<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL PERIOD ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-93644 AND 333-51839
DAY INTERNATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 31-1436349
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
130 WEST SECOND STREET, DAYTON, OHIO 45402
------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (937) 224-4000
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At the close of business on March 29, 1999:
Number of shares of Common Stock outstanding 23,298
Aggregate market value of the Company's voting
stock held by non-affiliates $ 0
DOCUMENTS INCORPORATED BY REFERENCE - None.
1
<PAGE> 2
Except as otherwise stated or unless the context otherwise requires, references
to the "Company" include Day International Group, Inc., a Delaware corporation
which is the Registrant, and each of its subsidiaries. The Company's address is
P.O. Box 338, 130 West Second Street, Dayton, Ohio 45401-0338, and its telephone
number is (937) 224-4000.
Except as otherwise stated, the information contained in this report is given as
of December 31, 1998, the end of the Company's last fiscal year.
SAFE HARBOR STATEMENT; INDUSTRY DATA
Certain information contained in this report, particularly information regarding
future economic performance and finances, plans and objectives of management,
are forward-looking statements within the meaning of the Securities Act of 1933.
In some cases, information regarding certain important factors that could cause
actual results to differ materially from any such forward-looking statement
appear together with such statement. In addition, the following factors, in
addition to other possible factors not listed, could affect the Company's actual
results and cause such results to differ materially from those expressed in
forward-looking statements. These factors include the effect of leverage,
including the limitations imposed by the Company's various debt instruments;
risk related to significant operations in foreign countries; competition in the
Company's markets; the timely development and market acceptance of new products;
the impact of competitive products and pricing; the effect of changing general
and industry specific economic conditions; the impact of environmental
regulations; Year 2000 compliance by the Company and third parties with whom the
Company does business; and the potential for technology obsolescence.
Market data used throughout this report was obtained from internal company
surveys and industry publications. Industry publications generally indicate that
the information contained therein has been obtained from sources believed to be
reliable, but the accuracy and completeness of such information is not
guaranteed. The Company has not independently verified any of such market data.
Similarly, internal company surveys, while believed by the Company to be
reliable, have not been verified by any independent sources.
PART I
ITEM 1. BUSINESS
BACKGROUND
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 1998 it had the number one market share
in printing blankets and sleeves in North America and worldwide. The Company's
textiles component division ("Textiles") is one of the largest U.S.
manufacturers and
2
<PAGE> 3
marketers of precision engineered rubber cots, aprons and other fabricated
rubber fiber handling components sold to textile yarn spinners worldwide. In
1998, Image Transfer and Textiles contributed 81% and 19%, respectively, of the
Company's total sales.
On January 16, 1998, affiliates of Greenwich Street Capital Partners, Inc. and
SG Capital Partners LLC acquired substantially all of the common stock of the
Company for approximately $206 million (the "Acquisition"), with the Company's
management retaining the balance of the common stock. In conjunction with the
Acquisition, the Company entered into a $60 million Senior Secured Credit
Facility consisting of a $40 million Term Loan and a $20 million Revolving
Credit Facility. Proceeds from the Term Loan were used to repay the Company's
then existing Credit Facility and to pay certain acquisition related fees and
expenses.
On March 18, 1998, the Company successfully completed a Consent Solicitation
(the "Consent") with respect to its $100.0 million Senior Subordinated Notes
which are due in 2005 (the "2005 Notes"). The Consent permitted the Company to
issue $115.0 million of 9 1/2% Senior Subordinated Notes (the "Senior
Subordinated Notes") and $35.0 million of 12 1/4% Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock"). The Consent also allowed the Company to
assume a $140.0 million Bridge Loan (the "Bridge Loan") incurred by its majority
shareholder in connection with the Acquisition, and effected certain other
changes to the Indenture governing the 2005 Notes, including the elimination of
the provisions of the Indenture subordinating the 2005 Notes to other
indebtedness of the Company. As consideration for the Consent, the Company paid
a Consent fee of $65 for every $1,000 of notes held. Immediately following the
consent, the Company issued the Senior Subordinated Notes and the Exchangeable
Preferred Stock. The Exchangeable Preferred Stock is due in 2010 and has a
liquidation preference of $1,000 per share. Dividends on the Exchangeable
Preferred Stock are cumulative, and are payable by the Company quarterly, in
arrears on March 15, June 15, September 15 and December 15 of each year. 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. Subject to certain
restrictions, the Company may, at its option, exchange all shares of the
Exchangeable Preferred Stock then outstanding for 12 1/4% Subordinated Exchange
Debentures due 2010 (the "Exchange Debentures"). The proceeds from the issuance
of the $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0 million of
12 1/4% Exchangeable Preferred Stock were used to repay the Bridge Loan and to
pay other financing fees and expenses. Expenses associated with obtaining the
Consent were approximately $1.0 million. As a result of the repayment of the
Bridge Loan, $5.2 million of deferred financing fees and expenses were also
written off as an extraordinary item. 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.
Effective December 31, 1998, the Company acquired Rotec Hulsensysteme GmbH
("Rotec"). Rotec is a world leader in sleeve technology, producing a wide array
of sleeves and rollers used in the flexographic printing process. Rotec was
founded in 1990. Its headquarters and main production facility are located in
Ahaus-Ottenstein, Germany, with a second manufacturing facility in Chrastava,
Czech Republic. Rotec gained industry prominence in 1993 with the introduction
of the compressible
3
<PAGE> 4
sleeve, a product innovation enabling flexo printers to achieve higher levels of
print quality. The Company expects to operate Rotec as a stand alone business
unit.
GENERAL
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 which 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. 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. 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. As a result
of continuing 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.
IMAGE TRANSFER
Industry
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
4
<PAGE> 5
reducing setup time in an effort to maintain offset printing's technological and
cost advantages. Industry sources estimate that annual sales of new offset
presses were approximately $10 billion in 1998, with a 20 year average life
expectancy of each press. The Heidelberg Web Press, Inc. M-3000 press technology
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. 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 technology is being used to image 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 the elimination of certain pre-press
activities involving the preparation of film and plates. 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 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.
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
5
<PAGE> 6
cylinder or a replaceable carrier sleeve. The Company intends to focus on
providing the replaceable carrier sleeves which are standard equipment on
flexographic presses through the acquisition of Rotec.
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 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 three global
licensees to manufacture tubular, seamless printing sleeves for use on
Heidelberg Web Press, Inc.'s "gapless" webpresses, 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.
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 Rotec acquisition brings to the Company a world leader in sleeve technology.
Rotec manufactures a wide array of sleeves used in the flexographic printing
process. Rotec gained industry prominence in 1993 with the introduction of the
compressible sleeve, a product innovation enabling flexo printers to achieve
higher levels of print quality. 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.
Image Transfer also manufactures and sells two lines of specialty products
consisting of (i) pre-inked porous rolls for use in business machines, automated
bank teller machines, ticket machines and credit card imprinters and (ii) 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.
6
<PAGE> 7
Sales and Distribution
Image Transfer has adopted an integrated approach to product development,
marketing, sales and distribution. This division's sales professionals in the
United States have strong customer relationships and superior technical
expertise. The international sales force includes sales professionals in
Australia, Canada, France, Germany, Hong Kong, Italy, Mexico, Japan, Russia and
the United Kingdom.
Image Transfer's sales force calls directly on all of the leading end-users in
their markets and promotes 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 end-users to identify the printing blankets
and sleeves that best suit that printer's particular needs and formulate
solutions to complex printing problems. In 1998, approximately 96% 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 distributes its blankets through over 40 U.S. and 70 international
converters who buy printing blanket rolls, cut pieces (blankets) 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 are impacted by surface
finish, lap resistance, the ability to withstand ozone exposure, fiber
chemicals, wear and physical deformation.
The industry has undergone significant changes in recent years with
technological improvements in machinery resulting in productivity improvements
at the textile mill level. In the 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
7
<PAGE> 8
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. Textiles' sales professionals have extensive knowledge of the
spinning and weaving process. The sales force markets its products directly to
end-users, primarily textile mills, and OEMs.
In 1997, the Company signed a collaborative technology and marketing agreement
with Coimbatore Cots and Coatings, a division of Lakshmi Machine Works in India.
The Company receives 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.
8
<PAGE> 9
RAW MATERIALS
Rubber polymers are a key component in most of the Company's products. Various
fabrics, combined with rubber, represented over 40% of all raw materials
purchases in each of 1998 and 1997. Raw material purchases accounted for
approximately 50% of cost 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 & development staff consists of approximately 25
full-time associates. These associates are focused on current product and
process improvement efforts, as well as development of new consumables for
future image transfer processes. The Company's active patents have been
important to its existing product line, and increased emphasis is being placed
on new product technologies. Active efforts to obtain additional patents are
underway on a variety of technologies, including certain system patents. The
Company's recent acquisition, Rotec, will be examined for trademarks and
patentable efforts as the Company develops its US and worldwide products for the
Flexo industry.
In addition to its extensive patent and trademark portfolio, the Company has a
variety of working agreements with key partners in the image transfer business.
These agreements, the creation of an Advanced Development Center for
consumables, and other efforts with OEM companies should stimulate proprietary
processes and additional patent applications. The material impact of these
efforts will be mostly reflected in future years revenues associated with the
launch and support of new image transfer equipment.
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 International, Inc.
("Reeves") and Polyfibron Technologies, Inc. ("Polyfibron").
In Textiles, the Company's principal competitor is Armstrong World Industries
Inc. ("Armstrong"). Textiles also competes with other smaller manufacturers,
such as Premtec, Inc., Hokushin Corporation, Yamauchi and Berkol AG
(Switzerland).
INTERNATIONAL OPERATIONS
The Company's principal international manufacturing facility is located in
Dundee, Scotland, which produces products for both Image Transfer and Textiles.
As a result of increases in capacity and productivity enhancements in its US
facilities, the Company ceased manufacturing at its facility in Lerma, Mexico in
December 1998. The facility will continue to serve the Mexican market as a
9
<PAGE> 10
warehouse and distribution operation. As a result, a non-recurring charge of
$0.3 million was recorded in 1998 for charges related to severance, inventory
write-offs, etc. in Mexico. In addition, the Company maintains sales and
distribution facilities in England, France, Germany, Hong Kong, Italy and
Russia.
Rotec's main production facility and headquarters are located in
Ahaus-Ottenstein, Germany, with a second manufacturing facility located in
Chrastava, Czech Republic.
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 40% of the Company's 1998 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.
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. Rotec's facilities in
Ahaus-Ottenstein, Germany, and Chrastava, Czech Republic are subject to German
and Czech 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 and with the acquisition of
Rotec, 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.
10
<PAGE> 11
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 began installing the
necessary equipment in 1998 to mitigate future spending requirements resulting
from the Clean Air Act and anticipates completion of these projects in 1999.
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 $1.5 million and will be completed in 1999. 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.
Cadillac Plastics Group, Inc ("CPG"), the former parent of the Company, and a
wholly-owned subsidiary of M.A. Hanna Company ("Hanna"), 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, 1998,
the Company had recorded accruals of approximately $800,000 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 provided 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."
As a result of the disposal of hazardous substances prior to the acquisition of
the Company by American Industrial Partners in June 1995, 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.
11
<PAGE> 12
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 620 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. None of the Company's U.S. associates are
covered by a collective bargaining agreement. To encourage productivity
improvements, a portion of each associate's total compensation is tied to a
performance bonus. The Company considers its employee relations to be good.
RISK FACTORS
Current and prospective investors should carefully consider the following
factors in addition to the other information set forth in this Report relating
to the Notes, Senior Subordinated Notes and Exchangeable Preferred Stock.
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 40% in 1998 and 39% in 1997 of the Company's 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."
12
<PAGE> 13
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. 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 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 began 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
Nearly all Image Transfer sales 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
13
<PAGE> 14
processes. The Company has taken steps to address this risk through its
acquisition of Rotec in December 1998
RELIANCE ON MATERIAL CUSTOMER
Sales made to National Offset Blanket ("National Offset"), a major U.S.
converter, accounted for approximately 12% of the Company's sales in 1998 and
11% in 1997. 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 Company will be
successful in hiring or retaining key personnel. The Company has entered into
employment agreements with certain of its senior managers.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Offerings and the other transactions, the Company is highly
leveraged. The Company's aggregate indebtedness is approximately $257.5 million
(including the Notes) and the aggregate liquidation preference of the
Exchangeable Preferred Stock is $38.5 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.
The level of the Company's indebtedness could have important consequences for
the Company, 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
14
<PAGE> 15
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 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.
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
15
<PAGE> 16
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 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.
16
<PAGE> 17
ITEM 2. PROPERTIES
The Company operates six state-of-the-art, strategically located manufacturing
facilities in Asheville, North Carolina; Three Rivers, Michigan; Longwood,
Florida; Dundee, Scotland; Ahaus, Germany and Chrastava, Czech Republic. 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. In the
fourth quarter of 1998, the Company ceased manufacturing at its Lerma, Mexico
facility. This facility will continue to serve the Mexico market as a
warehouse/sales office. All of the Company's manufacturing facilities are ISO
9002 certified, except for the Rotec facilities. The Company also owns or leases
warehouse and sales offices in the United States, Europe, Mexico 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
Longwood, FL 43,600 Owned
Three Rivers, MI 58,000 Owned
Ahaus, Germany 42,000 Owned
Chrastava, Czech Republic 26,900 Owned
Warehouse/Sales Office:
Dayton, OH 10,500 Leased
Elk Grove, IL 5,000 Leased
Greenville, SC 10,000 Owned
Lerma, Mexico 45,000 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>
17
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings arising
in the ordinary course of business. None of the matters in which the Company is
currently involved, either individually or in the aggregate, is expected to have
a material adverse effect on the Company's business 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 "Item 1--Business--Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of March 29, 1999, there were 19 holders of record of shares of Common Stock.
Sale or transfer of the Common Stock is subject to the terms of a Stockholders
Agreement which all stockholders have signed. There is no established trading
market for the Common Stock. The Company has never paid or declared a cash
dividend on the Common Stock.
ITEM 6. SELECTED 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, 1998. The summary
financial data set forth below with respect to the years ended December 31, 1998
are derived from the Consolidated Financial Statements included elsewhere in
this report, which have been audited by Arthur Andersen LLP, independent
auditors. 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 report,
which have been audited by Deloitte & Touche LLP, independent auditors. The
summary financial data with respect to the year ended December 31, 1994 are
derived from the Company's consolidated financial statements for such year. The
financial data for the year ended December 31, 1994 and the 157 days ended June
6, 1995 represent the results of operations of the Company prior to the
acquisition of the Company by American Industrial Partners (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.
18
<PAGE> 19
The summary financial data below should be read in conjunction with "Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Item 8--Financial Statements and Supplementary Data" included
elsewhere in this report.
<TABLE>
<CAPTION>
(PREDECESSOR) (COMPANY)
--------------------- -----------------------------------------------------------
157 DAYS 208 DAYS
FISCAL ENDED ENDED FISCAL FISCAL FISCAL
YEAR JUNE 6, DECEMBER 31, YEAR YEAR YEAR
1994 1995 1995 1996 1997(b) 1998
---- ---- ---- ---- ------- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales $120,288 $ 55,454 $ 73,103 $136,814 $166,286 $173,066
Cost of goods sold 70,996 33,935 47,503 84,602 103,035 110,155
--------- -------- -------- -------- -------- -------
Gross profit 49,292 21,519 25,600 52,212 63,251 62,911
Selling, general and
administrative expenses 22,741 11,257 12,885 23,657 28,629 29,116
Compensation and related
transaction costs 18,018
Amortization of intangibles 5,212 2,258 3,688 6,474 3,315 2,565
Management fees -- -- 455 920 896 1,043
--------- -------- -------- -------- -------- -------
Operating income 21,339 8,004 8,572 21,161 30,411 12,169
Interest expense -- -- 9,697 16,373 15,926 27,470
Other (income) expense (453) (577) 952(c) (219) 629 306
--------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and extraordinary items 21,792 8,581 (2,077) 5,007 13,856 (15,607)
Provision (benefit) for
income taxes 9,205 3,488 (850) 2,000 5,939 (2,732)
--------- -------- -------- -------- -------- ----------
Income (loss) before
extraordinary items 12,587 5,093 (1,227) 3,007 7,917 (12,875)
Extraordinary losses on early
extinguishment of debt - - - - - 3,552
--------- -------- -------- -------- -------- --------
Net income (loss) $ 12,587 $ 5,093 $ (1,227) $ 3,007 $ 7,917 $(16,427)
========= ======== ======== ======== ======== =========
OTHER FINANCIAL DATA:
Capital expenditures 3,564 1,565 2,082 5,221 5,124 7,103
Depreciation 4,725 2,120 2,415 4,384 5,238 5,759
Amortization 5,212 2,258 8,310 10,724 7,827 7,729
BALANCE SHEET DATA (AT
END OF PERIOD):
Fixed assets, net of
accumulated depreciation
and amortization $ 25,162 $ 24,667 $ 44,496 $ 45,289(d) $ 44,792 $ 50,305(a)
Total assets 144,252 139,537 228,823 237,886(d) 225,527 257,408(a)
Long-term and subordinated
long- term debt (including
current maturities) -- -- 151,250 152,919 130,883 257,515
Stockholders' equity (deficit) 117,128 114,780 49,861 52,734(c) 60,189 (80,283)
</TABLE>
(a) The Company acquired the stock of Rotec Hulsensysteme GmbH as of
December 31, 1998. This acquisition was accounted for as a purchase.
Balance sheet data for 1998 includes the assets and liabilities of
Rotec Hulsensysteme GmbH as of December 31, 1998.
(b) The Company acquired the David M Company on December 31, 1996. 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.
(c) Includes a bridge commitment fee, which resulted in a non-recurring
expense of $1.0 million for the 208 days ended December 31, 1995.
(d) Balance sheet data for 1996 includes the assets of the David M Company
since it was acquired on December 31, 1996.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with "Selected Financial Data" and
"Financial Statements and Supplementary Data" and notes thereto included
elsewhere in this report.
As a result of the Acquisition, the Company entered into new financing
arrangements, including the Senior Secured Credit Facility, the 9 1/2% Senior
Subordinated Notes and the 12 1/4% Exchangeable Preferred Stock. As a result of
these transactions, the Company is highly leveraged. The Company's aggregate
indebtedness is approximately $257.5 million and the liquidation preference of
the 12 1/4% Exchangeable Preferred Stock is $38.5 million (which, subject to
certain conditions, may be exchanged for the Exchange Debentures). Accordingly,
the results of operations for periods subsequent to the Acquisition Closing Date
may not be comparable to prior periods.
BASIS OF PRESENTATION
The following table sets forth, for the periods shown, net sales, cost of goods
sold, gross profit, selling, general and administrative expense ("SG&A"),
amortization of intangibles and operating income in millions of dollars and as a
percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $136.8 100.0% $166.3 100.0% $173.1 100.0%
Cost of goods sold 84.6 61.8 103.0 62.0 110.2 63.7
------ ----- ------ ----- ------ -----
Gross profit 52.2 38.2 63.3 38.0 62.9 36.3
SG&A 23.7 17.3 28.6 17.2 29.1 16.8
Compensation and related transaction costs 18.0 10.4
Amortization of intangibles 6.5 4.7 3.3 2.0 2.6 1.5
Management fees 0.9 0.7 0.9 0.5 1.0 0.6
------ ----- ------ ----- ------ -----
Operating income $ 21.2 15.5% $ 30.4 18.3% $ 12.2 7.0%
====== ===== ====== ===== ====== ======
</TABLE>
COMPARISON OF RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1997
Net sales increased to $173.1 million for the year ended December 31, 1998 from
$166.3 million for the comparable period in 1997, an increase of $6.8 million or
4.1%. Sales in 1998 were negatively impacted by $0.9 million as a result of
foreign currency translation rate changes. Image Transfer's sales increased to
$139.7 million for the year ended December 31, 1998 from $132.0 million for the
comparable period in 1997, an increase of $7.7 million or 5.8%. Image Transfer's
sales were negatively impacted by $0.9 million as a result of the impact of
foreign currency translation rate changes. Image Transfer's sales increased as a
result of increased demand for the Company's existing products in the United
States, most export markets and Europe, offset by lower sales to the Pacific Rim
and Mexico. Also, tubular sleeve sales have continued to increase as additional
presses that utilize this technology are installed.
20
<PAGE> 21
Textiles' sales decreased to $33.4 million for the year ended December 31, 1998
compared to $34.3 million in 1997, a decrease of $0.9 million or 2.6%. Domestic
sales were consistent with 1997 while sales to export markets and in Europe
declined. Foreign currency translation changes had virtually no impact on
Textile sales in 1998.
Gross profit decreased to $62.9 million for the year ended December 31, 1998
from $63.3 million in 1997, a decrease of $0.4 million or 0.6%. As a percentage
of net sales, gross profit decreased to 36.3% for the year ended December 31,
1998 from 38.0% for the comparable period in 1997. Gross profit was positively
impacted by productivity enhancements and higher sales volumes. Higher sales
volumes accounted for a $2.5 million increase in gross profit, offset by higher
material usage and manufacturing costs of $2.3 million. The higher material
usage and manufacturing costs were primarily a result of changes in product mix
and end market mix combined with lower production yields from the Longwood,
Florida facility. Foreign currency translation rate changes reduced gross profit
by $0.3 million. Gross profit in 1998 was also impacted by $0.3 million of costs
associated with ceasing manufacturing activities at the Lerma, Mexico facility.
SG&A increased to $29.1 million for the year ended December 31, 1998 compared
with $28.6 million for 1997, an increase of $0.5 million or 1.7%. As a
percentage of net sales, SG&A decreased to 16.8% from 17.2%. Changes in foreign
currency translation rates reduced SG&A costs by $0.1 million in 1998.
Compensation and related transaction costs include $8.6 million related to
changes in the Company's stock option plan, $8.4 million related to amounts
payable under certain management employment arrangements and $1.0 million of
expenses associated with obtaining the Consent. All of these items arose out of
the Acquisition and related transactions.
Amortization of intangibles decreased to $2.6 million for the year ended
December 31, 1998 from $3.3 million in 1997, a decrease of $0.7 million as a
result of certain employment agreements becoming fully amortized in the first
quarter of 1997.
Operating income, excluding the compensation and related transaction costs,
decreased slightly to $30.2 million for the year ended December 31, 1998 from
$30.4 million for the comparable period in 1997, a decrease of $0.2 million or
0.7%. As a percentage of net sales, operating income (excluding the compensation
and related transaction costs) decreased to 17.4% for the year ended December
31, 1998 from 18.3% for the comparable period in 1997. Image Transfer's
operating income increased to $35.4 million in 1998 from $35.1 million in 1997
as a result of higher sales offset by higher material usage and manufacturing
costs resulting from changes in product mix and end market mix combined with
lower production yields from the Longwood, Florida facility. Textile's
operating income decreased to $3.3 million in 1998 from $4.0 million in 1997.
Lower sales volumes and the strong British pound compared to the German mark
were the main contributors to this decrease.
The effective tax rate, including the effect of the extraordinary item, was a
benefit of 23.7% compared to an expense of 42.9% in 1997. The lower income tax
benefit percentage in 1998 compared to the income tax expense percentage in 1997
is mainly the result of certain non deductible expenses associated with the
acquisition in 1998.
21
<PAGE> 22
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 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 $28.6 million for the year ended December 31, 1997 compared
with $23.7 million for 1996, an increase of $4.9 million or 20.7%. David M
accounted for $3.2 million. As a percentage of net sales, SG&A decreased to
17.2% from 17.3% 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 $30.4 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. Image Transfer's operating income
increased to $35.1 million in 1997 from $28.9 million in 1996. David M
22
<PAGE> 23
accounted for $2.3 million of this increase. The remaining $3.9 million increase
resulted from increased sales volumes and productivity enhancements. Textile's
operating income remained constant at $4.0 million. Higher sales were offset by
increased manufacturing costs resulting in virtually no change in operating
profit.
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 decreased slightly to $23.7 million for the year ended December 31, 1996
compared with $24.0 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 17.3% from 18.7%.
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 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
23
<PAGE> 24
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.
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 limited 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.
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 $1.2 million at December 31, 1998,
$2.3 million at December 31, 1997 and approximately $1.8 million at December 31,
1996. These contracts generally expire within three to twelve months. Foreign
currency gains and losses, included in other income-net, were a $0.5 million
loss in 1998, $0.3 million loss in 1997, and a $0.1 million loss in 1996.
In 1999, the hypothetical loss in earnings of a 10% adverse change in foreign
currency exchange rates is estimated to be approximately $0.8 million. The
foreign exchange contracts would mitigate some of this hypothetical loss.
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.
Cash Flows From Operating Activities. Cash flows from operations for years ended
December 31, 1998, 1997 and 1996 were $9.4 million, $19.7 million and $18.1
million, respectively. Cash flows from operations in 1998 were adversely
impacted by $9.5 million of compensation and related transaction costs
associated with the Acquisition and $7.1 million of additional interest paid on
the additional debt incurred as a result of the Acquisition. Working capital
provided $4.0 million in cash in 1998 mainly as a result of a reduction in
accounts receivable levels. 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.
24
<PAGE> 25
Cash Flows From Investing Activities. The Company's expenditures for plant,
property and equipment were $7.1 million in 1998, $5.1 million in 1997 and $5.2
million in 1996. The Company believes that capital expenditures of $7.0 million
to $9.0 million over the next several years are sufficient to maintain its
leading market position. The Company expects to fund these capital expenditures
from cash flow from operations. Effective December 31, 1998 the Company acquired
the stock of Rotec Hulsensysteme GmbH which was funded by an increase in the
Senior Secured Credit Facility and additional capital from the Company's
majority shareholders. On December 31, 1996, the Company acquired certain
assets of the David M Company for $11.3 million in cash which was funded
through the Company's then existing 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 of that
transaction.
Cash Flows From Financing Activities. In January 1998, the Company entered into
a $60 million Senior Secured Credit Facility concurrent with the Acquisition.
