AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 2002
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
ASSOCIATED MATERIALS INCORPORATED
(Exact Name of Registrant as Specified in Its Charter)
<Table>
DELAWARE 3089 75-1872487
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</Table>
---------------------
3773 STATE ROAD
CUYAHOGA FALLS, OHIO 44223
(800) 257-4335
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
D. KEITH LAVANWAY
ASSOCIATED MATERIALS INCORPORATED
3773 STATE ROAD
CUYAHOGA FALLS, OHIO 44223
(800) 257-4335
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
WITH COPIES TO:
JOHN M. REISS, ESQ.
JONATHAN E. KAHN, ESQ.
WHITE & CASE LLP
1155 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036
(212) 819-8200
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
---------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE(1) FEE(2)(3)
- ---------------------------------------------------------------------------------------------------------------------------
9 3/4% Senior Subordinated Notes due
2012................................. $165,000,000 100% $165,000,000 $15,180.00
- ---------------------------------------------------------------------------------------------------------------------------
Guarantees of Senior Subordinated Notes
due 2012............................. -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act.
(2) The registration fee for the securities offered hereby has been calculated
under Rule 457(f)(2) of the Securities Act.
(3) No separate consideration will be received for the Guarantees, and,
therefore, no additional registration fee is required.
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 3, 2002
PROSPECTUS
ASSOCIATED MATERIALS INCORPORATED
OFFER TO EXCHANGE
REGISTERED 9 3/4% SENIOR SUBORDINATED NOTES DUE 2012
FOR
ALL ISSUED AND OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2012
---------------------
This prospectus and the accompanying letter of transmittal relate to the
proposed offer by Associated Materials Incorporated ("we," "us" or "our
company") to exchange up to $165,000,000 in aggregate principal amount of our
new 9 3/4% senior subordinated notes due 2012 for a like aggregate principal
amount of our issued and outstanding 9 3/4% senior subordinated notes due 2012.
We refer to the new notes we are issuing in this exchange offer as the exchange
notes. We sometimes refer to the outstanding notes and the exchange notes
collectively as the notes.
Material terms of the exchange offer:
- The terms of the exchange notes we will issue in the exchange offer will
be substantially identical to the terms of the outstanding notes, except
that transfer restrictions and registration rights relating to the
outstanding notes will not apply to the exchange notes.
- The exchange offer expires at 5:00 p.m., New York City time, ,
2002, unless we extend it.
- All outstanding notes that are validly tendered in the exchange offer and
not withdrawn will be exchanged.
- Tenders of outstanding notes may be withdrawn at any time before the
expiration of the exchange offer.
- Any outstanding notes not validly tendered will remain subject to existing
transfer restrictions.
- There is no public market for the notes. We do not intend to have the
notes listed on any securities exchange or quoted on any quotation system.
- The exchange of outstanding notes for exchange notes will not be a taxable
transaction for U.S. federal income tax purposes, but you should see the
discussion under the heading "Certain United States Federal Income Tax
Considerations" on page 126 for more information.
- We will not receive any proceeds from the exchange offer and we will pay
the expenses of the exchange offer.
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. The letter of transmittal
relating to the exchange offer states that by so acknowledging and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of exchange notes received in exchange for
outstanding notes where such outstanding notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
of the exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Investing in the exchange notes involves risks. SEE "RISK FACTORS" BEGINNING
ON PAGE 14 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU
SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER AND AN INVESTMENT IN THE
NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is , 2002.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
AVAILABLE INFORMATION................. i
NOTICE TO NEW HAMPSHIRE RESIDENTS..... ii
FORWARD-LOOKING
STATEMENTS.......................... ii
MARKET DATA........................... iii
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 14
USE OF PROCEEDS....................... 22
CAPITALIZATION........................ 23
THE TRANSACTIONS...................... 24
UNAUDITED PRO FORMA FINANCIAL
INFORMATION......................... 25
SELECTED HISTORICAL FINANCIAL DATA.... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 37
BUSINESS.............................. 49
</Table>
<Table>
<Caption>
PAGE
----
THE EXCHANGE OFFER.................... 58
MANAGEMENT............................ 69
DESCRIPTION OF CAPITAL STOCK.......... 74
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 75
PRINCIPAL STOCKHOLDERS................ 78
DESCRIPTION OF CERTAIN INDEBTEDNESS... 80
DESCRIPTION OF THE NOTES.............. 83
BOOK-ENTRY, DELIVERY AND FORM......... 122
CERTAIN UNITED STATES FEDERAL INCOME
TAX CONSIDERATIONS.................. 126
PLAN OF DISTRIBUTION.................. 127
LEGAL MATTERS......................... 127
EXPERTS............................... 127
INDEX TO FINANCIAL STATEMENTS......... F-1
</Table>
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
We have not authorized any dealer, salesperson, or other person to give any
information or represent anything not contained in this prospectus or the
accompanying letter of transmittal. You must not rely on any unauthorized
information. This prospectus and the accompanying letter of transmittal do not
offer to sell or ask you to buy any securities in any jurisdiction where it is
unlawful. The information contained in this prospectus is current as of
, 2002.
AVAILABLE INFORMATION
This prospectus forms a part of a registration statement that we filed with
the Securities and Exchange Commission, or the Commission, on Form S-4 under the
Securities Act of 1933, as amended, in connection with the offering of the
exchange notes. You will find additional information about us and the exchange
notes in the registration statement.
We are currently not subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended, but will become subject to those
requirements in connection with the exchange offer. Accordingly, we will file
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and other information with the Commission as long as we are required to
do so under the Exchange Act. You may read and copy any document we file at the
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room. Our Commission filings also
will be available to the public from commercial
document retrieval services and at the Internet world wide website maintained by
the Commission at http: www.sec.gov. In addition, you may request a copy of
these documents at no cost to you, by writing or telephoning us at: Associated
Materials Incorporated, 3773 State Road, Cuyahoga Falls, Ohio 44223, telephone
number: (800) 257-4335 (Attention: Corporate Secretary).
Our common stock was traded on The Nasdaq National Market (Symbol: SIDE).
Following the completion of the merger, our common stock was delisted from The
Nasdaq National Market. On April 19 and April 24, 2002, we filed a Form 15 with
the Commission suspending our obligations to file reports under Sections 12(g)
and 15(d) of the Exchange Act.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
ANNOTATED, 1955, AS AMENDED ("RSA 421-B"), WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical facts included in this
prospectus, including, without limitation, statements under the captions
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" and other statements located elsewhere in this prospectus, in each
case regarding the prospects of our industry and our prospects, plans, financial
position and business strategy, may constitute forward-looking statements. In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "should," "expect," "intend,"
"estimate," "anticipate," "believe," "predict," "potential" or "continue" or the
negatives of these terms or variations of them or similar terminology. Although
we believe that the expectations reflected in these forward-looking statements
are reasonable, we cannot assure you that these expectations will prove to be
correct. The following factors are among those that may cause actual results to
differ materially from our forward-looking statements:
- changes in home building industry, economic, interest rates and other
conditions;
- changes in availability of consumer credit, employment trends, levels of
consumer confidence and consumer preferences;
- changes in raw material costs and availability;
- changes in national and regional trends in new housing starts;
- changes in weather conditions;
- our ability to comply with certain financial covenants in our loan
documents;
- increase in competition from other manufacturers of vinyl building
products as well as alternative building products;
ii
- increase in our indebtedness;
- increase in costs of environmental compliance; and
- the other factors discussed under the heading "Risk Factors" and
elsewhere in this prospectus.
All subsequent forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements included in this document. These forward-looking statements speak
only as of the date of this prospectus. We do not intend to update these
statements unless the securities laws require us to do so.
MARKET DATA
Market data and other statistical information used throughout this
prospectus are based on independent industry publications, government
publications, reports by market research firms or other published independent
sources. Some data are also based on our good faith estimates, which are derived
from our review of internal surveys, as well as the independent sources listed
above. Industry reports referred to herein are from the most recently available
industry study jointly prepared by Sabre Associates, Inc. and Pure Strategy in
1998 and other independent industry sources. Although we believe these sources
are reliable, we have not independently verified the information and cannot
guarantee its accuracy and completeness.
iii
PROSPECTUS SUMMARY
This summary may not contain all of the information that may be important
to you. You should read this summary together with the entire prospectus,
including the more detailed information in our financial statements and the
accompanying notes appearing elsewhere in this prospectus. Unless otherwise
indicated, information presented on a pro forma basis gives effect to the merger
and related transactions discussed under "The Transactions" and the sale of our
AmerCable division. Unless the context otherwise requires, all references to
"us," "we," "our" and "our company" refer to Associated Materials Incorporated
both before and after the merger, in each case, with its subsidiaries.
COMPANY OVERVIEW
We are a leading, vertically integrated manufacturer and nationwide
distributor of exterior residential building products. These products are
marketed through our Alside division on a wholesale basis to more than 35,000
professional contractors engaged in home repair and remodeling and new home
construction. We distribute our products primarily through our nationwide
network of over 80 supply centers operating under the Alside(R) brand name. In
2001, Alside accounted for more than 88% of our total net sales and, following
the sale of our AmerCable division, currently represents all of our operations.
See "-- Recent Developments". For the twelve months ended December 31, 2001, on
a pro forma basis, we generated total net sales and Adjusted EBITDA of $524.5
million and $56.6 million, respectively. For the twelve months ended December
31, 2001, on a pro forma basis including our AmerCable division, we generated
total net sales and Adjusted EBITDA of $595.8 million and $64.9 million,
respectively. For the quarter ended March 31, 2002, on a pro forma basis, we
generated total net sales and Adjusted EBITDA of $111.1 million and $4.1
million, respectively. For the quarter ended March 31, 2002, on a pro forma
basis including our AmerCable division, we generated total net sales and
Adjusted EBITDA of $123.2 million and $4.7 million, respectively.
The core products we manufacture and distribute are vinyl siding and vinyl
windows which together comprised approximately 71% of Alside's 2001 net sales.
We also manufacture and distribute vinyl fencing, decking and railing, and vinyl
garage doors and distribute other complementary products which are manufactured
by third parties. Approximately two thirds of Alside's products are sold to
contractors engaged in the home repair and remodeling market with one third sold
to the new construction market. Our supply centers provide "one stop" shopping
to our contractor customers, carrying products, accessories and tools necessary
to complete a vinyl siding or window project. In addition, our supply centers
provide high quality product literature, product samples and installation
training to these customers. We believe that the strength of our products and
distribution network has developed strong brand loyalty and long-standing
relationships with local contractors and has enabled us to consistently gain
market share over the last five years. Approximately 80% of Alside's 2001 net
sales were generated through our network of supply centers with the remainder
sold through independent distributors primarily in markets where we currently do
not have supply centers.
Due to our vertically integrated distribution strategy, innovative new
product development and operational excellence, we have consistently generated
sales growth in excess of industry averages. From 1996 to 2001, we generated a
compounded annual growth rate in our net sales and EBITDA of 10.7% and 16.2%,
respectively. In 2001, our net sales and EBITDA grew by 19.3% and 28.8%,
respectively, over the prior year. We believe that our historical investment in
manufacturing and distribution capabilities and our initiatives to reduce costs
and enhance operating efficiencies throughout our production, distribution and
supply chain provide us with a strong platform for future growth and
profitability.
INDUSTRY OVERVIEW
Demand for residential building products is driven by a number of factors,
including consumer confidence, availability of credit, new housing starts and
general economic cycles. Historically, the demand for repair and remodeling
products, where we are primarily focused, has been less cyclical than demand for
1
new home construction and is less sensitive to these factors. Drivers of repair
and remodeling demand include:
- Favorable demographics. The segment of the population age 55 years and
above, which favors professionally installed, low maintenance home
improvements, is estimated to grow by 25% over the next five years and
50% over the next ten years.
- Aging of the housing stock. The average home age increased from 23 years
in 1985 to 29 years in 2000, and over 70% of the current housing stock
was built prior to 1980.
- Increase in average home size. The average home size increased over 25%
from 1,785 square feet in 1985 to 2,306 square feet in 2000.
In addition, repair and remodeling projects tend to utilize a greater mix of
premium products with higher margins than those used in new construction
projects.
We estimate that the residential vinyl siding and vinyl window markets are
approximately $1.7 billion and $3.4 billion in size, respectively. Over the last
15 years, vinyl has commanded an increasing share of the total residential
siding and window markets. Vinyl has greater durability, requires less
maintenance and provides greater energy efficiency than many competing siding
and window products. According to industry reports, based on unit sales, vinyl
accounted for approximately 50% of the exterior siding market and approximately
51% of the residential window market in 1998. Vinyl competes with wood, masonry,
fiber cement and metal in the siding market and wood and aluminum in the window
market.
OUR COMPETITIVE STRENGTHS
The following competitive strengths have contributed to our growth and have
enabled us to gain market share over the last five years within the U.S. siding
and window markets.
Nationwide Distribution Network of Company-Owned Supply Centers. We are
one of only two major vinyl siding manufacturers in the United States that
markets products primarily through a company-owned distribution network.
Our national distribution network offers us a dedicated channel compared to
most of our competitors who rely on local third party distributors who
generally carry an assortment of brands and may not focus on any particular
brand. We believe that distributing our vinyl siding and window products
through our nationwide network of over 80 Alside supply centers helps us
to: (1) build long-standing customer relationships and Alside brand
loyalty; (2) develop comprehensive, customized marketing programs to assist
our contractor customers; (3) closely monitor developments in local
customer preferences; and (4) ensure product availability through
integrated logistics between our manufacturing and distribution. Our supply
center network has enabled us to grow substantially faster than the
industry. Our vinyl siding unit sales grew at a five year compounded annual
growth rate of 9.2% as compared to an industry average of 2.0% over the
same period and our vinyl window unit sales grew at a five year compounded
annual growth rate of 12.7% as compared to an industry average of 5.8%.
Broad Product Offering. We offer a diverse mix of vinyl siding and vinyl
window products to both the repair and remodeling and new construction
markets across all price points: premium, standard and economy. Including
our manufactured products and products manufactured by third parties, our
supply centers sell more than 2,000 building and remodeling products. Our
broad product offering enables us to meet the specialized needs of our
customers and diversify our sales across all segments of the market. Most
of these products are sold under the Alside brand and are recognized for
their quality and durability. Our product offering includes the well-known
Charter Oak, Preservation, Seneca, Conquest and Landscape vinyl siding
products, and the UltraMaxx, Excalibur, Centurion and Alpine vinyl window
products.
Low-Cost and Vertically Integrated Operations. We believe that we are a
low-cost manufacturer as a result of our manufacturing expertise,
state-of-the-art technology and economies of scale. Our Alside division has
seven manufacturing facilities that produce vinyl siding, windows and other
vinyl
2
products. During the last three years, we invested approximately $35
million of capital in Alside, most of which was used in upgrading our
manufacturing facilities. This has resulted in significant operating
efficiency and increased capacity for meeting future growth needs. Within
our window operations, our ability to produce vinyl extrusions, coupled
with our high-speed welding and cleaning equipment, provides us with cost
and quality advantages over other vinyl window manufacturers.
BUSINESS STRATEGY
We seek to distinguish ourselves from other suppliers of residential
building products and to sustain our profitability momentum through a business
strategy focused on the following:
Increase Sales at Existing Supply Centers. We plan to increase sales at
each of our supply centers by continuing to: (1) enhance the vinyl siding
and window product offering and expand third party products to offer a
comprehensive package to appeal to a broad range of market segments; (2)
utilize our highly trained sales force to maximize opportunities with
existing customers and identify and capture new customers; and (3) allow
supply centers to quickly respond to local market dynamics and take
advantage of local market opportunities.
Expand Supply Center Network. We intend to selectively expand our
distribution network. We will continue to open additional supply centers in
markets where we already have a presence, allowing us to gain additional
market share in these attractive markets.
Increase Focus on other Distributed Products. We will continue to focus on
maximizing incremental revenue and margin opportunities from products which
Alside does not manufacture. As part of this strategy we plan to identify
additional products to sell through our supply centers to better serve our
contractor customers. In addition, we intend to leverage our purchasing
power by centralizing the purchasing decisions for high-volume distributed
products.
Develop Innovative Products. We plan to capitalize on our vinyl
manufacturing expertise by continuing to develop and introduce innovative
new products that offer performance, cost and other advantages. These
efforts have led to several new product introductions in recent years
including Preservation, the first bundled vinyl siding and vinyl window
program in the industry; CenterLock, a vinyl siding product with a unique
locking mechanism; Eclipse, the industry's only flat-seam vinyl siding; and
Landscape, an economy vinyl siding product with enhanced rigidity providing
the appearance of a higher end product. Our strong customer relationships
provide valuable insight into the latest consumer preferences and product
attributes that appeal to contractors.
Drive Operational Excellence. We will continue to capitalize on
opportunities to reduce costs, increase customer service levels and reduce
lead times. We have historically identified similar opportunities and have
subsequently executed strategic initiatives that resulted in increased
profitability and revenue growth. For example, in 2000 and 2001 we targeted
process efficiency opportunities in our window operations through system
upgrades, flow realignment, and personnel-related initiatives. The
successful implementation of this strategy raised our on-time deliveries to
over 98% while increasing unit volume by over 48% (excluding our
acquisition of Alpine) in 2001.
THE TRANSACTIONS
On March 16, 2002, Associated Materials Incorporated, Associated Materials
Holdings Inc. and its wholly owned subsidiary, Simon Acquisition Corp. entered
into a merger agreement pursuant to which, among other things, each stockholder
of Associated Materials Incorporated received $50.00 in cash for each share of
Associated Materials Incorporated stock. Associated Materials Holdings Inc. is
controlled by affiliates of Harvest Partners, Inc. In connection with the merger
agreement and related documents, the following transactions were completed,
which we refer to as the "transactions":
- a cash tender offer by Simon Acquisition Corp. for 100% of the shares of
common stock of Associated Materials Incorporated at a price of $50.00
per share;
3
- an investment in Associated Materials Holdings Inc. made by affiliates of
Harvest Partners, Inc. and other equity investors, including $7.2 million
of rollover equity by certain members of management, totaling
approximately $172 million;
- the merger of Simon Acquisition Corp. into Associated Materials
Incorporated, with Associated Materials Incorporated as the surviving
corporation;
- the borrowing by Associated Materials Incorporated of approximately $125
million in term loans under a new credit facility. The new credit
facility includes a $40 million revolving credit facility for working
capital and general corporate purposes;
- a debt tender offer and consent solicitation by Associated Materials
Incorporated for all $75 million aggregate principal amount of its 9 1/4%
senior subordinated notes; and
- the offering of $165 million aggregate principal amount of the
outstanding notes.
The equity tender offer expired on April 18, 2002. Over 90% of the
outstanding shares of common stock of Associated Materials Incorporated were
tendered and Simon Acquisition Corp. merged into Associated Materials
Incorporated on April 19, 2002. Associated Materials Incorporated is now a
wholly owned subsidiary of Associated Materials Holdings Inc., which is
controlled by affiliates of Harvest Partners, Inc.
The debt tender offer expired on April 18, 2002. Approximately $74 million
aggregate principal amount of the existing 9 1/4% notes was tendered. Subsequent
to the merger, we commenced a change of control offer pursuant to the indenture
governing the existing 9 1/4% notes to purchase the existing 9 1/4% notes not
tendered in the debt tender offer. The change of control offer expired on June
21, 2002 and approximately $0.1 million aggregate principal amount of such notes
was tendered and accepted. We intend to discharge the remaining approximately
$0.9 million outstanding 9 1/4% notes pursuant to the indenture governing the
such notes. We may also, from time to time, purchase such notes through open
market purchases, privately negotiated transactions, tender offers, exchange
offers or otherwise, upon such terms and at such prices as we may determine. We
expect that all discharged notes will be redeemed on or after March 1, 2003 at
104.625% of the principal amount of such notes ($1,046.25 per $1,000 principal
amount of such notes), plus accrued and unpaid interest, if any, to the date of
purchase.
We have summarized below the sources and uses of funds for the above
mentioned transactions (other than the change of control offer related to the
existing 9 1/4% notes).
<Table>
<Caption>
SOURCES ($ IN MILLIONS)
------- ---------------
New credit facility........... $125.0
9 3/4% senior subordinated
notes due 2012(1)........... 165.0
Equity financing(2)........... 172.0
Cash on hand.................. 4.8
------
$466.8
======
</Table>
<Table>
<Caption>
USES ($ IN MILLIONS)
- ---- ---------------
Purchase of equity of
Associated Materials
Incorporated............... $360.8
Debt tender offer(3)......... 82.3
Transaction costs(4)......... 23.7
------
$466.8
======
</Table>
- ---------------
(1) The equity tender offer closed on April 19, 2002, prior to the closing of
the offering of the notes on April 23, 2002, and we borrowed under a $215
million unsecured interim credit facility to complete the equity tender
offer. The proceeds from the offering of the notes along with proceeds from
the term loan under the new credit facility was used to repay the interim
credit facility.
(2) Approximately $172 million of the equity financing was contributed by
affiliates of Harvest Partners, Inc. and other equity investors, including
members of management.
(3) Represents the purchase of approximately $74 million aggregate principal
amount of the 9 1/4% senior subordinated notes plus a tender premium of $7.3
million and accrued interest.
4
(4) Includes discounts to the initial purchasers, bank fees, financial advisory
fees and legal, accounting and other costs payable or reimbursable in
connection with the transactions.
RECENT DEVELOPMENTS
On June 24, 2002, we completed the sale of our AmerCable division to
AmerCable Incorporated, a newly-formed entity controlled by members of AmerCable
management and Wingate Partners III, L.P., for net proceeds of approximately
$28.3 million in cash and the assumption of certain liabilities pursuant to an
asset purchase agreement dated as of the same date. We used the net proceeds to
repay a portion of our new credit facility in accordance with certain terms
thereof. AmerCable is a leading manufacturer of specialty electrical cable
products primarily used in the mining, marine and offshore drilling industries.
In 2001, AmerCable accounted for approximately 12% of our total net sales.
------------------------
OUR SPONSOR
Affiliates of Harvest Partners, Inc. control our board of directors.
Harvest Partners, Inc., founded in 1981, is a private equity sponsor with
approximately $1 billion of invested and committed capital. Harvest Partners,
Inc., whose investments include Career Horizons, Inc., Global Power Equipment
Group Inc. (NYSE: GEG), Home Care Industries, Inc., Home Care Supply, Inc.,
IntelliRisk Management Corp., and Symbol Technologies, Inc., focuses on
management buyouts and growth financings of profitable, middle-market specialty
services, manufacturing and value-added distribution businesses, with a
particular emphasis on multinational transactions. Harvest Partners, Inc. has
significant capital available through its managed funds, into which numerous
U.S., European and Asian industrial corporations and financial institutions have
invested.
------------------------
Our principal executive office is located at 3773 State Road, Cuyahoga
Falls, Ohio 44223 and our telephone number there is (800) 257-4335. We were
incorporated in Delaware in 1983.
5
THE EXCHANGE OFFER
The following is a summary of the principal terms of the exchange offer. A
more detailed description is contained in this prospectus under the section
entitled "The Exchange Offer."
The Exchange Offer............ We are offering to exchange all of our
outstanding notes for $165 million principal
amount of exchange notes. The terms of the
exchange and outstanding notes are
substantially identical in all respects,
including principal amount, interest rate and
maturity, except that the exchange notes are in
general freely transferable and are not subject
to any covenant regarding registration under
the Securities Act. To be exchanged, an
outstanding note must be properly tendered and
accepted. Unless we terminate the exchange
offer, all outstanding notes that are validly
tendered and not validly withdrawn will be
exchanged. We will issue the exchange notes
promptly after the expiration of the exchange
offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2002, unless
we decide to extend this expiration date. In
that case, the phrase "expiration date" will
mean the latest date and time to which we
extend the exchange offer.
Conditions to the Exchange
Offer......................... We may terminate or amend the exchange offer
if:
- any legal proceeding or government action
materially impairs our ability to complete
the exchange offer, or
- any SEC rule, regulation or interpretation
materially impairs the exchange offer.
We may waive any or all of these conditions. At
this time, there are no adverse proceedings,
actions or developments pending or, to our
knowledge, threatened, and no governmental
approvals are necessary to complete the
exchange offer. The exchange offer is not
conditioned upon any minimum principal amount
of outstanding notes tendered.
Withdrawal Rights............. You may withdraw the tender of your outstanding
notes at any time before the expiration date.
The Registration Rights
Agreement..................... You have the right to exchange your outstanding
notes for exchange notes with substantially
identical terms. This exchange offer is being
made to satisfy these rights. Except in limited
circumstances described under "The Exchange
Offer -- Background and Purpose of the Exchange
Offer," after the exchange offer is complete,
you will no longer be entitled to any exchange
or registration rights with respect to your
notes.
Resales of the Exchange
Notes......................... We believe that the exchange notes issued in
the exchange offer may be offered for resale,
resold and otherwise transferred by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that:
- you are acquiring the exchange notes in the
ordinary course of your business;
6
- you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to
participate in the distribution of the
exchange notes; and
- you are not an "affiliate" of our company
or any of our subsidiaries, as that term is
defined in Rule 405 of the Securities Act.
See "The Exchange Offer -- Resale of the
Exchange Notes."
The Commission, however, has not considered
this exchange offer in the context of a
no-action letter, and we cannot be sure that
the staff of the Commission would make the same
determination with this exchange offer as it
has in other circumstances. Furthermore, if you
do not meet the above conditions, you may incur
liability under the Securities Act. We do not
assume, or indemnify you against, this
liability.
Each broker-dealer that is issued exchange
notes in the exchange offer for its own account
in exchange for outstanding notes which were
acquired by it as a result of market-making or
other trading activities must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the exchange
notes issued in the exchange offer. A broker-
dealer may use this prospectus for an offer to
resell, resale or other retransfer of the
exchange notes issued to it in the exchange
offer.
The exchange offer is not being made to, nor
will we accept surrenders for exchange from,
the following:
- holders of outstanding notes in any
jurisdiction in which this exchange offer
or the acceptance of the exchange offer
would not be in compliance with the
applicable securities or "blue sky" laws of
that jurisdiction, and
- holders of outstanding notes who are
"affiliates" of our company or any of our
subsidiaries.
Procedures for Tendering...... If you wish to tender outstanding notes, you
must (a)(1) complete, sign and date the letter
of transmittal, or a facsimile of it, according
to its instructions and (2) send the letter of
transmittal, together with your outstanding
notes to be exchanged and other required
documentation, to Wilmington Trust Company who
is the exchange agent, at the address provided
in the letter of transmittal; or (b) tender
through DTC pursuant to DTC's Automated Tender
Offer Program, or ATOP system. The letter of
transmittal or a valid agent's message through
ATOP must be received by Wilmington Trust
Company by 5:00 p.m., New York City time, on
the expiration date. See "The Exchange
Offer -- Procedures for Tendering," and
"-- Book-Entry Tender." By executing the letter
of transmittal, you are representing to us that
you are acquiring the exchange notes in the
ordinary course of your business, that you are
not participating, do not intend to participate
and have no arrangement or understanding with
any person to participate in the distribution
of exchange notes, and that you are not an
"affiliate"
7
of ours. See "The Exchange Offer -- Procedures
for Tendering," and "-- Book-Entry Tender."
Special Procedures for
Beneficial Owners........... If you are a beneficial owner whose outstanding
notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and you wish to tender your
outstanding notes in the exchange offer, you
should contact the registered holder promptly
and instruct the registered holder to tender on
your behalf. If you are a beneficial owner and
wish to tender on your own behalf, you must,
before completing and executing the letter of
transmittal and delivering your outstanding
notes, either make appropriate arrangements to
register ownership of the outstanding notes in
your name or obtain a properly completed bond
power from the registered holder. See "The
Exchange Offer -- Procedure if the Outstanding
Notes Are Not Registered in Your Name," and
"-- Beneficial Owner Instructions to Holders of
Outstanding Notes."
The transfer of registered ownership may take
considerable time and may not be possible to
complete before the expiration date.
Guaranteed Delivery
Procedures.................... If you wish to tender your outstanding notes
and time will not permit your required
documents to reach the exchange agent by the
expiration date, or you cannot complete the
procedure for book-entry transfer on time or
you cannot deliver certificates for your
outstanding notes on time, then before the
expiration date you may tender your outstanding
notes as described in this prospectus under the
heading "The Exchange Offer -- Guaranteed
Delivery Procedures."
Failure to Tender Outstanding
Notes......................... If you are eligible to participate in the
exchange offer and you do not tender your
outstanding notes, you will not have any
further registration or exchange rights and
your outstanding notes will continue to have
restrictions on transfer. Outstanding notes may
not be offered or sold, unless registered under
the Securities Act and applicable state
securities laws or under an exemption from the
Securities Act and applicable state securities
laws. We do not currently plan to register the
outstanding notes under the Securities Act
after the completion of the exchange offer.
Accordingly, the liquidity of the market for
the outstanding notes could be adversely
affected.
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes................ In general, we will accept any and all
outstanding notes that are properly tendered in
the exchange offer and not withdrawn before
5:00 p.m., New York City time, on the
expiration date. The exchange offer will be
considered consummated when we, as soon as
practicable after the expiration date, accept
for exchange the outstanding notes tendered,
deliver them to the trustee for cancellation
and issue the exchange notes. We will deliver
the exchange notes as soon as practicable after
the expiration date.
Interest on the Outstanding
Notes......................... Interest will not be paid on outstanding notes
that are tendered and accepted in the exchange
offer.
