
is 2,772.5.
(b) The Shares of Common Stock owned by SG are Class B Non-Voting Common
Stock. All other shares are shares of Class A Voting Common Stock.
(c) Greenwich IV LLC is an affiliate of Greenwich Street. Mr. Eckert and Ms.
Vanden Beukel may be deemed to beneficially own the 16,947 shares of
Common Stock beneficially owned by Greenwich IV LLC by virtue of their
affiliation with Greenwich Street. Mr. Eckert and Ms. Vanden Beukel
disclaim any such beneficial ownership.
(d) Does not include any of the 3,385 shares of the Company's Common Stock
beneficially owned by SG which Mr. Lane may be deemed to beneficially own
by virtue of his affiliation with SG. Mr. Lane disclaims any such
beneficial ownership.
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THE STOCKHOLDERS AGREEMENT
Upon the consummation of the Offerings and the other transactions
described under "The Acquisition and Related Transactions," the GSD Stockholders
Agreement and the Interim Stockholders Agreement were superseded by the
Stockholders Agreement. The Stockholders Agreement provides for the number of
directors of the Board of Directors of the Company to be such number as
designated by Greenwich Street, which initially shall be five, and for the
composition of the Board of Directors of the Company to consist of four
individuals designated by Greenwich Street and, for so long as SG holds 5% of
the outstanding Common Stock, one individual designated by SG.
In the Stockholders Agreement, the Management Stockholders have agreed,
except under certain circumstances, not to transfer shares of Common Stock, or
options to acquire Common Stock, prior to the later to occur of (i) the fifth
anniversary of the date of the Stockholders Agreement and (ii) the consummation
of a public offering. In addition, under the Stockholders Agreement, if a
Management Stockholder's employment is terminated, the Company shall have the
right to purchase all or part of the shares of the Common Stock owned by such
Management Stockholder and the vested options to acquire Common Stock owned by
such Management Stockholder, at prices calculated in accordance with, and
subject to certain other terms and conditions set forth in the Stockholders
Agreement.
The Stockholders Agreement creates certain conventional "drag" and "tag"
rights with respect to the shares of the Common Stock owned by the Management
Stockholders. The Stockholders Agreement also provides that at any time after
the Acquisition Closing Date, Greenwich Street shall have the right to require
the Company to effect up to two registrations of their Common Stock on Form S-1
under the Securities Act and, if available, unlimited registrations on Form S-2
or S-3 under the Securities Act; from and after a public offering, SG shall have
the right to require the Company to effect up to two registrations of the Common
Stock on Form S-2 or S-3 under the Securities Act and that the Company shall pay
all registration expenses in connection with the registration of shares of the
Common Stock pursuant to the Stockholders Agreement.
CERTAIN TRANSACTIONS
The Company has engaged the Investors, pursuant to the Management
Agreement, to provide it with certain business, financial and managerial
advisory services, including developing and implementing corporate and business
strategy and providing other consulting and advisory services. The Management
Agreement provides for an annual fee of $950,000 to be paid to the Investors and
contains indemnification and expense reimbursement provisions which are
customary for management agreements of this type. The Management Agreement will
continue in full force and effect, and shall terminate upon, the earlier to
occur of (i) the tenth anniversary of the date hereof and (ii) the date on which
Greenwich Street Capital Partners, L.P. or its affiliates no longer, directly or
indirectly, own any shares of capital stock of the Company, and may be earlier
terminated by Greenwich Street, in its sole discretion.
Pursuant to their Executive Incentive Bonus Arrangements, Dennis R.
Wolters, David B. Freimuth, William B. Branson and Thomas J. Koenig received
$4,868,750, $2,434,375, $100,000 and $25,000 respectively, upon the consummation
of the Acquisition.
SG owns approximately 3,385 shares of Class B Non-Voting Common Stock
representing 14.3% of the outstanding Common Stock (on a fully-diluted basis).
SG is an affiliate of Societe Generale Securities Corporation (the Initial
Purchaser) and Societe Generale. Societe Generale is the Administrative Agent
and the lender under both the GSD Credit Facility and the Senior Secured Credit
Facility. The Company used the proceeds of the Offerings to repay all amounts
outstanding under the GSD Credit Facility. See "Use of Proceeds" and "Plan of
Distribution."
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<PAGE> 69
DESCRIPTION OF CAPITAL STOCK
In conjunction with the consummation of the Offerings and the transactions
described under "The Acquisition and Related Transactions," the Certificate of
Incorporation of the Company was amended to provide that the Company has the
authority to issue 200,000 shares of the Company's Class A Voting Common Stock,
par value $.01 per share (the "Class A Voting Stock"), 50,000 shares of the
Company's Class B Non-Voting Common Stock, par value $.01 per share (the "Class
B Non-Voting Stock"), and 105,000 shares of the Company's preferred stock, par
value $.01 per share. In conjunction with the consummation of the Offerings and
the transactions described under "The Acquisition and Related Transactions," the
Company has issued and outstanding 17,498.5 shares of Class A Voting Stock,
3,385 shares of Class B Non-Voting Stock and 35,000 shares of preferred stock
consisting of the Exchangeable Preferred Stock.
The following summary of certain provisions of the Common Stock and such
preferred stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Certificate of Incorporation and by
the provisions of applicable law.
Except as otherwise provided below, all shares of Class A Voting Stock and
Class B Non-Voting Stock are identical in all respects and entitle the holders
thereof to the same rights, preferences, privileges, subject to the same
qualifications, limitations and restrictions, as set forth in the Certificate of
Incorporation or otherwise required by law.
Except as otherwise provided herein or as otherwise required by applicable
law, the holders of Class A Voting Stock are entitled to one vote per share on
all matters to be voted on by the Company's stockholders and, except as
otherwise required by law, the holders of Class B Non-Voting Stock have no right
to vote on any matters to be voted on by the Company's stockholders.
In the event of any transfer of shares of Class B Non-Voting Stock to any
person or persons who are not affiliates of the transferor, including, without
limitation, pursuant to any public offering or public sale of securities of the
Company (including a public offering registered under the Securities Act of 1933
and a public sale pursuant to Rule 144 under the Securities Act of 1933 or any
similar rule then in force) (a "Conversion Event"), each holder of Class B
Non-Voting Stock shall be entitled to convert into the same number of shares of
Class A Voting Stock any or all of the shares of such holder's Class B
Non-Voting Stock being sold, distributed or otherwise disposed of or converted
in connection with the occurrence of a Conversion Event.
The Company's preferred stock shall have the voting powers, full or
limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof as shall be stated and expressed in the resolution or
resolutions providing for the issue of such series of preferred stock adopted by
the Board of Directors of the Company. The Exchangeable Preferred Stock that was
offered in the Offerings is a series of the preferred stock issued pursuant to a
Certificate of Designation. See "Description of the Exchangeable Preferred Stock
and Exchange Debentures."
The Certificate of Incorporation of the Company provides that to the
fullest extent permitted by the General Corporation Law of the State of Delaware
(including, without limitation, Section 102(b)(7)), as amended from time to
time, no director shall be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director.
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DESCRIPTION OF CERTAIN SENIOR INDEBTEDNESS
After giving effect to the Offerings and the other transactions described
under "The Acquisition and Related Transactions," the Company's aggregate
indebtedness is approximately $252.5 million (including the Notes), of which
approximately $137.5 million constitutes Senior Indebtedness. Such Senior
Indebtedness includes borrowings of approximately $37.5 million under the Senior
Secured Credit Facility and $100 million principal amount of the 2005 Notes.
THE SENIOR SECURED CREDIT FACILITY
The following is a summary of the principal terms of the credit agreement
governing the Senior Secured Credit Facility and related loan documents (the
"Credit Documentation"). The following summary description does not purport to
be complete and is qualified in its entirety by reference to the Credit
Documentation, copies of which are available from the Company upon request.
General. The Company has entered into a Senior Secured Credit Facility,
dated as of the Acquisition Closing Date, pursuant to which Societe Generale, as
Administrative Agent and as a Bank, has committed to provide the Company with
the Senior Secured Credit Facility in an aggregate principal amount of $60
million. In connection with the consummation of the Acquisition, the Company
borrowed $40 million under the Term Loan Facility and proceeds of this borrowing
were applied towards the financing of the Acquisition. The Company has repaid
$2.5 million of the Term Loan Facility and currently has no borrowings under the
Revolving Credit Facility.
Structure. The Senior Secured Credit Facility provides for (i) a $40
million Term Loan Facility and (ii) a $20 million Revolving Credit Facility,
including a subfacility for swing line loans of up to $1,000,000 ("Swing Line
Loans") and a subfacility for commercial and standby letters of credit of an
aggregate face amount not exceeding $10,000,000.
Availability; Borrowing Base. The Company borrowed $40 million under the
Term Loan Facility on the Acquisition Closing Date. Amounts repaid or prepaid
under the Term Loan Facility may not be reborrowed. The Revolving Credit
Facility is available for borrowings on a revolving basis until January 15,
2003. The availability of the Revolving Credit Facility will be subject to
various conditions precedent typical for bank loans of this type. In addition,
the lenders' commitment to provide credit under the Revolving Credit Facility is
subject to the maintenance by the Company of a borrowing base. At any time,
amounts borrowed under the Revolving Credit Facility may not exceed the sum of
$5 million, 80% of the eligible accounts receivable of the Company and 50% of
the eligible inventory of the Company. The borrowing base will be computed at
least monthly by the Company.
Amortization. The Term Loan Facility is repayable in 19 consecutive
quarterly installments beginning on June 30, 1998 and matures on December 31,
2002. Scheduled repayments of principal under the Term Loan Facility are $2
million in 1998; $5 million in 1999; $8 million in 2000; $11 million in 2001;
and $14 million in 2002. The Revolving Credit Facility is available on a
revolving basis and matures on January 15, 2003.
Repayments and Reduction of Commitments. The Senior Secured Credit
Facility permits the Company to prepay loans and to permanently reduce revolving
credit commitments in minimum amounts equal to $500,000 or a whole multiple of
$100,000 in excess thereof. Partial payments of Swing Line Loans shall be in an
aggregate principal amount of $100,000 or a whole multiple thereof. In addition,
the Company shall be required to make mandatory prepayments with (i) asset sale
proceeds or proceeds from a Recovery Event (as defined in the Senior Secured
Credit Facility), (ii) proceeds from sale of equity or debt securities (with
certain exceptions) and (iii) with 75% of the excess cash flow of the Company
and its subsidiaries for each fiscal year of the Company. All such amounts shall
be applied, first, to the prepayment of the Term Loan Facility and, second, to
reduce permanently commitments under the Revolving Credit Facility. The
Revolving Credit Facility must be prepaid and when there are no loans
outstanding under the Revolving Credit Facility, all outstanding letters of
credit must be cash collateralized to the extent aggregate outstandings at any
time exceed the lesser of the amount of the Revolving Credit Facility or the
borrowing base.
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Security; Guarantees. The obligations of the Company under the Credit
Documentation have been unconditionally guaranteed by Day, and will be
unconditionally guaranteed, jointly and severally, by each subsequently acquired
or organized direct and indirect domestic subsidiary of the Company. The
obligations under the Senior Secured Credit Facility and the guarantees thereof
will be secured by a first priority security interest in substantially all of
the Company's and Day's tangible and intangible assets, including, without
limitation, intellectual property, owned U.S. real property, all of the capital
stock of Day and each of the Company's existing and subsequently acquired or
organized direct and indirect domestic subsidiaries, and 65% of the capital
stock of each of Day's existing and subsequently acquired or organized direct
foreign subsidiaries.
Interest. The interest rates per annum applicable to the loans under the
Senior Secured Credit Facility will be a fluctuating rate of interest measured
by reference, at the Company's election, to either (a) an adjusted London
inter-bank offered rate ("LIBOR"), or (b) an alternate base rate (equal to the
higher of Societe Generale's published prime rate and the Federal Funds
effective rate plus 1/2 of 1% per annum) ("ABR"), plus a borrowing margin. The
applicable margins applicable under both the Term Loan Facility and Revolving
Credit Facility are 1.00% per annum for ABR loans and 2.00% per annum for LIBOR
loans. All of the foregoing margins are subject to reduction based upon the
achievement by the Company of certain financial performance thresholds. Amounts
under the Senior Secured Credit Facility not paid when due bear interest at a
default rate equal to 2.00% per annum above the rate otherwise applicable.
Fees. The Company has agreed to pay the lenders a commitment fee equal to
0.5% per annum, payable quarterly, on the average daily unused portion of the
Revolving Credit Facility. The Company also pays a commission on the face amount
of all outstanding letters of credit at a per annum rate equal to the borrowing
margin applicable to the loans under the Senior Secured Credit Facility then in
effect plus a fronting fee equal to 0.25% per annum, payable quarterly, on the
face amount of each letter of credit. In addition, the Company is required to
pay to the issuing lender customary administrative, issuance, amendment, payment
and negotiation charges. The Company will also pay the agent for the bank
lenders customary loan administration and servicing fees.
Covenants. The Senior Secured Credit Facility contains a number of
negative covenants that, among other things, restrict the ability of the Company
to dispose of assets; incur additional indebtedness; guarantee obligations;
merge, consolidate, liquidate or dissolve; lease property, pay dividends or make
distributions in respect of capital stock; create liens on assets; enter into
sale and leaseback transactions; make investments, loans or advances; change the
business conducted by the Company or its subsidiaries; make capital
expenditures; engage in certain transactions with affiliates; agree to negative
pledge clauses; or cause changes in its fiscal year. The Senior Secured Credit
Facility also contains affirmative covenants that require the Company to provide
certain information to the lenders; to continue its business and maintain its
material rights and privileges; to comply with laws and its material contractual
obligations; to maintain its property and adequate insurance; to maintain
certain books and records; to allow the lenders to inspect its property and
books; and to agree to grant security interest in after-acquired property. The
Company is also required to comply with specified financial covenants and
ratios, including (i) a maximum consolidated debt to consolidated EBITDA ratio,
(ii) a minimum consolidated EBITDA to consolidated interest expense ratio, and
(iii) a minimum consolidated EBITDA to consolidated fixed charges ratio. The
Senior Secured Credit Facility also contains certain provisions that limit the
Company's ability to amend or modify the Indenture and the Company's ability to
prepay or refinance the 2005 Notes, the Notes, or as the case may be, the
Exchangeable Preferred Stock or the Exchange Debentures.
Events of Default. The Senior Secured Credit Facility contains customary
events of default, including nonpayment of principal, interest or fees,
violation of covenants, inaccuracy of representations or warranties in any
material respect, cross default and cross acceleration to certain other
indebtedness, bankruptcy, material judgments and liabilities, the occurrence of
certain ERISA events, failure or invalidity of security or guarantees and change
of control.
Indemnification. The Company has agreed to indemnify Societe Generale, the
lenders and related parties against any loss, liability, cost or expense
incurred in respect of the financing or the use or the proposed use
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<PAGE> 72
of proceeds thereof, except for losses, liability, costs or expenses resulting
from the gross negligence or willful misconduct of the indemnified party or any
or its respective directors, officers, employees and agents.
THE 2005 NOTES
The 2005 Notes were issued pursuant to the 2005 Indenture between the
Company and American National Bank Association, as trustee. In connection with
the Acquisition and the related transactions, the Company sought the consent of
the registered holders of the 2005 Notes, among other things, (i) to permit the
Company to assume GSD's indebtedness under the GSD Credit Facility, (ii) to
permit the Company, immediately thereafter, to refinance such assumed
indebtedness through the issuance of the Securities and the application of the
proceeds of the Offerings, and (iii) to eliminate all of the applicable
provisions of the 2005 Indenture that subordinate the 2005 Notes in right of
payment to any senior indebtedness of the Company. Adoption of the Proposed
Amendments required the consent of the registered holders of at least a majority
in principal amount of the 2005 Notes outstanding. The receipt of the Requisite
Consents was a condition to (a) the assumption by the Company of GSD's
indebtedness under the GSD Credit Facility and (b) the purchase of the
Securities by the Initial Purchaser and the consummation of the Offerings. See
"The Acquisition and Related Transactions." The following is a summary of the
principal terms of the 2005 Notes and 2005 Indenture, after giving effect to the
Proposed Amendments. The following summary description does not purport to be
complete and is qualified in its entirety by reference to the 2005 Indenture,
which sets forth the principal terms and conditions of the 2005 Notes, a copy of
which is available from the Company upon request.
General; Interest. The 2005 Notes, issued in 1995 in the principal amount
of $100 million, will mature on June 1, 2005. The 2005 Notes bear interest at a
rate of 11 1/8% per annum, and interest is payable semi-annually in arrears on
June 1 and December 1 of each year. The Company is not required to make
mandatory or sinking fund payments with respect to the 2005 Notes.
Except as described below, the Company may not redeem the 2005 Notes prior
to June 1, 2000. On or after such date, the Company may redeem the 2005 Notes,
in whole or in part, at the following redemption prices (expressed as
percentages of principal amounts), together with accrued and unpaid interest, if
any, to the date of redemption: until June 1, 2001, 104.944%; until June 1,
2002, 103.708%; until June 1, 2003, 102.472%; until June 1, 2004, 101.236%; and
thereafter, 100.0%. In addition, at any time on or prior to June 1998, the
Company may, subject to certain requirements, redeem up to 33 1/3% of the
original aggregate principal amount of the 2005 Notes, in whole or in part, with
the net cash proceeds of one or more public equity offerings at prices equal 110
1/8% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of redemption, provided that at least 66 2/3% of the
aggregate principal amount of the 2005 Notes originally issued remains
outstanding after such redemption.
Upon the occurrence of a Change of Control, the Company will be required
to make an offer to purchase all of the 2005 Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase. In addition, the Company may under certain circumstances be
required to make an offer to purchase all or a part of the 2005 Notes in the
event cash proceeds from a sale of assets by the Company outside the ordinary
course exceed certain thresholds.
The 2005 Notes are fully and unconditionally guaranteed on an unsecured,
senior basis by Day. The 2005 Notes are unsecured and rank pari passu in right
of payment with all existing and future Senior Indebtedness of the Company,
including indebtedness under the Senior Secured Credit Facility, and rank senior
to all existing and future Senior Subordinated Indebtedness of the Company,
including the Notes, and all other subordinated indebtedness of the Company.
Since the 2005 Notes are unsecured, they are effectively subordinated to all
existing and future secured indebtedness of the Company and its subsidiaries to
the extent of the value of the assets securing such indebtedness. The guarantee
granted by Day in favor of the holders of the 2005 Notes is a general unsecured
obligation of Day, subordinated in right of payment to any secured senior
indebtedness of Day.
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The 2005 Indenture contains certain covenants which, among other things,
limits the ability of the Company and its subsidiaries (i) to incur additional
indebtedness and issue preferred stock, (ii) to pay dividends or make other
distributions, (iii) to repurchase equity interests or subordinated
indebtedness, (iv) to create certain liens, (v) to enter into transactions with
affiliates and (vi) to enter into certain mergers, to transfer all or
substantially all of its assets or to enter into certain consolidations. All of
these limitations and prohibitions are subject to a number of important
qualifications and exceptions.
THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement, and a copy of which is available as set
forth under the heading "Available Information."
TERMS OF THE EXCHANGE OFFER
General
In connection with the issuance of the Existing Securities pursuant to a
Purchase Agreement, dated as of March 18, 1998 between the Company and the
Initial Purchaser (the "Purchase Agreement"), the Initial Purchaser and its
assignees became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company has agreed (i) to
file with the Commission within 60 days after March 18, 1998, the date the
Existing Securities were issued (the "Issue Date"), the Registration Statement
of which this Prospectus is a part with respect to a registered offer to
exchange the Existing Securities for the New Securities, (ii) to use its
reasonable best efforts to cause the Registration Statement to be declared
effective under the Securities Act within 150 days after the Issue Date and
(iii) to use its reasonable best efforts to consummate the Exchange Offer within
165 calendar days after the Issue Date. The Company will keep the Exchange Offer
open for not less than 30 days after the date notice of the Exchange Offer is
mailed to holders of the Existing Securities. The Exchange Offer being made
hereby, if commenced and consummated within the time periods described in this
paragraph, will satisfy those requirements under the Registration Rights
Agreement.
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, all Existing Securities validly
tendered and not withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date will be accepted for exchange. New Notes will be issued in
exchange for an equal principal amount of outstanding Existing Notes in the case
of Notes and shares of New Exchangeable Preferred Stock will be issued in
exchange for an equal number of shares of outstanding Existing Exchangeable
Preferred Stock in the case of Exchangeable Preferred Stock, in each case
accepted in the Exchange Offer. Existing Securities may be tendered only in
integral multiples of $1,000. This Prospectus, together with the Letter of
Transmittal, is being sent to all registered holders as of ________, 1998. The
Exchange Offer is not conditioned upon any minimum principal amount of Existing
Notes or minimum number of shares of Existing Exchangeable Preferred Stock being
tendered for exchange. However, the obligation to accept Existing Notes or
Existing Exchangeable Preferred Stock for exchange pursuant to the Exchange
Offer is subject to certain conditions as set forth herein under "--Conditions."
Existing Securities shall be deemed to have been accepted as validly
tendered when, as and if the Company has given oral or written notice thereof to
the Exchange Agents. The Exchange Agents will act as agents for the tendering
holders of Existing Securities for the purposes of receiving the New Securities
and delivering New Securities to such holders.
Based on interpretations by the Staff of the Commission as set forth in
no-action letters issued to third parties in other transactions (including Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co.
Incorporated (available June 5, 1991), K-III Communications Corporation
(available
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<PAGE> 74
May 14, 1993) and Shearman & Sterling (available July 2, 1993)), the Company
believes that the New Securities issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by any holder thereof
(other than any such holder that is a broker-dealer or an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that (i) such New Securities are acquired in the
ordinary course of business, (ii) at the time of the commencement of the
Exchange Offer such holder has no arrangement with any person to participate in
a distribution of such New Securities and (iii) such holder is not engaged in,
and does not intend to engage in, a distribution of such New Securities. The
Company has not sought, and does not intend to seek, a no-action letter from the
Commission with respect to the effects of the Exchange Offer, and there can be
no assurance that the Staff would make a similar determination with respect to
the New Notes or the New Exchangeable Preferred Stock as it has in such
no-action letters.
By tendering Existing Securities in exchange for New Securities and by
executing the Letter of Transmittal, each holder will represent to the Company
that: (i) it is not an affiliate of the Company, (ii) any New Securities to be
received by it will be acquired in the ordinary course of business and (iii) at
the time of the commencement of the Exchange Offer it had no arrangement with
any person to participate in a distribution of the New Securities and, if such
holder is not a broker-dealer, it is not engaged in, and does not intend to
engage in, a distribution of New Securities. If a holder of Existing Securities
is unable to make the foregoing representations, such holder may not rely on the
applicable interpretations of the Staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction unless such sale is made
pursuant to an exemption from such requirements.
Each broker-dealer that receives New Securities for its own account in
exchange for Existing Securities where such Existing Securities were acquired by
such broker-dealer as a result of market-making or other trading activities,
must acknowledge that it will deliver a prospectus meeting the requirements of
the Securities Act and that it has not entered into any arrangement or
understanding with the Company or an affiliate of the Company to distribute the
New Securities in connection with any resale of such New Securities. See "Plan
of Distribution."
Upon consummation of the Exchange Offer, subject to certain limited
exceptions, holders of Existing Securities who do not exchange their Existing
Securities for New Securities in the Exchange Offer will no longer be entitled
to registration rights and will not be able to offer or sell their Existing
Securities, unless such Existing Securities are subsequently registered under
the Securities Act (which, subject to certain limited exceptions, the Company
will have no obligation to do), except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws.
Holders of the Existing Exchangeable Preferred Stock do not have any
appraisal or dissenters' rights under the General Corporation Law of Delaware or
the Certificate of Designation for the Existing Exchangeable Preferred Stock in
connection with the Exchange Offer. The Company intends to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of Commission thereunder.
Expiration Date; Extensions; Amendments; Termination
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 (30 calendar days following the commencement of the Exchange Offer),
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the term "Expiration Date" shall mean the latest date to which the Exchange
Offer is extended. Notwithstanding any extension of the Exchange Offer, if the
Exchange Offer is not consummated by , 1998, the Company must pay liquidated
damages until the Exchange Offer is consummated, in an amount equal to $.05 per
week per $1,000 of principal amount or $1,000 of liquidation preference, as the
case may be, for the first 90-day period following _____ __, 1998, and after
such 90 day period, an additional $.05 per week per $1,000 of principal amount
or $1,000 of liquidation preference, as the case may be. The maximum liquidated
damages shall be $.30 per week per $1,000 aggregate principal amount or $1,000
aggregate liquidation preference, as the case may be.
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To extend the Expiration Date, the Company will notify each Exchange
Agent of any extension by oral or written notice and will notify the holders of
the Existing Securities by means of a press release or other public announcement
prior to 9:00 A.M., New York City time, on the next business day after the
previously scheduled Expiration Date. Such announcement may state that the
Company is extending the Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Existing
Securities, to extend the Exchange Offer or to terminate the Exchange Offer and
not permit acceptance of Existing Securities not previously accepted if any of
the conditions set forth herein under "--Conditions" shall have occurred and
shall not have been waived by the Company, by giving oral or written notice of
such delay, extension or termination to each Exchange Agent, or (ii) to amend
the terms of the Exchange Offer in any manner. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to each Exchange Agent. If the Exchange Offer
is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment in a manner reasonably
calculated to inform the holders of the Existing Securities of such amendment.
Without limiting the manner in which the Company may choose to make
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligations to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE NEW NOTES
The New Notes will accrue interest at the rate of 9 1/2% per annum from
the Issue Date of the Existing Notes. Interest on the New Notes is payable on
March 15 and September 15 of each year, commencing September 15, 1998.
DIVIDENDS ON THE NEW EXCHANGEABLE PREFERRED STOCK
All dividends of the New Exchangeable Preferred Stock will be cumulative
from the Issue Date of the Existing Exchangeable Preferred Stock. Dividends will
be payable quarterly in arrears on March 15, June 15, September 15, and December
15 of each year, commencing on June 15, 1998. Each share of New Exchangeable
Preferred Stock will have a liquidation preference of $1,000 per share. On or
before March 15, 2003, the Company may, at its option, pay dividends in cash or
in additional fully-paid and non-assessable shares of Exchangeable Preferred
Stock having an aggregate liquidation preference equal to the amount of such
dividends. Thereafter, dividends may be paid in cash only. It is not expected
that the Company will pay any dividends in cash for the period ending on or
prior to March 15, 2003. On any scheduled dividend payment date, the Company
may, at its option, but subject to certain conditions, exchange all but not less
than all of the shares of the New Exchangeable Preferred Stock for Exchange
Debentures.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with any other
required documents, to the Noteholders' Exchange Agent or the Exchangeable
Preferred Stock Exchange Agent, as the case may be, prior to 5:00 p.m., New York
City time, on the Expiration Date. In addition, either (i) a timely confirmation
of a book-entry transfer (a "Book-Entry Confirmation") of such Existing
Securities into the appropriate Exchange Agent's account at The Depository Trust
Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below, must be received by the Noteholders'
Exchange Agent or the Exchangeable Preferred Stock Exchange Agent, as the case
may be, prior to the Expiration Date or (ii) the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF
LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
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DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OTHER REQUIRED DOCUMENTS
SHOULD BE SENT TO THE COMPANY. Delivery of all documents must be made to the
Noteholders' Exchange Agent or the Exchangeable Preferred Stock Exchange Agent,
as the case may be, at its address set forth below. Holders may also request
their respective brokers, dealers, commercial banks, trust companies or nominees
to effect such tender for such holders.
The tender by a holder of Existing Securities will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal. Any
beneficial owner whose Existing Securities are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution") unless the
Existing Securities tendered pursuant thereto are tendered for the account of an
Eligible Institution.
If the Letter of Transmittal is signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such person should so indicate
when signing, and unless waived by the Company, evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) acceptance and withdrawal of the tendered Existing Securities will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Existing Securities not properly tendered or any Existing Securities which, if
accepted, would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the absolute right to waive any irregularities or
conditions of tender as to particular Existing Securities. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Existing Securities must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agents nor any other person shall
be under any duty to give notification of defects or irregularities with respect
to tenders of Existing Securities, nor shall any of them incur any liability for
failure to give such notification. Tenders of Existing Securities will not be
deemed to have been made until such irregularities have been cured or waived.
Any Existing Securities received by the Exchange Agents that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned without cost to such holder by the Noteholders' Exchange
Agent or the Exchangeable Preferred Stock Exchange Agent, as the case may be,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion,
subject to the provisions of the Indenture and the Certificate of Designation,
(i) to purchase or make offers for any Existing Securities that remains
outstanding subsequent to the Expiration Date or, as set forth under
"--Conditions," (ii) to terminate the Exchange Offer in accordance with the
terms of the Registration Rights Agreement, (iii) to redeem Existing Notes or
Existing Exchangeable Preferred Stock as a whole or in part at any time and from
time to time, as set forth, with respect to the Existing Notes, under
"Description of the Notes--Optional Redemption" and, with respect to the
Existing Exchangeable Preferred Stock, under "Description of the Exchangeable
Preferred Stock and Exchange Debentures --Optional Redemption" and (iv) to the
extent permitted by applicable law, to purchase Existing Notes or Existing
Exchangeable Preferred Stock in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
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ACCEPTANCE OF EXISTING SECURITIES FOR EXCHANGE; DELIVERY OF NEW SECURITIES.
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, all Existing Securities properly tendered will be accepted promptly after
the Expiration Date, and the New Securities will be issued promptly after
acceptance of the Existing Securities. See "--Conditions." For purposes of the
Exchange Offer, Existing Securities shall be deemed to have been accepted as
validly tendered for exchange when, as and if the Company has given oral or
written notice thereof to the Noteholders' Exchange Agent or the Exchangeable
Preferred Stock Exchange Agent, as the case may be.
In all cases, issuances of New Securities for Existing Securities that
are accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Noteholders' Exchange Agent or the Exchangeable Preferred
Stock Exchange Agent, as the case may be, of a Book-Entry Confirmation of such
Existing Securities into the appropriate Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing
Securities are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer, such unaccepted or such nonexchanged Existing Securities
will be credited to an account maintained with such Book-Entry Transfer Facility
as promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agents will make a request to establish accounts with
respect to the Existing Notes and the Existing Exchangeable Preferred Stock at
the Book-Entry Transfer Facility for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Existing Securities by causing the Book-Entry Transfer
Facility to transfer such Existing Securities into the appropriate Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, the Letter of
Transmittal or facsimile thereof with any required signature guarantees and any
other required documents must, in any case, be transmitted to and received by
the appropriate Exchange Agent or the Exchangeable Preferred Stock Exchange
Agent, as the case may be, at its respective address set forth below under
"--Exchange Agents" on or prior to the Expiration Date or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
EXCHANGING BOOK-ENTRY NOTES AND EXCHANGEABLE PREFERRED STOCK
The Exchange Agents and the Book Entry Transfer Facility have confirmed
that any financial institution that is a participant in the Book Entry Transfer
Facility may utilize the Book-Entry Transfer Facility Automated Tender Offer
Program ("ATOP") procedures to tender Existing Securities.
Any participant in the Book Entry Transfer may make book-entry delivery
of Existing Securities by causing the Book Entry Transfer Facility to transfer
such Existing Securities into the Exchange Agent's relevant account in
accordance with the Book Entry Transfer Facility's ATOP procedures for transfer.
However, the exchange for the Existing Securities so tendered will only be made
after a Book-Entry Confirmation of such book-entry transfer of Existing
Securities into the Exchange Agent's relevant account, and timely receipt by the
Noteholders' Exchange Agent or the Exchangeable Preferred Stock Exchange Agent,
as the case may be, of an Agent's Message (as such term is defined in the next
sentence) and any other documents required by the Letter of Transmittal. The
term "Agent's Message" means a message, transmitted by the Book Entry Transfer
Facility and received by the Noteholders' Exchange Agent or the Exchangeable
Preferred Stock Exchange Agent, as the case may be, and forming part of a
Book-Entry Confirmation, which states that the Book Entry Transfer Facility has
received an express acknowledgment from a participant tendering Existing
Securities that are the subject of such Book-Entry Confirmation that such
participant has received and agrees to be bound by the terms of the Letter of
Transmittal, and that the Company may enforce such agreement against such
participant.
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GUARANTEED DELIVERY PROCEDURES
If the procedures for book-entry transfer cannot be completed on a
timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Noteholders'
Exchange Agent or the Exchangeable Preferred Stock Exchange Agent, as the case
may be, receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by facsimile
transmission, mail or hand delivery), setting forth the name and address of the
holder of Existing Notes or Existing Exchangeable Preferred Stock and the amount
of Existing Securities tendered, stating that the tender is being made thereby
and guaranteeing that within three New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, a Book-Entry
Confirmation and any other documents required by the Letter of Transmittal will
be deposited by the Eligible Institution with the appropriate Exchange Agent and
(iii) a Book-Entry Confirmation and all other documents required by the Letter
of Transmittal are received by the appropriate Exchange Agent within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Existing Securities may be withdrawn at any time prior to
5:00 p.m., New York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Noteholders' Exchange Agent or the Exchangeable Preferred Stock
Exchange Agent, as the case may be, prior to the Expiration Date at its
respective address set forth below under "--Exchange Agents." Any such notice of
withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility from which the Existing Securities were tendered, identify the
principal amount of the Existing Securities to be withdrawn, and specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Existing Securities and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notice will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Existing Securities so withdrawn will be deemed not be have been validly
tendered for exchange for purposes of the Exchange Offer. Any Existing
Securities which have been tendered for exchange but which are not exchanged for
any reason will be credited to an account maintained with such Book-Entry
Transfer Facility for the Existing Notes and the Existing Exchangeable Preferred
Stock as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Securities may be
retendered by following one of the procedures described under "--Procedures for
Tendering" and "--Book-Entry Transfer" above at any time on or prior to the
Expiration Date.
CONDITIONS
The Company has no obligation to consummate the Exchange Offer if:
(i) the New Securities to be received by such holder or holders
of Existing Securities in the Exchange Offer, upon receipt, will not be
tradable by such holder without restriction under the Securities Act and
the Exchange Act and without material restrictions under the "blue sky"
or securities laws of the several states of the United States; or
(ii) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the
Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer or materially impair the contemplated benefits of the
Exchange Offer to the Company, or any material adverse development has
occurred in any existing action or proceeding with respect to the
Company or any of its subsidiaries; or
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(iii) any change, or any development involving a prospective
change, in the business or financial affairs of the Company or any of
its subsidiaries has occurred which, in the sole judgment of the
Company, might materially impair the ability of the Company to proceed
with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company; or
(iv) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(v) any governmental approval has not been obtained, which
approval the Company shall, in its sole discretion, deem necessary for
the consummation of the Exchange Offer as contemplated hereby.
EXCHANGE AGENTS
The Bank of New York has been appointed as the Noteholders' Exchange
Agent and the Exchangeable Preferred Stock Exchange Agent for the Exchange
Offer. Questions and requests for assistance and requests for additional copies
of this Prospectus or of the Letter of Transmittal should be directed to the
Exchange Agents addressed as follows: ||
By Mail: By Hand to 4:30pm:
Telephone:
Facsimile:
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will
be borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and regular
employees of the Company.
The Company will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agents reasonable and customary fees for their services and
will reimburse the Exchange Agents for their reasonable out-of-pocket expenses
in connection therewith. The Company may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of the Prospectus and related documents to
the beneficial owners of the Existing Securities, and in handling or forwarding
tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, including fees and expenses of the Exchange Agents and
Trustee and accounting, legal, printing and related fees and expenses.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Existing Securities pursuant to the Exchange Offer. If, however, New
Notes or Existing Notes or New Exchangeable Preferred Stock or Existing
Exchangeable Preferred Stock for principal amounts or liquidation preferences,
as the case may be, not tendered or accepted for exchange are to be registered
or issued in the name of any person other than the registered holder of the
Existing Securities tendered, or if tendered Existing Securities are registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Existing Notes or Securities pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom
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is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Existing Securities who do not exchange their Existing Notes
or Existing Exchangeable Preferred Stock for New Securities pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Existing Securities as set forth in such applicable legend set forth
thereon as a consequence of the issuance of the Existing Securities pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Securities may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Existing Securities under the Securities Act. To the extent that Existing
Securities are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Existing Securities could be
adversely affected.
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DESCRIPTION OF THE NOTES
GENERAL
The Existing Notes were issued, and the New Notes offered hereby will be
issued, under an Indenture, dated March 18, 1998 (the "Indenture"), between the
Company, Day International, Inc., as Note Guarantor, and The Bank of New York,
as Trustee (the "Trustee"), a copy of which has been filed with this
Registration Statement and is on file with the Commission and is available upon
request to the Company.
The following summary of certain provisions of the Indenture and the
Notes is a description of such provisions after giving effect to the
consummation of the transactions. Such summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
provisions of the Indenture, including the definitions of certain terms therein
and those terms to be made a part thereof by the Trust Indenture Act of 1939, as
amended ("TIA"). The Indenture is filed as an Exhibit to the Registration
Statement of which the Prospectus forms a part and is available, upon request,
from the Company. The term "Company" and the other capitalized terms defined in
"-- Certain Definitions" below are used in this "Description of the Notes" as so
defined.
Principal of, and premium, if any, and interest on, the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in the Borough of Manhattan, The City of New York (which
initially shall be the principal corporate trust office of the Trustee, at The
Bank of New York, 101 Barclay Street, New York, New York 10286), except that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the registered holders of the Notes as such address appears in
the Note Register.
The Notes will be unsecured obligations of the Company, ranking
subordinate in right of payment to all Senior Indebtedness of the Company.
The Notes will be issued only in fully registered form, without coupons,
in denominations of $1,000 and any integral multiple of $1,000. No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be limited to $115.0 million aggregate principal amount,
and will mature on March 15, 2008. Each Note will bear interest at a rate per
annum shown on the front cover of this Prospectus from the date of issuance, or
from the most recent date to which interest has been paid or provided for,
payable semiannually in cash to Holders of record at the close of business on
the March 1 or September 1 immediately preceding the interest payment date on
March 15 and September 15 of each year, commencing September 15, 1998.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in
part, and from time to time on and after March 15, 2003 and prior to maturity,
upon not less than 30 nor more than 60 days' prior notice mailed by first-class
mail to each Holder's registered address, at the following redemption prices
(expressed as a percentage of principal amount), plus accrued interest, if any,
to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on March 15 of the
years set forth below:
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<TABLE>
<CAPTION>
Redemption
Price
PERIOD ------------
- ------
<S> <C>
2003........................................................ 104.750%
2004........................................................ 103.167%
2005........................................................ 101.583%
2006 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem in the aggregate up to 33 1/3% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 109.5% plus accrued
interest, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 66 2/3% of the original
aggregate principal amount of the Notes must remain outstanding after each such
redemption.
At any time on or prior to March 15, 2003, the Notes may also be
redeemed as a whole at the option of the Company upon the occurrence of a Change
of Control, upon not less than 30 nor more than 60 days' prior notice (but in no
event more than 180 days after the occurrence of such Change of Control) mailed
by first-class mail to each Holder's registered address, at a redemption price
equal to 100% of the principal amount thereof plus the Applicable Premium as of,
and accrued but unpaid interest, if any, to, the date of redemption (the
"Redemption Date") (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date).
In addition, as more fully described under "Change of Control," each
Holder will have the right to require the Company to repurchase all or any part
of such Holder's Notes following a Change of Control at a purchase price in cash
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of repurchase.
SELECTION
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the notice
of redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will be unsecured Senior
Subordinated Indebtedness of the Company, will be subordinated in right of
payment, as set forth in the Indenture, to the payment when due of all existing
and future Senior Indebtedness of the Company, including the Company's
obligations under the Senior Secured Credit Facility and the 2005 Notes, will
rank pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company and will be senior in right of payment
to all existing and future Subordinated Obligations of the Company. The Notes
will also be effectively subordinated to any Secured Indebtedness of the Company
and its Subsidiaries to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "-- Defeasance" below
is not subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
At December 31, 1997, on a pro forma basis after giving effect to the
Acquisition and related transactions, the outstanding Senior Indebtedness of the
Company would have been approximately $140.5 million
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(exclusive of unused commitments), $40.5 million of which would have been
Secured Indebtedness and there would have been no Senior Subordinated
Indebtedness (other than the indebtedness represented by the Notes). Although
the Indenture contains limitations on the amount of additional Indebtedness
which the Company may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness or Secured Indebtedness. See "Risk Factors -- Substantial
Leverage," "The Acquisition and Related Transactions" and "-- Certain Covenants
- -- Limitation on Indebtedness" below.
Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred shareholders (if any) of such Subsidiaries
will have priority with respect to the assets and earnings of such Subsidiaries
over the claims of creditors of the Company, including holders of the Notes. The
Notes, therefore, will be effectively subordinated to creditors (including trade
creditors) and preferred shareholders (if any) of Subsidiaries of the Company,
other than any such Subsidiary that may become a Note Guarantor in the future.
See "-- Note Guarantees" below. Although the Indenture limits the Incurrence of
Indebtedness (including preferred stock) by certain of the Company's
Subsidiaries, such limitation is subject to a number of significant
qualifications.
"Senior Indebtedness" means the following obligations, whether
outstanding on the date of the Indenture or thereafter issued, without
duplication: (i) all obligations consisting of Bank Indebtedness; (ii) all
obligations relating to the 2005 Notes; and (iii) all obligations consisting of
the principal of and premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company regardless of whether post-filing
interest is allowed in such proceeding) on, and fees and other amounts owing in
respect of, all other Indebtedness of the Company, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is expressly provided that the obligations in respect of such Indebtedness are
not senior in right of payment to the Notes; provided, however, that Senior
Indebtedness shall not include (1) any obligation of the Company to any
Subsidiary, (2) any liability for Federal, state, foreign, local or other taxes
owed or owing by the Company, (3) any accounts payable or other liability to
trade creditors arising in the ordinary course of business (including Guarantees
thereof or instruments evidencing such liabilities), (4) any Indebtedness of the
Company (or Guarantee by the Company of any Indebtedness) that is expressly
subordinate in right of payment to any other Indebtedness of the Company (or
Guarantee by the Company of any Indebtedness) or (5) any Capital Stock. If any
Designated Senior Indebtedness is disallowed, avoided or subordinated pursuant
to the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Designated Senior Indebtedness
nevertheless will constitute Senior Indebtedness.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is expressly
subordinate in right of payment to Senior Indebtedness unless such Indebtedness
is Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is not
deemed to be subordinate or junior to Secured Indebtedness merely because it is
unsecured, and Indebtedness that is not guaranteed by a particular Person is not
deemed to be subordinate or junior to Indebtedness that is so guaranteed merely
because it is not so guaranteed.
The Company may not pay principal of, or premium (if any) or interest
on, the Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not otherwise purchase, redeem or otherwise retire any
Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due in cash or Cash Equivalents or (ii) any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated
in accordance with its terms unless, in either case, (x) the default has been
cured or waived and any such acceleration has been rescinded in writing or (y)
such Senior Indebtedness has been paid in full in cash or Cash Equivalents.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of each Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing.