The facility originally consisted of a $40 million Term Loan and a $20 million
Revolving Credit Facility. In December 1998, in conjunction with the acquisition
of Rotec, the Term Loan was increased by an additional $10.0 million. The Term
Loans are repayable as follows: $1.3 million in 1999; $8.9 million in 2000;
$12.2 million in 2001 and $20.5 million in 2002. Prepayments on the Term Loan
are applied first to the next two quarterly installments and then spread equally
to the remaining quarterly installments. During the year ended December 31,
1998, the Company made $7.9 million in payments on the Term Loan and had $0.8
million outstanding on the revolver at December 31, 1998. The Senior Secured
Credit Facility is secured by the assets of the Company and its domestic
subsidiaries (currently, only Day), as well as 65% of the stock of each foreign
subsidiary. The amounts available under the Revolving Credit Facility are
subject to a borrowing base limitation (defined generally as $5 million plus 50%
of eligible domestic inventory and 80% of eligible domestic accounts
receivable). The original proceeds from the Term Loan were used to repay the
Company's then existing US Credit Facility and to pay certain expenses
associated with the Acquisition. As of December 31, 1998, the Company had
approximately $14.5 million available under the Revolving Credit Facility
(calculated by applying the applicable borrowing base limitation).
Also, during the year ended December 31, 1998, the Company paid the holders of
the existing 2005 Notes a $6.5 million Consent Fee so as to permit the Company
to issue $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0 million of
12 1/4% Exchangeable Preferred Stock. The Consent also allowed the Company to
assume the $140.0 million Bridge Loan of its new majority shareholder and to
make certain other changes to the Indenture governing the 2005 Notes. The
proceeds from the issuance of the $115.0 million of 9 1/2% Senior Subordinated
Notes and $35.0 million of 12 1/4% Exchangeable Preferred Stock were used to
repay the Bridge Loan and to pay other financing fees and expenses. The Company
also received a capital contribution of $9.1 million from its majority
shareholders in the year ended December 31, 1998 which was used to pay certain
financing fees and expenses. The Company also sold additional shares of common
stock to its majority shareholders for $9.5 million to provide additional
funding for the purchase of Rotec.
As a result of the additional debt incurred by the Company in conjunction with
the Acquisition, the Company is highly leveraged. The Company's aggregate
indebtedness is approximately $257.5
25
<PAGE> 26
million and the aggregate liquidation preference of the Exchangeable Preferred
Stock is $38.5 million. In comparison, the Company's outstanding indebtedness at
December 31, 1997 was $130.9 million.
The level of the Company's indebtedness could have important consequences
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; (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 and 2008 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 borrowings 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 and interest on its indebtedness, including the Senior
Secured Credit Facility, the 2005 Notes and the 2008 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.
Year 2000. The Year 2000 issue relates to the inability of information systems
to recognize and process date-sensitive information beyond January 1, 2000.
The Company recognizes the importance of the Year 2000 issue and is continuing
to make progress in its efforts to identify and rectify all potential Year 2000
problems related to its Information Technology ("IT") systems, manufacturing
equipment, vendors and customers.
A Year 2000 committee has been established consisting of senior members of
management along with members of the IT and the facilities' engineering
departments. The committee's objective is to ensure that the Company will be
able to continue to service its customers, both internal and external, after
January 1, 2000. The scope of the Year 2000 project includes (i) information
technology, both hardware and software; (ii) non-IT systems or embedded
technology such as micro controllers contained in various manufacturing and lab
equipment, environmental and safety systems, facilities
26
<PAGE> 27
and utilities; and (iii) readiness of key third parties, including suppliers and
customers and electronic data interchange, where applicable, with those key
third parties. If the necessary modifications and conversions are not made on a
timely basis, the Year 2000 issue could have a material impact on the Company's
operations.
The Company is using internal resources, and where necessary, external resources
to perform most of the testing and remediation functions. Upgrades to the
Company's business system have commenced and are anticipated to be completed and
tested by the end of the second quarter of 1999. A complete inventory of all
equipment (manufacturing and otherwise) has been completed and communication
with the manufacturers of the equipment has commenced to determine whether the
equipment is Year 2000 compliant. Letters have been sent to all significant
vendors and customers requesting them to confirm the status of their Year 2000
projects.
The Company's historical and estimated costs of remediation of all potential
Year 2000 problems have not been and are not anticipated to be material to the
Company's results of operations or financial position, and will be funded
through operating cash flows. Total costs associated with the remediation of the
Year 2000 issues (including systems, software, and non-IT systems replaced as a
result of Year 2000 issues) are currently estimated to be less than $1 million.
The largest cost factor to date has been the expenditure of management and
associates time in attention to Year 2000 and related issues. Estimated
remediation costs are based on management's best estimates. There can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated, particularly if unanticipated Year 2000
issues arise.
While the Company expects to make the necessary modifications or changes to both
its internal IT and non-IT systems and existing product base in a timely
fashion, there can be no assurance that the Company's internal systems will not
be materially adversely affected by the advent of Year 2000.
In the event of a failure as a result of Year 2000 issues, the Company could
lose or have trouble accessing accurate internal data, resulting in incomplete
or inaccurate accounting of Company financial results, the Company's
manufacturing operating systems could be impaired, and the Company could be
required to expend significant resources to address such failures. In an effort
intended to minimize potential disruption to its internal systems, the Company
intends to perform additional hard-disk back-up of its rudimentary systems and
critical information in advance of the Year 2000.
Similarly, in the event of a failure as a result of Year 2000 issues in any
systems of third parties with whom the Company interacts, the Company could lose
or have trouble accessing or receive inaccurate third party data, experience
internal and external communications difficulties or have difficulty obtaining
components that are Year 2000 compliant from its vendors. The Company could also
experience a slowdown or reduction of sales if customers are adversely affected
by Year 2000 issues.
Euro. The Company began accepting orders in the Euro and making payments in the
Euro effective January 1, 1999. Business systems upgrades that allow for
transactions in the Euro are installed at the Company's European facilities.
Customers and suppliers have been contacted indicating the Company's ability to
transact business in the Euro on January 1, 1999 and price lists have been
27
<PAGE> 28
modified accordingly. The Company does not anticipate any material impact to its
revenues, expenses or results of operations as a result of the adoption of the
Euro.
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 1996, 1997 and 1998 it spent approximately $0.2
million, $0.6 million and $1.5 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 began 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 to 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 $1.5 million and will be completed in 1999.
Capital expenditures in 1998 relating to environmental matters were
approximately $1.5 million and are anticipated to be an additional $2.0 million
in 1999, which includes 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.
Based on environmental assessments conducted by independent environmental
consultants in connection with the Acquisition and with the acquisition of
Rotec, 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.
28
<PAGE> 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DAY INTERNATIONAL GROUP, INC.
Reports of Independent Auditors'.................................................... 30 - 31
Consolidated Balance Sheets as of December 31, 1998 and 1997................... 32 - 33
Consolidated Statement of Operations for the years ended
December 31, 1998, 1997 and 1996........................................... 34
Consolidated Statements of Comprehensive Income (Loss)
for the years ended December 31, 1998, 1997 and 1996....................... 35
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1998, 1997 and 1996....................... 36
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996........................................... 37 - 38
Notes to Consolidated Financial Statements..................................... 39 - 64
</TABLE>
29
<PAGE> 30
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Day International Group, Inc.:
We have audited the accompanying consolidated balance sheet of Day International
Group, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998,
and the related consolidated statements of operations, comprehensive income
(loss), stockholders' equity (deficit) and cash flows for the year then ended.
These consolidated financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Day International Group, Inc.
and subsidiaries as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commissions rules and is not a part of the consolidated financial
statements. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the consolidated financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dayton, Ohio
March 15, 1999
30
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Day International Group, Inc.
We have audited the accompanying consolidated balance sheet of Day International
Group, Inc. (the "Company") and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity (deficit) and cash flows for the years ended December 31,
1997 and 1996. Our audits also included the financial statement schedule listed
in the Index at Item 14(a)2 for the years ended December 31, 1997 and 1996.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Day International Group, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 17, 1998
(March 25, 1999 as to Notes G, J and K and as to the Consolidated Statements of
Comprehensive Income (Loss) as to amounts as of December 31, 1997 and for the
years ended December 31, 1997 and 1996)
31
<PAGE> 32
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,762 $ 780
Accounts receivable:
Trade (less allowance for doubtful accounts of
$1,384 and $1,055) 18,390 21,593
Other 240 379
Inventories (Note C) 19,179 16,501
Prepaid expenses and other current assets 1,267 1,457
Deferred tax assets (Note F) 2,543 1,938
-------- --------
Total current assets 46,381 42,648
PROPERTY, PLANT AND EQUIPMENT (Notes A and B):
Land 2,125 2,023
Buildings 12,077 10,648
Machinery and equipment 46,277 39,999
Construction in progress 6,493 3,716
-------- --------
66,972 56,386
Less accumulated depreciation (16,667) (11,594)
-------- ---------
50,305 44,792
OTHER ASSETS:
Goodwill and other intangible assets (Note B) 157,799 136,722
Note receivable (Note L) 698 890
Deferred tax assets (Note F) 1,523
Other assets 702 475
-------- --------
160,722 138,087
-------- --------
TOTAL ASSETS $257,408 $225,527
======== ========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 5,905 $ 7,743
Accrued associate-related costs 8,547 8,177
Other accrued expenses 4,682 3,694
Income taxes payable 2,913 1,618
Interest payable 4,336 1,013
Current maturities of long-term debt (Note D) 1,292 774
--------- ---------
Total current liabilities 27,675 23,019
LONG-TERM AND SUBORDINATED LONG-TERM DEBT (Note D) 256,223 130,109
DEFERRED TAX LIABILITIES (Note F) 1,353 5,688
OTHER LONG-TERM LIABILITIES (Notes K and L) 15,813 6,522
COMMITMENTS AND CONTINGENCIES (Note L)
Total liabilities 301,064 165,338
Exchangeable Preferred Stock (Note E) 36,627
STOCKHOLDERS' EQUITY (DEFICIT) (Note I):
Preferred Shares $.01 per share par value, 10,000
shares authorized, none outstanding
Common Shares, $.01 per share par value, 100,000
shares authorized, 23,298 shares--1998 and
51,655 shares--1997 issued and outstanding 1 1
Additional paid-in-capital 51,959
Contra-equity associated with the assumption of
majority shareholder's bridge loan (68,772)
Retained earnings (deficit) (10,370) 9,697
Foreign currency translation adjustment (1,142) (1,468)
--------- ---------
Total stockholders' equity (deficit) (80,283) 60,189
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 257,408 $ 225,527
========= =========
</TABLE>
33
<PAGE> 34
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 173,066 $ 166,286 $ 136,814
COST OF GOODS SOLD 110,155 103,035 84,602
--------- --------- ---------
GROSS PROFIT 62,911 63,251 52,212
SELLING, GENERAL AND ADMINISTRATIVE 29,116 28,629 23,657
COMPENSATION AND RELATED
TRANSACTION COSTS (Note A) 18,018
AMORTIZATION OF INTANGIBLES 2,565 3,315 6,474
MANAGEMENT FEES (Note H) 1,043 896 920
--------- --------- ---------
OPERATING PROFIT 12,169 30,411 21,161
OTHER EXPENSES (Note D):
Interest Expense (including amortization
of deferred financing costs of $2,024 in 1998,
$966 in 1997 and $1,000 in 1996 27,470 15,926 16,373
Other expense (income)--net 306 629 (219)
--------- --------- ---------
27,776 16,555 16,154
--------- --------- ---------
(LOSS) INCOME BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS (15,607) 13,856 5,007
(BENEFIT) INCOME TAXES (Note F) (2,732) 5,939 2,000
--------- --------- ---------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEMS (12,875) 7,917 3,007
EXTRAORDINARY LOSSES ON EARLY
EXTINGUISHMENT OF DEBT (NET OF TAX
BENEFIT OF $2,368)(Note D) 3,552 -- --
--------- --------- ---------
NET (LOSS) INCOME (16,427) $ 7,917 $ 3,007
========= =========
PREFERRED STOCK DIVIDENDS (Note E) (3,507)
AMORTIZATION OF PREFERRED STOCK
ISSUANCE COSTS (133)
---------
NET (LOSS) INCOME AVAILABLE
TO COMMON SHAREHOLDERS $ (20,067)
=========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 35
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET (LOSS) INCOME $(16,427) $ 7,917 $ 3,007
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 326 (890) (66)
-------- -------- --------
COMPREHENSIVE NET (LOSS) INCOME $(16,101) $ 7,027 $ 2,941
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 36
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL RETAINED CURRENCY
COMMON SHARES PAID-IN CONTRA EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL EQUITY (DEFICIT) ADJUSTMENT
------ ------ ------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995 51,600 $ 1 $ 51,599 $ $ (1,227) $ (512)
Sale of common shares 73 73
Purchase of common shares (118) (141)
Net income 3,007
Foreign currency
translation adjustment (66)
-------- -------- -------- -------- -------- --------
December 31, 1996 51,555 1 51,531 1,780 (578)
Sale of common shares 100 120
Issuance of stock options 308
Net income 7,917
Foreign currency
translation adjustment (890)
-------- -------- -------- -------- -------- --------
December 31, 1997 51,655 1 51,959 9,697 (1,468)
Sale of common shares 2,415 1 9,730
Issuance of stock options 142 435
Net loss (16,427)
Preferred stock dividends (3,507)
Amortization of preferred
stock discount (133)
Capital contribution from
shareholders 9,103
Assumption of bridge loan (61,498) (78,502)
Reduction of common shares (30,914) (1) 1
Foreign currency
translation adjustment 326
-------- -------- -------- -------- -------- --------
December 31, 1998 23,298 $ 1 $ -- $(68,772) $(10,370) $ (1,142)
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 37
<TABLE>
<CAPTION>
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (16,427) $ 7,917 $ 3,007
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 3,552
Depreciation 5,759 5,238 4,384
Amortization of goodwill and intangibles 7,729 7,827 10,724
Deferred income taxes (3,772) 3,528 146
Non-cash charge related to stock option awards 8,585 308
Change in assets and liabilities, net of effect of acquisitions:
Accounts receivable 5,099 (5,455) (125)
Inventories (1,596) (532) 909
Prepaid expenses and other current assets 497 (521) 236
Accounts payable and other accrued expenses (13) 1,361 (1,218)
--------- --------- ---------
Net cash provided by operating activities 9,413 19,671 18,063
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition, net of cash acquired (19,383) 1,513 (11,285)
Capital expenditures (7,103) (5,124) (5,221)
Other 1,107 (1,107)
--------- --------- ---------
Net cash used in investing activities (26,486) (2,504) (17,613)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 2008 notes 111,134
Proceeds from issuance of exchangeable preferred stock 32,986
Proceeds from issuance of term loans 50,000
Contributions from shareholders 4,573
Proceeds from issuance of common stock 9,731 120 73
Repayment of existing credit facility (30,902)
Repayment of bridge loan (140,000)
Payment of consent fee (6,500)
Payment of deferred financing fees (3,119)
Net payments on credit facilities (7,100) (21,821)
Purchase of common shares (141)
Net proceeds from revolving credit facility 1,241
--------- --------- ---------
Net cash provided by (used in) financing activities 20,803 (21,701) 1,173
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 252 (119) 41
--------- --------- ---------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents 3,982 (4,653) 1,664
Cash and cash equivalents at beginning of period 780 5,433 3,769
--------- --------- ---------
Cash and cash equivalents at end of period $ 4,762 $ 780 $ 5,433
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
37
<PAGE> 38
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
NON CASH TRANSACTIONS:
Assumption of bridge loan $140,000
========
Preferred stock dividends $ 3,507
========
Amortization of preferred stock discount $ 133
========
Capital contribution $ 4,530
========
CASH PAID FOR:
Income Taxes $ 2,335 $ 1,390 $ 1,620
======== ======== ========
Interest $ 22,123 $ 15,015 $ 15,517
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
A. NATURE OF OPERATIONS, BASIS OF PRESENTATION
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 and
flexographic printing industries. 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.
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.
("Greenwich Street") and SG Capital Partners LLC ("SGCP") acquired substantially
all of the common stock of the Company for approximately $206 million (the
"Acquisition"), with the Company's management retaining the balance of the
common stock. In conjunction with the Acquisition, the Company entered into a
$60 million Senior Secured Credit Facility consisting of a $40 million Term Loan
and a $20 million Revolving Credit Facility (See Note D - Long-Term and
Subordinated Long Term Debt). Proceeds from the Term Loan were used to repay the
Company's then existing Credit Facility and to pay certain acquisition related
fees and expenses. As a result of such repayment of the Company's then existing
Credit Facility, $0.7 million of deferred financing fees were written off as an
extraordinary item. The Acquisition also resulted in compensation related
expenses of $17.0 million associated with employment agreements with certain key
members of management and amendments to the Company's Stock Option Plan.
On March 18, 1998, the Company successfully completed a Consent Solicitation
(the "Consent") with respect to its $100.0 million Senior Subordinated Notes
which are due in 2005 (the "2005 Notes"). The Consent permitted the Company to
issue $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0 million of 12
1/4% Exchangeable Preferred Stock. The Consent also allowed the Company to
assume a $140.0 million Bridge Loan (the "Bridge Loan") incurred by its majority
shareholder in connection with the Acquisition, and effected certain other
changes to the Indenture governing the 2005 Notes, including the elimination of
the provisions of the Indenture subordinating the 2005 Notes to other
indebtedness of the Company. As consideration for the Consent, the Company paid
a Consent fee of $65 for every $1,000 of notes held. The proceeds from the
issuance of the $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0
million of 12 1/4% Exchangeable Preferred Stock were used to repay the Bridge
Loan and to pay other financing fees and expenses. Expenses associated with
obtaining the Consent were approximately $1.0 million. As a result of the
repayment of the Bridge Loan, $5.2 million of deferred financing fees and
expenses were also written off as an extraordinary item. The Acquisition
39
<PAGE> 40
does not require a change in the Company's historical basis of accounting since
the Company's 2005 Notes remained outstanding following the Acquisition.
Effective December 31, 1998, the Company acquired the stock of Rotec
Hulsensysteme GmbH ("Rotec") and entered into a five-year noncompete agreement
with the selling shareholders. The acquisition was financed through a $10
million addition to the Senior Secured Credit facility's term loans and
additional equity from the Company's two major shareholders and was accounted
for as a purchase in accordance with Accounting Principles Board Opinion No.
16. Rotec's purchase price is subject to adjustment based on a closing balance
sheet audit.
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.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all highly liquid
investments with an original purchased maturity of three months or less.
INVENTORIES - 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 over 5 to 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 $15,600 at December 31, 1998 (net of accumulated
amortization of $3,573) are being amortized using an effective interest rate
method over the lives of the related debt.
40
<PAGE> 41
Goodwill and other intangibles are being amortized using the straight-line
method, as follows:
<TABLE>
<CAPTION>
LIFE
----
<S> <C> <C>
Goodwill $116,044 40 years
Noncompete agreements 4,007 5 years
Deferred financing costs 19,173 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 181,946
Less accumulated amortization (24,147)
--------
$157,799
========
</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 stockholders' 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. Beginning January
1, 1999, Mexico is no longer considered a hyper-inflationary economy and as a
result will be switching its functional currency back to the Mexican peso in
1999.
CONCENTRATION OF CREDIT RISK--A majority of Day's U.S. textile 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
reserve for potential losses. One customer accounted for 12% and 11% of sales
for the years ended December 31, 1998 and 1997, respectively. This customer also
accounted for 4% and 9% of receivables at December 31, 1998 and 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 fair market value, of these foreign exchange contracts was
$1,246 and $2,311 at December 31, 1998 and 1997, 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.
41
<PAGE> 42
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying value of the Company's
variable rate US and UK Credit Agreements approximates fair value. The 9 1/2%
Senior Subordinated Debt and the 11 1/8% Senior Debt's fair market values were
approximately 99% and 107%, respectively, of their carrying value at December
31, 1998 based on quoted market prices. The 12 1/4% Exchangeable Preferred
Stock's fair market value was approximately 91% of its carrying value at
December 31, 1998 based on quoted market prices. At December 31, 1998 and 1997,
the carrying amounts of all other assets and liabilities which qualify as
financial instruments, approximated their 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, 1998 and 1997 consists of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Finished Goods $ 9,762 $ 8,917
Work in Progress 5,220 4,164
Raw Materials 4,197 3,420
------- -------
$19,179 $16,501
======= =======
</TABLE>
D. LONG-TERM AND SUBORDINATED LONG-TERM DEBT
Long-term and subordinated long-term debt as of December 31, 1998 and 1997
consists of:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Senior Secured Credit Facility $ 42,900 $
US Credit Agreement 30,000
UK Credit Agreement 883
11- 1/8% Senior Notes 100,000 100,000
9- 1/2% Senior Subordinated Notes 114,615
--------- ---------
257,515 130,883
Less: Current maturities of long-term debt (1,292) (774)
--------- ---------
$ 256,223 $ 130,109
========= =========
</TABLE>
The Senior Secured Credit Facility was entered into on January 16, 1998 in
conjunction with the change of control as described in Note A to replace the US
Credit Agreement. The Senior Secured Credit Facility is a
42
<PAGE> 43
$60,000 credit facility consisting of a five year $40,000 term loan and a
$20,000 revolving line of credit with a group of banks. On December 17, 1998,
the Senior Secured Credit Facility was amended to add a new four year $10,000
term loan. Proceeds from the new term loan were used in conjunction with the
acquisition of Rotec. The revolving line of credit included a $10,000 letter of
credit subfacility ($525 of letters of credit were outstanding at December 31,
1998) and a $1,000 swingline loan subfacility. At December 31, 1998, interest on
$750 of the revolving line of credit was based on the banks' base rate plus 1.0%
(8.75% at December 31, 1998). The amounts available under the Revolving Credit
Facility are subject to a borrowing base limitation (defined generally as $5
million plus 50% of eligible domestic inventory and 80% of eligible domestic
accounts receivable). At December 31, 1998, $14,457 was available under the
Senior Secured Credit Facility. The Senior Secured Credit Facility requires 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 1.0%
(8.75% at December 31, 1998) or the LIBOR rate plus 2.00% (7.034% at December
31, 1998). Interest on the new term loan was based on the banks' base rate plus
2.0% (9.75% at December 31, 1998) or the LIBOR rate plus 3.00% (8.063% at
December 31, 1998). At December 31, 1998, interest on the term loans were 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 Senior Secured Credit Facility for the year ended December
31, 1998 was 7.77%. The weighted average interest rate on the US Credit
Agreement for the years ended December 31, 1997 and 1996 was 8.61% and 8.46%,
respectively.
Principal payments under the term loans are as follows: $1,292--1999;
$8,856--2000; $12,177--2001 and $20,575--2002.
On March 18, 1998, the Company successfully completed a Consent Solicitation
(the "Consent") with respect to its $100.0 million Senior Subordinated Notes
which are due in 2005 (the "2005 Notes"). The Consent permitted the Company to
issue $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0 million of 12
1/4% Exchangeable Preferred Stock. The Consent also allowed the Company to
assume a $140.0 million Bridge Loan (the "Bridge Loan") incurred by its majority
shareholder in connection with the Acquisition, and effected certain other
changes to the Indenture governing the 2005 Notes, including the elimination of
the provisions of the Indenture subordinating the 2005 Notes to other
indebtedness of the Company. As consideration for the Consent, the Company paid
a Consent fee of $65 for every $1,000 of notes held. The proceeds from the
issuance of the $115.0 million of 9 1/2% Senior Subordinated Notes and $35.0
million of 12 1/4% Exchangeable Preferred Stock were used to repay the Bridge
Loan and to pay other financing fees and expenses. Expenses associated with
obtaining the Consent were approximately $1.0 million. As a result of the
repayment of the Bridge Loan, $5.2 million of deferred financing fees and
expenses were also written off as an extraordinary item.
Interest on the 11 1/8% Senior Notes due June 1, 2005 and the 91/2% Senior
Subordinated Notes due March 15, 2008 (the "Notes) is 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 Senior Secured Credit
Facility and the Notes and pledged all its assets, except its
43
<PAGE> 44
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.
In 1996, the Company's UK subsidiary entered into credit facilities with a UK
bank ("UK Credit Agreement") that provided a line of credit and two five year
term loans. The UK Credit Agreement was repaid on January 12, 1998.
E. EXCHANGEABLE PREFERRED STOCK
In connection with the Acquisition, the Company issued $35.0 million (face
value) of 12 1/4% Exchangeable Preferred Stock (net of $2,014 of issuance costs
and original issue discount). All dividends are payable quarterly in arrears on
March 15, June 15, September 15 and December 15 of each year. 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. 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 Exchangeable Preferred
Stock for the Company's 12 1/4% Subordinated Exchange Debentures Due 2010 (the
"Exchange Debentures"). All dividends paid to date have been in the form of
additional fully-paid and non-assessable shares of Exchangeable Preferred Stock.
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
106.125% - 2003; 104.083% - 2004; 102.042% - 2005 and 100.0% thereafter,
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 or 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 in 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.