8
Interest on the Exchange
Notes......................... The exchange notes will bear interest at the
rate of 9 3/4% per year, payable semi-annually
in arrears on April 15 and October 15,
commencing October 15, 2002.
Federal Income Tax
Considerations................ We believe that the exchange of outstanding
notes for exchange notes generally will not be
a taxable event for United States federal
income tax purposes. Please see "Certain U.S.
Federal Income Tax Considerations" for more
information.
Appraisal Rights.............. You do not have any appraisal or dissenters'
rights in connection with this exchange offer.
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes in the exchange
offer.
Fees and Expenses............. We will pay all of the expenses incident to the
exchange offer.
Exchange Agent................ Wilmington Trust Company is serving as the
exchange agent in connection with the exchange
offer.
Please review the information in the section captioned "The Exchange Offer"
for more detailed information concerning the exchange offer.
9
THE EXCHANGE NOTES
Issuer........................ Associated Materials Incorporated
Notes Offered................. We are offering up to a total of $165 million
in principal amount of our 9 3/4% Senior
Subordinated Notes due 2012, which have been
registered under the Securities Act.
The exchange notes will evidence the same debt
as the outstanding notes and will be issued
under, and entitled to the benefits of, the
same indenture. The terms of the exchange notes
are the same as the terms of the outstanding
notes in all material respects except that the
exchange notes:
- have been registered under the Securities
Act;
- do not include rights to registration under
the Securities Act; and
- do not contain transfer restrictions
applicable to the outstanding notes.
Maturity Date................. April 15, 2012.
Interest...................... 9 3/4% per year, payable semi-annually in
arrears on April 15 and October 15, commencing
October 15, 2002.
Ranking....................... The exchange notes and the guarantees will
rank:
- junior to all of our and our guarantors'
existing and future senior indebtedness and
secured indebtedness, including any
borrowings under our new credit facility;
- equally with any of our and our guarantors'
existing and future senior subordinated
indebtedness, including trade payables;
- senior to any of our and our guarantors'
future subordinated indebtedness; and
- effectively junior to all liabilities of
our future subsidiaries that have not
guaranteed the exchange notes.
At March 31, 2002, on a pro forma basis, we
would have had $96.7 million of indebtedness,
all of which would be senior indebtedness. At
March 31, 2002, on a pro forma basis before
application of the proceeds from the sale of
AmerCable, we would have had $125 million of
senior indebtedness.
Optional Redemption........... Before April 15, 2005, we may redeem exchange
notes in an aggregate principal amount not to
exceed 35% of the aggregate principal amount of
the notes originally issued in one or more
equity offerings, as long as:
- we pay to holders of the exchange notes
109.75% of the principal amount of notes
plus accrued and unpaid interest;
- we redeem the exchange notes within 90 days
of completing the equity offering; and
- at least 65% of the original principal
amount of notes issued under the indenture
remains outstanding afterward.
10
We may redeem the exchange notes, in whole or
in part, on or after April 15, 2007, at the
redemption price set forth in this prospectus
under "Description of the Notes -- Optional
Redemption."
Optional Redemption Upon a
Change of Control........... At any time on or prior to April 15, 2007, we
may redeem the exchange notes upon a change of
control at a price equal to 100% of the
principal amount plus a make-whole premium. See
"Description of the Notes -- Redemption Upon a
Change of Control."
Change of Control............. If a change of control occurs, we will be
required to make an offer to purchase the
exchange notes at a price equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest, if any, to the date of
purchase.
Subsidiary Guarantees......... The exchange notes will be jointly and
severally guaranteed on a senior subordinated
basis by our existing domestic subsidiaries and
certain of our future domestic subsidiaries.
Restrictive Covenants......... The indenture contains covenants that limit our
ability and that of our subsidiaries to:
- incur additional indebtedness;
- pay dividends or distributions on, or
redeem or repurchase, our capital stock;
- make investments;
- engage in transactions with affiliates;
- transfer or sell assets;
- incur liens;
- restrict dividend or other payments to us
from our subsidiaries;
- issue or sell capital stock of our
subsidiaries; and
- consolidate, merge or transfer all or
substantially all of our assets and the
assets of our subsidiaries.
These covenants are subject to important
exceptions and qualifications, which are
described in "Description of the
Notes -- Certain Covenants."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes.
RISK FACTORS
See "Risk Factors" for a discussion of the factors you should carefully
consider before deciding to invest in the notes.
11
SUMMARY FINANCIAL DATA
The following table sets forth our summary historical financial data for
the first quarter of 2002 and the first quarter of 2001 and for each of the
three years in the period ended December 31, 2001. The statement of operations
data for each of the three years in the period ended December 31, 2001 and the
balance sheet data as of December 31, 1999, 2000 and 2001 were derived from our
audited financial statements included elsewhere in this prospectus. The
financial data for the first quarter of 2002 and the first quarter of 2001 have
been derived from our unaudited interim financial information, which, in the
opinion of our management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods. The operating results for the first quarter of 2002
are not necessarily indicative of the operating results for the full fiscal
year. The historical financial data does not reflect the consummation of the
transactions and the sale of AmerCable or our capital structure following the
transactions and the sale of AmerCable and is not indicative of results that
would have been reported had the transactions and the sale of AmerCable
occurred, nor is it indicative of our future financial position or operating
results.
The following table also presents unaudited summary pro forma statements of
operations data for the year ended December 31, 2001 and the quarter ended March
31, 2002, which have been prepared assuming the transactions and the sale of
AmerCable had occurred on January 1, 2001, and the pro forma balance sheet data
at March 31, 2002, which has been prepared as if the transactions and the sale
of AmerCable occurred on March 31, 2002. The summary pro forma data does not
purport to represent what our results of operations or financial position would
have been if the transactions and the sale of AmerCable had occurred at any
date, nor does this data purport to represent the results of operations for any
future period. The pro forma adjustments are based upon available information
and certain assumptions that we believe are reasonable.
The summary historical and pro forma financial data should be read in
conjunction with "Unaudited Pro Forma Financial Information," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our historical financial statements and
the notes thereto included elsewhere herein.
<Table>
<Caption>
PRO FORMA QUARTER ENDED PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31, QUARTER ENDED
------------------------------ DECEMBER 31, ------------------- MARCH 31,
1999 2000 2001 2001 2001 2002 2002
-------- -------- -------- ------------ -------- -------- -------------
INCOME STATEMENT DATA:
Total net sales........................... $455,268 $499,393 $595,819 $524,528 $108,611 $123,198 $111,062
Cost of sales............................. 317,596 353,994 425,366 367,398 81,414 90,778 80,104
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 137,672 145,399 170,453 157,130 27,197 32,420 30,958
Selling, general and administrative
expenses................................ 96,028 107,255 119,945 111,701 28,127 31,219 29,287
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............. 41,644 38,144 50,508 45,429 (930) 1,201 1,671
Interest expense.......................... 6,779 6,046 6,795 24,800 1,579 1,669 5,777
Net income (loss)......................... 20,490 23,555 25,412 11,215 (3,015) (1,519) (2,525)
OTHER DATA:
Depreciation and amortization............. $ 8,519 $ 9,550 $ 10,919 $ 8,151 $ 2,661 $ 2,979 $ 2,066
Capital expenditures...................... 18,915 11,925 15,022 11,663 6,765 3,118 1,476
EBITDA(1)................................. 50,163 47,694 61,427 53,580 1,731 4,180 3,737
Adjusted EBITDA(2)........................ 56,575 4,115
Pro forma interest expense................ 24,800 5,777
Ratio of Adjusted EBITDA to interest
expense................................. 2.3x 0.7x
Ratio of earnings to fixed charges(3)..... 3.9x 4.3x 4.1x 1.6x -- -- --
Cash provided by (used in) operating
activities.............................. 15,244 22,968 43,989 (10,127) (12,001)
Cash used in investing activities......... (17,619) (5,538) (9,861) (1,726) (3,110)
Cash used in financing activities......... (9,157) (4,983) (21,138) (1,980) (245)
</Table>
12
<Table>
<Caption>
PRO FORMA QUARTER ENDED PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED MARCH 31, QUARTER ENDED
------------------------------ DECEMBER 31, ------------------- MARCH 31,
1999 2000 2001 2001 2001 2002 2002
-------- -------- -------- ------------ -------- -------- -------------
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................. $ 3,432 $ 15,879 $ 28,869 $ -- $ 2,046 $ 13,513 $ 9,140
Working capital........................... 85,878 102,064 106,188 -- 95,334 105,069 86,963
Total assets.............................. 206,296 231,141 254,307 -- 223,631 241,169 534,020
Total debt................................ 75,000 75,000 75,000 -- 75,000 75,000 262,656
Stockholders' equity...................... 79,326 97,990 102,675 -- 92,995 101,024 165,645
</Table>
- ---------------
(1) EBITDA is calculated as income from operations plus depreciation and
amortization. We have included information concerning EBITDA because we
believe that EBITDA is used by certain investors as one measure of a
company's historical ability to service its debt. EBITDA should not be
considered as an alternative to, or more meaningful than, net income as an
indicator of our operating performance or to cash flows as a measure of
liquidity. EBITDA has not been prepared in accordance with generally
accepted accounting principles. EBITDA, as presented by us, may not be
comparable to similarly titled measures reported by other companies.
(2) Adjusted EBITDA represents EBITDA plus certain non-recurring expenses. We
believe that Adjusted EBITDA presents a more meaningful discussion than
EBITDA since Adjusted EBITDA excludes non-recurring expenses, which are
expected to have no ongoing cash requirements and no impact on our ongoing
operations. EBITDA reconciles to Adjusted EBITDA as follows:
<Table>
<Caption>
PRO FORMA PRO FORMA
PRO FORMA INCLUDING AMERCABLE PRO FORMA INCLUDING AMERCABLE
YEAR ENDED YEAR ENDED QUARTER ENDED QUARTER ENDED
DECEMBER 31, 2001 DECEMBER 31, 2001 MARCH 31, 2002 MARCH 31, 2002
----------------- ------------------- -------------- -------------------
(IN THOUSANDS)
EBITDA................................. $53,580 $61,941 $3,737 $ 4,296
Cost savings from closing of corporate
office, net(a)....................... 1,166 1,166 378 378
Severance(b)........................... 1,041 1,041 -- --
Non-cash stock compensation
expense(c)........................... 588 588 -- --
Investment banking and related
fees(d).............................. 200 200 -- --
------- ------- ------ -------
Adjusted EBITDA........................ $56,575 $64,936 $4,115 $ 4,674
======= ======= ====== =======
</Table>
- ---------------
Adjustments to EBITDA represent:
(a) the elimination of facilities and corporate overhead costs related to the
Dallas corporate office, which was closed in connection with the
transactions. For the year ended December 31, 2001, the adjustments include
rent of $0.1 million, outside director fees of $0.2 million, investor
relations expenses of $0.2 million, travel and entertainment costs of $0.2
million, charitable contributions of $0.4 million, and other expenses of
$0.1 million. For the quarter ended March 31, 2002, the adjustments include
outside director fees of $0.1 million, investor relations expenses of $0.1
million, travel and entertainment costs of $0.1 million and charitable
contributions of $0.1 million;
(b) severance of four Alside vice presidents as part of the senior management
restructuring completed in 2001;
(c) a non-cash stock compensation expense related to the modification of a stock
option grant for an executive who retired in 2001; and
(d) investment banking fees related to obtaining a fairness opinion for the
repurchase of one million shares of our Class B common stock.
(3) The deficiency in the ratio of earnings to fixed charges is approximately
$4.9 million and $2.5 million for the quarters ended March 31, 2001 and
2002, respectively on a historical basis and $4.1 million for the quarter
ended March 31, 2002 on a pro forma basis.
13
RISK FACTORS
You should consider carefully the information set forth in this section
along with all the other information provided to you in this prospectus before
tendering your outstanding notes for exchange notes in the exchange offer.
RISKS RELATING TO THE NOTES
OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS ON THE NOTES.
We have a substantial amount of indebtedness, which will require
significant interest payments. As of March 31, 2002, on a pro forma basis, we
would have had approximately $262.7 million of indebtedness and our interest
expense for the quarter ended March 31, 2002 would have been approximately $5.8
million. In addition, subject to restrictions in the indenture for the notes and
our credit facilities, we may incur additional indebtedness.
Our substantial level of indebtedness could have important consequences to
you, including the following:
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired;
- we must use a substantial portion of our cash flow from operations to pay
interest and principal on the notes and other indebtedness, which will
reduce the funds available to us for other purposes such as potential
acquisitions and capital expenditures;
- we are exposed to fluctuations in interest rates, because our new credit
facility has a variable rate of interest;
- we have a higher level of indebtedness than some of our competitors,
which may put us at a competitive disadvantage and reduce our flexibility
in planning for, or responding to, changing conditions in our industry,
including increased competition;
- we are more vulnerable to general economic downturns and adverse
developments in our business; and
- our failure to comply with financial and other restrictive covenants in
the indenture governing the notes and our other debt obligations, some of
which require us to maintain specified financial ratios and limit our
ability to incur additional debt and sell assets, could result in an
event of default that, if not cured or waived, could harm our business or
prospects and could result in our bankruptcy.
We expect to obtain money to pay our expenses and to pay the principal and
interest on the notes, our new credit facility and other debt from cash flow
from our operations. Our ability to meet our expenses depends on our future
performance, which will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors, such as economic
conditions in the markets where we operate and pressure from competitors. We
cannot be certain that our cash flow will be sufficient to allow us to pay
principal and interest on our debt, including the notes, and meet our other
obligations. If we do not have enough money, we may be required to refinance all
or part of our existing debt, including the notes, sell assets or borrow more
money. We cannot guarantee that we will be able to do so on terms acceptable to
us, if at all. In addition, the terms of existing or future debt agreements,
including our credit facilities and the indenture, may restrict us from pursuing
any of these alternatives. The failure to generate sufficient cash flow or to
achieve such alternative could significantly adversely affect the value of the
notes.
14
WE WILL BE ABLE TO INCUR MORE INDEBTEDNESS AND THE RISKS ASSOCIATED WITH OUR
SUBSTANTIAL LEVERAGE, INCLUDING OUR ABILITY TO SERVICE OUR INDEBTEDNESS, WILL
INCREASE.
The indenture relating to the notes and the credit agreement governing our
new credit facility will permit us, subject to specified conditions, to incur a
significant amount of additional indebtedness. In addition, we may incur an
additional $40 million of indebtedness under our new revolving credit facility.
If we incur additional debt, the risks associated with our substantial leverage,
including our ability to service our debt, would increase.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES AND GUARANTEES IS SUBORDINATED TO
OUR SENIOR DEBT.
Payment on the notes and guarantees are subordinated in right of payment to
all of our and the guarantors' senior debt. As a result, upon any distribution
to our creditors or the creditors of the guarantors in a bankruptcy,
liquidation, reorganization or similar proceeding relating to us or our
guarantors or our or their property, the holders of our senior debt will be
entitled to be paid in full in cash before any payment may be made on the notes
or the guarantees thereof. In these cases, we and the guarantors may not have
sufficient funds to pay all of our creditors, and holders of senior subordinated
notes may receive less, ratably, than the holders of our senior debt. In
addition, all payments on the notes and the related guarantees will be blocked
in the event of a payment default on our designated senior debt and may be
blocked for up to 179 consecutive days in the event of certain non-payment
defaults on our designated senior debt.
In connection with the transactions, we entered into a new credit facility
which provides for a $125 million term loan which was fully drawn upon closing
of the merger and a $40 million revolving credit facility. Upon the closing of
the merger, we borrowed approximately $2.0 million under our revolving credit
facility in order to temporarily cash collateralize existing letters of credit.
We repaid such borrowings promptly thereafter and have been issued new letters
of credit. As of March 31, 2002, on a pro forma basis, the notes and the related
guarantees would have been subordinated to approximately $96.7 million of senior
debt, and $37.4 million of additional senior debt would have been available for
borrowing under our new credit facility. In addition, the indenture governing
the notes and our new credit facility permit us, subject to specified
limitations, to incur additional debt, some or all of which may be senior debt.
In addition, the notes are structurally subordinated to all of the
liabilities of our subsidiaries that do not guarantee the notes in the future.
In the event of a bankruptcy, liquidation or reorganization of any of the
non-guarantor subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment on their claims from assets of
those subsidiaries before any assets are made available for distribution to us.
However, under some circumstances, the terms of the notes will permit our non-
guarantor subsidiaries to incur additional specified indebtedness.
IF WE FAIL TO MEET OUR PAYMENT OR OTHER OBLIGATIONS UNDER THE NEW CREDIT
AGREEMENT, THE LENDERS UNDER OUR NEW CREDIT AGREEMENT COULD FORECLOSE ON, AND
ACQUIRE CONTROL OF, SUBSTANTIALLY ALL OF OUR ASSETS.
In connection with the incurrence of indebtedness under the new credit
facility, the lenders under the new credit facility received a pledge of all of
the equity interests of our existing domestic subsidiaries and will receive a
pledge of all of the equity interests of any future domestic subsidiary and the
voting stock of any of our future foreign subsidiaries that are held directly by
us or our domestic subsidiaries (but not to exceed in most cases 66 2/3% of the
voting stock of such subsidiaries). Additionally, these lenders generally have a
lien on substantially all of our accounts receivables, cash, general
intangibles, investment property and future acquired material property. As a
result of these pledges and liens, if we fail to meet our payment or other
obligations under the new credit facility, the lenders under the credit
agreement would be entitled to foreclose on substantially all of our assets and
liquidate these assets. Under those circumstances, we may not have sufficient
funds to pay principal, premium, if any, and interest on the notes. As a result,
the holders of the notes may lose a portion of or the entire value of their
investment.
15
THE INDENTURE FOR THE NOTES AND OUR NEW CREDIT FACILITY IMPOSE SIGNIFICANT
OPERATING AND FINANCIAL RESTRICTIONS ON US, WHICH MAY PREVENT US FROM
CAPITALIZING ON BUSINESS OPPORTUNITIES AND TAKING SOME CORPORATE ACTIONS.
The indenture for the notes and our new credit facility impose, and the
terms of any future debt may impose, significant operating and financial
restrictions on us. These restrictions, among other things, limit our ability
and that of our subsidiaries to:
- incur or guarantee additional indebtedness;
- pay dividends or make other distributions;
- repurchase our stock;
- make investments;
- sell or otherwise dispose of assets including capital stock of
subsidiaries;
- create liens;
- enter into agreements restricting our subsidiaries' ability to pay
dividends;
- enter into transactions with affiliates; and
- consolidate, merge or sell all of our assets.
We cannot assure you that these covenants will not adversely affect our
ability to finance our future operations or capital needs to pursue available
business opportunities.
In addition, our new credit facility requires us to maintain other
specified financial ratios. We cannot assure you that these covenants will not
adversely affect our ability to finance our future operations or capital needs
or to pursue available business opportunities or limit our ability to plan for
or react to market conditions or meet capital needs or otherwise restrict our
activities or business plans. A breach of any of these covenants or our
inability to maintain the required financial ratios could result in a default in
respect of the related indebtedness. If a default occurs, the relevant lenders
could elect to declare the indebtedness, together with accrued interest and
other fees, to be immediately due and payable and proceed against any collateral
securing that indebtedness.
THE GUARANTEES MAY BE VOIDED UNDER SPECIFIC LEGAL CIRCUMSTANCES.
The notes are guaranteed by certain of our existing domestic restricted
subsidiaries and will be guaranteed by certain of our future domestic restricted
subsidiaries. The guarantees may be subject to review under U.S. federal
bankruptcy law and comparable provisions of state fraudulent conveyance laws if
a bankruptcy or reorganization case or lawsuit is commenced by or on behalf of
our guarantor's unpaid creditors. Under these laws, if a court were to find in
such a bankruptcy or reorganization case or lawsuit that, at the time any
guarantor issued a guarantee of the notes, the guarantor:
- issued the guarantee with the intent of hindering, delaying or defrauding
current or future creditors;
- was a defendant in an action for money damages or had a judgment for
money damages docketed against it if, in either case, after final
judgment, the judgment is unsatisfied; or
- received less than reasonably equivalent value or fair consideration for
issuing the guarantee of the notes and such guarantor:
- was insolvent or was rendered insolvent by reason of issuing the
guarantee;
- was engaged, or about to engage, in a business or transaction for which
its remaining assets constituted unreasonably small capital to carry on
its business; or
16
- intended to incur, or believed that it would incur, debts beyond its
ability to pay as such debts matured (as all of the foregoing terms are
defined in or interpreted under the relevant fraudulent transfer or
conveyance statutes);
then such court could void the guarantee of such guarantor, subordinate the
amounts owing under such guarantee to such guarantor's presently existing or
future debt or take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, a company would be considered insolvent if, at the
time it incurred the debt or issued the guarantee:
- the sum of its debts (including contingent liabilities) was greater than
its assets, at fair valuation;
- the present fair saleable value of its assets at the time was less than
the amount required to pay the probable liability on its total existing
debts and liabilities (including contingent liabilities) as they become
absolute and mature; or
- it could not pay its debts as they become due.
If the guarantees of the notes were challenged, we cannot be sure as to the
standard that a court would use to determine whether any of the guarantors was
solvent at the relevant time or, regardless of the standard that the court uses,
that the issuance of the guarantees would not be voided or the guarantees would
not be subordinated to the guarantor's other debt. If such a case were to occur,
the guarantee could also be subject to the claim that, since the guarantee was
incurred for our benefit and that of our parent holding company, and only
indirectly for the benefit of the guarantor, the obligations of the applicable
guarantor were incurred for less than fair consideration. If a guarantee is
voided as a fraudulent conveyance or otherwise found to be unenforceable, you
will not have a claim against that guarantor but will remain a creditor of ours
and any guarantor whose obligation was not set aside or found to be
unenforceable.
THE EXCHANGE OFFER MAY REDUCE THE MARKET FOR OUR OUTSTANDING NOTES.
There currently is a limited trading market for the outstanding notes.
After the consummation of the exchange offer, it is anticipated that the
outstanding principal amount of the outstanding notes available for trading will
be significantly reduced. A debt security with a smaller outstanding principal
amount available for trading, known as a smaller "float", may command a lower
price than would a comparable debt security with a greater float. Because the
principal amount of outstanding notes exchanged under the exchange offer will
reduce the float of the outstanding notes, the liquidity and market price of the
outstanding notes may be adversely affected. The reduced float may also tend to
make the trading price more volatile. Holders of outstanding notes may attempt
to obtain quotations for the outstanding notes from their brokers; however,
there can be no assurance that any trading market will exist for the outstanding
notes following consummation of the exchange offer. The extent of the public
market for the outstanding notes following consummation of the exchange offer
will depend upon, among other things, the remaining outstanding principal amount
of the outstanding notes after the exchange offer, the number of holders
remaining at the time and the interest in maintaining a market in the
outstanding notes on the part of securities firms.
THERE COULD BE ADVERSE CONSEQUENCES OF FAILURE TO EXCHANGE YOUR OUTSTANDING
NOTES FOR EXCHANGE NOTES.
The outstanding notes were not registered under the Securities Act or under
the securities laws of any state and may not be resold, offered for resale or
otherwise transferred unless they are subsequently registered or resold based on
an exemption from the registration requirements of the Securities Act and
applicable state securities laws. If you do not exchange your outstanding notes
for exchange notes under this exchange offer, you will not be able to resell,
offer to resell or otherwise transfer the outstanding notes unless they are
registered under the Securities Act or unless you resell them, offer to resell
or otherwise transfer them under an exemption from the registration requirements
of, or in a transaction exempt from, the Securities Act. In addition, we will no
longer be under an obligation to register the outstanding notes
17
under the Securities Act except in the limited circumstances provided under the
registration rights agreement. In addition, to the extent that outstanding notes
are tendered for exchange and accepted in the exchange offer, the trading market
for the untendered and tendered but unaccepted outstanding notes could be
adversely affected.
IF AN ACTIVE TRADING MARKET DOES NOT DEVELOP FOR THE EXCHANGE NOTES, YOU MAY NOT
BE ABLE TO RESELL THEM.
Although holders of exchange notes who are not our "affiliates" within the
meaning of the Securities Act may resell or otherwise transfer their exchange
notes without compliance with the registration requirements of the Securities
Act, there is currently no existing market for the exchange notes, and we cannot
assure you that a public market for the exchange notes will develop in the
future or, if developed, will continue. If no active trading market develops,
you may not be able to resell your exchange notes at their fair market value or
at all. Future trading prices of the exchange notes will depend on many factors,
including, among other things, our ability to effect this exchange offer,
prevailing interest rates, our operating results and the market for similar
securities. We have been informed by the initial purchasers of the outstanding
notes, that they intend to make a market in the exchange and the outstanding
notes. However, they may cease their market-making at any time. There has also
been no public market for the outstanding notes. To the extent that outstanding
notes are tendered and accepted in the exchange offer, the market for the
remaining untendered outstanding notes could be adversely affected. See "The
Exchange Offer -- Consequences of Failure to Exchange."
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused volatility in trading prices and market liquidity.
It is possible that the market for the exchange notes will be subject to
disruptions. Any disruptions may have a negative effect on noteholders,
regardless of our prospects and financial performance.
WE MAY NOT BE ABLE TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL.
Upon a "change of control," as defined in the indenture, we will be
required under certain circumstances to make an offer to repurchase the notes at
a price equal to 101% of the principal amount thereof, together with any accrued
and unpaid interest and additional interest to the date of repurchase. If a
change of control were to occur, there can be no assurance that we would have
sufficient funds to pay the purchase price for all of the notes that we might be
required to purchase. Our failure to purchase, or give notice of purchase of,
the notes would be a default under the indenture, which would in turn be a
default under our new credit facility. In addition, a change of control may
constitute an event of default under our new credit facility. A default under
our new credit facility would result in an event of default under the indenture
governing the notes if the lenders were to accelerate the debt under our new
credit facility.
If the foregoing occurs, we may not have enough assets to satisfy all
obligations under our new credit facility and the indenture related to the
notes. The source of funds for any purchase of notes will be our available cash
or cash generated from our operations or other sources, including borrowing,
sales of assets or sales of equity. If we do not have sufficient cash on hand,
we will seek to refinance the indebtedness under our new credit facility and the
notes or obtain a waiver from the lenders or you, as a holder of the notes. We
cannot assure you, however, that we will be able to obtain a waiver or refinance
our indebtedness on commercially reasonable terms, if at all. In addition, the
terms of our senior credit facilities may limit our ability to repurchase all of
the notes in such event. The financial effect of this repurchase could cause a
default under our other debt, even if the event itself would not cause a
default. Accordingly, it is possible that we will not have sufficient funds at
the time of such event to make the required repurchase of notes or that
restrictions in our new credit facility will not allow such repurchases.
18
RISKS RELATING TO OUR COMPANY
OUR BUSINESS WILL BE AFFECTED BY CHANGES IN GENERAL INDUSTRY, ECONOMIC, INTEREST
RATE AND OTHER CONDITIONS.
The exterior residential building products industry in which we operate may
be significantly affected by changes in national and local economic and other
conditions, including employment levels, changing demographic considerations,
availability of financing, interest rates and consumer confidence, all of which
are outside of our control. A prolonged recession affecting the residential
construction industry could result in a significant decrease in our financial
performance.
THE HOME BUILDING INDUSTRY IS CYCLICAL AND DOWNTURNS IN THE INDUSTRY OR THE
ECONOMY COULD NEGATIVELY AFFECT OUR BUSINESS, OPERATING RESULTS AND THE VALUE OF
THE NOTES.
The home building industry is cyclical and is significantly affected by
changes in economic and other conditions such as employment levels, migration
trends, availability of financing, interest rates and consumer confidence. These
factors can negatively affect the demand for and pricing of our products. The
occurrence or continuation of any of the above items and the items described
below could have a negative impact on our business and adversely affect the
value of the notes.
INCREASES IN INTEREST RATES AND THE REDUCED AVAILABILITY OF FINANCING FOR HOME
IMPROVEMENTS MAY CAUSE OUR SALES AND PROFITABILITY TO DECREASE.
In general, demand for home improvement products is adversely affected by
increases in interest rates and the reduced availability of financing. If
interest rates increase and consequently, the ability of prospective buyers to
finance purchases of home improvement products is adversely affected, our sales,
gross margins and cash flow may also be adversely impacted and the impact may be
material.
WE HAVE SUBSTANTIAL FIXED COSTS.
A significant portion of our selling, general and administrative expenses
are fixed costs, which do not fluctuate proportionately with sales. As a result,
a percentage decline in our net sales has a greater percentage effect on our
operating income.
CHANGES IN RAW MATERIAL COSTS AND AVAILABILITY CAN ADVERSELY AFFECT OUR PROFIT
MARGIN.
Our principal raw material, vinyl resin, has been subject to rapid price
changes, particularly in 1999 and 2000. We expect the price of vinyl resin to
increase significantly in 2002. Through price increases to our customers, we
have historically been able to pass on significant resin cost increases. The
results of operations for individual quarters can and have been negatively
impacted by a delay between the time of vinyl resin cost increases and price
increases in our products. While we expect that any significant resin cost
increases in 2002 will be offset by price increases to our customers, there can
be no assurances that we will be able to pass on any future price increases.
Additionally a major interruption in the delivery of vinyl resin to us
would disrupt our operations and could have an adverse effect on our financial
condition and results of operations. We have a contract with a vendor to supply
substantially all of our vinyl resin requirements and believe our requirements
could also be met by other suppliers.