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In addition, during the continuance of any default (other than a default
described in clause (i) or (ii) of the first sentence of the immediately
preceding paragraph) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Notes for a period (a "Payment Blockage Period") commencing upon the receipt by
the Trustee (with a copy to the Company) of written notice (a "Blockage Notice")
of such default from the Representative of each Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter (or earlier if such Payment Blockage Period is terminated (i) by
written notice to the Trustee and the Company from the Person or Persons who
gave such Blockage Notice, (ii) because such Designated Senior Indebtedness has
been discharged or repaid in full or (iii) because the default giving rise to
such Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of the immediately preceding paragraph), unless
the holders of such Designated Senior Indebtedness or the Representative of such
holders have accelerated the maturity of such Designated Senior Indebtedness,
the Company may resume payments on the Notes after the end of such Payment
Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period. However, if any Blockage
Notice within such 360-day period is given by or on behalf of any holders of
Designated Senior Indebtedness other than Bank Indebtedness, a Representative of
Bank Indebtedness may give another Blockage Notice within such period. In no
event, however, may the total number of days during which any Payment Blockage
Period or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period.
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company or its
property, the holders of Senior Indebtedness will be entitled to receive payment
in full of the Senior Indebtedness before the Noteholders are entitled to
receive any payment and until the Senior Indebtedness is paid in full, any
payment or distribution to which Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of the Senior
Indebtedness as their interests may appear. If a distribution is made to
Noteholders that due to the subordination provisions should not have been made
to them, such Noteholders are required to hold it in trust for the holders of
Senior Indebtedness and pay it over to them as their interests may appear.
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness or the Representative of such holders of the acceleration.
The Company may not pay the Notes until five Business Days after such holders or
the Representative of each Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Indenture,
in the event of insolvency, (i) creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than the Noteholders, and (ii)
trade creditors of the Company who are not holders of Senior Indebtedness or of
Senior Subordinated Indebtedness (including the Notes) may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the holders of Senior Subordinated Indebtedness. In addition, as described
above, the Notes will be effectively subordinated to the claims of creditors of
the Company's Subsidiaries.
NOTE GUARANTEES
On the Issue Date, the Company's only Domestic Subsidiary, Day
International, Inc., was a party to the Indenture and guaranteed the Notes
pursuant thereto on an unsecured, senior subordinated basis. After the Issue
Date, the Company may cause any Restricted Subsidiary, and will cause each newly
acquired or created Domestic Subsidiary that is a Significant Subsidiary (each,
a "Note Guarantor"), to execute and deliver to the Trustee a supplemental
indenture pursuant to which such Subsidiary will guarantee (each, a "Note
Guarantee") payment of the Notes. Each such Note Guarantor as primary obligor
and not merely as surety, will jointly and
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severally, irrevocably and fully and unconditionally Guarantee, on a senior
subordinated basis, the performance and punctual payment when due, whether at
Stated Maturity, by acceleration or otherwise, of all obligations of the Company
under the Indenture and the Notes, whether for principal of or interest on the
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by such Note Guarantors being herein called the "Guaranteed Obligations"). Such
Note Guarantors will agree to pay, in addition to the amount stated above, any
and all expenses (including reasonable counsel fees and expenses) incurred by
the Trustee or the Holders in enforcing any rights under the Note Guarantees.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each such Note Guarantee shall be a continuing Guarantee and shall (i)
remain in full force and effect until payment in full of the principal amount of
all outstanding Notes (whether by payment at maturity, purchase, redemption,
defeasance, retirement or other acquisition) and all other Guaranteed
Obligations then due and owing, unless earlier terminated as described below,
(ii) be binding upon such Note Guarantor and (iii) inure to the benefit of and
be enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
The Indenture provides that, subject to the provisions described in the
next succeeding paragraph, no Note Guarantor may consolidate or merge with or
into (whether or not such Note Guarantor is the surviving Person) another Person
unless (i) the Person formed by or surviving any such consolidation or merger
(if other than a Note Guarantor or the Company) assumes all the obligations of
such Note Guarantor under the Note Guarantee and the Indenture pursuant to a
supplemental indenture, in form reasonably satisfactory to the Trustee, and (ii)
if such merger or consolidation is with a Person other than the Company or a
Restricted Subsidiary, (x) immediately after such transaction, no Default or
Event of Default exists and (y) the Company will, at the time of such
transaction after giving pro forma effect thereto, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) under "Certain
Covenants -- Limitation on Indebtedness."
Notwithstanding the preceding paragraph, concurrently with any sale or
disposition (by merger or otherwise) of any Note Guarantor in accordance with
the terms of the Indenture (including the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets") by the Company or a Restricted
Subsidiary to any Person that is not an Affiliate of the Company, such Note
Guarantor will automatically and unconditionally be released from all
obligations under its Note Guarantee; provided, however, that any such release
shall occur only to the extent that all obligations of such Note Guarantor
under, and all of its guarantees of, and all of its pledges of assets or other
security interests which secure, any Bank Indebtedness of the Company shall also
terminate upon such release, sale or transfer (other than with respect to any
such Indebtedness that is assumed by any Person that is not an Affiliate of the
Company).
In addition, any Note Guarantee of any Note Guarantor will be
automatically and unconditionally released and discharged upon the merger or
consolidation of such Note Guarantor with and into the Company or another Note
Guarantor that is the surviving Person in such merger or consolidation.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the date of repurchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date); provided, however, that notwithstanding the occurrence of a Change of
Control, the Company shall not be obligated to purchase the Notes pursuant to
this covenant in the event that it has exercised its right to redeem all of the
Notes as described under "Optional Redemption":
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(i) prior to the first public offering of Voting Stock of the
Company, either (x) Permitted Holders cease to be the
"beneficial owner" or "beneficial owners" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 35% of the total voting power of the
Voting Stock of the Company, or (y) Permitted Holders cease to
be entitled by voting power, contract or otherwise to elect or
cause the election of directors of the Company having a
majority of the total voting power of the Board of Directors,
in each case, whether as a result of issuance of securities of
the Company, any merger, consolidation, liquidation or
dissolution of the Company, any direct or indirect transfer of
securities by any Permitted Holder or otherwise (for purposes
of this clause (i) and clause (ii) below, Permitted Holders
shall be deemed to beneficially own any Voting Stock of an
entity (the "specified entity" held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially
own (as so defined), directly or indirectly, a majority of the
Voting Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the
Company, any "Person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as
defined in clause (i) above, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire within one year),
directly or indirectly, of more than 35% of the Voting Stock
of the Company, provided that the Permitted Holders
beneficially own (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the Voting
Stock of the Company than such other Person and do not have
the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of
Directors; or
(iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of
Directors (together with any new directors whose election by
such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a vote of a
majority of the directors of the Company then still in office
who were either directors at the beginning of such period or
whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the
Board of Directors then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Notes pursuant to this
covenant, then prior to the mailing of the notice to Holders provided for in the
immediately following paragraph but in any event within 30 days following any
Change of Control (unless the Company has exercised its right to redeem all the
Notes as described under "Optional Redemption"), the Company shall (i) repay in
full all Bank Indebtedness or offer to repay in full all Bank Indebtedness and
repay the Bank Indebtedness of each lender who has accepted such offer or (ii)
obtain the requisite consent under the agreements governing the Bank
Indebtedness to permit the repurchase of the Notes as provided for in the
immediately following paragraph.
Unless the Company has exercised its right to redeem all the Notes as
described under "Optional Redemption," the Company shall, within 30 days
following any Change of Control (or at the Company's option, prior to such
Change of Control but after the public announcement thereof), mail a notice to
each Holder with a copy to the Trustee stating: (1) that a Change of Control has
occurred or will occur and that such Holder has (or upon such occurrence will
have) the right to require the Company to purchase such Holder's Notes at a
purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date); (2) the circumstances and relevant facts and financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor later than 60 days from the date such
notice is mailed); (4) the instructions determined by the Company, consistent
with this covenant, that a Holder must follow in order to have its Notes
purchased; and (5) that, if such Offer is made prior to such Change of Control,
payment is conditioned on the occurrence of such Change of Control.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions
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of this covenant, the Company will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations under
this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchaser. The Company has no present plans
to engage in a transaction involving a Change of Control, although it is
possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under
the Senior Credit Agreement. Future Senior Indebtedness of the Company may
contain prohibitions of certain events which would constitute a Change of
Control or require such Senior Indebtedness to be repurchased upon a Change of
Control. Moreover, the exercise by the Holders of their right to require the
Company to repurchase the Notes could cause a default under such Senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Holders upon a repurchase may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases. As described above under "-- Optional Redemption," the Company also
has the right to redeem the Notes at specified prices, in whole but not in part,
upon a Change of Control.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not
permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however,
that the Company and the Note Guarantors may Incur Indebtedness if on the date
of the Incurrence of such Indebtedness the Consolidated Coverage Ratio would be
greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and, where
indicated, its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company Incurred pursuant to the Senior
Secured Credit Facility in a maximum principal amount not to exceed at
any time
(A) an aggregate principal amount of $40.0 million under
the Term Loan Facility less the aggregate amount of all scheduled
repayments of principal, or mandatory prepayments of principal
with Net Available Cash from Asset Dispositions, applied to
permanently reduce the Indebtedness outstanding under the Term
Loan Facility, plus (in the case of any refinancing thereof) the
aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such
refinancing, and
(B) an aggregate principal amount outstanding at any
time under the Revolving Credit Facility not to exceed $20.0
million less the amount of all mandatory prepayments of principal
with Net Available Cash from Asset Dispositions, applied to
permanently reduce the commitments under the Revolving Credit
Facility, plus (in the case of any refinancing thereof) the
aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such
refinancing;
(ii) Indebtedness of Foreign Subsidiaries for working capital
purposes and any Guarantees in respect thereof, the aggregate principal
amount of which Indebtedness outstanding at any time does not exceed, as
to all such Foreign Subsidiaries, $15 million;
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(iii) Indebtedness (A) of the Company to any Restricted
Subsidiary and (B) of any Wholly Owned Subsidiary to the Company or any
Restricted Subsidiary; provided, however, that (x) in the case of clause
(A), any such Indebtedness is subordinated to the Notes and (y) any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any other subsequent transfer of any such
Indebtedness (except to the Company or a Wholly Owned Subsidiary) will
be deemed, in each case, an Incurrence of Indebtedness by the Company or
such Restricted Subsidiary, as the case may be;
(iv) Indebtedness represented by the Notes and the issuance of
the Exchangeable Preferred Stock in the amount issued on the Issue Date,
and any Indebtedness (other than the Indebtedness described in clauses
(i), (ii) or (iii) above) outstanding on the date of the Indenture and
any Refinancing Indebtedness Incurred in respect of any Indebtedness
described in this clause (iv) or paragraph (a) (excluding the exchange
of Exchangeable Preferred Stock for Exchange Debentures in accordance
with the terms of the Certificate of Designation for such Exchangeable
Preferred Stock as in effect on the Issue Date);
(v) Indebtedness of the Company or any Restricted Subsidiary (A)
to finance or refinance the deferred purchase price of newly acquired
property of the Company and its Subsidiaries used in the ordinary course
of business of the Company and its Subsidiaries (provided such purchase
money financing is entered into within six months of the acquisition of
such property), and any Refinancing Indebtedness with respect thereto,
and (B) in the form of Capitalized Lease Obligations or Attributable
Debt, and any Refinancing Indebtedness with respect thereto, in an
aggregate amount (based on, in the case of clause (A), the remaining
balance of the obligations therefor on the books of the Company and its
Restricted Subsidiaries) not in excess, at any one time outstanding, of
$10.0 million;
(vi) Indebtedness of the Company or any Restricted Subsidiary
(which may comprise Indebtedness) in an aggregate principal amount at
any one time outstanding not in excess of $10.0 million;
(vii) Indebtedness represented by the Note Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i) or (iii)
above;
(viii) Guarantees (A) by any Note Guarantor of Senior
Indebtedness, (B) by the Company or any Note Guarantor of Guarantor
Senior Indebtedness or (C) by any Wholly Owned Subsidiary that is not a
Note Guarantor of Indebtedness of any Wholly Owned Subsidiary that is
not a Note Guarantor;
(ix) Indebtedness (A) arising by reason of any Lien created or
permitted to exist in compliance with the covenant described under "--
Limitations on Liens," including any Indebtedness of any Note Guarantor
arising by reason of any Lien granted by such Person to secure Senior
Indebtedness, or of the Company or any Note Guarantor arising by reason
of any Lien granted by such Person to secure Guarantor Senior
Indebtedness, or (B) of any Restricted Subsidiary that is not a Note
Guarantor arising by reason of any Lien granted by such Person to secure
Indebtedness of any Restricted Subsidiary that is not a Note Guarantor;
(x) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring of a check, draft or similar instrument of
such Person drawn against insufficient funds, provided that such
Indebtedness is extinguished within five Business Days of its
incurrence;
(xi) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of assets, other than guarantees of Indebtedness incurred by
any Person acquiring such assets for the purpose of financing such
acquisition; provided, however, that (A) such Indebtedness is not
reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)) and (B) the maximum Indebtedness Incurred in connection
with such disposition shall at no time exceed the gross proceeds being
measured at the time received by the Company and its Restricted
Subsidiary in connection with
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such disposition (which proceeds would include assumed Indebtedness of
the Company or any Restricted Subsidiary and, with respect to any other
non-cash proceeds of any such disposition, the fair market value at the
time of receipt of such proceeds and without giving effect to any
subsequent changes in value);
(xii) Indebtedness in respect of (A) commercial letters of
credit, or other letters of credit or other similar instruments or
obligations, issued in connection with liabilities incurred in the
ordinary course of business (including those issued to governmental
entities in connection with self-insurance under applicable workers'
compensation statutes), or (B) surety, judgment, appeal, performance and
other similar bonds, instruments or obligations provided in the ordinary
course of business;
(xiii) Indebtedness under Hedging Obligations; provided, however,
that such Hedging Obligations are entered into for bona fide hedging
purposes and are in the ordinary course of business;
(xiv) Indebtedness (A) of the Company consisting of Guarantees of
up to an aggregate principal amount of $500,000 of borrowings by
Management Investors in connection with the purchase of Capital Stock of
the Company by such Management Investors or (B) of the Company or any
Restricted Subsidiary consisting of guarantees in respect of loans or
advances made to officers or employees of the Company or any Restricted
Subsidiary, or guarantees otherwise made on their behalf, (1) in respect
of travel, entertainment and moving-related expenses incurred in the
ordinary course of business, or (2) in the ordinary course of business
not exceeding $500,000 in the aggregate outstanding at any time;
(xv) Indebtedness of any Restricted Subsidiary that is
Indebtedness of another Person assumed by such Restricted Subsidiary in
connection with its acquisition of assets from such Person (other than
Indebtedness Incurred in connection with, or in contemplation of, such
acquisition) and any Refinancing Indebtedness with respect thereto;
provided, however, that at the time of such acquisition of assets the
Company shall have been able to Incur at least an additional $1.00 of
Indebtedness under paragraph (a) above after giving effect to such
acquisition;
(xvi) Indebtedness of a Restricted Subsidiary issued and
outstanding on or prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred (A) as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company or (B) otherwise
in connection with, or in contemplation of, such acquisition) and any
Refinancing Indebtedness with respect thereto; provided, however, that
on the date of any such acquisition the Company shall have been able to
Incur at least $1.00 of Indebtedness under paragraph (a) above after
giving effect to such acquisition;
(xvii) Exchangeable Preferred Stock issued as payment in kind
dividends on the Exchangeable Preferred Stock outstanding on the Issue
Date or issued subsequent to the Issue Date as dividends permitted
pursuant to this clause (xvii), to the extent such dividends are made
pursuant to the terms of the Certificate of Designation for such
Exchangeable Preferred Stock as in effect on the Issue Date, on any
Preferred Stock issued in exchange for the Exchangeable Preferred Stock,
or any dividends on such Preferred Stock to the extent such dividends
are made pursuant to the terms of the Certificate of Designation of such
Preferred Stock;
(xviii) Indebtedness of the Company in respect of Exchange
Debentures issued as payment in kind interest on Exchange Debentures
issued on the exchange of Exchangeable Preferred Stock, to the extent
such interest payments are made pursuant to the terms of the Exchange
Debenture Indenture; and
(xix) Indebtedness arising from the assumption of the obligations
of GSD under the GSD Credit Facility; provided that the proceeds of the
Offerings are applied to repay all amounts outstanding under the GSD
Credit Facility.
(c) Notwithstanding the foregoing, the Company will not Incur any
Indebtedness pursuant to any provision of the foregoing paragraph (b) that
permits Refinancing Indebtedness in respect of Indebtedness constituting
Subordinated Obligations, if the proceeds of such Refinancing Indebtedness are
used, directly or
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indirectly, to refinance such Subordinated Obligations, unless such Refinancing
Indebtedness will be subordinated to the Notes to at least the same extent as
such Subordinated Obligations, provided that this paragraph (c) shall not apply
to Refinancing Indebtedness in respect of Indebtedness referred to in clause
(xix) of the foregoing paragraph (b).
(d) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on such
Indebtedness arising under any Guarantee, Lien or letter of credit supporting
such Indebtedness shall be disregarded to the extent that such Guarantee, Lien
or letter of credit secures the principal amount of such Indebtedness; (ii) in
the event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in paragraph (b) above, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses; and
(iii) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
(e) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date of such calculation.
Limitation on Layering. The Company shall not Incur any Indebtedness if
such Indebtedness is expressly subordinate in right of payment to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is
contractually subordinated in right of payment to Senior Subordinated
Indebtedness. No Note Guarantor shall Incur any Indebtedness if such
Indebtedness is expressly subordinate in right of payment to any Guarantor
Senior Indebtedness of such Note Guarantor unless such Indebtedness is Guarantor
Senior Subordinated Indebtedness of such Note Guarantor or is contractually
subordinated in right of payment to Guarantor Senior Subordinated Indebtedness
of such Note Guarantor. Unsecured Indebtedness is not deemed to be subordinate
or junior to Secured Indebtedness merely because it is unsecured, and
Indebtedness that is not guaranteed by a particular Person is not deemed to be
subordinate or junior to Indebtedness that is so guaranteed merely because it is
not so guaranteed.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except (x) dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and (y) dividends or distributions payable
to the Company or any Restricted Subsidiary (and, if the Restricted Subsidiary
making such dividend or distribution is not a Wholly Owned Subsidiary, to its
other shareholders on no more than a pro rata basis, measured by value), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company held by Persons other than the Company or another Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Subordinated Obligations (other than the purchase, repurchase,
redemption or other acquisition of Subordinated Obligations in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time the Company or such Restricted Subsidiary makes such Restricted
Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company could not incur at least an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Company's Board of
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Directors whose determination shall be conclusive and evidenced by a
resolution of the Company's Board of Directors) declared or made
subsequent to the date of the Indenture would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the
period (treated as one accounting period) from the end of the
most recent fiscal quarter ending prior to the Issue Date to the
end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment for which consolidated financial
statements of the Company are available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the
Company either (x) as capital contributions to the Company after
the Issue Date or (y) from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to a Restricted Subsidiary
of the Company);
(C) the amount by which Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company
or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or other property (other than
Capital Stock), distributed by the Company upon such conversion
or exchange), plus the amount of any cash or other property
received by the Company or any Restricted Subsidiary upon such
conversion or exchange;
(D) the amount equal to the net reduction in Investments
in Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to
the Company or any Restricted Subsidiary from any Unrestricted
Subsidiary or (ii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in
the definition of "Investment"), not to exceed in the case of any
such Unrestricted Subsidiary the aggregate amount of Investments
(other than Permitted Investments) made by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary after the
Issue Date; and
(E) in the case of disposition or repayment of any
Investment constituting a Restricted Payment (without duplication
of any amount deducted in calculating the amount of Investments
at any time outstanding included in the amount of Restricted
Payments), an amount equal to the lesser of the return of capital
or repayment with respect to such Investment and the initial
amount of such Investment, in either case, less the cost of the
disposition of such Investment.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Capital Stock of the Company or Subordinated
Obligations made by exchange (including any such exchange pursuant to
the exercise of a conversion right or privilege in connection with which
cash is paid in lieu of the issuance of fractional shares) for, or out
of the proceeds of the substantially concurrent sale of, Capital Stock
of the Company (other than Disqualified Stock and other than Capital
Stock issued or sold to a Subsidiary or an employee stock ownership plan
or other trust established by the Company or any of its Subsidiaries) or
a substantially concurrent capital contribution to the Company;
provided, however, that (A) such purchase, redemption, repurchase,
defeasance, retirement or other acquisition shall be excluded in
subsequent calculations of the amount of Restricted Payments and (B) the
Net Cash Proceeds from such sale or capital contribution shall be
excluded in subsequent calculations under clause (B) of paragraph (a);
(ii) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Subordinated Obligations made by exchange for,
or out of the proceeds of the substantially concurrent sale of,
Subordinated Obligations of the Company that is permitted to be Incurred
pursuant to the covenant described under "-- Limitation on
Indebtedness"; provided, however, that such purchase, redemption,
repurchase, defeasance, retirement or other acquisition shall be
excluded in subsequent calculations of the amount of Restricted
Payments;
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(iii) any purchase, redemption, repurchase, defeasance,
retirement or other acquisition of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets"; provided, however, that such
purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be excluded in subsequent calculations of the amount
of Restricted Payments;
(iv) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Subordinated Obligations upon a Change of
Control to the extent required by the agreement governing such
Subordinated Obligations but only if the Company shall have complied
with the covenant described under "-- Change of Control" and purchased
all Notes tendered pursuant to the offer to repurchase all the Notes
required thereby, prior to purchasing or repaying such Subordinated
Obligations; provided, however, that (A) the purchase price (stated as a
percentage of principal amount or issue price plus accrued original
issue discount, if less) of such Subordinated Obligations shall not be
greater than the price (stated as a percentage of principal amount) of
the Notes pursuant to any such offer to repurchase the Notes in the
event of a Change of Control, and (B) any such purchase, redemption,
repurchase, defeasance, retirement or other acquisition shall be
included in subsequent calculations of the amount of Restricted
Payments;
(v) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with paragraph (a); provided, however, that such dividends shall be
included in subsequent calculations of the amount of Restricted
Payments;
(vi) a Restricted Payment to pay for the repurchase or other
acquisition or retirement of Capital Stock or options, warrants or other
rights in respect thereof, or payments by the Company to repurchase or
otherwise acquire Capital Stock or options, warrants or other rights in
respect thereof, in each case from Management Investors, such payments
not to exceed an amount equal to $500,000 in any fiscal year and $2.5
million in the aggregate (plus the Net Cash Proceeds received by the
Company since the Issue Date as a capital contribution from the sale to
Management Investors of Capital Stock or options, warrants or other
rights in respect thereof); provided, however, that such payments will
be included in subsequent calculations of the amount of Restricted
Payments;
(vii) payments by the Company or any Restricted Subsidiary (x)
pursuant to the Management Agreements and (y) to G-IV, GSCP and SGCP and
their respective Affiliates, not to exceed an amount necessary to permit
each such Person, as the case may be, to (A) pay its costs (including
all professional fees and expenses) incurred to comply with its
reporting obligations under federal or state laws or under the Indenture
or the Certificate of Designation or the Exchange Debenture Indenture,
including any reports filed with respect to the Securities Act, Exchange
Act or the respective rules and regulations promulgated thereunder, to
the extent such costs relate to the Company and its Subsidiaries, (B)
make payments in respect of indemnification obligations of such Persons
owing to directors, officers, employees or other Persons under their
charters or by-laws or pursuant to written agreements with any such
Person, to the extent such payments relate to the Company and its
Subsidiaries, (C) pay all reasonable out-of-pocket expenses incurred in
connection with the Acquisition, the Consent Solicitation, the Offerings
and related transactions, and (D) indemnify or reimburse, or pay on
behalf of, such Persons any taxes, charges or assessments arising by
reason of their ownership of Capital Stock of the Company and the GSD
Liquidation; provided, however, that such payments will be excluded in
subsequent calculations of the amount of Restricted Payments;
(viii) the payment by the Company of dividends on the common
stock of the Company following an initial public offering of such common
stock, in an amount not to exceed in any fiscal year 6% of the net
proceeds received by the Company from such public offering; provided,
however, that such dividends will be included in subsequent calculations
of the amount of Restricted Payments;
(ix) (a) the issuance by the Company of shares of Exchangeable
Preferred Stock as dividends paid in kind on the Exchangeable Preferred
Stock and (b) commencing March 15, 2003, the payment of cash dividends
by the Company on the Exchangeable Preferred Stock or on any Preferred
Stock issued in exchange for the Exchangeable Preferred Stock, or any
dividends on such Preferred Stock to the extent
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such dividends are made pursuant to the terms of the Certificate of
Designation of such Preferred Stock, so long as the Company would be
able to Incur, on a pro forma basis, an additional $1.00 of Indebtedness
under paragraph (a) of the covenant described under "Certain Covenants
-- Limitation on Indebtedness"; provided, however, that such cash
dividends will be included in subsequent calculations of the amount of
Restricted Payments; and
(x) the exchange of Exchangeable Preferred Stock for Exchange
Debentures in accordance with the terms of the Certificate of
Designation for such Exchangeable Preferred Stock as in effect on the
Issue Date; provided, however, that the Company may only effect such
exchange so long as the Company would be able to Incur, on a pro forma
basis, an additional $1.00 of Indebtedness under paragraph (a) of the
covenant described under "Certain Covenants -- Limitation on
Indebtedness"; provided further, however, that the principal amount of
any such Exchange Debentures will be excluded in subsequent calculations
of the amount of Restricted Payments;
provided, that in the case of clauses (vi) and (viii) no Default or
Event of Default shall have occurred or be continuing at the time of such
payment after giving effect thereto; provided, further, that the ongoing annual
fees of up to $950,000 payable pursuant to the Management Agreements shall not
be made if a Default or an Event of Default has occurred or is continuing at the
time of such payment.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the date of the Indenture (including,
without limitation, the Senior Secured Credit Facility and the 2005
Notes);
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary (x) pursuant to an agreement relating to any Indebtedness
Incurred by a Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company, or of another Person
that is assumed by the Company or a Restricted Subsidiary in connection
with the acquisition of assets from, or merger or consolidation with,
such Person (other than Indebtedness Incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant
to which such Restricted Subsidiary became a Restricted Subsidiary or
was acquired by the Company, or such acquisition of assets, merger or
consolidation) and outstanding on the date of such acquisition, merger
or consolidation or (y) pursuant to any agreement (not relating to any
Indebtedness) in existence when a Person becomes a Subsidiary of the
Company or when such agreement is acquired by the Company or any
Subsidiary thereof, that is not created in contemplation of such Person
becoming such a Subsidiary or such acquisition (for purposes of this
clause (2), if another Person is the Successor Company, any Subsidiary
or agreement thereof shall be deemed acquired or assumed, as the case
may be, by the Company when such Person becomes the Successor Company);
(3) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement (a "Refinancing Agreement")
effecting a refinancing of Indebtedness Incurred pursuant to, or that
otherwise extends, renews, refinances or replaces, an agreement referred
to in clause (1) or (2) of this covenant or this clause (3) (an "Initial
Agreement") or contained in any amendment to an Initial Agreement;
provided, however, that the encumbrances and restrictions contained in
any such Refinancing Agreement or amendment are no less favorable to the
Holders of the Notes taken as a whole than encumbrances and restrictions
contained in the Initial Agreement or Initial Agreements to which such
Refinancing Agreement or amendment relates (as conclusively determined
in good faith by the Board of Directors);
(4) any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property
or asset that is subject to a lease, license or similar contract, or the
assignment or transfer of any lease, license or other contract, (B) by
virtue of any transfer of, agreement
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to transfer, option or right with respect to, or Lien on, any property
or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture, (C) contained in mortgages, pledges or
other security agreements securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restrictions restrict the
transfer of the property subject to such mortgages, pledges or other
security agreements or (D) pursuant to customary provisions restricting
dispositions of real property interests set forth in any reciprocal
easement agreements of the Company or any Restricted Subsidiary;
provided, however, that, in each case, such encumbrance or restriction
relates to, and restricts dealings with, only the property or asset that
is the subject of such encumbrance or restriction;
(5) any restriction with respect to a Restricted Subsidiary (or
any of its property or assets) imposed pursuant to an agreement entered
into for the direct or indirect sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted
Subsidiary(or the property or assets that are subject to such
restriction) pending the closing of such sale or disposition;
(6) any encumbrance or restriction on the transfer of property or
assets required by any regulatory authority having jurisdiction over the
Company or any Restricted Subsidiary or any of their businesses; and
(7) any encumbrance or restriction pursuant to an agreement
relating to any foreign Indebtedness Incurred, or any sale of
receivables, by a Foreign Subsidiary, provided that no such
Indebtedness, in any one case, exceeds $10 million.
Limitation on Sales of Assets. (a) The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Disposition unless
(i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise)
at the time of such Asset Disposition at least equal to the fair market
value of the shares and assets subject to such Asset Disposition, as
such fair market value may be determined (and shall be determined, to
the extent such Asset Disposition or any series of related Asset
Dispositions involves aggregate consideration in excess of $1.0 million)
in good faith by the Board of Directors, whose determination shall be
conclusive (including as to the value of all noncash consideration),
(ii) at least 75% of the consideration therefor (excluding, in
the case of an Asset Disposition of assets, any consideration by way of
relief from, or by any other Person assuming responsibility for, any
liabilities, contingent or otherwise, which are not Indebtedness)
received by the Company or such Restricted Subsidiary is in the form of
cash, and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) as follows:
(A) first, either (x) to the extent the Company elects (or
is required by the terms of any Senior Indebtedness or
Indebtedness (other than Exchangeable Preferred Stock) of a
Restricted Subsidiary), to prepay, repay or purchase Senior
Indebtedness or such Indebtedness of a Restricted Subsidiary (in
each case other than Indebtedness owed to the Company or a
Restricted Subsidiary) within 365 days after the date of such
Asset Disposition, or (y) to the extent the Company or such
Restricted Subsidiary elects, to reinvest in Additional Assets
(including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary) within 365 days from
the date of such Asset Disposition, or if such reinvestment in
Additional Assets is a project authorized by the Board of
Directors that will take longer than such 365 days to complete,
so long as such project is completed within two years of the
receipt of the Net Available Cash from such Asset Sale;
(B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A)
(such balance, the "Excess Proceeds"), to make an offer to
purchase Notes and (to the extent required by the terms thereof)
any other Senior Subordinated Indebtedness,
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pursuant and subject to the conditions of the Indenture and the
agreements governing such other Indebtedness, at a purchase price
of 100% of the principal amount thereof (or accreted value, as
applicable) plus accrued and unpaid interest to the purchase
date; and
(C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A)
and (B) above, to fund (to the extent consistent with any other
applicable provision of the Indenture) any general corporate
purpose (including the repayment of any Subordinated
Obligations);
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A)(x) or (B) above, the Company or
such Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this covenant, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $5.0 million. If the aggregate principal amount (or accreted value, as
applicable) of Notes and Senior Subordinated Indebtedness validly tendered and
not withdrawn in connection with an offer pursuant to clause (B) above exceeds
the Excess Proceeds, the Excess Proceeds will be apportioned between the Notes
and such Senior Subordinated Indebtedness, with the portion of the Excess
Proceeds payable in respect of the Notes to equal the lesser of (x) the Excess
Proceeds amount multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Notes and the denominator of which is the
sum of the outstanding principal amount of the Notes and the outstanding
principal amount (or accreted value, as applicable) of the relevant Senior
Subordinated Indebtedness, and (y) the aggregate principal amount of Notes
validly tendered and not withdrawn.
For the purposes of this covenant, the following are deemed to be cash:
(w) Cash Equivalents, (x) the assumption of Indebtedness of the Company (other
than Disqualified Stock of the Company) or any Restricted Subsidiary and the
release of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition, (y) Indebtedness of any
Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of
such Asset Disposition, to the extent that the Company and each other Restricted
Subsidiary is released from any Guarantee of such Indebtedness in connection
with such Asset Disposition, and (z) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes pursuant to clause (a)(iii)(B) above, the Company will be required to
purchase Notes tendered pursuant to an offer by the Company for the Notes (the
"Offer") at a purchase price of 100% of their principal amount plus accrued and
unpaid interest to the Purchase Date in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of the Notes tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of Notes, the
remaining Net Available Cash will be available to the Company for use in
accordance with clause (a)(iii)(B) (to repay Senior Subordinated Indebtedness)
or clause (a)(iii)(C) above. The Company shall not be required to make an Offer
for Notes pursuant to this covenant if the Net Available Cash available therefor
(after application of the proceeds as provided in clauses (a)(iii)(A) above) is
less than $5.0 million for any particular Asset Disposition (which lesser
amounts shall be carried forward for purposes of determining whether an Offer is
required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the
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Company (an "Affiliate Transaction") on terms (i) that taken as a whole are less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate and (ii) that, in the event
such Affiliate Transaction involves an aggregate amount in excess of $1.0
million, are not in writing and have not been approved by a majority of the
members of the Board of Directors having no material personal financial interest
in such Affiliate Transaction, or in the event there are no such members, as to
which the Company has not obtained a Fairness Opinion (as hereinafter defined).
In addition, any transaction involving aggregate payments or other transfers by
the Company and its Restricted Subsidiaries in excess of $5.0 million will also
require an opinion (a "Fairness Opinion") from an independent investment banking
firm or appraiser, as appropriate, of national prominence, to the effect that
the terms of such transaction taken as a whole are either (i) no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in arm's-length dealings
with a Person who is not an Affiliate or (ii) fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted by the covenant described under "-- Limitation
on Restricted Payments," any Permitted Investment, or any other transaction
specifically excluded from the definition of the term "Restricted Payment," (ii)
the performance of the Company's or Restricted Subsidiary's obligations under
any employment contract, collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or hereafter
entered into in the ordinary course of business, (iii) payment of compensation,
performance of indemnification or contribution obligations, or any issuance,
grant or award of stock, options or other securities, to employees, officers or
directors in the ordinary course of business, (iv) maintenance in the ordinary
course of business of benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and the insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans, (v) any
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, (vi) loans or advances made to directors, officers or
employees of the Company or any Restricted Subsidiary, or guarantees in respect
thereof or otherwise made on their behalf (including any payments under such
guarantees), (A) in respect of travel, entertainment or moving-related expenses
incurred in the ordinary course of business, or (B) in the ordinary course of
business not exceeding $500,000 in the aggregate outstanding at any time, (vii)
guarantees of borrowings by Management Investors in connection with the purchase
of Capital Stock of the Company by such Management Investors, which guarantees
are permitted under the covenant described under "-- Limitation on
Indebtedness," and payments thereunder, (viii) the assumption of GSD's
obligations under the GSD Credit Facility, and the incurrence and payment of all
fees and expenses payable in connection with the Acquisition, the Offerings and
related transactions, (ix) any other transaction arising out of agreements in
existence on the Issue Date, (x) execution, delivery and performance of the
Management Agreements, including but not limited to the ongoing payment of fees
to GSCP and SGCP of up to $950,000 per year plus reasonable out of pocket
expenses, (xi) any commercial or other business transaction in the ordinary
course of business with any Permitted Holder or any Affiliate thereof, on terms
that taken as a whole are no less favorable to the Company and its Restricted
Subsidiaries than those that could be obtained at the time in arm's-length
dealings with a Person who is not an Affiliate of the Company, and (xii) any
transaction between the Company or any Restricted Subsidiary and any Affiliate
of the Company controlled by the Company that is a joint venture or similar
entity primarily engaged in a Related Business so long as such transaction is in
the ordinary course of business and is on terms that are not materially less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company (i) will not, and will not permit any Restricted
Subsidiary of the Company to transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Restricted Subsidiary to any Person (other than the
Company or a Wholly Owned Subsidiary) and (ii) will not permit any Restricted
Subsidiary to issue any of its Capital Stock (other than to management of such
Restricted Subsidiary and, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary, unless (a) after any such transfer,
conveyance, sale, lease, disposition or issuance, such Restricted Subsidiary
continues to be a Restricted Subsidiary and (b) the net cash proceeds from such
transfer, conveyance, sale, lease, disposition or issuance, are applied in
accordance with the covenant described under "-- Limitation on
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Sales of Assets"; provided, however, that this provision shall not prohibit (x)
the transfer, conveyance, sale, lease or other disposition of all of the Capital
Stock of any Restricted Subsidiary or the retention of Preferred Stock which is
not Disqualified Stock in connection with any such transfer, conveyance, sale,
lease or other disposition, (y) the transfer, conveyance, sale, lease or other
disposition of Preferred Stock of a Subsidiary in compliance with the terms of
the covenant described under "Certain Covenants -- Limitation on Sales of
Assets," and (z) the issuance or sale of any Preferred Stock of a Restricted
Subsidiary if such issuance or sale would be in compliance with the terms of the
covenant described under "Certain Covenants -- Limitation on Indebtedness."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien (other than Permitted Liens) on any of its property or assets (including
Capital Stock of any other Person), whether owned on the date of the Indenture
or thereafter acquired, securing any Indebtedness that is not Senior
Indebtedness or Guarantor Senior Indebtedness (the "Initial Lien"), unless
contemporaneously therewith effective provision is made to secure the
Indebtedness due under the Indenture and the Notes or, in respect of Liens on
any Restricted Subsidiary's property or assets, any Note Guarantee of such
Restricted Subsidiary, equally and ratably with such obligation for so long as
such obligation is so secured by such Initial Lien. Any such Lien thereby
created in favor of the Notes or any such Note Guarantee will be automatically
and unconditionally released and discharged upon (i) the release and discharge
of the Initial Lien to which it relates, or (ii) any sale, exchange or transfer
to any Person not an Affiliate of the Company of the property or assets secured
by such Initial Lien, or of all of the Capital Stock held by the Company or any
Restricted Subsidiary in, or all or substantially all the assets of, any
Restricted Subsidiary creating such Lien.
SEC Reports. Notwithstanding that the Company may not be required to be
or remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file (if then permitted to do so) with the SEC
and provide (whether or not so filed with the SEC) the Trustee and Noteholders
and prospective Noteholders (upon request) with the annual reports and the
information, documents and other reports, which are specified in Sections 13 and
15(d) of the Exchange Act. The Company also will comply with the other
provisions of TIA Section 314(a).
Additional Note Guarantors. The Indenture will provide that if the
Company or any of its Domestic Subsidiaries shall acquire or create another
Domestic Subsidiary that is a Significant Subsidiary, then the Company, the
Trustee and such newly acquired or created Domestic Subsidiary shall execute and
deliver a supplemental indenture evidencing such Note Guarantee and deliver an
opinion of counsel, in accordance with the terms of the Indenture. The Company
will also have the right to cause any Restricted Subsidiary so to become a Note
Guarantor. Each Note Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed by that Subsidiary without rendering the
Note Guarantee, as it relates to such Subsidiary, voidable under applicable law
relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See "-- Note Guarantees."
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) will expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture;
(ii) immediately after giving effect to such transaction (and treating any
Indebtedness which becomes an obligation of the Successor Company or any
Restricted Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Restricted Subsidiary at the time of such
transaction), no Default will have occurred and be continuing; (iii) immediately
after giving pro forma effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness under paragraph (a) of the
covenant described under "Certain Covenants -- Limitation on Indebtedness"; (iv)
each Note Guarantor (other than any party to any such merger) shall have
delivered a written instrument in form
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and substance reasonably satisfactory to the Trustee confirming its Note
Guarantee; and (v) the Company will have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each to the effect that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture, provided that (x) in giving such opinion such counsel
may rely on such officer's certificate as to any matters of fact (including
without limitation as to compliance with the foregoing clauses (ii) and (iii)),
and (y) no Opinion of Counsel will be required for a consolidation, merger or
transfer described in the last paragraph of this covenant. Any Indebtedness that
becomes an obligation of the Company or any Restricted Subsidiary (or that is
deemed to be Incurred by any Restricted Subsidiary that becomes a Restricted
Subsidiary) as a result of such transaction undertaken in compliance with this
covenant, and any Refinancing Indebtedness with respect thereto, shall be deemed
to have been Incurred in compliance with the covenant described under "Certain
Covenants -- Limitation on Indebtedness."
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, and
thereafter the predecessor Company shall be relieved of all obligations and
covenants under this Agreement, except that, in the case of a conveyance,
transfer or lease of all or substantially all its assets, the predecessor
Company will not be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company and (2) the Company may merge with an
Affiliate incorporated or organized for the purpose of reincorporating or
reorganizing the Company in another jurisdiction to realize tax or other
benefits.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
whether or not such payment is prohibited by the provisions described under "--
Ranking" above, (iii) the failure by the Company to comply with its obligations
under the covenant described under "-- Merger and Consolidation" above, (iv) the
failure by the Company to comply for 30 days after notice with any of its
obligations under the covenants described under "Change of Control" or "--
Certain Covenants" above (in each case, other than a failure to purchase Notes),
(v) the failure by the Company to comply for 60 days after notice with its other
agreements contained in the Notes or the Indenture, (vi) the failure by any Note
Guarantor to comply with its obligations under any Note Guarantee to which such
Note Guarantor is a party, after any applicable grace period, (vii) the failure
by the Company or any Significant Subsidiary to pay any Indebtedness within any
applicable grace period after final maturity or the acceleration of any such
Indebtedness by the holders thereof because of a default if the total amount of
such Indebtedness unpaid or accelerated exceeds $5.0 million or its foreign
currency equivalent (the "cross acceleration provision"), (viii) certain events
of bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions"), (ix) the rendering of any judgment or
decree for the payment of money in an amount (net of any insurance or indemnity
payments actually received in respect thereof prior to or within 60 days from
the entry thereof, or to be received in respect thereof in the event any appeal
thereof shall be unsuccessful) in excess of $5.0 million or its foreign currency
equivalent against the Company or a Significant Subsidiary that is not
discharged, or bonded or insured by a third Person, if (A) an enforcement
proceeding thereon is commenced or (B) such judgment or decree remains
outstanding for a period of 60 days following such judgment or decree and is not
discharged, waived or stayed (the "judgment default provision") or (x) the
failure of any Note Guarantee by a Note Guarantor which is a Significant
Subsidiary to be in full force and effect (except as contemplated by the terms
thereof or of the Indenture) or the denial or disaffirmation in writing by any
such Note Guarantor of its obligations under the Indenture or any Note Guarantee
if such Default continues for 10 days.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
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However, a Default under clause (iv) or (v) will not constitute an Event
of Default until the Trustee or the Holders of at least 25% in principal amount
of the outstanding Notes notify the Company of the Default and the Company does
not cure such Default within the time specified in clauses (iv) and (v) hereof
after receipt of such notice.