44
<PAGE> 45
F. INCOME TAXES
Significant components of deferred tax assets (liabilities) as of December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Domestic:
Current:
Accounts receivable reserves $ 632 $ 491
Inventory reserves 727 574
Other reserves 671 350
AMT credit carryforward 345 350
------- -------
2,375 1,765
------- -------
Long-term:
Depreciation (3,431) (2,721)
Amortization (3,431) (1,830)
Net operating loss carryforwards 4,423
Stock option compensation 3,308
Other postretirement benefits 654 463
------- -------
1,523 (4,088)
------- -------
Total domestic deferred tax assets (liabilities) 3,898 (2,323)
------- -------
Foreign:
Current:
Inventories 48 (25)
Other 120 198
------- -------
168 173
------- -------
Long-term:
Plant and equipment (1,368) (1,626)
Pension 15 26
------- -------
(1,353) (1,600)
------- -------
Total foreign deferred tax liabilities (1,185) (1,427)
------- -------
Net deferred tax assets (liabilities) $ 2,713 $(3,750)
======= =======
</TABLE>
45
<PAGE> 46
Income tax expense (benefit) consists of the following for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Domestic:
Federal $ $ $
State and local 272 309 583
Foreign 1,315 1,396 1,251
------- ------- -------
1,587 1,705 1,834
------- ------- -------
Deferred:
Domestic:
Federal (3,176) 3,366 324
State and local (828) 495 48
Foreign (315) 373 (206)
------- ------- -------
(4,319) 4,234 166
------- ------- -------
$(2,732) $ 5,939 $ 2,000
======= ======= =======
</TABLE>
The income tax (benefit) expense differs from the statutory rate for the years
ended December 31, 1998, 1997 and 1996 as a result of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(Benefit) provision at the federal statutory rate $(5,306) $ 4,711 $ 1,702
Foreign tax rate differential 350 444 (169)
State and local taxes, net of federal
income tax effect (696) 689 417
Non-deductible expenses 3,122 117 57
Other (202) (22) (7)
------- ------- -------
$(2,732) $ 5,939 $ 2,000
======= ======= =======
</TABLE>
Income (loss) before income taxes includes $2,850, $5,809 and $3,571 of income
from international operations for the years ended December 31, 1998, 1997 and
1996, respectively. Day has not provided deferred taxes on the undistributed
earnings of foreign subsidiaries because the earnings are deemed permanently
reinvested. The Company has domestic net operating loss carryforwards of
approximately $19 million expiring through 2013.
46
<PAGE> 47
G. BUSINESS SEGMENTS
The Company produces 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") designs,
manufactures and markets high-quality printing blankets and sleeves for use in
offset printing.
The accounting policies of the segments are the same as those described in Note
B - Significant Accounting Policies. Segment performance is evaluated based on
operating profit results compared to the annual operating plan. Intersegment
sales and transfers are not material.
The Company manages the two segments as separate strategic business units. They
are managed separately because each business unit requires different
manufacturing processes, technology and marketing strategies.
<TABLE>
<CAPTION>
1998
----
IMAGE
TRANSFER TEXTILE TOTALS
-------- ------- ------
<S> <C> <C> <C>
Third party sales $139,666 $33,400 $173,066
Operating profit 35,376 3,346 38,722
Depreciation and amortization 3,385 1,320 4,705
Assets 66,453 13,505 79,958
Capital expenditures 6,052 1,051 7,103
<CAPTION>
1997
----
IMAGE
TRANSFER TEXTILE TOTALS
-------- ------- ------
<S> <C> <C> <C>
Third party sales $132,000 $34,285 $166,286
Operating profit 35,128 4,028 39,156
Depreciation and amortization 3,076 1,320 4,396
Assets 57,446 15,445 72,891
Capital expenditures 4,055 1,069 5,124
<CAPTION>
1996
----
IMAGE
TRANSFER TEXTILE TOTALS
-------- ------- ------
<S> <C> <C> <C>
Third party sales $103,627 $33,187 $136,814
Operating profit 28,908 4,033 32,941
Depreciation and amortization 2,412 1,145 3,557
Assets 56,396 14,855 71,251
Capital expenditures 4,469 752 5,221
</TABLE>
47
<PAGE> 48
The following is a reconciliation of the items reported above to the amounts
reported in the Consolidated Financial Statements:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating profit:
Segment operating profit $ 38,722 $ 39,156 $ 32,941
Non-recurring costs associated with Mexico (309)
UK pension adjustment 450
APB #16 depreciation and amortization (4,194) (4,388) (4,077)
Non allocated corporate expenses (424) (288) (309)
Compensation related to stock option awards (308)
Compensation and related transaction costs (18,018)
Amortization of intangibles (2,565) (3,315) (6,474)
Management fees (1,043) (896) (920)
--------- --------- ---------
Total operating profit $ 12,169 $ 30,411 $ 21,161
========= ========= =========
Depreciation and amortization:
Segment depreciation and amortization $ 4,705 $ 4,396 $ 3,557
Amortization of intangibles 2,565 3,315 6,474
APB #16 depreciation and amortization 4,194 4,388 4,077
Amortization of deferred financing fees 2,024 966 1,000
--------- --------- ---------
Total depreciation and amortization $ 13,488 $ 13,065 $ 15,108
========= ========= =========
Assets:
Segment assets $ 79,958 $ 72,891 $ 71,251
APB # 16 Adjustment 12,311 13,365 14,299
Goodwill and other intangibles 157,799 136,722 145,018
Deferred tax assets 4,066 1,938 3,389
Cash and other assets at corporate offices 3,274 611 3,929
--------- --------- ---------
Total assets $ 257,408 $ 225,527 $ 237,886
========= ========= =========
</TABLE>
48
<PAGE> 49
Net sales for the years ended December 31, 1998, 1997 and 1996 and identifiable
assets as of December 31, 1998 and 1997 by geographic area are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET SALES:
Domestic $107,478 $ 101,319 $ 83,819
Europe 46,221 45,280 33,664
Other International 24,450 25,243 24,288
Interarea (5,083) (5,556) (4,957)
--------- --------- ---------
$ 173,066 $ 166,286 $ 136,814
========= ========= =========
IDENTIFIABLE ASSETS:
Domestic $196,201 $ 183,267
Europe 50,489 30,871
Other International 10,718 11,389
--------- ---------
$ 257,408 $ 225,527
========= =========
</TABLE>
Sales between geographic areas are generally priced to recover cost plus an
appropriate mark-up for profit.
H. RELATED PARTY TRANSACTIONS
In accordance with a management services agreement, the Company is required to
pay Greenwich Street and SGCP, the controlling shareholders of Day, an annual
management fee of $1.0 million plus expenses, payable semi-annually.
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 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 has not experienced any price increases or service interruptions as
a result of the change in control described in Note A.
49
<PAGE> 50
I. STOCKHOLDERS' EQUITY AND STOCK BASED COMPENSATION PLAN
As a result of the Acquisition and related transactions in 1998, certain changes
occurred in the Company's equity structure. These changes included:
- - - The Company's original majority shareholder, GSD Acquisition Corp. ("GSD")
was collapsed up into its two shareholders.
- - - The Company assumed the $140 million bridge loan from GSD.
- - - The capital contribution from stockholders consisted of $4,573 of cash
plus $4,530 of fees and expenses associated with the bridge loan
financing.
- - - The reduction of common shares represents the shares given up by the new
shareholders in order for their basis per share to reflect the price paid
for each share.
In conjunction with the acquisition of Rotec in December 1998, the Company sold
2,357.5 shares to its two majority shareholders for $9,501.
Also, management of the Company acquired 57 shares of common stock for $230 in
1998.
1998 STOCK OPTION PLAN
The Company adopted a new stock option plan (the "1998 Option Plan") following
the completion of the Offerings. The 1998 Option Plan provides incentives to
officers and other key employees of the Company that serve to align their
interests with those of stockholders. Under the 1998 Option Plan, the Board is
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. Under the 1998 Option Plan, unless otherwise provided by the
Board, service options 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 vest and become exercisable in annual
installments based on the achievement of annual EBITDA targets of the Company;
and exit options 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 fully
vest and become exercisable on the ninth anniversary of the date of grant.
Initially, 7,885 shares of the Company's voting common stock were 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.
As of December 31, 1998, 6,321 options have been granted under the 1998 Option
Plan with an exercise price of $4,030. These options expire in 2007.
50
<PAGE> 51
DAY STOCK OPTION PLAN
Certain employees 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
became fully vested and the Day Option Plan was amended to provide that no
further options may be awarded under that plan. As a result, compensation
expense associated with these options of $8,585 was recorded in 1998. As of
December 31, 1998, 2,462.5 options have been granted under the Day Option Plan
with an exercise price of $1,000 a share and 310 options have been granted with
an exercise price of $1,200 a share. Also, the options expire as follows:
2,387.5 expire in 2005, 75 expire in 2006 and 310 expire in 2007.
The following table summarizes activity in the Company's stock option plans:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period 2,915 2,605 $ 1,000 2,730 $ 1,000
Granted 6,321 $ 4,030 310 $ 1,200 75 $ 1,000
Exercised (142.5) $ 1,000 (18) $ 1,000
Canceled (182) $ 1,000
------- ------- -------
Outstanding at end of period 9,093.5 2,915 2,605
======= ======= =======
Exercisable at end of period 2,772.5 1,520 862
======= ======= =======
Weighted-average fair value
of options granted during
the year using the Black-Scholes
options-pricing model $ 1,860 $ 1,548 $ 662
======= ======= =======
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, the Company's net
earnings would have been reduced by $457 in 1998, $255 in 1997 and $214 in 1996.
Also, warrants to purchase up to 74 shares of Common Stock that vest in four
equal installments, first on the grant date and then on each of the first three
anniversaries thereof have been granted to one of the
51
<PAGE> 52
Board members as compensation for services as a director. Had compensation costs
been determined based on the fair value method of SFAS No. 123, the Company's
net earnings would have been reduced by $25 in 1998.
J. RETIREMENT PLANS
The Company has non-contributory defined benefit plans covering certain
associates of its UK, German and French 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, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 11,355 $ 10,636
Service cost 570 506
Interest cost 756 728
Plan participant contributions 247 234
Actuarial losses 1,699 520
Benefits paid (1,411) (793)
Foreign currency exchange impact 119 (476)
-------- --------
Benefit obligation at end of year 13,335 11,355
-------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at the beginning of the year 10,894 10,652
Actual return on plan assets 1,447 977
Employer contribution 371 113
Plan participant contributions 247 234
Benefits paid (1,409) (748)
Foreign currency exchange impact 59 (334)
-------- --------
Fair value of plan assets at end of year 11,608 10,894
-------- --------
Funded status (1,727) (461)
Unrecognized net actuarial (gain) loss 1,333 (4)
-------- --------
(Accrued) pension costs $ (394) $ (465)
======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount rate
of 5.5% and 7.0% in 1998 and 1997, respectively, and an assumed long-term rate
of increase in compensation of 4% in 1998 and 5% in 1997. The assumed long-term
rate of return on plan assets was 8.0% in 1998 and 9.0% in 1997.
52
<PAGE> 53
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,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Defined benefit plans:
Service cost $570 $ 506 $ 433
Interest cost 756 728 701
Actual return on plan assets (1,447) (977) (1,006)
Net amortization and deferral 507 95 265
------ ------ -------
Net periodic pension cost 386 352 393
Defined contribution plans 1,174 1,458 1,247
------ ------ -------
Total pension expense $1,560 $1,810 $ 1,640
====== ====== =======
</TABLE>
K. 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, 1998 and 1997, which is unfunded, is as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $4,571 $3,850
Service cost 381 386
Interest cost 327 315
Actuarial losses 168 176
Benefits paid (218) (156)
------ ------
Benefit obligation at end of year 5,229 4,571
Unrecognized net actuarial gain (loss) (7) 161
------ ------
Accrued postretirement benefit obligation $5,222 $4,732
====== ======
</TABLE>
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 8.5% and
decreasing gradually to 4.5% 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 $993 at December 31, 1998
and the interest and service cost would have been $151 higher for the year ended
December 31, 1998. A one percentage point decrease in the assumed health care
cost trend rate would have decreased the accumulated benefit obligation by $786
at December 31, 1998 and the interest and service cost would have been $118
lower for the year ended December 31, 1998.
53
<PAGE> 54
A discount rate of 6.5% and 7.0% was used in determining the accumulated
obligation as of December 31, 1998 and 1997, respectively.
Net periodic postretirement benefit costs include the following components for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost $381 $386 $348
Interest cost 327 315 263
---- ---- ----
Net periodic postretirement benefit costs $708 $701 $611
==== ==== ====
</TABLE>
L. 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, 1998, 1997 and 1996 was $802, $780 and $811,
respectively. At December 31, 1998, future minimum lease commitments for
noncancelable operating leases are:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 519
2000 389
2001 265
2002 152
2003 63
Thereafter --
------
Total $1,388
</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, 1998, a $791 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.
54
<PAGE> 55
M. SUPPLEMENTAL CONSOLIDATING INFORMATION
As described in Note A, in April 1995, the Company issued $100,000 of 11 1/8%
Senior Notes in conjunction with the purchase of Day International, Inc.,
("Day") from M.A. Hanna and in March 1998, the Company issued $115,000 of
9 1/2% Senior Subordinated Notes in conjunction with the acquisition of the
Company by Greenwich (collectively, the "Notes"). As a result of the 1995
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). Day has 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. 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, 1998 and
1997, the supplemental combined condensed statements of operations and cash
flows for the years ended December 31, 1998, 1997 and 1996 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.
55
<PAGE> 56
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 3,256 $ (955) $ 2,461 $ 4,762
Accounts receivable -- net 10,147 8,483 18,630
Inventories 11,450 7,729 19,179
Other assets 2,527 1,283 3,810
-------- -------- -------- ------------ --------
TOTAL CURRENT ASSETS 3,256 23,169 19,956 -- 46,381
Intercompany 253,367 -- $(253,367) --
Property, plant and equipment -- net 36,812 13,493 50,305
Investment in subsidiaries (52,370) 28,561 23,809 --
Intangible and other assets 142,819 17,903 160,722
-------- -------- --------- --------- --------
TOTAL ASSETS $204,253 $231,361 $ 51,352 $(229,558) $257,408
======== ======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 2,702 $ 3,337 $ (134) $ 5,905
Current maturities of long-term debt $ 1,292 1,292
Accrued associate related costs and
other expenses 4,336 9,261 6,881 20,478
------- -------- -------- --------- --------
TOTAL CURRENT LIABILITIES 5,628 11,963 10,218 (134) 27,675
Intercompany (15,082) 255,984 12,331 (253,233) --
Long-term and subordinated long-term
debt 256,223 256,223
Other long-term liabilities 14,187 2,979 17,166
Exchangeable Preferred Stock 36,627 36,627
Total stockholders' equity (Deficit) (79,143) (50,773) 25,824 23,809 (80,283)
---------- ---------- -------- --------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $204,253 $231,361 $ 51,352 $(229,558) $257,408
======== ======== ======== ========= ========
</TABLE>
56
<PAGE> 57
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, 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>
57
<PAGE> 58
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $130,850 $42,216 $ -- $173,066
Cost of goods sold 80,207 29,948 110,155
--------- -------- ------- ------- --------
Gross profit -- 50,643 12,268 -- 62,911
Selling, general and administrative 6 21,335 7,775 29,116
Compensation and related transaction costs 18,018 18,018
Amortization of intangibles 2,520 45 2,565
Management fees 1,043 1,043
--------- -------- ------- ------- --------
Operating income (6) 7,727 4,448 -- 12,169
Other expenses (income):
Equity in (earnings) loss of subsidiaries 11,573 (1,441) (10,132) --
Interest expense 2,797 24,673 27,470
Other (income) expense (54) (1,880) 2,240 306
--------- --------- ------- ------- --------
Income (loss) before income taxes
and extraordinary items (14,322) (13,625) 2,208 10,132 (15,607)
Income taxes (benefit) (1,019) (2,480) 767 (2,732)
--------- --------- ------- ------- --------
Income (loss) before
extraordinary items (13,303) (11,145) 1,441 10,132 (12,875)
Extraordinary losses on early
extinguishment of debt 3,124 428 -- -- 3,552
--------- --------- ------- ------- --------
Net income (loss) $ (16,427) $ (11,573) $ 1,441 $10,132 $(16,427)
========= ========= ======= ======= ========
</TABLE>
58
<PAGE> 59
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, 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>
59
<PAGE> 60
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, 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>
60
<PAGE> 61
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss) $ (16,427) $ (11,573) $ 1,441 $ 10,132 $ (16,427)
Adjustments to reconcile net
income (loss)to net cash provided by
(used in) operating activities:
Extraordinary loss on early
extinguishment of debt 3,124 428 3,552
Depreciation and amortization 11,817 1,671 13,488
Non-cash charge related to stock
option awards 8,585 8,585
Equity in (earnings) loss of subsidiaries 11,573 (1,441) (10,132) --
Deferred income taxes and other (3,772) (3,772)
Changes in operating assets and liabilities 3,346 (125) 775 (9) 3,987
--------- ---------- ------- -------- ---------
Net cash provided by (used in)
operating activities 1,616 3,919 3,887 (9) 9,413
Investing activities:
Cash paid for acquisition (4,007) (15,376) (19,383)
Capital expenditures (5,015) (2,088) (7,103)
--------- ---------- ------- -------- ----------
Net cash used in investing activities -- (9,022) (17,464) -- (26,486)
Financing Activities:
Proceeds from issuance of 2008 Notes 111,134 111,134
Proceeds from issuance of exchangeable
preferred stock 32,986 32,986
Proceeds from issuance of term loans 50,000 50,000
Proceeds from issuance common stock 9,731 9,731
Contributions from shareholders 4,573 4,573
Repayment of existing credit facility (30,000) (902) (30,902)
Repayment of bridge loan (140,000) (140,000)
Payment of consent fee (6,500) (6,500)
Payment of deferred financing fees (3,119) (3,119)
Net payments on credit facilities (7,100) (7,100)
--------- --------- ------- -------- ---------
Net cash provided by (used in)
financing activities 21,705 -- (902) -- 20,803
Intercompany transfers and dividends (20,661) 4,468 16,184 9 --
Effects of exchange rates on cash 252 252
--------- --------- ------- -------- ---------
Cash and Cash Equivalents:
Net increase (decrease) in cash and
cash equivalents 2,660 (635) 1,957 -- 3,982
Cash and cash equivalents at beginning of period 596 (320) 504 780
--------- --------- ------- -------- ---------
Cash and cash equivalents at end of period $ 3,256 $ (955) $ 2,461 $ -- $ 4,762
========= ========= ======= ======== =========
</TABLE>
61
<PAGE> 62
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, 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>
62
<PAGE> 63
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, 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>
63
<PAGE> 64
N. RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and for Hedging Activities." Under the Statement, every derivative is recorded
in the balance sheet as either an asset or liability measured at its fair value.
Changes in the derivatives fair value will be recognized currently in earnings
unless specific hedge criteria are met.
Day will be required to adopt this standard for its fiscal 2000 financial
statements. Based on current hedging activities, Day does not anticipate this
standard to have a material effect on its financial statements.
64
<PAGE> 65
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
On April 20, 1998, the Company's Board of Directors voted to approve the
engagement of Arthur Andersen LLP as its independent auditors' for the year
ending December 31, 1998 to replace the firm of Deloitte & Touche LLP. The
reason for this change is the change in control of the Company as previously
reported in Form 8-K dated January 16, 1998.
In connection with the audit of the Company's financial statements for the year
ended December 31, 1998, there have been no disagreements with Arthur Andersen
LLP on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
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.
In connection with the audits of the Company's financial statements for the
years ended December 31, 1997 and 1996, and in the subsequent interim periods,
there have been no disagreements with Deloitte & Touche LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
No event of the type described in Item 304(a)(1)(v) of Regulation S-K occurred
during the period described above.
Prior to the Board's determination to engage Arthur Andersen LLP as its
independent auditors' for the year ending December 31, 1998, Arthur Andersen LLP
performed certain due diligence procedures for the new majority shareholders and
was consulted on the accounting treatment and disclosure requirements of certain
acquisition related transactions included in the Company's 144A Offering
Memorandum and Form S-4 Registration Statement, all of which are reflected in
the Company's pro forma financial statements which give effect to the
acquisition of the Company by affiliates of Greenwich Street Capital Partners,
Inc. and SG Capital Partners LLC .
There were no written views regarding the above accounting matters that were
received by the Company. Deloitte & Touche LLP was not consulted on these
matters.
65
<PAGE> 66
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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.
Four of the directors, Messrs. Eckert, and Ferguson and Ms. Vanden Beukel, were
elected as directors on the Acquisition Closing Date in connection with the
Acquisition.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ---- --- --------
<S> <C> <C>
Alfred C. Eckert III 51 Chairman of the Board
Dennis R. Wolters 52 Chief Executive Officer, President and Director
David B. Freimuth 46 Vice President and Chief Financial Officer
John R. Elia 51 Vice President, Operations, Image Transfer
William B. Branson 40 Vice President, General Manager, Textiles
Michael E. McLean 49 Vice President, Technology, Planning and New
Product Development, Image Transfer
Dermot Healy 44 Managing Director, Europe
Michael P. Neroni 34 National Sales Director, Image Transfer
Dwaine R. Brooks 56 Director, Human Resources and Assistant
Secretary
William C. Ferguson 69 Director
Christine K. Vanden Beukel 28 Director, Secretary
</TABLE>
Alfred C. Eckert III has been the President of Greenwich Street Capital
Partners, Inc. ("Greenwich Street") since January 1994 and President of GSCP,
Inc. since June 1998. 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 and McKesson HBOC, Inc.
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.
66
<PAGE> 67
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.
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.
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.
Christine K. Vanden Beukel joined Greenwich Street at its inception in 1994 and
is an officer of GSCP, Inc. 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.
As compensation for his services as director, Mr. Ferguson has received warrants
to purchase up to 74 shares of Common Stock at a price of $4,030 per share that
vest in four equal installments, first on the grant date and then on each of the
first three anniversaries thereof. None of the other directors will receive any
compensation for their services as directors.
67
<PAGE> 68
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation for 1998,
1997, and 1996 for Mr. Wolters and the four other most highly compensated
officers of the Company at the end of 1998.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
AWARDS PAYOUTS
------ -------
ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) PAYOUTS(a) COMPENSATION
- - ------------------ ---- ------ ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dennis R. Wolters, 1998 $200,000 $191,410 2,850 $ - $5,084,715(b)
President and 1997 193,333 221,436 0 20,534 242,501(c)
Chief Executive 1996 186,667 77,063 0 29,178 13,442
Officer
David B. Freimuth, 1998 105,000 50,371 780 - 2,537,727(b)
Vice President 1997 101,667 58,615 110 6,703 166,355(c)
1996 90,000 19,265 0 7,586 7,662
William B. Branson, 1998 94,000 28,947 270 - 103,370(b)
Vice President 1997 90,500 45,465 0 6,703 222,798(c)
1996 90,442 34,296 0 6,419 11,530
Michael E. McLean, 1998 91,000 44,124 385 - 11,680
Vice President 1997 89,000 47,750 0 6,703 172,643(c)
1996 86,833 15,596 0 7,586 16,166
John R. Elia, 1998 88,000 51,091 355 - 8,108
Vice President 1997 86,000 54,338 0 7,679 166,894(c)
1996 83,567 20,246 0 11,087 28,567
</TABLE>
(a) Represents compensation received under a Hanna long-term incentive
plan. The Company has replaced the Hanna long-term incentive plan with
a stock option program.
(b) Includes principally the Executive Incentive Bonus Arrangements as a
result of the Greenwich Street Acquisition. See "Certain Relationships
and Related Transactions".
(c) Includes principally the balance of sales fulfillment incentive fees
as a result of the AIP Acquisition.
68
<PAGE> 69
The following table sets forth information concerning the options to purchase
common stock granted in 1998 for Mr. Wolters and the four other most highly
compensated officers of the Company at the end of 1998.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
--------------------------------------
% OF TOTAL
OPTIONS/
NUMBER OF SARS
SECURITIES GRANTED
UNDERLYING TO EXERCISE GRANT
OPTIONS/ EMPLOYEES OR DATE
NAME AND SARS IN BASE PRICE EXPIRATION PRESENT
PRINCIPAL POSITION GRANTED(#)(B) 1998 ($/SHARE) DATE VALUE ($)(a)
- - ------------------ ------------- ---- --------- ---- ------------
<S> <C> <C> <C> <C> <C>
Dennis R. Wolters,
President and Chief
Executive Officer 450 (b) 7.1% $4,030 2007 $ 976,500
824 (c) 13.0% $4,030 2007 1,788,080
1,576 (d) 24.9% $4,030 2007 3,419,920
David B. Freimuth,
Vice President 124 (b) 2.0% $4,030 2007 $ 269,080
226 (c) 3.6% $4,030 2007 490,420
430 (d) 6.8% $4,030 2007 933,100
William B. Branson,
Vice President 43 (b) 0.8% $4,030 2007 $ 93,310
79 (c) 1.2% $4,030 2007 171,430
148 (d) 2.3% $4,030 2007 321,160
Michael E. McLean,
Vice President 61 (b) 1.0% $4,030 2007 $ 132,370
112 (c) 1.8% $4,030 2007 243,040
212 (d) 3.4% $4,030 2007 460,040
John R. Elia,
Vice President 56 (b) 0.9% $4,030 2007 $ 121,520
103 (c) 1.6% $4,030 2007 223,510
196 (d) 3.1% $4,030 2007 425,320
</TABLE>
(a) The grant date present value calculated using Black-Scholes pricing
model.
(b) Represents service options that, subject to the continuous employment
of the named executive officer, become vested in five equal annual
installments on each of the first five anniversaries of the grant date.
(c) Represents performance and super performance options that, subject to
the continuous employment of the named executive officer, become vested
as follows: (a) one-fifth of the options become vested on each of the
first five anniversaries of the date of grant if the Company achieves
certain annual and cumulative EBITDA targets, and (b) any options that
do not become vested as provided above will become vested on the ninth
anniversary of the date of grant.
69
<PAGE> 70
(d) Represents exit options that, subject to the continuous employment of
the named executive officer, become vested as follows: (a) based upon
the internal rate of return of Greenwich Street realized in connection
with the disposition of its investment in the Company, and (b) any
options that do not become vested as provided above will become vested
on the ninth anniversary of the date of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER
OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END(#) AT FY-END($)
------------ ------------
SHARES EXERCISABLE/ EXERCISABLE/
ACQUIRED ON VALUE UNEXER- UNEXER-
NAME EXERCISE(#) REALIZED($) CISABLE CISABLE(1)
- - ---- ----------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Dennis R. Wolters 0 0 1,200/ $3,636,000/
2,850 $ -
David B. Freimuth 0 0 310/ $917,300/
780 $ -
William B. Branson 0 0 112.5/ $340,875/
270 $ -
Michael E. McLean 0 0 200/ $606,000/
385 $ -
John R. Elia 0 0 200/ $606,000/
355 $ -
</TABLE>
(1) Based upon estimated fair market value of the shares less the exercise
price.