WEATHER IMPACTS OUR QUARTERLY RESULTS.
Because most of our building products are intended for exterior use, sales
tend to be lower during periods of inclement weather. Weather conditions in the
first quarter of each calendar year usually result in that quarter producing
significantly less sales revenue than in any other period of the year.
Consequently, we have historically had small profits or losses in the first
quarter and reduced profits from operations in the fourth quarter of each
calendar year.
19
WE FACE COMPETITION FROM OTHER VINYL BUILDING PRODUCT MANUFACTURERS AND
ALTERNATIVE BUILDING MATERIALS.
We believe that no other company within the vinyl building product market
competes with us in both manufacturing and distribution, except for Owens
Corning. However, we do compete with other manufacturers of vinyl building
products. Some of these companies are larger and have greater financial
resources than us. We also compete with Owens Corning and numerous large and
small distributors of building products in our capacity as a distributor of
these products. Additionally, our products face competition from alternative
materials: wood and aluminum in the window market, and wood, masonry, fiber
cement and metal in the siding market. There can be no assurance we will not be
adversely impacted by our competitors or alternative materials.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL STATUTES AND REGULATIONS, WHICH MAY
RESULT IN SIGNIFICANT COSTS IN ENVIRONMENTAL COMPLIANCE AND REMEDIATION.
Our operations are subject to various environmental statutes and
regulations, including laws and regulations addressing materials used in the
manufacturing of our products. In addition, certain of our operations are
subject to federal, state and local environmental laws and regulations that
impose limitations or other requirements on the discharge of pollutants into the
air, water and soil, establish standards for the treatment, transport, storage
and disposal of solid and hazardous wastes, and remediation of soil and
groundwater contamination. Such laws and regulations may also impact the
availability of materials used in manufacturing our products. We believe we are
in material compliance with applicable environmental requirements, and do not
expect these requirements to result in material expenditures in the foreseeable
future. However, additional future expenditures may be necessary as compliance
standards and technology change, and unforeseen significant expenditures
required to maintain compliance, including unforeseen liabilities, could have an
adverse effect on our business and financial condition.
We entered into a Consent Order dated August 25, 1992 with the United
States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
our Akron, Ohio location. With the exception of a small container storage area,
the use of these facilities was terminated prior to our acquisition of the
Alside assets from USX Corporation in 1984. The effects of the past practices at
this facility are continuing to be investigated (through continued groundwater
monitoring) pursuant to the terms of the consent order. We believe that USX
bears responsibility for substantially all of the direct costs of corrective
action at these facilities under the relevant contract terms and under statutory
and common law. To date, USX has reimbursed us for substantially all of the
direct costs of corrective action at these facilities. We expect that USX will
continue to reimburse us. However, there can be no assurance that payments will
continue to be made by USX or that it will have adequate financial resources to
fully reimburse us for these costs.
Certain environmental laws, including the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended,
("CERCLA"), and comparable state laws, impose strict, and in certain
circumstances joint and several, liability upon specified responsible parties,
which include certain former owners and operators of waste sites designated for
clean up by environmental regulators. A facility formerly owned by our company
in Lumber City, Georgia, which is now owned by Amercord Inc., a company in which
we currently hold a minority interest, is currently undergoing soil and
groundwater investigation, pursuant to a Consent Order entered into by Amercord
Inc. with the Georgia Department of Natural Resources in 1994. We are not a
party to these activities. We also understand that soil and groundwater in
certain areas of the site (including in the area of two industrial waste
landfills) are being investigated under CERCLA by the United Stated
Environmental Protection Agency to determine whether remediation of those areas
may be required and whether the site should be listed on the state or federal
list of priority sites requiring remediation. There can be no assurance that
Amercord Inc., the current site owner, would have adequate financial resources
to carry out additional remediation that may be required, or that if substantial
remediation is required, claims will not be made against us, which could result
in material expenditures. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Amercord Inc."
20
Also, we cannot be certain that we have identified all environmental
matters giving rise to potential liability. More stringent future environmental
requirements or stricter enforcement of existing requirements, the discovery of
unknown conditions, or our past use of hazardous materials could result in
increased expenditures or liabilities which could have an adverse effect on our
business and financial condition.
WE COULD FACE POTENTIAL PRODUCT LIABILITY CLAIMS RELATING TO PRODUCTS WE
MANUFACTURE OR DISTRIBUTE.
We face a business risk of exposure to product liability claims in the
event that the use of our products is alleged to have resulted in injury or
other adverse effects. We currently maintain product liability insurance
coverage but we cannot assure you that we will be able to obtain such insurance
on acceptable terms in the future, if at all, or that any such insurance will
provide adequate coverage against potential claims. Product liability claims can
be expensive to defend and can divert management and other personnel for months
or years regardless of the ultimate outcome. An unsuccessful product liability
defense could have a material adverse effect on our business, financial
condition, results of operations or prospects or our ability to make payments on
the notes when due.
THE LOSS OF OUR KEY PERSONNEL COULD HARM OUR BUSINESS.
Our success largely depends on the continuing services of our key employees
and our ability to attract new personnel. Although we intend to enter into
employment agreements with various key officers, loss of their services could
harm our business.
WE HAVE GROWN SIGNIFICANTLY DURING THE PAST FIVE YEARS WHICH HAS PLACED
SIGNIFICANT DEMANDS ON OUR RESOURCES AND WE MAY NOT BE ABLE TO EFFECTIVELY
MANAGE THE GROWTH OR FUTURE GROWTH.
We have grown significantly in recent years from total net sales of $400.0
million in 1997 to $595.8 million in 2001. During the same period, on a pro
forma basis, we have grown from total net sales of $345.1 million in 1997 to
$524.5 million in 2001. This historical growth and any future growth will
continue to place demands on our resources. Accordingly, our future success and
profitability will depend, in part, on our ability to enhance our management and
operating systems, respond and adapt to rapid changes in technology, obtain
financing for strategic acquisitions and investments in new supply centers,
retain employees due to policy and procedural changes and retain customers due
to our ability to manage change. We may not be able to successfully manage any
significant expansion or obtain adequate financing on favorable terms to manage
our growth.
WE ARE CONTROLLED BY AFFILIATES OF HARVEST PARTNERS, INC., WHOSE INTERESTS IN
OUR BUSINESS MAY BE DIFFERENT THAN YOURS.
By reason of Harvest Partners, Inc.'s and its affiliates' ownership of us
and the ability of Harvest Partners, Inc. and its affiliates, pursuant to a
stockholders agreement among stockholders of Associated Materials Holdings Inc.,
to designate a majority of the members of the Board of Directors of Associated
Materials Holdings Inc., Harvest Partners, Inc. will control actions to be taken
by our stockholder and/or board of directors, including amendments to our
certificate of incorporation and by-laws and approval of significant corporate
transactions, including mergers and sales of substantially all of our assets.
You should consider that the interests of Harvest Partners, Inc. and its
affiliates will likely differ from yours in material respects.
21
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of our obligations under
the registration rights agreement dated as of April 23, 2002. We will not
receive any cash proceeds from this exchange offer. In consideration for issuing
the exchange notes as contemplated in this prospectus, we will receive in
exchange the outstanding notes in like principal amount. The outstanding notes
surrendered in exchange for the exchange notes will be retired and cancelled and
cannot be reissued. The issuance of the exchange notes will not result in any
increase in our indebtedness.
22
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2002, on an actual basis and on a pro forma as
adjusted basis, to reflect the Transactions and the sale of AmerCable. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our historical financial
statements and the related notes thereto and our unaudited pro forma financial
information and the related notes thereto, each included elsewhere herein.
<Table>
<Caption>
AS OF MARCH 31, 2002
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 13,513 $ 9,140
======== ========
Long-term debt:
Existing Credit Agreement................................. $ -- $ --
New Credit Facility(1).................................... -- 96,668
9 1/4% Senior Subordinated Notes(2)....................... 75,000 988
9 3/4% Senior Subordinated Notes.......................... -- 165,000
-------- --------
Total long-term debt................................... 75,000 262,656
Total stockholders' equity.................................. 101,024 165,645
-------- --------
Total capitalization........................................ $176,024 $428,301
======== ========
</Table>
- ---------------
(1) In connection with the transactions, we entered into a new credit facility
which provides for a $125 million term loan which was fully drawn and a $40
million revolving credit facility. Upon the closing of the merger, we
borrowed approximately $2.0 million under our revolving credit facility in
order to temporarily cash collateralize existing letters of credit. We
repaid such borrowings promptly thereafter and have been issued new letters
of credit in the amount of $2.6 million. As of March 31, 2002, on a pro
forma basis, we would have availability of approximately $37.4 million under
the new credit facility. We used the $28.3 million of net proceeds from the
sale of AmerCable to repay a portion of the term loan under the new credit
facility.
(2) $74 million aggregate principal amount of our 9 1/4% senior subordinated
notes were purchased in the debt tender offer. Subsequent to the merger, we
commenced a change of control offer pursuant to the indenture governing the
9 1/4% notes to purchase the 9 1/4% notes not tendered in the debt tender
offer. The change of control offer expired on June 21, 2002 and
approximately $0.1 million aggregate principal amount of such notes were
tendered and accepted. We intend to discharge the remaining approximately
$0.9 million outstanding 9 1/4% notes pursuant to the indenture governing
such notes. We may also, from time to time, purchase such notes through open
market purchases, privately negotiated transactions, tender offers, exchange
offers or otherwise, upon such terms and at such prices as we may determine.
We expect that all discharged notes will be redeemed on or after March 1,
2003 at 104.625% of the principal amount of such notes ($1,046.25 per $1,000
principal amount of such notes), plus accrued and unpaid interest, if any,
to the date of purchase.
23
THE TRANSACTIONS
The outstanding notes were issued in connection with the merger of Simon
Acquisition Corp. with and into us. On March 16, 2002, we entered into a merger
agreement with Associated Materials Holdings Inc., a Delaware corporation, and
Simon Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of
Associated Materials Holdings Inc. Pursuant to the merger agreement, Simon
Acquisition Corp. commenced a tender offer to purchase all of the outstanding
shares of our common stock at a price of $50.00 per share. The merger was
consummated on April 19, 2002. Our common stock was delisted from The Nasdaq
National Market. After the merger, we continued as the surviving corporation and
became a wholly owned subsidiary of Associated Materials Holdings Inc., which is
controlled by affiliates of Harvest Partners, Inc. Our business and operations
continued as they were being conducted prior to the merger.
In addition, we commenced a tender offer and consent solicitation to
purchase all of our outstanding 9 1/4% senior subordinated notes due March 1,
2008 and to receive consents from the holders of such notes to amend the terms
of the indenture governing such notes. The debt tender offer expired on April
18, 2002. Approximately $74 million aggregate principal amount of the $75
million outstanding 9 1/4% notes were tendered. We amended the indenture
governing the 9 1/4% notes to remove substantially all the restrictive covenants
pursuant to a supplemental indenture dated as of April 4, 2002, which became
effective on April 23, 2002. The indenture governing the 9 1/4% notes is subject
to a "change of control" provision pursuant to which the notes outstanding after
the completion of the debt and equity tender offers are redeemable at an amount
equal to 101% of the principal amount of the 9 1/4% notes at the option of the
holder, plus accrued and unpaid interest, if any, to the date of purchase.
Subsequent to the merger, we commenced a change of control offer pursuant to
such provision to purchase the 9 1/4% notes not tendered in the debt tender
offer. The change of control offer expired on June 21, 2002 and approximately
$0.1 million aggregate principal amount of the 9 1/4% notes was tendered and
accepted. We intend to discharge the remaining approximately $0.9 million
outstanding 9 1/4% notes pursuant to the indenture governing the 9 1/4% notes.
We may also, from time to time, purchase such notes through open market
purchases, privately negotiated transactions, tender offers, exchange offers or
otherwise, upon such terms and at such prices as we may determine. We expect
that all discharged notes will be redeemed on or after March 1, 2003 at 104.625%
of the principal amount of such notes ($1,046.25 per $1,000 principal amount of
such notes), plus accrued and unpaid interest, if any, to the date of purchase.
In connection with the merger, we terminated our previous credit facility
and entered into a new $165 million senior secured credit facility. The new
credit facility consists of a $125 million term loan, which is fully drawn, and
a $40 million revolving loan. The net proceeds from the AmerCable sale of
approximately $28.3 million were used to repay a portion of our indebtedness
under our new credit facility in accordance with certain terms thereof. The
equity tender offer closed prior to the closing of the offering of the
outstanding notes and we borrowed under a $215 million unsecured interim credit
facility to complete the equity tender offer. The proceeds from the offering of
the outstanding notes along with proceeds from the term loan under the new
credit facility were used to repay such interim credit facility.
For more information regarding the merger agreement and the related
agreements entered into in connection with the merger, see "Certain
Relationships and Related Transactions."
24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information has been derived by
the application of pro forma adjustments to our historical financial statements
included elsewhere in this prospectus. The unaudited pro forma balance sheet as
of March 31, 2002 was prepared as if the transactions and the sale of AmerCable
had occurred on such date. The unaudited pro forma statements of operations for
the year ended December 31, 2001 and the quarter ended March 31, 2002 give
effect to the transactions as if the transactions and the sale of AmerCable had
occurred as of January 1, 2001. The pro forma adjustments are based upon
available information, preliminary estimates and certain assumptions that we
believe are reasonable, and are described in the accompanying notes.
On March 16, 2002, Associated Materials Incorporated, Associated Materials
Holdings Inc. and its wholly owned subsidiary, Simon Acquisition Corp., entered
into a merger agreement pursuant to which, among other things, each of our
stockholders received $50.00 in cash for each share of our stock. The equity
tender offer expired on April 18, 2002, with over 90% of the outstanding shares
of our common stock being tendered. Simon Acquisition Corp. merged with and into
us on April 19, 2002, with Associated Materials Incorporated continuing as the
surviving corporation and becoming a wholly owned subsidiary of Associated
Materials Holdings Inc.
The merger and related refinancing transactions required total cash of
approximately $466.8 million, which was used to purchase our common stock in the
equity tender offer, to consummate the debt tender offer for our 9 1/4% senior
subordinated notes due 2008 and to pay fees and expenses related to the
transactions. The transactions were financed through an equity contribution of
approximately $172 million by Associated Materials Holdings Inc. (who received
an equity contribution of approximately $164.8 million of cash from the equity
investors and $7.2 million of rollover equity by certain members of management),
cash on hand of approximately $4.8 million, a new term loan of $125 million from
the new credit facility and proceeds from the issuance of the outstanding notes.
The equity tender offer closed prior to the closing of the offering of the
outstanding notes and we borrowed under a $215 million interim credit facility
to complete the equity tender offer. The proceeds from the issuance of the
outstanding notes along with proceeds from the term loan under the new credit
facility were used to repay the interim credit facility. The net proceeds of
approximately $28.3 million from the sale of AmerCable were used to repay a
portion of our indebtedness under our new credit facility in accordance with
certain terms thereof.
The acquisition was accounted for under the purchase method of accounting.
The total cost of the transactions will be allocated to the tangible and
intangible assets acquired and liabilities assumed based upon their respective
fair values as of the date of the transactions. The excess of the purchase price
over the historical basis of the net assets acquired has been allocated in the
accompanying unaudited pro forma financial information based on preliminary
valuation estimates and certain assumptions that management believes are
reasonable. As a result, the actual allocation is subject to the valuation of
our assets and liabilities being finalized. Therefore, the actual allocation of
purchase price and the resulting effect on income from operations may differ
from the pro forma amounts included herein.
The pro forma statements should not be considered indicative of actual
balance sheet data or results that would have been achieved had the transactions
or the sale of AmerCable been consummated on the dates indicated and do not
purport to indicate balance sheet data or results of operations as of any future
date or for any future period. The unaudited pro forma financial information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "The Transactions," "Use of
Proceeds," "Prospectus Summary -- Recent Developments" and the historical
financial statements and the notes thereto included elsewhere in this
prospectus.
25
ASSOCIATED MATERIALS INCORPORATED
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
(IN THOUSANDS)
<Table>
<Caption>
AMERCABLE TRANSACTION
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------- ----------- ------------ ---------
ASSETS
Current assets:
Cash and cash equivalents................. $ 13,513 $ -- $ (4,373)(f) $ 9,140
Accounts receivable, net.................. 61,658 (6,132)(a) -- 55,526
Inventories............................... 79,412 (18,317)(a) 1,800(g) 62,895
Income taxes receivable................... 940 328(b) 1,047(h) 5,690
1,871(i)
578(g)
926(g)
Other current assets...................... 3,637 (49)(a) -- 3,588
-------- -------- --------- --------
Total current assets.............. 159,160 (24,170) 1,849 136,839
Property, plant and equipment, net.......... 77,897 (12,723)(a) 24,932(g) 90,106
Goodwill and other intangible assets........ -- 1,121(c) 292,581(g) 293,702
Other assets................................ 4,112 (853)(b) (1,324)(g) 13,373
(1,501)(g)
12,939(j)
-------- -------- --------- --------
Total assets................................ $241,169 $(36,625) $ 329,476 $534,020
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 33,187 $ (5,280)(a) $ -- $ 27,907
Accrued liabilities....................... 20,904 (570)(a) 770(g) 20,719
177(g)
(562)(k)
Current maturity of new credit facility... -- -- 1,250(f) 1,250
-------- -------- --------- --------
Total current liabilities......... 54,091 (5,850) 1,635 49,876
Deferred income taxes....................... 4,996 46,039(g) 51,035
Other liabilities........................... 6,058 -- -- 6,058
New credit facility......................... -- (28,332)(d) 123,750(f) 95,418
Senior subordinated notes................... -- -- 165,000(f) 165,000
Long-term debt.............................. 75,000 -- (74,012)(f) 988
Total stockholders' equity.................. 101,024 (1,918)(e) 164,807(l) 165,645
(525)(b) 7,941(m)
(101,024)(g)
(1,672)(h)
(2,988)(i)
-------- -------- --------- --------
Total liabilities and stockholders'
equity.................................... $241,169 $(36,625) $ 329,476 $534,020
======== ======== ========= ========
</Table>
26
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
(IN THOUSANDS)
(a) These pro forma adjustments reflect Associated Materials Incorporated's
sale of the AmerCable division and the resulting elimination of AmerCable's
assets and liabilities. We completed the sale of AmerCable on June 24, 2002.
(b) Accelerated amortization of deferred financing fees related to the new
credit facility resulting from payment of a portion of the term loan, net of
related tax benefit of $328 in connection with the sale of AmerCable.
(c) Adjustment to reflect net book value of AmerCable in excess of fair
value of net assets sold.
(d) Payment of a portion of the term loan with the net proceeds from the
sale of AmerCable.
(e) Represents redemption of fully vested options held by certain members
of AmerCable's management.
(f) Represents the sources and uses of the transactions (as of March 31,
2002)
<Table>
Sources:
New credit facility....................................... $125,000
Notes offered hereby...................................... 165,000
Equity financing.......................................... 171,964
--------
461,964
--------
Uses:
Purchase of Associated Materials Incorporated's common
stock and options...................................... 360,778
Debt tender offer -- Notes............................... 74,012
-- Premium.............................. 7,264
-- Accrued Interest since last
payment................................ 562
Transaction costs......................................... 23,721
--------
466,337
--------
Net cash used in transaction................................ $ 4,373
========
</Table>
27
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET -- (CONTINUED)
(g) Represents the purchase price allocated to fair value of net assets
acquired in connection with the transactions as follows:
<Table>
Total cash consideration.................................... $353,621
Fair value of options granted to employees in exchange for
fully vested options...................................... 7,941
Fees in connection with the merger.......................... 8,063
Severance in connection with closing corporate office....... 770
--------
Total purchase consideration................................ 370,395
Less: historical net book value of assets acquired.......... 101,024
--------
Purchase price in excess of historical net book value of
assets acquired........................................... 269,371
Adjustments to reflect fair market value:
Inventory................................................. (1,800)
Fixed Assets.............................................. (24,932)
Write-off of deferred fees of 9 1/4% senior subordinated
notes, net of $578 tax benefit......................... 923
Reduction of pension asset................................ 1,324
Increase in pension liability............................. 177
9 1/4% senior subordinated notes, net of $926 tax
benefit................................................ 1,479
Deferred tax liability as a result of the merger.......... 46,039
--------
Goodwill and other intangible assets as a result of the
merger.................................................... $292,581
========
</Table>
(h) Write-off of debt issuance cost in connection with unsecured interim
credit facility, net of related tax benefit of $1,047.
(i) Expense of tender offer premium in excess of market value of the
existing 9 1/4% senior subordinated notes, net of related tax benefit of $1,871.
(j) Represents financing fees in connection with the issuance of the 9 3/4%
senior subordinated notes and the new credit facility.
(k) Payment of accrued interest assuming tender of the existing 9 1/4%
senior subordinated notes on March 31, 2002.
(l) Cash equity contribution in connection with merger.
(m) Fair value of vested employee stock options issued in exchange for
fully vested employee stock options of Associated Materials Holdings Inc.
28
ASSOCIATED MATERIALS INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 2002
(IN THOUSANDS)
<Table>
<Caption>
AMERCABLE TRANSACTION
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------
Total net sales............................ $123,198 $(12,136) $ -- $111,062
Cost of sales.............................. 90,778 (10,407) (267)(b) 80,104
-------- -------- ------- --------
Gross profit............................... 32,420 (1,729) 267 30,958
Selling, general and administrative
expenses................................. 31,219 (1,647) (285)(b) 29,287
-------- -------- ------- --------
Income from operations..................... 1,201 (82) 552 1,671
Interest expense, net...................... 1,669 -- 4,108(c) 5,777
-------- -------- ------- --------
Loss before other non-operating expenses
and income taxes......................... (468) (82) (3,556) (4,106)
Merger transaction costs................... 2,002 -- (2,002)(d) --
-------- -------- ------- --------
Loss before income taxes................... (2,470) (82) (1,554) (4,106)
Income tax benefit......................... (951) (32) (598)(e) (1,581)
-------- -------- ------- --------
Net loss (f)............................... $ (1,519) $ (50) $ (956) $ (2,525)
======== ======== ======= ========
Ratio of earnings to fixed charges(g)...... -- --
</Table>
29
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 2002
(IN THOUSANDS)
(a) These pro forma adjustments reflect Associated Materials Incorporated's
sale of the AmerCable division and the resulting elimination of AmerCable's
results of operations. We completed the sale of AmerCable on June 24, 2002.
(b) Details of the pro forma adjustments to cost of sales and selling,
general and administrative expenses reflect the following: (i) the elimination
of compensation expense related to the corporate chief executive officer ("CEO")
and the corporate chief financial officer ("CFO"), who were terminated upon
consummation of the transactions, (ii) incremental depreciation and amortization
of tangible and intangible assets recorded in conjunction with the acquisition,
(iii) the annual management services fee payable to Harvest Partners for
services including those historically provided by the CEO and corporate CFO and
(iv) elimination of historical amortization of deferred financing costs.
<Table>
<Caption>
FOR THE QUARTER ENDED
MARCH 31, 2002
---------------------
Cost of sales:
Net decrease in depreciation and amortization............... $(267)
=====
Selling, general and administrative expenses:
CEO and CFO compensation.................................... $(303)
Decrease in depreciation and amortization................... (100)
Management services fee..................................... 187
Amortization of historical deferred financing costs......... (69)
-----
$(285)
=====
</Table>
The acquisition will be accounted for under the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No.
141, "Business Combinations" and the resulting goodwill and other intangible
assets will be accounted for under Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." The estimated increase in fair
value of property, plant and equipment is approximately $24.9 million, with
estimated useful lives ranging between 5 and 25 years. In addition, we believe
we have intangible assets related to patents and trademarks that will ultimately
be assigned fair market values in the final purchase price allocation. Based on
the preliminary purchase price allocation, the value assigned to patents is
approximately $8.6 million with estimated useful lives of 10 years, and the
value assigned to trademarks with indefinite lives is $86.5 million. The
purchase price in excess of fair value of net assets acquired, including
identifiable intangibles, will be recorded as goodwill. Based on the preliminary
purchase price allocation, the value assigned to goodwill is approximately
$198.6 million. The purchase price allocation and the lives assigned to the
assets are preliminary and have been made solely for the purpose of developing
the pro forma financial information. Accordingly, the allocation of the purchase
price, the related assignment of asset lives, and resulting depreciation and
amortization expense are based on preliminary estimates, which may differ from
the final purchase price allocation and the final lives assigned to the assets.
Any change in the fair value or lives assigned to amortizable or depreciable
assets may impact future operating results.
30
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(c) The pro forma adjustments to interest expense reflect the following:
<Table>
<Caption>
FOR THE QUARTER ENDED
MARCH 31, 2002
---------------------
Commitment fee on revolving credit facility................. $ 49
Term loan................................................... 1,320
9 3/4% Senior Subordinated Notes............................ 4,022
Existing 9 1/4% Senior Subordinated Notes not tendered...... 23
Amortization of debt issuance costs......................... 363
-------
Pro forma interest expense.................................. 5,777
Less: historical interest expense, net...................... (1,669)
-------
Total adjustment............................................ $ 4,108
=======
</Table>
Interest expense was calculated as follows: (i) commitment fee on unused
portion of the revolving credit facility of 1/2%; (ii) a rate of 5 4/10%
(average London Interbank Offered Rate ("LIBOR") for the quarter ended March 31,
2002 of 1 9/10% + 3 1/2%) on the new credit facility net of repayment using the
proceeds from the AmerCable sale; (iii) one fourth of annual administration fee
of $75,000 on the new credit facility; and (iv) an interest rate of 9 3/4% on
the notes.
The effect of a 1/8% increase or decrease in interest rates would increase
or decrease total pro forma interest expense by $30,000 for the quarter ended
March 31, 2002.
(d) Represents the elimination of merger transaction costs incurred by
Associated Materials Incorporated prior to the merger directly related to the
transactions.
(e) Represents the estimated tax effect of the pro forma adjustments at an
effective rate of 38.5%.
(f) The pro forma statement of operations does not include pro forma
adjustments for the increase in cost of sales due to the adjustment of inventory
to fair value recorded as part of the purchase price allocation, the write-off
of debt issuance costs in connection with the unsecured interim credit facility,
the accelerated amortization of the debt issuance costs related to the repayment
of a portion of the new credit facility with the proceeds from the sale of
AmerCable or the portion of the tender offer premium in excess of market value
of the existing 9 1/4% senior subordinated notes. These costs represent
non-recurring expenses which we anticipate will be recorded in the statement of
operations in the twelve months subsequent to the date of the transactions.
(g) The deficiency in the ratio of earnings to fixed charges is
approximately $2.5 million on an historical basis and $4.1 million on a pro
forma basis.
31
ASSOCIATED MATERIALS INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
<Table>
<Caption>
AMERCABLE TRANSACTION
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS PRO FORMA
---------- -------------- ----------- ---------
Total net sales............................. $595,819 $(71,291) $ -- $524,528
Cost of sales............................... 425,366 (57,464) (504)(b) 367,398
-------- -------- -------- --------
Gross profit................................ 170,453 (13,827) 504 157,130
Selling, general and administrative
expenses.................................. 119,945 (7,174) (1,070)(b) 111,701
-------- -------- -------- --------
Income from operations...................... 50,508 (6,653) 1,574 45,429
Interest expense, net....................... 6,795 -- 18,005(c) 24,800
Write-down of investment in Amercord Inc.... 2,393 -- -- 2,393
-------- -------- -------- --------
Income before income taxes.................. 41,320 (6,653) (16,431) 18,236
Income tax expense.......................... 15,908 (2,561) (6,326)(d) 7,021
-------- -------- -------- --------
Net income(e)............................... $ 25,412 $ (4,092) $(10,105) $ 11,215
======== ======== ======== ========
Ratio of earnings to fixed charges.......... 4.1x 1.6x
</Table>
32
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
(a) These pro forma adjustments reflect Associated Materials Incorporated's
sale of the AmerCable division and the resulting elimination of AmerCable's
results of operations. We completed the sale of AmerCable on June 24, 2002.
(b) Details of the pro forma adjustments to cost of sales and selling,
general and administrative expenses reflect the following: (i) the elimination
of compensation expense related to the corporate chief executive officer ("CEO")
and the corporate chief financial officer ("CFO"), who were terminated upon
consummation of the transactions, (ii) incremental depreciation and amortization
of tangible and intangible assets recorded in conjunction with the acquisition,
(iii) the annual management services fee payable to Harvest Partners for
services including those historically provided by the CEO and corporate CFO,
(iv) increase in pension expense based on actuarial valuations and (v)
elimination of historical amortization of deferred financing costs.
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31, 2001
------------------
Cost of sales:
Net decrease in depreciation and amortization............... $ (504)
=======
Selling, general and administrative expenses:
CEO and CFO compensation.................................... $(1,473)
Decrease in depreciation and amortization................... (282)
Management services fee..................................... 750
Increase in pension expense................................. 209
Amortization of historical deferred financing costs......... (274)
-------
$(1,070)
=======
</Table>
The acquisition will be accounted for under the purchase method of
accounting in accordance with Statement of Financial Accounting Standards No.