If an Event of Default (other than a Default relating to certain events
of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Holders of at least a
majority in principal amount of the outstanding Notes by notice to the Company
and the Trustee, may declare the principal of and accrued but unpaid interest on
all the Notes to be due and payable. Upon such a declaration, such principal and
interest will be due and payable immediately. If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Company occurs
and is continuing, the principal of and interest on all the Notes will become
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing, (ii)
Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or expense,
(iv) the Trustee has not complied with such request within 60 days after the
receipt of the request and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of, or premium (if any) or interest on, any Note, the Trustee may
withhold notice if and so long as a committee of its Trust Officers in good
faith determines that withholding notice is in the interests of the Noteholders.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding and any past default or compliance with any provisions may be waived
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding. However, without the consent of each Holder of an outstanding
Note affected, no amendment may, among other things, (i) reduce the principal
amount of Notes whose Holders must consent to an amendment, (ii) reduce the rate
of or extend the time for payment of interest on any Note, (iii) reduce the
principal of or extend the Stated Maturity of any Note, (iv) reduce the premium
payable upon the redemption of any Note or change
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the time at which any Note may be redeemed as described under "Optional
Redemption" above, (v) make any Note payable in money other than that stated in
the Note, (vi) make any change to the subordination provisions of the Indenture
that adversely affects the rights of any Holder, (vii) impair the right of any
Holder to receive payment of principal of and interest on such Holder's Notes on
or after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes, (viii) release any Note
Guarantor from any of its obligations under its Note Guarantee or the Indenture
(other than in accordance with the terms of the Note Guarantee or the
Indenture), or amend the provisions of the Indenture relating to the release of
Note Guarantors (other than any releases pursuant to the terms of the Note
Guarantee or the Indenture), or (ix) make any change in the amendment provisions
that require each Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor of the obligations of the Company under the
Indenture, to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided, however, that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add Guarantees with respect to the Notes, to secure the Notes, to add
to the covenants of the Company for the benefit of the Noteholders or to
surrender any right or power conferred upon the Company, to provide that any
Indebtedness that becomes or will become an obligation of the Successor Company
pursuant to a transaction governed by the provisions described under "-- Merger
and Consolidation" (and that is not a Subordinated Obligation) is Senior
Subordinated Indebtedness for purposes of this Indenture, to make any change
that does not adversely affect the rights of any Holder or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
any group or representative thereof authorized to give a consent) consent to
such change.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. After an amendment
under the Indenture becomes effective, the Company is required to mail to
Noteholders a notice briefly describing such amendment. However, the failure to
give such notice to all Noteholders, or any defect therein, will not impair or
affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all of its obligations under the
Notes and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under the covenants
described under "-- Certain Covenants," the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Subsidiaries and the
judgment default provision described under "-- Defaults" above and the
limitations contained in clause (iii) under "-- Merger and Consolidation" above
("covenant defeasance"). If the Company exercises its legal defeasance option or
its covenant defeasance option, each Note Guarantor will be released from all of
its obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii), (viii) (but only with
respect to certain bankruptcy events of a Significant Subsidiary), (ix) or (x)
under "Defaults" above or because of the failure of the Company to comply with
clause (iii) under "-- Merger and Consolidation" above.
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Either defeasance option may be exercised to any redemption date or to
the maturity date for the Notes. In order to exercise either defeasance option,
the Company must irrevocably deposit in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations, or a combination thereof, for the
payment of principal of, and premium (if any) and interest on, the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable federal income tax law since the date of the Indenture).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock of
any Person that at such time is a Restricted Subsidiary, acquired from a third
party; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Note at any Redemption
Date, the greater of (i) 1.0% of the then outstanding principal amount of such
Note and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such Note at March 15, 2003 plus (2) all required interest
and principal payments (excluding accrued but unpaid interest) due on such Note
through March 15, 2003, computed using a discount rate equal to the Treasury
Rate plus 50 basis points, over (B) the then-outstanding principal amount of
such Note.
"Asset Disposition" means any sale, lease, transfer or other disposition
of shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares, or (in the case of a Foreign Subsidiary) to the extent
required by applicable law), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory,
equipment, obsolete assets or surplus personal property in the ordinary course
of business, (iii) the sale of Cash Equivalents in the ordinary course of
business, (iv) dispositions with a fair market value not exceeding $500,000 in
the aggregate in any fiscal year, (v) the sale or discount (with or without
recourse, and
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on commercially reasonable terms) of accounts receivable or notes receivable
arising in the ordinary course of business, or the conversion or exchange of
accounts receivable for notes receivable, (vi) the licensing of intellectual
property in the ordinary course of business, (vii) for purposes of the covenant
described under "--Certain Covenants -- Limitation on Sales of Assets" only, a
disposition subject to the covenant described under "-- Certain Covenants --
Limitation on Restricted Payments", or (viii) a disposition of property or
assets that is governed by the provisions described under "-- Merger and
Consolidation."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as
at the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Exchangeable Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Exchangeable Preferred Stock multiplied by the amount of such payment by (ii)
the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on
the Issue Date or thereafter incurred, payable under or in respect of the Senior
Secured Credit Facility, including without limitation principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company or any
Restricted Subsidiary whether or not a claim for post-filing interest is allowed
in such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees, other monetary obligations of any nature and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Exchangeable Preferred Stock, but excluding any debt securities convertible into
such equity.
"Capitalized Lease Obligations" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease.
"Cash Equivalents" means any of the following: (a) securities issued or
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof, (b) time deposits, certificates of deposit or bankers'
acceptances of (i) any lender under the Senior Credit Agreement or (ii) any
commercial bank having capital and surplus in excess of $500,000,000 and the
commercial paper of the holding company of which is rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
(or if at such time neither is issuing ratings, then a comparable rating of
another nationally recognized rating agency), (c) commercial paper rated at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's (or if at such time neither is issuing ratings, then a
comparable rating of another nationally recognized rating agency) and (d)
investments in money market funds complying with the risk limiting conditions of
Rule 2a-7 or any successor rule of the SEC under the Investment Company Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Day International Group, Inc., a Delaware corporation
and any successor thereto.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA of the Company and its Restricted
Subsidiaries for the period of the most recent four consecutive fiscal quarters
ending prior to the date of such determination for which consolidated financial
statements of the Company are available to (ii) Consolidated Interest Expense
for such four fiscal quarters (in each case, determined, for each fiscal quarter
(or portion thereof) of the four fiscal quarters ending prior to the Issue Date,
on a pro forma basis; provided, however, that:
(1) if the Company or any Restricted Subsidiary (x) has Incurred
any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (except that in making such computation, the
amount of Indebtedness under any revolving credit facility outstanding
on the date of such calculation shall be computed based on (A) the
average daily balance of such Indebtedness during such four fiscal
quarters or such shorter period for which such facility was outstanding
or (B) if such facility was created after the end of such four fiscal
quarters, the average daily balance of such Indebtedness during the
period from the date of creation of such facility to the date of such
calculation) and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of
such period, or (y) has repaid, repurchased, defeased or otherwise
discharged any Indebtedness since the beginning of the period that is no
longer outstanding on such date of determination, or if the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio
involves a discharge of Indebtedness (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid), EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect
on a pro forma basis to such discharge of such Indebtedness, including
with the proceeds of such new Indebtedness, as if such discharge had
occurred on the first day of such period,
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition of any
company or any business or any group of assets constituting an operating
unit of a business, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the
assets that are the subject of such Asset Disposition for such period or
increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for
such period (and, if the Capital Stock of any Restricted Subsidiary is
sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the
extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale),
(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Person that thereby becomes a Restricted Subsidiary,
or otherwise acquired any company or any business or any group of assets
constituting an operating unit of a business, including any such
acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma
effect thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
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For purposes of this definition, whenever pro forma effect is to be
given to an Asset Disposition, Investment or acquisition of assets, or any
transaction governed by the provisions described under "-- Merger and
Consolidation", or the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred or repaid, repurchased, defeased or otherwise discharged in connection
therewith, the pro forma calculations in respect thereof shall be as determined
in good faith by a responsible financial or accounting Officer of the Company,
based on reasonable assumptions. If any Indebtedness bears a floating rate of
interest and is being given pro forma effect, the interest expense on such
Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months). If any Indebtedness bears, at the option of the Company or
a Restricted Subsidiary, a fixed or floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be computed by
applying, at the option of the Company or such Restricted Subsidiary, either a
fixed or floating rate. If any Indebtedness which is being given pro forma
effect was Incurred under a revolving credit facility, the interest expense on
such Indebtedness shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
the Company and its consolidated Restricted Subsidiaries, determined in
accordance with GAAP, minus, to the extent included in such interest expense,
amortization or write-off of financing costs, and plus, to the extent incurred
by the Company and its Restricted Subsidiaries in such period but not included
in such interest expense, without duplication, (i) interest expense attributable
to Capitalized Lease Obligations and the interest component of rent expense
associated with Attributable Debt in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease, in accordance
with GAAP, (ii) amortization of debt discount, (iii) interest in respect of
Indebtedness of any other Person that has been Guaranteed by the Company or any
Restricted Subsidiary, (iv) non-cash interest expense, (v) net costs associated
with Hedging Obligations, (vi) cash dividends in respect of all Preferred Stock
of the Company and its Restricted Subsidiaries and Disqualified Stock of the
Company, in each case held by Persons other than the Company or a Restricted
Subsidiary; and (vii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest to any Person (other than the Company or any Restricted
Subsidiary) on Indebtedness Incurred by such plan or trust; provided, however,
that there shall be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed
or paid by the Company or any Restricted Subsidiary. For purposes of the
foregoing, gross interest expense shall be determined after giving effect to any
net payments made or received by the Company and its Subsidiaries with respect
to Interest Rate Agreements.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its Restricted Subsidiaries, determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations
contained in clause (iv) below, the Company's equity in the net income
of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution to a Restricted Subsidiary,
to the limitations contained in clause (iii) below) and (B) the
Company's equity in the net loss of such Person shall be included to the
extent of the aggregate Investment of the Company or any of its
Restricted Subsidiaries in such Person,
(ii) any net income (loss) of any Person acquired by the Company
or a Restricted Subsidiary in a pooling of interests transaction for any
period prior to the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary that is
not a Note Guarantor if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the
making of distributions by such Restricted Subsidiary, directly or
indirectly, to the Company, except that
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(A) subject to the limitations contained in clause (iv) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend (subject, in the case of a dividend
that could have been made to another Restricted Subsidiary, to the
limitation contained in this clause) and (B) the net loss of such
Restricted Subsidiary shall be included to the extent of the aggregate
Investment of the Company or any of its other Restricted Subsidiaries in
such Restricted Subsidiary,
(iv) any gain or loss realized upon the sale or other disposition
of any asset of the Company or its consolidated Restricted Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold
or otherwise disposed of in the ordinary course of business,
(v) any extraordinary gain or loss, and
(vi) the cumulative effect of a change in accounting principles.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of the Company or any
Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangements
(including derivative agreements or arrangements) as to which such Person is a
party or a beneficiary.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, (ii)
the 2005 Notes and (iii) any other Senior Indebtedness which, at the date of
determination, has an aggregate principal amount to or under which, at the date
of determination, the holders thereof are committed to lend up to, at least
$25.0 million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock (other than Management Stock) that by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable at the option of the Holder) or upon the happening of any event (i)
matures or is mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified
Stock at the option of the Holder or (iii) is redeemable at the option of the
holder thereof, in whole or in part, in each case on or prior to the 91st day
after the Stated Maturity of the Notes. For avoidance of doubt, the Exchangeable
Preferred Stock shall not be deemed Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company
other than a Foreign Subsidiary.
"EBITDA" means, for any period, the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense and (iv) amortization of intangibles and
other non-cash charges or non-cash losses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Debentures" means the 12 1/4% Exchange Debentures of the
Company Due 2010 and any Exchange Debentures issued as payment in kind interest
thereon.
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"Exchangeable Preferred Stock" means the 12 1/4% Senior Exchangeable
Preferred Stock Due 2010 and any Exchangeable Preferred Stock issued as payment
of dividends thereon.
"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company
that is not organized under the laws of the United States of America or any
state thereof or the District of Columbia and (b) any Restricted Subsidiary of
the Company that has no material assets other than securities of one or more
Foreign Subsidiaries, and other assets relating to an ownership interest in any
such securities or Subsidiaries.
"G-IV" means Greenwich IV, LLC, a Delaware limited liability company,
and any successor in interest thereto.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Issue Date (for purposes of the
definitions of the terms "Consolidated Coverage Ratio," "Consolidated Interest
Expense," "Consolidated Net Income" and "EBITDA," all defined terms in the
Indenture to the extent used in or relating to any of the foregoing definitions,
and all ratios and computations based on any of the foregoing definitions) and
as in effect from time to time (for all other purposes of the Indenture),
including those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession all ratios and computations based on GAAP contained
in the Indenture shall be computed in conformity with GAAP.
"GSCP" means Greenwich Street Capital Partners, Inc., a Delaware
corporation, and any successor thereto.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person, including any such obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
such other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Guarantor Senior Indebtedness" means the following obligations, whether
outstanding on the date of the Indenture or thereafter issued, without
duplication: (i) any Guarantee of the Bank Indebtedness by such Note Guarantor
and all other Guarantees by such Note Guarantor of Senior Indebtedness of the
Company or Guarantor Senior Indebtedness for any other Note Guarantor; and (ii)
all obligations consisting of the principal of and premium, if any, and accrued
and unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Note Guarantor
regardless of whether postfiling interest is allowed in such proceeding) on, and
fees and other amounts owing in respect of, all other Indebtedness of the Note
Guarantor, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is expressly provided that the obligations
in respect of such Indebtedness are not senior in right of payment to the
obligations of such Note Guarantor under the Note Guarantee; provided, however,
that Guarantor Senior Indebtedness shall not include (1) any obligations of such
Note Guarantor to the Note Guarantor or any other Subsidiary of the Note
Guarantor, (2) any liability for Federal, state, local, foreign or other taxes
owed or owing by such Note Guarantor, (3) any accounts payable or other
liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of such Note Guarantor that is expressly subordinate in right
of payment to any of the Indebtedness of such Note Guarantor, including any
Guarantor Senior Subordinated Indebtedness and Guarantor Subordinated
Obligations of such Note Guarantor or (5) any Capital Stock.
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"Guarantor Senior Subordinated Indebtedness" means, with respect to a
Note Guarantor, the obligations of such Note Guarantor under the Note Guarantee
and any other Indebtedness of such Note Guarantor that specifically provides
that such Indebtedness is to rank pari passu in right of payment with the
obligations of such Note Guarantor under the Note Guarantee and is not expressly
subordinated by its terms in right of payment to any Indebtedness of such Note
Guarantor which is not Guarantor Senior Indebtedness of such Note Guarantor.
"Guarantor Subordinated Obligation" means, with respect to a Note
Guarantor, any Indebtedness of such Note Guarantor (whether outstanding on the
Issue Date or thereafter Incurred) which is expressly subordinate in right of
payment to the obligations of such Note Guarantor under the Note Guarantee
pursuant to a written agreement.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered in the Register.
"Incur" means issue, assume, enter into any Guarantee of, incur or
otherwise become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. Any
Indebtedness issued at a discount (including Indebtedness on which interest is
payable through the issuance of additional Indebtedness) shall be deemed
incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of indebtedness of such Person for borrowed
money,
(ii) the principal of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments,
(iii) all reimbursement obligations of such Person (including
reimbursement obligations) in respect of letters of credit or other
similar instruments (the amount of such obligations being equal at any
time to the aggregate then undrawn and unexpired amount of such letters
of credit or other instruments plus the aggregate amount of drawings
thereunder that have not then been reimbursed),
(iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services (except Trade Payables),
which purchase price is due more than one year after the date of placing
such property in final service or taking final delivery and title
thereto or the completion of such services,
(v) all Capitalized Lease Obligations and Attributable Debt of
such Person,
(vi) Disqualified Stock of the Company and Preferred Stock of a
Subsidiary (to the extent held by a Person other than the Company or a
Restricted Subsidiary), but excluding, in each case, any accrued
dividends (the amount of such obligation to be equal at any time to the
maximum fixed involuntary redemption, repayment or repurchase price for
such Capital Stock, or if such Capital Stock has no such fixed price, to
the involuntary redemption, repayment or repurchase price therefor
calculated in accordance with the terms thereof as if then redeemed,
repaid or repurchased, and if such price is based upon or measured by
the fair market value of such Capital Stock, such fair market value
shall be as determined in good faith by the Board of Directors or the
board of directors of the issuer of such Capital Stock),
(vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided, however, that the amount of Indebtedness of such
Person shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness of
such other Persons,
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(viii) all Indebtedness of other Persons to the extent Guaranteed
by such Person, and
(ix) to the extent not otherwise included in this definition, net
Hedging Obligations of such Person (the amount of any such obligation to
be equal at any time to the termination value of such agreement or
arrangement giving rise to such Hedging Obligation that would be payable
by such Person at such time).
The amount of Indebtedness of any Person at any date shall be determined
as set forth above or otherwise provided in this Indenture, or otherwise in
accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement (including derivative agreements or arrangements) as to which
such Person is party or a beneficiary.
"Investment" in any Person by any other Person means any direct or
indirect advance, loan or other extension of credit (other than to customers,
directors, officers or employees of any Person in the ordinary course of
business) or capital contribution (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others) to, or any purchase or acquisition of Capital Stock, Indebtedness
or other similar instruments issued by, such Person. For purposes of the
definition of "Unrestricted Subsidiary" and the covenant described under "--
Certain Covenants -- Limitation on Restricted Payments," (i) "Investment" shall
include the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of any Subsidiary of the
Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreements" means, collectively, the Consulting Agreement,
the Fee Agreement and the Indemnification Agreement, each between the Company,
GSCP and SGCP (and their permitted successors and assigns thereunder), as each
may be amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof and of the Indenture.
"Management Investors" means the officers, directors, employees and
other members of the management of the Company or any of its Subsidiaries, or
family members or relatives thereof, or trusts for the benefit of any of the
foregoing, or any of their heirs, executors, successors and legal
representatives, who at any date beneficially own or have the right to acquire,
directly or indirectly, Capital Stock of the Company.
"Management Stock" means Capital Stock of the Company, or options,
warrants or other rights in respect thereof, held by any of the Management
Investors.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets
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that are the subject of such Asset Disposition or received in any other noncash
form) therefrom, in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made, and all installment payments required to be made, on any
Indebtedness that is secured by any assets subject to such Asset Disposition, in
accordance with the terms of any Lien upon such assets, or that must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law, be repaid out of the proceeds from such Asset Disposition,
(iii) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition, or to any other Person (other than the Company or a Restricted
Subsidiary) owning a beneficial interest in the assets disposed of in such Asset
Disposition and (iv) appropriate amounts to be provided as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of any
securities of the Company or any Subsidiary by the Company or any Subsidiary, or
any capital contribution, means the cash proceeds of such issuance, sale or
contribution net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance, sale or
contribution and net of taxes paid or payable as a result thereof.
"Note Guarantee" means any guarantee that may from time to time be
executed and delivered by a Subsidiary of the Company pursuant to the covenant
described under "-- Certain Covenants -- Additional Note Guarantors."
"Note Guarantor" means any Subsidiary that has issued a Note Guarantee.
"Officer" means the President, Chief Financial Officer, any Vice
President, Controller or Treasurer of the Company.
"Officer's Certificate" means a certificate signed by one Officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means any of the following: (i) GSCP, SGCP, and their
respective Affiliates; provided that "Permitted Holders" in any event shall
include Greenwich Street Capital Partners, L.P., Greenwich Street Capital
Offshore Fund, Ltd., The Travelers Insurance Company, The Travelers Life and
Annuity Company, TRV Employees Fund, Inc., Smith Barney Company Inc. and their
respective Affiliates; any other investment fund or vehicle managed, sponsored
or advised by Greenwich Street Capital Partners, Inc., The Travelers Insurance
Company, The Travelers Life and Annuity Company, Smith Barney Company Inc. or
any of their respective Affiliates; and (ii) any Person acting in the capacity
of an underwriter in connection with a public or private offering of the
Company's capital stock.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in, or consisting of, any of the following:
(i) a Restricted Subsidiary, the Company or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary;
(ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Restricted
Subsidiary;
(iii) Cash Equivalents;
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(iv) receivables owing to the Company or any Restricted
Subsidiary, if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary
trade terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;
(v) securities or other Investments received as consideration in
sales or other dispositions of property or assets, including Asset
Dispositions, made in compliance with the covenant described under "--
Certain Covenants -- Limitation on Sales of Assets";
(vi) securities or other Investments received in settlement of
debts created in the ordinary course of business and owing to the
Company or any Restricted Subsidiary, or as a result of foreclosure,
perfection or enforcement of any Lien, or in satisfaction of judgments,
including in connection with any bankruptcy proceeding or other
reorganization of another Person;
(vii) Investments in existence or made pursuant to legally
binding written commitments in existence on the Issue Date;
(viii) Currency Agreements, Interest Rate Agreements and related
Hedging Obligations, which obligations are Incurred in compliance with
the covenant described under "-- Certain Covenants --Limitation on
Indebtedness";
(ix) pledges or deposits (x) with respect to leases or utilities
provided to third parties in the ordinary course of business or (y)
otherwise described in the definition of "Permitted Liens"; and
(x) other Investments in an aggregate amount outstanding at any
time not to exceed $12.5 million.
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges
not yet delinquent or the nonpayment of which in the aggregate would not
reasonably be expected to have a material adverse effect on the Company
and its Restricted Subsidiaries, or that are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or a Subsidiary
thereof, as the case may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other like Liens arising in the ordinary
course of business in respect of obligations that are not overdue for a
period of more than 60 days, or that are bonded or that are being
contested in good faith and by appropriate proceedings;
(c) pledges, deposits or Liens in connection with workers'
compensation, unemployment insurance and other social security and other
similar legislation or other insurance related obligations (including,
without limitation, pledges or deposits securing liability to insurance
carriers under insurance or self-insurance arrangements);
(d) pledges, deposits or Liens to secure the performance of bids,
tenders, trade, government or other contracts (other than for borrowed
money), obligations for utilities, leases, licenses, statutory
obligations, surety, judgment and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of
business;
(e) easements (including reciprocal easement agreements),
rights-of-way, building, zoning and similar restrictions, utility
agreements, covenants, reservations, restrictions, encroachments,
changes, and other similar encumbrances or title defects incurred, or
leases or subleases granted to others, in the ordinary course of
business, which do not in the aggregate materially interfere with the
ordinary conduct of the business of the Company and its Subsidiaries,
taken as a whole;
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(f) Liens existing on, or provided for under written arrangements
existing on, the Issue Date, or (in the case of any such Liens securing
Indebtedness of the Company or any of its Subsidiaries existing or
arising under written arrangements existing on the Issue Date) securing
any Refinancing Indebtedness in respect of such Indebtedness so long as
the Lien securing such Refinancing Indebtedness is limited to all or
part of the same property or assets (plus improvements, accessions,
proceeds or dividends or distributions in respect thereof) that secured
(or under such written arrangements could secure) the original
Indebtedness;
(g) (i) mortgages, liens, security interests, restrictions,
encumbrances or any other matters of record that have been placed by any
developer, landlord or other third party on property over which the
Company or any Restricted Subsidiary of the Company has easement rights
or on any leased property and subordination or similar agreements
relating thereto and (ii) any condemnation or eminent domain proceedings
affecting any real property;
(h) Liens securing Hedging Obligations Incurred in compliance
with the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness";
(i) Liens arising out of judgments, decrees, orders or awards in
respect of which the Company shall in good faith be prosecuting an
appeal or proceedings for review, which appeal or proceedings shall not
have been finally terminated, or if the period within which such appeal
or proceedings may be initiated shall not have expired;
(j) leases, subleases, licenses or sublicenses to third parties;
(k) Liens securing (x) Indebtedness Incurred in compliance with
clause (b)(i), (b)(ii), (b)(v) or (b)(vii) of the covenant described
under "Certain Covenants -- Limitation on Indebtedness", or clause
(b)(iv) thereof (other than Refinancing Indebtedness Incurred in respect
of Indebtedness described in paragraph (a) thereof) or (y) Bank
Indebtedness;
(l) Liens on properties or assets (1) of the Company or any Note
Guarantor securing Senior Indebtedness or Guarantor Senior Indebtedness,
(2) of any Wholly Owned Subsidiary that is not a Note Guarantor securing
Indebtedness of any Wholly Owned Subsidiary that is not a Note Guarantor
or (3) of any Restricted Subsidiary that is not a Note Guarantor
securing its Indebtedness;
(m) Liens existing on property or assets of a Person at the time
such Person becomes a Subsidiary of the Company (or at the time the
Company or a Restricted Subsidiary acquires such property or assets);
provided, however, that such Liens are not created in connection with,
or in contemplation of, such other Person becoming such a Subsidiary (or
such acquisition of such property or assets), and that such Liens are
limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under
which such Liens arose, could secure) the obligations to which such
Liens relate;
(n) Liens on Capital Stock of an Unrestricted Subsidiary that
secure Indebtedness or other obligations of such Unrestricted
Subsidiary;
(o) any encumbrance or restriction (including, but not limited
to, put and call agreements) with respect to Capital Stock of any joint
venture or similar arrangement pursuant to any joint venture or similar
agreement;
(p) Liens securing the Notes; and
(q) Liens securing Refinancing Indebtedness Incurred in respect
of any Indebtedness secured by, or securing any refinancing, refunding,
extension, renewal or replacement (in whole or in part) of any other
obligation secured by, any other Permitted Liens, provided that any such
new Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or
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distributions in respect thereof) that secured (or, under the written
arrangements under which the original Lien arose, could secure) the
obligations to which such Liens relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public offering
of common stock of the Company pursuant to an effective Registration Statement
under the Securities Act (whether alone or in conjunction with any secondary
public offering).
"Public Market" means any time after a Public Equity Offering has been
consummated and either (x) at least 10% of the total issued and outstanding
common stock (or equivalent equity interests) of the Company has been
distributed by means of an effective Registration Statement under the Securities
Act or (y) an established public trading market otherwise exists for any such
common stock or equivalent equity interests.
"Refinancing Indebtedness" means Indebtedness that is Incurred to
refund, refinance, replace, renew, repay or extend (including pursuant to any
defeasance or discharge mechanism) (collectively, "refinances," "refinanced" and
"refinancing" as used in the Indenture shall have a correlative meaning) any
Indebtedness existing on the date of the Indenture or Incurred in compliance
with the Indenture (including Indebtedness of the Company that refinances
Indebtedness of any Restricted Subsidiary (to the extent permitted in the
Indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of (x) the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced, plus (y) fees, underwriting discounts, premiums
not in excess of the premiums called for in the documentation related to such
Indebtedness so refinanced and other costs and expenses incurred in connection
with such Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (A) Indebtedness of a Restricted Subsidiary that
is not a Note Guarantor that refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means those businesses in which the Company or any of
its Subsidiaries is engaged on the date of the Indenture, or that are reasonably
related, complementary or incidental thereto.
"Representative" means the trustee, agent or representative (if any) for
an issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility under
the Senior Secured Credit Facility (which may include any swing line or letter
of credit facility or subfacility thereunder).
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired by the Company or a Restricted Subsidiary
whereby the Company or such Restricted Subsidiary transfers such property to a
Person and the Company or such Restricted Subsidiary leases it from such Person,
other than leases (x) between the Company and a Restricted Subsidiary or between
or (y) required to be classified and accounted for as capitalized leases for
financial reporting purposes in accordance with GAAP.
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"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by
a Lien.
"Senior Credit Agreement" means the senior secured credit agreement
dated as of January 15, 1998, among the Company, the several lenders party
thereto from time to time, Societe Generale Securities Corporation, as arranger,
and Societe Generale as administrative agent, as such agreement may be assumed
by any successor in interest, and as such agreement may be amended,
supplemented, waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or extended from
time to time (whether in whole or in part, whether with the original agent and
lenders or other agents and lenders or otherwise, and whether provided under the
original Senior Credit Agreement or otherwise).
"Senior Secured Credit Facility" means the collective reference to the
Senior Credit Agreement, any Loan Documents (as defined therein), any notes and
letters of credit issued pursuant thereto and any guarantee and collateral
agreement, patent and trademark security agreement, mortgages, letter of credit
applications and other security agreements and collateral documents, and other
instruments and documents, executed and delivered pursuant to or in connection
with any of the foregoing, in each case as the same may be amended,
supplemented, waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or extended from
time to time (whether in whole or in part, whether with the original agent and
lenders or other agents and lenders or otherwise, and whether provided under the
original Senior Credit Agreement or otherwise). Without limiting the generality
of the foregoing, the term "Senior Secured Credit Facility" shall include any
agreement (i) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder or (iv) otherwise
altering the terms and conditions thereof.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that (i) specifically provides that such
Indebtedness is to rank pari passu with the Notes or is otherwise entitled
"Senior Subordinated" Indebtedness and (ii) is not expressly subordinated by its
terms in right of payment to any Indebtedness of the Company that is not Senior
Indebtedness.
"SGCP" means SG Capital Partners, LLC, a Delaware limited liability
company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, as in effect on the Issue Date.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the payment of principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the date of the Indenture or thereafter Incurred) which is
expressly subordinate in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other equity interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such person
or (ii) one or more Subsidiaries of such Person.
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"Successor Company" shall have the meaning assigned thereto in clause
(i) under "-- Merger and Consolidation."
"Term Loan Facility" means the term loan facilities provided under the
Senior Secured Credit Facility.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-
77bbbb) as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable
or any indebtedness or monetary obligation to trade creditors created, assumed
or Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to the Stated Maturity; provided, however, that if the
period from the Redemption Date to the Stated Maturity is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to the Stated Maturity
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in the Indenture until a
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"2005 Notes" means the Company's 11 1/8% Senior Subordinated Notes due
2005.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under "-- Certain Covenants --
Limitation on Restricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could incur
at least $1.00 of additional Indebtedness under paragraph (a) in the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Company's Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company
all the Capital Stock of which (other than directors' qualifying shares, or (in
the case of any Foreign Subsidiary) to the extent required by applicable law) is
owned by the Company or another Wholly Owned Subsidiary.
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DESCRIPTION OF THE EXCHANGEABLE PREFERRED STOCK
AND EXCHANGE DEBENTURES
EXCHANGEABLE PREFERRED STOCK
The Existing Exchangeable Preferred Stock was issued, and the New
Exchangeable Preferred Stock offered hereby will be issued, by the Company
pursuant to a Certificate of Designation, dated March 18, 1998 (the "Certificate
of Designation"), relating to the 12 1/4% Senior Exchangeable Preferred Stock
Due 2010 (the "Certificate of Designation"). The following summary of certain
provisions of the Certificate of Designation and the Exchangeable Preferred
Stock does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all of the provisions of the Certificate of
Designation. The Certificate of Designation is filed as an Exhibit to the
Registration Statement of which the Prospectus forms a part and is available,
upon request, from the Company. Definitions of certain capitalized terms used in
the Certificate of Designation and in the following summary are set forth below
under "-- Exchange Debentures -- Certain Definitions."
GENERAL
The Board of Directors of the Company adopted resolutions creating a
maximum of 105,000 shares of Exchangeable Preferred Stock, which consist of the
shares of Exchangeable Preferred Stock issued in the Exchangeable Preferred
Stock Offering, plus up to 35,000 additional shares of Exchangeable Preferred
Stock which may be issued pursuant to the Exchange Offer in exchange for the
shares of Exchangeable Preferred Stock initially issued, plus 35,000 additional
shares of Exchangeable Preferred Stock which, among other things, may be used to
pay certain dividends on the Exchangeable Preferred Stock issued in the
Exchangeable Preferred Stock Offering at the election of the Company. The
Company has filed a Certificate of Designation with respect thereto with the
Secretary of State of the State of Delaware as required by Delaware law. Subject
to certain conditions, the Exchangeable Preferred Stock will be exchangeable for
Exchange Debentures at the option of the Company on any dividend payment date.
The Exchangeable Preferred Stock, issued and paid for by the Initial Purchaser
in accordance with the terms of the Purchase Agreement, is fully paid and
non-assessable, and the holders thereof do not have any subscription or
preemptive rights related thereto. The Bank of New York is the transfer agent
(the "Transfer Agent") and registrar (the "Registrar") for the Exchangeable
Preferred Stock.
RANK
The Exchangeable Preferred Stock will, with respect to dividend
distributions and distributions upon the liquidation, winding-up and dissolution
of the Company, rank (i) senior to all other classes of Capital Stock of the
Company established after the date of the Prospectus by the Board of Directors
of the Company the terms of which do not expressly provide that it ranks on a
parity with the Exchangeable Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the Company
(collectively referred to with the Common Stock of the Company as "Junior
Securities"); and (ii) subject to certain conditions, on a parity with each
series of Preferred Stock existing on the date of the Prospectus the terms of
which do not expressly provide that it ranks junior to any Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, and any class of Capital Stock established after the
date of this Prospectus by the Board of Directors of the Company, the terms of
which expressly provide that such class or series will rank on a parity with the
Exchangeable Preferred Stock as to dividend distributions and distributions upon
the liquidation, winding-up and dissolution of the Company (collectively
referred to as "Parity Securities"). Creditors of the Company will have priority
over the Exchangeable Preferred Stock with respect to claims on the assets of
the Company. In addition, creditors and stockholders of the Company's
Subsidiaries will have priority over the Exchangeable Preferred Stock with
respect to claims on the assets of such Subsidiaries. The Exchangeable Preferred
Stock will be subject to the issuance of new classes of Junior Securities and
Parity Securities, provided that the Company may not issue any new class of
Parity Securities without the approval of the holders of at least 50% of the
shares of
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Exchangeable Preferred Stock then outstanding, voting or consenting, as the case
may be, separately as one class, except that without the approval of the holders
of Exchangeable Preferred Stock, the Company may issue and have outstanding
shares of Parity Securities issued from time to time in exchange for, or the
proceeds of which are used to redeem or repurchase, any or all of the shares of
Exchangeable Preferred Stock or other Parity Securities.
DIVIDENDS
Exchangeable Preferred Stock Holders will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on the Exchangeable Preferred Stock at a
rate per annum equal to 12 1/4% of the liquidation preference per share of
Exchangeable Preferred Stock. All dividends will be cumulative whether or not
earned or declared on a daily basis from the date of issuance of the
Exchangeable Preferred Stock and will be payable quarterly in arrears on March
15, June 15, September 15, and December 15 of each year, commencing on June 15,
1998. On or before March 15, 2003 the Company may, at its option, pay dividends
in cash or in additional fully paid and non-assessable shares of Exchangeable
Preferred Stock having an aggregate liquidation preference equal to the amount
of such dividends. After March 15, 2003, dividends may be paid only in cash. It
is not expected that the Company will pay any dividends in cash for any period
ending on or prior to March 15, 2003. The terms of certain debt instruments of
the Company, including the Senior Secured Credit Facility, the 2005 Notes and
the Notes, restrict the payment of cash dividends by the Company, and future
agreements may provide the same. See "Risk Factors -- Substantial Leverage,"
"Risk Factors -- Restrictive Financing Covenants," "Description of the Notes,"
and "Description of Certain Senior Indebtedness."
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends shall have been or contemporaneously are declared and paid
in full or declared and, if payable in cash, a sum in cash set apart for such
payment on the Exchangeable Preferred Stock. If full dividends are not so paid,
the Exchangeable Preferred Stock will share dividends pro rata with the Parity
Securities. No dividends may be paid or set apart for such payment on Junior
Securities (except dividends on Junior Securities in additional shares of Junior
Securities) and no Junior Securities or Parity Securities may be repurchased,
redeemed or otherwise retired nor may funds be set apart for payment with
respect thereto, if full cumulative dividends have not been paid on the
Exchangeable Preferred Stock.
OPTIONAL REDEMPTION
The Exchangeable Preferred Stock may be redeemed for cash (subject to
contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after March 15, 2003, in whole
or in part, at the option of the Company, at the following redemption prices
(expressed as percentages of the liquidation preference thereof) if redeemed
during the 12-month period beginning March 15 of each of the years set forth
below, in each case together with an amount in cash equal to all accumulated and
unpaid dividends (including an amount in cash equal to a prorated dividend for
the period from the dividend payment date immediately prior to the redemption
date to the redemption date):
<TABLE>
<CAPTION>
YEAR Percentage
- ---- ----------
<S> <C>
2003............................................................... 106.125%
2004............................................................... 104.083%
2005............................................................... 102.042%
2006 and thereafter................................................ 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001,
the Company may redeem the Exchangeable Preferred Stock, in whole or in part, at
the option of the Company, at a redemption price equal to 112.25% of the
liquidation preference thereof, plus an amount in cash equal to all accumulated
and unpaid
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dividends thereon (including an amount in cash equal to a prorated dividend for
the period from the dividend payment date immediately prior to the redemption
date to the redemption date), with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, provided that such
redemption shall occur within 180 days of the date of the closing of such Public
Equity Offering.
No optional redemption may be authorized or made (i) unless prior
thereto or contemporaneously therewith full unpaid cumulative dividends shall
have been paid or a sum set apart for such payment on the Exchangeable Preferred
Stock or (ii) at less than 101% of the liquidation preference of the
Exchangeable Preferred Stock at any time when the Company is making an offer to
purchase shares of Exchangeable Preferred Stock under a Change of Control Offer
(as defined) in accordance with the provisions of "--Repurchase at the Option of
Exchangeable Preferred Stock Holders -- Change of Control."
In the event of partial redemptions of Exchangeable Preferred Stock, the
shares to be redeemed will be determined pro rata or by lot, as determined by
the Company, except that the Company may redeem such shares held by any holders
of fewer than 100 shares (or shares held by holders who would hold less than 100
shares as a result of such redemption), without regard to any pro rata
redemption requirement. The terms of certain debt instruments of the Company,
including the Senior Secured Credit Facility, the 2005 Notes and the Notes,
restrict, directly or indirectly, the ability of the Company to redeem the
Exchangeable Preferred Stock, and future agreements to which the Company or its
subsidiaries are parties may provide the same. See "Description of the Notes --
Certain Covenants" and "Description of Certain Senior Indebtedness."
MANDATORY REDEMPTION
On March 15, 2010, the Company will be required to redeem (subject to
the legal availability of funds therefor) all outstanding shares of Exchangeable
Preferred Stock at a price equal to the then effective liquidation preference
thereof, plus an amount in cash equal to all accumulated and unpaid dividends.
PROCEDURES FOR REDEMPTIONS
On and after a redemption date, unless the Company defaults in the
payment of the applicable redemption price, dividends will cease to accrue on
shares of Exchangeable Preferred Stock called for redemption and all rights of
holders of such shares will terminate except for the right to receive the
redemption price, without interest. The Company will send a written notice of
redemption by first class mail to each holder of record of shares of
Exchangeable Preferred Stock, not fewer than 30 days nor more than 60 days prior
to the date fixed for such redemption. Shares of Exchangeable Preferred Stock
issued and reacquired will, upon compliance with the applicable requirements of
Delaware law, have the status of authorized but unissued shares of preferred
stock of the Company undesignated as to series and may with any and all other
authorized but unissued shares of preferred stock of the Company be designated
or redesignated and issued or reissued, as the case may be, as part of any
series of preferred stock of the Company, except that any issuance or reissuance
of shares of Exchangeable Preferred Stock must be in compliance with the
Certificate of Designation.
REPURCHASE AT THE OPTION OF EXCHANGEABLE PREFERRED STOCK HOLDERS
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Exchangeable Preferred Stock Holder will have the right to
require the Company to repurchase all or any part of such holder's Exchangeable
Preferred Stock at a purchase price in cash equal to 101% of the aggregate
liquidation preference thereof, plus an amount in cash equal to all accumulated
and unpaid dividends per share (including an amount in cash equal to a prorated
dividend for the period from the dividend payment date immediately prior to the
repurchase date to the repurchase date), if any, to the date of repurchase
(subject to the right of Exchangeable Preferred Stock Holders of record on the
relevant record date to receive dividends due on the relevant dividend payment
date); provided, however, that notwithstanding the occurrence of a Change of
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Control, the Company shall not be obligated to purchase the Exchangeable
Preferred Stock pursuant to this covenant in the event that it has exercised its
right to redeem all of the Exchangeable Preferred Stock as described under
"Optional Redemption":
(i) prior to the first public offering of Voting Stock of the
Company, either (x) Permitted Holders cease to be the "beneficial owner"
or "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company, or (y) Permitted
Holders cease to be entitled by voting power, contract or otherwise to
elect or cause the election of directors of the Company having a
majority of the total voting power of the Board of Directors, in each
case, whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (i) and clause (ii) below,
Permitted Holders shall be deemed to beneficially own any Voting Stock
of an entity (the "specified entity") held by any other entity (the
"parent entity") so long as the Permitted Holders beneficially own (as
so defined), directly or indirectly, a majority of the Voting Stock of
the parent entity);
(ii) following the first public offering of Voting Stock of the
Company, any "Person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except
that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire within one year),
directly or indirectly, of more than 35% of the Voting Stock of the
Company, provided that the Permitted Holders beneficially own (as
defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of the Company than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors; or
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness restrict or prohibit the repurchase of Exchangeable Preferred
Stock pursuant to this covenant, then prior to the mailing of the notice to
Exchangeable Preferred Stock Holders provided for in the immediately following
paragraph but in any event within 30 days following any Change of Control
(unless the Company has exercised its right to redeem all the Exchangeable
Preferred Stock as described under "Optional Redemption"), the Company shall (i)
repay in full all Bank Indebtedness or offer to repay in full all Bank
Indebtedness and repay the Bank Indebtedness of each lender who has accepted
such offer or (ii) obtain the requisite consent under the agreements governing
the Bank Indebtedness to permit the repurchase of the Exchangeable Preferred
Stock as provided for in the immediately following paragraph.
The Company shall, within 30 days following any Change of Control (or at
the Company's option, prior to such Change of Control but after the public
announcement thereof), mail a notice to each Exchangeable Preferred Stock Holder
stating: (1) that a Change of Control has occurred or will occur and that such
Exchangeable Preferred Stock Holder has (or upon such occurrence will have) the
right to require the Company to purchase such Exchangeable Preferred Stock
Holder's Exchangeable Preferred Stock at a purchase price in cash equal to 101%
of the aggregate liquidation preference thereof, plus an amount in cash equal to
all accumulated and unpaid dividends per share (including an amount in cash
equal to a prorated dividend for the period from the dividend payment date
immediately prior to the repurchase date to the repurchase date), if any, to the
date of purchase (subject to the right of Exchangeable Preferred Stock Holders
of record on a record date to receive dividends on the relevant dividend payment
date); (2) the circumstances and relevant facts and financial information
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); (4) the instructions determined by the Company, consistent with this
covenant, that an Exchangeable Preferred Stock Holder must follow in
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order to have its Exchangeable Preferred Stock purchased; and (5) that, if such
offer is made prior to such Change of Control, payment is conditioned on the
occurrence of such Change of Control.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchangeable Preferred Stock
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchaser. The Company has no present plans
to engage in a transaction involving a Change of Control, although it is
possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or recapitalizations,
that would not constitute a Change of Control under the Certificate of
Designation, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
The occurrence of a Change of Control would constitute a default under
the Senior Secured Credit Facility. Future Indebtedness of the Company may
contain prohibitions of certain events which would constitute a Change of
Control or require such Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the Exchangeable Preferred Stock Holders of their
right to require the Company to repurchase the Exchangeable Preferred Stock
could cause a default under such Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Exchangeable Preferred Stock
Holders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, holders of Exchangeable Preferred Stock will be entitled to be
paid, out of the assets of the Company available for distribution, the
liquidation preference per share, plus an amount in cash equal to all
accumulated and unpaid dividends thereon to the date fixed for liquidation,
dissolution or winding-up (including an amount equal to a prorated dividend for
the period from the last dividend payment date to the date fixed for
liquidation, dissolution or winding-up), before any distribution is made on any
Junior Securities, including, without limitation, Common Stock of the Company.
If, upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the amounts payable with respect to the Exchangeable Preferred
Stock and all other Parity Securities are not paid in full, the holders of the
Exchangeable Preferred Stock and the Parity Securities will share equally and
ratably in any distribution of assets of the Company in proportion to the full
liquidation preference and accumulated and unpaid dividends to which each is
entitled. After payment of the full amount of the liquidation preferences and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Exchangeable Preferred Stock will not be entitled to any further
participation in any distribution of assets of the Company. However, neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets of
the Company nor the consolidation or merger of the Company with or into one or
more corporations will be deemed to be a liquidation, dissolution or winding-up
of the Company.
The Certificate of Designation does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the Exchangeable
Preferred Stock, although such liquidation preference will be substantially in
excess of the par value of such shares of Exchangeable Preferred Stock. In
addition, the Company is not aware of any provision of Delaware law or any
controlling decision of the courts of the State of Delaware (the state of
incorporation of the Company) that requires a restriction upon any surplus of
the Company solely because the liquidation preference of the Exchangeable
Preferred Stock will exceed its par value. Consequently, there will be no
restriction upon any surplus of the Company solely because the
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liquidation preference of the Exchangeable Preferred Stock will exceed the par
value and there will be no remedies available to holders of the Exchangeable
Preferred Stock before or after the payment of any dividend, other than in
connection with the liquidation of the Company, solely by reason of the fact
that such dividend would reduce the surplus of the Company to an amount less
than the difference between the liquidation preference of the Exchangeable
Preferred Stock and its par value.
VOTING RIGHTS
Exchangeable Preferred Stock Holders will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Certificate of Designation. The Certificate of Designation will provide
that (a) if (i) dividends on the Exchangeable Preferred Stock are in arrears and
unpaid (and, in the case of dividends payable after March 15, 2003, are not paid
in cash) for four consecutive quarterly periods, (ii) the Company fails to
discharge any redemption obligation with respect to the Exchangeable Preferred
Stock (whether or not the Company is permitted to do so by the terms of the
Senior Secured Credit Facility, the 2005 Notes, the Notes or any other
obligation of the Company), (iii) the Company fails to make an offer to purchase
all of the outstanding shares of Exchangeable Preferred Stock following a Change
of Control (whether or not the Company is permitted to do so by the terms of the
Senior Secured Credit Facility, the 2005 Notes, the Notes or any other
obligation of the Company) or fails to purchase shares of Exchangeable Preferred
Stock from holders who elect to have such shares purchased pursuant to the
Change of Control offer, (iv) a breach or violation of the provisions described
under the caption "-- Certain Covenants" occurs and the breach or violation
continues for a period of 60 days or more after the Company receives notice
thereof specifying the default from holders of 25% of the Exchangeable Preferred
Stock then outstanding, or (v) the Company or any Significant Subsidiary fails
to pay any Indebtedness within any applicable grace period after final maturity
(a "Payment Default"), or the acceleration of any such Indebtedness by the
holders thereof because of a default, so long as the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million or its foreign currency
equivalent, then the number of directors constituting the Board of Directors of
the Company will be adjusted to permit the holders of the majority of the then
outstanding Exchangeable Preferred Stock, voting separately as a class, to elect
two directors, and (b) the approval of holders of a majority of the outstanding
shares of Exchangeable Preferred Stock, voting as a separate class, will be
required for (i) any merger, consolidation or sale of assets of the Company
except as permitted pursuant to the covenant below entitled "Merger or
Consolidation" and (ii) for any modification of the Exchange Debenture
Indenture. Each such event described in clause (a) above is referred to herein
as a "Voting Rights Triggering Event." Voting rights arising as a result of a
Voting Rights Triggering Event will continue until such time as all dividends in
arrears on the Exchangeable Preferred Stock are paid in full (and after March
15, 2003, paid in cash) and any failure, breach or default referred to in clause
(a) is remedied.
In addition, the Certificate of Designation provides that, except as
stated above under "-- Ranking," the Company will not authorize any class of
Parity Securities without the affirmative vote or consent of holders of at least
50% of the shares of Exchangeable Preferred Stock then outstanding, voting or
consenting, as the case may be, as one class. The Certificate of Designation
also provides that the Company may not amend the Certificate of Designation so
as to affect adversely the specified rights, preferences, privileges or voting
rights of holders of shares of the Exchangeable Preferred Stock, or authorize
the issuance of any additional shares of Exchangeable Preferred Stock, without
the affirmative vote or consent of the holders of at least 50% of the then
outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the
case may be, as one class. The Certificate of Designation further provides that,
except as set forth above, (a) the creation, authorization or issuance of any
shares of Junior Securities or Parity Securities, (b) the decrease in the amount
of authorized capital stock of any class, including any Exchangeable Preferred
Stock or (c) the increase in the amount of authorized capital stock of any class
of Junior Securities shall not require the consent of the holders of
Exchangeable Preferred Stock and shall not be deemed to affect adversely the
rights, preferences, privileges or voting rights of holders of shares of
Exchangeable Preferred Stock.
Under Delaware law, holders of Exchangeable Preferred Stock will be
entitled to vote as a class upon a proposed amendment to the Certificate of
Incorporation, whether or not entitled to vote thereon by the Certificate of
Incorporation, if the amendment would increase or decrease the par value of the
shares of such
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class, or alter or change the powers, preferences or special rights of the
shares or such class so as to affect them adversely.
CERTAIN COVENANTS
Limitation on Indebtedness. (a) The Certificate of Designation provides
that the Company will not, and will not permit any Restricted Subsidiary to,
Incur any Indebtedness; provided, however, that the Company and its Restricted
Subsidiaries may Incur Indebtedness if on the date of the Incurrence of such
Indebtedness the Consolidated Coverage Ratio would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and, where
indicated, its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company Incurred pursuant to the Senior
Secured Credit Facility in a maximum principal amount not to exceed at
any time
(A) an aggregate principal amount of $40.0 million under
the Term Loan Facility less the aggregate amount of all scheduled
repayments of principal, or mandatory prepayments of principal,
applied to permanently reduce the Indebtedness outstanding under
the Term Loan Facility, plus (in the case of any refinancing
thereof) the aggregate amount of fees, underwriting discounts,
premiums and other costs and expenses incurred in connection with
such refinancing, and
(B) an aggregate principal amount outstanding at any
time under the Revolving Credit Facility not to exceed $20.0
million less the amount of all mandatory prepayments of
principal, applied to permanently reduce the commitments under
the Revolving Credit Facility, plus (in the case of any
refinancing thereof) the aggregate amount of fees, underwriting
discounts, premiums and other costs and expenses incurred in
connection with such refinancing;
(ii) Indebtedness of Foreign Subsidiaries for working capital
purposes and any Guarantees in respect thereof, the aggregate principal
amount of which Indebtedness outstanding at any time does not exceed, as
to all such Foreign Subsidiaries, $15.0 million;
(iii) Indebtedness (A) of the Company to any Restricted
Subsidiary and (B) of any Wholly Owned Subsidiary to the Company or any
Restricted Subsidiary; provided, however, that (x) in the case of clause
(A), any such Indebtedness is subordinated to the Exchange Debentures
and (y) any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any other subsequent transfer of any
such Indebtedness (except to the Company or a Wholly Owned Subsidiary)
will be deemed, in each case, an Incurrence of Indebtedness by the
Company or such Restricted Subsidiary, as the case may be;
(iv) Indebtedness represented by the Notes and the issuance of
the Exchangeable Preferred Stock in the amount issued on the Issue Date,
and any Indebtedness (other than the Indebtedness described in clauses
(i), (ii) or (iii) above) outstanding on the date of the Exchange
Debenture Indenture and any Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (iv) or paragraph (a)
(excluding the exchange of Exchangeable Preferred Stock for Exchange
Debentures in accordance with the terms of the Certificate of
Designation for such Exchangeable Preferred Stock as in effect on the
Issue Date);
(v) Indebtedness of the Company or any Restricted Subsidiary (A)
to finance or refinance the deferred purchase price of newly acquired
property of the Company and its Subsidiaries used in the ordinary course
of business of the Company and its Subsidiaries (provided such purchase
money financing is entered into within six months of the acquisition of
such property), and any Refinancing Indebtedness with respect thereto,
and (B) in the form of Capitalized Lease Obligations or Attributable
Debt, and any Refinancing Indebtedness with respect thereto, in an
aggregate amount (based on, in the
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case of clause (A), the remaining balance of the obligations therefor on
the books of the Company and its Restricted Subsidiaries) not in excess,
at any one time outstanding, of $10.0 million;
(vi) Indebtedness of the Company or any Restricted Subsidiary
(which may comprise Bank Indebtedness) in an aggregate principal amount
at any one time outstanding not in excess of $10.0 million;
(vii) Indebtedness represented by the Note Guarantees and
Guarantees of Indebtedness Incurred pursuant to clause (i), (iii) or
(iv) above;
(viii) Guarantees (A) by any Restricted Subsidiary of
Indebtedness of any other Restricted Subsidiary or (B) by any Wholly
Owned Subsidiary that is not a Restricted Subsidiary of Indebtedness of
any Wholly Owned Subsidiary that is not a Restricted Subsidiary;
(ix) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring of a check, draft or similar instrument of
such Person drawn against insufficient funds, provided that such
Indebtedness is extinguished within five Business Days of its
incurrence;
(x) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of assets, other than guarantees of Indebtedness incurred by
any Person acquiring such assets for the purpose of financing such
acquisition; provided, however, that (A) such Indebtedness is not
reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)) and (B) the maximum Indebtedness incurred in connection
with such disposition shall at no time exceed the gross proceeds being
measured at the time received by the Company and its Restricted
Subsidiaries in connection with such disposition (which proceeds would
include assumed Indebtedness of the Company or any Restricted
Subsidiary, and with respect to any other non-cash proceeds of any such
disposition, the fair market value at the time of receipt of such
proceeds and without giving effect to any subsequent changes in value);
(xi) Indebtedness in respect of (A) commercial letters of credit,
or other letters of credit or other similar instruments or obligations,
issued in connection with liabilities incurred in the ordinary course of
business (including those issued to governmental entities in connection
with self-insurance under applicable workers' compensation statutes), or
(B) surety, judgment, appeal, performance and other similar bonds,
instruments or obligations provided in the ordinary course of business;
(xii) Indebtedness under Hedging Obligations; provided, however,
that such Hedging Obligations are entered into for bona fide hedging
purposes and are in the ordinary course of business;
(xiii) Indebtedness (A) of the Company consisting of Guarantees
of up to an aggregate principal amount of $500,000 of borrowings by
Management Investors in connection with the purchase of Capital Stock of
the Company by such Management Investors or (B) of the Company or any
Restricted Subsidiary consisting of guarantees in respect of loans or
advances made to officers or employees of the Company or any such
Restricted Subsidiary, or guarantees otherwise made on their behalf, (1)
in respect of travel, entertainment and moving-related expenses incurred
in the ordinary course of business, or (2) in the ordinary course of
business not exceeding $500,000 in the aggregate outstanding at any
time;
(xiv) Indebtedness of any Restricted Subsidiary that is
Indebtedness of another Person assumed by such Restricted Subsidiary in
connection with its acquisition of assets from such Person (other than
Indebtedness Incurred in connection with, or in contemplation of, such
acquisition) and any Refinancing Indebtedness with respect thereto;
provided, however, that at the time of such acquisition of assets the
Company shall have been able to Incur at least an additional $1.00 of
Indebtedness under paragraph (a) above after giving effect to such
acquisition;
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(xv) Indebtedness of a Restricted Subsidiary issued and
outstanding on or prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred (A) as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company or (B) otherwise
in connection with, or in contemplation of, such acquisition) and any
Refinancing Indebtedness with respect thereto; provided, however, that
on the date of any such acquisition the Company shall have been able to
Incur at least $1.00 of Indebtedness under paragraph (a) above after
giving effect to such acquisition;
(xvi) Exchangeable Preferred Stock issued as payment in kind
dividends on the Exchangeable Preferred Stock outstanding on the Issue
Date or issued subsequent to the Issue Date as dividends permitted
pursuant to this clause (xvi), such dividends made pursuant to the terms
of the Certificate of Designation for such Exchangeable Preferred Stock
as in effect on the Issue Date; and
(xvii) Indebtedness arising from the assumption of the
obligations of GSD under the GSD Credit Facility; provided that the
proceeds of the Offerings are applied to repay all amounts outstanding
under the GSD Credit Facility; and
(xviii) Indebtedness (A) arising by reason of any Lien created or
permitted to exist in compliance with the covenant described under
"Exchange Debentures -- Certain Covenants --Limitations on Liens," as if
such covenant is in effect on the date of such Incurrence of
Indebtedness (without consideration of whether the Exchange Debenture
Indenture is in effect), including any Indebtedness of any Exchange
Debenture Note Guarantor arising by reason of any Lien granted by such
Person to secure Exchange Debenture Senior Indebtedness, or of the
Company or any Exchange Debenture Note Guarantor arising by reason of
any Lien granted by such Person to secure Exchange Debenture Guarantor
Senior Indebtedness, or (B) of any Restricted Subsidiary that is not an
Exchange Debenture Note Guarantor arising by reason of any Lien granted
by such person to secure Indebtedness of any Restricted Subsidiary that
is not an Exchange Debenture Note Guarantor.
(c) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on such
Indebtedness arising under any Guarantee, Lien or letter of credit supporting
such Indebtedness shall be disregarded to the extent that such Guarantee, Lien
or letter of credit secures the principal amount of such Indebtedness; (ii) in
the event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in paragraph (b) above, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses; and
(iii) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
(d) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date of such calculation.
Merger or Consolidation. The Certificate of Designation provides that,
without the consent of holders of a majority of the outstanding shares of
Exchangeable Preferred Stock, voting as a separate class, the Company will not
consolidate with or merge with or into, or convey, transfer or lease all or
substantially all of its assets to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Company") will be a Person
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia; (ii) the Exchangeable Preferred Stock shall
be converted into or exchanged for and shall become shares of the Successor
Company, having in respect of such successor, transferee or resulting
corporation substantially the same powers, preferences and relative
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereon that the Exchangeable Preferred Stock had
immediately prior to such transaction; (iii) immediately after such transaction,
no Voting Rights Triggering Event, and no event that after the giving of notice
or lapse of time or both would become a Voting Rights
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Triggering Event, shall have occurred and be continuing; (iv) immediately after
giving effect to such transaction (and treating any Indebtedness which becomes
an obligation of the Successor Company or any Restricted Subsidiary as a result
of such transaction as having been Incurred by the Successor Company or such
Restricted Subsidiary at the time of such transaction), no Default will have
occurred and be continuing; and (v) prior to the consummation of any such
proposed transaction, the Company shall have delivered to the Transfer Agent an
Officers' Certificate and an Opinion of Counsel, each to the effect that such
transaction complies with the terms of the Certificate of Designation and that
all conditions precedent to such transaction have been satisfied, provided that
(x) in giving such opinion such counsel may rely on such officer's certificate
as to any matters of fact (including without limitation as to compliance with
the foregoing clauses (iii) and (iv)), and (y) no Opinion of Counsel will be
required for a consolidation, merger or transfer described in the last paragraph
of this covenant. Any Indebtedness that becomes an obligation of the Company or
any Restricted Subsidiary (or that is deemed to be Incurred by any Restricted
Subsidiary that becomes a Restricted Subsidiary) as a result of such transaction
undertaken in compliance with this covenant, and any Refinancing Indebtedness
with respect thereto, shall be deemed to have been Incurred in compliance with
the covenant described under "Certain Covenants -- Limitation on Indebtedness."
Notwithstanding the foregoing clauses (ii) and (iii), (1) any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company, and (2) the Company may merge with an
Affiliate incorporated or organized for the purpose of reincorporating or
reorganizing the Company in another jurisdiction to realize tax or other
benefits.
Junior Payments. The Certificate of Designation provides that the
Company will not, directly or indirectly, (i) declare or pay any dividend or
make any distribution on account of any Junior Securities (other than dividends
or distributions payable in Junior Securities (other than Disqualified Stock)),
(ii) purchase, redeem or otherwise acquire or retire for value any Junior
Securities or (iii) make any Investment (other than a Permitted Investment) in
any Person (all such dividends, distributions, purchases, redemptions,
acquisitions, retirements and Investments being collectively referred to as
"Junior Payments"), if, at the time of such Junior Payment:
(i) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; or
(ii) all dividends on the Exchangeable Preferred Stock payable on
dividend payment dates after March 15, 2003, have not been declared and
paid in cash.
Notwithstanding the foregoing, the Certificate of Designation shall not
prohibit as Junior Payments:
(i) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Junior Securities or Parity Securities made by
exchange (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in
lieu of the issuance of fractional shares) for, or out of the proceeds
of the substantially concurrent sale of, Junior Securities or Parity
Securities of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries) or a substantially concurrent capital contribution to the
Company;
(ii) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Junior Securities or Parity Securities upon a
Change of Control to the extent required by the agreement governing such
Junior Securities or Parity Securities but only if the Company shall
have complied with the covenant described under "-- Change of Control"
and purchased all Exchangeable Preferred Stock required thereby, prior
to purchasing such Junior Securities or Parity Securities, provided,
however, that the purchase price (stated as a percentage of liquidation
preference) of such Junior Securities or Parity Securities shall not be
greater than the price for such purchase set forth in the instrument
pursuant to which such Junior Securities or Parity Securities were
issued;
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(iii) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with all of the provisions of the Certificate of Designation (including,
but not limited to, the "Junior Payments" covenant);
(iv) a Junior Payment to pay for the repurchase or other
acquisition or retirement of Junior Securities or Parity Securities or
options, warrants or other rights in respect thereof, or payments by the
Company to repurchase or otherwise acquire Junior Securities or Parity
Securities or options, warrants or other rights in respect thereof, in
each case from Management Investors, such payments not to exceed an
amount equal to $500,000 in any fiscal year and $2.5 million in the
aggregate (plus the Net Cash Proceeds received by the Company since the
Issue Date as a capital contribution from the sale to Management
Investors of Junior Securities or Parity Securities or options, warrants
or other rights in respect thereof); and
(v) payments by the Company or any Restricted Subsidiary (x)
pursuant to the Management Agreements, and (y) to G-IV, GSCP and SGCP
and their respective Affiliates, not to exceed an amount necessary to
permit each such Person, as the case may be, to (A) pay its costs
(including all professional fees and expenses) incurred to comply with
its reporting obligations under federal or state laws or under the
Indenture or the Certificate of Designation, including any reports filed
with respect to the Securities Act, Exchange Act or the respective rules
and regulations promulgated thereunder, to the extent such costs relate
to the Company and its Subsidiaries, (B) make payments in respect of
indemnification obligations of such Person owing to directors, officers,
employees or other Persons under their charters or by-laws or pursuant
to written agreements with any such Person, to the extent such payments
relate to the Company and its Subsidiaries, (C) pay all reasonable
out-of-pocket expenses incurred in connection with the Acquisition, the
Consent Solicitation, the Offerings and related transactions, and (D)
indemnify or reimburse, or pay on behalf of, such Persons any taxes,
charges or assessments arising by reason of their ownership of Capital
Stock of the Company and the GSD Liquidation.
Transactions with Affiliates. (a) The Certificate of Designation
provides that the Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into or conduct any transaction or
series of transactions (including the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of the Company (an
"Affiliate Transaction") on terms (i) that taken as a whole are less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in arm's-length dealings
with a Person who is not such an Affiliate and (ii) that, in the event such
Affiliate Transaction involves an aggregate amount in excess of $1.0 million,
are not in writing and have not been approved by a majority of the members of
the Board of Directors having no material personal financial interest in such
Affiliate Transaction, or in the event there are no such members, as to which
the Company has not obtained a Fairness Opinion (as hereinafter defined). In
addition, any transaction involving aggregate payments or other transfers by the
Company and its Restricted Subsidiaries in excess of $5.0 million will also
require an opinion (a "Fairness Opinion") from an independent investment banking
firm or appraiser, as appropriate, of national prominence, to the effect that
the terms of such transaction taken as a whole are either (i) no less favorable
to the Company or such Restricted Subsidiary, as the case may be, than those
that could be obtained at the time of such transaction in arm's-length dealings
with a Person who is not an Affiliate or (ii) fair to the Company or such
Restricted Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Junior Payment permitted by the covenant described under "-- Junior
Payments," any Permitted Investment, or any other transaction specifically
excluded from the definition of the term "Junior Payments," (ii) the performance
of the Company's or Restricted Subsidiary's obligations under any employment
contract, collective bargaining agreement, employee benefit plan, related trust
agreement or any other similar arrangement heretofore or hereafter entered into
in the ordinary course of business, (iii) payment of compensation, performance
of indemnification or contribution obligations, or any issuance, grant or award
of stock, options or other securities, to employees, officers or directors in
the ordinary course of business, (iv) maintenance in the ordinary course of
business of benefit programs or arrangements for employees, officers or
directors, including vacation plans, health and insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans, (v) any
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, (vi) loans
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or advances made to directors, officers or employees of the Company or any
Restricted Subsidiary, or guarantees in respect thereof or otherwise made on
their behalf (including any payments under such guarantees), (A) in respect of
travel, entertainment or moving-related expenses incurred in the ordinary course
of business, or (B) in the ordinary course of business not exceeding $500,000 in
the aggregate outstanding at any time, (vii) guarantees of borrowings by
Management Investors in connection with the purchase of Capital Stock of the
Company by such Management Investors, which guarantees are permitted under the
covenant described under "-- Limitation on Indebtedness," and payments
thereunder, (viii) the assumption of GSD's obligations under the GSD Credit
Facility, and the incurrence and payment of all fees and expenses payable in
connection with the Acquisition, the Offerings and related transactions, (ix)
any other transaction arising out of agreements in existence on the Issue Date,
(x) execution, delivery and performance of the Management Agreements, including
the ongoing payment of fees to GSCP and SGCP of up to $950,000 per year plus
reasonable out of pocket expenses, (xi) any commercial or other business
transaction in the ordinary course of business with any Permitted Holder or any
Affiliate thereof, on terms that taken as a whole are no less favorable to the
Company and its Restricted Subsidiaries than those that could be obtained at the
time in arm's-length dealings with a Person who is not an Affiliate of the
Company, and (xii) any transaction between the Company or any Restricted
Subsidiary and any Affiliate of the Company controlled by the Company that is a
joint venture or similar entity primarily engaged in a Related Business so long
as such transaction is in the ordinary course of business and is on terms that
are not materially less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
by the Company or such Restricted Subsidiary with an unrelated Person.
Reports. The Certificate of Designation provides that, whether or not
required by the rules and regulations of the Commission, so long as any shares
of Exchangeable Preferred Stock are outstanding, the Company will furnish
Exchangeable Preferred Stock Holders, within 15 days after it is or would have
been required to file such with the Commission, (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company was required to file such reports, In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any shares of
Exchangeable Preferred Stock remain outstanding, it will furnish to the
Exchangeable Preferred Stock Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
EXCHANGE
The Company may at its option exchange all, but not less than all, of
the then outstanding shares of Exchangeable Preferred Stock into Exchange
Debentures on any dividend payment date, provided that on the date of such
exchange: (a) there are no material contractual impediments to such exchange;
(b) such exchange would comply with the Delaware General Corporation Law; (c) a
Registration Statement relating to the Exchange Debentures shall have been
declared effective under the Securities Act prior to such exchange and shall
continue to be in effect on the date of such exchange or the Company shall have
obtained a written opinion of counsel that an exemption from the registration
requirements of the Securities Act is available for such exchange, and that upon
receipt of such Exchange Debentures pursuant to such exchange made in accordance
with such exemption, the holders (assuming such holder is not an Affiliate of
the Company) thereof will not be subject to any restrictions imposed by the
Securities Act upon the resale thereof and such exemption is relied upon by the
Company for such exchange; (d) the Exchange Debenture Indenture and the trustee
thereunder shall have been qualified under the TIA; (e) immediately after giving
effect to such exchange, no Default or Event of Default (each as defined in the
Exchange Debenture Indenture) would exist under the Exchange Debenture
Indenture; and (f) the Company shall have delivered a written opinion of
counsel, dated the date of exchange, regarding the satisfaction of the
conditions set forth in clauses (a), (c) and
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(d) and certain other matters (and such counsel may rely, as to matters of fact,
on an officer's certificate). The Company shall send a written notice of
exchange by mail to each holder of record of shares of Exchangeable Preferred
Stock, which notice shall state, among other things, (i) that the Company is
exercising its option to exchange the Exchangeable Preferred Stock for Exchange
Debentures pursuant to the Certificate of Designation and (ii) the date of
exchange (the "Exchange Date"), which date shall not be less than 30 days nor
more than 60 days following the date on which such notice is mailed. On the
Exchange Date, holders of outstanding shares of Exchangeable Preferred Stock
will be entitled to receive a principal amount of Exchange Debentures equal to
the liquidation preference per share, plus an amount in cash equal to all
accumulated and unpaid dividends (including an amount in cash equal to a
prorated dividend for the period from the dividend payment date immediately
prior to the Exchange Date to the Exchange Date), as provided below.
The Exchange Debentures will be issued in registered form, without
coupons. Exchange Debentures issued in exchange for Exchangeable Preferred Stock
will be issued in principal amounts of $1,000 and integral multiples thereof to
the extent possible, and will also be issued in principal amounts less than
$1,000 so that each holder of Exchangeable Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which his
shares of Exchangeable Preferred Stock entitle him, provided that the Company
may, at its option, pay cash in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000. On and after the Exchange Date, dividends
will cease to accumulate on the outstanding shares of Exchangeable Preferred
Stock, and all rights of the holders of Exchangeable Preferred Stock (except the
right to receive the Exchange Debentures, an amount in cash equal to the
accumulated and unpaid dividends to the Exchange Date and if the Company so
elects, cash in lieu of any Exchange Debenture which is in an amount that is not
an integral multiple of $1,000) will terminate. The person entitled to receive
the Exchange Debentures issuable upon such exchange will be treated for any
purposes as the registered holder of such Exchange Debentures.
The Senior Credit Agreement contains limitations with respect to the
Company's ability to issue the Exchange Debentures, and any future credit
agreements or other agreements relating to indebtedness to which the Company or
any of its Subsidiaries become a party may contain similar limitations. See
"Description of Notes -- Certain Covenants" and "Description of Certain
Indebtedness."
The Company intends to comply with the provisions of Rule 13e-4
promulgated pursuant to the Exchange Act in connection with any exchange, to the
extent applicable.
Transfer Agent and Registrar. The Bank of New York is the Transfer
Agent and Registrar for the Exchangeable Preferred Stock.
EXCHANGE DEBENTURES
GENERAL
The Exchange Debentures, if issued, will be issued under an Indenture
(the "Exchange Debenture Indenture"), dated March 18, 1998, between the Company,
Day and The Bank of New York, as trustee (the "Trustee"). The terms of the
Exchange Debentures include those stated in the Exchange Debenture Indenture and
those made part of the Exchange Debenture Indenture by reference to the Trust
Indenture Act of 1939, as amended ("TIA"). The Exchange Debentures will be
subject to all such terms, and prospective holders of the Exchange Debentures
are referred to the Exchange Debenture Indenture and the TIA for a statement of
such terms. The Exchange Debenture Indenture is filed as an Exhibit to the
Registration Statement of which the Prospectus forms a part and is available,
upon request, from the Company. The following summary of certain provisions of
the Exchange Debenture Indenture does not purport to be complete and is
qualified in its entirety by reference to the Exchange Debenture Indenture,
including the definitions therein of certain terms. Definitions of certain
capitalized terms used in the Exchange Debenture Indenture and in the following
summary are set forth below under "-- Certain Definitions."
The Exchange Debentures, if issued, will be general unsecured
obligations of the Company, subordinated to all existing and future Exchange
Debenture Senior Indebtedness, including the Notes, the 2005 Notes and
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the Senior Credit Agreement. The Exchange Debentures will be issued in fully
registered form only in denominations of $1,000 and integral multiples thereof
(other than as described in "-- Exchangeable Preferred Stock -- Exchange" or
with respect to additional Exchange Debentures issued in lieu of cash interest
as described herein).
PRINCIPAL, MATURITY AND INTEREST
The Exchange Debentures will mature on March 15, 2010. Interest on the
Exchange Debentures will accrue at a rate of 12 1/4% per annum from the Exchange
Date or from the most recent interest payment date to which interest has been
paid or provided for. Interest will be payable semi-annually in cash (or, on or
prior to March 15, 2003, in additional Exchange Debentures, at the option of the
Company) in arrears on March 15 and September 15 of each year, commencing with
the first such date after the Exchange Date, to Exchange Debenture Holders of
record on the immediately preceding March 1 and September 1. Interest on the
Exchange Debentures will be computed on the basis of a 360-day year of twelve
30-day months and the actual number of days elapsed. Principal, premium, if any,
and interest on the Exchange Debentures will be payable at the office or agency
of the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest may be made by check
mailed to the Exchange Debenture Holders at their respective addresses set forth
in the register of Exchange Debenture Holders; provided that all payments with
respect to Global Exchange Debentures the Exchange Debenture Holders of whom
have given wire transfer instructions to the Company will be required to be made
by wire transfer of immediately available funds to the accounts specified by the
Exchange Debenture Holders thereof. Until otherwise designated by the Company,
the Company's office or agency will be the office of the Trustee maintained for
such purpose. The Company may change such office without prior notice to holders
of the Exchange Debentures, and the Company or any of its Subsidiaries may act
as Paying Agent or Registrar.
SUBORDINATION AND RANKING
The indebtedness evidenced by the Exchange Debentures will be unsecured
and subordinated in right of payment, as set forth in the Exchange Debenture
Indenture, to the payment when due of all existing and future Exchange Debenture
Senior Indebtedness of the Company, including the Company's obligations under
the Senior Secured Credit Facility, the 2005 Notes and the Notes, will rank pari
passu in right of payment with all existing and future Exchange Debenture Pari
Passu Indebtedness of the Company and will be senior in right of payment to all
existing and future Exchange Debenture Subordinated Indebtedness of the Company.
The Exchange Debentures will also be effectively subordinated to any Secured
Indebtedness of the Company and its Subsidiaries to the extent of the value of
the assets securing such Indebtedness. However, payment from the money or the
proceeds of U.S. Government Obligations held in any defeasance trust described
under "--Defeasance" below is not subordinated to any Exchange Debenture Senior
Indebtedness or subject to the restrictions described herein.
Although the Exchange Debenture Indenture contains limitations on the
amount of additional Indebtedness which the Company may Incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Exchange Debenture Senior Indebtedness or Secured
Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness" below.
Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries which are not Exchange
Debenture Guarantors, including trade creditors, and claims of preferred
shareholders (if any) of such Subsidiaries will have priority with respect to
the assets and earnings of such Subsidiaries over the claims of creditors of the
Company, including holders of the Exchange Debentures. Although the Exchange
Debenture Indenture limits the incurrence of Indebtedness (including preferred
stock) by certain of the Company's Subsidiaries, such limitation is subject to a
number of significant qualifications.
"Exchange Debenture Senior Indebtedness" means the following obliga-
tions, whether outstanding on the date of the Indenture or thereafter issued,
without duplication: (i) all obligations consisting of Bank
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Indebtedness; (ii) all obligations relating to the 2005 Notes; (iii) all
obligations relating to the Notes and (iv) all obligations consisting of the
principal of and premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company regardless of whether post-filing
interest is allowed in such proceeding) on, and fees and other amounts owing in
respect of, all other Indebtedness of the Company, unless, in the instrument
creating or evidencing the same or pursuant to which the same is outstanding, it
is expressly provided that the obligations in respect of such Indebtedness are
not senior in right of payment to the Exchange Debentures; provided, however,
that Exchange Debenture Senior Indebtedness shall not include (1) any obligation
of the Company to any Subsidiary, (2) any liability for Federal, state, foreign,
local or other taxes owed or owing by the Company, (3) any accounts payable or
other liability to trade creditors arising in the ordinary course of business
(including Guarantees thereof or instruments evidencing such liabilities), (4)
any Indebtedness of the Company (or Guarantee by the Company of any
Indebtedness) that is expressly subordinate in right of payment to any other
Indebtedness of the Company (or Guarantee by the Company of any Indebtedness)
(other than the Notes) or (5) any Capital Stock. If any Exchange Debenture
Designated Senior Indebtedness is disallowed, avoided or subordinated pursuant
to the provisions of Section 548 of Title 11 of the United States Code or any
applicable state fraudulent conveyance law, such Exchange Debenture Designated
Senior Indebtedness nevertheless will constitute Exchange Debenture Senior
Indebtedness.
Only Indebtedness of the Company that is Exchange Debenture Senior
Indebtedness will rank senior to the Exchange Debentures in accordance with the
provisions of the Indenture. The Exchange Debentures will in all respects rank
pari passu with all Exchange Debenture Pari Passu Indebtedness of the Company.
The Company may not pay principal of, or premium (if any) or interest
on, the Exchange Debentures or make any deposit pursuant to the provisions
described under "-- Defeasance" below and may not otherwise purchase, redeem or
otherwise retire any Exchange Debentures (collectively, "pay the Exchange
Debentures") if (i) any Exchange Debenture Senior Indebtedness is not paid when
due in cash or Cash Equivalents or (ii) any other default on Exchange Debenture
Senior Indebtedness occurs and the maturity of such Exchange Debenture Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration has been
rescinded in writing or (y) such Exchange Debenture Senior Indebtedness has been
paid in full in cash or Cash Equivalents. However, the Company may pay the
Exchange Debentures without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
each Exchange Debenture Designated Senior Indebtedness with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing.
In addition, during the continuance of any default (other than a default
described in clause (i) or (ii) of the first sentence of the immediately
preceding paragraph) with respect to any Exchange Debenture Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Exchange Debentures for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the Company)
of written notice (a "Blockage Notice") of such default from the Representative
of each Exchange Debenture Designated Senior Indebtedness specifying an election
to effect a Payment Blockage Period and ending 179 days thereafter (or earlier
if such Payment Blockage Period is terminated (i) by written notice to the
Trustee and the Company from the Person or Persons who gave such Blockage
Notice, (ii) because such Exchange Debenture Designated Senior Indebtedness has
been discharged or repaid in full or (iii) because the default giving rise to
such Blockage Notice is no longer continuing). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of the immediately preceding paragraph), unless
the holders of such Exchange Debenture Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Exchange
Debenture Designated Senior Indebtedness, the Company may resume payments on the
Exchange Debentures after the end of such Payment Blockage Period. Not more than
one Blockage Notice may be given in any consecutive 360-day period, irrespective
of the number of defaults with respect to Exchange Debenture Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Exchange Debenture
Designated Senior Indebtedness other than Bank Indebtedness, a Representative of
Bank Indebtedness may give another Blockage Notice within such period. In no
event, however, may the total
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number of days during which any Payment Blockage Period or Periods is in effect
exceed 179 days in the aggregate during any 360 consecutive day period.
Upon any payment or distribution of the assets of the Company upon a
total or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, or in a bankruptcy,
insolvency, receivership or similar proceeding relating to the Company or its
property, the holders of Exchange Debenture Senior Indebtedness will be entitled
to receive payment in full of the Exchange Debenture Senior Indebtedness before
the Exchange Debenture Holders are entitled to receive any payment and until the
Exchange Debenture Senior Indebtedness is paid in full, any payment or
distribution to which Exchange Debenture Holders would be entitled but for the
subordination provisions of the Exchange Debenture Indenture will be made to
holders of the Exchange Debenture Senior Indebtedness as their interests may
appear. If a distribution is made to Exchange Debenture Holders that due to the
subordination provisions should not have been made to them, such Exchange
Debenture Holders are required to hold it in trust for the holders of Exchange
Debenture Senior Indebtedness and pay it over to them as their interests may
appear.
If payment of the Exchange Debentures is accelerated because of an Event
of Default, the Company or the Trustee shall promptly notify the holders of the
Exchange Debenture Designated Senior Indebtedness or the Representative of such
holders of the acceleration. The Company may not pay the Exchange Debentures
until five Business Days after such holders or the Representative of each
Exchange Debenture Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Exchange Debentures only if the
subordination provisions of the Exchange Debenture Indenture otherwise permit
payment at that time.
By reason of such subordination provisions contained in the Exchange
Debenture Indenture, in the event of insolvency, (i) creditors of the Company
who are holders of Senior Indebtedness may recover more, ratably, than the
Exchange Debenture Holders, and (ii) trade creditors of the Company who are not
holders of Exchange Debenture Senior Indebtedness or of Exchange Debenture Pari
Passu Indebtedness (including the Exchange Debentures) may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the holders of Exchange Debenture Pari Passu Indebtedness.
EXCHANGE DEBENTURE GUARANTEES
After the Issue Date, the Company may cause any Restricted Subsidiary,
and will cause each newly acquired or created Domestic Subsidiary that is a
Significant Subsidiary (each, an "Exchange Debenture Guarantor"), to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Subsidiary will guarantee (each, an "Exchange Debenture Guarantee") payment of
the Exchange Debentures. Each such Exchange Debenture Guarantor as primary
obligor and not merely as surety, will jointly and severally, irrevocably and
fully and unconditionally Guarantee, on a subordinated basis, the performance
and punctual payment when due, whether at Stated Maturity, by acceleration or
otherwise, of all obligations of the Company under the Exchange Debenture
Indenture and the Exchange Debentures, whether for principal of or interest on
the Exchange Debentures, expenses, indemnification or otherwise (all such
obligations guaranteed by such Exchange Debenture Guarantors being herein called
the "Guaranteed Obligations"). Such Exchange Debenture Guarantors will agree to
pay, in addition to the amount stated above, any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Exchange
Debenture Holders in enforcing any rights under the Exchange Debenture
Guarantees.
The obligations of each Exchange Debenture Guarantor will be limited to
the maximum amount, as will, after giving effect to all other contingent and
fixed liabilities of such Exchange Debenture Guarantor, result in the
obligations of such Exchange Debenture Guarantor under the Exchange Debenture
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law.
Each such Exchange Debenture Guarantee shall be a continuing Exchange
Debenture Guarantee and shall (i) remain in full force and effect until payment
in full of the principal amount of all outstanding Exchange Debentures (whether
by payment at maturity, purchase, redemption, defeasance, retirement or other
acquisition) and all other Guaranteed Obligations then due and owing, unless
earlier terminated as described
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below, (ii) be binding upon such Exchange Debenture Guarantor and (iii) inure to
the benefit of and be enforceable by the Trustee, the Exchange Debenture Holders
and their successors, transferees and assigns.
The Indenture provides that, subject to the provisions described in the
next succeeding paragraph, no Exchange Debenture Guarantor may consolidate or
merge with or into (whether or not such Exchange Debenture Guarantor is the
surviving Person) another Person unless (i) the Person formed by or surviving
any such consolidation or merger (if other than an Exchange Debenture Guarantor
or the Company) assumes all the obligations of such Exchange Debenture Guarantor
under the Exchange Debenture Guarantee and the Exchange Debenture Indenture
pursuant to a supplemental indenture, in form reasonably satisfactory to the
Trustee, and (ii) if such merger or consolidation is with a Person other than
the Company or a Restricted Subsidiary, (x) immediately after such transaction,
no Default or Event of Default exists and (y) the Company will, at the time of
such transaction after giving pro forma effect thereto, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to paragraph (a) under "Certain
Covenants -- Limitation on Indebtedness."
Notwithstanding the preceding paragraph, concurrently with any sale or
disposition (by merger or otherwise) of any Exchange Debenture Guarantor in
accordance with the terms of the Exchange Debenture Indenture (including the
covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets") by the Company or a Restricted Subsidiary to any Person that is not an
Affiliate of the Company, such Exchange Debenture Guarantor will automatically
and unconditionally be released from all obligations under its Exchange
Debenture Guarantee; provided, however, that any such release shall occur only
to the extent that all obligations of such Exchange Debenture Guarantor under,
and all of its guarantees of, and all of its pledges of assets or other security
interests which secure, any Bank Indebtedness of the Company shall also
terminate upon such release, sale or transfer (other than with respect to any
such Indebtedness that is assumed by any Person that is not an Affiliate of the
Company).
In addition, any Exchange Debenture Guarantee of any Exchange Debenture
Guarantor will be automatically and unconditionally released and discharged upon
the merger or consolidation of such Exchange Debenture Guarantor with and into
the Company or another Exchange Debenture Guarantor that is the surviving Person
in such merger or consolidation.
OPTIONAL REDEMPTION
Except as set forth below, the Exchange Debentures may not be redeemed
at the option of the Company prior to March 15, 2003. Thereafter, the Exchange
Debentures will be subject to redemption for cash at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days' notice to each
holder of Exchange Debentures to be redeemed, at the following redemption prices
(expressed as percentages of principal amount) if redeemed during the
twelve-month period beginning on March 15 of each of the years indicated below,
in each case together with any accrued and unpaid interest thereon to the
applicable redemption date:
<TABLE>
<CAPTION>
YEAR Percentage
- ---- ----------
<S> <C>
2003.......................................................... 106.125%
2004.......................................................... 104.083%
2005.......................................................... 102.042%
2006 and thereafter........................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001,
the Company may redeem the Exchange Debentures in whole or in part, at a
redemption price equal to 112.25% of the principal amount thereof, plus an
amount in cash equal to all accrued and unpaid interest thereon to the
redemption date, with the Net Cash Proceeds of a Public Equity Offering,
provided that such redemption shall occur within 180 days of the date of the
closing of such Public Equity Offering.
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At any time on or prior to March 15, 2003, the Exchange Debentures may
also be redeemed as a whole at the option of the Company upon the occurrence of
a Change of Control, upon not less than 30 nor more than 60 days' prior notice
(but in no event more than 180 days after the occurrence of such Change of
Control) mailed by first-class mail to each Exchange Debenture Holder's
registered address, at a redemption price equal to 100% of the principal amount
thereof plus the Applicable Premium as of, and accrued but unpaid interest, if
any, to, the date of redemption (the "Redemption Date") (subject to the right of
Exchange Debenture Holders of record on the relevant record date to receive
interest due on the relevant interest payment date).
No optional redemption of Exchange Debentures may be authorized or made
at less than 101% of the principal amount thereof at any time when the Company
is making or purchasing Exchange Debentures under a Change of Control Offer in
accordance with the provisions of "-- Repurchase at the Option of Exchange
Debenture Holders -- Change of Control."
If less than all of the Exchange Debentures are to be redeemed at any
time, selection of Exchange Debentures for redemption will be made by the
Trustee on a pro rata basis, by lot or by such method as the Trustee will deem
fair and appropriate; provided that no Exchange Debentures of $1,000 or less
will be redeemed in part. Notices of redemption will be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
Exchange Debenture Holder to be redeemed at its registered address. If any
Exchange Debenture is to be redeemed in part only, the notice of redemption that
relates to such Exchange Debenture will state the portion of the principal
amount thereof to be redeemed. A new Exchange Debenture in principal amount
equal to the unredeemed portion thereof will be issued in the name of the
Exchange Debenture Holder thereof upon cancellation of the original Exchange
Debenture. On and after the redemption date, interest will cease to accrue on
Exchange Debentures or portions of them called for redemption unless the Company
defaults in the payment thereof.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Exchange
Debenture Holders," the Company is not required to make any mandatory
redemption, purchase or sinking fund payments with respect to the Exchange
Debentures prior to the maturity date.