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
70
<PAGE> 71
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 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 (b) 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 Item 1--"Business" and Item 13--"Certain Relationships and Related
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 served as an officer of GSD prior to its merger up into its two
shareholders 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 provided 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. The
completion bonuses were paid in February 1999. 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 in Item
1--"Business" and Item 13--"Certain Relationships and Related Transactions,"
upon the consummation of the Acquisition, Mr. Branson also received an incentive
bonus in the amount of $100,000.
COMPENSATION COMMITTEE INTERLOCKS
Executive compensation is determined by the Board of Directors. Mr. Eckert and
Ms. Vanden Beukel are the President and Managing Director of Greenwich Street,
respectively. Mr. Ferguson serves on the Advisory Board of Greenwich Street.
Greenwich Street and SG Capital Partners LLC ("SGCP"), the Company's controlling
shareholders, provide business, financial and management advisory services to
the Company for an annual total fee of $1 million, plus expenses. The Company
also indemnifies Greenwich Street and SGCP from and against certain liabilities.
Mr. Wolters is the President and Chief Executive Officer of the Company.
Pursuant to his Executive Bonus Arrangement, Mr. Wolters received $4,868,750
upon consummation of the Acquisition. Mr. Wolters also received options to
purchase 2,850 shares of Common Stock during 1998. See "Certain Relationships
and Related Transactions". No other officers of the Company participated in
Board deliberations regarding executive compensation in 1998.
71
<PAGE> 72
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, including options to acquire Common
Stock, 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 STOCK COMMON
NAME OF BENEFICIAL OWNER (a)(b) STOCK
- - ------------------------ ------ -----
<S> <C> <C>
Dennis R. Wolters 1,590 6.0
David B. Freimuth 435 1.7
Michael E. McLean 225 0.9
John R. Elia 211 0.8
Dwaine R. Brooks 146 0.6
William B. Branson 151 0.6
Alfred C. Eckert III(c) -- --
Christine K. Vanden Beukel(c) -- --
William C. Ferguson 15 0.1
All Directors and Executive Officers
as a Group (21 persons) 3,645 13.8
SG Capital Partners LLC 3,777.5 14.3
Greenwich IV LLC(c) 18,912 71.8
------ -----
Total 26,334.5 100.0
</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 table includes Shares of Common Stock
subject to options and warrants currently exercisable or exercisable
within 60 days of the date of this report. As of the date of this
report, the number of such shares is 3,036.5.
(b) The Shares of Common Stock owned by SGCP 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 18,912 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.
72
<PAGE> 73
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 as designated by
Greenwich Street and, for so long as SGCP holds 5% of the outstanding Common
Stock, one individual designated by SGCP.
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 terms of 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, SGCP shall
have the right to require the Company to effect up to two registrations of the
Common Stock on Form S-3 under the Securities Act and that the Company shall pay
all registration expenses in connection with each registration of shares of the
Common Stock pursuant to the Stockholders Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 $1.0 million 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.
73
<PAGE> 74
SGCP owns 3,777.5 shares of Class B Non-Voting Common Stock representing 14.3%
of the outstanding Common Stock (on a fully-diluted basis). Societe Generale is
the Administrative Agent and the lender under both the GSD Credit Facility and
the Senior Secured Credit Facility.
In 1998, certain members of management purchased 57 shares of Common Stock at
$4,030 per share. Members of management were also granted options to purchase an
aggregate of 6,321 shares of Common Stock at an exercise price of $4,030 per
share. See "Executive Compensation - Option Grants in 1998."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are incorporated by reference as part of this Report at Item 8
hereof.
DAY INTERNATIONAL GROUP, INC.
Years ended December 31, 1998, 1997 and 1996:
Independent Auditors' Reports
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders' Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES
Years ended December 31, 1998, 1997 and 1996:
Independent Auditors' Reports - At pages 30 and 31 of this Report.
Schedule II - Valuation and Qualifying Accounts (At page 77 of this
Report).
The information required to be submitted in Schedules I, III, IV and V for
Day International Group, Inc. and consolidated subsidiaries has either been
shown in the financial statements or notes, or is not applicable or
required under Regulation S-X; therefore, those schedules have been
omitted.
(b) REPORTS ON FORM 8-K
Form 8-K dated January 16, 1998 - Affiliates of Greenwich Street Capital
Partners, Inc. and SG Capital Partners LLC completed the acquisition of
93.9% of the common stock of Day International Group, Inc. from American
Industrial Partners Capital Fund, L.P. and American Industrial Partners
Capital Fund II, L.P., certain affiliates of AIP and certain management
stockholders.
74
<PAGE> 75
Form 8-K dated February 20, 1998 - A Consent Solicitation Statement was
distributed to the registered holders of the 11 1/8% Senior Subordinated
Notes due 2005 soliciting consent to certain amendments to the Indenture
which governs the Notes.
Form 8-K dated April 20, 1998, as amended, the Company's Board of Directors
voted to approve the engagement of Arthur Andersen LLP as its independent
auditors' for the year ending December 31, 1998 to replace the firm of
Deloitte & Touche LLP. The reason for this change is the change in control
of the Company as previously reported in Form 8-K dated January 16, 1998.
(c) EXHIBITS. SEE INDEX TO EXHIBITS
(d) SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report covering the Company's last fiscal year, and no proxy
statement, form of proxy or other proxy soliciting material, has been
sent to security holders of the Company.
75
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Day International Group, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Day International Group, Inc.
(Registrant)
Date: March 29, 1999 By:/s/ Dennis R Wolters
--------------------
Dennis R. Wolters
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of Day International
Group, Inc. and in the capacities and on the dates indicated.
Date: March 29, 1999 By:/s/ Dennis R Wolters
--------------------
Dennis R. Wolters
President, Chief Executive Officer
and Director (Principal Executive
Officer)
Date: March 29, 1999 By:/s/ David B. Freimuth
---------------------
David B. Freimuth
Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
Date: March 29, 1999 By:/s/ Alfred E. Eckert, III
-------------------------
Alfred E. Eckert, III
Director
Date: March 29, 1999 By:/s/ Christine K. Vanden Beukel
------------------------------
Christine K. Vanden Beukel
Director
Date: March 29, 1999 By:/s/ William C. Ferguson
-----------------------
William C. Ferguson
Director
76
<PAGE> 77
DAY INTERNATIONAL GROUP, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- ------------------------------------- -------- --------
ADDITIONS
-------------------------------------
ALLOWANCE FOR BALANCE AT CHARGED TO DEDUCTIONS BALANCE
DOUBTFUL BEGINNING COSTS AND CURRENCY FORM AT END
ACCOUNTS OF PERIOD EXPENSES ACQUIRED TRANSLATION RESERVES OF PERIOD
-------- --------- -------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Period Ended:
December 31, 1998 $ (1,055) $ (217) $ (218) $ (32) $ 138 $ (1,384)
========= ======= ======== ====== ====== =========
December 31, 1997 $ (982) $ (162) $ - $ 47 $ 42 $ (1,055)
========= ======= ======== ====== ====== =========
December 31, 1996 $ (1,248) $ (118) $ (50) $ 25 $ 409 $ (982)
========= ======= ======== ====== ====== =========
</TABLE>
77
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
(3) Articles of Incorporation and By-Laws:
3.1 Certificate of Incorporation of Day International Group, Inc. *
("Group")
3.2 By-Laws of Group *
3.3 Certificate of Incorporation of Day International, Inc. *
("Guarantor") *
3.4 By-Laws of the Guarantor *
(4) Instruments Defining Rights of Security Holders, including Indentures:
4.1 Indenture (the "Indenture") dated June 6, 1995 among Registrant,
the Guarantor and American Bank National Association
4.2 Registration Rights Agreement dated as of June 6, 1995 among
Group, the Guarantor, Donaldson, Lufkin & Jenrette Securities
Corporation, NationsBanc Capital Markets, Inc. . *
4.3 First Supplemental Indenture, dated March 13,1998, to the
Indenture ******
4.4 Indenture (the "Subordinated Indenture") dated as of March 18,
1998, among Day International Group, Inc., Day International,
Inc. and the Bank of New York. ******
4.5 Form of Global Notes (filed as part of Exhibit 4.4) ******
4.6 Registration Rights Agreement, dated as of March 18, 1998, by and
between the Company and Societe Generale Securities Corporation. ******
4.7 Certificate of Designation, dated March 18, 1998, of 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") ******
4.8 Form of Global Certificate for the Exchangeable Preferred Stock. ******
4.9 Exchange Debenture Indenture, dated as of March 18, 1998, among
Day International Group, Inc., Day International, Inc. and the
Bank of New York as Trustee. ******
(10) Material Contracts:
10.1 Purchase Agreement dated as of May 25, 1995 among Group, the
Guarantor (as of June 6, 1995) Donaldson, Lufkin & Jenrette
Securities Corporation and NationsBanc Capital Markets, Inc. . *
10.2 Stockholders Agreement dated January 16, 1998, among GSD
Acquisition Corp., Greenwich IV, LLC, Societe Generale Capital
Corporation and certain Employee Stockholders ******
10.3 Employment Agreement dated December 9, 1994 between the Guarantor
and Dennis R. Wolters. *
10.4 Form of Employment Agreement between the Guarantor with certain
members of management. *
10.5 Stock Purchase Agreement dated April 11, 1995 among Group, M.A.
Hanna Company and Cadillac Plastic Group, Inc., as amended. *
10.6 Share Purchase Agreement dated April 11, 1995 between Group and
Cadillac Plastic Limited, as amended. *
</TABLE>
78
<PAGE> 79
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
10.7 Asset Purchase Agreement between Day International (Canada)
Limited and Group, as amended. *
10.8 Day International Group, Inc. Stock Option Plan, date as of July
6, 1995 **
10.9 Amendment to Stock Option Plan, dated September 19, 1996 ****
10.10 Second Amendment to Stock Option Plan dated January 16, 1998. ******
10.11 Asset Purchase Agreement between Day International, Inc. and
Flint Ink Corporation dated December 31, 1996 ****
10.12 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 *****
10.13 Amendment 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 *****
10.14 Senior Secured Credit Agreement, dated as of January 15, 1998,
among Group, Guarantor and Societe Generale parties thereto *****
10.15 Purchase Agreement, dated as of March 13, 1998 between the
Company and Societe Generale Securities Corporation. ******
10.16 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. ******
10.17 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. ******
10.18 Mortgage and Security Agreement Dated January 16, 1998, from Day,
as Mortgagor, to the Administrative Agent, with respect to the
Florida property. ******
10.19 Mortgage and Security Agreement Dated January 16, 1998, from Day,
as Mortgagor, to the Administrative Agent, with respect to the
South Carolina property. ******
10.20 Deed of Trust, dated January 15, 1998, from Day, as Mortgagor, to
the Administrative Agent, with respect to the North Carolina
property. ******
10.21 Mortgage and Security Agreement Dated January 16, 1998, from Day,
as Mortgagor, to the Administrative Agent, with respect to the
Michigan property. ******
10.22 Amendment to the Employment Agreement, dated January 16, 1998,
between Day International, Inc. and Dennis R. Wolters. ******
10.23 Amendment to the Employment Agreement, dated January 16, 1998,
between Day International, Inc. and David B. Freimuth. ******
10.24 Consulting Agreement between the Company and Greenwich Street. ******
10.25 Indemnification Agreement between the Company and Greenwich Street.******
10.24 Consulting Agreement between the Company and SG Capital Partners
Limited. . ******
</TABLE>
79
<PAGE> 80
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
10.25 Indemnification Agreement between the Company and SG Capital
Partners Limited. ******
10.26 Share Purchase Agreement between Day International, Inc., Mr.
Rudolf Wilbring, Mr. Helmut Bushoff and Mr. Josef Dunne dated
December 23, 1998 +
10.27 Non Compete Agreement between Day International, Inc., Mr. Rudolf
Wilbring, Mr. Helmut Bushoff and Mr. Josef Dunne dated December
23, 1998 (included in Exhibit 10.26). +
10.28 Share Pledge Agreement dated December 22, 1998 between 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. +
10.29 First Amendment to Senior Secured Credit Agreement, dated as of
December 17, 1998, by and among Societe Generale, as
Administrative Agent for the Lenders, the Company and Day
International, Inc. +
10.30 Stock warrant to purchase 74 shares of Common Stock of the
Company, dated as of January 18, 1998 issued to Mr. William C.
Ferguson. +
(21) Subsidiaries 81
(27) Financial Data Schedule 82
</TABLE>
* Incorporated by reference to the Group's Registration Statement on
Form S-4 (Reg. No. 33-93644).
** Incorporated by reference to the Group's Form 10K for the
period ended December 31, 1995.
*** Incorporated by reference to the Group's Form 10Q for the quarterly
period ended June 30, 1996.
**** Incorporated by reference to the Group's Form 10K for the year ended
December 31, 1996.
***** Incorporated by reference to the Group's Form 8K dated January 16, 1998
and the Group's Form 8-K dated February 20, 1998.
****** Incorporated by reference to the Group's Registration Statement on
Form S-4 (Reg. No. 333-51839).
+ Filed herewith
80
<PAGE> 1
Exhibit 10.26
Number 237 of the Role of Deeds for 1998
RECORDED
at Coesfeld on December 23th, 1998
Before me, the undersigned notary
DR. REINHARD GERWING
having my seat of office at 48653 Coesfeld/Germany
appeared today:
1. (a) Mr. Rudolf Wilbring, having his business address at Solmstrabe
83a, 48683 Ahaus-Ottenstein ("Seller 1"), by virtue of valid German passport No.
5398035580
(b) Mr. Helmut Busshoff, having his business address at Solmstrabe 83a,
48683 Ahaus-Ottenstein ("Seller 2"), by virtue of valid German identity card No.
53981194836
(c) Mr. Josef Duenne, having his business address at Solmstrabe 83a,
48683 Ahaus-Ottenstein ("Seller 3"), by virtue of valid German identity card No.
5398328844
2. Mr. Christian Baldermann, having his business address at
Auchtertstrasse 8, 72770 Reutlingen, identifying himself by his valid German
identity card No. 6959024982
Mr. Baldermann stated that he acted with regard to section I of this
deed not in his own name but for and on behalf of "JOVIK"
Verwaltungsgesellschaft mbH, Hamburg (in the future Day International Group
GmbH) (hereinafter referred to as the "Purchaser") in his capacity as managing
director of the Purchaser authorized to individually represent such company. The
acting notary had an original document of the notary Dr. Stadler, Hamburg (Deed
role 4255/1998 St), which confirmed the appointment and authority of Mr.
Baldermann.
The persons appearing requested notarization of this deed in the
English language. The acting notary who is in command of the English language
ascertained that Mr. Baldermann speaks and understands English fluently. The
other parties don't understand and speak English. Despite this fact the notary
was requested to notarize this agreement in the English language.
<PAGE> 2
A translation of this agreement into German was read out as well
sectionwise parallel to the original English document and attached as an
interpretation aid to this deed.
Mr. Baldermann stated that he acted not in his own name but with regard
to section II of this notarial deed for and on behalf of Day International Inc.,
130 West Second Street, Dayton, Ohio 45401-0338. He presented a corresponding
power of attorney (Vollmacht) in copy and a certificate (Bestatigung) with
Apostille of the State of New York/U.S.A.
All parties confirmed that neither the notary nor any of his partners
or associates has acted for any of the parties to this transaction outside a
notarial function.
Acting as aforementioned the persons appearing declared, that they
wished to have the following
SHARE PURCHASE AGREEMENT
recorded.
PREAMBLE
--------
Seller 1, Seller 2 and Seller 3 (hereinafter collectively referred to
as the "Sellers") are the sole shareholders of Rotec-Huelsensysteme GmbH, Ahaus
(hereinafter referred to as the "Company" which is registered in sec. B1153 of
the Commercial Register of the Lower Court Ahaus, and has its main business
establishment at Ahaus.
The Sellers directly hold 100% of the stated capital of the Company
(hereinafter referred to as the "Stated Capital") of DM 200,000.- which is fully
paid in. It consists of the following shares:
(1) one share in the nominal amount of DM 102,000.-, held by Seller 1;
(2) one share in the nominal amount of DM 66,000.-, held by Seller 2;
(3) one share in the nominal amount of DM 32,000.-, held by Seller 3;
(hereinafter collectively referred to as the "Shares").
The Sellers are interested to sell the Shares. The Purchaser is
interested to purchase the Shares.
The approval letter of the German Federal Cartel office
(Bundeskartellamt) dated December 16th 1998 was read out and attached to this
deed.
<PAGE> 3
The parties therefore agree as follows:
SECTION I
Article 1
Sale and Assignment of the Shares, Right to Profits,
----------------------------------------------------
Effective Date
--------------
1. Upon the terms and conditions of this Agreement the Sellers herewith
sell to the Purchaser the Shares including all ancillary rights. The Purchaser
accepts such sale.
2. The sale of the Shares is subject to the condition precedent of the
earlier of
(i) receipt by the Purchaser or its parent company of USD 13,5
million senior acquisition financing from the financing banks. The
Purchaser shall immediately confirm such receipt to the acting notary by
telefax (with copies to all Sellers) which confirmation shall be attached
to this deed and shall constitute sufficient evidence that this condition
has been fulfilled; or
(ii) receipt by the Sellers of the Purchase Price pursuant to Article
2 hereof; SELLER 3 SHALL IMMEDIATELY CONFIRM SUCH RECEIPT TO THE ACTING
NOTARY BY TELEFAX WHICH CONFIRMATION SHALL BE ATTACHED TO THIS DEED AND
SHALL CONSTITUTE SUFFICIENT EVIDENCE THAT THIS CONDITION HAS BEEN
FULFILLED.
Each party has the right to withdraw (zuruecktreten) from this Agreement if not
both of the foregoing conditions precedent have not been fulfilled on December
29, 1998, 4.00 p.m. German time at the latest. This right to withdraw may be
exercised by any of the Sellers by giving written notice (telefax suffices) to
the acting notary.
3. Irrespective of the effectiveness of the assignment of the Shares AD
REM (dinglich), "Effecitve Date" for financial statement purposes within the
meaning of this Agreement shall be December 31, 1998.
4. All profits of the current fiscal year as well as the profits of
previous fiscal years which have not been distributed to the shareholders (I.E.,
profits carried forward and profits of previous fiscal years with respect to
which no resolution on the appropriation of results (Ergebnisverwendung) has
been passed) shall belong to the Purchaser.
5. The Shares are herewith assigned to the Purchaser, subject to the
condition precedent (i) specified in Article 1.2, and (ii) payment of the
Purchase Price
<PAGE> 4
pursuant to Article 2. Upon exercise of the right to withdraw pursuant to
section 1.2 this assignment shall become void.
BENEFICIAL AND ECONOMIC OWNERSHIP (WIRTSCHAFTLICHES EIGENTUM) IN THE
SHARES AND BENEFITS AND RISKS (GEFAHR) SHALL IN ANY EVENT BE DEEMED TRANSFERRED
NO LATER THAN DECEMBER 30, 1998, 6 p.m. German time provided that this agreement
shall still be effective on this date.
6. The Sellers acting as shareholders and managing directors of the
company-declared the consent of the Company to the Sale and assignment of the
Shares to the Purchaser pursuant to Sec. 4 of the Company's Articles of
Association.
Article 2
Purchase Price
--------------
The aggregate purchase price for the Shares (hereinafter referred to as
the "Purchase Price") is DM 26,400.000 (in words: twenty-six millions four
hundred thousands German Marks). The consideration payable by Day International
Inc. for the separate Non-Compete Agreement (see Article 6 and Section II below)
shall be DM 6.700,000.00 (in words: six millions seven hundred thousand German
Marks) plus value added tax, if any.
The purchase price shall be paid no later than December 29, 1998, 4
p.m. German time (receipt of payment) provided always that the condition
precedent in Section 1.2 has been fulfilled, to the account no. 59065581 of the
Sellers with Kreissparkasse Borken (bank identification no. 428 513 10).
Internally among the Sellers the Purchase Price shall be allocated as follows:
Seller 1: DM 13.464,000.00
Seller 2: DM 8.712,000.00
Seller 3: DM 4.224,000.00
If due to fluctuations in currency exchange rates the initial purchase price
payment falls short by less than two percent of the purchase price, the Sellers
may not withdraw from this agreement for this cause.
Article 3
Interim Financial Statements; Purchase Price Adjustment
-------------------------------------------------------
1. Attached hereto are interim financial statements of the Company as
of October 31, 1998, consisting of (i) an interim balance sheet (attached as
Attachment 3.1.i hereto and hereinafter referred to as the "Interim Balance
Sheet") and (ii) an
<PAGE> 5
interim profit and loss statement (attached as ATTACHMENT 3.1.ii hereto and
hereinafter referred to as the "Interim P&L Statement").
2. The Purchase Price agreed in Section 2.1 of this Agreement shall
be increased or reduced, as the case may be, and corresponding payments shall be
made, by the amount by which the equity (Eigenkapital) within the meaning of
sec. 266 para 3 A. German Commercial Code sec. 266 Abs. 3 A. HGB) of the Company
on the Effective Date (hereinafter referred to as "Effective Equity") exceeds or
falls short of DM 2.739,954.00.
3. The Effective Equity shall be determined by ARTHUR ANDERSEN based
on the annual financial statement of the Company as of December 31, 1998, as
audited by Arthur Andersen. The Purchaser shall cause the Company to permit the
Sellers or their advisers who are bound by professional secrecy obligations to
get involved in the preparation of such annual financial statement. Any equity
contributions made by the Purchaser to the Company between the date hereof and
the Effective Date shall not be taken into account for determining the Effective
Equity. WITHIN 30 DAYS AFTER THE RECEIPT OF THE ANNUAL FINANCIAL STATEMENTS, ANY
PARTY MAY REQUEST THAT THE ANNUAL FINANCIAL STATEMENTS BE REVIEWED AND THE
EFFECTIVE EQUITY BE DETERMINED BY AN INDEPENDENT AUDITOR TO BE SELECTED BY THE
CHAMBER OF AUDITORS (WIRTSCHAFTSPRUEFERKAMMER) IN DUESSELDORF. THE COSTS OF THE
INDEPENDENT AUDITOR SHALL BE BORNE (I) BY THE PURCHASER IF THE EFFECTIVE EQUITY
THUS DETERMINED EXCEEDS, OR (II) BY THE SELLERS PRO RATA THEIR SHARES IN THE
COMPANY IF IT FALLS SHORT OF THE EFFECTIVE EQUITY AS DETERMINED BY ARTHUR
ANDERSEN.
4. The Sellers shall pay to the Purchaser, as a further adjustment to
the Purchase Price, such amounts as are equal to any amount levied on the
Company or the Subsidiaries as a result of any assessments of taxes, social
security contributions (Sozialversicherungsbeitraege) and public law dues of any
kind which relate to the time period up to and including the Effective Date, if
and to the extent that they are not reflected, and no sufficient accruals have
been established therefore, in the audited financial statement of the Company as
of December 31, 1998 or in the respective financial statements of the
Subsidiaries. Claims of the Purchaser under this Section 3.4 shall be subject to
a limitation period expiring six months after the end of the fiscal year in
which the relevant decision of the tax authorities or other public authority, as
the case may be, has become final and binding.
5. The Sellers shall be liable pro rata their respective Shares in
the Company for any Purchase Price adjustments pursuant to this Article 3.
Article 4
Sellers' Representations and Warranties
---------------------------------------
<PAGE> 6
The Sellers jointly and severally represent and warrant to the
Purchaser in the form of a guarantee (selbstaendige Garantie) pursuant to Sec.
305 Civil Code, provided that the legal consequences of such representation and
warranty shall be exclusively governed by Article 5 hereof (under exclusion of
Sec. 459 et seq.), that as of the recording of this Agreement and on the
Effective Date the following statements are true, complete and accurate:
1. The statements in the Preamble to this Agreement with respect to
the Sellers, the Company and the Shares are complete and correct.
2. The Company is a company with limited liability (Gesellschaft mit
beschraenkter Haftung) duly organized under the laws of the Federal Republic of
Germany and validly existing in accordance with the excerpt of the Commercial
Register attached as ATTACHMENT 4.2.1 and the Articles of Incorporation filed
with the Commercial Register and attached as ATTACHMENT 4.2.2. Save as disclosed
in ATTACHMENT 4.2.3, there are no share holder resolutions amending the Articles
of Association which have not yet been registered in the Commercial Register or
any shareholder agreements or agreements between the Company and its
shareholders relating to the constitution and/or organisation of the Company.
3. (a) ATTACHMENT 4.3.1 specifies all companies and enterprises,
irrespective of their legal form and domicile, in which the Company, directly or
indirectly, holds participations and the nominal amount of the respective
interest directly or indirectly held by the Company as well as the respective
share capital of such companies. In case the Company is not the sole shareholder
of any of the Subsidiaries all the respective other shareholders and the amount
of their respective interest are stated in ATTACHMENT 4.3.1. The Company is
under no obligation to increase its existing or to acquire any further
participations.
Each of the Subsidiaries is duly organized under the laws of its
respective jurisdiction and validly existing in accordance with the excerpt of
the respective Commercial Register or similar body, if any, attached as
ATTACHMENT 4.3.2 and its respective Articles of Association filed with the
respective Commercial Register or similar body, if any, and attached as
ATTACHMENT 4.3.3. There are no shareholder resolutions amending the Articles of
Association of any of the Subsidiaries which have not yet been registered in the
respective Commercial Register or similar body, if any. Any shareholder
agreements relating to the Subsidiaries and any agreements between any of the
Subsidiaries and its shareholder(s) relating to constitution and/or organisation
of such Subsidiary are attached as Attachment 4.3.4.
(b) The Company maintains exclusively the permanent establishments
listed in ATTACHMENT 4.3.5.