141, "Business Combinations" and the resulting goodwill and other intangible
assets will be accounted for under Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets." The estimated increase in fair
value of property, plant and equipment is approximately $24.9 million, with
estimated useful lives ranging between 5 and 25 years. In addition, we believe
we have intangible assets related to patents and trademarks that will ultimately
be assigned fair market values in the final purchase price allocation. Based on
the preliminary purchase price allocation, the value assigned to patents is
approximately $8.6 million with estimated useful lives of 10 years, and the
value assigned to trademarks with indefinite lives is $86.5 million. The
purchase price in excess of fair value of net assets acquired, including
identifiable intangibles, will be recorded as goodwill. Based on the preliminary
purchase price allocation, the value assigned to goodwill is approximately
$198.6 million. The purchase price allocation and the lives assigned to the
assets are preliminary and have been made solely for the purpose of developing
the pro forma financial information. Accordingly, the allocation of the purchase
price, the related assignment of asset lives, and resulting depreciation and
amortization expense are based on preliminary estimates, which may differ from
the final purchase price allocation and the final lives assigned to the assets.
Any change in the fair value or lives assigned to amortizable or depreciable
assets may impact future operating results.
33
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS -- (CONTINUED)
(c) The pro forma adjustments to interest expense reflect the following:
<Table>
<Caption>
FOR THE YEAR ENDED
DECEMBER 31, 2001
------------------
Commitment fee on revolving credit facility................. $ 200
Term loan................................................... 6,967
9 3/4% Senior Subordinated Notes............................ 16,088
Existing 9 1/4% Senior Subordinated Notes not tendered...... 91
Amortization of debt issuance costs......................... 1,454
-------
Pro forma interest expense.................................. 24,800
Less: historical interest expense, net...................... (6,795)
-------
Total adjustment............................................ $18,005
=======
</Table>
Interest expense was calculated as follows: (i) commitment fee on unused
portion of the revolving credit facility of 1/2%; (ii) a rate of 7 1/10%
(average London Interbank Offered Rate ("LIBOR") for the year ended December 31,
2001 of 3 6/10% + 3 1/2%) on the new credit facility net of repayment using the
proceeds from the AmerCable sale; (iii) administration fee of $75,000 on the new
credit facility; and (iv) an interest rate of 9 3/4% on the notes.
The effect of a 1/8% increase or decrease in interest rates would increase
or decrease total pro forma interest expense by $0.1 million for the year ended
December 31, 2001.
(d) Represents the estimated tax effect of the pro forma adjustments at an
effective rate of 38.5%.
(e) The pro forma statement of operations does not include pro forma
adjustments for the increase in cost of sales due to the adjustment of inventory
to fair value recorded as part of the purchase price allocation, the write-off
of debt issuance costs in connection with the unsecured interim credit facility,
the accelerated amortization of the debt issuance costs related to the repayment
of a portion of the new credit facility with the proceeds from the sale of
AmerCable or the portion of the tender offer premium in excess of market value
of the existing 9 1/4% senior subordinated notes. These costs represent
non-recurring expenses which we anticipate will be recorded in the statement of
operations in the twelve months subsequent to the date of the transactions.
34
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth our selected historical financial data for
the first quarter of 2001 and the first quarter of 2002 and for each of the five
years in the period ended December 31, 2001. The statement of operations data
for each of the three years in the period ended December 31, 2001 and the
balance sheet data as of December 31, 2000 and 2001 were derived from our
audited financial statements included elsewhere in this prospectus. The
statement of operations data for the two years ended December 31, 1997 and 1998
and the balance sheet data as of December 31, 1997, 1998 and 1999 were derived
from our audited financial statements that are not included in this prospectus.
The selected financial data presented below for the quarter ended March 31,
2001 and 2002 have been derived from our unaudited interim financial
information, which, in the opinion of our management, includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the unaudited interim periods. The operating results for the
first quarter of 2002 are not necessarily indicative of the operating results
for the full fiscal year. No separate financial information for Simon
Acquisition Corp. has been provided in this prospectus because (1) Simon
Acquisition Corp. was formed for the purposes of the transactions and did not
conduct any operations and (2) Simon Acquisition Corp. had no material assets.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus. Our
historical results are not necessarily indicative of our future results.
<Table>
<Caption>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR RATIOS)
INCOME STATEMENT DATA:
Net sales(1).............................. $399,974 $410,111 $455,268 $499,393 $595,819 $108,611 $123,198
Cost of sales(1).......................... 285,798 285,822 317,596 353,994 425,366 81,414 90,778
-------- -------- -------- -------- -------- -------- --------
Gross profit.............................. 114,176 124,289 137,672 145,399 170,453 27,197 32,420
Selling, general and administrative
expenses................................ 81,142 88,727 96,028 107,255 119,945 28,127 31,219
Other income, net......................... -- 2,673 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............. 33,034 38,235 41,644 38,144 50,508 (930) 1,201
Interest expense.......................... 9,795 7,565 6,779 6,046 6,795 1,579 1,669
Gain on the sale of UltraCraft............ -- -- -- 8,012 -- -- --
Merger transaction costs.................. -- -- -- -- -- -- 2,002
Equity in loss of Amercord Inc............ 626 1,881 1,337 -- -- -- --
Write-down of Amercord Inc................ -- 4,351 -- -- 2,393 2,393 --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes......... 22,613 24,438 33,528 40,110 41,320 (4,902) (2,470)
Income tax expense (benefit).............. 9,524 11,382 13,038 16,555 15,908 (1,887) (951)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary item... 13,089 13,056 20,490 23,555 25,412 (3,015) (1,519)
Extraordinary item........................ -- 4,107 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......................... $ 13,089 $ 8,949 $ 20,490 $ 23,555 $ 25,412 $ (3,015) $ (1,519)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)................................. $ 39,555 $ 45,452 $ 50,163 $ 47,694 $ 61,427 $ 1,731 $ 4,180
Capital expenditures...................... 8,758 14,261 18,915 11,925 15,022 6,765 3,118
Cash provided by (used in) operating
activities.............................. 22,496 26,799 15,244 22,968 43,989 (10,127) (12,001)
Cash used in investing activities......... (7,941) (14,712) (17,619) (5,538) (9,861) (1,726) (3,110)
Cash provided by (used in) financing
activities.............................. (15,004) 942 (9,157) (4,983) (21,138) (1,980) (245)
Ratio of earnings to fixed charges(3)..... 2.6x 3.0x 3.9x 4.3x 4.1x -- --
</Table>
35
<Table>
<Caption>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................... $ 61,191 $ 79,225 $ 85,878 $102,064 $106,188 $ 95,334 $105,069
Total assets.............................. 178,504 189,319 206,296 231,141 254,307 223,631 241,169
Total debt................................ 80,914 78,600 75,000 75,000 75,000 75,000 75,000
Stockholders' equity...................... 44,734 64,378 79,326 97,990 102,675 92,995 101,024
</Table>
- ---------------
(1) Certain prior period amounts have been reclassified to conform with the
current period presentation.
(2) EBITDA is calculated as income from operations plus depreciation and
amortization. We have included information concerning EBITDA because we
believe that EBITDA is used by certain investors as one measure of a
company's historical ability to service its debt. EBITDA should not be
considered as an alternative to, or more meaningful than, net income as an
indicator of a company's operating performance or to cash flows as a measure
of liquidity. EBITDA has not been prepared in accordance with generally
accepted accounting principles. EBITDA, as presented for our company, may
not be comparable to similarly titled measures reported by other companies.
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, income or loss from discontinued
operations and extraordinary gains or losses, plus fixed charges. Fixed
charges consist of interest expense, including amortization of debt issuance
costs and the interest component of rent expense. The deficiency in the
ratio of earnings to fixed charges is approximately $4.9 million and $2.5
million for the quarters ended March 31, 2001 and 2002, respectively.
36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in forward-looking statements for many reasons, including the risks described in
"Risk Factors" and elsewhere in this prospectus. You should read the following
discussion with the sections of this prospectus titled "Unaudited Pro Forma
Financial Information," "Selected Historical Financial Data" and our financial
statements and related notes included elsewhere in this prospectus.
OVERVIEW
GENERAL
Prior to the merger and the sale of AmerCable, we consisted of two
operating divisions, Alside and AmerCable. In addition, we own an interest in
Amercord Inc., which was accounted for using the equity method until November
1999 when it was recapitalized, reducing our interest in Amercord Inc. from 50%
to 9.9%. Since the recapitalization, we have accounted for Amercord Inc. under
the cost method.
On March 16, 2002, Associated Materials Incorporated, Associated Materials
Holdings Inc. and its wholly owned subsidiary, Simon Acquisition Corp. entered
into a merger agreement pursuant to which, among other things, each stockholder
of Associated Materials Incorporated received $50.00 in cash for each share of
Associated Materials Incorporated stock. The equity tender offer expired on
April 18, 2002. Over 90% of the outstanding shares of common stock of Associated
Materials Incorporated were tendered and Simon Acquisition Corp. merged into
Associated Materials Incorporated on April 19, 2002. Associated Materials
Incorporated is now a wholly owned subsidiary of Associated Materials Holdings
Inc., which is controlled by affiliates of Harvest Partners, Inc. Subsequent to
the merger, our business and operations continued as they were being conducted
prior to the merger.
On June 24, 2002, we completed the sale of our AmerCable division to
AmerCable Incorporated, a newly-formed entity controlled by members of AmerCable
management and Wingate Partners III, L.P., for net proceeds of approximately
$28.3 million in cash and the assumption of certain liabilities pursuant to an
asset purchase agreement dated as of the same date. We used the net proceeds to
repay a portion of our new credit facility in accordance with certain terms
thereof. AmerCable is a leading manufacturer of specialty electrical cable
products primarily used in the mining, marine and offshore drilling industries.
In 2001, AmerCable accounted for approximately 12% of our total net sales.
Our results of operations are primarily affected by the operating results
of Alside, which accounted for more than 87% of our net sales in each of the
last three years. Because our residential building products are consumer durable
goods, our sales are impacted by a number of factors, including the availability
of consumer credit, consumer interest rates, employment trends, changes in
levels of consumer confidence, national and regional trends in new housing
starts and general economic conditions. Our sales are also affected by changes
in consumer preferences with respect to types of building products. Our products
are used in the repair and remodeling, as well as the new construction, sectors
of the building industry. We believe that approximately two thirds of Alside's
sales were made to the repair and remodeling sector in 2001, 2000 and 1999.
We believe that vinyl building products continue to gain market share from
metal and wood products due to vinyl's favorable attributes, which include its
durability, lower maintenance cost and lower cost compared to wood and metal.
Although we cannot give any assurances, we further believe that these increases
in market share, together with our increased marketing efforts, will increase
our sales of vinyl siding, vinyl windows and other complementary building
products.
We operate with significant operating and financial leverage, which
increased substantially following the completion of the transactions
contemplated by the merger agreement. Significant portions of our selling,
general and administrative expenses are fixed costs that neither increase nor
decrease
37
proportionately with sales. As a result, a percentage change in our net sales
will have a greater percentage effect on our income from operations. In
addition, interest expense related to our long-term debt is fixed.
SEGMENT DATA
Alside accounted for more than 87% of our net sales and income from
operations in each of the last three years. In 2001, Alside accounted for
approximately 88% of our income from operations exclusive of corporate selling,
general and administrative expenses. Management believes that a discussion of
our results and financial position for these periods is enhanced by presenting
segment information for Alside and AmerCable. The tables below set forth for the
periods indicated certain items from our financial statements:
<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
% OF % OF % OF
TOTAL NET TOTAL NET TOTAL NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
CONSOLIDATED:
Net sales(1)......................... $595,819 100.0% $499,393 100.0% $455,268 100.0%
Gross profit......................... 170,453 28.6 145,399 29.1 137,672 30.2
Selling, general and administrative
expenses(2)......................... 119,945 20.1 107,255 21.5 96,028 21.1
-------- ----- -------- ----- -------- -----
Income (loss) from operations........ 50,508 8.5 38,144 7.6 41,644 9.1
Interest expense..................... 6,795 1.1 6,046 1.2 6,779 1.5
Gain on the sale of UltraCraft....... -- -- 8,012 1.6 -- --
Equity in loss of Amercord Inc....... -- -- -- -- 1,337 0.3
Write-down of Amercord Inc........... 2,393 0.4 -- -- -- --
Merger transaction costs............. -- -- -- -- -- --
-------- ----- -------- ----- -------- -----
Income (loss) before income taxes.... 41,320 7.0 40,110 8.0 33,528 7.3
Income tax expense (benefit)......... 15,908 2.7 16,555 3.3 13,038 2.8
-------- ----- -------- ----- -------- -----
Net income (loss).................... $ 25,412 4.3% $ 23,555 4.7% $ 20,490 4.5%
======== ===== ======== ===== ======== =====
<Caption>
QUARTER ENDED MARCH 31,
-------------------------------------------
2002 2001
-------------------- --------------------
% OF % OF
TOTAL NET TOTAL NET
AMOUNT SALES AMOUNT SALES
-------- --------- -------- ---------
(IN THOUSANDS)
CONSOLIDATED:
Net sales(1)......................... $123,198 100.0% 108,611 100.0%
Gross profit......................... 32,420 26.3 27,197 25.0
Selling, general and administrative
expenses(2)......................... 31,219 25.3 28,127 25.9
-------- ----- -------- -----
Income (loss) from operations........ 1,201 1.0 (930) (0.9)
Interest expense..................... 1,669 1.4 1,579 1.5
Gain on the sale of UltraCraft....... -- -- -- --
Equity in loss of Amercord Inc....... -- -- -- --
Write-down of Amercord Inc........... -- -- 2,393 2.2
Merger transaction costs............. 2,002 1.6 -- --
-------- ----- -------- -----
Income (loss) before income taxes.... (2,470) (2.0) (4,902) (4.5)
Income tax expense (benefit)......... (951) (0.8) (1,887) (1.7)
-------- ----- -------- -----
Net income (loss).................... $ (1,519) (1.2)% $ (3,015) (2.8)%
======== ===== ======== =====
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31
------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
% OF % OF % OF
TOTAL NET TOTAL NET TOTAL NET
AMOUNT SALES AMOUNT SALES AMOUNT SALES
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
ALSIDE:
Net sales(1)......................... $524,528 100.0% $434,845 100.0% $410,107 100.0%
Gross profit......................... 156,626 29.8 131,704 30.3 129,996 31.7
Selling, general and administrative
expenses............................ 107,737 20.5 95,404 22.0 87,588 21.4
-------- ----- -------- ----- -------- -----
Income (loss) from operations........ $ 48,889 9.3% $ 36,300 8.3% $ 42,408 10.3%
======== ===== ======== ===== ======== =====
Total Assets......................... $189,142 $165,990 $167,024
AMERCABLE:
Net sales(1)......................... $ 71,291 100.0% $ 64,548 100.0% $ 45,161 100.0%
Gross profit......................... 13,827 19.4 13,695 21.2 7,676 17.0
Selling, general and administrative
expenses............................ 7,174 10.1 7,880 12.2 4,801 10.6
-------- ----- -------- ----- -------- -----
Income from operations............... $ 6,653 9.3% $ 5,815 9.0% $ 2,875 6.4%
======== ===== ======== ===== ======== =====
Total Assets......................... $ 34,054 $ 34,255 $ 26,673
<Caption>
QUARTER ENDED MARCH 31,
-------------------------------------------
2002 2001
-------------------- --------------------
% OF % OF
TOTAL NET TOTAL NET
AMOUNT SALES AMOUNT SALES
-------- --------- -------- ---------
(IN THOUSANDS)
ALSIDE:
Net sales(1)......................... $111,062 100.0% $ 89,939 100.0%
Gross profit......................... 30,691 27.6 23,718 26.4
Selling, general and administrative
expenses............................ 28,508 25.7 24,875 27.7
-------- ----- -------- -----
Income (loss) from operations........ $ 2,183 2.0% $ (1,157) (1.3)%
======== ===== ======== =====
Total Assets......................... $188,759 $176,413
AMERCABLE:
Net sales(1)......................... $ 12,136 100.0% $ 18,672 100.0%
Gross profit......................... 1,729 14.2 3,479 18.7
Selling, general and administrative
expenses............................ 1,647 13.6 1,876 10.1
-------- ----- -------- -----
Income from operations............... $ 82 0.7% $ 1,603 8.6%
======== ===== ======== =====
Total Assets......................... $ 36,283 $ 40,128
</Table>
- ---------------
(1) Certain prior period amounts have been reclassified to conform with the
current period presentation.
(2) Consolidated selling, general and administrative expenses include corporate
expenses of $5.0 million, $4.0 million and $3.6 million for the years 2001,
2000 and 1999, respectively, and $1.1 million and $1.4 million for the
quarters ended March 31, 2002 and 2001, respectively.
38
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2002 COMPARED TO THE QUARTER ENDED MARCH 31, 2001
Our net sales increased 13.4% to $123.2 million for the quarter ended March
31, 2002 compared to $108.6 million for the same period in 2001 as higher sales
at our Alside division were partially offset by lower sales at our AmerCable
division. Income from operations increased to $1.2 million for the first quarter
of 2002 compared to an operating loss of $930,000 for the same period in 2001 as
higher operating profits at Alside were offset by lower operating profits at
AmerCable. Our net loss was $1.5 million or $0.22 per share in 2002 compared to
a net loss of $3.0 million or $0.39 per share in 2001. The 2002 results include
$2.0 million in transaction costs associated with our strategic review process
and our merger with Simon Acquisition Corp. The 2001 results include the
write-off of our Amercord investment. Exclusive of these items, our first
quarter net loss was $0.04 per share and $0.20 per share for 2002 and 2001,
respectively.
Our results of operations are primarily affected by our Alside division,
which accounted for more than 87% of our annual net sales in each of the last
three years. Because most of Alside's building products are intended for
exterior use, Alside's sales and operating profits tend to be lower during
periods of inclement weather. Weather conditions in the first quarter of each
calendar year historically result in that quarter producing significantly less
sales revenue and profits than in any other period of the year.
Alside
Alside's net sales increased $21.1 million or 23.5% to $111.1 million for
the first quarter of 2002 compared to $89.9 million for the same period in 2001
due to higher sales of vinyl windows and vinyl siding. Unit sales of vinyl
siding and vinyl windows increased 16.0% and 71.7%, respectively, for the first
quarter of 2002 compared to the same period in 2001. Gross profit increased
29.4% to $30.7 million in 2002 compared to $23.7 million in 2001 due to the
increased sales volume and significant improvements at Alside's Northwest window
fabrication facility which was profitable in the first quarter of 2002 but
incurred losses during the first quarter of 2001. Selling, general and
administrative expense increased 14.6% to $28.5 million due to higher personnel
costs in supply centers, higher incentive compensation due to increased sales,
and additional marketing expense to support sales growth. Selling, general and
administrative expense as a percent of sales was 25.7% for the first quarter of
2002 compared to 27.7% for the same period of 2001. Income from operations was
$2.2 million for the first quarter of 2002 compared to an operating loss of $1.2
million for the same period in 2001 as increased gross profits were partially
offset by higher selling, general and administrative expense.
AmerCable
Net sales at AmerCable decreased 35.0% to $12.1 million for the first
quarter of 2002 compared to $18.7 million for the same period in 2001 due
primarily to lower industrial cable sales to the telecommunications industry.
Selling, general and administrative expense decreased 12.2% to $1.6 million for
the first quarter of 2002 compared to $1.9 million for the 2001 period due to
lower compensation costs. Income from operations decreased to $82,000 in the
first quarter of 2002 compared to $1.6 million for the 2001 period as lower
gross profits due to decreased sales were slightly offset by lower selling,
general and administrative expense.
Other
Net interest expense increased 5.7% to $1.7 million for the first quarter
of 2002 compared to $1.6 million for the same period in 2001 due to lower
investment income resulting from the decline in interest rates during the first
quarter of 2002 compared to 2001. We recorded interest income of $87,000 for the
first quarter of 2002 compared to $176,000 for the same period in 2001. In
connection with the merger, we incurred one-time merger related costs, including
legal, accounting and investment banking fees of approximately $2.0 million
during the first quarter of 2002. These costs have been classified in merger
transaction costs in the statement of operations included elsewhere in this
prospectus.
39
YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
General
Our net sales increased $96.4 million or 19.3% to a record high of $595.8
million for the year ended 2001 as compared to the 2000 period due primarily to
strong sales at our Alside division. Income from operations increased $12.4
million or 32.4% to $50.5 million for the 2001 period compared to $38.1 million
for the 2000 period due primarily to higher operating profits at Alside. Net
income increased 7.9% to $25.4 million or $3.46 per share in 2001 compared to
$23.6 million or $2.85 per share in 2000. The 2001 results include the $2.4
million write-down of our Amercord Inc. investment while the 2000 period results
included the $8.0 million pre-tax gain on the sale of our UltraCraft cabinet
operations and an additional $1.1 million in income tax expense recorded due to
an adjustment to a deferred tax asset. Excluding these items, our net income and
earnings per share were $26.9 million or $3.67 per share in 2001 and $19.7
million or $2.39 per share in 2000. In April 2001, we repurchased 1.0 million
shares of our outstanding Class B common stock. Our weighted average shares
outstanding were 7.3 million in 2001 and 8.3 million in 2000. Exclusive of the
repurchase of the shares of Class B common stock, our weighted average shares
outstanding and earnings per share for 2001 were 8.0 million and $3.20,
respectively.
Alside
Alside's net sales increased 20.6% to $524.5 million in 2001 compared to
$434.8 million in the 2000 period due to higher sales volume of vinyl windows,
vinyl siding and complementary building products, such as roofing, foam
insulation, tools and other materials manufactured by third parties and sold
through Alside's supply centers. Unit sales of vinyl windows increased 48.1% for
the 2001 period compared to the 2000 period, exclusive of the operations of
Alpine, which were acquired in October 2000. Vinyl window unit sales increased
83.5% including the Alpine operations. Unit sales of vinyl siding increased
11.1% for the 2001 period while we believe that the vinyl siding industry as a
whole decreased slightly. Gross profit increased 18.9% to $156.6 million for the
2001 period compared to $131.7 million for the same period in 2000, but
decreased as a percentage of sales to 29.8% in 2001 from 30.3% in 2000 due to
changes in product mix to lower margin vinyl windows. Gross profit margins on
vinyl siding and windows each increased over 2000 due to lower raw material
costs and improved manufacturing efficiencies. Selling, general and
administrative expense increased to $107.7 million in 2001 compared to $95.4
million in 2000, but decreased as a percentage of sales. The increase was due to
higher personnel costs and higher supply center expenditures. The increase in
personnel costs was due to normal salary increases, an increase in the number of
salaried personnel due to the Alpine acquisition in 2000, higher incentive
compensation due to increased profitability at Alside and higher severance
expense. Supply center costs increased due to higher personnel costs due to an
increase in number of supply center personnel, higher incentive compensation and
increased lease expense due to the opening of additional locations and increased
lease expense at existing locations. Income from operations increased 34.7% to
$48.9 million as higher gross profits were partially offset by higher selling,
general and administrative expense.
AmerCable
Net sales increased 10.4% to $71.3 million for the 2001 period compared to
$64.5 million for the same period in 2000 due to higher sales of marine and
mining cable products which were partially offset by lower sales of industrial
cable products, including telecommunications cable products. Gross profit
increased to $13.8 million in 2001 compared to $13.7 million in 2000 but
decreased as a percentage of sales due to higher labor and overhead costs and
unfavorable fixed cost absorption. Selling, general and administrative expense
was $7.2 million for the period ended 2001 compared to $7.9 million for the same
period in 2000 as lower bad debt expense was partially offset by higher
personnel costs. In 2000, AmerCable recorded $1.4 million in additional bad debt
expense as the result of a customer bankruptcy. Income from operations increased
14.4% to $6.7 million in 2001 compared to $5.8 million for the same period in
2000 due to slightly higher gross profit and lower selling, general and
administrative expense due to the additional $1.4 million in bad debt expense
recorded in 2000.
40
Other
Net interest expense increased $749,000 or 12.4% in 2001 compared to 2000
due primarily to a decrease in our investment income. Our average investment
balance decreased during 2001 as compared to 2000 due to our repurchase of 1.0
million shares of our Class B common stock at an aggregate cost of $19.5 million
in April 2001. The overall decrease in interest rates during 2001 also
contributed to lower investment income. We recorded interest income of $377,000
in 2001 as compared to $1.1 million in 2000. Corporate selling, general and
administrative expense increased to $5.0 million for 2001 compared to $4.0
million for the 2000 period due to the cost associated with obtaining a fairness
opinion in connection with the repurchase of our Class B common stock and
additional compensation expense recorded due to a modification of certain
outstanding stock options.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
General
Our net sales increased 9.7% to $499.4 million in 2000 as compared to
$455.3 million in 1999 due to higher sales at our Alside and AmerCable
divisions. Income from operations decreased 8.4% to $38.1 million in 2000 as
compared to $41.6 million in 1999 as higher operating profits from our AmerCable
division were offset by lower operating profits at Alside. Net income increased
to $23.6 million in 2000 as compared to $20.5 million in 1999. The increase in
net income was due to the sale of our UltraCraft cabinet operations in June
2000, which resulted in a pre-tax gain of $8.0 million.
Alside
Net sales at Alside increased to $434.8 million in 2000 as compared to
$410.1 million in 1999 due to higher sales prices in vinyl siding and higher
sales volume in vinyl windows and vinyl fencing. Vinyl siding sales increased in
2000 as compared to 1999 as higher sales prices which were implemented to offset
higher vinyl resin costs were partially offset by a slight decrease in siding
unit volume. Vinyl window sales increased 9.7% in 2000 due primarily to a 6.5%
increase in unit sales volume while sales of vinyl fencing, decking and railing
increased 28.5% due to higher sales volume. Gross profit increased to $131.7
million in 2000 but decreased as a percentage of sales as Alside was unable to
recover any incremental margin on the selling price increases that resulted due
to higher vinyl resin prices. Selling, general and administrative expense
increased to $95.4 million in 2000 as compared to $87.6 million in 1999 due to
the opening of eight additional supply centers as well as higher personnel costs
and higher legal expense. Income from operations decreased to $36.3 million in
2000 from $42.4 million in 1999 as higher gross profits were more than offset by
higher selling, general and administrative expense.
AmerCable
AmerCable's net sales increased 42.9% to $64.5 million in 2000 as compared
to $45.2 million in 1999 due to higher volume across all product lines. Sales
increased by 86% in the industrial segment as sales of power cable to the
telecommunications industry were very strong. Gross profit increased to $13.7
million in 2000 up from $7.7 million in 1999 due to higher sales and improved
fixed cost absorption. Gross profit as a percentage of sales increased to 21.2%
as compared to 17.0% in 1999. Selling, general and administrative expense
increased to $7.9 million in 2000 as compared to $4.8 million in 1999. The
increase was due to a $1.4 million increase in bad debt expense as well as
higher personnel costs and higher incentive compensation. Bad debt expense
increased by $1.4 million in 2000 as a result of a large customer that filed for
bankruptcy. Income from operations increased to $5.8 million in 2000 as compared
to $2.9 million in 1999 due to higher gross profits, which were offset in part
by higher selling, general and administrative expense.
Other
Net interest expense decreased $733,000 or 10.8% in 2000 as compared to
1999 primarily due to an increase in our investment income. We recorded interest
income of $1.1 million in 2000 as compared to
41
$329,000 in 1999. We recorded $1.1 million in additional income tax expense due
to an adjustment to a 1986 deferred tax asset recorded pursuant to the spin-off
of the tire cord division into Amercord Inc. This adjustment increased the
effective tax rate from 38.5% to 41.3%.
Amercord Inc.
In November 1999, Amercord Inc. was recapitalized, and in that transaction
our interest in Amercord Inc. was reduced from 50% to 9.9%. As a result of the
recapitalization, we received $1.2 million in cash (net of related expenses) and
a subordinated note for $1.5 million due November 2004. We have the right to
require Amercord Inc. to purchase our remaining 9.9% interest for $2.0 million
in November 2003. For the reasons described in the following paragraph, we do
not presently expect Amercord Inc. will have the financial ability to meet these
obligations.
Amercord Inc.'s operating results and financial position deteriorated
during the first quarter 2001. We believed we would not recover our investment
in Amercord Inc. and wrote off our $2.4 million investment in Amercord Inc.
during the first quarter of 2001. Amercord Inc. ceased operations during the
second quarter of 2001.
QUARTERLY FINANCIAL DATA
GENERAL
Because most of Alside's building products are intended for exterior use,
our sales and operating profits tend to be lower during periods of inclement
weather. Weather conditions in the first quarter of each calendar year
historically result in that quarter producing significantly less sales revenue
than in any other period of the year. As a result, we have historically had
small profits or losses in the first quarter, and reduced profits in the fourth
quarter of each calendar year due to the significant impact of Alside on our
performance.