REPURCHASE AT THE OPTION OF EXCHANGE DEBENTURE HOLDERS
Change of Control
The Exchange Debenture Indenture will provide that upon the occurrence
of any of the following events (each a "Change of Control"), each Exchange
Debenture Holder will have the right to require the Company to repurchase all or
any part of such Exchange Debenture Holder's Exchange Debentures at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Exchange Debenture Holders of record on the relevant record date to receive
interest due on the relevant interest payment date); provided, however, that
notwithstanding the occurrence of a Change of Control, the Company shall not be
obligated to purchase the Exchange Debentures pursuant to this covenant in the
event that it has exercised its right to redeem all of the Exchange Debentures
as described under "-- Optional Redemption":
(i) prior to the first public offering of Voting Stock of the
Company, either (x) Permitted Holders cease to be the "beneficial owner"
or "beneficial owners" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company, or (y) Permitted
Holders cease to be entitled by voting power, contract or otherwise to
elect or cause the election of directors of the Company having a
majority of the total voting power of the Board of Directors, in each
case, whether as a result of issuance of securities of the Company, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (i) and clause (ii) below,
Permitted Holders shall be deemed to beneficially own any Voting Stock
of an entity (the "specified entity") held by any
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other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, a majority of
the Voting Stock of the parent entity);
(ii) following the first public offering of Voting Stock of the
Company, any "Person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except
that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire within one year),
directly or indirectly, of more than 35% of the Voting Stock of the
Company, provided that the Permitted Holders beneficially own (as
defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the Voting Stock of the Company than such other
Person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors; or
(iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors of the
Company then still in office who were either directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors then in office.
In the event that at the time of such Change of Control the terms of the
Bank Indebtedness or the Indenture restrict or prohibit the repurchase of
Exchange Debentures pursuant to this covenant, then prior to the mailing of the
notice to Exchange Debenture Holders provided for in the immediately following
paragraph but in any event within 30 days following any Change of Control
(unless the Company has exercised its right to redeem all the Exchange
Debentures as described under "-- Optional Redemption"), the Company shall (i)
repay in full all Bank Indebtedness and obligations in respect of the Notes or
offer to repay in full all Bank Indebtedness and obligations in respect of the
Notes and repay the Bank Indebtedness of each lender and each Holder of Notes
who has accepted such offer or (ii) obtain the requisite consent under the
agreements governing the Bank Indebtedness and under the Indenture to permit the
repurchase of the Exchange Debentures as provided for in the immediately
following paragraph.
Unless the Company has exercised its right to redeem all the Exchange
Debentures as described under "-- Optional Redemption," the Company shall,
within 30 days following any Change of Control (or at the Company's option,
prior to such Change of Control but after the public announcement thereof), mail
a notice to each Exchange Debenture Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred or will occur and that such Exchange
Debenture Holder has (or upon such occurrence will have) the right to require
the Company to purchase such Exchange Debenture Holder's Exchange Debentures at
a purchase price in cash equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of Exchange Debenture Holders of record on a record date to receive
interest on the relevant interest payment date); (2) the circumstances and
relevant facts and financial information regarding such Change of Control; (3)
the repurchase date (which shall be no earlier than 30 days nor later than 60
days from the date such notice is mailed); (4) the instructions determined by
the Company, consistent with this covenant, that an Exchange Debenture Holder
must follow in order to have its Exchange Debentures purchased; and (5) that, if
such offer is made prior to such Change of Control, payment is conditioned on
the occurrence of such Change of Control.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Debentures pursuant to
this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchaser. The Company has no present plans
to engage in a transaction involving a Change of Control, although it is
possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions,
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refinancings or recapitalizations, that would not constitute a Change of Control
under the Exchange Debenture Indenture, but that could increase the amount of
indebtedness outstanding at such time or otherwise affect the Company's capital
structure or credit ratings.
The occurrence of a Change of Control would constitute a default under
the Senior Credit Agreement. Future Exchange Debenture Senior Indebtedness of
the Company may contain prohibitions of certain events which would constitute a
Change of Control or require such Exchange Debenture Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Exchange
Debenture Holders of their right to require the Company to repurchase the
Exchange Debentures could cause a default under such Exchange Debenture Senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the Exchange Debenture Holders upon a repurchase may be
limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. As described above under "-- Optional Redemption," the
Company also has the right to redeem the Exchange Debentures at specified
prices, in whole but not in part, upon a Change of Control.
CERTAIN COVENANTS
The Exchange Debenture Indenture contains covenants including, among
others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not
permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however,
that the Company and the Exchange Debenture Guarantors may Incur Indebtedness if
on the date of the Incurrence of such Indebtedness the Consolidated Coverage
Ratio would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and, where
indicated, its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness of the Company Incurred pursuant to the Senior
Secured Credit Facility in a maximum principal amount not to exceed at
any time
(A) an aggregate principal amount of $40.0 million under
the Term Loan Facility less the aggregate amount of all scheduled
repayments of principal, or mandatory prepayments of principal
with Net Available Cash from Asset Dispositions, applied to
permanently reduce the Indebtedness outstanding under the Term
Loan Facility, plus (in the case of any refinancing thereof) the
aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such
refinancing, and
(B) an aggregate principal amount outstanding at any
time under the Revolving Credit Facility not to exceed $20.0
million less the amount of all mandatory prepayments of principal
with Net Available Cash from Asset Dispositions, applied to
permanently reduce the commitments under the Revolving Credit
Facility, plus (in the case of any refinancing thereof) the
aggregate amount of fees, underwriting discounts, premiums and
other costs and expenses incurred in connection with such
refinancing;
(ii) Indebtedness of Foreign Subsidiaries for working capital
purposes and any Guarantees in respect thereof, the aggregate principal
amount of which Indebtedness outstanding at any time does not exceed, as
to all such Foreign Subsidiaries, $15.0 million;
(iii) Indebtedness (A) of the Company to any Restricted
Subsidiary and (B) of any Wholly Owned Subsidiary to the Company or any
Restricted Subsidiary; provided, however, that (x) in the case of clause
(A), any such Indebtedness is subordinated to the Exchange Debentures
and (y) any subsequent issuance or transfer of any Capital Stock or any
other event that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any other subsequent transfer of any
such Indebtedness
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(except to the Company or a Wholly Owned Subsidiary) will be deemed, in
each case, an Incurrence of Indebtedness by the Company or such
Restricted Subsidiary, as the case may be;
(iv) any Indebtedness (other than the Indebtedness described in
clauses (i), (ii) or (iii) above) outstanding on the date of the
Exchange Debenture Indenture and any Refinancing Indebtedness Incurred
in respect of any Indebtedness described in this clause (iv) or
paragraph (a);
(v) Indebtedness of the Company or any Restricted Subsidiary (A)
to finance or refinance the deferred purchase price of newly acquired
property of the Company and its Subsidiaries used in the ordinary course
of business of the Company and its Subsidiaries (provided such purchase
money financing is entered into within six months of the acquisition of
such property), and any Refinancing Indebtedness with respect thereto,
and (B) in the form of Capitalized Lease Obligations or Attributable
Debt, and any Refinancing Indebtedness with respect thereto, in an
aggregate amount (based on, in the case of clause (A), the remaining
balance of the obligations therefor on the books of the Company and its
Restricted Subsidiaries) not in excess, at any one time outstanding, of
$10.0 million;
(vi) Indebtedness of the Company or any Restricted Subsidiary
(which may comprise Bank Indebtedness) in an aggregate principal amount
at any one time outstanding not in excess of $10.0 million;
(vii) Indebtedness represented by the Exchange Debenture
Guarantees and Guarantees of Indebtedness Incurred pursuant to clause
(i) or (iii) above;
(viii) Guarantees (A) by any Exchange Debenture Guarantor of
Exchange Debenture Senior Indebtedness, (B) by the Company or any
Exchange Debenture Guarantor of Exchange Debenture Guarantor Senior
Indebtedness or (C) by any Wholly Owned Subsidiary that is not an
Exchange Debenture Guarantor of Indebtedness of any Wholly Owned
Subsidiary that is not an Exchange Debenture Guarantor;
(ix) Indebtedness (A) arising by reason of any Lien created or
permitted to exist in compliance with the covenant described under "--
Limitations on Liens," including any Indebtedness of any Exchange
Debenture Guarantor arising by reason of any Lien granted by such Person
to secure Exchange Debenture Senior Indebtedness, or of the Company or
any Exchange Debenture Guarantor arising by reason of any Lien granted
by such Person to secure Exchange Debenture Guarantor Senior
Indebtedness, or (B) of any Restricted Subsidiary that is not an
Exchange Debenture Guarantor arising by reason of any Lien granted by
such Person to secure Indebtedness of any Restricted Subsidiary that is
not an Exchange Debenture Guarantor;
(x) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring of a check, draft or similar instrument of
such Person drawn against insufficient funds, provided that such
Indebtedness is extinguished within five Business Days of its
incurrence;
(xi) Indebtedness of the Company or any Restricted Subsidiary
consisting of guarantees, indemnities, or obligations in respect of
purchase price adjustments, in connection with the acquisition or
disposition of assets, other than guarantees of Indebtedness incurred by
any Person acquiring such assets for the purpose of financing such
acquisition; provided, however, that (A) such Indebtedness is not
reflected on the balance sheet of the Company or any Restricted
Subsidiary (contingent obligations referred to in a footnote to
financial statements and not otherwise reflected on the balance sheet
will not be deemed to be reflected on such balance sheet for purposes of
this clause (A)) and (B) the maximum Indebtedness incurred in connection
with such disposition shall at no time exceed the gross proceeds being
measured at the time received by the Company and its Restricted
Subsidiaries in connection with such disposition (which proceeds would
include assumed Indebtedness of the Company or any Restricted
Subsidiary, and with respect to any other non-cash proceeds of any such
disposition, the fair market value at the time of receipt of such
proceeds and without giving effect to any subsequent changes in value);
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(xii) Indebtedness in respect of (A) commercial letters of
credit, or other letters of credit or other similar instruments or
obligations, issued in connection with liabilities incurred in the
ordinary course of business (including those issued to governmental
entities in connection with self-insurance under applicable workers'
compensation statutes), or (B) surety, judgment, appeal, performance and
other similar bonds, instruments or obligations provided in the ordinary
course of business;
(xiii) Indebtedness of the Company or any Exchange Debenture
Guarantor under Hedging Obligations; provided, however, that such
Hedging Obligations are entered into for bona fide hedging purposes and
are in the ordinary course of business;
(xiv) Indebtedness (A) of the Company consisting of Guarantees of
up to an aggregate principal amount of $500,000 of borrowings by
Management Investors in connection with the purchase of Capital Stock of
the Company by such Management Investors or (B) of the Company or any
Restricted Subsidiary consisting of guarantees in respect of loans or
advances made to officers or employees of the Company or any Restricted
Subsidiary, or guarantees otherwise made on their behalf, (1) in respect
of travel, entertainment and moving-related expenses incurred in the
ordinary course of business, or (2) in the ordinary course of business
not exceeding $500,000 in the aggregate outstanding at any time;
(xv) Indebtedness of any Restricted Subsidiary that is
Indebtedness of another Person assumed by such Restricted Subsidiary in
connection with its acquisition of assets from such Person (other than
Indebtedness Incurred in connection with, or in contemplation of, such
acquisition) and any Refinancing Indebtedness with respect thereto;
provided, however, that at the time of such acquisition of assets the
Company shall have been able to Incur at least an additional $1.00 of
Indebtedness under paragraph (a) above after giving effect to such
acquisition;
(xvi) Indebtedness of a Restricted Subsidiary issued and
outstanding on or prior to the date on which such Restricted Subsidiary
was acquired by the Company (other than Indebtedness Incurred (A) as
consideration in, or to provide all or any portion of the funds or
credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became
a Restricted Subsidiary or was acquired by the Company or (B) otherwise
in connection with, or in contemplation of, such acquisition) and any
Refinancing Indebtedness with respect thereto; provided, however, that
on the date of any such acquisition the Company shall have been able to
Incur at least $1.00 of Indebtedness under paragraph (a) above after
giving effect to such acquisition; and
(xvii) Indebtedness of the Company in respect of Exchange
Debentures issued upon the exchange of the Exchangeable Preferred Stock
or issued thereafter on the Exchange Debentures, to the extent such
interest payments are made pursuant to the terms of the Exchange
Debenture Indenture; and
(c) Notwithstanding the foregoing, the Company will not Incur any
Indebtedness pursuant to any provision of the foregoing paragraph (b) that
permits Refinancing Indebtedness in respect of Indebtedness constituting
Exchange Debenture Subordinated Indebtedness, if the proceeds of such
Refinancing Indebtedness are used, directly or indirectly, to refinance such
Exchange Debenture Subordinated Indebtedness, unless such Refinancing
Indebtedness will be subordinated to the Exchange Debentures to at least the
same extent as such Exchange Debenture Subordinated Indebtedness.
(d) For purposes of determining compliance with, and the outstanding
principal amount of any particular Indebtedness Incurred pursuant to and in
compliance with, this covenant, (i) any other obligation of the obligor on such
Indebtedness arising under any Guarantee, Lien or letter of credit supporting
such Indebtedness shall be disregarded to the extent that such Guarantee, Lien
or letter of credit secures the principal amount of such Indebtedness; (ii) in
the event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in paragraph (b) above, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of such clauses; and
(iii) the amount of Indebtedness issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
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(e) For purposes of determining compliance with any Dollar-denominated
restriction on the Incurrence of Indebtedness denominated in a foreign currency,
the Dollar-equivalent principal amount of such Indebtedness Incurred pursuant
thereto shall be calculated based on the relevant currency exchange rate in
effect on the date of such calculation.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or
pay any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) except (x) dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and (y) dividends or distributions payable
to the Company or any Restricted Subsidiary (and, if the Restricted Subsidiary
making such dividend or distribution is not a Wholly Owned Subsidiary, to its
other shareholders on no more than a pro rata basis, measured by value), (ii)
purchase, redeem, retire or otherwise acquire for value any Capital Stock of the
Company held by Persons other than the Company or another Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Exchange Debenture Subordinated Indebtedness (other than the
purchase, repurchase, redemption or other acquisition of Exchange Debenture
Subordinated Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) make any Investment (other than a
Permitted Investment) in any Person (any such dividend, distribution, purchase,
redemption, repurchase, defeasance, other acquisition, retirement or Investment
being herein referred to as a "Restricted Payment") if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would
result therefrom);
(2) the Company could not incur at least an additional $1.00 of
Indebtedness under paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Company's Board of Directors whose
determination shall be conclusive and evidenced by a resolution of the
Company's Board of Directors) declared or made subsequent to the date of
the Exchange Debenture Indenture would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the end of the
most recent fiscal quarter ending prior to the Issue Date to the
end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment for which consolidated financial
statements of the Company are available (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit);
(B) the aggregate Net Cash Proceeds received by the
Company either (x) as capital contributions to the Company after
the Issue Date or (y) from the issuance or sale of its Capital
Stock (other than Disqualified Stock) subsequent to the Issue
Date (other than an issuance or sale to a Restricted Subsidiary
of the Company);
(C) the amount by which Indebtedness of the Company is
reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Restricted Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company
or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or other property (other than
Capital Stock), distributed by the Company upon such conversion
or exchange), plus the amount of any cash or other property
received by the Company or any Restricted Subsidiary upon such
conversion or exchange;
(D) the amount equal to the net reduction in Investments
in Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to
the Company or any Restricted Subsidiary from any Unrestricted
Subsidiary or (ii) the redesignation
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of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investment"), not
to exceed in the case of any such Unrestricted Subsidiary the
aggregate amount of Investments (other than Permitted
Investments) made by the Company or any Restricted Subsidiary in
such Unrestricted Subsidiary after the Issue Date; and
(E) in the case of disposition or repayment of any
Investment constituting a Restricted Payment (without duplication
of any amount deducted in calculating the amount of Investments
at any time outstanding included in the amount of Restricted
Payments), an amount equal to the lesser of the return of capital
or repayment with respect to such Investment and the initial
amount of such Investment, in either case, less the cost of the
disposition of such Investment.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(i) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Capital Stock of the Company or Exchange
Debenture Subordinated Indebtedness made by exchange (including any such
exchange pursuant to the exercise of a conversion right or privilege in
connection with which cash is paid in lieu of the issuance of fractional
shares) for, or out of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary or an employee
stock ownership plan or other trust established by the Company or any of
its Subsidiaries) or a substantially concurrent capital contribution to
the Company; provided, however, that (A) such purchase, redemption,
repurchase, defeasance, retirement or other acquisition shall be
excluded in subsequent calculations of the amount of Restricted Payments
and (B) the Net Cash Proceeds from such sale or capital contribution
shall be excluded in subsequent calculations under clause (B) of
paragraph (a);
(ii) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Exchange Debenture Subordinated Indebtedness
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Exchange Debenture Subordinated Indebtedness of the
Company that is permitted to be Incurred pursuant to the covenant
described under "Limitation on Indebtedness"; provided, however, that
such purchase, redemption, repurchase, defeasance, retirement or other
acquisition shall be excluded in subsequent calculations of the amount
of Restricted Payments;
(iii) any purchase, redemption, repurchase, defeasance,
retirement or other acquisition of Exchange Debenture Subordinated
Indebtedness from Net Available Cash to the extent permitted by the
covenant described under "-- Limitation on Sales of Assets"; provided,
however, that such purchase, redemption, repurchase, defeasance,
retirement or other acquisition shall be excluded in subsequent
calculations of the amount of Restricted Payments;
(iv) any purchase, redemption, repurchase, defeasance, retirement
or other acquisition of Exchange Debenture Subordinated Indebtedness
upon a Change of Control to the extent required by the agreement
governing such Exchange Debenture Subordinated Indebtedness but only if
the Company shall have complied with the covenant described under "--
Change of Control" and purchased all Exchange Debentures tendered
pursuant to the offer to repurchase all the Exchange Debentures required
thereby, prior to purchasing or repaying such Exchange Debenture
Subordinated Indebtedness; provided, however, that (A) the purchase
price (stated as a percentage of principal amount or issue price plus
accrued original issue discount, if less) of such Exchange Debenture
Subordinated Indebtedness shall not be greater than the price (stated as
a percentage of principal amount) of the Exchange Debentures pursuant to
any such offer to repurchase the Exchange Debentures in the event of a
Change of Control, and (B) any such purchase, redemption, repurchase,
defeasance, retirement or other acquisition shall be included in
subsequent calculations of the amount of Restricted Payments;
(v) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with paragraph (a); provided, however, that such dividends shall be
included in subsequent calculations of the amount of Restricted
Payments;
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(vi) a Restricted Payment to pay for the repurchase or other
acquisition or retirement of Capital Stock or options, warrants or other
rights in respect thereof, or payments by the Company to repurchase or
otherwise acquire Capital Stock or options, warrants or other rights in
respect thereof, in each case from Management Investors, such payments
not to exceed an amount equal to $500,000 in any fiscal year and $2.5
million in the aggregate (plus the Net Cash Proceeds received by the
Company since the Issue Date as a capital contribution from the sale to
Management Investors of Capital Stock or options, warrants or other
rights in respect thereof); provided, however, that such payments will
be included in subsequent calculations of the amount of Restricted
Payments;
(vii) payments by the Company or any Restricted Subsidiary (x)
pursuant to the Management Agreements and, (y) to G-IV, GSCP and SGCP
and their respective Affiliates, not to exceed an amount necessary to
permit each such Person, as the case may be, to (A) pay its costs
(including all professional fees and expenses) incurred to comply with
its reporting obligations under federal or state laws or under the
Indenture or the Exchange Debenture Indenture, including any reports
filed with respect to the Securities Act, Exchange Act or the respective
rules and regulations promulgated thereunder, to the extent such costs
relate to the Company and its Subsidiaries, (B) make payments in respect
of indemnification obligations of such Person owing to directors,
officers, employees or other Persons under their charters or by-laws or
pursuant to written agreements with any such Person, to the extent such
payments relate to the Company and its Subsidiaries, (C) pay all
reasonable out-of-pocket expenses incurred in connection with the
Acquisition, the Consent Solicitation, the Offerings and related
transactions, and (D) indemnify or reimburse, or pay on behalf of, such
Persons any taxes, charges or assessments arising by reason of their
ownership of Capital Stock of the Company and the GSD Liquidation;
provided, however, that such payments will be excluded in subsequent
calculations of the amount of Restricted Payments;
(viii) the payment by the Company of dividends on the common
stock of the Company following an initial public offering of such common
stock, in an amount not to exceed in any fiscal year 6% of the net
proceeds received by the Company from such public offering; provided,
however, that such dividends will be included in subsequent calculations
of the amount of Restricted Payments;
provided, that in the case of clauses (vi) and (viii) no Default or
Event of Default shall have occurred or be continuing at the time of such
payment after giving effect thereto; provided, further, that the ongoing annual
fees of up to $950,000 payable pursuant to the Management Agreements shall not
be made if a Default or an Event of Default has occurred or is continuing at the
time of such payment.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Indebtedness or other obligations owed to the Company, (ii)
make any loans or advances to the Company or (iii) transfer any of its property
or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect at
or entered into on the date of the Exchange Debenture Indenture (including,
without limitation, the Senior Secured Credit Facility and the 2005 Notes);
(2) any encumbrance or restriction with respect to a Restricted
Subsidiary (x) pursuant to an agreement relating to any Indebtedness Incurred by
a Restricted Subsidiary prior to the date on which such Restricted Subsidiary
was acquired by the Company, or of another Person that is assumed by the Company
or a Restricted Subsidiary in connection with the acquisition of assets from, or
merger or consolidation with, such Person (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company, or such acquisition of assets, merger
or consolidation) and outstanding on the date of such acquisition, merger or
consolidation or (y) pursuant to any agreement (not relating to any
Indebtedness) in existence when a Person becomes a Subsidiary of the Company or
when such agreement is acquired by the Company or any Subsidiary thereof,
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that is not created in contemplation of such Person becoming such a Subsidiary
or such acquisition (for purposes of this clause (2), if another Person is the
Successor Company, any Subsidiary or agreement thereof shall be deemed acquired
or assumed, as the case may be, by the Company when such Person becomes the
Successor Company);
(3) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement (a "Refinancing Agreement") effecting a
refinancing of Indebtedness Incurred pursuant to, or that otherwise extends,
renews, refinances or replaces, an agreement referred to in clause (1) or (2) of
this covenant or this clause (3) (an "Initial Agreement") or contained in any
amendment to an Initial Agreement; provided, however, that the encumbrances and
restrictions contained in any such Refinancing Agreement or amendment are no
less favorable to the Exchange Debenture Holders taken as a whole than
encumbrances and restrictions contained in the Initial Agreement or Initial
Agreements to which such Refinancing Agreement or amendment relates (as
conclusively determined in good faith by the Board of Directors);
(4) any encumbrance or restriction (A) that restricts in a customary
manner the subletting, assignment or transfer of any property or asset that is
subject to a lease, license or similar contract, or the assignment or transfer
of any lease, license or other contract, (B) by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of the Company or any Restricted Subsidiary not otherwise prohibited
by the Exchange Debenture Indenture, (C) contained in mortgages, pledges or
other security agreements securing Indebtedness of a Restricted Subsidiary to
the extent such encumbrance or restrictions restrict the transfer of the
property subject to such mortgages, pledges or other security agreements or (D)
pursuant to customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Company or any
Restricted Subsidiary; provided, however, that, in each case, such encumbrance
or restriction relates to, and restricts dealings with, only the property or
asset that is the subject of such encumbrance or restriction;
(5) any restriction with respect to a Restricted Subsidiary (or any of
its property or assets) imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all the Capital
Stock or assets of such Restricted Subsidiary (or the property or assets that
are subject to such restriction) pending the closing of such sale or
disposition;
(6) any encumbrance or restriction on the transfer of property or assets
required by any regulatory authority having jurisdiction over the Company or any
Restricted Subsidiary or any of their businesses;
(7) any encumbrance or restriction pursuant to an agreement relating to
any foreign Indebtedness Incurred, or any sale of receivables, by a Foreign
Subsidiary, provided that the Indebtedness pursuant to which such restriction
applies does not exceed $10.0 million in any one case.
Limitation on Sales of Assets. (a) The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Disposition unless
(i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person
assuming responsibility for, any liabilities, contingent or otherwise)
at the time of such Asset Disposition at least equal to the fair market
value of the shares and assets subject to such Asset Disposition, as
such fair market value may be determined (and shall be determined, to
the extent such Asset Disposition or any series of related Asset
Dispositions involves aggregate consideration in excess of $1.0 million)
in good faith by the Board of Directors, whose determination shall be
conclusive (including as to the value of all noncash consideration),
(ii) at least 75% of the consideration therefor (excluding, in
the case of an Asset Disposition of assets, any consideration by way of
relief from, or by any other Person assuming responsibility for, any
liabilities, contingent or otherwise, which are not Indebtedness)
received by the Company or such Restricted Subsidiary is in the form of
cash, and
(iii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted
Subsidiary, as the case may be) as follows:
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(A) first, either (x) to the extent the Company elects
(or is required by the terms of any Exchange Debenture Senior
Indebtedness or Indebtedness (other than Exchangeable Preferred
Stock) of a Restricted Subsidiary), to prepay, repay or purchase
Exchange Debenture Senior Indebtedness or such Indebtedness of a
Restricted Subsidiary (in each case other than Indebtedness owed
to the Company or a Restricted Subsidiary) within 365 days after
the date of such Asset Disposition, or (y) to the extent the
Company or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary)
within 365 days from the date of such Asset Disposition, or if
such reinvestment in Additional Assets is a project authorized by
the Board of Directors that will take longer than such 365 days
to complete, so long as such project is completed within two
years of the receipt of the Net Available Cash from such Asset
Sale;
(B) second, to the extent of the balance of such Net
Available Cash after application in accordance with clause (A)
(such balance, the "Excess Proceeds"), to make an offer to
purchase Exchange Debentures and (to the extent required by the
terms thereof) any other Exchange Debenture Pari Passu
Indebtedness, pursuant and subject to the conditions of the
Exchange Debenture Indenture and the agreements governing such
other Indebtedness, at a purchase price of 100% of the principal
amount thereof (or accreted value, as applicable) plus accrued
and unpaid interest to the purchase date; and
(C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A)
and (B) above, to fund (to the extent consistent with any other
applicable provision of the Exchange Debenture Indenture) any
general corporate purpose (including the repayment of any
Exchange Debenture Subordinated Indebtedness);
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A)(x) or (B) above, the Company or
such Restricted Subsidiary will retire such Indebtedness and will cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this covenant, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this covenant except to the extent that the aggregate Net Available Cash
from all Asset Dispositions that is not applied in accordance with this covenant
exceeds $5.0 million. If the aggregate principal amount (or accreted value, as
applicable) of Exchange Debentures and Exchange Debenture Pari Passu
Indebtedness validly tendered and not withdrawn in connection with an offer
pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds
will be apportioned between the Exchange Debentures and such Exchange Debenture
Pari Passu Indebtedness, with the portion of the Excess Proceeds payable in
respect of the Exchange Debentures to equal the lesser of (x) the Excess
Proceeds amount multiplied by a fraction, the numerator of which is the
outstanding principal amount of the Exchange Debentures and the denominator of
which is the sum of the outstanding principal amount of the Exchange Debentures
and the outstanding principal amount (or accreted value, as applicable) of the
relevant Exchange Debenture Pari Passu Indebtedness, and (y) the aggregate
principal amount of Exchange Debentures validly tendered and not withdrawn.
For the purposes of this covenant, the following are deemed to be cash:
(w) Cash Equivalents, (x) the assumption of Indebtedness of the Company (other
than Disqualified Stock of the Company) or any Restricted Subsidiary and the
release of the Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition, (y) Indebtedness of any
Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of
such Asset Disposition, to the extent that the Company and each other Restricted
Subsidiary is released from any Guarantee of such Indebtedness in connection
with such Asset Disposition, and (z) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Exchange Debentures pursuant to clause (a)(iii)(B) above, the Company will be
required to purchase Exchange Debentures tendered pursuant to an offer by the
Company for the Exchange Debentures (the "Offer") at a purchase price of 100% of
their
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principal amount plus accrued and unpaid interest to the Purchase Date in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Exchange Debenture Indenture. If the
aggregate purchase price of the Exchange Debentures tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of Exchange
Debentures, the remaining Net Available Cash will be available to the Company
for use in accordance with clause (a)(iii)(B) (to repay Exchange Debenture Pari
Passu Indebtedness) or clause (a)(iii)(C) above. The Company shall not be
required to make an Offer for Exchange Debentures pursuant to this covenant if
the Net Available Cash available therefor (after application of the proceeds as
provided in clauses (a)(iii)(A) above) is less than $5.0 million for any
particular Asset Disposition (which lesser amounts shall be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Exchange Debentures pursuant
to this covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of transactions (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") on terms
(i) that taken as a whole are less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate and (ii) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $1.0 million, are not in writing and have not been
approved by a majority of the members of the Board of Directors having no
material personal financial interest in such Affiliate Transaction, or in the
event there are no such members, as to which the Company has not obtained a
Fairness Opinion (as hereinafter defined). In addition, any transaction
involving aggregate payments or other transfers by the Company and its
Restricted Subsidiaries in excess of $5.0 million will also require an opinion
(a "Fairness Opinion") from an independent investment banking firm or appraiser,
as appropriate, of national prominence, to the effect that the terms of such
transaction taken as a whole are either (i) no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than those that could be
obtained at the time of such transaction in arm's-length dealings with a Person
who is not an Affiliate or (ii) fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted by the covenant described under "-- Limitation
on Restricted Payments," any Permitted Investment, or any other transaction
specifically excluded from the definition of the term "Restricted Payment," (ii)
the performance of the Company's or Restricted Subsidiary's obligations under
any employment contract, collective bargaining agreement, employee benefit plan,
related trust agreement or any other similar arrangement heretofore or hereafter
entered into in the ordinary course of business, (iii) payment of compensation,
performance of indemnification or contribution obligations, or any issuance,
grant or award of stock, options or other securities, to employees, officers or
directors in the ordinary course of business, (iv) maintenance in the ordinary
course of business of benefit programs or arrangements for employees, officers
or directors, including vacation plans, health and the insurance plans, deferred
compensation plans, and retirement or savings plans and similar plans, (v) any
transaction between the Company and a Restricted Subsidiary or between
Restricted Subsidiaries, (vi) loans or advances made to directors, officers or
employees of the Company or any Restricted Subsidiary, or guarantees in respect
thereof or otherwise made on their behalf (including any payments under such
guarantees), (A) in respect of travel, entertainment or moving-related expenses
incurred in the ordinary course of business, or (B) in the ordinary course of
business not exceeding $500,000 in the aggregate outstanding at any time, (vii)
guarantees of borrowings by Management Investors in connection with the purchase
of Capital Stock of the Company by such Management Investors, which guarantees
are permitted under the covenant described under "-- Limitation on
Indebtedness," and payments thereunder, (viii) the assumption of GSD's
obligations under the GSD Credit Facility, and the incurrence and payment of all
fees and expenses payable in connection with the Acquisition and the related
transactions, (ix) any other transaction arising out of agreements in existence
on the Issue Date, (x) execution, delivery and performance of the Management
Agreements, including the ongoing payment of fees to GSCP
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and SGCP of up to $950,000 per year plus reasonable out of pocket expenses, (xi)
any commercial or other business transaction in the ordinary course of business
with any Permitted Holder or any Affiliate thereof, on terms that taken as a
whole are no less favorable to the Company and its Restricted Subsidiaries than
those that could be obtained at the time in arm's-length dealings with a Person
who is not an Affiliate of the Company, and (xii) any transaction between the
Company or any Restricted Subsidiary and any Affiliate of the Company controlled
by the Company that is a joint venture or similar entity primarily engaged in a
Related Business so long as such transaction is in the ordinary course of
business and is on terms that are not materially less favorable to the Company
or the relevant Restricted Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company (i) will not, and will not permit any Restricted
Subsidiary of the Company to transfer, convey, sell, lease or otherwise dispose
of any Capital Stock of any Restricted Subsidiary to any Person (other than the
Company or a Wholly Owned Subsidiary) and (ii) will not permit any Restricted
Subsidiary to issue any of its Capital Stock (other than to management of such
Restricted Subsidiary and, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary, unless (a) after any such transfer,
conveyance, sale, lease, disposition or issuance, such Restricted Subsidiary
continues to be a Restricted Subsidiary and (b) the net cash proceeds from such
transfer, conveyance, sale, lease, disposition or issuance, are applied in
accordance with the covenant described under "-- Limitation on Sales of Assets";
provided, however, that this provision shall not prohibit (x) the transfer,
conveyance, sale, lease or other disposition of all of the Capital Stock of any
Restricted Subsidiary or the retention of Preferred Stock which is not
Disqualified Stock in connection with any such transfer, conveyance, sale, lease
or other disposition, (y) the transfer, conveyance, sale, lease or other
disposition of Preferred Stock of a Subsidiary in compliance with the terms of
the covenant described under "Certain Covenants -- Limitation on Sales of
Assets," and (z) the issuance or sale of any Preferred Stock of a Restricted
Subsidiary if such issuance or sale would be in compliance with the terms of the
covenant described under "Certain Covenants -- Limitation on Indebtedness."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, create or permit to exist any
Lien (other than Permitted Liens) on any of its property or assets (including
Capital Stock of any other Person), whether owned on the date of the Exchange
Debenture Indenture or thereafter acquired, securing any Indebtedness that is
not Senior Indebtedness or Exchange Debenture Guarantor Senior Indebtedness (the
"Initial Lien"), unless contemporaneously therewith effective provision is made
to secure the Indebtedness due under the Exchange Debenture Indenture and the
Exchange Debentures or, in respect of Liens on any Restricted Subsidiary's
property or assets, any Exchange Debenture Guarantee of such Restricted
Subsidiary, equally and ratably with such obligation for so long as such
obligation is so secured by such Initial Lien. Any such Lien thereby created in
favor of the Exchange Debentures or any such Exchange Debenture Guarantee will
be automatically and unconditionally released and discharged upon (i) the
release and discharge of the Initial Lien to which it relates, or (ii) any sale,
exchange or transfer to any Person not an Affiliate of the Company of the
property or assets secured by such Initial Lien, or of all of the Capital Stock
held by the Company or any Restricted Subsidiary in, or all or substantially all
the assets of, any Restricted Subsidiary creating such Lien.
SEC Reports. Notwithstanding that the Company may not be required to be
or remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file (if then permitted to do so) with the SEC
and provide (whether or not so filed with the SEC) the Trustee and Exchange
Debenture Holders and prospective Exchange Debenture Holders (upon request) with
the annual reports and the information, documents and other reports, which are
specified in Sections 13 and 15(d) of the Exchange Act. The Company also will
comply with the other provisions of TIA Section 314(a).
Additional Exchange Debenture Guarantors. The Exchange Debenture
Indenture will provide that if the Company or any of its Domestic Subsidiaries
shall acquire or create another Domestic Subsidiary that is a Significant
Subsidiary, then the Company, the Trustee and such newly acquired or created
Domestic Subsidiary shall execute and deliver a supplemental indenture
evidencing such Exchange Debenture Guarantee and deliver an opinion of counsel,
in accordance with the terms of the Exchange Debenture Indenture. The Company
will also have the right to cause any Restricted Subsidiary so to become an
Exchange Debenture
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Guarantor. Each Exchange Debenture Guarantee will be limited to an amount not to
exceed the maximum amount that can be Guaranteed by that Subsidiary without
rendering the Exchange Debenture Guarantee, as it relates to such Subsidiary,
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. See "--
Exchange Debenture Guarantees."
DEFAULTS
An Event of Default is defined in the Exchange Debenture Indenture as
(i) a default in any payment of interest on any Exchange Debenture when due,
continued for 30 days, (ii) a default in the payment of principal of any
Exchange Debenture when due at its Stated Maturity, upon optional redemption,
upon required repurchase, upon declaration or otherwise, whether or not such
payment is prohibited by the provisions described under "-- Ranking" above,
(iii) the failure by the Company to comply with its obligations under the
covenant described under "-- Merger and Consolidation" above, (iv) the failure
by the Company to comply for 30 days after notice with any of its obligations
under the covenants described under "Change of Control" or "-- Certain
Covenants" above (in each case, other than a failure to purchase Exchange
Debentures), (v) the failure by the Company to comply for 60 days after notice
with its other agreements contained in the Exchange Debentures or the Exchange
Debenture Indenture, (vi) the failure by any Exchange Debenture Guarantor to
comply with its obligations under any Exchange Debenture Guarantee to which such
Exchange Debenture Guarantor is a party, after any applicable grace period,
(vii) the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$5.0 million or its foreign currency equivalent (the "cross acceleration
provision"), (viii) certain events of bankruptcy, insolvency or reorganization
of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (ix)
the rendering of any judgment or decree for the payment of money in an amount
(net of any insurance or indemnity payments actually received in respect thereof
prior to or within 60 days from the entry thereof, or to be received in respect
thereof in the event any appeal thereof shall be unsuccessful) in excess of $5.0
million or its foreign currency equivalent against the Company or a Significant
Subsidiary that is not discharged, or bonded or insured by a third Person, if
(A) an enforcement proceeding thereon is commenced or (B) such judgment or
decree remains outstanding for a period of 60 days following such judgment or
decree and is not discharged, waived or stayed (the "judgment default
provision") or (x) the failure of any Exchange Debenture Guarantee by an
Exchange Debenture Guarantor which is a Significant Subsidiary to be in full
force and effect (except as contemplated by the terms thereof or of the Exchange
Debenture Indenture) or the denial or disaffirmation in writing by any such
Exchange Debenture Guarantor of its obligations under the Exchange Debenture
Indenture or any Exchange Debenture Guarantee if such Default continues for 10
days.
The foregoing will constitute Events of Default whatever the reason for
any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
However, a Default under clause (iv) or (v) will not constitute an Event
of Default until the Trustee or Exchange Debenture Holders of at least 25% in
principal amount of the outstanding Exchange Debentures notify the Company of
the Default and the Company does not cure such Default within the time specified
in clauses (iv) and (v) hereof after receipt of such notice.
If an Event of Default (other than a Default relating to certain events
of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee by notice to the Company, or the Exchange Debenture
Holders of at least a majority in principal amount of the outstanding Exchange
Debentures by notice to the Company and the Trustee, may declare the principal
of and accrued but unpaid interest on all the Exchange Debentures to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Exchange Debentures will
become immediately due and payable without any declaration or other act on the
part of the Trustee or any Exchange Debenture Holders. Under certain
circumstances, the Exchange Debenture
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Holders of a majority in principal amount of the outstanding Exchange Debentures
may rescind any such acceleration with respect to the Exchange Debentures and
its consequences.
Subject to the provisions of the Exchange Debenture Indenture relating
to the duties of the Trustee, in case an Event of Default occurs and is
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Exchange Debenture Indenture at the request or
direction of any of the Exchange Debenture Holders unless such Exchange
Debenture Holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Exchange
Debenture Holder may pursue any remedy with respect to the Exchange Debenture
Indenture or the Exchange Debentures unless (i) such Exchange Debenture Holder
has previously given the Trustee notice that an Event of Default is continuing,
(ii) Exchange Debenture Holders of at least 25% in principal amount of the
outstanding Exchange Debentures have requested the Trustee to pursue the remedy,
(iii) such Exchange Debenture Holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense, (iv) the Trustee
has not complied with such request within 60 days after the receipt of the
request and the offer of security or indemnity and (v) the Exchange Debenture
Holders of a majority in principal amount of the outstanding Exchange Debentures
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the Exchange Debenture
Holders of a majority in principal amount of the outstanding Exchange Debentures
are given the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Exchange Debenture Indenture or that
the Trustee determines is unduly prejudicial to the rights of any other Exchange
Debenture Holder or that would involve the Trustee in personal liability. Prior
to taking any action under the Exchange Debenture Indenture, the Trustee will be
entitled to indemnification satisfactory to it in its sole discretion against
all losses and expenses caused by taking or not taking such action.
The Exchange Debenture Indenture provides that if a Default occurs and
is continuing and is known to the Trustee, the Trustee must mail to each
Exchange Debenture Holder notice of the Default within 90 days after it occurs.
Except in the case of a Default in the payment of principal of, or premium (if
any) or interest on, any Exchange Debenture, the Trustee may withhold notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding notice is in the interests of the Exchange Debenture Holders. In
addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Exchange Debenture Indenture may be
amended with the consent of the Exchange Debenture Holders of a majority in
principal amount of the Exchange Debentures then outstanding and any past
default or compliance with any provisions may be waived with the consent of the
Exchange Debenture Holders of a majority in principal amount of the Exchange
Debentures then outstanding. However, without the consent of each Exchange
Debenture Holder of an outstanding Exchange Debenture affected, no amendment
may, among other things, (i) reduce the principal amount of Exchange Debentures
whose Exchange Debenture Holders must consent to an amendment, (ii) reduce the
rate of or extend the time for payment of interest on any Exchange Debenture,
(iii) reduce the principal of or extend the Stated Maturity of any Exchange
Debenture, (iv) reduce the premium payable upon the redemption of any Exchange
Debenture or change the time at which any Exchange Debenture may be redeemed as
described under "Optional Redemption" above, (v) make any Exchange Debenture
payable in money other than that stated in the Exchange Debenture, (vi) make any
change to the subordination provisions of the Exchange Debenture Indenture that
adversely affects the rights of any Exchange Debenture Holder, (vii) impair the
right of any Exchange Debenture Holder to receive payment of principal of and
interest on such Exchange Debenture Holder's Exchange Debentures on or after the
due dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Exchange Debenture Holder's Exchange Debentures, (viii)
release any
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Exchange Debenture Guarantor from any of its obligations under its Exchange
Debenture Guarantee or the Exchange Debenture Indenture (other than in
accordance with the terms of the Exchange Debenture Guarantee or the Exchange
Debenture Indenture), or amend the provisions of the Exchange Debenture
Indenture relating to the release of Exchange Debenture Guarantors (other than
any releases pursuant to the terms of the Exchange Debenture Indenture or the
Exchange Debenture Guarantee), or (ix) make any change in the amendment
provisions that require each Exchange Debenture Holder's consent or in the
waiver provisions.
Without the consent of any Exchange Debenture Holder, the Company and
Trustee may amend the Exchange Debenture Indenture to cure any ambiguity,
omission, defect or inconsistency, to provide for the assumption by a successor
of the obligations of the Company under the Exchange Debenture Indenture, to
provide for uncertificated Exchange Debentures in addition to or in place of
certificated Exchange Debentures (provided, however, that the uncertificated
Exchange Debentures are issued in registered form for purposes of Section 163(f)
of the Code, or in a manner such that the uncertificated Exchange Debentures are
described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect
to the Exchange Debentures, to secure the Exchange Debentures, to add to the
covenants of the Company for the benefit of the Exchange Debenture Holders or to
surrender any right or power conferred upon the Company, to provide that any
Indebtedness that becomes or will become an obligation of the Successor Company
pursuant to a transaction governed by the provisions described under "-- Merger
and Consolidation" (and that is not a Exchange Debenture Subordinated
Indebtedness) is Exchange Debenture Pari Passu Indebtedness for purposes of this
Exchange Debenture Indenture, to make any change that does not adversely affect
the rights of any Exchange Debenture Holder or to comply with any requirement of
the SEC in connection with the qualification of the Exchange Debenture Indenture
under the TIA. However, no amendment may be made to the subordination provisions
of the Exchange Debenture Indenture that adversely affects the rights of any
holder of Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Exchange Debenture Holders is not necessary under the
Exchange Debenture Indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the substance of the
proposed amendment. After an amendment under the Exchange Debenture Indenture
becomes effective, the Company is required to mail to Exchange Debenture Holders
a notice briefly describing such amendment. However, the failure to give such
notice to all Exchange Debenture Holders, or any defect therein, will not impair
or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all of its obligations under the
Exchange Debentures and the Exchange Debenture Indenture ("legal defeasance"),
except for certain obligations, including those respecting the defeasance trust
and obligations to register the transfer or exchange of the Exchange Debentures,
to replace mutilated, destroyed, lost or stolen Exchange Debentures and to
maintain a registrar and paying agent in respect of the Exchange Debentures. The
Company at any time may terminate its obligations under the covenants described
under "-- Certain Covenants," the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Subsidiaries and the judgment default
provision described under "--Defaults" above and the limitations contained in
clause (iii) under "-- Merger and Consolidation" above ("covenant defeasance").