4. Neither the Company nor any of the Subsidiaries has entered into
any enterprise contracts (Unternehmensvertraege) within the meaning of Sec. 291
et sequ. of the Stock Corporation Act (Aktiengesetz) or any agreement relating
to the establishment of a silent partnership.
<PAGE> 7
5. (a) The Sellers are the legal and beneficial owners of the Shares
which are free of any encumbrances or any other rights for the benefit or third
parties. The Sellers have the right and the power to freely dispose of the
Shares without the consent of any third party (other than the Company) being
required for such disposal or such disposal violating the right of any third
party.
(b) The Company is the legal and beneficial owner of the shares in
the Subsidiaries as described in ATTACHMENT 4.3.1 such shares being free of any
encumbrances or any other rights for the benefit of third parties. Save as
disclosed in ATTACHMENT 4.5, the Company has the right and the power to freely
dispose of its shares in the Subsidiaries without the consent of any third party
being required for such disposal violating the right of any third party.
(c) Neither the Company nor any Subsidiary has any interest,
participation or similar involvement in commercial and other enterprises other
than expressly disclosed in ATTACHMENT 4.3.1.
6. All shares of the Company are fully paid in and no repayment of
capital contributions has been made, either openly or concealed.
7. ATTACHMENT 4.7 sets forth a complete and correct history of the
Stated Capital and the composition of the shareholders of the Company since the
day of its formation, indicating all notarial deeds by which the Company has
been established, the Stated Capital has to date been increased or reduced as
well as all notarial deeds by which to date shares of the Company have been
subscribed to, transferred, pledged or otherwise been affected.
8. Neither against the Sellers nor against the Company or any of the
Subsidiaries any bankruptcy or composition proceedings have been initiated nor
are there any circumstances which would justify the initiation of such
proceedings in the future.
9. The annual financial statements (including balance sheet,
profit-and-loss account) of the Company for the fiscal year 1997 (attached
hereto as ATTACHMENTS 4.9 and hereinafter referred to as the "Annual
Statements") as well as the Interim Balance Sheet and the Interim P&L Statement
have been duly prepared in accordance with generally accepted German accounting
principles, observing continuity in the accounting and evaluation principles and
present a true and fair view of the assets, finance and results situation of the
Company as of the relevant balance sheet dates.
To the extent that there have been options to include items in the
assets (Aktivierungswahlrechte) no such items have been included. To the extent
that there have been options to include items in the liabilities
(Passivierungswahlrechte) such items have been included. All statutorily
permitted depreciations and all statutorily permitted accruals have been taken.
<PAGE> 8
On the Effective Date the Company will have no liabilities other than
those shown or covered by accruals in the Interim Balance Sheet except for
liabilities resulting from pending contractual relationships which are not
required to be shown on a balance sheet.
There have been no contingent liabilities (including liabilities from
the issue of comfort letters) which were not reflected as below-the-line items
on the respective balance sheets in the Annual Statements.
10. The receivables reflected in the Interim Balance Sheet will be
fully collected upon their due date without any special collection measures
being required, less any specific or lump sum value adjustments reflected in the
Interim Balance Sheet.
11. The inventories shown in the Interim Balance Sheet are with
respect to quantity and quality (i) in case of raw materials, supplies and
operating materials, and work-in-progress usable in the ordinary course of
business and (ii) in case of finished products and merchandise goods saleable in
the ordinary course of business at then prevailing market prices or
manufacturing cost or acquisition cost, whatever is higher.
12. The pension accruals shown in the Interim Balance Sheet duly
reflect the cash value of the Company's liabilities from commitments for company
pension plans (both direct and indirect commitments) on the basis of a
calculation interest rate of 6 per cent and the application of the actuarial
orientation schedules of Dr. Karl Heubeck in their 1998 version.
13. ATTACHMENT 4.13.1 is a complete and correct list of all real
estate owned by the Company. The excerpts from the cadastrial chart
(Katasterplan) and land register attached as ATTACHMENT 4.13.2 accurately
reflect the factual and legal circumstances relating to such real estate. SAVE
AS DISCLOSED IN ATTACHMENTS 4.13.2 AND 4.14, such real estate is free of any
encumbrances and any other rights for the benefit of third parties which are not
registered in the land register or construction encumbrances register. There are
no filings for registration regarding such real estate which are not yet
registered in the land register or construction encumbrance register. For
clarification purposes is stated that item Nr. 2 Section 3 of the land register
excerpt attached as ATTACHMENT 4.13.2 will remain.
The principle amount outstanding under the corresponding loans as of
October 31, 1998 has been accounted for in the determination of the Purchase
Price.
14. All assets necessary for, or used in, the present business
operations of the Company and the Subsidiaries are reflected in the Annual
Statements 1997 and the Interim Balance Sheet. Save as disclosed in ATTACHMENT
4.14, the Company and the Subsidiaries are the legal and beneficial owners of
all fixed assets (Gegenstaende des Anlagevermoegens) used in their respective
business operations. Such assets are free of any encumbrances or any other
rights for the benefit of third parties. Such
<PAGE> 9
assets are in a good operating and conservation condition. The Company and the
Subsidiaries are the legal and beneficial owners of all current assets
(Gegenstaende des Umlaufvermoegens) used in their respective business
operations. Such assets are free of any encumbrances and any other rights for
the benefit of third parties with the exception of statutory pledges or
retention of title rights entered into in the ordinary course of business.
15. ATTACHMENT 4.15 is a complete and correct list of (i) all
industrial property rights and copyrights (including but not limited to patents,
utility models, trademarks, design patents, copyrights, topographic rights)
which are owned by the Company or any of the Subsidiaries or in respect to which
the Company or any of the Subsidiaries has been granted a license for use as
well as (ii), as regards such rights in respect to which the Company or any of
the Subsidiaries has been granted a license to use, the relevant license
agreements. With the exception of the industrial property rights and copyrights
set forth in this list the Company and the Subsidiaries do not use any
industrial property rights or copyrights nor is any of them dependent thereon.
No industrial property or copyrights used by the Company or any of the
Subsidiaries have been challenged by any third party. Neither the Company nor
the Subsidiaries are infringing upon industrial property rights of third
parties.
16. Save as disclosed in ATTACHMENTS 4.2.3, 4.3.4 AND 4.16, there are
no contractual or other business relationships between the Company and/or any of
the Subsidiaries on the one side and the Sellers and/or any enterprise
affiliated with either Seller within the meaning of Sec. 15 of the Stock
Corporation Act on the other side. All contractual or other business
relationships between the Company and/or any of the Subsidiaries on the one side
and the Sellers an/or any enterprise affiliated with any of them on the other
side, including the managing director employment agreements with the Sellers,
will be terminated on or prior to the Effective Date, provided, however, that
the Company may continue to purchase printing cylinders from Seller 1 or his
affiliated company Tiefdruck-Zylinder-Technik GmbH. Sellers 1 and 3 shall
release Rotec from all claims as managing directors and return any property of
the Company in their possession.
On the Effective Date there will be no more liabilities or
obligations of the Company or any of the Subsidiaries to the Sellers and/or any
enterprise affiliated with any of them; Sellers number 1 and 3 will submit
resignation letters from their position as managing directors.
17. ATTACHMENT 4.17 is a complete and correct list of the 10 largest
customers and 10 largest suppliers of the Company as well as of all suppliers of
the Company, for goods and services of any kind, for which they are the sole
source of supply, i.e. for which there is no alternative source at comparable
conditions (except for energy supply agreements, mail and telecommunications
services), listing in each case the business volume for the fiscal year 1997.
There is no reason to believe that any of such customers or suppliers of the
Company will reduce the extent of its
<PAGE> 10
previous dealings with the Company to any material degree except for the general
development of the economy or the market.
18. ATTACHMENT 4.18 is a complete and correct list of all bank
accounts of the Company and each of the Subsidiaries as well as of the
respective signatories. Seller 2 shall notify the banks of the resignations of
Seller 1 and 3.
19. ATTACHMENT 4.19 is a complete and correct list of all insurance
taken out by, or for the benefit of, the Company, the Subsidiaries or their
respective business operations with the exception of any insurance of the motor
vehicles used in the Company's or the Subsidiaries' business operations. No such
insurance policy will lapse upon the acquisition of the Shares by the Purchaser.
All premiums have been paid, and the Company and the Subsidiaries have complied
with all material obligations under the relevant policies. Such insurances are
adequate and sufficient by best industry standards.
20. ATTACHMENT 4.20 is a complete and correct list of certain
important (written or orally concluded) agreements and obligations of the
Company and the Subsidiaries at the date of this notarial deed (hereinafter
referred to as the "Material Contracts") i.e. all agreements and commitments
which relate to one of the following items or have been concluded by the Company
or any of the Subsidiaries with, or granted to, one of the following parties:
20.1 All agreements and obligations of the Company and the
Subsidiaries relating to the acquisition, divestiture, encumbrance or
other disposal of real estate or real-estate-like rights;
20.2 All agreements of the Company and the Subsidiaries relating to
the acquisition or the divestiture of fixed assets (Gegenstaende des
Anlagevermogens) including intangible assets, physical fixed assets (with
the exception of real estate and real-estate-like rights) and financial
assets the value of which exceeds DM 20.000,-- per item or collectively DM
50.000,--.
20.3 All usufructuary lease agreements (Pachtvertraege), rental
agreements (Mietvertraege) or leasing arrangements of the Company and the
Subsidiaries;
20.4 All license agreements into which the Company or any of the
Subsidiaries as licensor or licensee has entered;
20.5 All EXISTING credit agreements of any nature into which the
Company or any of the Subsidiaries as lender or borrower has entered, with
the exception of customary extensions of the due date of receivables or
payables agreed to in the ordinary course of business, as well as all
factoring arrangements, showing the overall exposure of the Company and
the Subsidiaries not earlier than six days prior to the date of this
notarial deed;
<PAGE> 11
20.6 All agreements of the Company and the Subsidiaries with domestic
or foreign authorized dealers (Vertragshaendler), commercial agents
(Handelsvertreter) or agents as well as all similar distribution
agreements which either in case of their termination trigger compensation
claims against the Company or any of the Subsidiaries or whose notice
period for termination exceeds three (3) months;
20.7 All agreements of the Company and the Subsidiaries with advisers
and consultants;
20.8 All agreements and obligations of the Company and the
Subsidiaries relating to pensions, other social benefits, profit
participations, turnover participations or other success bonuses as well
as similar agreements;
20.9 All collective bargaining agreements and shop agreements into
which the Company or any of the Subsidiaries has entered or to which the
Company or any of the Subsidiaries is subject;
20.10 All cooperation and similar agreements of the Company and the
Subsidiaries with third parties as well as any agreement or obligation of
the Company or any of the Subsidiaries having a restrictive impact on
competition;
20.11 All agreements or obligations of the Company and the
Subsidiaries which have been entered into or assumed outside the ordinary
course of business of the Company or any of the Subsidiaries;
20.12 Other agreements and obligations of the Company and the
Subsidiaries which trigger annual payments exceeding DM 20.000,- per item
or collectively DM 50.000,-;
The validity or enforceability of none of the Material Contracts has
been legally contested or questioned. No Material Contract is terminated or
about to be terminated. Neither the Company or any of the Subsidiaries nor their
respective contractual partners have breached, or are in default with respect
to, any Material Contract. The transaction contemplated in this Agreement will
not give any party an express right to termination or amendment of a Material
Contract.
21. ATTACHMENT 4.21.1 is a complete and correct list of all managing
directors and employees of the Company and the Subsidiaries stating the monthly
remuneration of each managing director and employee, respectively. No managing
director, and no employee marked therein as "important", has declared an
intention to terminate the employment relationship with the Company or any of
the Subsidiaries, respectively. There are no labour disputes carrying a
financial risk for the Company or the Subsidiaries in excess of DM 10.000,-.
22. ATTACHMENT 4.22.1 is a complete and correct list of all
powers-of-attorney (save for powers-of-attorney to professional advisers such as
<PAGE> 12
lawyers and tax advisers) issued by the Company and the Subsidiaries and
presently in force which are not reflected in ATTACHMENTS 4.2.1 and 4.3.2 or in
ATTACHMENT 4.18.
23. The Company and the Subsidiaries have applied for, received and
used all public grants only in accordance with applicable laws and in compliance
with all regulatory orders, conditions and impositions. No such grants will have
to be repaid as a result of the consummation of the transactions reflected in
this Agreement or due to any other circumstances already known.
24. ATTACHMENT 4.24 is a complete and correct list of all pending
legal disputes and regulatory proceedings (including criminal law
investigations) to which the Company and the Subsidiaries, respectively, or
their respective officers or employees (in that capacity or to the extent that
such disputes or proceedings could result in a liability of the Company or any
of the Subsidiaries) are party or subject. No such disputes or proceedings have
been threatened nor are there any circumstances which are likely to give rise to
such disputes or proceedings. Neither the Company nor the Subsidiaries are
subject to any order or judgement by any court, governmental or regulatory
agency or similar institution which has not been satisfied in full.
25. The business facilities of the Company and the Subsidiaries have
been erected and are operated in compliance with all applicable laws and
regulatory orders (especially in the area of construction law and trade law).
Neither their operation nor the other present business operations of the Company
and the Subsidiaries or any of their products or services violate applicable
laws or regulatory orders or did violate such laws or regulatory orders in the
past. The Company and the Subsidiaries have at their disposal all regulatory
permits which are required for the conduct and continuation of their respective
present business operations. Neither a revocation or any restriction of any of
such permits nor any third party claim against such permits is currently pending
or can be expected in the foreseeable future.
26. The real estate used by the Company and the Subsidiaries,
respectively, (whether or not such real estate is the property of the Company or
any of the Subsidiaries) as well as their respective other operational
facilities are free of any pollution of soil, ground water, air or any other
environmental pollution for whose curing and cleaning up the Company or any of
the Subsidiaries could be held liable. The business operations of the Company
and each of the Subsidiaries do presently not result and did not result in the
past in any pollution of soil, water, air or any other environmental pollution
or damage with respect to which the Company or any of the Subsidiaries could be
held liable by the competent authorities or other third parties. The Company and
each of the Subsidiaries have always observed all applicable environmental and
zoning laws and all other statutory or regulatory provisions. The fresh water
supply, the disposal of waste water as well as of gases and solid emissions and
effluent discharges is fully assured for the present business operations of the
Company and each of the Subsidiaries.
<PAGE> 13
27. All software, firmware and hardware used in the business or
operations of the Company and the Subsidiaries that contains or calls on a
calendar function, including but not limited to any function that is indexed to
a computer processing unit clock, provides specific dates or calculates spans of
dates, is able to record, store, process and provide true and accurate dates and
calculations for dates and spans of dates (including leap year calculations)
including and following January 1, 2000.
28. Except as disclosed in ATTACHMENT 4.28:
28.1 No notice, notification, demand, request for information,
summons, complaint or order has been issued, no complaint has been filed,
no penalty has been assessed and no investigation or review is pending or
threatened by any governmental entity or other third party with respect to
any (i) alleged liability of the Company or any of the Subsidiaries under
any environmental laws or any alleged violation by the Company or any of
the Subsidiaries of any environmental law, (ii) alleged failure by the
Company or any of the Subsidiaries to have any permit, or revocation or
limitation of any permit, (iii) regulated activity engaged in by, or which
occurred on any properties now or previously owned, operated or leased by,
the Company or any of the Subsidiaries or with respect to any property to
which the Company or any of the Subsidiaries has, directly, or indirectly,
transported any hazardous substances or waste or (iv) release of hazardous
substances by, or which occurred on any properties now or previously
owned, operated or leased by, the Company or any of the Subsidiaries or
with respect to any property to which the Company or any of the
Subsidiaries has, directly or indirectly, transported any hazardous
substance or waste;
28.2 No polychlorinated biphenyls, radioactive material, urea
formaldehyde, lead, asbestos, asbestos-containing material or underground
storage tank (active or abandoned) is or has been present at any property
now or previously owned, operated or leased by the Company or any of the
Subsidiaries;
28.3 Other than in quantities permitted under applicable
environmental laws, no hazardous substance has been released (and no
notification of such release has been made or is required) or is present
(in reportable or threshold planning quantity) at, on or under any
property of the Company or any of the Subsidiaries now or in the past.
29. Since December 31, 1997 and until the Effective Date no
agreements of the Company and the Subsidiaries with domestic or foreign
authorized dealers (Vertragshaendler), commercial agents (Handelsvertreter) or
agents nor any similar distribution agreements which in case of their
termination trigger compensation claims against the Company or any of the
Subsidiaries have been terminated.
30. Since December 31, 1997, and until the Effective Date the
business operations of the Company and the Subsidiaries have been and will be,
respectively, conducted exclusively in the ordinary course of business, in
accordance with cautious practice and substantially in the same manner as before
(in particular with respect but not limited to the disposal of assets, the
entering into obligations and liabilities and
<PAGE> 14
the remuneration of corporate organs, employees and advisers); there have been
no materially adverse changes with respect to such business operations or the
asset, financial or result situation or with respect to important assets or
contracts of the Company and the Subsidiaries. Since December 31, 1997 no profit
distributions including preliminary distributions have been made, except in the
ordinary course of business and as listed in ATTACHMENT 4.30, nor have hidden
reserves been dissolved or withdrawn by the Company or any of the Subsidiaries.
Except for general developments of the economy or the market, there are no facts
or circumstances which in the future could have a materially adverse impact on
the Company and/or the Subsidiaries and/or their respective business operations.
31. All information supplied to the Purchaser and its advisers by the
Sellers with respect to the Sellers, the Company, the Shares and the
Subsidiaries prior to the recording of this Agreement is complete, correct and
accurate in all respects and is not misleading and does not omit anything
relating to the Sellers, the Company, the Shares and the Subsidiaries likely to
affect the importance of such information or which the Purchaser should be aware
of when entering into this Agreement.
Any knowledge acquired by the Purchaser or its advisers in the course
of the negotiations of this Agreement or in the course of any financial or legal
review of the Company or the Subsidiaries shall not be construed to limit the
scope of any of the Sellers' representations and warranties contained herein nor
excuse the Sellers of any disclosures required hereunder.
Article 5
Legal Consequences
------------------
1. In the event of any incorrectness or incompleteness of any
representation and warranty made by the Sellers under Article 4 the Sellers
shall be liable pro rata their respective Shares in the Company to put the
Company or, at the Purchaser's sole discretion, the Purchaser in the same
position as if the relevant representation and warranty had been correct or
complete.
2. The obligation under Article 5.1 shall apply only if and to the
extent that any claims of Purchaser exceed an aggregate amount of DM 200,000.-.
3. The rights and remedies of the Purchaser referred to in this Art.
5 shall be subject to the following limitations:
(a) All rights and remedies of the Purchaser referred to in this Art.
5, other than with respect to the representations and warranties made
under Art. 4 para. 5, or regarding tax liabilities, social security
contributions and all other public law dues, shall be subject to a
limitation period expiring on December 31, 2001;
<PAGE> 15
(b) With respect to the representations and warranties made under
Art. 4 para. 5, the statutory limitation period which shall start to run
at the date hereof shall apply.
4. Except for para. 3 b), if notification of a claim under this Art.
5 is given within the applicable period of limitation, such limitation period
shall with respect to such claim be extended to expire one year after the date
of such notification.
5. In the event that on or before the payment date as defined in
Article 2 (i) a material adverse change with respect to any of the matters dealt
with in Article 4 should occur, or (ii) it should turn out that any of the
representations and warranties given in Article 4 are materially inaccurate or
incomplete, the Purchaser has the right to withdraw (zuruecktreten) from this
Agreement.
Article 6
Covenant not to Compete
-----------------------
UPON NOTARIZATION OF THIS AGREEMENT. THE SELLERS SHALL ENTER INTO A
SEPARATE NON-COMPETE AGREEMENT WITH DAY INTERNATIONAL, INC. DAYTON, OHIO,
U.S.A. IN THE FORM OF SECTION II OF THIS NOTARIAL DEED.
Article 7
Further Covenants and Provisions
--------------------------------
1. The parties will without undue delay take all actions required to
carry out and to bring into full force and effect the sale and assignment of the
Shares as per Art. 1 of this Agreement. In particular, the parties will fully
cooperate in order to (i) comply with all reporting and notification duties to
administrative bodies and courts, if any, arising in connection with the sale
and assignment of the Shares under the relevant laws, (ii) to obtain all
consents of administrative bodies and courts which may be necessary for the
validity or the carrying out of the sale and assignment of the Shares (this
applies in particular but not limited to the approval of the sale and assignment
of the Shares by the Federal Cartel Office in merger control proceedings), (iii)
to assist the respective other parties in performing their obligations in
connection with the sale and assignment of the Shares and (iv) to procure that
any consent or cooperations from third parties necessary for carrying out the
sale and assignment of the Shares will be obtained, and (v) ensure a smooth
transition process (this includes the assistance and cooperation of the Sellers
in the preparation of the tax filings of the Company for the fiscal year ending
December 31, 1998).
2. Seller 2 hereby confirms that the Company has all rights regarding
the work results which he, in whatever capacity, has produced during the time of
his work for the Company. "Work results" shall include inventions, technical
<PAGE> 16
suggestions, methods of engineering, patents, utility models, design patents and
the like. In the event that this should be required, Seller 2 will transfer and
assign to the Company all such work results, or, if a full transfer is not
legally possible, grant an exclusive licence for the use of all such work
results to the Company. Seller 2 is not entitled to any compensation for such
transfer or licence nor for the use of any such work results by the Company.
3. Seller 1 and Seller 3 hereby release the Company from all pension
(OLD AGE AND DISABILITY) commitments for the benefit of any of them. Such
release shall become effective today. Notwithstanding such release, the parties
shall cooperate to bring about a transfer of the existing insurance for certain
pension rights of Seller 1 and Seller 3 from the Company to Seller 1 and Seller
3 as direct beneficiaries. Until such transfer is effected, the respective
insurance relationships of the Company with the respective insurance carrier
will be continued for account of Seller 1 and Seller 3, respectively. IF SO
INSTRUCTED BY SELLER 1 OR SELLER 3, THE COMPANY SHALL TERMINATE THE RESPECTIVE
INSURANCE CONTRACT AND PAY OUT ANY PROCEEDS TO THE RESPECTIVE SELLER.
4. Upon notarization of this Agreement the Sellers shall deliver to
the Purchaser
(i) a bank guarantee upon first demand (Bankgarantie auf erstes
Anfordern) in the amount of DM 3.310.000,00 issued by a prime German bank,
such guarantee securing Purchaser's claims under Section 5.1 hereof for
the breach or inaccuracy of any of Sellers' representations and warranties
and expiring on December 31, 1999.
(ii) a bank guarantee upon first demand (Bankgarantie auf erstes
Anfordern) in the amount of DM 1.000.000,00 issued by a prime German bank,
such guarantee securing Purchaser's claims under Section 3 hereof for any
adjustment of the Purchase Price pursuant to Section 3.2 hereof and
expiring on September 30, 1999; and
(iii)a bank guarantee upon first demand (Bankgarantie auf erstes
Anfordern) in the amount of DM 1.000.000,00 issued by a prime German bank,
such guarantee securing Purchaser's claims under Section 3 hereof for any
adjustment of the Purchase Price pursuant to Section 3.4 hereof and
expiring on January 31, 2005; THIS BANK GUARANTEE SHALL BE REDUCED TO DM
250.000,00 AFTER DECEMBER 31, 2002.
5. The Purchaser shall cause the Company to permit the Sellers or
their advisers who are bound by professional secrecy obligations to get
involved in all tax field audits of the Company relating to periods until the
Effective Date and in particular to participate in the final discussions
(Abschlussbesprechungen) with the tax auditor for which purpose the Purchaser
shall procure that the Company informs the Sellers about the announcement or
commencement of such field or tax audit. If no agreement can be reached about
the results of any such tax field audit, then the Purchaser shall upon the
request of Sellers cause the Company to initiate legal proceedings against the
respective tax assessment (Steuerbescheid) and, if so
<PAGE> 17
requested by the Sellers, conduct a legal action in accordance with Sellers'
instructions; the cost of any such legal action shall be borne by the Sellers.
6. As soon as practicable after the date hereof, Seller 2 shall
acquire common stock of Day International Group, Inc. under its Stock Purchase
Plan for an aggregate consideration of USD 700.000,00 pursuant to documentation
provided to him in draft form, provided that Seller 2 and Day International
Group, Inc. shall negotiate in good faith on a provision ensuring liquidity of
the investment to Seller 2 in the event of the termination of his employment
with the Company. THIS PROVISION SHALL NOT CREATE ANY OBLIGATIONS FOR SELLER 1
AND SELLER 3.
Article 8
Confidentiality and Press Releases
----------------------------------
1. The Sellers shall keep secret for a period of 5 (five) years from
the Effective Date their knowledge about the Company, the Subsidiaries and their
respective business operations if the respective facts are not publicly known
and provided that no legal disclosure requirements exist, and shall not use such
information for themselves or for others.
2. The Sellers and the Purchaser agree to keep strictly confidential
any information obtained by them in connection with the negotiation and
conclusion of this Agreement with respect to the other party or parties,
respectively, and its or, as the case may be, their affiliated companies.
3. No party shall make any press release or similar public
announcements with respect to the transactions contemplated in this Agreement
without the prior written consent of the respective other parties, except for
filings or announcements prescribed under applicable securities and other laws.
Article 9
Miscellaneous
-------------
1. Each party to this Agreement bears the cost of its advisers. The
cost of the notarial recording of this Agreement as well as all other
transaction costs triggered by the conclusion or consummation of this Agreement
including any transfer taxes shall, as between the parties, be borne by the
Purchaser.
2. This Agreement, including this provision, may only be amended by
written or, if necessary, notarial instrument.