Our quarterly sales and operating profit data for the three months ended
March 31, 2002 and quarterly results for years 2001 and 2000 are shown in the
table below:
<Table>
<Caption>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2002
Net sales -- Alside...................... $111,062
Net sales -- AmerCable................... 12,136
--------
Total net sales.......................... 123,198
Gross profit............................. 32,420
Income from operations................... 1,201
Net loss................................. (1,519)
Basic and fully diluted loss per common
share.................................. (0.22)
</Table>
42
<Table>
<Caption>
THREE MONTHS ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001
Net sales -- Alside...................... $ 89,939 $139,206 $150,942 $144,441
Net sales -- AmerCable................... 18,672 19,539 17,722 15,358
-------- -------- -------- --------
Total net sales.......................... 108,611 158,745 168,664 159,799
Gross profit............................. 27,197 47,266 49,592 46,398
Income (loss) from operations............ (930) 16,994 19,142 15,302
Net income (loss)........................ (3,015) 9,311 10,714 8,402
Basic earnings (loss) per common share... (0.39) 1.34 1.59 1.25
Diluted earnings (loss) per common
share.................................. (0.39) 1.28 1.52 1.18
2000
Net sales -- Alside...................... $ 87,141 $119,135 $118,715 $109,854
Net sales -- AmerCable................... 16,278 15,246 16,096 16,928
-------- -------- -------- --------
Total net sales.......................... 103,419 134,381 134,811 126,782
Gross profit............................. 28,593 39,733 40,277 36,796
Income from operations................... 4,310 12,715 13,155 7,964
Net income............................... 1,591 11,894 5,967 4,103
Basic earnings per common share.......... 0.20 1.48 0.74 0.52
Diluted earnings per common share........ 0.19 1.43 0.71 0.50
</Table>
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL
At March 31, 2002 the Company had cash and cash equivalents of $13.5
million and available borrowing capacity of approximately $48.1 million under
our existing credit facility. Outstanding letters of credit as of March 31,
2002, totaled $1.9 million securing various insurance letters of credit.
Net cash used by operations was $12.0 million in the quarter ended March
31, 2002 compared with $10.1 million in the same period in 2001. The increase in
cash used by operations for the 2002 period was due primarily to increased
inventory at Alside due to seasonal requirements and at AmerCable due to lower
than anticipated sales volume.
Net cash provided by operating activities was $44.0 million, $23.0 million
and $15.2 million in 2001, 2000 and 1999, respectively. Cash flows from
operations increased $21.0 million in 2001 compared to 2000 due to higher
operating profits and higher accounts payable and accrued liabilities which were
partially offset by higher accounts receivable. The increase in accounts payable
was due to higher fourth quarter sales and the timing of vendor payments while
the increase in accrued liabilities was due to higher commission and profit
sharing accruals in our Alside division. Sales for the fourth quarter of 2001
were 26% higher than the same period in 2000 resulting in an increase in
accounts receivable for 2001 compared to the 2000 period. Inventory levels have
not increased proportionately with sales due to improved inventory management
and the significant increase in vinyl window sales, which have relatively small
amounts of finished goods inventory due to the fact that our window products are
custom fabricated to the customer's specifications. Cash flows from operations
increased in 2000 as compared to 1999 due primarily to lower working capital
requirements.
In May 1999, we amended our existing $50 million bank credit facility to
extend the term of the facility through May 2002. Available borrowings under
this credit agreement are limited to the lesser of the total facility less
unused letters of credit or availability based on percentages of eligible
accounts receivable and inventories. The credit agreement is secured by
substantially all of our assets other than our
43
owned real property, equipment and our interest in Amercord Inc. At December 31,
2001, $1.9 million of this facility had been used to secure various insurance
letters of credit. At December 31, 2001, we had an available borrowing capacity
under the credit agreement of approximately $48.1 million.
Capital expenditures totaled $3.1 million for the quarter ended March 31,
2002, compared with $6.8 million during the same period in 2001. Alside's
expenditures in the 2002 period were primarily for the production of new
casement window tooling and related production line expenditures. AmerCable's
expenditures were incurred primarily to increase line capacity.
Capital expenditures totaled $15.0 million, $11.9 million and $18.9 million
in 2001, 2000 and 1999, respectively. Alside's 2001 expenditures were used
primarily to increase window and fencing capacity and for the new ERP system,
which will be implemented over the next two years at a total cost of
approximately $12.0 million. Capital expenditures associated with the ERP
implementation totaled $3.1 million in 2001 and 2000. Expenditures at AmerCable
were used to expand manufacturing capacity. Capital expenditures in 2000 were
used primarily to increase extrusion capacity for window profiles, fencing and
siding products, improve window efficiency and upgrade window information
systems at Alside and increase capacity and processing efficiency at AmerCable.
Expenditures in 1999 were primarily used to complete the new vinyl siding
manufacturing facility in Freeport, Texas, expand extrusion capacity for window
profiles and vinyl fencing, expand capacity and increase manufacturing
efficiency for semi-custom cabinets and increase production flexibility and
capacity at AmerCable. Capital expenditures for the new vinyl siding
manufacturing plant were $9.8 million in 1999. We have historically funded these
capital expenditure requirements out of cash generated from operating activities
or borrowings under our bank credit facility.
We believe that capital expenditures ranging from $8.0 million to $10.0
million represent a base level of spending needed to maintain our manufacturing
facilities as well as provide for modest increases in capacity and further
automation. 2002 estimated capital expenditures are $13.3 million of which $10.3
million are budgeted for Alside. Alside's 2002 budget includes expenditures to
replace existing window tooling to facilitate the manufacture of new products,
increase window and siding capacity to meet anticipated sales growth, expand our
existing supply center network and approximately $400,000 for the ERP system
implementation. Approximately $3.0 million of the 2002 capital budget has been
allocated to AmerCable, primarily to add extrusion capacity.
We have commitments for future minimum lease payments under noncancelable
operating leases, principally for manufacturing and distribution facilities and
certain equipment. The minimum commitments under these leases for 2002, 2003,
2004, 2005, 2006 and thereafter are $14.0 million, $11.6 million, $8.9 million,
$6.2 million, $3.4 million and $5.4 million, respectively.
In connection with the recapitalization of Amercord Inc. in November 1999,
we guaranteed a $3.0 million note secured by Amercord Inc.'s real property.
Amercord Inc. ceased operations in the second quarter of 2001. As of the date of
this prospectus, the lender has not requested us to make payment under the
guaranty. Should the guaranty be exercised by Amercord Inc.'s lender, we and
Ivaco Inc., another stockholder of Amercord Inc., have the option to assume the
loan. Ivaco Inc. has indemnified us for 50% of any loss under the guaranty up to
$1.5 million. Based on a third party appraisal of Amercord Inc.'s real property,
we believe that we are adequately secured under our guaranty of the $3.0 million
Amercord Inc. note such that no loss is anticipated with respect to this
guaranty.
Effective October 1, 1998, we established an Employee Stock Purchase Plan,
or "ESPP". Employees participating in the ESPP can purchase shares of our common
stock at a 15% discount to fair market value through payroll deductions of up to
25% of their eligible compensation. We initially registered 250,000 shares of
common stock with the Commission for issuance pursuant to the ESPP and
registered an additional 250,000 shares during 2001. During 2001, 2000 and 1999,
we issued 60,679, 65,873 and 80,919 shares of common stock pursuant to the ESPP,
resulting in net proceeds of approximately $875,000, $848,000 and $851,000,
respectively. Our Board of Directors approved the suspension of the ESPP
effective December 31, 2001.
44
On October 27, 1998 our Board of Directors approved a program to repurchase
up to 800,000 shares of common stock in open market transactions depending on
market, economic and other factors. On November 28, 2000 our Board of Directors
authorized the repurchase of an additional 800,000 shares under the program for
a total of 1.6 million shares. At December 31, 2001, we had repurchased 1.0
million shares of common stock under this program at a cost of $13.9 million.
The Class B common stock repurchase described below was not part of this stock
repurchase program.
On April 29, 2001, we repurchased 1,000,000 shares of our Class B common
stock from The Prudential Insurance Company of America, or Prudential, and its
wholly owned subsidiary, PCG Finance Company II, LLC, or "PCG", at $19.50 per
share, or $19.5 million in the aggregate, which has been reflected primarily as
a reduction to retained earnings. The share purchase was financed through
available cash and borrowings under our existing credit facility. Following the
purchase, Prudential and PCG converted the remaining 550,000 shares of Class B
common stock held by these entities into 550,000 shares of common stock pursuant
to the terms of our certificate of incorporation. We have retired all 1,550,000
previously authorized shares of Class B common stock.
LIQUIDITY AND CAPITAL RESOURCES AFTER THE MERGER
The merger and related refinancing transactions required total cash of
approximately $466.8 million, which was used to purchase our common stock in the
equity tender offer, to consummate our debt tender offer for our then existing
9 1/4% notes and to pay fees and expenses related to the transactions. The
transactions were financed through an equity contribution of approximately $172
million by Associated Materials Holdings Inc. (who received cash from the equity
investors and $7.2 million of rollover equity from certain members of
management), cash on hand of approximately $4.8 million, new term loan of $125
million from the new credit facility and proceeds from the offering of the
outstanding notes. The equity tender offer closed on April 19, 2002, prior to
the closing of the offering of the outstanding notes on April 23, 2002. We
borrowed under a $215 million unsecured interim credit facility to complete the
equity tender offer. The proceeds from the offering of the outstanding notes
along with proceeds from the term loan under the new credit facility were used
to repay such interim credit facility. On June 24, 2002, we completed the sale
of our AmerCable division to AmerCable Incorporated, a newly-formed entity
controlled by members of AmerCable management and Wingate Partners III, L.P.,
for net proceeds of approximately $28.3 million in cash and the assumption of
certain liabilities pursuant to an asset purchase agreement dated as of the same
date. We used the net proceeds to repay a portion of our new credit facility in
accordance with certain terms thereof.
We believe that available cash and cash flow from operations, together with
borrowings under the new credit facility, will be sufficient to cover our
working capital, capital expenditures and debt service needs for the foreseeable
future. Our ability to make scheduled payments of principal or interest on, or
to refinance, our indebtedness, or to fund planned capital expenditures, will
depend on our future performance, which is subject to general economic
conditions, competition in the building product environment and other factors.
We may not generate sufficient cash flow from operations, realize anticipated
revenue growth and operating improvements or obtain future capital in a
sufficient amount or on acceptable terms, to enable us to service our
indebtedness or to fund our other liquidity needs.
The new credit facility and the indenture governing the notes will contain
restrictive covenants that, among other things, limit our ability to incur
additional indebtedness, make loans or advances to subsidiaries and other
entities, invest in capital expenditures, sell our assets or declare dividends.
In addition, under the new credit facility we will be required to achieve
certain financial ratios relating to leverage, interest expense coverage and
fixed charge coverage.
EFFECTS OF INFLATION
We believe that the effects of inflation have not been material to our
operating results for each of the three past years.
45
FINANCIAL ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" which
has eliminated the pooling of interests method for mergers and acquisitions. The
purchase method of accounting is required for all business combinations
initiated after June 30, 2001. SFAS No. 141 supersedes APB Opinion No. 16,
"Business Combinations" and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." As discussed in the "Unaudited Pro
Forma Financial Information" section of this prospectus, the merger will be
accounted for under the purchase method of accounting proscribed under this
Statement.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" which addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets." SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized but
instead be reviewed annually for impairment using a fair-value based approach.
Intangible assets that have a finite life will continue to be amortized over
their respective estimated useful lives. The Statement is effective for fiscal
years beginning after December 15, 2001. As discussed in the "Unaudited Pro
Forma Financial Information" section of this prospectus, the merger will result
in a purchase price allocation to tangible and intangible assets with both
finite and indefinite lives. We will then be subject to testing for impairment
on an annual basis those intangible assets with indefinite lives.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs and establishes
consistent accounting treatment for these items. This Statement is effective for
fiscal years beginning after June 15, 2002. We believe the adoption of this
Statement will not have a material effect on our financial position, results of
operations or cash flows.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial reporting and accounting for the impairment or disposal
of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements" to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement is effective for fiscal
years beginning after December 15, 2001. We intend to account for the sale of
our AmerCable division under the provisions of this Statement and as such
AmerCable's results will be presented as "Discontinued Operations" subsequent to
the merger.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an ongoing basis, we evaluate our estimates, including those
related to customer programs and incentives, bad debts, inventories, income
taxes and pensions and benefits. We base our estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
46
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
REVENUE RECOGNITION
Revenues are recorded net of estimated customer programs and incentive
offerings including special pricing agreements, promotions and other
volume-based incentives. Revisions to these estimates are charged to income in
the period in which the facts that give rise to the revision become known.
BAD DEBT
We maintain allowances for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. The allowance for
doubtful accounts is based on review of the overall condition of accounts
receivable balances and review of significant past due accounts. If the
financial condition of our customers were to deteriorate, resulting in an
impairment of our ability to make payments, additional allowances may be
required.
INVENTORY
We value our inventories at the lower of cost (first-in, first-out) or
market. We write down our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
INCOME TAXES
We account for income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes," which requires that deferred tax assets and liabilities be
recognized for the effect of temporary differences between the book and tax
bases of recorded assets and liabilities. SFAS No. 109 also requires that
deferred tax assets be reduced by a valuation allowance if it is more likely
than not that some portion or all of the deferred tax asset will not be
realized. We review the recoverability of any tax assets recorded on the balance
sheet and provide any necessary allowances as required.
PENSION
Our pension costs are developed from actuarial valuations. Inherent in
these valuations are key assumptions including discount rates and expected
return on plan assets. In selecting these assumptions, management considers
current market conditions, including changes in interest rates. Changes in the
related pension benefit costs may occur in the future due to changes in
assumptions.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATE RISK
Our revenues are primarily from domestic customers and are realized in U.S.
dollars. Accordingly, we believe our direct foreign currency exchange rate risk
is not material. In the past, we have hedged against foreign currency exchange
rate fluctuations on specific sales or equipment purchasing contracts. At March
31, 2002 we had no currency hedges in place.
COMMODITY PRICE RISK
Our principal raw material, vinyl resin, has been subject to rapid price
changes, particularly in 1999 and 2000. We expect the price of vinyl resin to
increase significantly in 2002. Through price increases to our customers, we
have historically been able to pass on significant resin cost increases. The
results of operations for individual quarters can and have been negatively
impacted by a delay between the time of vinyl resin cost increases and price
increases in our products. However, over longer periods of time, the
47
impact of the cost increases in vinyl resin has historically not been material.
While we expect that any significant resin cost increases in 2002 will be offset
by price increases to our customers, there can be no assurances that we will be
able to pass on any future price increases.
INTEREST RATE RISK
At March 31, 2002, on a pro forma basis, we would have had $96.7 million of
borrowings under our new credit facility that will be subject to variable
interest rates based on the London Interbank Offered Rate. The effect of a 1/8%
increase or decrease in interest rates would increase or decrease total interest
expense for the quarter ended March 31, 2002 by approximately $30,000.
48
BUSINESS
COMPANY OVERVIEW
We are a leading, vertically integrated manufacturer and nationwide
distributor of exterior residential building products. These products are
marketed through our Alside division on a wholesale basis to more than 35,000
professional contractors engaged in home repair and remodeling and new home
construction. We distribute our products primarily through our nationwide
network of over 80 supply centers operating under the Alside(R)brand name. In
2001, Alside accounted for more than 88% of our total net sales.
The core products we manufacture and distribute are vinyl siding and vinyl
windows which together comprised approximately 71% of Alside's 2001 net sales.
We also manufacture and distribute vinyl fencing, decking and railing, and vinyl
garage doors and distribute other complementary products which are manufactured
by third parties. Approximately two thirds of Alside's products are sold to
contractors engaged in the home repair and remodeling market with one third sold
to the new construction market. Our supply centers provide "one stop" shopping
to our contractor customers, carrying products, accessories and tools necessary
to complete a vinyl siding or window project. In addition, our supply centers
provide high quality product literature, product samples and installation
training to these customers. We believe that the strength of our products and
distribution network has developed strong brand loyalty and long-standing
relationships with local contractors and has enabled us to consistently gain
market share over the last five years. Approximately 80% of Alside's 2001 net
sales were generated through our network of supply centers with the remainder
sold through independent distributors primarily in markets where we currently do
not have supply centers.
Due to our vertically integrated distribution strategy, innovative new
product development and operational excellence, we have consistently generated
sales growth in excess of industry averages. From 1996 to 2001, we generated a
compounded annual growth rate in our net sales and EBITDA of 10.7% and 16.2%,
respectively. In 2001, our net sales and EBITDA grew by 19.3% and 28.8%,
respectively, over the prior year. We believe that our historical investment in
manufacturing and distribution capabilities and our initiatives to reduce costs
and enhance operating efficiencies throughout our production, distribution and
supply chain provide us with a strong platform for future growth and
profitability.
INDUSTRY OVERVIEW
Demand for residential building products is driven by a number of factors,
including consumer confidence, availability of credit, new housing starts and
general economic cycles. Historically, the demand for repair and remodeling
products, where we are primarily focused, has been less cyclical than demand for
new home construction and is less sensitive to these factors. Drivers of repair
and remodeling demand include:
- Favorable demographics. The segment of the population age 55 years and
above, which favors professionally installed, low maintenance home
improvements, is estimated to grow by 25% over the next five years and
50% over the next ten years.
- Aging of the housing stock. The average home age increased from 23 years
in 1985 to 29 years in 2000, and over 70% of the current housing stock
was built prior to 1980.
- Increase in average home size. The average home size increased over 25%
from 1,785 square feet in 1985 to 2,306 square feet in 2000.
In addition, repair and remodeling projects tend to utilize a greater mix of
premium products with higher margins than those used in new construction
projects.
We estimate that the residential vinyl siding and vinyl window markets are
approximately $1.7 billion and $3.4 million in size, respectively. Over the last
15 years, vinyl has commanded an increasing share of the total residential
siding and window markets. Vinyl has greater durability, requires less
maintenance and provides greater energy efficiency than many competing siding
and window products. According to industry reports, based on unit sales, vinyl
accounted for approximately 50% of the exterior siding market and
49
approximately 51% of the residential window market in 1998. More recently, vinyl
siding has achieved increasing acceptance in the new construction market, as
builders and home buyers have recognized vinyl's low maintenance, durability and
price advantages. Vinyl windows also have achieved increased acceptance in the
new construction market, as a result of builders and home buyers recognizing
vinyl's favorable attributes, the enactment of local legal or building code
requirements that mandate more energy efficient windows and the increased
development and promotion of vinyl window products by national window
manufacturers. We believe that vinyl siding and vinyl windows will continue to
gain market share in the new residential construction market while remaining the
preferred product of the remodeling marketplace. Vinyl competes with wood,
masonry, fiber cement and metal in the siding market and wood and aluminum in
the window market.
OUR COMPETITIVE STRENGTHS
The following competitive strengths have contributed to our growth and have
enabled us to gain market share over the last five years within the U.S. siding
and window markets.
Nationwide Distribution Network of Company-Owned Supply Centers. We are
one of only two major vinyl siding manufacturers in the United States that
markets our products primarily through a company-owned distribution
network. Our national distribution network offers us a dedicated channel
compared to most of our competitors who rely on local third party
distributors who generally carry an assortment of brands and may not focus
on any particular brand. We believe that distributing our vinyl siding and
window products through our nationwide network of over 80 Alside supply
centers helps us to: (1) build long-standing customer relationships and
Alside brand loyalty, (2) develop comprehensive, customized marketing
programs to assist our contractor customers, (3) closely monitor
developments in local customer preferences, and (4) ensure product
availability through integrated logistics between our manufacturing and
distribution. Our supply center network has enabled us to grow
substantially faster than the industry. Our vinyl siding unit sales grew at
a five year compounded annual growth rate of 9.2% as compared to an
industry average of 2.0% over the same period and our vinyl window unit
sales grew at a five year compounded annual growth rate of 12.7% as
compared to an industry average of 5.8%.
Broad Product Offering. We offer a diverse mix of vinyl siding and vinyl
window products to both the repair and remodeling and new construction
markets across all price points: premium, standard and economy. Including
our manufactured products and products manufactured by third parties, our
supply centers sell more than 2,000 building and remodeling products. Our
broad product offering enables us to meet the specialized needs of our
customers and diversify our sales across all segments of the market. Most
of these products are sold under the Alside brand and are recognized for
their quality and durability. Our product offering includes the well-known
Charter Oak, Preservation, Seneca, Conquest and Landscape vinyl siding
products, and the UltraMaxx, Excalibur, Centurion and Alpine vinyl window
products.
Low-Cost and Vertically Integrated Operations. We believe that we are a
low-cost manufacturer as a result of our manufacturing expertise,
state-of-the-art technology and economies of scale. Our Alside division has
seven manufacturing facilities that produce vinyl siding and windows and
other vinyl products. During the last three years, we invested
approximately $35 million of capital in Alside, most of which was used in
upgrading our manufacturing facilities. This has resulted in significant
operating efficiency and increased capacity for meeting future growth
needs. Within our window operations, our ability to produce vinyl
extrusions, coupled with our high-speed welding and cleaning equipment,
provides us with cost and quality advantages over other vinyl window
manufacturers.
50
BUSINESS STRATEGY
We seek to distinguish ourselves from other suppliers of residential
building products and to sustain our profitability momentum through a business
strategy focused on the following:
Increase Sales at Existing Supply Centers. We plan to increase sales at
each of our supply centers by continuing to: (1) enhance the vinyl siding
and window product offering and expand third party products to offer a
comprehensive package to appeal to a broad range of market segments; (2)
utilize our highly trained sales force to maximize opportunities with
existing customers and identify and capture new customers; and (3) allow
supply centers to quickly respond to local market dynamics and take
advantage of local market opportunities.
Expand Supply Center Network. We intend to selectively expand our
distribution network. We will continue to open additional supply centers in
markets where we already have a presence, allowing us to gain additional
market share in these attractive markets.
Increase Focus on other Distributed Products. We will continue to focus on
maximizing incremental revenue and margin opportunities from products which
Alside does not manufacture. As part of this strategy we plan to identify
additional products to sell through our supply centers to better serve our
contractor customers. In addition, we intend to leverage our purchasing
power by centralizing the purchasing decisions for high-volume distributed
products.
Develop Innovative Products. We plan to capitalize on our vinyl
manufacturing expertise by continuing to develop and introduce innovative
new products that offer performance, cost and other advantages. These
efforts have led to several new product introductions in recent years
including Preservation, the first bundled vinyl siding and vinyl window
program in the industry; CenterLock, a vinyl siding product with a unique
locking mechanism; Eclipse, the industry's only flat-seam vinyl siding; and
Landscape, an economy vinyl siding product with enhanced rigidity providing
the appearance of a higher end product. Our strong customer relationships
provide valuable insight into the latest consumer preferences and product
attributes that appeal to contractors.
Drive Operational Excellence. We will continue to capitalize on
opportunities to reduce costs, increase customer service levels and reduce
lead times. We have historically identified similar opportunities and have
subsequently executed strategic initiatives that resulted in increased
profitability and revenue growth. For example, in 2000 and 2001 we targeted
process efficiency opportunities in our window operations through system
upgrades, flow realignment, and personnel-related initiatives. The
successful implementation of this strategy raised our on-time deliveries to
over 98% while increasing unit volume by over 48% (excluding our
acquisition of Alpine) in 2001.
PRODUCTS
Our principal product offerings are vinyl siding and vinyl windows, which
together accounted for approximately 71% of Alside's 2001 net sales. We also
manufacture a variety of other products including vinyl fencing, decking and
railing, as well as vinyl garage doors.
The vinyl siding market consists of three segments: economy, standard and
premium. Vinyl siding quality is determined by its rigidity, resistance to
fading, thickness and ease of installation as well as other factors. Beginning
with our introduction of Charter Oak in 1995, we have established ourselves as a
leader in product innovation within all segments of the vinyl siding industry,
most recently in the premium and economy segments.
We believe that our innovation in product development was key to
establishing us as a leader in the industry and will continue to be a principal
factor in our sales growth in future years. For example, in late 1995, we
introduced our Charter Oak siding, which enabled us to penetrate the premium
segment of the vinyl siding market. We believe that Charter Oak continues to set
the standard for premium vinyl siding products today. We introduced our Conquest
siding product in 1997, which has enabled us to achieve additional market
penetration in the economy segment of the siding industry. During 1998, we
introduced
51
CenterLock, a patented product positioned in the premium market segment. In
1999, we introduced Odyssey Plus, an improved and updated version of our popular
Odyssey siding product. We introduced our Seneca and Landscape products in order
to broaden our offerings for the standard and economy segments in 2000. During
2001, we introduced three new premium siding products: Preservation, Eclipse and
Board and Batten. In addition to these products, we have increased the number of
colors and profiles offered within our existing siding products and continue to
increase and improve upon the breadth of our vinyl siding product lines. We
offer limited warranties ranging from 50-year warranties to lifetime warranties
with our siding products.
We divide our window products into the economy, standard and premium
categories. Product quality within the vinyl window industry is determined by a
number of competitive features including method of construction and materials
used. We custom manufacture substantially all of our windows to fit existing
window openings. Custom fabrication provides our customers with a product that
is less expensive to install and more attractive after installation. Our custom
windows are used primarily in the repair and remodeling market. In October 2000,
we strengthened our position in the new construction segment of the window
market through the purchase of substantially all the assets of Alpine
Industries, Inc., who primarily manufactures new construction windows. New
construction is one of the fastest growing segments of the vinyl window market
and the acquisition of Alpine has positioned us to take advantage of this high
growth market segment. This acquisition also gives us a presence in the western
United States. Substantially all of our window products are accompanied by a
limited lifetime warranty.
A summary of our vinyl siding and window product offerings is presented in
the table below according to our product line classification:
<Table>
<Caption>
PRODUCT LINE SIDING PRODUCTS WINDOW PRODUCTS
- ------------ --------------- ---------------
Premium Preservation Preservation
Charter Oak UltraMaxx
CenterLock Alpine 9000 Series
Eclipse
Board and Batten
Williamsport
Standard Odyssey Plus Geneva
Seneca Excalibur
Alpine 8000 Series
Economy Conquest Performance Series
Landscape Centurion
Alpine 7000 Series
</Table>
In addition to vinyl siding and windows, we produce vinyl fencing, decking
and railing under the brand name UltraGuard and vinyl garage doors under the
brand name Premium Garage Doors. We primarily market our fencing, decking and
railing and garage doors through independent dealers.
To complete our line of vinyl siding and window products in our supply
centers, we also distribute building products manufactured by other companies.
These products include metal siding, roofing materials, insulation, cabinets and
installation equipment and tools.
MARKETING AND DISTRIBUTION
Traditionally, most vinyl siding has been sold to the home remodeling
marketplace through independent distributors. We are one of only two major vinyl
siding manufacturers that markets products primarily through company-owned
distribution centers. We have a nationwide distribution network of over 80
Alside supply centers through which we market Alside manufactured products and
other complementary building products to over 35,000 professional home
improvement and new construction contractors. The supply centers range in size
from 6,000 square feet to 50,000 square feet depending on sales volume and the
breadth and type of products offered at each location. We believe that our
supply centers provide "one stop" shopping to meet the specialized needs of our
contractor customers by distributing over
52
2,000 building and remodeling products, including a broad range of our
manufactured vinyl siding and vinyl windows as well as products manufactured by
others. In 2001, approximately 80% of Alside's sales were made through its
supply centers. In addition to sales and promotional support, contractors look
to their local supply centers to provide a broad range of specialty product
offerings in order to maximize their ability to attract remodeling and
homebuilding customers.
We believe that distributing products through our supply centers provides
us with certain competitive advantages such as (1) build long-standing customer
relationships, (2) develop comprehensive, customized marketing programs to
assist our contractor customers, (3) closely monitor developments in local
customer preferences, and (4) ensure product availability through integrated
logistics between our manufacturing and distribution. Many of our contractor
customers have established long-standing relationships with their local supply
centers based on individualized service, quality products, timely delivery,
breadth of product offerings, strong sales and promotional programs and
competitive prices. We support our contractor customer base with marketing and
promotional programs that include product sample cases, sales literature,
product videos and other sales and promotional materials. Professional
contractors use these materials to sell remodeling construction services to
their prospective customers. The customer generally relies on the professional
contractor to specify the brand of siding or window to be purchased, subject to
the customer's price, color and quality requirements. Our daily contact with our
contractor customers also enables us to closely monitor activity in each of the
remodeling and new construction markets in which we compete. This direct
presence in the marketplace permits us to obtain current local market
information, providing us with the ability to recognize trends in the
marketplace earlier and adapt our product offerings on a location-by-location
basis.
Many of our contractor customers install both vinyl siding and vinyl
windows. Because we manufacture and distribute both vinyl siding and vinyl
windows, our contractor customers can acquire both products from a single
source, which we believe provides us with a competitive advantage in marketing
these products to our target customer base. Furthermore, we have the ability to
achieve economies of scale in sales and marketing by developing integrated
programs on either a national or local basis for our vinyl siding and vinyl
window products. In 2000, we introduced Preservation as the industry's first
bundled premium siding and window marketing program. Our unique position as a
manufacturer and distributor of both vinyl siding and windows has enabled us to
offer Preservation to select dealers.
Each of our supply centers is evaluated as a separate profit center, and
compensation of supply center personnel is based in part on the supply center's
operating results. Decisions to open new supply centers, and to close or
relocate existing supply centers, are based on our continuing assessment of
market conditions and individual location profitability. During 2001, we added
five supply centers to our distribution network. We have also opened seven new
supply centers in 2002. We have developed formal training and recruiting
programs for supply center personnel which we expect to improve our ability to
staff new locations.
Through certain of our supply centers, our Alside Installed Services
Division provides full-service product installation of our vinyl siding
products, principally to new homebuilders who value the importance of
installation services. We also provide installation services for vinyl
replacement windows through certain of our supply centers.
We sell our manufactured products to large direct dealers and distributors,
generally in those areas where no supply center currently exists. These sales
accounted for approximately 20% of Alside's 2001 net sales. Despite their
aggregate lower percentage of total sales, our largest individual customers are
our large direct dealers and independent distributors. We continue to expand our
network of independent distributors in strategic areas to improve our
penetration into certain markets.