If the Company exercises its legal defeasance option or its covenant defeasance
option, each Exchange Debenture Guarantor will be released from all of its
obligations with respect to its Exchange Debenture Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Exchange Debentures may not be
accelerated because of an Event of Default with respect thereto. If the Company
exercises its covenant defeasance option, payment of the Exchange Debentures may
not be accelerated because of an Event of Default specified in clause (iv),
(vi), (vii), (viii) (but only with respect to certain bankruptcy events of a
Significant Subsidiary), (ix) or (x) under "Defaults" above or because of the
failure of the Company to comply with clause (iii) under "-- Merger and
Consolidation" above.
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Either defeasance option may be exercised to any redemption date or to
the maturity date for the Exchange Debentures. In order to exercise either
defeasance option, the Company must irrevocably deposit in trust (the
"defeasance trust") with the Trustee money or U.S. Government Obligations, or a
combination thereof, for the payment of principal of, and premium (if any) and
interest on, the Exchange Debentures to redemption or maturity, as the case may
be, and must comply with certain other conditions, including delivery to the
Trustee of an Opinion of Counsel to the effect that holders of the Exchange
Debentures will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law since the date of the Exchange Debenture
Indenture).
BOOK-ENTRY, DELIVERY AND FORM
It is expected that the Exchange Debentures will be subject to
arrangements regarding book-entry, delivery and form which are substantially the
same as those with respect to the Notes set forth under "--Description of the
Notes -- Book-Entry, Delivery and Form."
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Exchange Debenture
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Exchange Debentures.
GOVERNING LAW
The Exchange Debenture Indenture provides that it and the Exchange
Debentures will be governed by, and construed in accordance with, the laws of
the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Certificate of
Designation and in the Exchange Debenture Indenture. Reference is made to the
Certificate of Designation and the Exchange Debenture Indenture for a full
disclosure of all such terms, as well as any other capitalized terms used herein
for which no definition is provided. For purposes of the Exchange Debenture
Indenture, unless otherwise specifically indicated, the term "consolidated" with
respect to any Person refers to such Person consolidated with its Restricted
Subsidiaries, and excludes from such consolidation any Unrestricted Subsidiary
as if such Unrestricted Subsidiary were not an Affiliate of such Person.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock of
any Person that at such time is a Restricted Subsidiary, acquired from a third
party; provided, however, that, in the case of clauses (ii) and (iii), such
Restricted Subsidiary is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
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"Applicable Premium" means, with respect to an Exchange Debenture at any
Redemption Date, the greater of (i) 1.0% of the then outstanding principal
amount of such Exchange Debenture and (ii) the excess of (A) the present value
at such time of (1) the redemption price of such Exchange Debenture at March 15,
2003 plus (2) all required interest and principal payments (excluding accrued
but unpaid interest) due on such Exchange Debenture through March 15, 2003,
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the then-outstanding principal amount of such Exchange Debenture.
"Asset Disposition" means any sale, lease, transfer or other disposition
of shares of Capital Stock of a Restricted Subsidiary (other than directors'
qualifying shares, or (in the case of a Foreign Subsidiary) to the extent
required by applicable law), property or other assets (each referred to for the
purposes of this definition as a "disposition") by the Company or any of its
Restricted Subsidiaries (including any disposition by means of a merger,
consolidation or similar transaction) other than (i) a disposition by a
Restricted Subsidiary to the Company or by the Company or a Restricted
Subsidiary to a Restricted Subsidiary, (ii) a disposition of inventory,
equipment, obsolete assets or surplus personal property in the ordinary course
of business, (iii) the sale of Cash Equivalents in the ordinary course of
business, (iv) dispositions with a fair market value not exceeding $500,000 in
the aggregate in any fiscal year, (v) the sale or discount (with or without
recourse, and on commercially reasonable terms) of accounts receivable or notes
receivable arising in the ordinary course of business, or the conversion or
exchange of accounts receivable for notes receivable, (vi) the licensing of
intellectual property in the ordinary course of business, (vii) for purposes of
the covenant described under "--Certain Covenants -- Limitation on Sales of
Assets" only, a disposition subject to the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" or (viii) a disposition of
property or assets that is governed by the provisions described under "-- Merger
and Consolidation."
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as
at the time of determination, the present value (discounted at the interest rate
assumed in making calculations in accordance with FAS 13) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts, whether outstanding on the
Issue Date or thereafter incurred, payable under or in respect of the Senior
Secured Credit Facility, including without limitation principal, premium (if
any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company or any
Restricted Subsidiary whether or not a claim for post-filing interest is allowed
in such proceedings), fees, charges, expenses, reimbursement obligations,
guarantees, other monetary obligations of any nature and all other amounts
payable thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which commercial banking institutions are authorized or required by law to close
in New York City.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
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in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease.
"Cash Equivalents" means any of the following: (a) securities issued or
fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof, (b) time deposits, certificates of deposit or bankers'
acceptances of (i) any lender under the Senior Credit Agreement or (ii) any
commercial bank having capital and surplus in excess of $500,000,000 and the
commercial paper of the holding company of which is rated at least A-1 or the
equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's
(or if at such time neither is issuing ratings, then a comparable rating of
another nationally recognized rating agency), (c) commercial paper rated at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's (or if at such time neither is issuing ratings, then a
comparable rating of another nationally recognized rating agency) and (d)
investments in money market funds complying with the risk limiting conditions of
Rule 2a-7 or any successor rule of the SEC under the Investment Company Act.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Day International Group, Inc., a Delaware corporation and
any successor thereto.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA of the Company and its Restricted
Subsidiaries for the period of the most recent four consecutive fiscal quarters
ending prior to the date of such determination for which consolidated financial
statements of the Company are available to (ii) Consolidated Interest Expense
or such four fiscal quarters (in each case, determined, for each fiscal quarter
or portion thereof) of the four fiscal quarters ending prior to the Issue Date,
on a pro forma basis; provided, however, that:
(1) if the Company or any Restricted Subsidiary (x) has Incurred
any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving
rise to the need to calculate the Consolidated Coverage Ratio is an
Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis
to such Indebtedness as if such Indebtedness had been Incurred on the
first day of such period (except that in making such computation, the
amount of Indebtedness under any revolving credit facility outstanding on
the date of such calculation shall be computed based on (A) the average
daily balance of such Indebtedness during such four fiscal quarters or
such shorter period for which such facility was outstanding or (B) if
such facility was created after the end of such four fiscal quarters, the
average daily balance of such Indebtedness during the period from the
date of creation of such facility to the date of such calculation) and
the discharge of any other Indebtedness repaid, repurchased, defeased or
otherwise discharged with the proceeds of such new Indebtedness as if
such discharge had occurred on the first day of such period, or (y) has
repaid, repurchased, defeased or otherwise discharged any Indebtedness
since the beginning of the period that is no longer outstanding on such
date of determination, or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio involves a discharge of
Indebtedness (in each case other than Indebtedness Incurred under any
revolving credit facility unless such Indebtedness has been permanently
repaid), EBITDA and Consolidated Interest Expense for such period shall
be calculated after giving effect on a pro forma basis to such discharge
of such Indebtedness, including with the proceeds of such new
Indebtedness, as if such discharge had occurred on the first day of such
period,
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition of any
company or any business or any group of assets constituting an operating
unit of a business, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the
assets that are the subject of such Asset Disposition for such period or
increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated
Interest Expense directly attributable to any Indebtedness of the Company
or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period
(and, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such
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period directly attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale),
(3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Person that thereby becomes a Restricted Subsidiary, or
otherwise acquired any company or any business or any group of assets
constituting an operating unit of a business, including any such
acquisition of assets occurring in connection with a transaction causing
a calculation to be made hereunder, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period, and
(4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto as if
such Asset Disposition, Investment or acquisition of assets occurred on
the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an Asset Disposition, Investment or acquisition of assets, or any transaction
governed by the provisions described under "-- Merger and Consolidation," or the
amount of income or earnings relating thereto and the amount of Consolidated
Interest Expense associated with any Indebtedness Incurred or repaid,
repurchased, defeased or otherwise discharged in connection therewith, the pro
forma calculations in respect thereof shall be as determined in good faith by a
responsible financial or accounting Officer of the Company, based on reasonable
assumptions. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months). If any
Indebtedness bears, at the option of the Company or a Restricted Subsidiary, a
fixed or floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be computed by applying, at the
option of the Company or such Restricted Subsidiary, either a fixed or floating
rate. If any Indebtedness which is being given pro forma effect was Incurred
under a revolving credit facility, the interest expense on such Indebtedness
shall be computed based upon the average daily balance of such Indebtedness
during the applicable period.
"Consolidated Interest Expense" means, for any period, the total
consolidated interest expense of the Company and its Restricted Subsidiaries,
the Company and its consolidated Restricted Subsidiaries, determined in
accordance with GAAP, minus, to the extent included in such interest expense,
amortization or write-off of financing costs, and plus, to the extent incurred
by the Company and its Restricted Subsidiaries in such period but not included
in such interest expense, without duplication, (i) interest expense attributable
to Capitalized Lease Obligations and the interest component of rent expense
associated with Attributable Debt in respect of the relevant lease giving rise
thereto, determined as if such lease were a capitalized lease, in accordance
with GAAP, (ii) amortization of debt discount, (iii) interest in respect of
Indebtedness of any other Person that has been Guaranteed by the Company or any
Restricted Subsidiary, (iv) non-cash interest expense, (v) net costs associated
with Hedging Obligations, (vi) cash dividends in respect of all Preferred Stock
of the Company and its Restricted Subsidiaries and Disqualified Stock of the
Company, in each case held by Persons other than the Company or a Restricted
Subsidiary; and (vii) the cash contributions to any employee stock ownership
plan or similar trust to the extent such contributions are used by such plan or
trust to pay interest to any Person (other than the Company or any Restricted
Subsidiary) on Indebtedness Incurred by such plan or trust; provided, however,
that there shall be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed
or paid by the Company or any Restricted Subsidiary. For purposes of the
foregoing, gross interest expense shall be determined after giving effect to any
net payments made or received by the Company and its Subsidiaries with respect
to Interest Rate Agreements.
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"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and its Restricted Subsidiaries, determined in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income:
(i) any net income (loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the limitations contained in
clause (iv) below, the Company's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (iii) below) and (B) the
Company's equity in the net loss of such Person shall be included to the extent
of the aggregate Investment of the Company or any of its Restricted Subsidiaries
in such Person,
(ii) any net income (loss) of any Person acquired by the Company or a
Restricted Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition,
(iii) any net income (loss) of any Restricted Subsidiary that is not an
Exchange Debenture Guarantor if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend (subject, in the case of a dividend that could have been made to
another Restricted Subsidiary, to the limitation contained in this clause) and
(B) the net loss of such Restricted Subsidiary shall be included to the extent
of the aggregate Investment of the Company or any of its other Restricted
Subsidiaries in such Restricted Subsidiary,
(iv) any gain or loss realized upon the sale or other disposition of any
asset of the Company or its consolidated Restricted Subsidiaries (including
pursuant to any Sale/Leaseback Transaction) that is not sold or otherwise
disposed of in the ordinary course of business,
(v) any extraordinary gain or loss, and
(vi) the cumulative effect of a change in accounting principles.
"Consolidation" means the consolidation of the accounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP;
provided, however, that "Consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary, but the interest of the Company or any
Unrestricted Subsidiary will be accounted for as an investment. The term
"Consolidated" has a correlative meaning.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangements
(including derivative agreements or arrangements) as to which such Person is a
party or a beneficiary.
"Default" means any event or condition that is, or after notice or
passage of time or both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
(other than Management Stock) that by its terms (or by the terms of any security
into which it is convertible or for which it is exchangeable or exercisable at
the option of the Holder) or upon the happening of any event (i) matures or is
mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii)
is convertible or exchangeable for Indebtedness or Disqualified Stock at the
option of the Holder or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the 91st day after the Stated
Maturity of the Exchange Debentures. For avoidance of debt, the Exchangeable
Preferred Stock shall not be deemed Disqualified Stock.
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"Domestic Subsidiary" means any Restricted Subsidiary of the Company
other than a Foreign Subsidiary.
"EBITDA" means, for any period, the Consolidated Net Income for such
period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest
Expense, (iii) depreciation expense and (iv) amortization of intangibles and
other non-cash charges or non-cash losses.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchangeable Preferred Stock Holder" means the Person in whose name a
share of Exchangeable Preferred Stock is registered.
"Exchange Debenture Designated Senior Indebtedness" means (i) the Bank
Indebtedness, (ii) the 2005 Notes, (iii) the Notes and (iv) any other Exchange
Debenture Senior Indebtedness which, at the date of determination, has an
aggregate principal amount to or under which, at the date of determination, the
holders thereof are committed to lend up to, at least $25.0 million and is
specifically designated by the Company in the instrument evidencing or governing
such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the
Exchange Debenture Indenture.
"Exchange Debenture Guarantee" means any guarantee that may from time to
time be executed and delivered by a Subsidiary of the Company pursuant to the
covenant described under "-- Certain Covenants -- Additional Exchange Debenture
Guarantors."
"Exchange Debenture Guarantor" means any Subsidiary that has issued an
Exchange Debenture Guarantee.
"Exchange Debenture Guarantor Senior Indebtedness" means the following
obligations, whether outstanding on the date of the Exchange Debenture Indenture
or thereafter issued, without duplication: (i) any Guarantee of the Bank
Indebtedness by such Exchange Debenture Guarantor and all other Guarantees by
such Exchange Debenture Guarantor of Exchange Debenture Senior Indebtedness
(including, without limitation, guarantees in respect of the Notes) of the
Company or Exchange Debenture Guarantor Senior Indebtedness for any other
Exchange Debenture Guarantor; and (ii) all obligations consisting of the
principal of and premium, if any, and accrued and unpaid interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Exchange Debenture Guarantor regardless of
whether postfiling interest is allowed in such proceeding) on, and fees and
other amounts owing in respect of, all other Indebtedness of the Exchange
Debenture Guarantor, unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is expressly provided that the
obligations in respect of such Indebtedness are not senior in right of payment
to the obligations of such Exchange Debenture Guarantor under the Exchange
Debenture Guarantee; provided, however, that Exchange Debenture Guarantor Senior
Indebtedness shall not include (1) any obligations of such Exchange Debenture
Guarantor to the Exchange Debenture Guarantor or any other Subsidiary of the
Exchange Debenture Guarantor, (2) any liability for Federal, state, local,
foreign or other taxes owed or owing by such Exchange Debenture Guarantor,
(3) any accounts payable or other liability to trade creditors arising in the
ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness of such Exchange Debenture
Guarantor that is expressly subordinate in right of payment to any of the
Indebtedness of such Exchange Debenture Guarantor (excluding guarantees in
respect of the Notes), including any Exchange Debenture Guarantor Pari Passu
Indebtedness and Exchange Debenture Guarantor Subordinated Indebtedness of
such Exchange Debenture Guarantor or (5) any Capital Stock.
"Exchange Debenture Guarantor Pari Passu Indebtedness" means, with
respect to an Exchange Debenture Guarantor, the obligations of such Exchange
Debenture Guarantor under the Exchange Debenture Guarantee and any other
Indebtedness of such Exchange Debenture Guarantor that specifically provides
that such Indebtedness is to rank pari passu in right of payment with the
obligations of such Exchange Debenture Guarantor under the Exchange Debenture
Guarantee.
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"Exchange Debenture Guarantor Subordinated Indebtedness" means, with
respect to an Exchange Debenture Guarantor, any Indebtedness of such Exchange
Debenture Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is expressly subordinate in right of payment to the obligations
of such Exchange Debenture Guarantor under the Exchange Debenture Guarantee
pursuant to a written agreement.
"Exchange Debenture Holder" means the Person in whose name an Exchange
Debenture is registered.
"Exchange Debenture Pari Passu Indebtedness" means the Exchange
Debentures and any other Indebtedness of the Company that (i) specifically
provides that such Indebtedness is to rank pari passu with the Exchange
Debentures or is otherwise entitled "Senior Subordinated" Indebtedness and
(ii) is not expressly subordinated by its terms in right of payment to any
Indebtedness of the Company that is not Exchange Debenture Senior Indebtedness.
"Exchange Debenture Subordinated Indebtedness" means any Indebtedness of
the Company (whether outstanding on the date of the Exchange Debenture Indenture
or thereafter Incurred) which is expressly subordinate in right of payment to
the Exchange Debentures pursuant to a written agreement.
"Exchange Debentures" means the 12 1/4% Exchange Debentures of the
Company Due 2010 and any Exchange Debentures issued as payment in kind as
interest thereon.
"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company
that is not organized under the laws of the United States of America or any
state thereof or the District of Columbia and (b) any Restricted Subsidiary of
the Company that has no material assets other than securities of one or more
Foreign Subsidiaries, and other assets relating to an ownership interest in any
such securities or Subsidiaries.
"G-IV" means Greenwich IV, LLC, a Delaware limited liability company, and
any successor in interest thereto.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the Issue Date (for purposes of the
definitions of the terms "Consolidated Coverage Ratio," "Consolidated Interest
Expense," "Consolidated Net Income" and "EBITDA," all defined terms in the
Exchange Debenture Indenture to the extent used in or relating to any of the
foregoing definitions, and all ratios and computations based on any of the
foregoing definitions) and as in effect from time to time (for all other
purposes of the Exchange Debenture Indenture), including those set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession
all ratios and computations based on GAAP contained in the Exchange Debenture
Indenture shall be computed in conformity with GAAP.
"GSCP" means Greenwich Street Capital Partners, Inc., a Delaware
corporation, and any successor thereto.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other nonfinancial
obligation of any other Person, including any such obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
such other obligation of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided, however, that the term "Guarantee" shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
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"Incur" means issue, assume, enter into any Guarantee of, incur or
otherwise become liable for; provided, however, that any Indebtedness or Capital
Stock of a Person existing at the time such Person becomes a Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Subsidiary at the time it becomes a Subsidiary. Any
Indebtedness issued at a discount (including Indebtedness on which interest is
payable through the issuance of additional Indebtedness) shall be deemed
incurred at the time of original issuance of the Indebtedness at the initial
accreted amount thereof.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i) the principal of indebtedness of such Person for borrowed money,
(ii) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments,
(iii) all reimbursement obligations of such Person (including
reimbursement obligations) in respect of letters of credit or other similar
instruments (the amount of such obligations being equal at any time to the
aggregate then undrawn and unexpired amount of such letters of credit or other
instruments plus the aggregate amount of drawings thereunder that have not then
been reimbursed),
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables), which purchase
price is due more than one year after the date of placing such property in final
service or taking final delivery and title thereto or the completion of such
services,
(v) all Capitalized Lease Obligations and Attributable Debt of such
Person,
(vi) Disqualified Stock of the Company and Preferred Stock of a
Subsidiary (to the extent held by a Person other than the Company or a
Restricted Subsidiary), but excluding, in each case, any accrued dividends (the
amount of such obligation to be equal at any time to the maximum fixed
involuntary redemption, repayment or repurchase price for such Capital Stock, or
if such Capital Stock has no such fixed price, to the involuntary redemption,
repayment or repurchase price therefor calculated in accordance with the terms
thereof as if then redeemed, repaid or repurchased, and if such price is based
upon or measured by the fair market value of such Capital Stock, such fair
market value shall be as determined in good faith by the Board of Directors or
the board of directors of the issuer of such Capital Stock),
(vii) all Indebtedness of other Persons secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be the
lesser of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons,
(viii) all Indebtedness of other Persons to the extent Guaranteed by such
Person, and
(ix) to the extent not otherwise included in this definition, net Hedging
Obligations of such Person (the amount of any such obligation to be equal at any
time to the termination value of such agreement or arrangement giving rise to
such Hedging Obligation that would be payable by such Person at such time).
The amount of Indebtedness of any Person at any date shall be determined
as set forth above or otherwise provided in the Exchange Debenture Indenture, or
otherwise in accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement (including derivative agreements or arrangements) as to which
such Person is party or a beneficiary.
"Investment" in any Person by any other Person means any direct or
indirect advance, loan or other extension of credit (other than to customers,
directors, officers or employees of any Person in the ordinary
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course of business) or capital contribution (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others) to, or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by, such Person. For purposes
of the definition of "Unrestricted Subsidiary" and the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments," (i) "Investment"
shall include the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of any Subsidiary of
the Company at the time that such Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a
Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
Board of Directors.
"Investors" means G-IV and SGCP.
"Issue Date" means the date on which the Exchangeable Preferred Stock are
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Agreements" means, collectively, the Consulting Agreement,
the Fee Agreement and the Indemnification Agreement, each between the Company,
GSCP and SGCP (and their permitted successors and assigns thereunder), as each
may be amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof and of the Exchange Debenture Indenture.
"Management Investors" means the officers, directors, employees and other
members of the management of the Company or any of its Subsidiaries, or family
members or relatives thereof, or trusts for the benefit of any of the foregoing,
or any of their heirs, executors, successors and legal representatives, who at
any date beneficially own or have the right to acquire, directly or indirectly,
Capital Stock of the Company.
"Management Stock" means Capital Stock of the Company, or options,
warrants or other rights in respect thereof, held by any of the Management
Investors.
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring person of Indebtedness or other obligations relating
to the properties or assets that are the subject of such Asset Disposition or
received in any other noncash form) therefrom, in each case net of (i) all
legal, title and recording tax expenses, commissions and other fees and expenses
incurred, and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all payments made, and all installment payments required to be
made, on any Indebtedness that is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon such assets, or that
must by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such Asset
Disposition, (iii) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of such
Asset Disposition, or to any other Person (other than the Company or a
Restricted Subsidiary) owning a beneficial interest in the assets disposed of in
such Asset Disposition and (iv) appropriate amounts to be provided as a reserve,
in accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of any
securities of the Company or any Subsidiary by the Company or any Subsidiary, or
any capital contribution, means the cash proceeds of such
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issuance, sale or contribution net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance,
sale or contribution and net of taxes paid or payable as a result thereof.
"Notes" means the 9 1/2% Senior Subordinated Notes Due 2008.
"Officer" means the President, Chief Financial Officer, any Vice
President, Controller or Treasurer of the Company.
"Officer's Certificate" means a certificate signed by one Officer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means any of the following: (i) GSCP, SGCP, and their
respective Affiliates provided that "Permitted Holders" in any event shall
include Greenwich Street Capital Partners, L.P., Greenwich Street Capital
Offshore Fund, Ltd., The Travelers Insurance Company, The Travelers Life and
Annuity Company, TRV Employees Fund, Inc., Smith Barney Company Inc. and their
respective Affiliates; any other investment fund or vehicle managed, sponsored
or advised by Greenwich Street Capital Partners, Inc., The Travelers Insurance
Company, The Travelers Life and Annuity Company, Smith Barney Company Inc. or
any of their respective Affiliates; and (ii) any Person acting in the capacity
of an underwriter in connection with a public or private offering of the
Company's capital stock.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in, or consisting of, any of the following:
(i) a Restricted Subsidiary, the Company or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary;
(ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys
all or substantially all its assets to, the Company or a Restricted
Subsidiary;
(iii) Cash Equivalents;
(iv) receivables owing to the Company or any Restricted Subsidiary,
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms
as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances;
(v) any Investment resulting from the receipt of non-cash
consideration from an Asset Disposition that was made pursuant to and in
compliance with the covenant described above under the caption "--
Exchange Debentures -- Certain Covenants -- Limitation on Sales of
Assets" as if such covenant is in effect on the date of such Investment
(without consideration of whether the Exchange Debenture Indenture is in
effect);
(vi) securities or other Investments received in settlement of
debts created in the ordinary course of business and owing to the Company
or any Restricted Subsidiary, or as a result of foreclosure, perfection
or enforcement of any Lien, or in satisfaction of judgments, including in
connection with any bankruptcy proceeding or other reorganization of
another Person;
(vii) Investments in existence or made pursuant to legally binding
written commitments in existence on the Issue Date;
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(viii) Currency Agreements, Interest Rate Agreements and related
Hedging Obligations, which obligations are Incurred in compliance with
the covenant described under "-- Certain Covenants --Limitation on
Indebtedness;"
(ix) pledges or deposits (x) with respect to leases or utilities
provided to third parties in the ordinary course of business or
(y) otherwise described in the definition of "Permitted Liens"; and
(x) other Investments in an aggregate amount outstanding at any
time not to exceed $12.5 million.
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges not yet
delinquent or the nonpayment of which in the aggregate would not reasonably be
expected to have a material adverse effect on the Company and its Restricted
Subsidiaries, or that are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of the Company or a Subsidiary thereof, as the case may be, in accordance
with GAAP;
(b) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business in
respect of obligations that are not overdue for a period of more than 60 days,
or that are bonded or that are being contested in good faith and by appropriate
proceedings;
(c) pledges, deposits or Liens in connection with workers' compensation,
unemployment insurance and other social security and other similar legislation
or other insurance related obligations (including, without limitation, pledges
or deposits securing liability to insurance carriers under insurance or
self-insurance arrangements);
(d) pledges, deposits or Liens to secure the performance of bids,
tenders, trade, government or other contracts (other than for borrowed money),
obligations for utilities, leases, licenses, statutory obligations, surety,
judgment and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements (including reciprocal easement agreements), rights-of-way,
building, zoning and similar restrictions, utility agreements, covenants,
reservations, restrictions, encroachments, changes, and other similar
encumbrances or title defects incurred, or leases or subleases granted to
others, in the ordinary course of business, which do not in the aggregate
materially interfere with the ordinary conduct of the business of the Company
and its Subsidiaries, taken as a whole;
(f) Liens existing on, or provided for under written arrangements
existing on, the Issue Date, or (in the case of any such Liens securing
Indebtedness of the Company or any of its Subsidiaries existing or arising under
written arrangements existing on the Issue Date) securing any Refinancing
Indebtedness in respect of such Indebtedness so long as the Lien securing such
Refinancing Indebtedness is limited to all or part of the same property or
assets (plus improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or under such written arrangements could secure)
the original Indebtedness;
(g) (i) mortgages, liens, security interests, restrictions, encumbrances
or any other matters of record that have been placed by any developer, landlord
or other third party on property over which the Company or any Restricted
Subsidiary of the Company has easement rights or on any leased property and
subordination or similar agreements relating thereto and (ii) any condemnation
or eminent domain proceedings affecting any real property;
(h) Liens securing Hedging Obligations Incurred in compliance with the
covenant described under "--Certain Covenants -- Limitation on Indebtedness;"
(i) Liens arising out of judgments, decrees, orders or awards in respect
of which the Company shall in good faith be prosecuting an appeal or proceedings
for review, which appeal or proceedings shall not have
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been finally terminated, or if the period within which such appeal or
proceedings may be initiated shall not have expired;
(j) leases, subleases, licenses or sublicenses to third parties;
(k) Liens securing (x) Indebtedness Incurred in compliance with clause
(b)(i), (b)(ii), (b)(v) or (b)(vii) of the covenant described under "Certain
Covenants -- Limitation on Indebtedness", or clause (b)(iv) thereof (other than
Refinancing Indebtedness Incurred in respect of Indebtedness described in
paragraph (a) thereof) or (y) Bank Indebtedness;
(l) Liens on properties or assets (1) of the Company or any Exchange
Debenture Guarantor securing Senior Indebtedness or Exchange Debenture Guarantor
Senior Indebtedness, (2) of any Wholly Owned Subsidiary that is not an Exchange
Debenture Guarantor securing Indebtedness of any Wholly Owned Subsidiary that is
not an Exchange Debenture Guarantor or (3) of any Restricted Subsidiary that is
not an Exchange Debenture Guarantor securing its Indebtedness;
(m) Liens existing on property or assets of a Person at the time such
Person becomes a Subsidiary of the Company (or at the time the Company or a
Restricted Subsidiary acquires such property or assets); provided, however, that
such Liens are not created in connection with, or in contemplation of, such
other Person becoming such a Subsidiary (or such acquisition of such property or
assets), and that such Liens are limited to all or part of the same property or
assets (plus improvements, accessions, proceeds or dividends or distributions in
respect thereof) that secured (or, under the written arrangements under which
such Liens arose, could secure) the obligations to which such Liens relate;
(n) Liens on Capital Stock of an Unrestricted Subsidiary that secure
Indebtedness or other obligations of such Unrestricted Subsidiary;
(o) any encumbrance or restriction (including, but not limited to, put
and call agreements) with respect to Capital Stock of any joint venture or
similar arrangement pursuant to any joint venture or similar agreement;
(p) Liens securing the Notes and the Exchange Debentures; and
(q) Liens securing Refinancing Indebtedness Incurred in respect of any
Indebtedness secured by, or securing any refinancing, refunding, extension,
renewal or replacement (in whole or in part) of any other obligation secured by,
any other Permitted Liens, provided that any such new Lien is limited to all or
part of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
obligations to which such Liens relate.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any corporation
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective Registration Statement
under the Securities Act (whether alone or in conjunction with any secondary
public offering).
"Public Market" means any time after a Public Equity Offering has been
consummated and either (x) at least 10% of the total issued and outstanding
common stock (or equivalent equity interests) of the Company has been
distributed by means of an effective Registration Statement under the Securities
Act or (y) an established public trading market otherwise exists for any such
common stock or equivalent equity interests.
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"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) (collectively, "refinances," "refinanced" and
"refinancing" as used in the Exchange Debenture Indenture shall have a
correlative meaning) any Indebtedness existing on the date of the Exchange
Debenture Indenture or Incurred in compliance with the Exchange Debenture
Indenture (including Indebtedness of the Company that refinances Indebtedness of
any Restricted Subsidiary (to the extent permitted in the Exchange Debenture
Indenture) and Indebtedness of any Restricted Subsidiary that refinances
Indebtedness of another Restricted Subsidiary) including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being refinanced, (ii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iii)
such Refinancing Indebtedness is Incurred in an aggregate principal amount (or
if issued with original issue discount, an aggregate issue price) that is equal
to or less than the sum of (x) the aggregate principal amount (or if issued with
original issue discount, the aggregate accreted value) then outstanding of the
Indebtedness being refinanced, plus (y) fees, underwriting discounts, premiums
not in excess of the premiums called for in the documentation related to such
Indebtedness so refinanced and other costs and expenses incurred in connection
with such Refinancing Indebtedness; provided further, however, that Refinancing
Indebtedness shall not include (A) Indebtedness of a Restricted Subsidiary that
is not an Exchange Debenture Guarantor that refinances Indebtedness of the
Company or (B) Indebtedness of the Company or a Restricted Subsidiary that
refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means those businesses in which the Company or any of
its Subsidiaries is engaged on the date of the Exchange Debenture Indenture, or
that are reasonably related, complementary or incidental thereto.
"Representative" means the trustee, agent or representative (if any) for
an issue of Senior Indebtedness.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revolving Credit Facility" means the revolving credit facility under the
Senior Secured Credit Facility (which may include any swing line or letter of
credit facility or subfacility thereunder).
"Sale/Leaseback Transaction" means an arrangement relating to property
now owned or hereafter acquired by the Company or a Restricted Subsidiary
whereby the Company or such Restricted Subsidiary transfers such property to a
Person and the Company or such Restricted Subsidiary leases it from such Person,
other than leases (x) between the Company and a Restricted Subsidiary or between
or (y) required to be classified and accounted for as capitalized leases for
financial reporting purposes in accordance with GAAP.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Credit Agreement" means the senior secured credit agreement dated
as of January 15, 1998, among the Company, the several lenders party thereto
from time to time, Societe Generale Securities Corporation, as arranger, and
Societe Generale as administrative agent, as such agreement may be assumed by
any successor in interest, and as such agreement may be amended, supplemented,
waived or otherwise modified from time to time, or refunded, refinanced,
restructured, replaced, renewed, repaid, increased or extended from time to time
(whether in whole or in part, whether with the original agent and lenders or
other agents and lenders or otherwise, and whether provided under the original
Senior Credit Agreement or otherwise).
"Senior Secured Credit Facility" means the collective reference to the
Senior Credit Agreement, any Loan Documents (as defined therein), any notes and
letters of credit issued pursuant thereto and any guarantee and collateral
agreement, patent and trademark security agreement, mortgages, letter of credit
applications and other security agreements and collateral documents, and other
instruments and documents, executed and delivered pursuant to or in connection
with any of the foregoing, in each case as the same may be amended,
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supplemented, waived or otherwise modified from time to time, or refunded,
refinanced, restructured, replaced, renewed, repaid, increased or extended from
time to time (whether in whole or in part, whether with the original agent and
lenders or other agents and lenders or otherwise, and whether provided under the
original Senior Credit Agreement or otherwise). Without limiting the generality
of the foregoing, the term "Senior Secured Credit Facility" shall include any
agreement (i) changing the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder or (iv) otherwise
altering the terms and conditions thereof.
"SGCP" means SG Capital Partners, LLC, a Delaware limited liability
company.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, as in effect on the Issue Date.
"S&P" means Standard & Poor's Ratings Service, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subsidiary" of any Person means any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other equity interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such person
or (ii) one or more Subsidiaries of such Person.
"Successor Company" shall have the meaning assigned thereto in clause (i)
under "-- Merger and Consolidation."
"Term Loan Facility" means the term loan facilities provided under the
Senior Secured Credit Facility.
"TIA" means the Trust Exchange Debenture Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Exchange Debenture
Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable
or any indebtedness or monetary obligation to trade creditors created, assumed
or Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two Business Days prior to the Redemption
Date (or, if such Statistical Release is no longer published, any publicly
available source or similar market data)) most nearly equal to the period from
the Redemption Date to the Stated Maturity; provided, however, that if the
period from the Redemption Date to the Stated Maturity is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the period from the Redemption Date to the Stated Maturity
is less than one year, the weekly average yield on actually traded United States
Treasury securities adjusted to a constant maturity of one year shall be used.
"Trustee" means the party named as such in the Exchange Debenture
Indenture until a successor replaces it and, thereafter, means the successor.
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"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"2005 Notes" means the Company's 11 1/8% Senior Subordinated Notes due
2005.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated assets
of $1,000 or less or (B) if such Subsidiary has consolidated assets greater than
$1,000, then such designation would be permitted under "-- Certain Covenants --
Limitation on Restricted Payments." The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that
immediately after giving effect to such designation (x) the Company could incur
at least $1.00 of additional Indebtedness under paragraph (a) in the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" and (y) no
Default shall have occurred and be continuing. Any such designation by the Board
of Directors shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Company's Board of Directors giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" of an entity means all classes of Capital Stock of such
entity then outstanding and normally entitled to vote in the election of
directors or all interests in such entity with the ability to control the
management or actions of such entity.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company
all the Capital Stock of which (other than directors' qualifying shares, or (in
the case of any Foreign Subsidiary) to the extent required by applicable law) is
owned by the Company or another Wholly Owned Subsidiary.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain United States Federal income tax
consequences of the exchange of the Existing Notes for the New Notes, the
exchange of the Existing Exchangeable Preferred Stock for the New Exchangeable
Preferred Stock, and the ownership and disposition of the New Notes and the New
Exchangeable Preferred Stock, and the ownership and disposition of the Exchange
Debentures. This summary applies only to a beneficial owner of a New Note who
acquires the New Note at the initial offering and for the original offering
price thereof and to a U.S. Holder (as defined below) who acquires the New
Exchangeable Preferred Stock on original issue.
This summary is based on provisions of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed Treasury regulations
promulgated thereunder (the "Treasury Regulations") and administrative and
judicial interpretations thereof, all as of the date hereof and all of which are
subject to change, possibly on a retroactive basis.
This summary does not address the tax consequences to subsequent
purchasers of the New Notes, the New Exchangeable Preferred Stock or the
Exchange Debentures, or to holders of the New Exchangeable Preferred Stock or
the New Exchanged Debentures who are not U.S. Holders, and is limited to New
Notes, New Exchangeable Preferred Stock, and Exchange Debentures that are held
as capital assets. This summary is for general information only, and does not
address all of the tax consequences that may be relevant to particular acquirors
in light of their personal circumstances, or to certain types of acquirors (such
as banks and other financial institutions, real estate investment trusts,
regulated investment companies, insurance companies, tax-exempt organizations,
dealers in securities, persons who have hedged the interest rate on the New
Notes or the dividend rate on the New Exchangeable Preferred Stock or persons
whose functional currency is not the U.S. dollar). In addition, this summary
does not include any description of the tax laws of any state, local or non-U.S.
government that may be applicable to a particular acquiror.
As used herein, the term "U.S. Holder" means a holder that is, for U.S.
Federal income tax purposes, (a) a citizen or resident of the United States, (b)
a corporation or partnership created or organized in the United States or under
the laws of the United States or of any state of the United States, (c) an
estate whose income is includable in gross income for U.S. Federal income tax
purposes regardless of its source or (d) a trust if (i) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (ii) at least one U.S. person has authority to control all
substantial decisions of the trust.
PROSPECTIVE ACQUIRORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO
THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, THE NEW
EXCHANGEABLE PREFERRED STOCK AND THE EXCHANGE DEBENTURES, AS WELL AS THE TAX
CONSEQUENCES UNDER STATE, LOCAL, NON-U.S. AND OTHER U.S. FEDERAL TAX LAWS AND
THE POSSIBLE EFFECTS OF CHANGES IN TAX LAWS.
THE NEW NOTES; THE EXCHANGE OFFER
The exchange of an Existing Note for a New Note pursuant to the Exchange
Offer should not be treated as a taxable exchange of the Existing Notes. As a
result, the New Notes should have the same issue price (and adjusted issue price
immediately after the exchange) and the same amount of original issue discount,
if any, as the Existing Notes, and each holder should have the same adjusted tax
basis and holding period in the New Notes as it had in the Existing Notes
immediately before the exchange. The following discussion assumes that the
exchange of Existing Notes for New Notes pursuant to the Exchange Offer will not
be treated as a taxable exchange, and that the Existing Notes and the New Notes
will be treated as the same security for U.S. federal income tax purposes.
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THE NEW NOTES; TAXATION OF U.S. HOLDERS
Payment of Interest on the Notes Other than Payments upon Registration
Default. In general, interest paid on a New Note (other than payments upon a
Registration Default discussed below) will be taxable to a U.S. Holder as
ordinary interest income, as received or accrued, in accordance with such
holder's method of accounting for U.S. Federal income tax purposes. If original
issue discount on an Existing Note is not greater than a de minimis amount equal
to 0.25% of its stated principal amount multiplied by the number of complete
years to its maturity, any such discount will be deemed to be equal to zero, and
a holder will not be required to accrue a portion of such discount as income in
each taxable year. See, however, the discussion below under "Payments upon
Registration Default". Holders should consult their tax advisors as to the
possible effect of payments upon a Registration Default on the treatment of
original issue discount on the Notes, if any.
Payments upon Registration Default. Because the Existing Notes provide
for the payment of liquidated damages under the circumstances described above
under "Note Exchange and Registration Rights Agreement", the Existing Notes (or
New Notes received in exchange thereof pursuant to the Exchange Offer) could be
subject to certain Treasury Regulations relating to debt instruments that
provide for one or more contingent payments (the "Contingent Payment
Regulations"). Under the Contingent Payment Regulations, however, a payment is
not a contingent payment merely because of a contingency that, as of the issue
date, is "remote." The Company intends to take the position that, for purposes
of the Contingent Payment Regulations, the payment of such liquidated damages
was a remote contingency as of the issue date. Accordingly, the Contingent
Payment Regulations should not apply to the Existing Notes (or New Notes
received in exchange thereof pursuant to the Exchange Offer) unless payments are
actually made upon a Registration Default, in which case, the rules described
below would apply to such payments.
If liquidated damages were actually paid upon a Registration Default,
then such payments would be includible in a U.S. Holder's gross income in the
taxable year in which such payments were actually made, regardless of the tax
accounting method used by such holder. If payments of liquidated damages were
actually made and the amount of the payments were not insignificant under the
Contingent Payment Regulations, the Existing Notes (or New Notes received in
exchange thereof pursuant to the Exchange Offer) would be treated as reissued
for purposes of applying the original issue discount rules. As a consequence of
such reissuance, a U.S. Holder could be required to accrue all payments on the
Existing Notes (or New Notes received in exchange thereof pursuant to the
Exchange Offer) (including, possibly, amounts that would otherwise constitute de
minimis original issue discount) on a constant yield basis, regardless of the
tax accounting method used by such holder.
The Company's position for purposes of the Contingent Payment Regulations
that the payment of such liquidated damages is a remote contingency as of the
issue date is binding on each holder for U.S. Federal income tax purposes,
unless such holder discloses in the proper manner to the U.S. Internal Revenue
Service (the "IRS") that it is taking a different position.
Sale, Exchange or Retirement of the New Notes. Upon the sale, exchange,
redemption, retirement at maturity or other disposition of a New Note, a U.S.
Holder will generally recognize taxable gain or loss equal to the difference
between the sum of the cash and the fair market value of all other property
received on such disposition (except to the extent such cash or property is
attributable to accrued interest, which will be taxable as ordinary income) and
such holder's adjusted tax basis in the New Note.
Gain or loss recognized on the disposition of a New Note generally will
be capital gain or loss, and will be long-term capital gain or loss if, at the
time of such disposition, the holder's holding period for the New Note is more
than one year. A reduced tax rate on capital gain will apply to an individual
U.S. Holder if such holder's holding period for the New Note is more than
eighteen months at the time of disposition.
Backup Withholding and Information Reporting. In general, a U.S. Holder
will be subject to backup withholding at the rate of 31% with respect to
interest, principal and premium, if any, paid on a New Note, and the proceeds of
a sale of a New Note, unless the holder (a) is an entity that is exempt from
withholding (including corporations, tax-exempt organizations and certain
qualified nominees) and, when required, demonstrates this fact, or (b) provides
the payor with its taxpayer identification number ("TIN") (which for
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an individual would be the holder's social security number), certifies that the
TIN provided to the payor is correct and that the holder has not been notified
by the Internal Revenue Service (the "IRS") that it is subject to backup
withholding due to underreporting of interest or dividends, and otherwise
complies with applicable requirements of the backup withholding rules. In
addition, such payments of principal, premium and interest to, and the proceeds
of, a sale of a New Note by U.S. Holders that are not exempt entities will
generally be subject to information reporting requirements. A U.S. Holder who
does not provide the payor with his correct TIN may be subject to penalties
imposed by the IRS.
The Company will report to U.S. Holders and the IRS the amount of any
"reportable payments" (including any interest paid) and any amounts withheld
with respect to the New Notes during the calendar year.
The amount of any backup withholding from a payment to a U.S. Holder will
be allowed as a credit against such holder's U.S. Federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the IRS.
THE NEW NOTES; TAXATION OF NON-U.S. HOLDERS
Payment of Interest on the New Notes. In general, payments of interest
received by any holder of a New Note that is not a U.S. Holder (a "Non-U.S.