3. As process agent (ZUSTELLUNGSBEVOLLMAECHTIGTER) for the initiation
of a legal action or services which need to be made in a pending legal dispute
as well as
<PAGE> 18
for the receipt of any declarations of will requiring receipt
(EMPFANGSBEDUERFTIGE WILLENSERKLAERUNG) the Sellers appoint
Mr. WERNER GEBKER
BIERMANNSTRASSE 3
D-48683 Ahaus, Germany
and the Purchaser appoints
Mr. Christian Baldermann, managing director
Day International (BRB) GmbH
Auchtertstrasse 8
D-72770 Reutlingen
with a copy to
Mr. Dennis R. Wolters, President and CEO
Day International, Inc.
West Second Street
Dayton, Ohio 45401-0338 U.S.A.
and
Bruckhaus Westrick Heller Loeber
Taunusanlage 11
D-60329 Frankfurt/Main
Germany
Attn.: Dr. Wolfgang Hauser
4. Should any provision of this Agreement be held wholly or in part
invalid or unenforceable, the validity or enforceability of the other parts
shall not be affected thereby. The invalid or unenforceable provision shall be
deemed replaced by such valid and enforceable provision which serves best the
economic interest of the parties originally pursued by the invalid or
unenforceable provision.
5. Any agreements made heretofore between the parties to this
Agreement with respect to its subject matter are superseded by the conclusion of
this Agreement.
6. This Agreement shall be governed by the laws of the Federal
Republic of Germany. In the event of any dispute between the parties arising out
of this Agreement the courts at Dusseldorf shall have non-exclusive
jurisdiction.
The acting notary advised the persons appearing that
<PAGE> 19
- the Purchaser is liable without limitation for any contributions to
the Stated Capital by the Sellers in case such contributions have not
been made or have been repaid,
- in the event of an assignment of a share in a company with limited
liability, a person is recognized as being the assignee only if such
company has been notified of the acquisition and has been given
evidence of the assignment of the share.
The persons appearing asked the acting notary to notify the Company
of the above assignment of the Shares by delivery of a certified copy of this
notarial deed, as soon as the conditions precedent referred to in Article 1.5
have been met.
SECTION II
NON-COMPETE AGREEMENT
of December 23, 1998
between
1. Mr. Rudolf Wilbring
Solmstrasse 83 a,
48683 Ahaus-Ottenstein ("Seller 1")
2. Mr. Helmut Busshoff
Solmstrasse 83 a,
48683 Ahaus-Ottenstein ("Seller 2")
3. Mr. Josef Dunne
Solmstrasse 83 a,
48683 Ahaus-Ottenstein ("Seller 3")
on the one hand
and
4. Day International Inc.
35 West Second Street
Dayton, Ohio 45401-0338, USA
("Day")
on the other hand
<PAGE> 20
PREAMBLE
In this notarial Share Purchase Agreement, (Section 1), the Sellers
have sold all their shares in Rotec Hulsensysteme GmbH, Ahaus, ("Company") to
"JOVIK" Verwaltungsgesellschaft mbH, Hamburg, ("Purchaser"), an indirect
subsidiary of Day. (Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given to them in the Purchase Agreement.)
From their activities as shareholders and managing directors of the
Company the Sellers have substantial know-how regarding the business of the
Company. Day and its subsidiaries are engaged in the business of producing and
selling (i) sleeves for flexography and (ii) printing blankets and printing
sleeves for offset lithography.
In order to ensure that Day has the full benefit of the acquisition
of the Company from the Sellers, Day has, in conjunction with the Purchase
Agreement, asked the Sellers to undertake certain restrictions on their
competitive activities. The Sellers have agreed to make such undertakings as
supplemental to their obligations under the Purchase Agreement.
The Parties therefore agree as follows:
ARTICLE 1
Covenant not to compete
-----------------------
The Sellers undertake for a period of 5 (five) years from the
Effective Date not to conduct any activity by which they would directly or
indirectly compete with the present business operations of Day and/or of its
present subsidiaries and/or the Company or which would directly or indirectly
result in such competition. This shall in no way affect the business of Seller 1
or his affiliated company Tiefdruck-Zylinder-Technik GmbH to produce and sell
printing cylinders and to buy and sell printing sleeves from suppliers other
than Day or the Company in order to sell such sleeves in conjunction with their
printing cylinders. In particular, the Sellers shall not establish or acquire
any business which would, directly or indirectly, compete with the business
operations of Day and/or any of its present subsidiaries and/or the Company, or
acquire a participation in, or advise or otherwise be engaged in such business.
This covenant not to compete does not apply to the acquisition of not more than
10% of the shares of companies listed on a recognized stock exchange, provided
the respective Seller has not been granted any further rights or entered into
any further agreements enabling him to directly or indirectly exercise a
material influence on such company.
The Sellers undertake for a period of 2 (two) years from the
Effective Date not to hire or to solicit (either on their own account or for any
third party) any managing director or employee of Day or its present
subsidiaries.
<PAGE> 21
ARTICLE 2
Present Business Operations of Day
----------------------------------
The non-compete covenant pursuant to Article 1 shall only apply with
regard to the present business operations of Day and its present subsidiaries,
namely exclusively to producing and selling (i) sleeves for flexography and (ii)
printing blankets and coated offset printing sleeves for offset lithography. The
Sellers shall not be restricted in their activities in other business fields.
ARTICLE 3
Geographical Scope of Covenant
------------------------------
With regard to the Company, the non-compete covenant pursuant to
Article 1 hereof shall apply worldwide. With regard to Day itself and any of its
present subsidiaries, the above covenant shall only apply to markets outside the
European Union.
ARTICLE 4
Consideration
-------------
As consideration for the above covenant not to compete the Sellers
shall receive a one-time payment of DM 6,700,000.00, payable together with the
Purchase Price under the Purchase Agreement. Internally among the Sellers this
consideration shall be allocated as follows:
Seller 1: DM 3,417,000.00
Seller 2: DM 2,211,000.00
Seller 3: DM 1,072,000.00
Value added tax (Umsatzsteuer) payable on this consideration, if any, shall be
borne by "Day".
ARTICLE 5
Contractual penalty
-------------------
If any of the Sellers should violate the covenant not to compete set
forth in Article 1 and continues such violation despite a written warning by
Day, the Purchaser or the Company, then such Seller shall be liable to pay a
contractual
<PAGE> 22
penalty in the amount of DM 200,000.00 (in words: Deutsche Mark
twohundredthousand) to Day or the affected subsidiaries of Day, at Day's choice.
In case of a continuing violation such Seller has, for each further month in
which the violation continues, to pay a further contractual penalty in the
amount of DM 100,000.00 (in words: Deutsche Mark onehundredthousand). If,
however, such Seller should violate the principle set out in the last sentence
of Article 1, such act shall carry a contractual penalty payable by the Seller
to Day in the amount of DM 30,000.00 for each violation (excluding the defence
of continuing action (Fortsetzungszusammenhang). Any rights of Day or its
affected subsidiaries to demand further damages and discontinuance of the
prohibited conduct shall remain unaffected.
ARTICLE 6
Relation to Purchase Agreement
------------------------------
This Agreement shall only become effective upon the effective
transfer of the Shares under the Purchase Agreement (Section 1). The
consideration paid by Day to the Sellers pursuant to Article 3 of this Agreement
shall be taken into account for calculating potential claims of the Purchaser
pursuant to Article 5 of the Purchase Agreement. This Agreement shall
automatically be terminated upon termination of the Purchase Agreement.
ARTICLE 7
Miscellaneous
-------------
1. Each party to this Agreement bears the cost of its advisers.
2. This Agreement, including this provision, may only be amended by
written or, if necessary, notarial instrument.
3. As process agent (ZUSTELLUNGSBEVOLLMAECHTIGTER) for the initiation
of a legal action or services which need to be made in a pending legal dispute
as well as for the receipt of any declarations of will requiring receipt
(EMPFANGSBEDUERFTIGE WILLENSERKLAERUNG) the Sellers appoint
Mr. Werner Gebker
Biermannstrasse 3
48683 Ahaus, Germany
and Day appoints
Mr. Christian Baldermann, managing director
<PAGE> 23
Day International (BRD) GmbH
Auchtertstrasse 8
D-72770 Reutlingen
with a copy to
Mr. Dennis R. Wolters, President and CEO
Day International, Inc.
West Second Street
Dayton, Ohio 45401-0338 U.S.A.
and
Bruckhaus Westrick Heller Loeber
Taunusanlage 11
D-60329 Frankfurt/Main
Germany
Attn.: Dr. Wolfgang Hauser
4. Should any provision of this Agreement be held wholly or in part
invalid or unenforceable, the validity or enforceability of the other parts
shall not be affected thereby. The invalid or unenforceable provision shall be
deemed replaced by such valid and enforceable provision which serves best the
economic interest of the parties originally pursued by the invalid or
unenforceable provision.
5. Any agreements made heretofore between the parties to this
Agreement with respect to its subject matter are superseded by the conclusion of
this Agreement.
6. This Agreement shall be governed by the laws of the Federal
Republic of Germany. In the event of any dispute between the parties arising out
of this Agreement the courts at Frankfurt am Main shall have non-exclusive
jurisdiction.
The above protocol including all attachments was read to the persons
appearing by the acting notary, was approved by them and was personally signed
by them and the acting notary as follows:
<PAGE> 1
Exhibit 10.28
No. G 550 of the Roll of Deeds for 1998
---------------------------------------
Transacted
in Frankfurt am Main on December 22, 1998
Before me, the undersigned notary
DR. PETER GAMON
with offices in Frankfurt am Main
who at the request of the appeared persons had gone to the offices of
Bruckhaus Westrick
Heller
Loeber, Taunusanlage 11, 60329 Frankfurt am Main
appeared today:
1. Dr. Wolfgang Hauser, business address Taunusanlage 11, 60329 Frankfurt am
Main, personally known to the notary;
2. Dr. Lucia Magelli, business address Taunusanlage 11, 60329 Frankfurt am
Main, identifying herself by presenting her valid identity card.
The deponent of the first part declared that in the following
transaction he was not acting in his own name but in the name and on behalf of
Day International, Inc., a corporation existing under the laws of the
state of Delaware, U.S.A., having its principal business establishment at
P.O. Box 338, 130 West Second Street, Dayton, Ohio 45401-0338 (hereinafter
referred to as the "Pledgor"), pursuant to a power of attorney dated
December 18, 1998, a telefax copy of which was presented to the notary;
the deponent declared that he will submit the original without any delay.
The deponent of the second part declared that in the following
transaction she was not acting in her own name but in the name and on behalf of
<PAGE> 2
Societe Generale, 1221 Avenue of the Americas, New York, New York 10020
(hereinafter referred to as the "Administrative Agent"), pursuant to a
power of attorney dated December 21, 1998, a telefax copy of which was
presented to the notary and a copy of which is attached hereto; the
deponent declared that she will submit the original without delay. The
Administrative Agent in turn acts for itself and in the name and on behalf
of the parties identified in Schedule A attached hereto (hereinafter
referred to as the "Pledgees") pursuant to powers of attorney given to the
Administrative Agent under the Credit Agreement defined below.
The deponents requested that this Deed be recorded in the English
language and stated that they were in sufficient command of the English
language. The notary, who himself is in sufficient command of the English
language, verified that the deponents were, in fact, in such sufficient command
of the English language.
The notary asked the appeared persons whether any of his partners or
lawyer colleagues in the matter to be recorded acts or acted for any of the
parties to this deed (sec. 3 (1) no. 7 Beurkundungsgesetz) outside his notarial
function. The answer was negative.
I.
Acting as aforesaid, the deponents then entered into the following
SHARE PLEDGE AGREEMENT
----------------------
WHEREAS:
--------
Pursuant to the Senior Secured Credit Agreement entered into as of
January 13, 1998, between Day International, Inc. as borrower (the "Borrower")
and the Lenders (as defined therein) and Societe Generale as Agent (the
"Lenders"), the Lenders have agreed to loan or otherwise extend credit to the
Borrower (said agreement, as it may hereafter be amended, supplemented, restated
or otherwise modified from time to time being hereinafter referred to as the
"Credit Agreement").
The Pledgor is the sole shareholder of Day Germany Holdings GmbH,
registered in the commercial register of the lower court Hamburg under HRB 68995
(presently still registered under the name of Heroya Verwaltungsgesellschaft
mbH) (hereinafter referred to as the "Company").
<PAGE> 3
The stated capital (hereinafter referred to as the "Stated Capital")
of the Company is DM 50,000, is fully paid in and consists exclusively of one
share held by the Pledgor (such share referred to as the "Initial Share").
To secure the Obligations (as defined in the Credit Agreement) the
Pledgor has undertaken to grant to the Pledgees the pledges contemplated by this
Deed.
The reference to the Credit Agreement is for identification of the
Obligations only and shall not constitute an incorporation of the provisions of
the Credit Agreement into this Share Pledge Agreement.
NOW, THEREFORE, the Pledgees and the Pledgor agree as follows:
ARTICLE 1
Grant of Pledges and Security Purpose
-------------------------------------
1.1 In order to secure the prompt and complete satisfaction of all
Obligations (as such term is defined in the Credit Agreement), the Pledgor
hereby pledges (verpfaenden) to the Pledgees for their ratable and equally
ranking benefit, of the Initial Share a fractional share in the nominal amount
of DM 32,500 (being 65 % of the Initial Share), and the Pledgor agrees and
hereby pledges to the Pledgees shares or fractional shares amounting to 65 % of
all additional shares in the capital of the Company in whatever nominal value
which the Pledgor may acquire in the future or which may be issued to the
Pledgor in the future in the event of any increase of the stated capital of the
Company, assignment, accrual (Anwachsung) or otherwise (hereinafter referred to
as the "Future Shares"; the Initial Share and the Future Shares hereinafter
collectively referred to as the "Shares", the pledged fraction of the Initial
Share and of the Future Shares being referred to as the "Pledged Shares", and
each pledge hereinafter referred to as a "Pledge" and collectively the
"Pledges").
1.2 As of the date hereof the Pledgees are anticipated to be the only
initial lenders under and in connection with the Credit Agreement and,
accordingly, title to the Pledges shall vest solely in the Pledgees. The parties
understand that in the event that the Pledgees shall transfer all or part of an
Obligation to a third party transferee, the
<PAGE> 4
respective Pledgee's rights to the Pledges shall transfer to such transferee by
operation of law, in accordance with Section 401 of the German Civil Code or, if
applicable, such other law as may govern such matters. In the event that such
transfer shall not occur by operation of law, the Pledgees undertake to transfer
all of their rights hereunder to such transferee by means of an appropriate
instrument of transfer.
1.3 The Pledge shall extend to all present and future rights to
receive dividends or any other payments relating to the Pledged Shares
(Nutzungspfandrecht). As long as the Administrative Agent has not given notice
that any amount secured hereby has not been paid when due, the Pledgor shall be
entitled to exercise the voting rights pertaining to the Shares and to receive
and to retain any and all dividends, interest paid and distributions in respect
of the Pledged Shares, provided that the Pledgor shall turn over to the
Administrative Agent (a) any non-cash dividends or other payments relating to
the Pledged Shares, (b) any payments made in connection with a total or partial
liquidation, merger, transformation, split-off of the Company or otherwise, and
(c) any payments made as a result of a reduction of capital or reserves, which
shall be handed over to the Administrative Agent promptly.
If and as long as any amounts secured hereby have not been paid when
due, all rights of the Pledgor to exercise voting rights pertaining to the
shares and to receive the dividends, interest paid and distributions which it is
authorized to receive and to retain pursuant to the preceding subparagraph shall
during the continuance of such non-payment become vested in the Administrative
Agent who shall be exclusively authorized (but not obliged) to exercise such
voting rights and to receive such dividends, interest paid and distributions on
behalf of the Pledgees.
1.4 Legal title to the Pledge shall vest in the Pledgees jointly
(Gemeinschaft zur gesamten Hand), provided that under the Credit Agreement the
Administrative Agent has received sole power to exercise all rights and
obligations associated with the Pledge as Administrative Agent in accordance
with the Credit Agreement, including the right to enforce the Pledge and to
amend this Share Pledge Agreement.
1.5 The validity and effect of each of the Pledges shall be
independent from the validity and the effect of any of the other Pledges created
hereunder.
<PAGE> 5
1.6 The Administrative Agent in the name and on behalf of the
Pledgees hereby accepts the Pledges. Each of the Pledges is in addition, and
without prejudice, to any other security the Pledgees may now or hereafter hold
in respect of the Obligations.
1.7 The consent of the Managing Director of the Company required for
the pledge of the fractional share pursuant to Section 17 of the Act Concerning
Limited Liability Companies (GmbH-Gesetz) is attached hereto as ATTACHMENT 1.7.
ARTICLE 2
Enforcement of Pledgees
-----------------------
2.1 To enforce any of the Pledges the Administrative Agent may, if an
Event of Default (as defined in the Credit Agreement) has occurred and is
continuing, at any time, avail itself of all rights and remedies that a pledgee
has upon default of a pledgor under the laws of the Federal Republic of Germany.
A certificate by the relevant Pledgee setting forth the amounts due from the
Borrower or the applicable Event of Default shall be sufficient evidence for the
default in the absence of manifest error. The Pledgees, acting through the
Administrative Agent, shall be entitled to have the Shares sold at a public
auction without the requirement of a prior enforceable title (vollstreckbarer
Titel) or court ruling. The Pledgor hereby expressly agrees that ten (10) days
prior written notice to the Pledgor of the place and time of any such public
auction shall be sufficient. The public auction may take place at any place in
the Federal Republic of Germany.
2.2 The voting rights associated with the Pledged Shares shall remain
with the Pledgor, provided that at such time as the Pledgees are entitled to
enforce the Pledge, the Pledgor shall, upon the Administrative Agent's request,
grant a power of attorney to the Administrative Agent or its designee giving it
the right to exercise the voting rights associated with the Pledged Shares.
2.3 The proceeds from the enforcement of the Pledges shall be applied
against the Obligations in the following order of priority:
2.3.1 first, to the payment of all costs and expenses of such
sale at public auction and the exercise of any right hereunder, including
reasonable compensation to the Administrative Agent and its agents and
counsel, and all other expenses, liabilities and advances made or incurred
by the Pledgees in connection therewith;
<PAGE> 6
2.3.2 second, to the payment of all other Obligations in such
order as the Administrative Agent shall elect or as shall be required by
the Credit Agreement; and
2.3.3 third, to the payment to or upon the order of the Pledgor,
or to whosoever may be legally entitled to receive the same or as a court
of competent jurisdiction may direct, of any surplus then remaining from
such proceeds.
2.4 The Administrative Agent may, in its sole discretion, determine
which of several securities granted to it, if applicable, shall be used to
satisfy the Obligations.
ARTICLE 3
Undertakings of the Pledgor
---------------------------
3.1 During the term of this Deed and except as otherwise permitted
under the terms of the Credit Agreement, the Pledgor undertakes for the benefit
of the Pledgees:
3.1.1 not to dispose of the Pledged Shares or any interest
therein, in particular but without limitation, not to sell or create any
encumbrance over the Pledged Shares without the prior written consent of
the Administrative Agent;
3.1.2 to refrain from any acts or omissions the purpose or
effect of which is or would be that the Pledged Shares cease to exist or
an encumbrance is created over them in any way other than as a consequence
of and in accordance with this Deed;
3.1.3 to promptly effect any payments to be made in respect of
the Pledged Shares pledged hereunder;
3.1.4 not to change the Stated Capital without the prior written
consent of the Administrative Agent;
3.1.5 in the event of any increase of the Stated Capital of the
Company, unless permitted by the Administrative Agent, not to allow any
party other than itself to subscribe to any Future Shares, and not, by
modification of the Articles of Association of the Company or otherwise,
defeat or impair the rights of the Pledgees created hereunder;
<PAGE> 7
3.1.6 to take any action the Administrative Agent may reasonably
consider necessary in order to permit the Administrative Agent to
exercise, at any time, the rights it holds by virtue of this Deed;
3.2 In the event that the Administrative Agent should seek to enforce
any of the Pledges in accordance with Article 3 hereof, the Pledgor shall, at
its own expense, render forthwith all necessary assistance to facilitate the
prompt sale of the Pledged Shares and/or the exercise by the Administrative
Agent of any other rights the Pledgees may have under the terms of this Deed.
ARTICLE 4
Representations and Warranties
------------------------------
The Pledgor represents and warrants to the Pledgees, such
representation and warranty being an independent guarantee (selbstaendiges
Garantieversprechen), that the following is true and accurate as of the time of
the recording of this Deed:
4.1 The statements in the recitals of this Deed with respect to the
Pledgor and the Company are complete and correct.
4.2 The Company is a limited liability company duly organized and
existing under the laws of the Federal Republic of Germany on the basis of the
Articles of Association filed with the Commercial Register.
4.3 The Pledgor is the legal and beneficial owner of the Shares which
are free from any encumbrance and are not subject to other rights of third
parties. The Pledgor has the night to freely dispose of the Shares without the
consent of any party or any regulatory authority. Such disposition does not
violate the rights of any third party or any regulatory orders.
4.4 The Shares are fully paid up and no repayment of any
contributions, whether open or concealed, has taken place. There are no
shareholders of the Company other than the Pledgor.
4.5 No bankruptcy or composition proceedings have been initiated
against the Pledgor nor against the Company nor are there any circumstances
known to the Pledgor at the date of this Deed which would justify or cause the
initiation of such proceedings in the future.
<PAGE> 8
4.6 The Pledgor has the power and authority to enter into this Deed
and perform its obligations hereunder.
4.7 There is no purchase option outstanding or in existence in
relation to all or part of the Shares, no scheme exists for the purchase or
subscription of shares in the Company and more generally there exists no
agreement by which the Company has undertaken to issue new shares or securities
giving access to the Stated Capital.
4.8 This Deed, including the choice of German law, is valid and
enforceable in accordance with its terms and creates a pledge ranking above the
rights that any person may have over the Shares or over the proceeds from any
sale of the Shares.
ARTICLE 5
Duration and Independence
-------------------------
5.1 Any preliminary satisfaction and subsequent recreation of the
Obligations shall not result in the release of the Pledges.
5.2 This Deed shall create a continuing security and no change or
amendment whatsoever in the Credit Agreement or in any document or agreement
relating thereto shall affect the validity and the scope of this Deed nor the
obligations imposed on the Pledgor pursuant to it.
5.2 This Deed is independent from any other security or guarantee
which may have been given to the Pledgee with respect to any obligation of the
Pledgor. None of such other securities shall prejudice, or shall be prejudiced
by, or shall be merged in any way with, this Deed.
ARTICLE 6
Defenses
--------
The Pledgor hereby expressly waives all defenses of voidability and
set-off and any other defenses that a pledgor may have under German or foreign
law. In case of enforcement of this Deed no rights of the Pledgees shall pass to
the Pledgor by subrogation or otherwise unless all of the Obligations have been
satisfied. Until then the Pledgees shall be entitled to treat all enforcement
proceeds as additional collateral for the Obligations notwithstanding their
right to seek satisfaction from such proceeds at any
<PAGE> 9
time. Security, if any, provided by a third party shall be transferred by the
Pledgees to the Pledgor only if and to the extent such third party has expressly
assigned such security to the Pledgor or has expressly approved the transfer by
the Pledgees to the Pledgor. This restriction of transfer shall not apply to
such collateral security passing on by operation of law.
ARTICLE 7
Applicable Law: Jurisdiction
----------------------------
7.1 This Deed shall be governed by the laws of the Federal Republic
of Germany.
7.2 The courts in Frankfurt am Main shall have non-exclusive
jurisdiction in all controversies and enforcement actions arising under or in
connection with this Deed. The Pledgees shall also be entitled to take legal
action against the Pledgor before any other court of law having jurisdiction
over the Pledgor or any of its assets.
7.3 The Pledgor hereby appoints the Company to act as its agent for
the purpose of accepting service of process (Zustellungsbevollmaechtigter) in
connection with any enforcement proceedings before any German court. Such
appointment shall be deemed to remain in place until the agent is replaced by
another person who must be a firm of members of, inter alia, a German bar
association (Rechtsanwaltskammer).
ARTICLE 8
Miscellaneous
-------------
8.1 All reasonable costs (including without limitation notarial fees
and reasonable attorney fees), expenses and taxes, if any, properly incurred as
a result of the creation, administration and enforcement of the Pledges shall
be borne by the Pledgor and shall be paid by the Pledgor to the Administrative
Agent or any other entitled party on demand.
8.2 Changes and amendments of this Deed including this subsection
must be made in writing (unless notarial form is required) and signed by each
party hereto.
8.3 If any provision of this Deed should be or become invalid or
unenforceable, this shall not affect the validity of the remaining provisions
hereof. The invalid or
<PAGE> 10
unenforceable provision shall be replaced by such valid and enforceable
provision which best meets the intent of the replaced provision.
8.4 Any notice or other communication under or in connection with
this Deed shall be in the English language or, if in any other language,
accompanied by a translation into English. In the event of any conflict between
the English text and the text in any other language, the English text shall
prevail.
II.
The commercial value of the transaction contemplated by this notarial
deed was stated to be DM 50.000,-.
III.
The notary advised the persons appearing
- - - that a pledge is a security instrument of strictly accessory nature (i.e.,
that it comes into legal existence only if, to the extent that, and as
long as, the underlying secured claims do in fact exist and that the
owners of the secured claims and the pledgees must be identical);
- - - that there is no bona fide creation nor rank of a pledge of shares (i.e.,
the pledgees are not protected if the shares purported to be pledged do
not exist, have been previously transferred to a third party or have been
previously encumbered for the benefit of a third party);
- - - that the English original version of this notarial deed will not be
acceptable for enforcement but will have to be translated, by a certified
translator, into German for such purposes.