MANUFACTURING
We manufacture our vinyl siding products at our Ennis and Freeport, Texas
facilities. We added the Freeport facility, which was completed in 1999, in
order to provide the necessary capacity to meet our sales expectations for our
siding products. We are able to add incremental extrusion capacity sufficient to
53
increase our capacity by approximately 50% over 2001 levels without the need for
an additional facility or the expansion of the Freeport facility. We operate a
vinyl extrusion facility in West Salem, Ohio to produce vinyl window extrusions
as well as vinyl fencing, decking and railing and garage door panels. The Ennis,
Texas plant also produces vinyl fencing. We operate three window fabrication
plants which each use vinyl extrusions manufactured by us for the majority of
their production requirements and utilize high speed welding and cleaning
equipment for their welded window products. By producing our own vinyl
extrusions, we believe we achieve significant cost savings and higher product
quality compared to purchasing these materials from third-party suppliers. In
October 2000, we purchased substantially all of the assets of Alpine, including
its leased window fabrication facility located in Bothell, Washington. The
Bothell facility produces its glass inserts, but has a long-term contract to
purchase its vinyl extrusions from a third-party supplier.
Our vinyl extrusion plants generally operate on a three-shift basis to
optimize equipment productivity and utilize additional equipment to increase
capacity to meet higher seasonal needs. Our window plants generally operate on a
single shift basis utilizing both a second shift and increased numbers of leased
production personnel to meet higher seasonal needs.
RAW MATERIALS
The principal raw materials used by us are vinyl resins, resin stabilizers
and pigments, packaging materials, window hardware and glass, all of which are
available from a number of suppliers. We have a contract with our resin supplier
to supply substantially all of our vinyl resin requirements, which expires on
December 31, 2002. We believe that we will be able to extend this contract. If
we are not able to extend this contract, we believe that our requirements could
also be met by other suppliers. The price of vinyl resin has been, and may
continue to be, volatile. We expect the price of vinyl resin to increase
significantly in 2002. We generally have been able to pass through price
increases in raw materials to our customers. While we expect that any
significant resin cost increases in 2002 will be offset by price increases to
our customers, there can be no assurances that we will be able to pass on any
future price increases.
COMPETITION
We believe that no company within the residential siding industry competes
with us on both the manufacturing and distribution levels except for Owens
Corning. There are, however, numerous small and large manufacturers of vinyl
siding products, some of whom are larger in size and have greater financial
resources than us. We compete with numerous large and small distributors of
building products in our capacity as a distributor of these products. We believe
that Alside is the fifth largest manufacturer of vinyl siding with approximately
8% of the U.S. market. The market for vinyl replacement windows is highly
fragmented. We believe that the window fabrication industry will continue to
experience consolidation due to the increased capital requirements for
manufacturing welded vinyl windows. The trend towards welded windows, which
require more expensive production equipment as well as more sophisticated
information systems, has driven these increased capital requirements. We
generally compete on price, product performance, and sales and service support
to professional contractors. Competition varies by region. We also face
competition from alternative materials: wood, masonry, fiber cement and metal in
the siding market and wood and aluminum in the window market.
ACQUISITIONS AND DIVESTITURES
On June 24, 2002, we completed the sale of our AmerCable division to
AmerCable Incorporated, a newly-formed entity controlled by members of
management of the AmerCable division and Wingate Partners III, L.P., for net
proceeds of approximately $28.3 million in cash and the assumption of certain
liabilities pursuant to an asset purchase agreement dated as of the same date.
Following the completion of the sale, we no longer own the assets of, or
operate, the AmerCable division.
54
The asset purchase agreement in connection with the sale contained
customary representations and warranties by AmerCable Incorporated to us, as
well as certain limited representations and warranties by us to AmerCable
Incorporated.
The asset purchase agreement provides that following the asset sale,
Associated Materials Incorporated and AmerCable Incorporated each will indemnify
and hold harmless the other party and certain related parties and advisors for
the inaccuracy of any representation or warranty, the failure to perform any
covenant or comply with applicable bulk transfer or bulk sale laws and the
incurrence of losses in connection with liabilities allocated to each party
pursuant to the asset purchase agreement. Our obligation to indemnify AmerCable
Incorporated is subject to various timing and monetary limitations and can in no
event exceed the purchase price.
In October 2000, we acquired substantially all of the assets of Alpine for
$7.6 million in cash and the assumption of certain payroll related and property
tax liabilities. Included in the acquired assets is Alpine's leased window
fabrication facility located in Bothell, Washington. This facility manufactures
vinyl windows primarily for the new construction market. In addition to new
construction windows, Alpine manufactures premium sound control windows. This
acquisition significantly increased our presence on the West Coast. The
acquisition was accounted for using the purchase method of accounting.
We completed the sale of our UltraCraft operation, a manufacturer of
semi-custom frameless cabinets, in June 2000. Pre-tax net proceeds from the sale
were $18.9 million after working capital adjustments and transaction costs. We
recorded a pre-tax gain of $8.0 million on the sale. UltraCraft represented
approximately 5% of our 1999 net sales.
TRADEMARKS AND PATENTS
We have registered and nonregistered trade names and trademarks covering
the principal brand names and product lines under which our products are
marketed. Although we consider each of these items to be valuable, we do not
currently believe this property, other than the Alside(R) trademark, to be
material. We have obtained patents on certain claims associated with our siding,
fencing, decking and railing, and garage door products, which we believe
distinguish our products from those of our competitors.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
Our operations are subject to various environmental statutes and
regulations, including laws and regulations addressing materials used in the
manufacturing of our products. In addition, certain of our operations are
subject to federal, state and local environmental laws and regulations that
impose limitations or other requirements on the discharge of pollutants into the
air, water and soil, establish standards for the treatment, transport, storage
and disposal of solid and hazardous wastes, and remediation of soil and
groundwater contamination. Such laws and regulations may also impact the
availability of materials used in manufacturing our products. We believe we are
in material compliance with applicable environmental requirements, and do not
expect these requirements to result in material expenditures in the foreseeable
future. However, additional future expenditures may be necessary as compliance
standards and technology change, and unforeseen significant expenditures
required to maintain compliance, including unforeseen liabilities, could have an
adverse effect on our business and financial condition.
We entered into a consent order dated August 25, 1992 with the United
States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
our Akron, Ohio location. With the exception of a small container storage area,
the use of these facilities was terminated prior to our acquisition of the
Alside assets from USX in 1984. The effects of the past practices at this
facility are continuing to be investigated (through continued groundwater
monitoring) pursuant to the terms of the consent order. We believe that USX
bears responsibility for substantially all of the direct costs of corrective
action at these facilities under the relevant contract terms and under statutory
and common law. To date, USX has reimbursed us for substantially all of the
direct costs of corrective action at these facilities. We expect that USX will
55
continue to reimburse us. However, there can be no assurance that payments will
continue to be made by USX or that it will have adequate financial resources to
fully reimburse us for these costs.
Certain environmental laws, including CERCLA and comparable state laws,
impose strict, and in certain circumstances joint and several, liability upon
specified responsible parties which include certain former owners and operators
of waste sites designated for clean up by environmental regulators. A facility
formerly owned by our company in Lumber City, Georgia, which is now owned by
Amercord Inc., a company in which we currently hold a minority interest, is
currently undergoing soil and groundwater investigation pursuant to a Consent
Order entered into by Amercord Inc. with the Georgia Department of Natural
Resources in 1994. We are not a party to these activities. We also understand
that soil and groundwater in certain areas of the site (including in the areas
of two industrial waste landfills) are being investigated under CERCLA by the
United States Environmental Protection Agency to determine whether remediation
of those areas may be required and whether the site should be listed on the
state or federal list of priority sites requiring remediation. There can be no
assurance that Amercord Inc., the current site owner, would have adequate
financial resources to carry out additional remediation that may be required, or
that if substantial remediation is required, claims will not be made against us
which could result in material expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Amercord Inc."
Also, we cannot be certain that we have identified all environmental
matters giving rise to potential liability. More stringent future environmental
requirements or stricter enforcement of existing requirements, the discovery of
unknown conditions, or our past use of hazardous materials could result in
increased expenditures or liabilities which could have an adverse effect on you.
PROPERTIES
Our operations include both owned and leased facilities as described below:
<Table>
<Caption>
LOCATION PRINCIPAL USE SQUARE FEET
- -------- ------------- -----------
Akron, Ohio Associated Materials Incorporated and Alside 70,000
Headquarters
Vinyl Windows, Vinyl Fencing, Decking and Railing 577,000
and Vinyl Garage Doors
Ennis, Texas Vinyl Siding Products, Vinyl Fencing, Decking and 301,000
Railing
Freeport, Texas Vinyl Siding Products 120,000
West Salem, Ohio Vinyl Window Extrusions, Fencing and Garage Door 173,000
Panels
Kinston, North Carolina Vinyl Windows 319,000(1)
Cedar Rapids, Iowa Vinyl Windows 128,000(1)
Bothell, Washington Vinyl Windows 159,000(1)
</Table>
- ---------------
(1) Leased facilities.
Our management believes that our facilities are generally in good operating
condition and are adequate to meet anticipated requirements in the near future.
Except for one owned location in Akron, Ohio, we lease our supply centers
for terms generally ranging from five to seven years with renewal options.
The leases for Alside's window plants extend through 2011 for the Bothell
location and 2005 for the Cedar Rapids and Kinston locations. Each lease is
renewable at our option for an additional five-year period. Following the
merger, we moved our corporate headquarters to our location in Akron, Ohio.
56
EMPLOYEES
As of March 31, 2002, we had 2,457 employees. We believe that our employee
relations are good.
Alside's employment needs vary seasonally with sales and production. As of
March 31, 2002, Alside had approximately 2,240 full-time employees, including
approximately 1,120 hourly workers. The West Salem, Ohio plant is Alside's only
unionized manufacturing facility, employing approximately 85 covered workers as
of March 31, 2002. The collective bargaining agreement for the West Salem
facility was successfully renegotiated in November 2001 for a three-year term.
Additionally, approximately 90 hourly workers in certain supply center locations
are covered by collective bargaining agreements. We consider Alside's labor
relations to be good.
Alside utilizes leased employees to supplement its own workforce at its
vinyl window fabrication plants located in Akron, Ohio; Kinston, North Carolina;
and Cedar Rapids, Iowa. We believe that the employee leasing program provides us
with scheduling flexibility for seasonal production requirements. The aggregate
number of leased employees in the window plants ranges from approximately 300 to
650 people based on seasonality.
As of March 31, 2002, our AmerCable division had approximately 212
employees and our corporate office in Dallas, Texas had 5 employees.
LEGAL PROCEEDINGS
We are involved from time to time in litigation arising in the ordinary
course of our business, none of which, after giving effect to our existing
insurance coverage, is expected to have a material adverse effect on us.
From time to time, we are involved in a number of proceedings and potential
proceedings relating to environmental and product liability matters. We handle
these claims in the ordinary course of our business and maintain product
liability insurance covering certain types of claims. Although it is difficult
to estimate our potential exposure to these matters, we believe that the
resolution of these matters will not have a material adverse effect on our
financial position, results of operations or liquidity.
57
THE EXCHANGE OFFER
BACKGROUND AND PURPOSE OF THE EXCHANGE OFFER
We issued the outstanding notes on April 23, 2002, in a private placement
to a limited number of qualified institutional buyers and to persons in offshore
transactions in reliance on Regulation S. In connection with this issuance, we
entered into the indenture and the registration rights agreement, pursuant to
which we agreed to, subject to certain exceptions:
- within 90 days after the issue date of the outstanding notes, file an
exchange offer registration statement with the Commission with respect to
a registered offer to exchange the outstanding notes for exchange notes
of our company having terms substantially identical in all material
respects of the outstanding notes (except that the exchange notes will
not contain terms with respect to transfer restrictions);
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within 180
days after the issue date of the outstanding notes;
- as soon as practicable after the effectiveness of the exchange offer
registration statement, offer the exchange notes in exchange for
surrender of the outstanding notes; and
- keep the exchange offer open for not less than 40 days (or longer if
required by applicable law) after the date of notice of the exchange
offer is mailed to holders of the outstanding notes.
Except as discussed below, upon the consummation of the exchange offer, we
will have no further obligations to register your outstanding notes. As soon as
practicable after 5:00 p.m., New York City time on , 2002, unless we
decide to extend this expiration date, the exchange offer will be consummated
when we:
- accept for exchange your outstanding notes tendered and not validly
withdrawn pursuant to the exchange offer; and
- deliver to the trustee for cancellation all your outstanding notes
accepted for exchange and issue to you exchange notes equal in principal
amount to the principal amount of the outstanding notes surrendered by
you.
Each broker dealer that receives exchange notes for its own account in
exchange for outstanding notes, where such outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. See "Plan of Distribution."
REPRESENTATIONS
We need representations from you before you can participate in the exchange
offer. To participate in the exchange offer, we require that you represent to us
that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- neither you nor any other person acting on your behalf is engaging in or
intends to engage in a distribution of your exchange notes;
- neither you nor any other person acting on your behalf has an arrangement
or understanding with any person to participate in the distribution of
the exchange notes;
- neither you nor any other person acting on your behalf is an "affiliate"
of us or any of our subsidiaries, as defined under Rule 405 of the
Securities Act; and
- if you or any other person acting on your behalf is a broker-dealer, you
will receive exchange notes for your own account in exchange for your
outstanding notes that were acquired as a result of
58
market-making activities or other trading activities, and you acknowledge
that you will deliver a prospectus in connection with any resale of your
exchange notes.
RESALE OF THE EXCHANGE NOTES
Based on interpretations by the Commission's staff, as set forth in
no-action letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available May 13, 1988), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) and Shearman &
Sterling, SEC No-Action Letter (available July 2, 1993), we believe that the
exchange notes issued under the exchange offer in exchange for the outstanding
notes may be offered for resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery requirements of the
Securities Act, if:
- you are not an "affiliate," as defined in Rule 405 of the Securities Act,
of our company;
- the exchange notes are acquired in the ordinary course of your business;
and
- you are not engaged in and do not intend to engage in, and have no
arrangement or understanding with any person to participate in any
manner, in the distribution of the exchange notes.
If you are engaged in or intend to engage in, or have any arrangement or
understanding with any person to participate in any manner, in a distribution of
the exchange notes or if you are an affiliate of our company:
- you cannot rely on the position of the Commission's staff mentioned
above; and
- you must comply with the registration and prospectus requirements of the
Securities Act in connection with a secondary resale of the exchange
notes.
TERMS OF THE EXCHANGE OFFER
We will accept any validly tendered outstanding notes which are not
withdrawn before 5:00 p.m., New York City time, on the expiration date. Exchange
notes will be issued in denominations of $1,000 principal amount and integral
multiples of $1,000 in exchange for each $1,000 principal amount of outstanding
notes. You may tender some or all of your outstanding notes in the exchange
offer.
The form and terms of the exchange notes will be the same as the form and
terms of your outstanding notes except that:
- interest on the exchange notes will accrue from the last interest payment
date on which interest was paid on your outstanding notes; and
- the exchange notes have been registered under the Securities Act and will
not bear a legend restricting their transfer.
The exchange notes will evidence the same indebtedness as the outstanding
notes, which they replace. The exchange notes will be issued under, and be
entitled to the benefits of, the same indenture that authorized the issuance of
the outstanding notes. As a result, both the exchange notes and the outstanding
notes will be treated as a single class of debt securities under the indenture.
The exchange offer does not depend upon any minimum aggregate principal amount
of outstanding notes being surrendered for exchange.
This prospectus, together with the letter of transmittal you received with
this prospectus, is being sent to you and to others believed to have beneficial
interests in the outstanding notes. You do not have any appraisal or dissenters'
rights under the General Corporation Law of the State of Delaware or under the
indenture governing your outstanding notes. We intend to conduct the exchange
offer in compliance with the requirements of the Exchange Act and the rules and
regulations of the Commission.
We will have accepted your validly tendered outstanding notes when we have
given oral or written notice to the exchange agent, which will occur as soon as
practicable after the expiration date. The
59
exchange agent will act as agent for you for the purpose of receiving the
exchange notes from us. If we do not accept your tendered outstanding notes for
exchange because of an invalid tender or other valid reason, we will return the
certificates, if any, without expense, to you as promptly as practicable after
the expiration date. Certificates, if any, for exchange notes will likewise be
sent to you as promptly as practicable following our acceptance of the tendered
outstanding notes following the expiration date.
You will not be required to pay brokerage commissions, fees or transfer
taxes in the exchange of your outstanding notes. We will pay all charges and
expenses other than any taxes you may incur in connection with the exchange
offer.
In consideration for issuing the exchange notes as contemplated in this
prospectus, we will receive in exchange the outstanding notes in like principal
amount. The outstanding notes surrendered in exchange for the exchange notes
will be retired and cancelled and cannot be reissued.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time,
on , 2002, unless we extend the expiration date. In any event, we will
hold the exchange offer open for at least forty days. In order to extend the
exchange offer, we will issue a notice by press release or other public
announcement before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting your outstanding notes;
- to extend the exchange offer;
- to terminate the exchange offer if any of the conditions have not been
satisfied by giving oral or written notice of any delay, extension or
termination to the exchange agent; or
- to amend the terms of the exchange offer in any manner.
CONDITIONS TO THE EXCHANGE OFFER
We will decide all questions as to the validity, form, eligibility,
acceptance and withdrawal of tendered outstanding notes, and our determination
will be final and binding on you. We reserve the absolute right to reject any
and all outstanding notes not properly tendered or reject any outstanding notes
which would be unlawful in the opinion of our counsel. We also reserve the right
to waive any defects, irregularities or conditions of tender as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties. You must cure any defects or irregularities in
connection with tenders of outstanding notes as we determine. Although we intend
to notify you of defects or irregularities with respect to tenders of your
outstanding notes, we, the exchange agent or any other person will not incur any
liability for failure to give any notification. Your tender of outstanding notes
will not be deemed to have been made until any defects or irregularities have
been cured or waived. Any of your outstanding notes received by the exchange
agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to you, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
We reserve the right to purchase or make offers for any outstanding notes
that remain outstanding after the expiration date or to terminate the exchange
offer and, to the extent permitted by applicable law, purchase outstanding notes
in the open market, in privately negotiated transactions or otherwise. The terms
of any of these purchases or offers could differ from the terms of the exchange
offer.
These conditions are for our sole benefit, and we may assert or waive them
at any time or for any reason. Our failure to exercise any of our rights will
not be a waiver of our rights.
60
We will not accept for exchange any outstanding notes you tender, and no
exchange notes will be issued to you in exchange for your outstanding notes, if
at that time any stop order is threatened or in effect with respect to the
registration statement or the qualification of the indenture relating to the
exchange notes under the Trust Indenture Act of 1939. We are required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
In all cases, issuance of exchange notes to you will be made only after
timely receipt by the exchange agent of:
- a book entry confirmation of your outstanding notes into the exchange
agent's account at the book-entry transfer facility or certificates for
your outstanding notes;
- with respect to DTC and its participants, electronic instructions of the
holder agreeing to be bound by the letter of transmittal or a properly
completed and duly executed letter of transmittal; and
- all other required documents.
In the case of outstanding notes tendered by book-entry transfer into the
exchange agent's account at the book-entry transfer facility under the
book-entry transfer procedures described below, your non-exchanged outstanding
notes will be credited to an account maintained with the book-entry transfer
facility. If we do not accept any of your tendered outstanding notes for a valid
reason or if you submit your outstanding notes for a greater principal amount
than you desire to exchange, we will return any unaccepted or non-exchanged
outstanding notes to you at our expense. This will occur as promptly as
practicable after the expiration or termination of the exchange offer for your
outstanding notes.
Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue exchange notes to you in exchange
for, any of your outstanding notes and may terminate or amend the exchange offer
if at any time before the acceptance of your outstanding notes for exchange or
the exchange of the exchange notes for your outstanding notes, we determine that
the exchange offer violates applicable law, any applicable interpretation of the
staff of the Commission or any order of any governmental agency or court of
competent jurisdiction.
PROCEDURES FOR TENDERING
Only you may tender your outstanding notes in the exchange offer. Except as
stated under "-- Book-Entry Transfer," to tender your outstanding notes in the
exchange offer, you must:
- complete, sign and date the enclosed letter of transmittal, or a copy of
it;
- have the signature on the letter of transmittal guaranteed if required by
the letter of transmittal; and
- mail, fax or otherwise deliver the letter of transmittal or copy to the
exchange agent before the expiration date.
In addition, either:
- the exchange agent must receive a timely confirmation of a book-entry
transfer of your outstanding notes, if that procedure is available, into
the account of the exchange agent at DTC (the "Book-Entry Transfer
Facility") under the procedure for book-entry transfer described below
before the expiration date;
- the exchange agent must receive certificates for your outstanding notes
and the letter of transmittal before the expiration date; or
- you must comply with the guaranteed delivery procedures described below.
For your outstanding notes to be tendered effectively, the exchange agent
must receive a valid agent's message through DTC's Automatic Tender Offer
Program, or ATOP system, or a letter of transmittal and other required documents
before the expiration date.
61
If you do not withdraw your tender before the expiration date, it will
constitute an agreement between you and us in compliance with the terms and
conditions in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF YOUR OUTSTANDING NOTES, A LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. INSTEAD OF DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. DO NOT SEND A LETTER
OF TRANSMITTAL OR OUTSTANDING NOTES DIRECTLY TO US. YOU MAY REQUEST YOUR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
MAKE THE EXCHANGE ON YOUR BEHALF.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes, where the outstanding notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the exchange notes. See "Plan of Distribution."
PROCEDURE IF THE OUTSTANDING NOTES ARE NOT REGISTERED IN YOUR NAME
If you are a beneficial owner whose outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you want to tender your outstanding notes, you should contact the registered
holder promptly and instruct the registered holder to tender on your behalf. If
you want to tender on your own behalf, you must, before completing and executing
a letter of transmittal and delivering your outstanding notes, either make
appropriate arrangements to register ownership of the outstanding notes in your
name or obtain a properly completed bond power or other proper endorsement from
the registered holder. We urge you to act immediately since the transfer of
registered ownership may take considerable time.
BOOK-ENTRY TENDER
The exchange agent will make requests to establish accounts at the
book-entry transfer facility for purposes of the exchange offer within two
business days after the date of this prospectus. If you are a financial
institution that is a participant in the book-entry transfer facility's systems,
you may make book-entry delivery of your outstanding notes being tendered by
causing the book-entry transfer facility to transfer your outstanding notes into
the exchange agent's account at the book-entry transfer facility in compliance
with the appropriate procedures for transfer. However, although you may deliver
your outstanding notes through book-entry transfer at the book-entry transfer
facility, you must transmit, and the exchange agent must receive, a letter of
transmittal or copy of the letter of transmittal, with any required signature
guarantees and any other required documents, except as discussed in the
following paragraph, on or before the expiration date or the guaranteed delivery
below must be complied with.
DTC's ATOP is the only method of processing the exchange offer through DTC.
To accept the exchange offer through ATOP, participants in DTC must send
electronic instructions to DTC through DTC's communication system instead of
sending a signed, hard copy letter of transmittal. DTC is obligated to
communicate those electronic instructions to the exchange agent. To tender your
outstanding notes through ATOP, the electronic instructions sent to DTC and
transmitted by DTC to the exchange agent must contain the participant's
acknowledgment of its receipt of and agreement to be bound by the letter of
transmittal for your outstanding notes.
SIGNATURE REQUIREMENTS AND SIGNATURE GUARANTEES
Unless you are a registered holder who requests that your exchange notes be
mailed to you and issued in your name or unless you are a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program, the Stock Exchange Medallion Program
or an "Eligible Guarantor Institution" within the meaning of Rule 17Ad-15 under
the Exchange
62
Act, each an "Eligible Institution," you must guarantee your signature on a
letter of transmittal or a notice of withdrawal by an Eligible Institution.
If a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation or other person acting in a fiduciary or representative
capacity signs the letter of transmittal or any notes or bond powers on your
behalf, that person must indicate their capacity when signing and submit
satisfactory evidence to us with the letter of transmittal demonstrating their
authority to act on your behalf.
GUARANTEED DELIVERY PROCEDURES
If you are a registered holder of outstanding notes and desire to tender
your outstanding notes, and the procedure for book-entry transfer cannot be
completed on a timely basis, your outstanding notes are not immediately
available or time will not permit your outstanding notes or other required
documents to reach the exchange agent before the expiration date, you may tender
your outstanding notes if:
- the tender is made through an Eligible Institution;
- before the expiration date, the exchange agent receives from an eligible
institution a properly completed and duly executed letter of transmittal
and notice of guaranteed delivery, in the form provided by us;
- a book-entry confirmation or the certificates for all physically tendered
outstanding notes, in proper form for transfer, and all other documents
required by the applicable letter of transmittal are received by the
exchange agent within three New York Stock Exchange trading days after
the date of execution of the notice of guaranteed delivery; and
- the notice of guaranteed delivery states your name and address and the
amount of outstanding notes you are tendering, that your tender is being
made thereby and you guarantee that within three NYSE trading days after
the date of execution of the notice of guaranteed delivery, a book-entry
confirmation or the certificates for all physically tendered outstanding
notes, in proper form for transfer, and any other documents required by
the applicable letter of transmittal will be deposited by the Eligible
Institution with the exchange agent.
BENEFICIAL OWNER INSTRUCTIONS TO HOLDERS OF OUTSTANDING NOTES
Only a holder whose name appears on a DTC security position listing as a
holder of outstanding notes, or the legal representative or attorney-in-fact of
this holder, may execute and deliver the letter of transmittal.
Holders of outstanding notes who are not registered holders of, and who
seek to tender, outstanding notes should (1) obtain a properly completed letter
of transmittal for such outstanding notes from the registered holder with
signatures guaranteed by an Eligible Institution and obtain and include with
such letter of transmittal outstanding notes properly endorsed for transfer by
the registered holder thereof or accompanied by a written instrument or
instruments of transfer or exchange from the registered holder with signatures
on the endorsement or written instrument or instruments of transfer or exchange
guaranteed by an Eligible Institution or (2) effect a record transfer of such
outstanding notes and comply with the requirements applicable to registered
holders for tendering outstanding notes before 5:00 p.m., New York City time, on
the expiration date. Any outstanding notes properly tendered before 5:00 p.m.,
New York City time, on the expiration date accompanied by a properly completed
letter of transmittal will be transferred of record by the registrar either
prior to or as of the expiration date at our discretion. We have no obligation
to transfer any outstanding notes from the name of the registered holder of the
note if we do not accept these outstanding notes for exchange.
Tendering holders should indicate in the applicable box in the letter of
transmittal the name and address to which payment of accrued and unpaid interest
in cash on the outstanding notes, certificates evidencing exchange notes and/or
certificates evidencing outstanding notes for amounts not accepted for tender,
each as appropriate, are to be issued or sent, if different from the name and
address of the person
63
signing the letter of transmittal. In the case of issuance in a different name,
the employer identification or social security number of the person named must
also be indicated and a substitute Form W-9 for this recipient must be
completed. If these instructions are not given, the payments, including accrued
and unpaid interest in cash on the outstanding notes, exchange notes or
outstanding notes not accepted for tender, as the case may be, will be made or
returned, as the case may be, to the registered holder of the outstanding notes
tendered.
Issuance of exchange notes in exchange for outstanding notes will be made
only against deposit of the tendered outstanding notes.
We will decide all questions as to the validity, form, eligibility,
acceptance and withdrawal of tendered outstanding notes, and our determination
will be final and binding on you. We reserve the absolute right to reject any
and all outstanding notes not properly tendered or reject any outstanding notes
which would be unlawful in the opinion of our counsel. We also reserve the right
to waive any defects, irregularities or conditions of tender as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in a letter of transmittal, will be
final and binding on all parties. You must cure any defects or irregularities in
connection with tenders of outstanding notes as we determine. Although we intend
to notify you of defects or irregularities with respect to tenders of your
outstanding notes, we, the exchange agent or any other person will not incur any
liability for failure to give any notification. Your tender of outstanding notes
will not be deemed to have been made until any defects or irregularities have
been cured or waived. Any of your outstanding notes received by the exchange
agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to you, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
As further described in and otherwise qualified by this prospectus, we will
accept all outstanding notes validly tendered before 5:00 p.m., New York City
time, on the expiration date and not validly withdrawn. The acceptance for
exchange of outstanding notes validly tendered and not validly withdrawn and the
delivery of exchange notes and the payment of any accrued and unpaid interest on
the outstanding notes will be made as promptly as practicable after the
expiration date. Subject to rules promulgated pursuant to the Exchange Act, we
expressly reserve the right to delay acceptance of any of the outstanding notes
or to terminate the exchange offer and not accept for exchange any outstanding
notes not theretofore accepted if any of the conditions set forth under the
heading "-- Conditions to the Exchange Offer" shall not have been satisfied or
waived by us. We will deliver exchange notes and make payments in cash of
accrued and unpaid interest on the outstanding notes in exchange for outstanding
notes pursuant to the exchange offer promptly following acceptance of the
outstanding notes. In all cases, exchange for outstanding notes accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of outstanding notes (or confirmation of book-entry
transfer thereof) and a properly completed and validly executed letter of
transmittal (or a manually signed facsimile thereof) or, in the case of
book-entry transfer, an agent's message and any other documents required
thereby.