Holder") will not be subject to a U.S. Federal income tax (or any withholding
thereof, except as described below under "Backup Withholding and Information
Reporting"), provided that (a) under an exemption for certain portfolio
interest, (i) the Non-U.S. Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote, (ii) the Non-U.S. Holder is not a "controlled foreign
corporation" (generally, a non-U.S. corporation controlled by U.S. shareholders)
that is related to the Company actually or constructively through stock
ownership and (iii) either (x) the beneficial owner of the New Note, under
penalties of perjury, provides the Company or its agent with the beneficial
owner's name and address and certifies that it is not a U.S. person on IRS Form
W-8 (or a suitable substitute form) or (y) a securities clearing organization,
bank or other financial institution that holds customers' securities in the
ordinary course of its trade or business holds the New Note and certifies to the
Company or its agent under penalties of perjury that such a Form W-8 (or
suitable substitute form) has been received by it from the beneficial owner or
qualifying intermediary and furnishes the payor a copy thereof, (b) the Non-U.S.
Holder is subject to U.S. Federal income tax with respect to the New Note on a
net basis because payments received with respect to the Note are effectively
connected with the conduct of a trade or business within the United States by
the holder (in which case the holder may also be subject to U.S. "branch profits
tax") and provides the Company with a properly executed IRS Form 4224, or (c)
the Non-U.S. Holder is entitled to the benefits of an income tax treaty under
which the interest is exempt from U.S. withholding tax and the holder or such
holder's agent provides a properly executed IRS Form 1001 claiming the
exemption. Payments of interest not exempt from U.S. Federal income tax as
described above will be subject to withholding at the rate of 30% (subject to
reduction under an applicable income tax treaty).
Recently issued Treasury Regulations (the "New Withholding Regulations")
generally will be effective with respect to payments made after December 31,
1999, regardless of the issue date of the instrument with respect to which such
payments are made. The New Withholding Regulations generally will not affect the
certification rules described in the preceding paragraph, but will provide
alternative methods for satisfying such requirements. The New Withholding
Regulations also generally will require, in the case of New Notes held by a
non-U.S. partnership, that (a) the certification described in the preceding
paragraph be provided by the partners rather than the foreign partnership and
(b) the partnership provide certain information. A look-through rule will apply
in the case of tiered partnerships. In addition, the New Withholding Regulations
may require that a Non-U.S. Holder (including a non-U.S. partnership or a
partner thereof) obtain a taxpayer identification number and make certain
certifications if interest in respect of a New Note is not portfolio interest
and the Non-U.S. Holder wishes to claim a reduced rate of withholding under an
income tax treaty. Each Non-U.S. Holder should consult its own tax advisor
regarding the application of the New Withholding Regulations.
Sale, Exchange or Retirement of the New Notes. A Non-U.S. Holder
generally will not be subject to U.S. Federal income tax (or withholding
thereof) in respect of gain realized on the sale, exchange, redemption,
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retirement at maturity or other disposition of New Notes, unless (a) the gain is
effectively connected with the conduct of a trade or business within the United
States by the holder, or (b) the holder is an individual who is present in the
United States for a period or periods aggregating 183 or more days in the
taxable year of the disposition and certain other conditions are met.
As described under "Taxation of U.S. Holders -- Payments upon
Registration Default," the New Notes provide for the payment of liquidated
damages upon a Registration Default. Non-U.S. Holders should consult their tax
advisors as to the tax considerations relating to debt instruments providing for
payments such as the liquidated damages , in particular, as to the availability
of the exemption for portfolio interest, and the ability of holders to claim the
benefits of income tax treaty exemptions from U.S. withholding tax on interest,
in respect of such debt instruments.
Backup Withholding and Information Reporting. Under current Treasury
Regulations, backup withholding and information reporting do not apply to
payments made by the Company or a paying agent to Non-U.S. Holders if the
certification described under "Payment of Interest on the New Notes" is
received, provided that the payor does not have actual knowledge that the holder
is a U.S. person. If any payments of principal and interest are made to the
beneficial owner of a New Note by or through the non-U.S. office of a non-U.S.
custodian, non-U.S. nominee or other non-U.S. agent of such beneficial owner, or
if the non-U.S. office of a non-U.S. "broker" (as defined in applicable Treasury
Regulations) pays the proceeds of the sale of a New Note or a coupon to the
seller thereof, backup withholding and information reporting will not apply.
Information reporting requirements (but not backup withholding) will apply,
however, to a payment by a non-U.S. office of a broker that is a U.S. person,
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or that is a "controlled
foreign corporation" (generally, a non-U.S. corporation controlled by U.S.
shareholders) with respect to the United States, unless the broker has
documentary evidence in its records that the holder is a non-U.S. person and
certain other conditions are met, or the holder otherwise establishes an
exemption. Payment by a U.S. office of a broker is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies under penalties of perjury that it is a non-U.S. person, or otherwise
establishes an exemption. A Non-U.S. Holder may obtain a refund or a credit
against such Holder's U.S. Federal income tax liability of any amounts withheld
under the backup withholding rules, provided the required information is
furnished to the IRS. In addition, in certain circumstances, interest on a New
Note owned by a Non-U.S. Holder will be required to be reported annually on IRS
Form 1042S, in which case such form will be filed with the IRS and furnished to
the holder.
The New Withholding Regulations revise (substantially in certain
respects) the procedures that withholding agents and payees must follow to
comply with, or to establish an exemption from, these information reporting and
backup withholding provisions for payments after December 31, 1999. Each
Non-U.S. Holder should consult its own tax advisor regarding the application to
such holder of the New Withholding Regulations.
Estate Tax. Subject to applicable estate tax treaty provisions, New Notes
held at the time of death (or theretofore transferred subject to certain
retained rights or powers) by an individual who at the time of death is a
Non-U.S. Holder will not be included in such holder's gross estate for U.S.
Federal estate tax purposes, provided that (a) the individual does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (b) the income on the New
Notes is not effectively connected with the conduct of a U.S. trade or business
by the individual.
THE NEW EXCHANGEABLE PREFERRED STOCK; EXCHANGE OFFER
The exchange of the Existing Exchangeable Preferred Stock for the New
Exchangeable Preferred Stock should not constitute a taxable exchange of the
Existing Exchangeable Preferred Stock. As a result, the New Exchangeable
Preferred Stock should have the same issue price (and adjusted issue price
immediately after the exchange) and the same amount of Preferred Stock Discount
(as defined below), if any, as the Existing Exchangeable Preferred Stock, and
each U.S. Holder should have the same adjusted tax basis and holding period in
the New Exchangeable Preferred Stock as it had in the Existing Exchangeable
Preferred Stock immediately before the exchange. The following discussion
assumes that the exchange of Existing
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Exchangeable Preferred Stock for New Exchangeable Preferred Stock pursuant to
the Exchange Offer will not be treated as a taxable exchange, and that the
Existing Exchangeable Preferred Stock and the New Exchangeable Preferred Stock
will be treated as the same security for U.S. federal income tax purposes.
THE NEW EXCHANGEABLE PREFERRED STOCK; TAXATION OF U.S. HOLDERS
Classification of New Exchangeable Preferred Stock and Exchange
Debentures. The Company intends to treat the New Exchangeable Preferred Stock as
equity and the Exchange Debentures as indebtedness for U.S. Federal income tax
purposes, and the balance of this discussion is based on the assumption that
such treatment will be respected. The discussion is not binding on the IRS or
the courts and there can be no assurance that the IRS will not take a different
position concerning the tax consequences of the purchase, ownership or
disposition of the New Exchangeable Preferred Stock or Exchange Debentures.
Distributions on Exchangeable Preferred Stock. Distributions on the New
Exchangeable Preferred Stock that are paid from the Company's current or
accumulated earnings and profits, as determined under U.S. Federal income tax
principles, whether paid in cash or in additional shares of New Exchangeable
Preferred Stock ("Dividend Shares") will be taxable to a U.S. Holder as ordinary
dividend income in an amount equal to such cash or the fair market value of such
Dividend Shares on the date of distribution. To the extent, if any, that the
amount of any such distribution is not made out of the Company's current or
accumulated earnings and profits, as determined under U.S. Federal income tax
principles, it will first reduce the U.S. Holder's adjusted tax basis in the New
Exchangeable Preferred Stock and, to the extent such distribution exceeds such
adjusted tax basis, will be treated as capital gain and will be long-term
capital gain if, at the time of such disposition, the U.S. Holder's holding
period for the New Exchangeable Preferred Stock is more than one year. A reduced
tax rate on capital gain will apply to an individual U.S. Holder if such
holder's holding period for the Exchangeable Preferred Stock is more than
eighteen months at the time of disposition. A U.S. Holder's initial tax basis in
any Dividend Shares distributed by the Company generally will equal the fair
market value of such Dividend Shares on the date of their distribution. The
holding period for such Dividend Shares will commence with their distribution,
and will not include the holder's holding period for outstanding shares of New
Exchangeable Preferred Stock with respect to which such Dividend Shares were
distributed. There can be no assurance that the Company will have sufficient
earnings and profits (as determined for U.S. Federal income tax purposes) to
cause distributions on the New Exchangeable Preferred Stock to be treated as
dividends for U.S. Federal income tax purposes. For purposes of the remainder of
this discussion, the term "dividend" refers to a distribution paid out of
allocable earnings and profits, unless the context indicates otherwise.
Dividends received by corporate U.S. Holders generally will be eligible
for the 70% dividends received deduction under section 243 of the Code. There
are, however, many exceptions and restrictions relating to the availability of
the dividends received deduction including restrictions relating to the holding
period of the stock under section 246(c) of the Code and debt-financed portfolio
stock under section 246A of the Code.
Under section 1059 of the Code, the tax basis of any shares of New
Exchangeable Preferred Stock that has been held by a corporate shareholder for
two years or less (ending on the earliest of the date on which the Company
declares, announces or agrees to the payment of an actual or constructive
dividend) is reduced (but not below zero) by the non-taxed portion of an
"extraordinary dividend" for which a dividends received deduction is allowed. To
the extent a corporate holder's tax basis would have been reduced below zero but
for the foregoing limitation, such holder will recognize capital gain on the
exchange of New Exchangeable Preferred Stock. Generally, an "extraordinary
dividend" is a dividend that (i) equals or exceeds 5% of the U.S. Holder's
adjusted tax basis in the New Exchangeable Preferred Stock or (ii) exceeds 20%
of the U.S. Holder's adjusted tax basis in the New Exchangeable Preferred Stock
(treating all dividends having ex-dividend dates within a 365-day period as a
single dividend). If an election is made by the U.S. Holder, under certain
circumstances the fair market value of the New Exchangeable Preferred Stock as
of the day before the ex-dividend date may be substituted for the holder's basis
in applying these tests.
Special rules under section 1059 exist with respect to extraordinary
dividends for "qualified preferred dividends," which are any fixed dividends
payable with respect to any share of stock which (i) provides for
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fixed preferred dividends payable not less frequently than annually and (ii) is
not in arrears as to dividends at the time the U.S. Holder acquires such stock.
A qualified preferred dividend does not include any dividend payable with
respect to any share of stock if the actual rate of return of such stock for the
period the stock has been held by the holder receiving the dividend exceeds 15%.
Corporate U.S. Holders are urged to consult their tax advisors regarding
the extent, if any, to which the exceptions and restrictions and rules under
section 1059 of the Code apply to the purchase, ownership and disposition of the
Exchangeable Preferred Stock.
Preferred Stock Discount. Pursuant to section 305(c) of the Code, U.S.
Holders of New Exchangeable Preferred Stock (including New Exchangeable
Preferred Stock received as Dividend Shares) may be required to treat a portion
of the difference between the redemption price and issue price of New
Exchangeable Preferred Stock as constructive distributions that are includible
in income on an economic accrual basis ("Preferred Stock Discount"). For
purposes of determining whether such constructive distribution treatment
applies, the mandatory and optional redemption features of the New Exchangeable
Preferred Stock are tested separately. Constructive distribution treatment is
required if either of the tests is satisfied.
Section 305(c) of the Code provides that the entire amount of a
redemption premium with respect to stock that may be redeemed in certain
circumstances is treated as being distributed to the holders of such stock on an
economic accrual basis. Stock is generally considered to have redemption premium
for this purpose if its redemption price exceeds its issue price by more than a
de minimis amount. For this purpose, such excess (the "Preferred Stock
Discount") will be treated as zero if it is less than 0.25% of the redemption
price of the preferred stock multiplied by the number of complete years from the
date of issuance of the stock until the redemption date. Preferred Stock
Discount is taxable as a constructive distribution to the holder (treated as a
dividend to the extent made out of the Company's current or accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions) over the term of the preferred stock using a constant interest
rate method similar to that described below for accruing original issue discount
("OID"). See "--Original Issue Discount" below.
Preferred Stock Discount with respect to preferred stock that is subject
to mandatory redemption generally will arise if the price at which the preferred
stock must be redeemed exceeds its issue price by more than a de minimis amount.
The Company does not believe that its obligation to redeem the Preferred Stock
acquired in connection with this offering on March 15, 2010 will result in
Preferred Stock Discount.
Preferred Stock Discount with respect to preferred stock that has an
optional redemption feature will arise only if, based on all of the facts and
circumstances as of the date the preferred stock is issued, redemption pursuant
to an issuer's right to redeem is more likely than not to occur. Even if the
redemption is more likely than not to occur, however, constructive distribution
treatment would not result if the redemption premium were solely in the nature
of a penalty for premature redemption. For this purpose, a redemption premium is
not a penalty for premature redemption unless it is a premium paid as a result
of changes in economic or market conditions over which neither the issuer nor
the holder has legal or practical control, such as changes in prevailing
dividend rates. In addition, pursuant to a safe harbor contained in Treasury
Regulations, redemption pursuant to an issuer's right to redeem is not treated
as more likely than not to occur if (i) the issuer and the holder are unrelated,
(ii) there are no arrangements that effectively require or are intended to
compel the issuer to redeem the stock and (iii) exercise of the option to redeem
would not reduce the yield of the stock. The Company does not believe that its
right to redeem the New Exchangeable Preferred Stock (other than Dividend
Shares) on or after March 15, 2003 should be treated as more likely than not to
be exercised under these rules. Accordingly, the optional redemption features of
the New Exchangeable Preferred Stock acquired in connection with this Offering
should not result in Preferred Stock Discount.
Notwithstanding the above, it is not entirely clear how the rules
relating to New Preferred Stock Discount apply to the Company's rights and
obligations to redeem the Exchangeable Preferred Stock in the event of a Change
of Control.
Dividend Shares received by U.S. Holders of the New Exchangeable
Preferred Stock may bear Preferred Stock Discount depending upon the issue price
of such Dividend Shares. If shares of New Exchangeable
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Preferred Stock (including Dividend Shares) bear Preferred Stock Discount, such
shares generally will have different tax characteristics from other shares of
Exchangeable Preferred Stock and might trade separately, which might adversely
affect the liquidity of such shares.
Redemption, Sale or Exchange of Exchangeable Preferred Stock. A
redemption of shares of New Exchangeable Preferred Stock for cash generally will
be treated as a sale or exchange of such shares if (i) the U.S. Holder does not
own, actually or constructively within the meaning of section 318 of the Code,
any stock of the Company other than the redeemed New Exchangeable Preferred
Stock or (ii) the redemption is "not essentially equivalent to a dividend" with
respect to such U.S. Holder under section 302(b)(1) of the Code. A distribution
to a U.S. Holder will be "not essentially equivalent to a dividend" if it
results in a "meaningful reduction" in the U.S. Holder's stock interest in the
Company. For this purpose, a redemption of the New Exchangeable Preferred Stock
that results in a reduction in the proportionate interest in the Company (taking
into account any actual ownership of common stock of the Company and any stock
constructively owned) of a U.S. Holder whose relative stock interest in the
Company is minimal and who exercises no control over corporate affairs should be
regarded as a meaningful reduction in such holder's stock interest in the
Company. In other circumstances a redemption of the New Exchangeable Preferred
Stock may be treated as a dividend to the extent treated as made out of the
Company's current and accumulated earnings and profits (as determined for U.S.
Federal income tax purposes).
If the redemption of the New Exchangeable Preferred Stock for cash is
treated as a sale or exchange, the U.S. Holder would recognize capital gain or
loss in an amount equal to the difference between the amount of cash received on
such redemption (except to the extent the redemption price of the New
Exchangeable Preferred Stock is attributable to dividends declared by the Board
of Directors of the Company prior to the redemption, which generally will be
taxable as ordinary income) and such holder's adjusted tax basis in the New
Exchangeable Preferred Stock.
Similarly, gain or loss realized by a U.S. Holder on the sale of New
Exchangeable Preferred Stock will be subject to U.S. Federal income tax as
capital gain or loss in an amount equal to the difference between the sum of the
amount of cash and the fair market value of other property received and the
holder's adjusted basis in the New Exchangeable Preferred Stock.
Gain or loss realized by a U.S. Holder on the exchange of New
Exchangeable Preferred Stock for Exchange Debentures will be subject to the same
general rules as a redemption for cash, except that the holder would realize
capital gain or loss in an amount equal to the difference between the issue
price of the Exchange Debentures received (as determined for purposes of
computing the original issue discount on such Exchange Debentures) and such
holder's adjusted tax basis in the New Exchangeable Preferred Stock. See the
discussion below under "Original Issue Discount."
If a redemption or exchange of New Exchangeable Preferred Stock is
treated as a distribution that is taxable as a dividend, the amount of the
distribution will be measured by the amount of cash or the issue price of the
Exchange Debentures, as the case may be, received by the U.S. Holder. The U.S.
Holder's adjusted tax basis in the redeemed New Exchangeable Preferred Stock
will be transferred to any remaining stock holdings in the Company. If the U.S.
Holder does not retain any actual stock ownership in the Company (having only a
constructive stock interest), the holder may lose such basis entirely. In
addition, a corporate U.S. Holder, under certain circumstances, may be required
to reduce its basis in its remaining shares of stock of the Company (and
possibly recognize gain upon a disposition of shares) under the "extraordinary
dividend" provision of section 1059 of the Code.
Original Issue Discount. In the event that the New Exchangeable Preferred
Stock is exchanged for Exchange Debentures and the "stated redemption price at
maturity" of the Exchange Debentures exceeds their "issue price" by more than a
de minimis amount equal to 0.25% of the stated redemption price at maturity of
the Exchange Debentures multiplied by the number of complete years to maturity,
the Exchange Debentures will be treated as having OID equal to the entire amount
of such excess.
If the Exchange Debentures are deemed to be traded on an established
securities market on or at any time during the 60-day period ending 30 days
after their issue date, the issue price of the Exchange Debentures will
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be their fair market value as of the issue date. Similarly, if the Exchangeable
Preferred Stock, but not the Exchange Debentures exchanged therefor, is deemed
to be traded on an established securities market within the 60-day period ending
30 days after the exchange, then the issue price of each Exchange Debenture will
be the fair market value of the New Exchangeable Preferred Stock exchanged
therefor at the time of the exchange. In the event that neither the New
Exchangeable Preferred Stock nor the Exchange Debentures is deemed to be traded
on an established securities market, the issue price of the Exchange Debentures
will be their stated principal amount or, in the event the Exchange Debentures
do not bear "adequate stated interest" within the meaning of section 1274 of the
Code, their "imputed principal amount", which is generally the sum of the
present values of all payments due under the Exchange Debentures, discounted
from the date of payment to their issue date at the appropriate "applicable
federal rate."
The stated redemption price at maturity of the Exchange Debentures should
equal the total of all payments required to be made thereon, other than payments
of "qualified stated interest." Qualified stated interest generally is stated
interest that is unconditionally payable in cash or other property (other than
debt instruments of the issuer) at least annually at a single fixed rate. The
Exchange Debentures that are issued when the Company has the option to pay
interest for certain periods in additional Exchange Debentures should be treated
as having been issued without any qualified stated interest. Accordingly, the
sum of all interest payable pursuant to the stated interest rate on such
Exchange Debentures over the entire term should be treated as OID and accrued
into income under a constant yield method by the holder, and the holder should
not treat the receipt of stated interest on the Exchange Debentures as interest
for U.S. Federal income tax purposes. The Company will report to U.S. Holders
and the IRS the reportable amount of OID income with respect to the Exchange
Debentures for each calendar year.
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture (an
"Initial Debenture") will not be considered as payment made on the Initial
Debenture and will be aggregated with the Initial Debenture for purposes of
computing and accruing OID on the Initial Debenture. The Company will allocate
the adjusted issue price of the Initial Debenture between the Initial Debenture
and the Secondary Debenture in proportion to their respective principal amounts.
That is, upon its issuance of a Secondary Debenture with respect to an Initial
Debenture, the Company intends to treat the Initial Debenture and the Secondary
Debenture derived from the Initial Debenture as initially having the same
adjusted issue price and inherent amount of OID per dollar of principal amount.
The Initial Debenture and the Secondary Debenture derived therefrom will be
treated as having the same yield to maturity. Similar treatment will be applied
when additional Exchange Debentures are issued on Secondary Debentures.
In the event the Exchange Debentures are not issued with OID, because
they are issued at a time when Holdings does not have the option to pay interest
thereon in additional Exchange Debentures and the stated redemption price at
maturity of the Exchange Debentures does not exceed their issue price by more
than a de minimis amount, stated interest should be included in income by a
holder in accordance with his method of accounting.
Bond Premium on Exchange Debentures. If New Exchangeable Preferred Stock
is exchanged for Exchange Debentures that have an issue price in excess of their
stated redemption price at maturity, the Exchange Debenture will be considered
to have been issued at a "premium." If an election by a U.S. Holder under
section 171 of the Code is made or is already in effect, a U.S. Holder will
amortize the bond premium over the term of the Exchange Debenture under a
constant yield method as an offset to the holder's interest income. This
election is revocable only with the consent of the IRS and applies to all
obligations owned or acquired by the U.S. Holder on or after the first day of
the taxable year to which the election applies. To the extent the excess is
deducted as amortizable bond premium, the U.S. Holder's adjusted tax basis in
the Exchange Debentures will be reduced.
Sale or Redemption of Exchange Debentures. Gain or loss realized by a
U.S. Holder on the sale, redemption or other disposition of Exchange Debentures
generally will be subject to U.S. Federal income tax in an amount equal to the
difference between the sum of cash and the fair market value of all other
property received on such sale, redemption or disposition (except to the extent
that cash received is attributable to accrued, qualified stated interest, which
would be taxed as ordinary income if previously untaxed) and such
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U.S. Holder's adjusted tax basis in the Exchange Debentures. The adjusted tax
basis of an Exchange Debenture received in exchange for Exchangeable Preferred
Stock generally will be equal to the issue price of the Exchange Debenture
increased by any OID with respect to the Exchange Debenture included in the U.S.
Holder's income prior to sale, redemption or other disposition of the Exchange
Debenture, reduced by any amortizable bond premium applied against the holder's
income prior to sale, redemption or other disposition of the Exchange Debenture
and by payments other than payments of qualified stated interest. Such gain or
loss would be long-term capital gain or loss if the holder's holding period for
the Exchange Debentures exceeds one year. A reduced tax rate on capital gain
will apply to an individual U.S. Holder if such holder's holding period for the
New Exchangeable Preferred Stock is more than eighteen months at the time of
disposition.
Applicable High Yield Discount Obligations. In the event the Exchange
Debentures are "applicable high yield discount obligations" ("AHYDOs"), pursuant
to section 163 of the Code, the "disqualified portion" of the OID (if any)
accruing on the Exchange Debentures may be treated as a dividend generally
eligible for the dividends-received deduction (subject to the exceptions and
restrictions described above) in the case of corporate U.S. Holders and the
Company would not be entitled to deduct the "disqualified portion" of the OID
accruing on the Exchange Debentures and would be allowed to deduct the remainder
of the OID only when paid in cash.
The Exchange Debentures will constitute AHYDOs if they (a) have a term of
more than five years, (b) have a yield to maturity equal to or greater than the
sum of the applicable federal rate at the time of issuance of the Exchange
Debentures (the "AFR") plus five percentage points, and (c) have "significant"
OID. A debt instrument is treated as having "significant" OID if the aggregate
amount that would be includible in gross income with respect to such debt
instrument for periods before the close of any accrual period ending after the
date five years after the date of issue exceeds the sum of (i) the aggregate
amount of interest to be paid in cash under the debt instrument before the close
of such accrual period and (ii) the product of the initial issue price of such
debt instrument and its yield to maturity. Because the amount of OID, if any,
attributable to the Exchange Debentures will be determined at the time such
Exchange Debentures are issued and the AFR at that point in times is not
predictable, it is impossible currently to determine whether Exchange Debentures
will be treated as AHYDOs.
If an Exchange Debenture is treated as an AHYDO, a U.S. Holder would be
treated as receiving dividend income to the extent of the lesser of (a) the
Company's current and accumulated earnings and profits, and (b) the
"disqualified portion" of the OID of such AHYDO. The "disqualified portion" of
the OID is equal to the lesser of (i) the amount of OID or (ii) the portion of
the "total return" (i.e., the excess of all payments to be made with respect to
the Exchange Debenture over its issue price) in excess of the AFR plus six
percentage points.
Backup Withholding and Information Reporting. In general, a U.S. Holder
will be subject to backup withholding at the rate of 31% with respect to
dividends on the New Exchangeable Preferred Stock and principal, interest, OID
and premium on the Exchange Debentures, unless the holder (a) is an entity that
is exempt from withholding (including corporations, tax-exempt organizations and
certain qualified nominees) and, when required, demonstrates this fact, or (b)
provides the Company with its taxpayer identification number ("TIN") (which for
an individual would be the holder's social security number), certifies that the
TIN provided to the Company is correct and that the holder has not been notified
by the IRS that it is subject to backup withholding due to underreporting of
interest or dividends, and otherwise complies with applicable requirements of
the backup withholding rules. In addition, such dividends, principal, interest,
OID and premium to U.S. Holders that are not exempt entities will generally be
subject to information reporting requirements. A U.S. Holder who does not
provide the Company with his correct TIN may be subject to interest and
penalties.
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BOOK-ENTRY; DELIVERY AND FORM
GLOBAL SECURITIES
The Notes will initially be issued in the form of one or more registered
Notes in global form without coupons (each a ("Global Note"), and the
Exchangeable Preferred Stock will initially be issued in the form of one or more
registered certificates in global form without coupons (each a "Global
Certificate," and together with the Global Notes, the "Global Security"). Each
Global Security will be deposited with, or on behalf of, the Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee of DTC, or
will remain in the custody of the Trustee pursuant to the FAST Balance
Certificate Agreement between DTC and the Trustee.
DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a "banking
organization" within the meaning of the New York banking law, (iii) a member of
the Federal Reserve System, (iv) a "clearing corporation" within the meaning of
the Uniform Commercial Code, as amended, and (v) a "Clearing Agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Securities, DTC will credit the accounts of
Participants designated by the Initial Purchaser with an interest in the Global
Security and (ii) ownership of beneficial interests in the Global Securities
will be shown on, and the transfer of beneficial ownership therein will be
effected only through, records maintained by DTC (with respect to the interest
of the Participants), the Participants and the Indirect Participants. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own and that security interests in negotiable
instruments can only be perfected by delivery of certificates representing the
instruments. Consequently, the ability to transfer Securities or to pledge the
Securities as collateral to persons in such states will be limited to such
extent.
So long as DTC or its nominee is the registered owner of a Global
Security, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Securities represented by the Global Security for all
purposes under the Indenture and the Notes, or the Certificate of Designation
and the Exchangeable Preferred Stock, as the case may be. Except as provided
below with respect to the Notes, owners of beneficial interests in a Global
Security will not be entitled to have Securities represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Securities, and will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to giving of any directions, instruction or approval, with respect to
the Notes, to the Trustee thereunder, with respect to the Notes. As a result,
the ability of a person having a beneficial interest in Securities represented
by a Global Security to pledge or transfer such interest to persons or entities
that do not participate in DTC's system or to otherwise take action with respect
to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
Payments with respect to the principal of, premium, if any, and interest
on, any Notes represented by a Global Note registered in the name of DTC or its
nominee on the applicable record date will be payable by the Trustee to or at
the direction of DTC or its nominee in its capacity as the registered holder of
the Global Note representing such Notes under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payment and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of interest in the Global Note (including principal, premium,
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if any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of DTC.
Payments in respect of the liquidation preference, redemption price and
dividends (including Additional Dividends), on any Exchangeable Preferred Stock
registered in the name of DTC or its nominee on the applicable record date will
be payable to or at the direction of DTC in its capacity as the registered
holder under the Certificate of Designation. Neither the Company nor the
transfer agent and registrar has or will have any responsibility or liability
for any aspect of the records relating to or the payment of such amounts made on
account of beneficial owners of Exchangeable Preferred Stock or for maintaining,
supervising or receiving any records relating to such beneficial owners'
interest. The Company believes, however, that it is currently the policy of DTC
to immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of DTC.
The Company expects that DTC or its nominee, upon receipt of any payment
of the liquidation preference, redemption price or dividends (including
Additional Dividends) in respect of the Global Certificate, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global
Certificate as shown on the records of DTC or its nominee. The Company also
expects that payments by the Participants and the Indirect Participants to the
beneficial owners of interests in the Global Securities will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants and DTC.
The Company also expects that payments by the Participants and the
Indirect Participants to the beneficial owners of interests in the Global
Securities will be governed by standing instructions and customary practice and
will be the responsibility of the Participants or the Indirect Participants and
DTC.
The information in this section concerning DTC and DTC's book-entry
system has been obtained from sources the Company believes to be reliable, but
the Company takes no responsibility for the accuracy thereof.
CERTIFICATED SECURITIES
If (i) the Company notifies the Trustee in writing that DTC is no longer
willing or able to act as a depository or DTC ceases to be registered as a
clearing agency under the Exchange Act and the Company is unable to locate a
qualified successor within 90 days, (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, or (iii) upon the occurrence of certain
other events, then, upon surrender by DTC of its Global Notes, then Certificated
Notes will be issued to each person that DTC identifies as the beneficial owner
of the Securities represented by the Global Notes. In addition, with respect to
the Notes, subject to certain conditions, any person having a beneficial
interest in a Global Note may, upon request to the Trustee, exchange such
beneficial interest for Certificated Notes. Upon any such issuance, the Trustee
is required to register such Certificated Notes in the name of such person or
persons (or the nominee of any thereof), and cause the same to be delivered
thereto.
Neither the Company, the Transfer Agent nor the Trustee shall be liable
for any delay by DTC or any Participant or Indirect Participant in identifying
the beneficial owners of the related Securities and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes (including with respect to the registration and delivery,
and the respective principal amounts and liquidation preferences, as the case
may be, of the Securities to be issued).
166
<PAGE> 173
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Existing Securities where such Existing Securities were acquired as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale. In addition, until , 1998, all
dealers effecting transactions in the New Securities may be required to deliver
a prospectus.
The Company will not receive any proceeds from any sale of New Securities
Stock by broker-dealers. New Securities received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Securities or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Securities. Any broker-dealer
that resells New Securities that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Securities may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit or any such resale of New
Securities and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one firm of attorneys
for the Holders of the Existing Securities) other than commissions or
concessions of any brokers-dealers and will indemnify the Holders of the
Existing Securities (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
167
<PAGE> 174
LEGAL MATTERS
The validity of the Securities will be passed upon for the Company by
Debevoise & Plimpton, New York, New York.
EXPERTS
The Consolidated Financial Statements of Day International Group, Inc.
for the years ended December 31, 1997 and 1996, and for the 208 days ended
December 31, 1995 and Day International, Inc. (the predecessor company of Day
International Group, Inc.) for the 157 days ended June 6, 1995 included in this
Prospectus and the related financial statement schedules included elsewhere in
the Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in the reports appearing herein and elsewhere in
the Registration Statement, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The Company has engaged Arthur Andersen LLP as its independent auditors
for the year ended December 31, 1998. The reports of Deloitte & Touche LLP on
the Company's financial statements for the years ended December 31, 1997 and
1996 did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles,
nor in connection with the audits of such financial statements have there been
any disagreements with Deloitte & Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
168
<PAGE> 175
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors................................................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1997 and 1996
and the period from June 7, 1995 through December 31, 1995............................................. F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1997 and 1996 and the period from June 7, 1995 through December 31, 1995............................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1997 and 1996
and the period from June 7, 1995 through December 31, 1995............................................. F-7
Notes to Consolidated Financial Statements................................................................ F-8
Report of Independent Auditors................................................................................. F-27
Consolidated Balance Sheet as of June 6, 1995............................................................. F-28
Consolidated Statement of Income for the period from January 1, 1995 through June 6,
1995................................................................................................... F-30
Consolidated Statement of Cash Flows for the period from January 1, 1995 through
June 6, 1995........................................................................................... F-31
Notes to Consolidated Financial Statements................................................................ F-32
</TABLE>
F-1
<PAGE> 176
1997 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY
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, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1997 and 1996 and the period from June 7,
1995 (date of acquisition) through December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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, 1997 and 1996, and the results of their operations and their
cash flows for the years ended December 31, 1997 and 1996 and the period from
June 7, 1995 through December 31, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 17, 1998
(March 17, 1998, as to the effects of the issuance of Exchangeable Preferred
Stock and Senior Subordinated Notes and the Consent Solicitation Statement
described in Notes A and D.)
F-2
<PAGE> 177
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 780 $ 5,433
Accounts receivable:
Trade (less allowance for doubtful accounts of $1,055 and $982) ......... 21,593 16,788
Other ................................................................... 379 383
Inventories (Note C) ........................................................ 16,501 16,355
Prepaid expenses and other current assets ................................... 1,457 3,630
Deferred tax assets (Note E) ................................................ 1,938 3,389
--------- ---------
Total current assets ................................................ 42,648 45,978
PROPERTY, PLANT AND EQUIPMENT (Note A):
Land ........................................................................ 2,023 2,025
Buildings ................................................................... 10,648 10,183
Machinery and equipment ..................................................... 39,999 34,692
Construction in progress .................................................... 3,716 5,098
--------- ---------
56,386 51,998
Less accumulated depreciation ............................................... (11,594) (6,709)
--------- ---------
44,792 45,289
OTHER ASSETS:
Goodwill and other intangible assets (Note B) ............................... 136,722 145,018
Note receivable (Note K) .................................................... 890 1,155
Other assets ................................................................ 475 446
--------- ---------
138,087 146,619
--------- ---------
TOTAL ASSETS .................................................................... $ 225,527 $ 237,886
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 178
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................................. $ 7,743 $ 7,453
Accrued associate related costs .................................................. 8,177 7,929
Other accrued expenses ........................................................... 3,694 5,430
Income taxes payable ............................................................. 1,618 645
Interest payable ................................................................. 1,013 1,068
Current maturities of long-term debt (Note D) .................................... 774 803
--------- ---------
Total current liabilities ................................................ 23,019 23,328
LONG-TERM AND SUBORDINATED LONG-TERM DEBT (Note D) ................................... 130,109 152,116
DEFERRED TAX LIABILITIES (Note E) .................................................... 5,688 3,513
OTHER LONG-TERM LIABILITIES (Notes J and K) .......................................... 6,522 6,195
COMMITMENTS AND CONTINGENCIES (Note K)
--------- ---------
Total liabilities ........................................................ 165,338 185,152
STOCKHOLDERS' EQUITY (Note H):
Preferred Shares $.01 per share par value, 10,000 shares authorized,
none outstanding
Common Shares, $.01 per share par value, 100,000 shares authorized, 51,655
shares -- 1997 and 51,555 shares -- 1996 issued and
outstanding .................................................................. 1 1
Additional paid-in-capital ....................................................... 51,959 51,531
Retained earnings ................................................................ 9,697 1,780
Foreign currency translation adjustment .......................................... (1,468) (578)
--------- ---------
Total stockholders' equity ............................................... 60,189 52,734
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................................... $ 225,527 $ 237,886
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 179
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM
JUNE 7, 1995 THROUGH DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
NET SALES ......................................................... $166,286 $ 136,814 $ 73,103
COST OF GOODS SOLD (including inventory fair value
adjustments of $2,287 in 1995) (Note G) ........................ 103,035 84,602 47,503
-------- --------- --------
GROSS PROFIT ...................................................... 63,251 52,212 25,600
SELLING, GENERAL AND ADMINISTRATIVE ............................... 28,629 23,657 12,885
AMORTIZATION OF INTANGIBLES ....................................... 3,315 6,474 3,688
MANAGEMENT FEES (Note G) .......................................... 896 920 455
-------- --------- --------
OPERATING PROFIT .................................................. 30,411 21,161 8,572
OTHER EXPENSES (Note D):
Interest Expense (including amortization of deferred
financing costs of $966 in 1997, $1,000 in 1996
and $567 in 1995) ........................................... 15,926 16,373 9,697
Other expense (income)-- net ................................... 629 (219) 952
-------- --------- --------
16,555 16,154 10,649
-------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) ....................... 13,856 5,007 (2,077)
INCOME TAXES (BENEFIT) (Note E) ................................... 5,939 2,000 (850)
-------- --------- --------
NET INCOME (LOSS) ................................................. $ 7,917 $ 3,007 $ (1,227)
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 180
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 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> <C>
Sale of common shares ...... 51,600 $ 1 $51,599 $ $
Net loss ................... (1,227)
Foreign currency translation (512)
adjustment .............. ------ ----- ------- ------- -------
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 (66)
adjustment .............. ------ ----- ------- ------- -------
December 31, 1996 .......... 51,555 1 51,531 1,780 (578)
Sale of common shares ...... 100 120
Issuance of stock options .. 308
Net income ................. 7,917
Foreign currency translation (890)
adjustment ............. ------- ----- ------- ------- -------
December 31, 1997 .......... 51,655 $ 1 $51,959 $ 9,697 $(1,468)
======= ===== ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 181
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 AND PERIOD FROM
JUNE 7, 1995 THROUGH DECEMBER 31, 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ............................................................. $ 7,917 $ 3,007 $ (1,227)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation ............................................................... 5,238 4,384 2,415
Amortization of goodwill and intangibles ................................... 7,827 10,724 8,310
Deferred income taxes ...................................................... 3,528 146 (1,247)
Non-cash charge related to stock option awards ............................. 308
Change in assets and liabilities, net of effect of David M acquisition:
Accounts receivable ........................................................ (5,455) (125) 280
Inventories ................................................................ (532) 909 1,512
Prepaid expenses and other current assets .................................. (521) 236 472
Accounts payable and other accrued expenses ................................ 1,361 (1,218) 4,400
--------- -------- ---------
Net cash provided by operating activities ............................. 19,671 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 ........................................... 1,513 (11,285)
Capital expenditures .......................................................... (5,124) (5,221) (2,082)
Other ......................................................................... 1,107 (1,107)
--------- -------- ---------
Net cash used in investing activities ................................. (2,504) (17,613) (206,075)
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common shares ......................................................... 120 73 51,600
Net payments on credit facilities ............................................. (21,821)
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 (used in) provided by financing activities ................... (21,701) 1,173 195,048
EFFECT OF EXCHANGE RATE CHANGES ON CASH ....................................... (119) 41 (119)
--------- -------- ---------
CASH AND CASH EQUIVALENTS:
Net (decrease) increase in cash and cash equivalents .......................... (4,653) 1,664 3,769
Cash and cash equivalents at beginning of period .............................. 5,433 3,769
--------- -------- ---------
Cash and cash equivalents at end of period .................................... $ 780 $ 5,433 $ 3,769
========= ======== =========
CASH PAID FOR:
Income Taxes .................................................................. $ 1,390 $ 1,620 $ 892
========= ======== =========
Interest ...................................................................... $ 15,015 $ 15,517 $ 7,963
========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 182
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND
THE 208 DAYS ENDED DECEMBER 31, 1995
A. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUBSEQUENT EVENT
Day International Group, Inc. and subsidiaries ("Day" or "the Company")
designs and manufactures precision engineered rubber components for the printing
and textile industries. Day's Image Transfer business designs, manufactures and
markets high-quality printing blankets and sleeves used in the offset printing
industry. Day's Textile business manufactures and markets 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, Day acquired
the stock or net assets, as appropriate, from M.A. Hanna 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 ......................... 38,347
Other assets .......................................... 1,624
Goodwill and other intangible assets .................. 158,970
Current liabilities ................................... (16,986)
Postretirement benefits and other long-term liabilities (6,845)
---------
Total Purchase Price .............. $ 211,795
</TABLE>
On December 31, 1996, the Company acquired certain net assets of the
David M division of Flint Ink Corporation for $9.8 million in cash. The
acquisition was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16.
On January 16, 1998, affiliates of Greenwich Street Capital Partners,
Inc., and SG Capital Partners acquired 93.9% of the common stock of Day for
approximately $206 million with Day's management retaining the other 6.1% of the
common shares. As a result of the change in control, bonuses of approximately
$0.6 million will be required to be paid to certain members of Day's management
in conjunction with the completion of their one or two year employment
agreements. The expense related to the employment agreements will be recorded in
the first quarter of 1998. The impact of the acquisition on the Company's
financial statements is expected to include the issuance of $35 million of
Exchangeable Preferred Stock and an additional $115 million of Senior
Subordinated Notes. The proceeds from these two transactions will be used to
repay the bridge loan of its new majority owner of $140 million plus the
associated transaction related expenses.
B. SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES 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.
F-8
<PAGE> 183
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.
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 $5,269 at December 31, 1997 (net of
accumulated amortization of $2,533) are being amortized using an effective
interest rate method over the lives of the related debt. Deferred financing
costs of $728 related to the US Credit Agreement will be expensed in the first
quarter of 1998 as the US Credit Agreement was repaid in conjunction with the
January 16, 1998 change in control as described in Note A.
Goodwill and other intangibles are being amortized using the
straight-line method, as follows:
<TABLE>
<CAPTION>
LIFE
---------
<S> <C> <C>
Goodwill .................... $ 103,619 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 ........... 160,946
Less accumulated amortization (24,224)
---------
$ 136,722
=========
</TABLE>
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. Effective January 1, 1997, Day's Mexico subsidiary
switched its functional currency to the US dollar in accordance with Statement
of Financial Accounting Standards (SFAS) No. 52, "Foreign Currency Translation"
because the Mexican economy was considered hyper-inflationary.
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 Image
Transfer 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
F-9
<PAGE> 184
reserve for potential losses. One customer accounted for 11% of sales for the
year ended December 31, 1997 and 9% of receivables at December 31, 1997.
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 which generally expire in 3 to 12 months. The contract value,
which approximates market, of these foreign exchange contracts was $2,311 and
$1,762 at December 31, 1997 and 1996, 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 variable rate US and UK Credit Agreements approximates fair value. The
11 1/8% Senior Subordinated Debt's fair market value was approximately 107% of
its carrying value at December 31, 1997 based on quoted market prices. The
carrying amounts of all other current assets and liabilities as reported in the
consolidated balance sheets at December 31, 1997 and 1996, 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, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Finished Goods ..................... $ 8,917 $ 9,118
Work in Progress ................... 4,164 4,115
Raw Materials ...................... 3,420 3,122
------- -------
$16,501 $16,355
======= =======
</TABLE>
D. LONG-TERM AND SUBORDINATED LONG-TERM DEBT
Long-term and subordinated long-term debt as of December 31, 1997 and
1996 consists of:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
US Credit Agreement ...................... $ 30,000 $ 48,500
UK Credit Agreement ...................... 883 4,419
11 1/8% Senior Subordinated Notes ........ 100,000 100,000
--------- ---------
130,883 152,919
Less: Current maturities of long-term debt (774) (803)
--------- ---------
$ 130,109 $ 152,116
========= =========
</TABLE>
F-10
<PAGE> 185
The US Credit Agreement consisted of a $40,000 revolving line of credit
and a $30,000 term loan with a group of banks. The revolving line of credit
included a $12,500 letter of credit subfacility ($1,903 of letters of credit
were outstanding at December 31, 1997) and a $2,000 swingline loan subfacility.