The foregoing protocol was read out to the deponents by the notary, approved by
the deponents and signed by them and the notary in their own hands as follows:
<PAGE> 1
Exhibit 10.29
FIRST AMENDMENT, dated as of December 17, 1998, by and among SOCIETE
GENERALE, as administrative agent (in such capacity, the "ADMINISTRATIVE AGENT")
for the Lenders (as defined in the Credit Agreement referred to below), the
Lenders, DAY INTERNATIONAL GROUP, INC., a Delaware corporation (the "BORROWER")
and DAY INTERNATIONAL INC., a Delaware corporation ("DAY INTERNATIONAL"), (this
"AMENDMENT"), to (i) the Credit Agreement, dated as of January 15, 1998 (the
"CREDIT AGREEMENT"), among the Borrower, the Lenders and the Administrative
Agent and (ii) the Guarantee and Collateral Agreement executed pursuant to the
Credit Agreement (the "GUARANTEE AND COLLATERAL AGREEMENT").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower or a wholly-owned Subsidiary of the Borrower
intends to enter into (i) a definitive acquisition agreement (the "ROTEC
ACQUISITION AGREEMENT") with the shareholders of Rotec Hulsensysteme GmbH, a
German corporation ("ROTEC"), pursuant to which the Borrower or a wholly-owned
Subsidiary of the Borrower will agree to acquire all the shares of the issued
and outstanding Capital Stock of Rotec and (ii) a non-competition agreement with
the shareholders of Rotec (such transactions, the "ROTEC ACQUISITION"); and
WHEREAS, the Borrower has requested, and, upon this Amendment
becoming effective, the Lenders have agreed, that certain provisions of the
Credit Agreement be amended in the manner provided for in this Amendment to
provide for additional loans under the Credit Agreement to finance the Rotec
Acquisition and to permit the consummation of the Rotec Acquisition;
NOW, THEREFORE, the parties hereto hereby agree as follows:
I. DEFINED TERMS. Terms defined in the Credit Agreement, as amended
hereby, and used herein shall have the meanings given to them in the Credit
Agreement, as amended hereby.
II. AMENDMENTS TO CREDIT AGREEMENT.
1. AMENDMENTS TO SECTION 1. Subsection 1.1 of the Credit Agreement is
hereby amended as follows:
(a) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
<PAGE> 2
"AGGREGATE EXPOSURE": with respect to any Lender, an amount
equal to (a) until the Closing Date, the aggregate amount of such
Lender's Commitments and (b) thereafter, the sum of (i) the aggregate
unpaid principal amount of such Lender's Term Loans or New Term Loans
and (ii) the amount of such Lender's Revolving Credit Commitment or, if
the Revolving Credit Commitments have been terminated, the amount of
such Lender's Revolving Extensions of Credit.
(b) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
"APPLICABLE MARGIN": for each Type of Loan, the rate per annum
set forth under the relevant column heading below:
<TABLE>
<CAPTION>
BASE RATE EURODOLLAR
LOANS LOANS
<S> <C> <C>
Revolving Credit Loans and Swing Line Loans 1.00% 2.00%
Term Loans 1.00% 2.00%
New Term Loans 2.00% 3.00%
</TABLE>
PROVIDED, that on and after the first Adjustment Date occurring after the
completion of four full fiscal quarters of the Borrower after the Closing
Date, the Applicable Margin with respect to Revolving Credit Loans, Swing
Line Loans, Term Loans and New Term Loans will be determined pursuant to
the Pricing Grid.
(c) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
"COMMITMENT": as to any Lender, the sum of the Term Loan
Commitment, the New Term Loan Commitment and the Revolving Credit
Commitment of such Lender.
(d) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
"EXCESS CASH FLOW": for any period, the excess, if any, of (a)
the sum, without duplication, of (i) Consolidated Net Income for such
period (excluding, for purposes of this definition, any contribution to
such Consolidated Net Income resulting from a Recovery Event), (ii) an
amount equal to the amount of all non-cash charges (including depreciation
and amortization) deducted in arriving at such Consolidated Net Income,
(iii) decreases in Consolidated Working Capital for such period, (iv) an
amount equal to the aggregate net non-cash loss on the Disposition of
Property by the Borrower and its Subsidiaries during such period (other
than sales of inventory in the ordinary course of business), to the extent
deducted in arriving at such Consolidated Net Income and (v) the net
increase during such period (if any) in deferred tax accounts of the
Borrower OVER (b) the sum, without duplication, of (i) an
<PAGE> 3
amount equal to the amount of all non-cash credits included in arriving at
such Consolidated Net Income, (ii) the aggregate amount actually paid by
the Borrower and its Subsidiaries in cash during such period on account of
Capital Expenditures (excluding the principal amount of Indebtedness
incurred in connection with such expenditures pursuant to 7.2(c) and (d)
and any such expenditures financed with the proceeds of any Recovery
Event), (iii) the aggregate amount of all prepayments of Revolving Credit
Loans and Swing Line Loans during such period to the extent accompanying
permanent optional reductions of the Revolving Credit Commitments and all
optional prepayments of the Term Loans and New Term Loans during such
period, (iv) the aggregate amount of all regularly scheduled principal
payments, optional prepayments and mandatory prepayments pursuant to
Section 2.12(c) (or any comparable provision of any other Funded Debt) of
Funded Debt (including, without limitation, the Term Loans and the New
Term Loans) of the Borrower and its Subsidiaries made during such period
(other than in respect of any revolving credit facility to the extent
there is not an equivalent permanent reduction in commitments thereunder),
(v) increases in Consolidated Working Capital for such period, (vi) an
amount equal to the aggregate net non-cash gain on the Disposition of
Property by the Borrower and its Subsidiaries during such period (other
than sales of inventory in the ordinary course of business), to the extent
included in arriving at such Consolidated Net Income, (vii) any investment
made in accordance with Sections 7.8(h), (n) and (o) hereof, and (viii)
the net decrease during such period (if any) in deferred tax accounts of
the Borrower.
(e) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
"FACILITY": each of (a) the Term Loan Commitments and the Term
Loans made thereunder (the "TERM LOAN FACILITY"), (b) the New Term Loan
Commitments and the New Term Loans made thereunder (the "NEW TERM LOAN
FACILITY") and (c) the Revolving Credit Commitments and the extensions of
credit made thereunder (the "REVOLVING CREDIT FACILITY").
(f) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
"MAJORITY FACILITY LENDERS": with respect to any Facility, the
holders of more than 50% of the aggregate unpaid principal amount of the
Term Loans, the New Term Loans or the Total Revolving Extensions of
Credit, as the case may be, outstanding under such Facility (or, in the
case of the Revolving Credit Facility, prior to any termination of the
Revolving Credit Commitments, the holders of more than 50% of the Total
Revolving Credit Commitments).
(g) by deleting therefrom the definition of the following defined
term in its entirety and substituting in lieu thereof the following
definition:
<PAGE> 4
"REQUIRED LENDERS": the holders of more than 50% of (a) until
the Closing Date, the Commitments and (b) thereafter, the sum of (i) the
aggregate unpaid principal amount of the Term Loans and the New Term Loans
and (ii) the Total Revolving Credit Commitments or, if the Revolving
Credit Commitments have been terminated, the Total Revolving Extensions of
Credit.
(h) by adding thereto the following definitions in their appropriate
alphabetical order:
"EFFECTIVE DATE": the date on which the conditions precedent set
forth in Section IV of the First Amendment to this Agreement shall have
been satisfied.
"NEW TERM LOAN": as defined in Section 2.1A.
"NEW TERM LOAN COMMITMENT": as to any Lender, the obligation of
such Lender, if any, to make a New Term Loan to the Borrower hereunder in
a principal amount not to exceed the amount set forth under the heading
"New Term Loan Commitment" opposite such Lender's name on Schedule 1.1A.
The original aggregate amount of the New Term Loan Commitments is
$10,000,000.
"NEW TERM LOAN LENDER": each Lender which has a New Term Loan
Commitment or which is the holder of a New Term Loan.
"NEW TERM LOAN PERCENTAGE": as to any New Term Loan Lender at
any time, the percentage which such Lender's New Term Loan Commitment then
constitutes of the aggregate New Term Loan Commitments (or, at any time
after the Effective Date, the percentage which the aggregate principal
amount of such Lender's New Term Loans then outstanding constitutes of the
aggregate principal amount of the New Term Loans then outstanding ).
"NEW TERM LOAN SYNDICATION DATE": the earlier of (x) the date on
which the Administrative Agent completes the syndication of the New Term
Loans and the entities selected in such syndication process become parties
to this Agreement and (y) 60 Business Days following the Effective Date.
"ROTEC": Rotec Hulsensysteme GmbH, a German corporation.
"ROTEC ACQUISITION": the acquisition by the Borrower or a
wholly-owned Subsidiary of the Borrower of all the shares of the issued
and outstanding Capital Stock of Rotec pursuant to the Rotec Acquisition
Agreement.
"ROTEC ACQUISITION AGREEMENT": the acquisition agreement to be
entered into by and between the Borrower or a wholly-owned Subsidiary of
the Borrower, as purchaser, and the shareholders of Rotec, as seller.
<PAGE> 5
2. AMENDMENTS TO SECTION 2. (a) Section 2 of the Credit Agreement is
hereby amended by adding thereto the following subsections 2. 1 A through 2.3 A:
2.1A TERM LOAN COMMITMENTS. Subject to the terms and conditions
hereof, each New Term Loan Lender severally agrees to make a new term loan
(a "NEW TERM LOAN") to the Borrower on the Effective Date in an amount
equal to such New Term Loan Lender's New Term Loan Percentage of
$10,000,000. The New Term Loans may from time to time be Eurodollar Loans
or Base Rate Loans, or a combination thereof, as determined by the
Borrower and notified to the Administrative Agent in accordance with
Sections 2.2A and 2.13.
2.2A PROCEDURE FOR TERM LOAN BORROWING. The Borrower shall give
the Administrative Agent irrevocable notice (which notice must be received
by the Administrative Agent prior to 10:00 A.M., New York City time, one
Business Day prior to the anticipated Effective Date) requesting that the
New Term Loan Lenders make the New Term Loans on the Effective Date and
specifying the amount to be borrowed. Unless the Lenders otherwise agree,
the New Term Loans made on the Effective Date shall initially be Base Rate
Loans, and no New Term Loan may be converted into or continued as a
Eurodollar Loan having an Interest Period in excess of one month prior to
the New Term Loan Syndication Date. Upon receipt of such notice the
Administrative Agent shall promptly notify each New Term Loan Lender
thereof. Not later than 10:00 A.M., New York City time, on the Effective
Date each New Term Loan Lender shall make available to the Administrative
Agent at the Funding Office an amount in immediately available funds equal
to the New Term Loan to be made by such Lender. The Administrative Agent
shall make available to the Borrower the aggregate of the amounts made
available to the Administrative Agent by the New Term Loan Lenders in
immediately available funds.
2.3A REPAYMENT OF NEW TERM LOANS. The New Term Loan of each New
Term Lender shall mature in 16 consecutive quarterly installments,
commencing on March 31, 1999, each of which shall be in an amount equal to
such Lender's New Term Loan Percentage multiplied by the amount set forth
below opposite such installment:
Installment Principal Amount
1-4 $323,000
5-8 $517,000
9-12 $711,000
13-16 $949,000
(b) Clause (iii) of subsection 2.8(a) of the Credit Agreement is
hereby amended by deleting said clause in its entirety and substituting in
lieu thereof the following:
<PAGE> 6
(iii)(A) the principal amount of each Term Loan of such Term
Loan Lender in installments according to the amortization schedule set
forth in Section 2.3 and (B) the principal amount of each New Term Loan of
such New Term Loan Lender in installments according to the amortization
schedule set forth in Section 2.3A (or, in either case, on such earlier
date on which the Loans become due and payable pursuant to Section 8).
(c) Subsection 2.8(e) is hereby amended by adding thereto "or New
Term Loans" immediately after the phrase "Term Loans".
(d) Section 2.11 is hereby amended by adding thereto ", New Term
Loans" immediately after the phrase "Term Loans".
(e) Subsections 2.12(a) through (c) are hereby amended by adding
thereto "and the New Term Loans" immediately after the phrase "Term Loans"
in each place where the latter phrase appears.
(f) Subsection 2.12(d) is hereby amended by adding thereto "and the
New Term Loans, ratably between them in accordance with the then
outstanding principal amounts thereof," immediately after the phrase "Term
Loans".
(g) Subsection 2.18(a) is hereby amended by adding thereto ", New
Term Loan Percentages" immediately after the phrase "Term Loan
Percentages".
(h) Subsection 2.18(b) is hereby amended by adding thereto "(i)"
immediately prior to the first sentence thereof and the following clause
(ii) immediately after the last sentence thereof:
(ii) Each payment (including each prepayment) by the Borrower on
account of principal of and interest on the New Term Loans shall be
made PRO RATA according to the respective outstanding principal
amounts of the New Term Loans then held by the New Term Loan Lenders.
The amount of each principal prepayment of the New Term Loans shall
be applied to reduce the then remaining installments of the New Term
Loans PRO RATA based upon the then remaining principal amount
thereof, PROVIDED that any prepayment pursuant to Section 2.11 may be
applied, at the option of the Borrower, either (x) FIRST to the next
two then scheduled installments of the New Term Loans, and, SECOND,
PRO RATA to each of the remaining installments of the New Term Loans,
based upon the then remaining principal amounts thereof, or (y) PRO
RATA to the remaining installments, based upon the then remaining
principal amounts thereof. Amounts prepaid on account of the New Term
Loans may not be reborrowed.
3. AMENDMENTS TO SECTION 7. (a) Section 7.2(i) of the Credit
Agreement is hereby amended by adding thereto the following proviso after the
number "$7,500,000" and prior to the period:
<PAGE> 7
"; and PROVIDED FURTHER, that (x) the hold-back or escrow of
DM3,800,000 pursuant to the Rotec Acquisition Agreement and (y)
approximately $1,000,000 of outstanding debt of Rotec shall be
permitted to remain outstanding following the closing of the Rotec
Acquisition pursuant to this subsection 7. 1 (i) but shall not be
included in the $7,500,000 of Indebtedness permitted to be incurred
pursuant to clause (iv) of this subsection 7.1(i)"
(b) Section 7.8 of the Credit Agreement is hereby amended by adding
thereto the following subsection after subsection 7.8(o):
(p)(i) the Rotec Acquisition, PROVIDED that the aggregate
consideration payable in connection therewith shall not exceed
DM37,000,000.
(c) Subsection 7.16 of the Credit Agreement is hereby amended by
deleting said subsection in its entirety and substituting in lieu thereof
the following:
7.16 LIMITATION ON AMENDMENTS TO ACQUISITION DOCUMENTS. (a)
Amend, supplement or otherwise modify (pursuant to a waiver or
otherwise) in any material respect the terms and conditions of the
Acquisition Agreement or any other document delivered by the Sellers
or any of their affiliates in connection therewith such that after
giving effect thereto such terms and conditions shall be materially
less favorable to the interests of the Loan Parties or the Lenders
with respect thereto or (b) amend, supplement or otherwise modify
(pursuant to a waiver or otherwise) in any material respect the terms
and conditions of the Rotec Acquisition Agreement or any other
document delivered by Rotec in connection therewith such that after
giving effect thereto such terms and conditions shall be materially
less favorable to the interests of the Loan Parties or the Lenders
with respect thereto.
4. AMENDMENT TO ANNEX AND SCHEDULES. Annex A and Schedules 1.1A, 4.4
and 4.15 to the Credit Agreement and Schedules 2 and 4 to the Guarantee and
Collateral Agreement are hereby amended by deleting said Annex A and Schedules
in their entireties and substituting in lieu thereof new Annex A and Schedules
1.1A, 4.4 and 4.15 in the forms of Annex A and Schedules 1.1A, 4.4 and 4.15,
respectively, to this Amendment.
III. AMENDMENTS TO GUARANTEE AND COLLATERAL AGREEMENT. Schedule 2 of
the Guarantee and Collateral Agreement is hereby amended by deleting said
Schedule in its entirety and substituting in lieu thereof a new Schedule 2 in
the form of Guarantee and Collateral Schedule 2 to this Amendment.
IV. CONDITIONS TO EFFECTIVENESS. The provisions of Sections II and
III of this Amendment shall become effective on the date (the "EFFECTIVE DATE")
on which all of the following conditions precedent have been satisfied or waived
(PROVIDED, HOWEVER, that if such conditions precedent shall not have occurred on
or before
<PAGE> 8
December 31, 1998, this Amendment shall terminate and no longer have any force
or effect):
1. LOAN DOCUMENTS. The Administrative Agent shall have received this
Amendment, executed and delivered by a duly authorized officer of the Borrower
and the Required Lenders.
2. ROTEC ACQUISITION, ETC. The Administrative Agent shall have
received a copy of the Rotec Acquisition Agreement, which shall be in form and
substance reasonably satisfactory to the Administrative Agent, and evidence, in
form and substance satisfactory to the Administrative Agent, that the Rotec
Acquisition shall have been completed in accordance with the provisions of the
Rotec Acquisition Agreement (without any waiver of any of the terms and
conditions thereof such that after giving effect thereto such terms and
conditions shall be materially less favorable to the interests of the Loan
Parties or the Lenders with respect thereto) and that the consideration for such
Rotec Acquisition shall consist of not more than DM37,000,000, all of which
shall consist of cash and/or the assumption of debt (which assumption of debt
shall not exceed DM2,500,000).
3. APPROVALS. All governmental and third party approvals necessary
or, in the discretion of the Administrative Agent, advisable, in connection with
the Rotec Acquisition, the continuing operations of the Borrower and its
Subsidiaries and the transactions contemplated hereby shall have been obtained
and be in full force and effect, and all applicable waiting periods shall have
expired without any action being taken or threatened by any competent authority
which would restrain, prevent or otherwise impose adverse conditions on the
Rotec Acquisition or the financing contemplated hereby.
4. EQUITY INVESTMENT. The Administrative Agent shall have received,
with a copy for each Lender, evidence, in form and substance satisfactory to it,
that the Borrower shall have received subsequent to the date hereof at least
$7,000,000 of net proceeds from an investment in its common equity, or a capital
contribution, made directly or indirectly by the Sponsors.
5. FEES. The Lenders and the Administrative Agent shall have received
all fees required to be paid (including, without limitation, the amendment fee
specified in Section V(3) below), and all expenses for which invoices have been
presented, on or before the Effective Date.
6. RESOLUTIONS. The Administrative Agent shall have received, with a
counter part for each Lender, resolutions of the Borrower authorizing (i) the
execution, delivery and performance of this Amendment, the other Loan Documents
and the Rotec Acquisition Agreement, (ii) the borrowings contemplated hereunder
and (iii) the Rotec Acquisition.
<PAGE> 9
7. LEGAL OPINIONS. The Administrative Agent shall have received, with
a counterpart for each Lender, (i) the legal opinion of Debevoise & Plimpton,
special counsel to the Borrower and its Subsidiaries, in form and substance
satisfactory to the Administrative Agent and (ii) the legal opinion of
Bruckhaus, Westrick, Heller & Lober, special German counsel to the Borrower and
its Subsidiaries, in form and substance satisfactory to the Administrative
Agent.
8. PLEDGE OF ROTEC STOCK, ETC. The Administrative Agent shall have
received evidence, in form and substance satisfactory to it, that the
requirements of Section 6.9(d) with respect to Rotec shall have been completed
or will be completed immediately following the Effective Date.
V. GENERAL.
1. REPRESENTATION AND WARRANTIES. To induce the Administrative Agent
and the Lenders parties hereto to enter into this Amendment, the Borrower hereby
represents and warrants to the Administrative Agent and all of the Lenders as of
the Effective Date that:
A. FINANCIAL CONDITION. (i) The unaudited PRO FORMA consolidated
balance sheet of the Borrower and its consolidated Subsidiaries as at
October 31, 1998 (the "PRO FORMA BALANCE SHEET"), copies of which have
heretofore been furnished to each Lender, has been prepared giving effect
(as if such events had occurred on such date) to (i) the consummation of
the Rotec Acquisition (but without giving effect to any financial results
of Rotec Czech s.r.o. Vyorba ("ROTEC CZECH")) (ii) the Loans to be made
and the equity investments to be received on the Effective Date and the
use of proceeds thereof and (iii) the payment of the estimated fees and
expenses in connection with the foregoing. The Pro Forma Balance Sheet
has been prepared based on the best information available to the Borrower
as of the date of delivery thereof, and presents fairly, in all material
respects, on a PRO FORMA basis the estimated financial position of
Borrower and its consolidated Subsidiaries as at October 31, 1998,
assuming that the events specified in the preceding sentence had actually
occurred at such date.
(ii) The annual financial statement (including a balance sheet
and profit-and-loss account) of Rotec (which exclude any financial results
of Rotec Czech) for the fiscal year 1997 (hereinafter referred to as the
"Annual Statement") which have previously been delivered to the
Administrative Agent have been duly prepared in accordance with generally
accepted German accounting principles, and present a true and fair view of
the assets, finance and results situation of Rotec as of December 31, 1997
(but do not give effect to the financial results of Rotec Czech). To the
extent that there have been options to include items in the assets
(Aktivierungswahlrechte), no such items have been included on the balance
sheet in the Annual Statement. To extent that there have been options to
include items in the liabilities (Passivierungswahlrechte), such items
have been included on the balance
<PAGE> 10
sheet in the Annual Statement. All statutorily permitted depreciations
and all statutorily permitted accruals have been taken. There have
been no contingent liabilities (including liabilities from the issue of
comfort letters) which were not reflected as below-the-line items on the
balance sheet in the Annual Statement. On the closing date of the Rotec
Acquisition, Rotec will have no liabilities other than those shown or
covered by accruals in the interim balance sheet as of October 31, 1998
which has been previously delivered to the Administrative Agent, except
for liabilities resulting from pending contractual relationships which
are not required to be shown on a balance sheet (and without giving
effect to such financial information of Rotec Czech). Since October 31,
1998 and until the Effective Date, the business operations of Rotec and
its Subsidiaries have been and will be, respectively, conducted
exclusively in the ordinary course of business (in particular with
respect to but not limited to a disposal of a material portion of its
assets).
B. NO CONSENTS, AUTHORIZATIONS, ETC. No consent or authorization
of, filing with, notice to or other act by or in respect of, any
Governmental Authority or any other Person is required in connection with
the Rotec Acquisition and the borrowings under the Credit Agreement as
amended hereby or with the execution, delivery, performance, validity or
enforceability of this Amendment, except consents, authorizations, filings
and notices described in Schedule 4.4 hereto, which consents,
authorizations, filings and notices have been obtained or made and are in
full force and effect.
C. USE OF PROCEEDS. The proceeds of the New Term Loans shall be
used to finance the Rotec Acquisition and to pay related fees and
expenses. With reference to Section 4.16 of the Credit Agreement, the
proceeds of the Revolving Credit Loans which will be used to finance the
Rotec Acquisition are being considered as used for "general corporate
purposes."
D. REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Borrower in the Loan Documents are true and correct
in all material respects on and as of the Effective Date, before and after
giving effect to the effectiveness of this Amendment, as if made on and as
of the Effective Date (except for representations and warranties which
expressly relate to an earlier date and except for representations and
warranties that relate to Holdings and Sisterco, which shall not be
"brought-down" in any respect).
2. PAYMENT OF EXPENSES. The Borrower agrees to pay or reimburse the
Administrative Agent for all of its out-of-pocket costs and reasonable expenses
incurred in connection with this Amendment, any other documents prepared in
connection herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
3. AMENDMENT FEE. The Borrower agrees to pay for the account of each
Lender an amount equal to .25% of the aggregate outstanding principal amount of
<PAGE> 11
such Lender's Term Loans and the aggregate outstanding principal amount, if any,
of such Lender's Revolving Credit Commitments, measured in each case as of the
Effective Date.
4. NO OTHER AMENDMENTS: CONFIRMATION. Except as expressly amended,
modified and supplemented hereby, the provisions of the Credit Agreement and the
other Loan Documents are and shall remain in full force and effect.
5. AFFIRMATION OF GUARANTEES. Each Guarantor hereby consents to the
execution and delivery of this Amendment and reaffirms its obligations under the
Guarantee and Collateral Agreement executed by such Guarantor. Each Guarantor
also hereby agrees and consents to the amendment of Schedules 2 and 4 to the
Guarantee and Collateral Agreement.
6. GOVERNING LAW; COUNTERPARTS. (a) This Amendment and the rights and
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
(b) This Amendment may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Amendment signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Amendment
may be delivered by facsimile transmission of the relevant signature pages
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
DAY INTERNATIONAL GROUP, INC.
By:
Title:
DAY INTERNATIONAL, INC.
By:
Title:
SOCIETE GENERALE, as Administrative
Agent and as a Lender
By:
Title:
<PAGE> 12
FUJI BANK LIMITED
By:
Title:
THE BANK OF NOVA SCOTIA-CHICAGO
By:
Title:
NATEXIS BANK
By:
Title:
BANK ONE
By:
Title:
PNC BANK
By:
Title:
NATIONAL CITY BANK
By:
Title:
ANNEX A
<TABLE>
<CAPTION>
PRICING GRID FOR REVOLVING CREDIT LOANS,
SWING LINE LOANS AND TERM LOANS
CONSOLIDATED APPLICABLE MARGIN APPLICABLE MARGIN FOR BASE
LEVERAGE RATIO FOR EURODOLLAR LOANS RATE LOANS
<S> <C> <C>
>4.00 to 1 2.00 1.00
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C>
<=4.00 to 1 1.75 .75
>3.50 to 1
<=3.50 to 1 1.50 .50
>3.00 to 1
<=3.00 to 1 1.25 .25
>2.50 to 1
<=2.50 to 1 1.00 ---
</TABLE>
<TABLE>
<CAPTION>
PRICING GRID FOR NEW TERM LOANS
CONSOLIDATED APPLICABLE MARGIN APPLICABLE MARGIN FOR BASE
LEVERAGE RATIO FOR EURODOLLAR LOANS RATE LOANS
<S> <C> <C>
>4.00 to 1 3.00 2.00
<=4.00 to 1 2.75 1.75
>3.50 to 1
<=3.50 to 1 2.50 1.50
>3.00 to 1
<=3.00 to 1 2.25 1.25
>2.50 to 1
<=2.50 to I 2.00 1.00
</TABLE>
Changes in the Applicable Margin with respect to Term Loans and New Term Loans
resulting from changes in the Consolidated Interest Coverage Ratio and the
Consolidated Leverage Ratio shall become effective on the date (the "ADJUSTMENT
DATE") on which financial statements are delivered to the Lenders pursuant to
Section 6.1 (but in any event not later than the 45th day after the end of each
of the first three quarterly periods of each fiscal year or the 90th day after
the end of each fiscal year, as the case may be) and shall remain in effect
until the next change to be effected pursuant to this paragraph. If any
financial statements referred to above are not delivered within the time periods
specified above, then, until such financial statements are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have
been covered thereby shall for the purposes of this definition be deemed greater
than 4.00 to 1. In addition, at all times while an Event of Default shall have
occurred and be continuing, the Consolidated Leverage Ratio shall for the
purposes of this definition be deemed to be greater than 4.00 to 1. If on any
Adjustment Date the Consolidated Leverage Ratio would result in different
Applicable Margins, the higher Applicable Margin shall govern. Each
determination of the Consolidated Leverage Ratio pursuant to this definition
shall be made with respect to the period of four consecutive fiscal quarters of
the Borrower ending at the end of the period covered by the relevant financial
statements.