For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered and not properly withdrawn outstanding notes when, as and if we
give oral or written notice thereof to the exchange agent. The exchange agent
will act as agent for the tendering holders of outstanding notes for the
purposes of receiving the exchange notes from us and transmitting new notes to
the tendering holders. Under no circumstances will any additional amount be paid
by us or the exchange agent by reason of any delay in making such payment or
delivery.
If, for any reason whatsoever, acceptance for exchange of any outstanding
notes tendered pursuant to the exchange offer is delayed, or we are unable to
accept for exchange outstanding notes tendered pursuant to the exchange offer,
then, without prejudice to our rights set forth herein, the exchange agent may
nevertheless, on behalf of us and subject to rules promulgated pursuant to the
Exchange Act, retain tendered outstanding notes, and such outstanding notes may
not be withdrawn except to the extent that
64
the tendering holder of such outstanding notes is entitled to withdrawal rights
as described herein. See "-- Withdrawal Rights."
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence or non-occurrence of certain other events set
forth herein or otherwise, then such unaccepted outstanding notes will be
returned, at our expense, to the tendering holder thereof as promptly as
practicable after the expiration date or the termination of the applicable
exchange offer therefor.
No alternative, conditional or contingent tenders will be accepted. A
tendering holder, by execution of a letter of transmittal, or facsimile thereof,
waives all rights to receive notice of acceptance of such holder's outstanding
notes for exchange.
WITHDRAWAL RIGHTS
You may withdraw your tender of your outstanding notes at any time before
5:00 p.m., New York City time, on the expiration date.
For your withdrawal to be effective, an electronic ATOP transmission or,
for non-DTC participants, written notice of withdrawal must be received by the
exchange agent at its address found in this prospectus before 5:00 p.m., New
York City time, on the expiration date.
Your notice of withdrawal must:
- specify your name;
- identify your outstanding notes to be withdrawn, including the
certificate number or numbers, if any, and principal amount of your
outstanding notes;
- be signed by you in the same manner as the original signature on the
letter of transmittal by which your outstanding notes were tendered or be
accompanied by documents of transfer sufficient to have the trustee of
your outstanding notes register the transfer of your outstanding notes
into your name; and
- specify the name in which your outstanding notes are to be registered, if
you do not want your outstanding notes registered in your name.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of your notice, and our determination will be final
and binding on all parties. Any outstanding notes you withdraw will not be
considered to have been validly tendered. We will return your outstanding notes
which have been tendered but not exchanged for any reason without cost to you as
soon as practicable after withdrawal, rejection of tender or termination of the
exchange offer. You may retender your properly withdrawn outstanding notes by
following one of the above procedures before the expiration date.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any outstanding notes not tendered under the exchange offer will remain
outstanding and continue to accrue interest. The outstanding notes will remain
"restricted securities" within the meaning of the Securities Act and will remain
subject to existing transfer restrictions. Accordingly, before the date that is
one year after the later of the issue date and the last date on which we or any
of our affiliates was the owner of the outstanding notes, the outstanding notes
may be resold only
(1) to us or our affiliates;
(2) to a person whom you reasonably believe is a qualified
institutional buyer in a transaction meeting the requirements of Rule 144A,
(3) inside the United States to an institutional accredited investor
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act)
that, prior to such transfer, furnishes to the trustee a signed letter
containing certain representations and agreements relating to the
restrictions on transfer of the outstanding notes, the form of which you
can obtain from the trustee and, if such
65
transfer is in respect of an aggregate principal amount of outstanding
notes at the time of transfer of less than $250,000, an opinion of counsel
acceptable to us;
(4) outside the United States in a transaction complying with the
provisions of Rule 903 or Rule 904 under the Securities Act;
(5) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 (if available); or
(6) pursuant to an effective registration statement under the
Securities Act.
In each of cases (1) through (6) above, such sale shall be in accordance with
any applicable securities laws of any state of the United States.
As a result, the liquidity of the market for non-tendered outstanding notes
could be adversely affected upon completion of the exchange offer.
ADDITIONAL REGISTRATION RIGHTS
Under some circumstances, we may be required to file a shelf registration
statement covering resales of the outstanding notes. This requirement will be
triggered if:
- applicable interpretations of the staff of the Commission do not permit
us to effect the exchange offer;
- for any other reason we do not consummate the exchange offer within 220
days of April 23, 2002;
- an initial purchaser of the outstanding notes notifies us following
consummation of the exchange offer that the outstanding notes held by it
are not eligible to be exchanged for exchange notes in the exchange
offer; or
- certain holders are prohibited by law or Commission policy from
participating in the exchange offer or may not resell the exchange notes
acquired by them in the exchange offer to the public without delivering a
prospectus,
then, we will, subject to certain exceptions,
- promptly file a shelf registration statement with the Commission covering
resales of the outstanding notes or the exchange notes, as the case may
be;
- use our reasonable best efforts to cause the shelf registration statement
to be declared effective under the Securities Act on or prior to the
180th day after the date on which the shelf registrations statement is
required to be filed; and
- keep the shelf registration statement effective until the earliest of (1)
the time when the outstanding notes covered by the shelf registration
statement can be sold pursuant to Rule 144 without any limitations under
clauses (c), (e), (f) and (h) of Rule 144, (2) two years from the
effective date of the shelf registration statement and (3) the day on
which all outstanding notes registered thereunder are disposed of in
accordance therewith.
We will, in the event a shelf registration statement is filed, among other
things,
- provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf registration
statement,
- notify each such holder when the shelf registration statement has become
effective, and
- take certain other actions as are required to permit unrestricted resales
of the outstanding notes or the exchange notes, as the case may be.
66
A holder selling such outstanding notes or exchange notes pursuant to the
shelf registration statement generally
- would be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers,
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales, and
- will be bound by the provisions of the registration rights agreement that
are applicable to such holder (including certain indemnification
obligations).
We will pay additional cash interest on the applicable outstanding notes
and exchange notes, subject to certain exceptions,
- if we fail to file an exchange offer registration statement with the
Commission on or prior to the 90th day after the issue date of the
outstanding notes,
- if the exchange offer registration statement is not declared effective by
the Commission on or prior to the 180th day after the issue date of the
outstanding notes,
- if the exchange offer is not consummated on or before the 40th day after
the exchange offer registration statement is declared effective,
- if obligated to file the shelf registration statement, we fail to file
the shelf registration statement with the Commission on or prior to the
60th day after the date on which the obligation to file a shelf
registration statement arises,
- if obligated to file a shelf registration statement, the shelf
registration statement is not declared effective on or prior to the 180th
day after the date on which the obligation to file a shelf registration
statement arises, or
- after the exchange offer registration statement or the shelf registration
statement, as the case may be, is declared effective, such registration
statement thereafter ceases to be effective or usable (subject to certain
exceptions) (each such event a registration default);
from and including the date on which any such registration default shall occur
to but excluding the date on which all registration defaults have been cured.
The rate of the additional interest will be 0.25% per annum for the first
90-day period immediately following the occurrence of a registration default,
and such rate will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all registration defaults have been cured at
which point it will reset the coupon rate, up to a maximum additional interest
rate of 1.0% per annum. We will pay such additional interest on regular interest
payment dates. Such additional interest will be in addition to any other
interest payable from time to time with respect to the outstanding notes and the
exchange notes.
67
EXCHANGE AGENT
You should direct all executed letters of transmittal to the exchange
agent. Wilmington Trust Company is the exchange agent for the exchange offer.
Questions, requests for assistance and requests for additional copies of the
prospectus or a letter of transmittal should be directed to the exchange agent
addressed as follows:
<Table>
By Registered or Certified By Hand/Overnight Delivery: By Facsimile Transmission:
Mail:
Wilmington Trust Company Wilmington Trust Company (For Eligible Institutions
only)
DC-1615 Reorganization Corporate Trust Reorganization (302) 636-4145
Services
PO Box 8861 Services Confirm by telephone:
Wilmington, DE 19899-8861 Rodney Square North (302) 636-6472
1100 North Market Street
Wilmington, DE 19890-1615
</Table>
FEES AND EXPENSES
We currently do not intend to make any payments to brokers, dealers or
others to solicit acceptances of the exchange offer. The principal solicitation
is being made by mail. However, additional solicitations may be made in person
or by telephone by our officers and employees.
Our estimated cash expenses incurred in connection with the exchange offer
will be paid by us and are estimated to be $0.1 million in the aggregate. This
amount includes fees and expenses of the trustees for the exchange and
outstanding notes, accounting, legal, printing and related fees and expenses.
TRANSFER TAXES
If you tender outstanding notes for exchange, you will not be obligated to
pay any transfer taxes. However, if you instruct us to register exchange notes
in the name of or request that your outstanding notes not tendered or not
accepted in the exchange offer be returned to a person other than you, you will
be responsible for the payment of any transfer tax owed.
LOST OR MISSING CERTIFICATES
If a holder of outstanding notes desires to tender a outstanding note
pursuant to the exchange offer, but the outstanding note has been mutilated,
lost, stolen or destroyed, such holder should write to or telephone the trustee
under the indenture at the address listed below, concerning the procedures for
obtaining replacement certificates for such outstanding note, arranging for
indemnification or any other matter that requires handling by such trustee.
Trustee:
Wilmington Trust Company
Corporate Trust Administration
1100 N. Market Street
Wilmington, DE 19890
Telecopier: (302) 636-4145
Telephone: (302) 636-6453
68
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information about our directors, executive
officers and key employees.
<Table>
<Caption>
NAME AGE POSITION(S)
- ---- --- -----------
Ira D. Kleinman................. 45 Chairman of the Board
Michael J. Caporale, Jr......... 50 President, Chief Executive Officer and Director
D. Keith LaVanway............... 37 Vice President, Chief Financial Officer, Treasurer
and Secretary
Kenneth L. Bloom................ 38 President of Alside Window Company
Benjamin L. McGarry............. 54 Alside Group Vice President -- Vinyl Manufacturing
Thomas W. Arenz................. 44 Director
Jonathan C. Angrist............. 31 Director
</Table>
Set forth below is a brief description of the business experience of each
of our directors, executive officers and key employees.
Ira D. Kleinman, Age 45. Mr. Kleinman has been the Chairman of the Board
since the merger. Mr. Kleinman is President of Associated Materials Holdings
Inc. Mr. Kleinman has been a General Partner of Harvest Partners for more than
five years and is currently a member of Harvest Associates III, LLC and Harvest
Associates IV, LLC. Mr. Kleinman is also as a director for Global Power
Equipment Group Inc.
Michael J. Caporale, Jr., Age 50. Mr. Caporale has been the President and
Chief Executive Officer of our company and a director since the merger. Mr.
Caporale was named Chief Executive Officer of the Alside division and became a
director in February 2001. Mr. Caporale joined our company in January 2000 as
President of the Alside Window Company, became President and Chief Operating
Officer of our Alside division in April 2000 and was named a Vice President of
our company in August 2000. Prior to joining our company, Mr. Caporale was the
President of Great Lakes Window, Inc., a subsidiary of Nortek, Inc., where he
had been employed since 1995.
D. Keith LaVanway, Age 37. Mr. LaVanway has been Vice President, Chief
Financial Officer, Treasurer and Secretary of our company since the merger. Mr.
LaVanway joined our company in February 2001 as Vice President -- Chief
Financial Officer of Alside and was also named a Vice President of our company.
Prior to joining us, Mr. LaVanway was employed by Nortek, Inc. from 1995 to
2001, most recently as Vice President -- Chief Financial Officer of Peachtree
Doors and Windows Company.
Kenneth L. Bloom, Age 38. Mr. Bloom joined our company in July 2000 as
Alside's Vice President of Window Manufacturing. Mr. Bloom was named President
of Alside Window Company in March 2001. Prior to joining us, Mr. Bloom was
Corporate Vice President of Field Container Co., L.P., where he had been
employed since 1996.
Benjamin L. McGarry, Age 54. Mr. McGarry was named Group Vice
President -- Vinyl Manufacturing of Alside in 1997. From 1984 to 1996, Mr.
McGarry was Senior Vice President -- Manufacturing of Alside. Mr. McGarry joined
Alside in 1980.
Thomas W. Arenz, Age 44. Mr. Arenz has been a director since shortly after
the merger. Mr. Arenz joined Harvest Partners, Inc. in November 1996 and became
a Principal in October 1997. Mr. Arenz has over 16 years of private equity
investment and corporate finance experience. From 1995 to 1996, Mr. Arenz was
with the North American subsidiary of Preussag AG, a German multinational
corporation, most recently as President. From 1991 to 1995, Mr. Arenz was a
Principal at Joseph Littlejohn & Levy, a management buyout firm. Mr. Arenz was
also in the corporate finance departments at Kidder, Peabody & Co. from 1990 to
1991 and Drexel Burnham Lambert from 1986 to 1990.
69
Jonathan C. Angrist, Age 31. Mr. Angrist has been a director since the
merger. Mr. Angrist is Secretary and Assistant Treasurer of Associated Materials
Holdings Inc. Mr. Angrist is also currently Vice President of Harvest Partners.
From 1993 to 1997, Mr. Angrist was a consultant of Sibson & Company. Mr. Angrist
is also a director for IRMC Holdings, Inc.
All of our directors will be elected annually with terms expiring as of the
next annual meeting of stockholders. All of our officers serve at the discretion
of the Board of Directors.
Messrs. Bloom and McGarry are considered our key employees because of their
responsibilities as divisional officers in the respective capacities indicated.
We, however, do not consider these employees to be our executive officers.
EXECUTIVE COMPENSATION AND COMPENSATION AND INCENTIVE PROGRAMS
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid by us for
services rendered in 2001, 2000 and 1999 by our chief executive officer and each
of our other executive officers during such time.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION SHARES
------------------------------------- UNDERLYING
FISCAL OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) SARS(2) COMPENSATION
- --------------------------- ------ -------- -------- --------------- ---------- ------------
William W. Winspear(4)............ 2001 $530,833 $667,185 -- 0 $ 44,800(3)
Chairman of the Board, President 2000 $507,500 $612,870 -- 0 $ 39,450
and Chief Executive Officer 1999 $492,917 $512,500 -- 0 $ 36,000
Michael J. Caporale, Jr.(5)....... 2001 $412,504 $354,409 $66,271 0 $ 214,731(6)
President and Chief Executive 2000 $335,417 $140,000 $53,157 100,000 $ 74,282
Officer of our Alside division
Robert F. Hogan, Jr.(7)........... 2001 $262,500 $177,930 -- 0 $ 6,800(8)
President and Chief Executive 2000 $249,167 $158,435 -- 0 $ 5,950
Officer of our AmerCable
division 1999 $238,750 $ 42,985 -- 0 $ 5,600
Robert L. Winspear(9)............. 2001 $208,333 $ 66,719 -- 0 $ 6,800(8)
Vice President and Chief
Financial 2000 $197,500 $ 61,287 -- 0 $ 5,950
Officer 1999 $181,667 $ 51,251 -- 0 $ 5,600
</Table>
- ---------------
(1) Includes amounts for the payment of income taxes relating to relocation
expenses paid by us in 2001 and 2000 and taxable to Mr. Caporale.
Perquisites and other personal benefits received by our other executive
officers are not included in the Summary Compensation Table because the
aggregate amount of this compensation, if any, did not meet disclosure
thresholds established under current SEC regulations.
(2) In January 2000, Mr. Caporale was granted an option to purchase 50,000
shares of common stock at $14.4375 per share, the fair market value on the
grant date. In March 2000, Mr. Caporale was granted an option to purchase an
additional 50,000 shares of common stock at $13.875 per share, the fair
market value on the grant date. These options vested 50% on the date of
grant and the balance vests on the second anniversary of the grant date.
(3) Includes directors fees of $38,000 and amounts accrued or allocated under a
defined contribution plan of $6,800.
(4) Mr. W. Winspear retired from our company upon completion of the equity
tender offer.
(5) Mr. Caporale joined us in January 2000.
(6) Includes directors fees of $25,500, amounts accrued or allocated under a
defined contribution plan of $6,800, a cash payment of $100,002 made under
the terms of Mr. Caporale's employment agreement
70
in consideration of the cancellation of stock options granted by his previous
employer and moving expenses of $82,429 incurred by Mr. Caporale and paid by us
under the terms of his employment agreement.
(7) Following the sale of AmerCable in June 2002, Mr. Hogan ceased to be an
officer our Company and became the president, chief executive officer and
chairman of the board of the newly-formed entity that acquired our AmerCable
division.
(8) Represents amounts accrued or allocated under a defined contribution plan.
(9) Mr. R. Winspear ceased to be the vice president and chief financial officer
of our company following the merger.
COMPENSATION AND INCENTIVE PROGRAMS
Incentive Bonus Plan
We maintain an Incentive Bonus Plan providing for annual bonus awards to
certain key employees, including each of our executive officers. Bonus amounts
are based on our pre-tax profits or, in the case of Alside personnel, the
pre-tax profits or return on invested capital of these divisions. This Plan is
administered by the Compensation Committee, none of the members of which are
eligible for a bonus award under this plan. Bonus payments under the Incentive
Bonus Plan are not guaranteed. Cash bonuses accrued in 2001, 2000 and 1999 to
each of our executive officers are set forth in the Summary Compensation Table.
Employment Agreement
It is expected that Mr. Caporale will enter into a new employment agreement
with us effective as of the equity tender offer completion date. Under the
expected terms of his new employment agreement, Mr. Caporale will serve as our
President, Chief Executive Officer and a member of our board of directors. Mr.
Caporale's new employment agreement is expected to provide for an initial base
salary of $500,000, an annual incentive bonus based on growth in the equity
value of Associated Materials Holdings Inc., certain perquisites and
participation in employee benefit programs made available to other senior
executives. The initial term of the new employment agreement is expected to be
three years. It is expected that the terms of the new employment agreement will
provide that on the first anniversary of the equity tender offer completion date
and each successive anniversary thereof, the term of the new employment
agreement will automatically extend by one year unless we deliver to Mr.
Caporale a notice not to extend the employment term. It is expected that the
terms of the new employment agreement will provide that if Mr. Caporale's
employment is involuntarily terminated by us without cause or if Mr. Caporale
resigns for good reason, he will be entitled to severance equal to $1,000,000
per year, together with continued health and dental benefits, for two years,
plus a pro rata incentive bonus for the year of termination.
It is expected that Mr. LaVanway will enter into an employment agreement
with us effective as of the equity tender offer completion date and agree to
terminate his existing severance agreement, as described below. Under the terms
of his employment agreement, Mr. LaVanway will serve as our Vice President and
Chief Financial Officer. Mr. LaVanway's employment agreement will provide for an
initial base salary of $275,000 and an annual incentive bonus based on growth in
the equity value of Associated Materials Holdings Inc. The initial term of the
employment agreement is expected to be two years. At the end of the initial
two-year term, and at the end of each two-year period thereafter, the term of
the employment agreement is expected to automatically renew for successive
two-year periods unless we provide Mr. LaVanway with a notice to terminate the
employment term. The employment agreement is expected to provide the same
severance terms as those provided by Mr. LaVanway's severance agreement with us
for two years following the equity tender offer completion date. Thereafter, if
Mr. LaVanway's employment is involuntarily terminated by us without cause, it is
expected that he will be entitled to severance equal to his annual base salary
for two years, plus a pro rata bonus for the year of termination.
71
Each of the executive officer's employment agreements described that we
expect to enter into effective as of the equity tender offer completion date
will include non-competition, non-solicitation, confidentiality and other
restrictive covenants. Each of these employment agreements is also expected to
provide that if any amount to be paid to the executive officer under the
employment agreement is determined to be non-deductible by reason of Section
280G of the Internal Revenue Code, subject to certain limitations, the severance
payments and benefits will be reduced to the extent necessary so that Section
280G does not cause any amount to be non-deductible by us.
Severance Agreement
We have entered into a severance agreement with Mr. LaVanway.
This severance agreement will only become operative upon a "change in
control" of our company. The severance agreement generally provides that if,
within a two-year period following a change in control, we terminate the
employment of Mr. LaVanway other than as a result of his death or disability, or
for cause, or if Mr. LaVanway terminates employment with us under certain
circumstances, he is entitled to receive severance compensation. This severance
compensation would be: (1) two times Mr. LaVanway's base pay at the highest rate
in effect for any period prior to his termination, (2) two times his cash bonus
(equal to the highest applicable cash bonus earned during the three years
immediately preceding the year in which the change in control occurred) and (3)
if the termination of employment occurs after June 30 in any year, a prorated
bonus for that calendar year. In addition, health and life insurance benefits
substantially similar to those provided prior to termination would continue for
a two-year period, subject to reduction to the extent comparable benefits are
actually received by Mr. LaVanway from another employer during this period. The
severance agreement also provides that if any amount to be paid to Mr. LaVanway
under the severance agreement is determined to be non-deductible by reason of
Section 280G of the Internal Revenue Code, the severance benefits will be
reduced to the extent necessary so that Section 280G does not cause any amount
to be non-deductible by us.
The completion of the equity tender offer qualified as a "change of
control" under this severance agreement.
Committees of the Board of Directors
Our Board of Directors does not currently have any standing committees.
Director Compensation
Prior to the merger, directors, including directors who were employees of
Associated Materials Incorporated, received an annual retainer of $16,000 plus
$3,500 for each Board meeting and $1,000 for each committee meeting attended in
person or $1,000 for each such meeting in which participation was by telephone.
Directors were reimbursed for reasonable travel expenses incurred in attending
Board and committee meetings. Following the merger, we will reimburse our
non-employee directors for all out-of-pocket expenses incurred in the
performance of their duties as directors. We do not intend to pay fees to the
current directors for attendance at meetings or for their services as members of
the board of directors.
Option/SAR Grants in 2001
No stock options or stock appreciation rights were granted to our executive
officers in 2001.
72
Aggregated Option/SAR Exercises in 2001 and December 31, 2001 Option/SAR Values
The following table provides information regarding the exercise of options
during 2001 and unexercised options held as of December 31, 2001 for our
executive officers.
<Table>
<Caption>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
DECEMBER 31, 2001(1) DECEMBER 31, 2001(2)
SHARES VALUE --------------------------- ---------------------------
NAME ACQUIRED REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
William W. Winspear..... 0 $ 0 0 0 $ 0 $ 0
Michael J. Caporale,
Jr.................... 0 $ 0 50,000 50,000 $1,169,688 $1,169,688
Robert F. Hogan, Jr..... 0 $ 0 24,000 6,000 $ 685,200 $ 171,300
Robert L. Winspear...... 0 $ 0 36,000 4,000 $1,149,300 $ 114,200
</Table>
- ---------------
(1) We have not granted stock appreciation rights.
(2) Based on a price of $37.55 per share of common stock, the closing sale price
on December 31, 2001, multiplied by the number of shares of common stock
issuable upon exercise of these options.
New Stock Option Plan
Associated Materials Holdings Inc. adopted a new stock option plan shortly
after the closing of the merger. Associated Materials Holdings Inc. may issue
additional shares of common stock and preferred stock, subject to adjustment if
particular capital changes affect the common stock and preferred stock, upon the
exercise of options granted under the new option plan. The exercise price of an
option granted under the new option plan will be determined by the Compensation
Committee of the Board of Directors of Associated Materials Holdings Inc. An
option holder may pay the exercise price of an option by any legal manner that
the Compensation Committee permits. The Compensation Committee, or the Board of
Directors, will administer the new option plan. The Compensation Committee will
select eligible executives, employees and consultants of Associated Materials
Holdings Inc. and its affiliates, including our company, to receive options and
will determine the number and type of shares of stock covered by options granted
under the new option plan, the terms under which options may be exercised, and
other terms and conditions of options in accordance with the provisions of the
new option plan. Option holders generally may not transfer their options except
in the event of death. If Associated Materials Holdings Inc. undergoes a change
in control, as defined in the new option plan, all outstanding options may
immediately become fully exercisable, and the Compensation Committee may adjust
outstanding options by substituting stock or other securities of any successor
or another party to the change in control transaction, or cash out such
outstanding options, in any such case, generally based on the consideration
received by its stockholders in the transaction. Subject to particular
limitations specified in the new option plan, the Board of Directors may amend
or terminate the new option plan, and the Compensation Committee may amend
options outstanding under the new option plan. The new option plan will
terminate no later than 10 years following its effective date; however, any
options outstanding under the new option plan will remain outstanding in
accordance with their terms.
Selected employees of Associated Materials Incorporated who held options
immediately prior to the merger to purchase shares of Associated Materials
Incorporated common stock have been, or will be, offered the opportunity to
convert such options into options to purchase shares of Associated Materials
Holdings Inc. common stock, preferred stock or both. Selected employees of
Associated Materials Incorporated may also receive new options to purchase
shares of common stock of Associated Materials Holdings Inc. It is also expected
that certain employees of Associated Materials Incorporated will have the right
to require Associated Materials Holdings Inc. to repurchase their options and
shares of stock of Associated Materials Holdings Inc. that have been purchased
through the exercise of options upon the occurrence of specified events.
73
DESCRIPTION OF CAPITAL STOCK
We amended our certificate of incorporation and bylaws following the
consummation of the merger. The following is a summary description of our
capital stock. The information contained herein is subject to the detailed
provisions of our amended certificate of incorporation and bylaws.
Under our amended certificate of incorporation, we will have the authority
to issue 1,000 shares of common stock, par value $.01 per share.
Holders of shares of common stock are entitled to one vote per share in the
election of directors and all other matters submitted to a vote of stockholders.
Holders of common stock have no redemption or conversion rights and no
preemptive or other rights to subscribe for our securities. The outstanding
shares of common stock are fully paid and non-assessable.
All shares of common stock are entitled (1) to share equally in dividends
from sources legally available therefor when, as and if declared by the Board of
Directors, and (2) upon our dissolution, to receive pro rata any of our assets
after the satisfaction of corporate liabilities.
Payment of cash dividends is restricted by covenants in our new credit
agreement and the indenture governing the notes.
74
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE MERGER
THE MERGER AGREEMENT. On March 16, 2002, we, Simon Acquisition Corp. and
Associated Materials Holdings Inc. (formerly known as Harvest/AMI Holdings Inc.)
entered into an agreement and plan of merger pursuant to which Simon Acquisition
Corp. commenced a tender offer to purchase all of the issued and outstanding
shares of common stock of Associated Materials Incorporated, at a price of
$50.00 per share, net to the seller in cash. Following the completion of the
merger, Simon Acquisition Corp. merged into our company and we continued as the
surviving corporation.
The merger agreement contained customary representations and warranties by
us to Simon Acquisition Corp. and Associated Materials Holdings Inc., as well as
customary representations and warranties by Simon Acquisition Corp. and
Associated Materials Holdings Inc. to us.
The merger agreement provides that from and after the effective time of the
merger, as the surviving corporation, we will indemnify and hold harmless each
person who is now, at any time has been or becomes prior to the effective time
of the merger, a director or officer of our company, and their heirs and
personal representatives, against liabilities and expenses incurred in
connection with any proceeding arising out of or pertaining to any action or
omission occurring prior to the effective time of the merger (including, without
limitation, any proceeding which arises out of or relates to the transactions
contemplated by the merger agreement).
Pursuant to the merger agreement, promptly following the commencement of
the equity tender offer, we commenced a tender offer for our 9 1/4% senior
subordinated notes and a solicitation of consents from holders of the existing
notes to amend certain terms of the related indenture to facilitate the
financings contemplated by the merger agreement, including the offering of the
outstanding notes.
On April 19, 2002, following our merger with Simon Acquisition Corp., we
became a wholly owned subsidiary of Associated Materials Holdings Inc. As a
result, Associated Materials Holdings Inc. has the right to appoint all of our
directors.
NON-COMPETITION AGREEMENT. In connection with the execution of the merger
agreement, Mr. William W. Winspear, who was our Chairman, President and Chief
Executive Officer prior to the completion of the equity tender offer, entered
into a non-competition agreement with us. Mr. Winspear has agreed that he will
not directly or indirectly own, operate, manage, control, consult with, provide
services for, or in any manner engage in the building products/siding and
windows business or the electrical cable manufacturing business in competition
with us within the United States for a period of three years beginning on the
offer completion date, which we will refer to as the "restricted period." Mr.
Winspear has also agreed that during the restricted period he will not directly
or indirectly (1) induce any of our employees to leave our employ, (2) hire any
person who is our employee, or (3) induce any customer, supplier, distributor or
other person having a significant business relationship with us to cease doing
business with us, or otherwise intentionally adversely interfere with such a
relationship. Mr. Winspear retired from our company upon completion of the
equity tender offer.
NON-SOLICITATION AGREEMENT. In connection with the execution of the merger
agreement, Mr. Robert L. Winspear, who was our Vice President and Chief
Financial Officer prior to the merger, entered into a non-solicitation agreement
with us. Mr. Robert Winspear has agreed that he will not, directly or
indirectly, for a period of two years following the completion of the equity
tender offer: (1) induce any of our employees that was party to an employment or
severance agreement with us on March 16, 2002 to leave our employ, (2) hire any
such person, or (3) induce any customer, supplier, distributor or other person
having a significant business relationship with us to cease doing business with
us or otherwise intentionally adversely interfere with such a relationship.