At December 31, 1997, interest on $5,000 of the revolving line of credit was
based on the banks' base rate plus 0.50% (9.00% at December 31, 1997). At
December 31, 1997, $33,097 was available under the US Credit Agreement. The US
Credit Agreement required a commitment fee of 1/2% a year on the unused portion
of the revolving line of credit. Interest on the term loan was based on the
banks' base rate plus 1.50% (9.5% at December 31, 1997) or the LIBOR rate plus
2.75% (8.69% at December 31, 1997). At December 31, 1997, 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 US Credit Agreement for the years ended
December 31, 1997 and 1996 and the period from June 7, 1995 through December 31,
1995 was 8.61%, 8.46% and 8.86%, respectively.
The US Credit Agreement was repaid on January 16, 1998 and replaced with
a $60,000 credit facility consisting of a five year $40,000 term loan and a
$20,000 revolving line of credit, in conjunction with the change of control as
described in Note A. Interest on the credit facility will be at the bank's base
rate plus 1% or LIBOR plus 2%. Principal payments under the term loan are as
follows: $2,000 -- 1998; $5,000 -- 1999; $8,000 -- 2000; $11,000 -- 2001 and
$14,000 -- 2002.
The 11 1/8% Senior Subordinated Notes (the "Notes") are due June 1, 2005
with interest payable semi-annually.
The 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
new credit facility and the Notes and pledged all its assets, except its
investments in its foreign subsidiaries, as collateral on these agreements. Upon
a change in control, the Notes can be put back to the Company at 101% of their
face value. An offer to repurchase the Notes at 101% of their face value was
made on February 13, 1998.
A Consent Solicitation Statement is expected to be sent to the existing
holders of the Notes by March 1, 1998, requesting their consent to certain
amendments to the Indenture governing the Notes which, among other things, will
permit the Company to issue an additional $115 million of Senior Subordinated
Notes and eliminate all provisions of the Indenture subordinating the Notes in
right of payment to senior indebtedness of the Company. In consideration for
signing the Consent, the Company will make a Consent Payment of $65 in cash for
each $1,000 of Notes for which a signed Consent is received prior to the Consent
expiration date.
In 1996, the Company's UK subsidiary entered into credit facilities with
a UK bank ("UK Credit Agreement") that provided a $1,544 line of credit and two
five year term loans totaling $4,647. Interest on the line of credit is at the
bank's base rate plus 1% (8.25% at December 31, 1997) payable monthly. The UK
Credit Agreement was repaid on January 12, 1998. Interest on the term loans was
at either the bank's base rate plus 1% (8.25% at December 31, 1997) or the LIBOR
rate plus 1% (7.87% at December 31, 1997) payable monthly. At December 31, 1997,
$1,544 was available under the UK Credit Agreement. All borrowings were secured
by guarantees from the Company's US subsidiary and by letters of credit obtained
under the US Credit Agreement. The credit facilities also contained certain
financial covenants related to the UK subsidiary.
In conjunction with the acquisition in 1995, the Company entered into an
agreement that would provide temporary financing in the event the 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.
F-11
<PAGE> 186
E. INCOME TAXES
Significant components of deferred tax assets (liabilities) as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Domestic:
Current:
Accounts receivable reserves ............................................ $ 491 $ 489
Inventory reserves ...................................................... 574 533
Other reserves .......................................................... 350 638
Net operating loss carryforward ......................................... 1,284
AMT credit carryforward ................................................. 350 200
------- ------
1,765 3,144
------- ------
Long-term:
Depreciation ............................................................ (2,721) (1,477)
Amortization ............................................................ (1,830) (531)
Other postretirement benefits ........................................... 463 250
------- ------
(4,088) (1,758)
------- ------
Total domestic deferred tax assets (liabilities) ............................. (2,323) 1,386
------- ------
Foreign:
Current:
Inventories ............................................................. (25) (177)
Other ................................................................... 198 422
------- ------
173 245
------- ------
Long-term:
Plant and equipment ..................................................... (1,626) (1,873)
Pension ................................................................. 26 118
------- ------
(1,600) (1,755)
------- ------
Total foreign deferred tax liabilities ....................................... (1,427) (1,510)
------- ------
Net deferred tax liabilities ................................................. $(3,750) $ (124)
======= ======
</TABLE>
F-12
<PAGE> 187
Income tax expense (benefit) consists of the following for the years ended
December 31, 1997 and 1996 and the period from June 7, 1995 through December 31,
1995:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Domestic:
Federal ........... $ $ $ 209
State and local ... 309 583 50
Foreign ............. 1,396 1,251 138
------- ------- -------
1,705 1,834 397
------- ------- -------
Deferred:
Domestic:
Federal ........... 3,366 324 (1,359)
State and local ... 495 48 (200)
Foreign ............. 373 (206) 312
------- ------- -------
4,234 166 (1,247)
------- ------- -------
$ 5,939 $ 2,000 $ (850)
======= ======= =======
</TABLE>
The foreign deferred tax expense primarily results from differences in
accounting for fixed assets.
The income tax expense (benefit) differs from the statutory rate for the
years ended December 31, 1997 and 1996 and period June 7, 1995 through December
31, 1995 as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ----------
<S> <C> <C> <C>
Provision at the federal statutory rate ................... $ 4,711 $ 1,702 $ (707)
Foreign tax rate differential ............................. 444 (169) (63)
State and local taxes, net of federal income tax effect ... 689 417 (99)
Non-deductible expenses ................................... 117 57 118
Other ..................................................... (22) (7) (99)
------- ------- -------
$ 5,939 $ 2,000 $ (850)
======= ======= =======
</TABLE>
Income (loss) before income taxes includes $5,809, $3,571 and $1,510 of
income from international operations for the years ended December 31, 1997 and
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.
F-13
<PAGE> 188
F. BUSINESS OPERATIONS
Net sales and income (loss) before income taxes (benefit) for the years
ended December 31, 1997 and 1996 and the period from June 7, 1995 through
December 31, 1995 and identifiable assets as of December 31, 1997 and 1996 by
geographic area are as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------
INCOME BEFORE IDENTIFIABLE
NET SALES INCOME TAXES ASSETS
------------- ------------- -------------
<S> <C> <C> <C>
Domestic ..................... $ 101,319 $ 2,677 $ 183,267
Europe ....................... 45,280 4,808 30,871
Other International .......... 25,243 6,371 11,389
Interarea .................... (5,556)
--------- --------- ---------
$ 166,286 $ 13,856 $ 225,527
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996
-----------------------------------------------
INCOME (LOSS)
BEFORE IDENTIFIABLE
NET SALES INCOME 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
NET SALES INCOME TAXES
------------- -------------
<S> <C> <C>
Domestic ..................... $ 46,537 $ (5,260)
Europe ....................... 18,289 478
Other International .......... 11,231 2,705
Interarea .................... (2,954)
-------- --------
$ 73,103 $ (2,077)
======== ========
</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 was
required to pay American Industrial Partners, an affiliate of the controlling
shareholders of Day, an annual management fee of $800 plus
F-14
<PAGE> 189
expenses, payable semi-annually. The agreement terminated on January 16, 1998
with the change in control described in Note A.
The Company also paid American Industrial Partners $450 in conjunction
with the acquisition of David M, related to their assistance in acquiring David
M which was included in the David M purchase price allocation.
In 1997, the Company purchased approximately $1.7 million of its raw
material needs from suppliers who were also owned by the controlling
shareholders of Day. The Company does not anticipate any price increases or
service interruptions as a result of the change in control described in Note A.
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. All outstanding options vested on January 16, 1998 with the change in
control as described in Note A and 142.5 options were exercised for $143. As of
December 31, 1997, 2,605 options have been granted under the plan with an
exercise price of $1,000 a share and 310 options have been granted under the
plan with an exercise price of $1,200 a share. Also, the options expire as
follows: 2,530 expire in 2005, 75 expire in 2006 and 310 expire in 2007. The
following table summarizes activity in the Company's stock option plan:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period ........... 2,605 $ 1,000 2,730 $ 1,000
Granted ...................................... 310 $ 1,200 75 $ 1,000 2,730 $ 1,000
Exercised .................................... (18) $ 1,000
Canceled ..................................... (182) $ 1,000
------ ------ -------
Outstanding at end of period ................. 2,915 2,605 2,730
====== ====== =======
Exercisable at end of period ................. 1,520 862 283
====== ====== =======
Weighted-average fair value of options granted
during the year using the Black-Scholes
options-pricing model ................. $ 1,548 $ 662 $ 462
======== ======== ========
Weighted-average assumptions used for
grants:
Expected dividend yield ............... 0% 0% 0%
Expected life of options .............. 9 years 9 years 9 years
Risk-free interest rate ............... 7% 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 would have reduced the
Company's net earnings by $255 in 1997, $214 in 1996 and $107 in 1995.
F-15
<PAGE> 190
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,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including vested benefits of $10,015 and
$9,347 ............................................................... $ 10,138 $ 9,493
======== ========
Projected benefit obligation .............................................. $ 11,355 $ 10,636
Plan assets at fair value ................................................. 10,894 10,652
-------- --------
Plan assets (in excess of) less than projected benefits ................... 461 (16)
Unrecognized net actuarial gain (loss) .................................... 4 438
-------- --------
Accrued pension cost ...................................................... $ 465 $ 422
======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount
rate of 7.0% and 7.5% in 1997 and 1996, respectively and an assumed long-term
rate of increase in compensation of 5%. The assumed long-term rate of return on
plan assets was 9.0% in 1997 and 8.5% in 1996.
A summary of the components of net periodic pension cost for the defined
benefit plans and for the defined contribution plans for the years ended
December 31, 1997 and 1996 and the period from June 7, 1995 through December 31,
1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Defined benefit plans:
Service cost ................ $ 506 $ 433 $ 256
Interest cost ............... 728 701 381
Actual return on plan assets (977) (1,006) (810)
Net amortization and deferral 95 265 418
------- ------- -------
Net periodic pension cost ...... 352 393 245
Defined contribution plans ..... 1,458 1,247 690
------- ------- -------
Total pension expense .......... $ 1,810 $ 1,640 $ 935
======= ======= =======
</TABLE>
F-16
<PAGE> 191
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, 1997 and 1996, which is unfunded,
is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees .................................. $1,024 $1,003
Fully eligible active plan participants ... 265 242
Other active plan participants ............ 3,282 2,605
------ ------
4,571 3,850
Unrecognized net loss ..................... 161 337
------ ------
Accrued postretirement benefit obligation .... $4,732 $4,187
====== ======
</TABLE>
Approximately $87 and $57 of accrued postretirement benefit obligation is
included in accrued associate related costs at December 31, 1997 and 1996,
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 5% and
decreasing gradually to 4.75% 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 $882 at December 31, 1997
and the interest and service cost would have been $152 higher for the year ended
December 31, 1997.
A discount rate of 7.0% and 7.5% was used in determining the accumulated
obligation as of December 31, 1997 and 1996, respectively.
Net periodic postretirement benefit costs include the following components
for the year ended December 31, 1997 and 1996 and the period from June 7, 1995
through December 31, 1995:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost ......................................... $386 $348 $206
Interest cost ........................................ 315 263 136
---- ---- ----
Net periodic postretirement benefit costs ............ $701 $611 $342
==== ==== ====
</TABLE>
F-17
<PAGE> 192
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 years ended December 31, 1997 and 1996 and the period from June 7, 1995
through December 31, 1995 was $780, $811 and $412, respectively. At December 31,
1997, future minimum lease commitments for noncancelable operating leases are:
<TABLE>
<CAPTION>
<S> <C>
1998 ................................ $ 339
1999 ................................ 295
2000 ................................ 234
2001 ................................ 198
2002 ................................ 130
Thereafter .......................... 71
------
Total ............................ $1,267
======
</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 that occurred prior to the acquisition by American
Industrial Partners in 1995. 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, 1997 a $935 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 do not 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 eliminations 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, 1997 and 1996, the
supplemental combined condensed statements of operations and cash flows for the
years ended December 31, 1997 and 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.
F-18
<PAGE> 193
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL GUARANTOR
GROUP, INC. INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ......... $ 596 $ (320) $ 504 $ 780
Accounts receivable-- net ......... 12,215 9,757 21,972
Inventories ....................... 10,637 5,864 16,501
Other assets ...................... 1,936 1,459 3,395
--------- ---------- --------- --------- ---------
TOTAL CURRENT ASSETS ......... 596 24,468 17,584 -- 42,648
Intercompany ...................... 130,000 -- $(130,000) --
Property, plant and equipment--
net ........................... 35,931 8,861 44,792
Investment in subsidiaries ........ 70,337 23,106 (93,443) --
Intangible and other assets ....... 132,809 5,278 138,087
--------- --------- --------- --------- ---------
TOTAL ASSETS ...................... $ 200,933 $ 216,314 $ 31,723 $(223,443) $ 225,527
========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable .................. $ 4,736 $ 3,532 $ (525) $ 7,743
Current maturities of long-term
debt ............................ 774 774
Accrued associate related costs
and other expenses .............. $ 990 8,899 4,613 14,502
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES .... 990 13,635 8,919 (525) 23,019
Intercompany ...................... 8,286 121,217 (28) (129,475) --
Long-term and subordinated long-
term debt ...................... 130,000 109 130,109
Long-term post retirement benefits
and other ...................... 9,527 2,683 12,210
Total stockholders' equity ........ 61,657 71,935 20,040 (93,443) 60,189
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ........... $ 200,933 $ 216,314 $ 31,723 $(223,443) $ 225,527
========= ========= ========= ========= =========
</TABLE>
F-19
<PAGE> 194
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL GUARANTOR
GROUP, INC. INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and 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>
F-20
<PAGE> 195
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL GUARANTOR
GROUP, INC. INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ -- $ 124,422 $ 41,864 $ -- $ 166,286
Cost of goods sold........................ 74,846 28,189 103,035
----------- -------------- ------------ ------------ ------------
Gross profit......................... -- 49,576 13,675 -- 63,251
Selling, general and administrative....... 50 20,741 7,838 28,629
Amortization of intangibles............... 3,270 45 3,315
Management fees........................... 896 896
----------- -------------- ------------ ------------ ------------
Operating income..................... (50) 24,669 5,792 -- 30,411
Other expenses (income):
Equity in earnings of subsidiaries........ (7,926) (3,760) 11,686 --
Interest expense.......................... -- 15,605 321 15,926
Other (income) expense.................... (35) 489 175 629
----------- -------------- ------------ ------------ ------------
Income before income taxes........... 7,911 12,335 5,296 (11,686) 13,856
Income taxes.............................. (6) 4,409 1,536 5,939
----------- -------------- ------------ ------------ ------------
Net income........................... $ 7,917 $ 7,926 $ 3,760 $ (11,686) $ 7,917
=========== ============== ============ ============ ============
</TABLE>
F-21
<PAGE> 196
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL 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....... 35 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>
F-22
<PAGE> 197
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
PERIOD FROM JUNE 7, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL 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>
F-23
<PAGE> 198
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL GUARANTOR
GROUP, INC. INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income ............................. $ 7,917 $ 7,926 $ 3,760 $ (11,686) $ 7,917
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Depreciation and amortization ..... 11,464 1,601 13,065
Non-cash charge related to
stock option awards ............. 308 308
Equity in earnings of
subsidiaries..................... (7,926) (3,760) 11,686 --
Deferred income taxes and other ... 3,710 (182) 3,528
Changes in operating assets
and liabilities ................. (78) (3,693) (1,276) (100) (5,147)
-------- -------- -------- --------- --------
Net cash provided by (used in) operating
activities .......................... 221 15,647 3,903 (100) 19,671
Investing activities:
Cash paid for David M .................. 1,513 1,513
Capital expenditures ................... (3,627) (1,497) (5,124)
Other .................................. 1,107 1,107
-------- -------- -------- --------- --------
Net cash used in investing activities .. -- (1,007) (1,497) -- (2,504)
Financing Activities:
Sale of common shares .................. 120 120
Purchase of common shares .............. --
Net payments on credit facilities ...... (18,500) (3,321) (21,821)
-------- -------- -------- --------- --------
Net cash used in financing activities .. (18,380) -- (3,321) -- (21,701)
Intercompany transfers and dividends ... 15,998 (14,234) (1,864) 100 --
Effects of exchange rates on cash ...... (119) (119)
-------- -------- -------- --------- --------
Cash and Cash Equivalents:
Net increase (decrease) in cash and cash
equivalents ......................... (2,161) 406 (2,898) -- (4,653)
Cash and cash equivalents at beginning
of period ........................... 2,757 (726) 3,402 5,433
-------- -------- -------- --------- --------
Cash and cash equivalents at end of
period .............................. $ 596 $ (320) $ 504 $ -- $ 780
======== ======== ======== ========= ========
</TABLE>
F-24
<PAGE> 199
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL 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>
F-25
<PAGE> 200
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
PERIOD FROM JUNE 7, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
DAY DAY NON
INTERNATIONAL INTERNATIONAL 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>
F-26
<PAGE> 201
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.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, 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.
DELOITTE & TOUCHE LLP
Dayton, Ohio
August 17, 1995
F-27
<PAGE> 202
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 6, 1995 (IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
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.
F-28
<PAGE> 203
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
CONSOLIDATED BALANCE SHEET
JUNE 6, 1995 (IN THOUSANDS)
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
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>
See notes to consolidated financial statements.
F-29
<PAGE> 204
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.
F-30
<PAGE> 205
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.
F-31
<PAGE> 206
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.
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
F-32
<PAGE> 207
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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.
F-33
<PAGE> 208
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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>
F-34
<PAGE> 209
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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
F-35
<PAGE> 210
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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.
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>
F-36
<PAGE> 211
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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.
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>
F-37
<PAGE> 212
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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.
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.
F-38
<PAGE> 213
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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>
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
F-39
<PAGE> 214
DAY INTERNATIONAL, INC. AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF M.A. HANNA COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
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.
F-40
<PAGE> 215
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
JUNE 6, 1995
<TABLE>
<CAPTION>
DAY
INTERNATIONAL NON
INC. GUARANTOR
(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>
F-41
<PAGE> 216
DAY INTERNATIONAL, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF INCOME
PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
<TABLE>
<CAPTION>
DAY
INTERNATIONAL NON
INC. GUARANTOR
(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>
F-42
<PAGE> 217
DAY INTERNATIONAL, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
PERIOD JANUARY 1, 1995 THROUGH JUNE 6, 1995
<TABLE>
<CAPTION>
DAY
INTERNATIONAL NON
INC. GUARANTOR
(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>
F-43
<PAGE> 218
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
OFFERING CIRCULAR
PAGE
Available Information............................................... 5
Risk Factors......................................................... 19
Use of Proceeds...................................................... 25
The Acquisition and Related Transactions............................. 26
Capitalization....................................................... 29
Unaudited Pro Forma Financial Information............................ 30
Selected Historical Financial Data................................... 36
Management's Discussion and Analysis Of Financial
Condition and Results of Operations........................... 38
Business............................................................. 44
Management........................................................... 56
Ownership of Capital Stock........................................... 61
Certain Transactions................................................. 62
Description of Capital Stock......................................... 63
Description of Certain Senior Indebtedness........................... 64
The Exchange Offer................................................... 67
Description of the Notes............................................. 75
Description of the Exchangeable Preferred Stock
and Exchange Debentures....................................... 109
United States Federal Tax Considerations............................. 156
Plan of Distribution................................................. 167
Legal Matters........................................................ 168
Experts.............................................................. 168
[DAY LOGO]
DAY INTERNATIONAL
GROUP, INC.
OFFER TO EXCHANGE 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 AND 12 1/4% SENIOR
EXCHANGEABLE PREFERRED STOCK DUE 2010, WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, FOR ANY AND ALL OUTSTANDING 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2008 AND ANY AND ALL OUTSTANDING 12 1/4% SENIOR
EXCHANGEABLE PREFERRED STOCK DUE 2010
PROSPECTUS
____________ , 1998
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware Corporation Law, as amended, provides in
regards to indemnification of directors and officers as follows:
"145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE.-- (a) A corporation shall have power to indemnify
any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right of the corporation) by reason of the fact
that the person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection
with such action, suit or proceeding if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that the person
is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the
person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect
of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court of Chancery or such other court shall
deem proper.
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<PAGE> 220
(c) To the extent that a present or former director or
officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this section, or in defense of any claim,
issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the
applicable standard of conduct set forth in subsections (a) and (b) of
this section. Such determination shall be made with respect to a person
who is a director or officer at the time of such determination, (1) by
a majority vote of the directors who are not parties to such action,
suit or proceeding even though less than a quorum or (2) by a committee
of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if
such directors so direct, by independent legal counsel in a written
opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees)
incurred by former directors and officers or other employees and agents
may be so paid upon such terms and conditions, if any, as the
corporation deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against such person and
incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the
power to indemnify such person against such liability under this
section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer,
II-2
<PAGE> 221
employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this
section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner
such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person."
The Certificate of Incorporation and Article V of the By-Laws of the
Company authorize indemnification of officers and directors to the full extent
permitted under Delaware law, including a provision eliminating (except under
certain enumerated circumstances) the liability of directors for duty of care
violations.
The indemnification provided for the Delaware General Corporation Law
is not exclusive of any other rights of indemnification, and a corporation may
maintain insurance against liabilities for which indemnification is not
expressly provided by the Delaware General Corporation Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) LIST OF EXHIBITS
Exhibit
Number Description of Documents
**1.1 - Purchase Agreement, dated as of March 13, 1998, between
the Company and Societe Generale Securities Corporation.
II-3
<PAGE> 222
***2.1 - Stock Purchase Agreement, dated as of December 18,
1997, by and among Greenwich IV, LLC, GSD Acquisition
Corp. and the Stockholders of Day International
Group, Inc. parties thereto.
***2.2 - Amendment No. 1 to Stock Purchase Agreement, dated as
of January 16, 1998, by and among Greenwich IV, LLC, GSD
Acquisition Corp. and the Stockholders of Day
International Group, Inc. parties thereto.
**3.1 - Certificate of Incorporation of the Company.
**3.2 - Amendment to Certificate of Incorporation of the
Company.
**3.3 - By-laws of the Company.
**4.1 - Indenture (the "Indenture"), dated as of June 6, 1995,
among Day International Group, Inc. (as Issuer), Day
International, Inc. (as Guarantor) and American Bank
National Association (as Trustee).
**4.2 - The First Supplemental Indenture, dated March 13, 1998,
to the Indenture.
**4.3.1 - Indenture (the "Subordinated Indenture"), dated as of
March 18, 1998, among Day International Group, Inc., Day
International, Inc. and The Bank of New York.
**4.3.2 - Form of Global Notes (filed as part of Exhibit 4.3.1.).
**4.4 - Registration Rights Agreement, dated as of March 18,
1998, by and between the Company and Societe Generale
Securities Corporation.
**4.5.1 - Certificate of Designation, dated March 18, 1998, of
the Powers, Preferences and Relative, Participating,
Optional and other Special Rights of 12 1/4% Senior
Exchangeable Preferred Stock due 2010 and Qualifications,
Limitations and Restrictions thereof (the "Exchangeable
Preferred Stock").
**4.5.2 - Form of Global Certificate for the Exchangeable
Preferred Stock.
**4.6 - Exchange Debenture Indenture, dated as of March 18,
1998, between the Company, Day International, Inc., and
The Bank of New York as Trustee relating to the Notes.
****4.7 - Credit Agreement (the "Credit Agreement"), dated January
15, 1998, among the Company (as Borrower), the Senior
Lenders, Societe Generale Securities Corporation (as
Arranger) and Societe Generale (as Administrative Agent).
**4.8 - Guarantee and Collateral Agreement, dated January 15,
1998, made by the Company and Day International, Inc.
in favor of Societe Generale as Administrative Agent for
the benefit of the Senior Lenders and certain other
secured parties.
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<PAGE> 223
**4.9 - Patent and Trademark Security Agreement, dated January
15, 1998, made by the Company in favor of the
Administrative Agent for the benefit of the Senior Lenders
under the Credit Agreement.
**4.10 - Mortgage and Security Agreement dated January 15, 1998,
from Day, as Mortgagor, to the Administrative Agent, with
respect to the Florida Property.
**4.11 - Mortgage and Security Agreement dated January 15, 1998,
from Day, as Mortgagor, to the Administrative Agent, with
respect to the South Carolina Property.
**4.12 - Deed of Trust, dated January 15, 1998, from Day, as
Mortgagor, to the Administrative Agent, with respect to
the North Carolina Property.
**4.13 - Mortgage and Security Agreement form Day, as Mortgagor,
to the Administrative Agent, with respect to the Michigan
Property.
**5 - Opinion of Debevoise & Plimpton regarding the legality
of the New Notes being registered.
**10.1 - Stockholders Agreement, dated January 16, 1998, among
GSD Acquisition Corp., Greenwich IV, LLC, Societe Generale
Capital Corporation and certain Employee Stockholders.
**10.2 - Amendment to the Stock Option Plan, dated as of January
16, 1998.
**10.3 - 1998 Day International Group, Inc. Stock Option Plan.
**10.4 - Amendment to the Employment Agreement, dated January 16,
1998, between Day International, Inc. and Dennis R.
Wolters.
**10.5 - Amendment to the Employment Agreement, dated January 16,
1998, between Day International, Inc. and David B.
Freimuth.
**10.6 - Management Agreement between the Company, Greenwich Street
and SG.
*12.1 - Computation of Ratio of Earnings to Fixed Charges.
*12.2 - Computation of Ratio of Earnings to Combined Fixed Charges
and Preference Dividends (included as Part of Exhibit
12.1).
*12.3 - Computation of Ratio of Total Debt to EBITDA.
*12.4 - Computation of EBITDA to Cash Interest Expense.
*12.5 - Computation of EBITDA less Capital Expenditures to Cash
Interest Expense.
**21 - List of Subsidiaries of the Registrant.
*21.2 - Schedule of Valuation and Qualifying Accounts.
*23.1 - Consent of Deloitte & Touche LLP.
II-5
<PAGE> 224
**23.2 - Consent of Debevoise & Plimpton (included as Exhibit 5).
**24 - Powers of Attorney (included on signature pages to this
Registration Statement on Form S-4).
**25 - State of Eligibility and Qualification Under the Trust
Indenture Act of 1939 (Form T-1) of The Bank of New York.
**99.1 - Form of Letter of Transmittal.
**99.2 - Form of Notice of Guaranteed Delivery.
**99.3 - Form of Exchange Agent Agreement between the Company and
the Exchange Agent.
- ----------------
* Filed herewith.
** To be filed by amendment.
*** Incorporated by reference to the Company's Form 8-K, dated
January 16, 1998. (File No. 33-93644)
**** Incorporated by reference to the Company's Form 8-K, dated
February 23, 1998. (File No. 33-93644)
***** Incorporated by reference to the Company's Form 10-K, for
the year ended December 31, 1997. (File No. 33-93644)
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes
(1) To file, during any period in which officers or sales are
being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any facts or
events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities offered
(if
II-6
<PAGE> 225
the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; (iii) to include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(4) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145 (c), the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to
paragraph (5) immediately preceding, or (ii) that purports to meet the
requirements of Section 10 (a) (3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offering therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(7) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers, and
controlling persons of the Registrants pursuant to the foregoing
provisions or otherwise, the Registrants have been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person
of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrants
will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question
II-7
<PAGE> 226
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(8) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
(9) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form within one business day of receipt of
such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
II-8
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Day
International Group, Inc. has caused this Registration Statement on Form S-4 to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Dayton, State of Ohio, on the 5th day of May, 1998.
DAY INTERNATIONAL GROUP, INC.
By: /s/ Dennis R. Wolters
-------------------------------------
Dennis R. Wolters
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Christine K. Vanden Beukel and David B.
Freimuth, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead in any and all capacities, to sign any or all
amendments to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he or she might or could do in persons hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of this Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ Dennis R. Wolters President, Chief Executive Officer and Director May 5, 1998
- ------------------------------
Dennis R. Wolters
</TABLE>
II-9
<PAGE> 228
<TABLE>
<S> <C> <C>
PRINCIPAL ACCOUNTING OFFICER:
/s/ David B. Freimuth Vice President and Chief Financial Officer May 5, 1998
- -------------------------------
David B. Freimuth
PRINCIPAL FINANCIAL OFFICER:
/s/ David B. Freimuth Vice President and Chief Financial Officer May 5, 1998
- -------------------------------
David B. Freimuth
DIRECTORS:
/s/ Alfred C. Eckert, III Director May 5, 1998
- ------------------------------
Alfred C. Eckert, III
/s/ Christine K. Vanden Beukel Director May 5, 1998
- ------------------------------
Christine K. Vanden Beukel
</TABLE>
II-10
<PAGE> 229
EXHIBIT INDEX
-------------
Number Description of Documents
**1.1 - Purchase Agreement, dated as of March 13, 1998, between
the Company and Societe Generale Securities Corporation.
***2.1 - Stock Purchase Agreement, dated as of December 18,
1997, by and among Greenwich IV, LLC, GSD Acquisition
Corp. and the Stockholders of Day International
Group, Inc. parties thereto.
***2.2 - Amendment No. 1 to Stock Purchase Agreement, dated as
of January 16, 1998, by and among Greenwich IV, LLC, GSD
Acquisition Corp. and the Stockholders of Day
International Group, Inc. parties thereto.
**3.1 - Certificate of Incorporation of the Company.
**3.2 - Amendment to Certificate of Incorporation of the
Company.
**3.3 - By-laws of the Company.
**4.1 - Indenture (the "Indenture"), dated as of June 6, 1995,
among Day International Group, Inc. (as Issuer), Day
International, Inc. (as Guarantor) and American Bank
National Association (as Trustee).
**4.2 - The First Supplemental Indenture, dated March 13, 1998,
to the Indenture.
**4.3.1 - Indenture (the "Subordinated Indenture"), dated as of
March 18, 1998, among Day International Group, Inc., Day
International, Inc. and The Bank of New York.
**4.3.2 - Form of Global Notes (filed as part of Exhibit 4.3.1.).
**4.4 - Registration Rights Agreement, dated as of March 18,
1998, by and between the Company and Societe Generale
Securities Corporation.
**4.5.1 - Certificate of Designation, dated March 18, 1998, of
the Powers, Preferences and Relative, Participating,
Optional and other Special Rights of 12 1/4% Senior
Exchangeable Preferred Stock due 2010 and Qualifications,
Limitations and Restrictions thereof (the "Exchangeable
Preferred Stock").
**4.5.2 - Form of Global Certificate for the Exchangeable
Preferred Stock.
**4.6 - Exchange Debenture Indenture, dated as of March 18,
1998, between the Company, Day International, Inc., and
The Bank of New York as Trustee relating to the Notes.
****4.7 - Credit Agreement (the "Credit Agreement"), dated January
15, 1998, among the Company (as Borrower), the Senior
Lenders, Societe Generale Securities Corporation (as
Arranger) and Societe Generale (as Administrative Agent).
**4.8 - Guarantee and Collateral Agreement, dated January 15,
1998, made by the Company and Day International, Inc.
in favor of Societe Generale as Administrative Agent for
the benefit of the Senior Lenders and certain other
secured parties.
<PAGE> 230
**4.9 - Patent and Trademark Security Agreement, dated January
15, 1998, made by the Company in favor of the
Administrative Agent for the benefit of the Senior Lenders
under the Credit Agreement.
**4.10 - Mortgage and Security Agreement dated January 15, 1998,
from Day, as Mortgagor, to the Administrative Agent, with
respect to the Florida Property.
**4.11 - Mortgage and Security Agreement dated January 15, 1998,
from Day, as Mortgagor, to the Administrative Agent, with
respect to the South Carolina Property.
**4.12 - Deed of Trust, dated January 15, 1998, from Day, as
Mortgagor, to the Administrative Agent, with respect to
the North Carolina Property.
**4.13 - Mortgage and Security Agreement form Day, as Mortgagor,
to the Administrative Agent, with respect to the Michigan
Property.
**5 - Opinion of Debevoise & Plimpton regarding the legality
of the New Notes being registered.
**10.1 - Stockholders Agreement, dated January 16, 1998, among
GSD Acquisition Corp., Greenwich IV, LLC, Societe Generale
Capital Corporation and certain Employee Stockholders.
**10.2 - Amendment to the Stock Option Plan, dated as of January
16, 1998.
**10.3 - 1998 Day International Group, Inc. Stock Option Plan.
**10.4 - Amendment to the Employment Agreement, dated January 16,
1998, between Day International, Inc. and Dennis R.
Wolters.
**10.5 - Amendment to the Employment Agreement, dated January 16,
1998, between Day International, Inc. and David B.
Freimuth.
**10.6 - Management Agreement between the Company, Greenwich Street
and SG.
*12.1 - Computation of Ratio of Earnings to Fixed Charges.
*12.2 - Computation of Ratio of Earnings to Combined Fixed Charges
and Preference Dividends (included as Part of Exhibit
12.1).
*12.3 - Computation of Ratio of Total Debt to EBITDA.
*12.4 - Computation of EBITDA to Cash Interest Expense.
*12.5 - Computation of EBITDA less Capital Expenditures to Cash
Interest Expense.
**21 - List of Subsidiaries of the Registrant.
*21.2 - Schedule of Valuation and Qualifying Accounts.
*23.1 - Consent of Deloitte & Touche LLP.
<PAGE> 231
**23.2 - Consent of Debevoise & Plimpton (included as Exhibit 5).
**24 - Powers of Attorney (included on signature pages to this
Registration Statement on Form S-4).
**25 - State of Eligibility and Qualification Under the Trust
Indenture Act of 1939 (Form T-1) of The Bank of New York.
**99.1 - Form of Letter of Transmittal.
**99.2 - Form of Notice of Guaranteed Delivery.
**99.3 - Form of Exchange Agent Agreement between the Company and
the Exchange Agent.
- ----------------
* Filed herewith.
** To be filed by amendment.
*** Incorporated by reference to the Company's Form 8-K, dated
January 16, 1998. (File No. 33-93644)
**** Incorporated by reference to the Company's Form 8-K, dated
February 23, 1998. (File No. 33-93644)
***** Incorporated by reference to the Company's Form 10-K, for
the year ended December 31, 1997. (File No. 33-93644)
<PAGE> 1
Exhibit 12.1
DAY INTERNATIONAL GROUP, INC.
PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
157 DAYS 208 DAYS
ENDED ENDED
JUNE 6, DECEMBER 31,
1993 1994 1995 1995 1996
-------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
FIXED CHARGES:
Interest on debt (including amortization of
deferred financing fees) $ - $ - $ - $ 9,697 $ 16,373
Amortization of debt discount and expense - - - - -
Interest element of rentals 295 241 100 137 270
Fixed charges of unconsolidated subsidiary - - - - -
-------- ------- ------- ------- ---------
Total Fixed Charges $ 295 $ 241 $ 100 $ 9,834 $ 16,643
======== ======= ======= ======= =========
PREFERRED DIVIDENDS:
Amount Declared $ - $ - $ - $ - $ -
======== ======= ======= ======= =========
Gross up to pretax based on 40% effective tax rate $ - $ - $ - $ - $ -
======== ======= ======= ======= =========
EARNINGS:
Consolidated net (income) loss $ 8,828 $12,587 $ 5,093 $(1,227) $ 3,007
Add back:
Extraordinary Charge - - - - -
Loss from discontinued operations - - - - -
Consolidated provision for income taxes 7,149 9,205 3,488 (850) 2,000
Income taxes of unconsolidated subsidiaries - - - - -
Fixed charges less interest capitalized 295 241 100 9,834 16,643
-------- -------- ------- -------- ---------
16,272 22,033 8,681 7,757 21,650
Less - Undistributed earnings of less-than-50%
owned affiliates - - - - -
-------- -------- ------- -------- ---------
Earnings $ 16,272 $ 22,033 $ 8,681 $ 7,757 $ 21,650
======== ======== ======= ======== =========
Ratio of earnings to fixed charges 55.10 91.42 86.81 0.79 1.30
======== ======== ======= ======== =========
Ratio of earnings to fixed charges and preferred
dividends 55.10 91.42 86.81 0.79 1.30
======== ======== ======= ======== =========
Ratio of earnings to fixed charges adjusted for the
Compensation and Related Transaction Costs of
$18,489 55.10 91.42 86.81 0.79 1.30
======== ======== ======= ======== =========
Shortfall $ 2,077
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
1997 1997
-------- --------
<S> <C> <C> <C>
FIXED CHARGES:
Interest on debt (including amortization of
deferred financing fees) $ 15,926 $ 27,350
Amortization of debt discount and expense - -
Interest element of rentals 260 260
Fixed charges of unconsolidated subsidiary - -
-------- --------
Total Fixed Charges $ 16,186 $ 27,610
======== ========
PREFERRED DIVIDENDS:
Amount Declared $ - $ 4,288
======== ========
Gross up to pretax based on 40% effective tax rate $ - $ 7,146
======== ========
EARNINGS:
Consolidated net (income) loss $ 7,917 $(12,485)
Add back:
Extraordinary Charge - -
Loss from discontinued operations - -
Consolidated provision for income taxes 5,939 (2,662)
Income taxes of unconsolidated subsidiaries - -
Fixed charges less interest capitalized 16,186 27,610
-------- --------
30,042 12,463
Less - Undistributed earnings of less-than-50%
owned affiliates - -
-------- --------
Earnings $ 30,042 $ 12,463
======== ========
Ratio of earnings to fixed charges 1.86 0.45 Shortfall $ 15,147
======== ======== ========
Ratio of earnings to fixed charges and preferred
dividends 1.86 0.36 Shortfall $ 22,293
======== ======== ========
Ratio of earnings to fixed charges adjusted for the
Compensation and Related Transaction Costs of
$18,489 1.86 1.12 Excess $ 3,342
======== ======== ========
Shortfall
</TABLE>
2
<PAGE> 2
DAY INTERNATIONAL GROUP, INC.
EBITDA CALCULATION
1993 THROUGH 1997
<TABLE>
<CAPTION>
208 DAYS
157 DAYS ENDED
ENDED 1995
JUNE 6, DECEMBER 31, COMBINED
1993 1994 1995 1995 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income (Loss) 8,828 12,587 5,093 (1,227) 3,866 3,007
Plus:
Income Taxes (Benefit) 7,149 9,205 3,488 (850) 2,638 2,000
Interest Expense 9,697 9,697 16,373
Other (Income) Expense (222) (453) (577) 952 375 (219)
Amortization 5,261 5,212 2,258 8,310 10,568 10,724
Depreciation 4,526 4,725 2,120 2,415 4,535 4,384
Compensation and related transaction
costs
Less - Amortization of Deferred Financing
Costs (included in interest expense) -- -- -- (567) (567) (1,000)
------- ------- ------- ------- ------- -------
EBITDA 25,542 31,276 12,382 18,730 31,112 35,269
======= ======= ======= ======= ======= =======
EBITDA Includes:
Chairman's Salary 58 58 100
D&T Audit Fees 120 120 120
AIP Management Fees 455 455 920
D&O Insurance -- -- -- 25 25 25
------- ------- ------- ------- ------- -------
ADJUSTED EBITDA 25,542 31,276 12,382 19,388 31,770 36,434
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
1997 1997
------- -------
<S> <C> <C>
Net Income (Loss) 7,917 (12,485)
Plus:
Income Taxes (Benefit) 5,939 (2,662)
Interest Expense 15,926 27,350
Other (Income) Expense 629 629
Amortization 7,827 9,070
Depreciation 5,238 5,238
Compensation and related transaction
costs 17,789
Less - Amortization of Deferred Financing
Costs (included in interest expense) (966) (2,209)
------- -------
EBITDA 42,510 42,720
======= =======
EBITDA Includes:
Chairman's Salary 289 --
D&T Audit Fees 120 120
AIP Management Fees 896 925
D&O Insurance 20 20
------- -------
ADJUSTED EBITDA 43,835 43,785
======= =======
</TABLE>
3
<PAGE> 3
DAY INTERNATIONAL GROUP, INC.
CASH INTEREST CALCULATION
1993 THROUGH 1997
<TABLE>
<CAPTION>
PRO FORMA
1997 1997
--------- --------
<S> <C> <C>
Cash Paid for Interest per Cash Flow Statement 15,015 15,015
Eliminate Interest on Old Credit Facility (3,835)
Interest on New Credit Facility 3,091
Interest on New Indentures 10,925
Unknown Difference (55)
--------
25,141
========
</TABLE>
4
<PAGE> 4
DAY INTERNATIONAL GROUP, INC.
TOTAL DEBT CALCULATION
1993 THROUGH 1997
<TABLE>
<CAPTION>
PRO FORMA
1997 1997
-------- --------
<S> <C> <C>
New Credit Facility 40,000
Old Indenture 100,000
Interest on New Credit Facility 114,584
Assumed Revolver Drawdown 542
Unknown Difference -
--------
255,126
========
</TABLE>
5
<PAGE> 1
Exhibit 12.3
RATIO OF TOTAL DEBT TO EBITDA:
- -------------------------------------------
Total Debt 255,126
=======
EBITDA 42,720
=======
Ratio 5.97
=======
<PAGE> 1
Exhibit 12.4
DAY INTERNATIONAL GROUP, INC.
RATIO CALCULATIONS
1997 PRO FORMA
PRO FORMA
RATIO OF EBITDA TO CASH INTEREST: 1997
- ------------------------------------------- ------
EBITDA 42,720
======
Cash Interest 25,141
======
Ratio 1.70
======
<PAGE> 1
Exhibit 12.5
RATIO OF EBITDA LESS CAPITAL
EXPENDITURES TO CASH INTEREST:
- -------------------------------------------
EBITDA 42,720
Less: Capital Expenditures 5,124
------
EBITDA Less Capital Expenditures 37,596
Cash Interest 25,141
======
Ratio 1.50
======
<PAGE> 1
Exhibit 21.2
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, 1997 $ (982) $(162) $ -- $ 47 $ 42 $(1,055)
======= ===== ====== ====== ====== =======
December 31, 1996 $(1,248) $(118) $ (50) $ 25 $ 409 $ (982)
======= ===== ====== ====== ====== =======
December 31, 1995 $(1,258) $(130) $ -- $ 1 $ 139 $(1,248)
======= ===== ====== ====== ====== =======
DAY INTERNATIONAL, INC.
June 6, 1995 $(1,153) $(138) $ -- $ (39) $ 60 $(1,270)
======= ===== ====== ====== ====== =======
</TABLE>
88
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders
Day International Group, Inc.
We consent to the use in this Registration Statement of Day International Group,
Inc. on Form S-4 of our reports dated February 17, 1998 (March 17, 1998, as to
the effects of the issuance of Exchangeable Preferred Stock and Senior
Subordinated Notes and the Consent Solicitation Statement described in Notes A
and D) and August 17, 1995, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the headings "Summary
Historical and Pro Forma Financial Information," "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the consolidated financial statements referred to in our
aforementioned reports also included the financial statement schedule of Day
International Group, Inc., listed in Item 21(a). These financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Dayton, Ohio
May 4, 1998