<PAGE> 14
SCHEDULE 1.1A
<TABLE>
<CAPTION>
COMMITMENTS
-----------
REVOLVING TERM LOAN NEW TERM
LENDER CREDIT LOAN
<S> <C> <C> <C>
SOCIETE GENERALE $3,478,260.86 $4,869,565.22 $10,000,000.00
NATIONAL CITY BANK $3,391,304.37 $4,747,826.09 --
PNC BANK $3,391,304.37 $4,747,826.09 --
BANK ONE $2,434,782.60 $3,408,695.65 --
FUJI BANK LIMITED $2,434,782.60 $3,408,695.65 --
THE BANK OF NOVA
SCOTIA - CHICAGO $2,434,782.60 $3,408,695.65 --
NATEXIS BANQUE BFCE $2,434,782.60 $3,408,695.65 --
------------- ------------- --------------
TOTAL: $20,000,000.00 $28,000,000 $10,000,000.00
</TABLE>
CONSENTS, AUTHORIZATIONS, FILINGS AND NOTICES
---------------------------------------------
1. Clearing by of the acquisition of shares of Rotec Hulsensysteme GmbH
("Rotec") by the German Federal Cartel Office, which was obtained on
December 16, 1998.
2. Approval of the share transfer of Rotec by the management of Rotec, which
approval was given by the Sellers in their capacity as managing directors.
SUBSIDIARIES
------------
U.S. Entities
- - -------------
1. Day International, Inc.
2. Day Holdings I, Inc.
3. Day Holdings II, Inc.
<PAGE> 15
Offshore Entities
- - -----------------
1. Day International (UK) Holdings
2. Day International (UK) Limited
3. Day International (BRD) GmbH
4. Day International France S.A.R.L.
5. Day International de Mexico, S.A. De C.V.
6. International (Canada) Holdings Limited
7. Formento Grafico Mexicano, S.A.
8. Day German Holdings GmbH
9. Day International Group GmbH
10. Rotec Hulsensysteme GmbH
11. Day International ZAO
DESCRIPTION OF PLEDGED SECURITIES
---------------------------------
DAY INTERNATIONAL GROUP, INC.
<TABLE>
<CAPTION>
STOCK NUMBER OF
PLEDGED STOCK: CLASS OF STOCK CERTIFICATE NO. SHARES
- - -------------- -------------- --------------- ------
<S> <C> <C> <C>
Day International, Inc. Common 4 2
<CAPTION>
DAY INTERNATIONAL, INC.*
STOCK NUMBER OF
PLEDGED STOCK: CLASS OF STOCK CERTIFICATE NO. SHARES
- - -------------- -------------- --------------- ------
<S> <C> <C> <C>
Day Holdings I, Inc. Common 1 1,000
Day Holdings II, Inc. Common 1 1,000
*Day International (BRD) GmbH Common ? 95,000
*Day International (BRD) GmbH Common ? 5,000
*Day International (BRD) GmbH Common ? 500,000
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
*Day International France Common ? 17,800,000FF
S.A.R.L.
Day International de Mexico, S.A. Minimum Shares 01 3,000
De C.V.
Day International de Mexico, S.A. Variable Shares 01 466,609
De C.V.
Day International de Mexico, S.A. Variable Shares 02 1
De C.V.
Day International de Mexico, S.A. Variable Shares 03 1
De C.V.
Day International de Mexico, S.A. Variable Shares 04 1
De C.V.
Day International de Mexico, S.A. Variable Shares 05 1
De C.V.
International (Canada) Holdings Common C-1 1
Limited
International (Canada) Holdings Common C-3 1
Limited
Day Germany Holdings GmbH Common N/A 50,000
</TABLE>
NEW TERM NOTE
THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MAY NOT BE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE TERMS AND PROVISIONS OF THE CREDIT AGREEMENT REFERRED TO
BELOW. TRANSFERS OF THIS NOTE AND THE OBLIGATIONS REPRESENTED HEREBY MUST BE
RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE
TERMS OF SUCH CREDIT AGREEMENT.
$10,000,000.00 New York, New York
December 23, 1998
FOR VALUE RECEIVED, the undersigned, DAY INTERNATIONAL GROUP, INC., a
Delaware corporation (the "BORROWER"), hereby unconditionally promises to pay to
SOCIETE GENERALE (the "LENDER") or its registered assigns at the Payment Office
specified in the Credit Agreement (as hereinafter defined) in lawful money of
the United States and in immediately available funds, the principal amount of
(a) TEN MILLION DOLLARS ($10,000,000.00), or, if less, (b) the unpaid principal
amount of the New Term Loan made by the Lender pursuant to Section 2.1A of the
Credit Agreement. The principal amount shall be paid in the amounts and in the
installments specified in Section 2.3A of the Credit Agreement. The Borrower
further agrees to pay interest in like money at such office on the unpaid
principal
<PAGE> 17
amount hereof from time to time outstanding at the rates and on the dates
specified in Section 2.15 of the Credit Agreement.
The holder of this Note is authorized to endorse on the schedules
annexed hereto and made a part hereof or on a continuation thereof which shall
be attached hereto and made a part hereof the date, Type and amount of the New
Term Loan and the date and amount of each payment or prepayment of principal
with respect thereto, each conversion of all or a portion thereof to another
Type, each continuation of all or a portion thereof as the same Type and, in the
case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
accuracy of the information endorsed. The failure to make any such endorsement
or any error in any such endorsement shall not affect the obligations of the
Borrower in respect of the New Term Loan.
This Note (a) is one of the New Term Notes referred to in the Credit
Agreement dated as of January 15, 1998, as amended by the First Amendment, dated
as of December 17, 1998 (as further amended, supplemented or otherwise modified
from time to time, the "Credit AGREEMENT"), among the Borrower, the Lender, the
other banks and financial institutions or entities from time to time parties
thereto, Societe Generale, as Administrative Agent and Societe Generale
Securities Corporation, as Arranger, (b) is subject to the provisions of the
Credit Agreement and (c) is subject to optional and mandatory prepayment in
whole or in part as provided in the Credit Agreement. This Note is secured and
guaranteed as provided in the Loan Documents. Reference is hereby made to the
Loan Documents for a description of the properties and assets in which a
security interest has been granted, the nature and extent of the security and
the guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in respect
thereof.
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR IN THE
CREDIT AGREEMENT, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AND IN
ACCORDANCE WITH THE REGISTRATION AND OTHER PROVISIONS OF SECTION 10.6 OF THE
CREDIT AGREEMENT.
<PAGE> 18
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.
DAY INTERNATIONAL GROUP, INC.
By:
Name:
Title:
Schedule A
TO NEW TERM NOTE
<TABLE>
<CAPTION>
LOANS, CONVERSIONS, AND REPAYMENTS OF BASE RATE LOANS
- - ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT OF AMOUNT OF BASE
AMOUNT PRINCIPAL OF BASE RATE LOANS UNPAID PRINCIPAL
AMOUNT OF BASE RATE CONVERTED TO RATE LOANS CONVERTED TO BALANCE OF BASE NOTATION MADE
DATE LOANS BASE RATE LOANS REPAID EURODOLLAR LOANS RATE LOANS BY
- - ---- ----- --------------- ------ ---------------- ---------- --
<S> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Schedule B
TO NEW TERM NOTE
<TABLE>
<CAPTION>
LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS
- - -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT OF
INTEREST PERIOD EURODOLLAR UNPAID
AMOUNT AND EURODOLLAR AMOUNT OF LOANS PRINCIPAL
AMOUNT OF CONVERTED TO RATE WITH PRINCIPAL OF CONVERTED TO BALANCE OF
EURODOLLAR EURODOLLAR RESPECT EURODOLLAR BASE RATE EURODOLLAR NOTATION
DATE LOANS LOANS THERETO LOANS REPAID LOANS LOANS MADE BY
---- ----- ----- ------- ------------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 10.30
Warrant to Purchase 74 Shares
of Common Stock at $.01 per Share
INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE
DAY INTERNATIONAL GROUP, INC.
-----------------------
THE SECURITIES EVIDENCED BY THIS WARRANT OR ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS. SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED,
ASSIGNED OR OTHERWISE ENCUMBERED OR DISPOSED OF WITHOUT COMPLIANCE
WITH THE PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE
PROVISIONS OF, SECTION 7 OF THIS WARRANT AND THE SECURITIES ACT
AND APPLICABLE STATE SECURITIES' LAW.
DAY INTERNATIONAL GROUP, INC., a Delaware corporation (the
"Company"), certifies that, for value received, William C. Ferguson (the
"Holder"), is entitled to purchase, until the close of business on January
18, 2008 (the "Termination Date"), 74 shares of Common Stock, par value
$0.01 per share of the Company ("Common Stock"), at a price of $4,030.03
per share (the "Warrant Price"); subject, however, to the provisions and
upon the terms and conditions hereinafter set forth.
1. EXERCISABILITY OF WARRANT.
(a) This Warrant shall become exercisable as follows:
(i) This Warrant shall become exercisable for 18.5
shares of Common Stock (as adjusted as provided herein) on
January 18, 1998;
(ii) This Warrant shall become exercisable for an
additional 18.5 shares of Common Stock (as adjusted as
provided herein) on January 18, 1999, provided Mr.
Ferguson is a director of the Company or the Company's
wholly-owned subsidiary, Day International, Inc. ("Day")
on such date;
(iii) This Warrant shall become exercisable for an
additional 18.5 shares of Common Stock (as adjusted as
provided herein) on January 18, 2000, provided Mr.
Ferguson is a
<PAGE> 2
director of the Company or Day on such date; and
(iv) This Warrant shall become exercisable for an
additional 18.5 shares of Common Stock (or adjusted as
provided herein) on January 18, 2001, PROVIDED Mr.
Ferguson is a director of the Company or Day on such date.
(b) Subject to the foregoing and the other terms and
conditions hereof, this Warrant may be exercised in whole or in part at any
time until the earlier to occur of (I) the 180th day after the date on
which Mr. Ferguson ceases to be a director of the Company for any reason
and (II) the Termination Date. If Mr. Ferguson ceases to be a director of
the Company or Day on or prior to any of the applicable dates set forth in
Section 1 hereof, this Warrant shall be cancelled and of no further force
of effect with respect to the shares of Common Stock for which this Warrant
would otherwise become exercisable on such date.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) This Warrant may be exercised by the Holder, in whole or
in part, by the surrender of this Warrant, properly endorsed, at the
principal office of the Company in Dayton, Ohio, Attention: Secretary, and
by (I) the payment to the Company of the Warrant Price in respect of the
Common Stock being purchased, and (II) delivery to the Company of the form
of subscription attached hereto (or a reasonable facsimile thereof).
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the business day on
which (I) this Warrant shall have been surrendered to the Company, (II) the
Company shall have received payment of the Warrant Price in respect of the
Common Stock being purchased and (III) the Company shall have received the
form of subscription agreement attached hereto, all as provided in this
Section 2, and at such time the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise shall be deemed to have become the holder or
holders of record thereof.
(c) In the event of any exercise of the rights represented by
this Warrant, certificates for the shares of Common Stock so purchased
shall be delivered at the Company's expense (including the payment by the
Company of any applicable issuance taxes) to the Holder within five (5)
business days after the rights represented by
<PAGE> 3
this Warrant shall have been so exercised, and unless this Warrant has
expired, a new Warrant of like tenor representing the number of shares of
Common Stock, if any, with respect to which this Warrant shall not then
have been exercised, shall also be issued to the Holder within such time.
3. STOCK FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
liens. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of
the issue upon exercise of the purchase rights evidenced by this Warrant,
at least the maximum number of shares of its Common Stock as are then
issuable upon the exercise of the rights represented by this Warrant.
4. FRACTIONAL SHARES. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder but in lieu of
such fractional shares, the Company shall make a cash payment therefor to
the Holder in an amount equal to the fair market value of such fraction.
5. NUMBER OF SHARES RECEIVABLE UPON EXERCISE. The number and
kind of securities receivable upon the exercise of this Warrant is subject
to adjustment upon the happening of the events specified in this Section 5.
(a) STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the Company
shall (I) declare or pay a dividend on the Common Stock in shares of any
class of capital stock or make a distribution to holders of the Common
Stock in shares of any class of capital stock, (II) subdivide the
outstanding Common Stock into a greater number of shares of Common Stock,
(III) combine the outstanding Common Stock into a smaller number of shares
of Common Stock or (IV) issue by reclassification of the shares of Common
Stock other securities of the Company (including any such reclassification
in connection with a consolidation, merger or other business combination in
which the Company is the surviving corporation), the number and kind of
shares of capital stock or securities purchasable and issuable upon
exercise of the Warrants shall be adjusted so that the Holder, upon
exercise thereof, shall be entitled to receive the number and kind of
shares of capital stock and other securities of the Company that the Holder
would have owned or have been entitled to receive after the happening of
any of the events described above had the Warrants been exercised in full
<PAGE> 4
and the relevant shares of Common Stock issued in the name of the Holder
immediately prior to the happening of such event or, if applicable, any
record date with respect thereto. An adjustment made pursuant to this
paragraph (a) shall become effective on the date of the dividend payment,
subdivision, combination or issuance retroactive to the record date with
respect thereto, if any, for such event. Such adjustment shall be made
successively whenever such an issuance is made.
(b) ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the number of shares of Common Stock or other
securities issuable upon exercise of this Warrant, the Company at its
expense will promptly compute such adjustment or readjustment in accordance
with the terms hereof and, upon the reasonable request of the Holder, cause
independent public accountants of recognized national standing selected by
the Company (which may be the regular auditors of the Company) to verify
such computation and prepare a report setting forth such adjustment or
readjustment and showing in reasonable detail the method of calculation
thereof and the facts upon which such adjustment or readjustment is based.
The Company will forthwith mail a copy of each such report to the Holder of
this Warrant. The Company will also keep copies of all such reports at its
principal office, and will cause the same to be available for inspection at
such office during normal business hours by the Holder of this Warrant or
any prospective purchaser of a Warrant designated in writing by the Holder.
(c) NO IMPAIRMENT. The Company will not permit the par value
of any shares of Common Stock receivable upon the exercise of any Warrant
to be increased to an amount that exceeds the amount payable therefor upon
such exercise and will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant from time to time.
(d) EXERCISE OF WARRANT IN THE EVENT OF A CONSOLIDATION,
MERGER, SALE OF ASSETS, REORGANIZATION, ETC. (i) In the event of any
merger, consolidation or other acquisition or business combination in which
the Company is not the surviving corporation or in which all of the
outstanding Common Stock is converted into, acquired or exchanged for
securities, cash or property or in the event of the sale or other
disposition of all or substantially all the assets of the Company, the
successor, parent or purchasing person, as the case may be, shall deliver
to the Holder an undertaking that such Holder shall have the right
thereafter upon payment of
<PAGE> 5
the Warrant Price to purchase upon exercise of each Warrant the kind and
amount of securities, cash and property which the Holder would have owned
or have been entitled to receive upon the happening of such merger,
consolidation, acquisition, business combination or sale had each Warrant
been exercised and the relevant shares of Common Stock issued in the name
of the Holder immediately prior to the relevant record date, if any, or the
occurrence of such merger, consolidation, acquisition, business combination
or sale. Such undertaking shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 5(d). The Company will not effect any transaction of the type
referred to in this Section 5(d) unless the successor or purchasing person
delivers such undertaking. The provisions of this Section 5(d) shall
similarly apply to successive mergers, consolidations, business
combinations and sales or transfers.
(ii) Upon any liquidation, dissolution or winding up of the
Company, the Holder shall receive such cash or property (less the Warrant
Price) which the Holder would have been entitled to receive upon the
happening of such liquidation, dissolution or winding up had the Warrants
been exercised in full and the shares of Common Stock in respect of such
exercise issued immediately prior to the occurrence of such liquidation,
dissolution or winding up.
6. ISSUANCE OF COMMON STOCK TO GSCP. The Company shall not
issue any shares of Common Stock or any other capital stock of the Company
to Greenwich Street Capital Partners, L.P. ("GSCP") or any of GSCP's
affiliates in any transaction or any series of related transactions for an
aggregate consideration of $25,000,000 or greater unless (I) the terms of
such issuance are no less favorable in all material respects to the Company
than those that could be obtained at the time of such issuance in a
comparable arm's-length transaction with a person or entity which is not an
affiliate of the Company and (II) the Company has obtained a written
fairness opinion of an investment banking firm or independent appraiser or
accounting firm, in either case that is nationally recognized in the United
States of America, stating that the terms of such issuance are fair to the
Company from a financial point of view.
7. RESTRICTIONS ON TRANSFER. (a) Subject to Section 7(b)
hereof, the Holder shall not, without the prior written consent of the
Company, directly or indirectly, sell, pledge, mortgage, hypothecate, give,
transfer, create a security interest in or lien on, place
<PAGE> 6
in trust (voting or otherwise), assign or in any other way encumber or
dispose of (hereinafter, "Transfer") this Warrant or any of the shares of
Common Stock issuable upon exercise of this Warrant now or hereafter owned
by the Holder, or any interest therein or rights relating thereto.
(b) The restrictions in Section 7(a) hereof shall terminate
upon a Public Offering (as defined below) and shall not apply or in any way
restrict any transfer of this Warrant or any of the shares of Common Stock
issuable upon exercise of this Warrant so long as the Holder at all times
retains all voting rights with respect to all such shares. The term "Public
Offering" means an underwritten public offering of any issued shares of
Common Stock of the Company (whether alone or in conjunction with any
security public offering) which produces net cash proceeds for the Company
of at least $75,000,000 and after which established public trading market
exists for such Common Stock.
8. AMENDMENTS AND WAIVERS. Any term of this Warrant may be
amended or modified or the observance of any term of this Warrant may be
waived (either generally or in a particular instance) only with the written
consent of the Company and the Holder of this Warrant.
9. ASSIGNMENT. The provisions of this Warrant shall be binding
upon and inure to the benefit of the Holder, its successors and assigns by
way of merger, consolidation or operation of law, and each third party
transferee of this Warrant, PROVIDED that (I) the Holder shall have
delivered to the Company the form of assignment attached hereto; and (II)
in the case of any third party transferee, such transferee shall have
delivered to the Company a valid agreement of assumption of the restriction
on transfer specified in Section 7.
10. EXCHANGE OF WARRANT. Upon surrender for exchange of this
Warrant, properly endorsed, at the principal office of the Company, the
Company at its expense will issue and deliver to or upon the order of the
Holder a new Warrant or Warrants of like tenor, in the name of such Holder
or as such Holder (upon payment by such Holder of any applicable transfer
taxes) may direct, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock called for on the face of this
Warrant.
11. REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction of any Warrant, upon delivery of an indemnity bond in
<PAGE> 7
such reasonable amount as the Company may determine, or, in the case of any
such mutilation, upon the surrender of such Warrant for cancellation to the
Company at its principal office, the Company at its expense will execute
and deliver, in lieu thereof, a new Warrant, of like tenor. Any Warrant in
lieu of which any such new Warrant has been so executed and delivered by
the Company shall not be deemed to be an outstanding Warrant for any
purpose.
12. REMEDIES. The Company stipulates that the remedies at law
of the Holder of this Warrant in the event of any default by the Company in
the performance of or in compliance with any of the terms of this Warrant
are not and will not be adequate, and that such terms may be specifically
enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the
terms hereof or otherwise without the requirement of the posting of a bond.
13. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing contained
in this Warrant shall be construed as conferring upon the Holder any rights
as a stockholder of the Company (except to the extent that shares of Common
Stock are issued to such Holder pursuant to this Warrant or such Holder
otherwise owns any shares of Common Stock) or as imposing any liabilities
on such Holder to purchase any securities or as a stockholder of the
Company, whether such liabilities are asserted by the Company or by
creditors or stockholders of the Company or otherwise.
14. NOTICES. All notices and other communications under this
Warrant shall be in writing and shall be mailed by registered or certified
mail, return receipt requested, or by facsimile transmission, addressed (1)
if to the Holder, at the registered address or the facsimile number of such
Holder as set forth in the register kept at the principal office of the
Company, and (2) if to the Company, to the attention of the Secretary at
its principal office, or to its facsimile number, Attention: Secretary,
PROVIDED that the exercise of any Warrant shall be effected in the manner
provided in Section 2.
15. MISCELLANEOUS. THIS WARRANT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning hereof.
DATED as of April 7, 1998.
DAY INTERNATIONAL GROUP, INC.
<PAGE> 8
By:/s/ Christine Vanden Beukel
Title: Secretary
FORM OF SUBSCRIPTION
--------------------
[To be signed only upon exercise of the Warrant]
TO DAY INTERNATIONAL GROUP, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and
to purchase thereunder, _________* shares of Common Stock of DAY
INTERNATIONAL GROUP, INC. and herewith makes payment of $______ therefor,
and requests that the certificates for such shares be issued in the name
of, and delivered to, ________________________________, whose address is
----------------------------------------------------------------.
____________.
Dated: _________________
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
------------------------------
(Address)
--------------------
* Insert here the number of shares called for on the face of the
Warrant (or, in the case of a partial exercise, the portion
thereof as to which the Warrant is being exercised), in either
case without making any adjustment for additional shares of the
Common Stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions referred to in
the Warrant, may be deliverable upon exercise. In the case of a
partial exercise, a new Warrant or Warrants will be issued and
delivered, representing the unexercised portion of such Warrant,
all as provided in the Warrant.
FORM OF ASSIGNMENT
------------------
<PAGE> 9
[To be signed only upon transfer of the Warrant]
For value received, the undersigned hereby sells, assigns
and transfers unto _________________________________ the rights represented
by the within Warrant to purchase _______ shares of Common Stock of DAY
INTERNATIONAL GROUP, INC. (the "Company") to which the within Warrant
relates, and appoints _______________________ Attorney to transfer such
rights on the books of DAY INTERNATIONAL GROUP, INC. with full power of
substitution in the premises; it being understood and agreed that
notwithstanding such assignment and transfer, the undersigned shall retain,
and shall at all times be entitled to exercise, all voting rights with
respect to all shares of Common Stock issuable upon exercise of this
Warrant.
Dated: _________________
------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
------------------------------
(Address)
Signed in the presence of:
- - ----------
<PAGE> 1
EXHIBIT 21
The active subsidiaries of Day International Group, Inc. are listed below,
do business under the name under which they are organized, and are included
in the consolidated financial statements of the Company. The names,
jurisdiction of incorporation of such subsidiaries, and percentage of
voting securities owned by the Company are set forth below.
<TABLE>
<CAPTION>
Jurisdiction in Percentage of Voting
Name of subsidiary which Incorporated Securities owned
------------------ ------------------ ----------------
<S> <C> <C>
Day International, Inc. Delaware 100%
Day Holdings I, Inc. Delaware 100% (1)
Day Holdings II, Inc. Delaware 100% (1)
Day International (U.K.) United Kingdom 100% (3)
Holdings Limited
Day International (U.K.), United Kingdom 100% (2)
Ltd.
Day International (Canada) Ontario, Canada 100% (1)
Holdings Limited
Day International France 100% (1)
France S.A.R.L
Day International Germany 100% (1)
(BRD) GmbH
Day International de Mexico Mexico 100% (1)
S.A. de C.V.
Day International (Germany) Germany 100% (1)
Holdings GmbH
Day International (Germany) Germany 100% (4)
Group GmbH
Rotec Hulsensysteme GmbH Germany 100% (5)
Rotec USA Inc. Delaware 100% (6)
Rotec Czech s.r.o. Czech Republic 55% (6)
ZAO Day International Russia 70% (7)
</TABLE>
(1) Subsidiaries of Day International, Inc.
(2) Subsidiary of Day International (U.K.) Holdings Limited
(3) Subsidiary of Day Holdings I, Inc. and Day Holdings II, Inc.
(4) Subsidiary of Day International (Germany) Holdings GmbH
(5) Subsidiary of Day International (Germany) Group GmbH
(6) Subsidiary of Rotec Hulsensysteme GmbH
(7) Subsidiary of Day International (BRD) GmbH
81
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DAY
INTERNATIONAL GROUP, INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM
10-K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,762
<SECURITIES> 0
<RECEIVABLES> 19,774
<ALLOWANCES> 1,384
<INVENTORY> 19,179
<CURRENT-ASSETS> 46,381
<PP&E> 66,972
<DEPRECIATION> (16,667)
<TOTAL-ASSETS> 257,408
<CURRENT-LIABILITIES> 27,675
<BONDS> 256,223
36,627
0
<COMMON> 1
<OTHER-SE> (80,284)
<TOTAL-LIABILITY-AND-EQUITY> 257,408
<SALES> 173,066
<TOTAL-REVENUES> 173,066
<CGS> 110,155
<TOTAL-COSTS> 160,897
<OTHER-EXPENSES> 306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,470
<INCOME-PRETAX> (15,607)
<INCOME-TAX> (2,732)
<INCOME-CONTINUING> (12,875)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,552)
<CHANGES> 0
<NET-INCOME> (16,427)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