TENDER AND VOTING AGREEMENT. In connection with the execution of the merger
agreement, Mr. William W. Winspear, who, at the time, was the Chairman of the
Board, President and Chief Executive Officer of Associated Materials
Incorporated and who beneficially owned at the time of the
75
merger agreement 3,097,242 shares of common stock of Associated Materials
Incorporated, representing approximately 42% of the outstanding shares of common
stock of Associated Materials Incorporated on a fully diluted basis, entered
into a tender and voting agreement with Simon Acquisition Corp. and Associated
Materials Holdings Inc. Mr. Winspear agreed to validly tender all of his shares
and, until the termination of the tender and voting agreement, to vote or cause
to be voted all of the shares which Mr. Winspear has the right to vote in favor
of the merger and the approval of the terms of the merger agreement and in favor
of each of the other transactions contemplated by the merger agreement, and
against any other action that could adversely affect the transactions
contemplated by the merger agreement. Mr. Winspear made customary
representations and warranties relating to ownership of shares of Associated
Materials Incorporated, power and authority, execution and delivery, no
conflicts, no finder's fees, and reliance by Associated Materials Holdings Inc.
THE STOCKHOLDERS AGREEMENT
The stockholders of Associated Materials Holdings Inc. have entered into a
stockholders agreement which governs certain relationships among, and contains
certain rights and obligations of, such stockholders. The stockholders
agreement, among other things, (1) limits the ability of the stockholders to
transfer their shares in Associated Materials Holdings Inc. except in certain
permitted transfers as defined therein; (2) provides for certain tag-along
obligations and certain bring-along rights; (3) provides for certain
registration rights; and (4) provides for certain preemptive rights.
The stockholders agreement provides that the parties thereto must vote
their shares to elect a board of directors consisting of four persons designated
by the stockholders who are affiliates of Harvest Partners, Inc., our chief
executive officer, a person designated by PPM America Private Equity Fund, LP
and a person designated by Weston Presidio Service Company, LLC. Pursuant to the
stockholders agreement, Harvest Partners, Inc. will have the power to control
the amendment of the certificate of incorporation of Associated Materials
Holdings Inc., excluding changes that would disproportionately and adversely
affect the rights of any stockholder (other than stockholders who are affiliates
of Harvest Partners, Inc.). In addition, all stockholders of Associated
Materials Holdings Inc. have granted the Harvest funds the right, in certain
circumstances, to require such stockholders to sell their shares in Associated
Materials Holdings Inc. in a sale of substantially all of the assets of
Associated Materials Holdings Inc. or a majority of the common stock of
Associated Materials Holdings Inc. or our company, to any party other than an
affiliate of Harvest Partners, Inc.
Pursuant to the stockholders agreement, the stockholders (other than
stockholders that are affiliates of Harvest Partners, Inc.) are granted
"tag-along" rights under which such stockholders have the option of
participating in certain sales of capital stock of Associated Materials Holdings
Inc. by the stockholders who are affiliates of Harvest Partners, Inc. at the
same price and other terms as such affiliates.
Pursuant to the stockholders agreement, the stockholders are entitled to
certain rights with respect to registration under the Securities Act of certain
shares held by them including, in the case of affiliates of Harvest Partners,
Inc., certain demand registration rights. The stockholders agreement also
provides for certain preemptive rights. Subject to certain conditions, the
preemptive rights grant the right to purchase shares in a share issuance of
Associated Materials Holdings Inc.
The stockholders agreement provides that it shall terminate, except with
respect to the registration rights of the stockholders, upon the closing of an
underwritten registered public offering of common stock of Associated Materials
Holdings Inc.
MANAGEMENT AGREEMENT
We entered into a management agreement with Harvest Partners, Inc. Under
the management agreement, Harvest Partners, Inc. will receive a one time fee of
$5.0 million in connection with structuring and implementing the acquisition of
our company. In addition, Harvest Partners, Inc. will provide us with financial
advisory and strategic planning services. For these services, Harvest Partners,
Inc. will receive an annual fee of $750,000, payable on a quarterly basis in
advance, beginning on the date of execution of this
76
agreement. The fee will be adjusted on a yearly basis in accordance with the
U.S. Consumer Price Index. The agreement also provides that Harvest Partners,
Inc. will receive transaction fees in connection with financings, acquisitions
and divestitures of our company. Such fees will be a percentage of the
applicable transaction. Harvest Partners, Inc. will be reimbursed by us for all
out-of-pocket expenses. The management agreement has a term of five years from
its date of execution and will automatically be renewed on a yearly basis,
beginning in 2004, unless otherwise specified by Harvest Partners, Inc.
STOCK OPTIONS AND INVESTMENT OPPORTUNITY
Mr. Caporale will be entering into an agreement with Associated Materials
Holdings Inc. to convert his prior options to purchase shares of our common
stock held immediately prior to the merger into options to purchase shares of
preferred and common stock of Associated Materials Holdings Inc. with
approximately the same aggregate exercise price and aggregate value, and on the
same general terms and conditions, as his prior options. Mr. Caporale will
receive new options to purchase shares of common stock of Associated Materials
Holdings Inc. shortly after the consummation of the merger at a per share
exercise price equal to the price per share paid by other equity investors of
Associated Materials Holdings Inc. In addition, Mr. Caporale is offered the
opportunity following the consummation of the merger and within three months
thereafter to purchase shares of common and preferred stock of Associated
Materials Holdings Inc. with an aggregate value of not more than one times his
annual base salary at the same price per share paid by, and on substantially the
same terms as, other equity investors of Associated Materials Holdings Inc.
REPURCHASE OF CLASS B COMMON STOCK
On April 29, 2001, we repurchased 1,000,000 shares of our Class B common
stock from the Prudential Insurance Company of America and its wholly owned
subsidiary, PCG Finance Company II, LLC. The purchase price was $19.50 per share
of Class B common stock, or $19,500,000 in the aggregate. We financed this stock
repurchase through available cash and borrowings under our existing bank credit
facility. Following the purchase, Prudential and PCG converted their remaining
550,000 shares of Class B common stock into 550,000 shares of common stock. We
retired all 1,550,000 previously authorized shares of Class B common stock.
RELOCATION LOAN
In connection with his joining us, Mr. Caporale moved to the Akron, Ohio
area, where our Alside division is located. As part of his relocation benefits,
on November 16, 2000, we made a non-interest bearing loan to Mr. Caporale in the
amount of $270,407 for the purchase of a new home. Mr. Caporale repaid this loan
in full on February 16, 2001.
AMERCABLE
On June 24, 2002, we completed the sale of our AmerCable division to
AmerCable Incorporated, a newly-formed entity controlled by members of AmerCable
management and Wingate Partners III, L.P., for net proceeds of approximately
$28.3 million in cash and the assumption of certain liabilities pursuant to an
asset purchase agreement dated as of the same date. Robert F. Hogan, Jr.,
president and chief executive officer of our AmerCable division and vice
president of our company prior to the sale, will be the president, chief
executive officer and chairman of the board of AmerCable Incorporated.
77
PRINCIPAL STOCKHOLDERS
We are a wholly owned subsidiary of Associated Materials Holdings Inc. The
capital stock of Associated Materials Holdings Inc. consists of preferred stock,
par value $0.01 per share (the "preferred stock"), class A common stock, par
value $0.01 per share (the "class A common stock") and class B non-voting common
stock, par value $0.01 per share ("class B common stock" and collectively with
the class A common stock, the "common stock"). The preferred stock is senior in
right of payment to the common stock. Holders of preferred stock have no voting
rights except as required by law. Harvest Funds (as defined in footnote 3 below)
owns approximately 30.7% of the voting stock of Associated Materials Holdings
Inc. and is party to a stockholders agreement dated as of March 22, 2002,
regarding the ownership and voting of the common stock of Associated Materials
Holdings Inc. By virtue of such stock ownership and stockholders agreement,
Harvest Funds will have the ability to control the Board of Directors of
Associated Materials Holdings Inc.
The following table sets forth certain information as of June 28, 2002
regarding the beneficial ownership of:
- Harvest Funds in Associated Materials Holdings Inc.;
- the directors and named executive officers of our company; and
- all executive officers and directors of our company as a group.
We determined beneficial ownership in accordance with the rules of the
Commission, which generally require inclusion of shares over which a person has
voting or investment power. Share ownership in each case includes shares that
may be acquired within sixty days through the exercise of any options. Except as
otherwise indicated, the address for each of the named individuals is c/o
Associated Materials Incorporated, 280 Park Avenue, New York, New York 10017.
<Table>
<Caption>
CLASS A COMMON STOCK PREFERRED STOCK VOTING SECURITIES
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES PERCENTAGE SHARES PERCENTAGE SHARES PERCENTAGE
--------- ---------- --------- ---------- --------- ----------
Harvest Funds(1)(2)(3)........ 500,000 30.7% 450,000 30.3% 500,000 30.7%
Ira D. Kleinman(4)............ 500,000 30.7% 450,000 30.3% 500,000 30.7%
Michael J. Caporale, Jr.
(5)......................... 51,255 3.1% 46,415 3.0% 51,255 3.1%
D. Keith LaVanway(6).......... 8,992 * 4,678 * 8,992 *
Thomas W. Arenz(7)............ 500,000 30.7% 450,000 30.3% 500,000 30.7%
Jonathan C. Angrist(8)........ -- -- -- -- -- --
All directors and executive
officers as a group (5
persons).................... 560,247 33.2% 501,093 32.7% 560,247 33.2%
</Table>
- ---------------
* Less than 1%.
(1) Associated Materials Holdings Inc. is controlled by Harvest Funds, by reason
of their collective right to designate a majority of the members of the
board of directors of Associated Materials Holdings Inc. Harvest Funds are
Harvest Partners III, L.P., Harvest Partners III Beteilingungsgesellschaft
Burgerlichen Rechts (mit Haftungsbeschrankung) ("Harvest Partners III,
GbR"), Harvest Partners IV, L.P. and Harvest Partners IV GmbH & Co. KG
("Harvest Partners IV KG"). Harvest Associates III, L.L.C., which has six
members, is the general partner of Harvest Partners III, L.P. and Harvest
Partners III, GbR. Harvest Associates IV, L.L.C., which has six members, is
the general partner of Harvest Partners IV, L.P. and Harvest Partners IV KG.
Harvest Partners, Inc. provides management services for Harvest Associates
III, L.L.C. in connection with Harvest Partners III, L.P. and Harvest
Partners III, GbR and for Harvest Associates IV, L.L.C. in connection with
Harvest Partners IV, L.P. and Harvest Partners IV KG.
(2) Includes 131,978 shares of common stock and 118,780 shares of preferred
stock owned by Harvest Partners III, L.P. and 18,022 shares of common stock
and 16,220 shares of preferred stock owned by
78
Harvest Partners III, GbR for each of which Harvest Associates III,
L.L.C. is the general partner. Harvest Funds may hold two classes of
preferred stock or notes convertible into preferred stock. Harvest
Associates III, L.L.C. has six members, each of whom has equal voting
rights and who may be deemed to share beneficial ownership of the shares of
common stock of Associated Materials Incorporated. The six members are Ira
Kleinman, Harvey Mallement, Stephen Eisenstein, Harvey Wertheim, William
Kane and Thomas Arenz. Mr. Kleinman and Mr. Mallement are on our board of
directors. Each of Messrs. Kleinman, Mallement, Eisenstein, Wertheim, Kane
and Arenz disclaims beneficial ownership of the shares of common stock
owned by Harvest Partners III, L.P. and Harvest Partners III GbR.
(3) Includes 273,000 shares of common stock and 245,700 shares of common stock
owned by Harvest Partners IV, L.P. and 77,000 shares of common stock and
69,300 shares of preferred stock owned by Harvest Partners IV GmbH & Co. KG
or Harvest Partners IV KG, for each of which Harvest Associates IV, L.L.C.
is the general partner. Harvest Associates IV, L.L.C. has six members, each
of whom has equal voting rights and who may be deemed to share beneficial
ownership of the shares of common stock of Associated Materials Incorporated
beneficially owned by it. The six members are Ira Kleinman, Harvey
Mallement, Stephen Eisenstein, Harvey Wertheim, William Kane and Thomas
Arenz. Mr. Kleinman and Mr. Mallement are on our board of directors. Each of
Messrs. Kleinman, Mallement, Eisenstein, Wertheim, Kane and Arenz disclaims
beneficial ownership of the shares of common stock owned by Harvest Partners
IV, L.P., Harvest Partners IV KG. Harvest Partners III, L.P., Harvest
Partners III GbR, Harvest Partners IV, L.P. and Harvest Partners IV KG are
collectively referred to as the "Harvest Funds." The address of the named
entities is 280 Park Avenue, 33rd Floor, New York, New York 10017.
(4) Includes shares of class A common stock and preferred stock owned by Harvest
Partners III, L.P. and shares of class A common stock and preferred stock
owned by Harvest Partners III GbR, for each of which Harvest Associates III,
L.L.C. is the general partner. Also includes shares of class A common stock
and preferred stock owned by Harvest Partners IV, L.P. and Harvest Partners
IV KG, for each of which Harvest Partners IV, L.L.C. is the general partner.
Mr. Kleinman is a member of Harvest Associates, III, L.L.C. and Harvest
Partners IV, L.L.C. and may be deemed to share beneficial ownership of the
shares of common stock of Associated Materials Incorporated beneficially
owned by them. Mr. Kleinman disclaims beneficial ownership of common shares
owned by Harvest Partners III, L.P., Harvest Partners III GbR, Harvest
Partners IV, L.P. and Harvest Partners IV KG.
(5) Includes options to purchase 51,255 shares of class A common stock and
46,415 shares of preferred stock. This reflects the intended conversion of
options held by Mr. Caporale to purchase shares of common stock of
Associated Materials Incorporated prior to the merger into options to
purchase shares of common and preferred stock of Associated Materials
Holdings Inc.
(6) Includes options to purchase 8,992 shares of class A common stock and 4,678
shares of preferred stock. This reflects the intended conversion of options
held by Mr. LaVanway to purchase shares of common stock of Associated
Materials Incorporated prior to the merger into options to purchase shares
of common and preferred stock of Associated Materials Holdings Inc.
(7) Includes shares of class A common stock and preferred stock owned by Harvest
Partners III, L.P. and shares of class A common stock and preferred stock
owned by Harvest Partners III GbR, for each of which Harvest Associates III,
L.L.C. is the general partner. Also includes shares of class A common stock
and preferred stock owned by Harvest Partners IV, L.P. and Harvest Partners
IV KG, for each of which Harvest Partners IV, L.L.C. is the general partner.
Mr. Arenz is a member of Harvest Associates, III, L.L.C. and Harvest
Partners IV, L.L.C. and may be deemed to share beneficial ownership of the
shares of common stock of Associated Materials Incorporated beneficially
owned by them. Mr. Arenz disclaims beneficial ownership of common shares
owned by Harvest Partners III, L.P., Harvest Partners III GbR, Harvest
Partners IV, L.P. and Harvest Partners IV KG.
(8) Mr. Angrist is a director of our company.
None of Harvest Funds, the directors or the executive officers owns shares of
class B common stock.
79
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
The new credit facility provides for the following:
(1) a seven year $125 million term loan which was drawn at closing to
finance the transactions, and
(2) a five year $40 million revolving credit facility, which includes
letters of credit (subject to a $10 million sublimit), which may be used
for, among other things, general corporate purposes including working
capital.
The term loan will amortize beginning six months after closing in quarterly
installments over the six and one-half year amortization period in an aggregate
amount equal to 1% annually for the first five and one-half years of such
amortization period with the balance to be paid in the final year in four equal
installments.
UBS Warburg LLC and Credit Suisse First Boston act as joint-lead arrangers,
UBS AG, Stamford Bank acts as administrative agent, Credit Suisse First Boston
acts as syndication agent and CIBC World Markets Corp. acts as documentation
agent for the syndicate of lenders providing the new credit facility.
Subject to certain exceptions, the new credit facility requires mandatory
repayments and mandatory reductions thereunder with the proceeds from (1) asset
sales, (2) the issuance of debt and equity securities, (3) insurance and
condemnation awards and (4) annual excess cash flow. Voluntary prepayments of
the new credit facility will be permitted at any time, subject to certain notice
requirements and to the payment of certain losses and expenses suffered by the
lenders as a result of the prepayment of "Eurodollar Loans" (as defined in the
new credit facility) prior to the end of the applicable interest period.
The new credit facility bears interest at the sum of the (1) applicable
margin and (2) at our option, either the "Alternate Base Rate" (as defined in
the new credit facility) or the "Eurodollar Rate" (as defined in the new credit
facility). The Alternate Base Rate will be the higher of (1) the rate that UBS
AG, Stamford Branch announces from time to time as its prime commercial lending
rate, as in effect from time to time and (2) one-half of 1% in excess of the
federal funds rate, as published by the Federal Reserve Bank of New York. The
applicable interest margin is initially a percentage per annum equal to (1) in
the case of the term loans maintained as (a) Alternate Base Rate Loans (as
defined in the new credit facility), 2.50%, and (b) Eurodollar Loans (as defined
in the new credit facility), 3.50% and (2) in the case of revolving loans
maintained as (a) Base Rate Loans, 2.00%, and (b) Eurodollar Loans, 3.00%, in
each case with respect to revolving loans subject to adjustments based on
certain levels of financial performance.
With respect to Eurodollar Loans, (1) we may elect interest periods of 1,
2, 3, 6 or, if available, 9 or 12 months and (2) interest will be payable in
arrears at the earlier of (a) the end of an applicable interest period and (b)
quarterly. With respect to Alternate Base Rate Loans, interest will be payable
quarterly on the last business day of each fiscal quarter. Additionally, we will
pay a commitment fee in an amount equal to 0.50% per annum on the daily average
unused portion of the new credit facility, subject to adjustments based on
certain levels of financial performance.
The new credit facility contains certain covenants, including, without
limitation, restrictions on:
- debt and liens;
- the sale of assets;
- mergers, acquisitions and other business combinations;
- voluntary prepayment of certain debt (including the notes);
- transactions with affiliates;
80
- capital expenditures;
- leases;
- loans and investments, as well as prohibitions on the payment of cash
dividends to, or the repurchase on redemption of stock from,
stockholders; and
- various financial covenants.
The new credit facility contains customary events of default, including
payment defaults, breaches of representations and warranties, covenant defaults,
cross-default and cross-acceleration to certain other debt, certain events of
bankruptcy and insolvency, certain events under the Employee Retirement Income
Security Act of 1974, as amended, material judgments, actual or asserted failure
of any guaranty or security document supporting the new credit facility to be in
full force and effect and change of control. If such a default occurs, the
lenders under the new credit facility would be entitled to take various actions,
including all actions permitted to be taken by a secured creditor, the
acceleration of amounts due under the new credit facility and requiring that all
such amounts be immediately paid in full.
All obligations under the new credit facility are jointly and severally
guaranteed by Associated Materials Holdings Inc. and all of our direct and
indirect wholly owned domestic subsidiaries. The debt under the new credit
facility is secured by a pledge of our capital stock and the capital stock of
our subsidiaries (but not to exceed 66 2/3 of the voting stock of foreign
subsidiaries), and a perfected lien and security interest in substantially all
of our owned real and personal assets (tangible and intangible) and the owned
real and personal assets (tangible and intangible) of Associated Materials
Holdings Inc. and each of our direct and indirect wholly owned domestic
subsidiaries. Our future wholly owned domestic subsidiaries will be required to
guarantee the new credit facility and to secure such guarantee with
substantially all of their owned real and personal assets (tangible and
intangible).
The new credit facility, including the terms and conditions described
above, is subject to modification, amendment and waiver by the parties thereto.
OUR 9 1/4% SENIOR SUBORDINATED NOTES
We currently have outstanding senior subordinated notes due March 1, 2008.
The principal amount of these senior subordinated notes bears annual interest at
9 1/4%. These existing notes are governed by an indenture between us and Bank of
New York Trust Company of Florida, N.A. (formerly U.S. Trust Company of Texas,
N.A.).
We commenced a tender offer and consent solicitation to purchase all of our
$75 million outstanding 9 1/4% notes and to receive consents from holders of
such notes to amend the terms of the indenture governing such notes. The debt
tender offer expired on April 18, 2002. Approximately $74 million aggregate
principal amount of the 9 1/4% notes were tendered. We amended the indenture
governing the 9 1/4% notes to remove substantially all the restrictive covenants
pursuant to a supplemental indenture dated as of April 4, 2002.
Subsequent to the merger, we commenced a change of control offer pursuant
to the indenture governing the 9 1/4% notes to purchase the 9 1/4% notes not
tendered in the debt tender offer. The change of control offer expired on June
21, 2002 and approximately $0.1 million aggregate principal amount of such notes
was tendered and accepted. We intend to discharge the remaining approximately
$0.9 million outstanding 9 1/4% notes pursuant to the indenture governing such
notes. We may also, from time to time, purchase such notes through open market
purchases, privately negotiated transactions, tender offers, exchange offers or
otherwise, upon such terms and at such prices as we may determine. We expect
that all discharged notes will be redeemed on or after March 1, 2003 at 104.625%
of the principal amount of such notes ($1,046.25 per $1,000 principal amount of
such notes), plus accrued and unpaid interest, if any, to the date of purchase.
81
AMERCORD INC. GUARANTEE
In connection with the recapitalization of Amercord Inc. in November 1999,
we guaranteed a $3.0 million note secured by Amercord Inc.'s real property. To
date, the lender has not requested us to make payment under the guaranty. Should
the guaranty be exercised by Amercord Inc.'s lender, we and Ivaco Inc., another
stockholder of Amercord Inc., have the option to assume the loan. Ivaco Inc. has
indemnified us for 50% of any loss under the guaranty up to $1.5 million. Based
on a third party appraisal of Amercord Inc.'s real property, we believe that we
are adequately secured under our guaranty of the $3.0 million Amercord Inc. note
such that no losses are anticipated with respect to this guaranty.
82
DESCRIPTION OF THE NOTES
We issued the outstanding notes under an indenture (the "Indenture") among
us and Wilmington Trust Company, as trustee, in a private transaction that was
exempt from the registration requirements of the Securities Act. We will issue
the exchange notes under the same indenture. The terms of the notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended. A copy of the Indenture has been
filed as an exhibit to this exchange offer registration statement. As used in
this section, the term "Notes" refers collectively to the outstanding notes and
the exchange notes, and the term "Company" refers only to Associated Materials
Incorporated ("Associated Materials"), and does not refer to any of our
subsidiaries.
Certain terms used in this description are defined under the subheading
"-- Certain Definitions."
The terms of the outstanding notes and the exchange notes are identical,
both of which are governed by the Indenture described herein. The following
description is only a summary of the material provisions of the Indenture. We
urge you to read the Indenture, because it, not this description, defines your
rights as holders of these Notes. You may request copies of this agreement at
our address set forth under the heading "Available Information."
BRIEF DESCRIPTION OF THE NOTES
THE NOTES
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are subject to registration with the SEC pursuant to the Registration
Rights Agreement.
EACH SUBSIDIARY GUARANTY
- unconditionally guarantees the obligations of the Company under the
Notes; and
- is a senior subordinated obligation of the relevant Subsidiary Guarantor.
PRINCIPAL, MATURITY AND INTEREST
The Company issued the Notes initially with a maximum aggregate principal
amount of $165.0 million. The Company issued the Notes in denominations of
$1,000 and any integral multiple of $1,000. The Notes will mature on April 15,
2012. Subject to our compliance with the covenant described under the subheading
"-- Certain Covenants -- Limitation on Indebtedness," we are permitted to issue
more Notes under the Indenture in an unlimited aggregate principal amount (the
"Additional Notes"). The Notes and the Additional Notes, if any, will be treated
as a single class for all purposes of the Indenture, including waivers,
amendments, redemptions and offers to purchase. Unless the context otherwise
requires, for all purposes of the Indenture and this "Description of the Notes,"
references to the Notes include any Additional Notes actually issued.
Interest on these Notes will accrue at the rate of 9 3/4% per annum and
will be payable semiannually in arrears on April 15 and October 15, commencing
on October 15, 2002. We will make each interest payment to the holders of record
of these Notes on the immediately preceding April 1 and October 1.
Interest on these Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement.
83
OPTIONAL REDEMPTION
Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to April 15, 2007.
On and after April 15, 2007, we will be entitled at our option to redeem
all or a portion of these Notes upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed in percentages of principal amount
on the redemption date), plus accrued interest to the redemption date (subject
to the right of Holders of record on the related record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on April 15 of the years set forth below:
<Table>
<Caption>
PERIOD REDEMPTION PRICE
- ------ ----------------
2007........................................................ 104.875%
2008........................................................ 103.250
2009........................................................ 101.625
2010 and thereafter......................................... 100.000%
</Table>
In addition, before April 15, 2005, we may at our option on one or more
occasions redeem Notes (which includes Additional Notes, if any) in an aggregate
principal amount not to exceed 35% of the aggregate principal amount of the
Notes (which includes Additional Notes, if any) at a redemption price (expressed
as a percentage of principal amount) of 109.75%, plus accrued and unpaid
interest to the redemption date with the net cash proceeds from one or more
Equity Offerings (provided that if the Equity Offering is an offering by
Associated Materials Holdings, Inc. ("Parent"), a portion of the net cash
proceeds thereof equal to the amount required to redeem any such Notes is
contributed to the equity capital of the Company); provided that
(1) at least 65% of such aggregate principal amount of Notes (which
includes Additional Notes, if any) remains outstanding immediately after
the occurrence of each such redemption (other than Notes held, directly or
indirectly, by the Company or its Affiliates); and
(2) each such redemption occurs within 90 days after the date of the
related Equity Offering.
REDEMPTION UPON A CHANGE OF CONTROL
At any time on or prior to April 15, 2007, the Notes may also be redeemed,
in whole but not in part, at the option of the Company upon the occurrence of a
Change of Control, notice of which is sent no later than 30 days after the
occurrence of such Change of Control by notice mailed by first-class mail to
each Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued but
unpaid interest, if any, to, the date of redemption (the "Change of Control
Redemption Date").
"Applicable Premium" means, with respect to a Note at any Change of Control
Redemption Date, the greater of:
(1) 1.0% of the principal amount of such Note; or
(2) the excess of
(a) the present value at such time of:
(x) the redemption price of such Note at April 15, 2007 (such
redemption price being described under "-- Optional Redemption"),
plus
(y) all required interest payments (excluding accrued but unpaid
interest) due on such Note through April 15, 2007
computed using a discount rate equal to the Treasury Rate plus 50
basis points, over
(b) the principal amount of such Note.
84
"Treasury Rate" means the yield to maturity at the Change of Control
Redemption Date of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two Business Days
prior to the Change of Control Redemption Date (or, if such Statistical Release
is no longer published, any publicly available source or similar market data))
most nearly equal to the period from the Change of Control Redemption Date to
April 15, 2007, provided, however, that if the period from the Change of Control
Redemption Date to April 15, 2007 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Change of Control Redemption Date to April 15, 2007 is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be used.
SELECTION AND NOTICE OF REDEMPTION
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes to be redeemed on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate.
We will redeem Notes of $1,000 or less in whole and not in part. Except as
required under "-- Escrow of Proceeds; Mandatory Redemption," we will cause
notices of redemption to be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each holder of Notes to be redeemed
at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to
be redeemed. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION; OFFERS TO PURCHASE; OPEN MARKET PURCHASES
Except as set forth above under "-- Change of Control" and "Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock," we are not
required to make any mandatory redemption or sinking fund payments with respect
to the Notes. We may at any time and from time to time purchase Notes in the
open market or otherwise.
SUBSIDIARY GUARANTIES
Each Subsidiary Guarantor will jointly and severally guarantee, on an
unsecured senior subordinated basis, our obligations under these Notes. The
obligations of each Subsidiary Guarantor under its Subsidiary Guaranty will be
limited as necessary to prevent the guarantee of that Subsidiary Guaranty from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- The guarantees may be voided under specific legal circumstances."
Each Subsidiary Guarantor that makes a payment under its Subsidiary
Guaranty will be entitled upon payment in full of all guaranteed obligations
under the Indenture to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's pro rata portion of such
payment based on the respective net assets of all the Subsidiary Guarantors at
the time of such payment determined in accordance with GAAP.
If a Subsidiary Guaranty were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent
liabilities) of the applicable Subsidiary Guarantor, and, depending on the
amount of such indebtedness, a Subsidiary Guarantor's liability on its
Subsidiary
85
Guaranty could be reduced to zero. See "Risk Factors -- The guarantees may be
voided under specific legal circumstances."
Pursuant to the Indenture, a Subsidiary Guarantor may consolidate with,
merge with or into or transfer all or substantially all its assets to any other
Person to the extent described below under "-- Certain Covenants -- Merger and
Consolidation"; provided, however, that if such other Person is not the Company,
such Subsidiary Guarantor's obligations under its Subsidiary Guaranty must be
expressly assumed by such other Person, unless such merger or transfer occurs as
part of an Asset Disposition of such Subsidiary Guarantor in accordance with the
applicable provisions of the Indenture.
The Subsidiary Guaranty of a Subsidiary Guarantor will be released
(1) upon the sale or other disposition (including by way of
consolidation or merger) of a Subsidiary Guarantor;
(2) upon the sale or disposition of all or substantially all the
assets of a Subsidiary Guarantor;
(3) if the Company properly designates any Restricted Subsidiary that
is a Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with
the applicable provisions of the Indenture; or
(4) at such time as such Subsidiary Guarantor no longer Guarantees or
otherwise has outstanding any other Indebtedness of the Company or another
Subsidiary Guarantor;
in the case of paragraphs (1) and (2), other than to the Company or an Affiliate
of the Company and as permitted by the Indenture.
RANKING
SENIOR INDEBTEDNESS VERSUS NOTES
The payment of the principal of, premium, if any, and interest on the Notes
and the payment of any Guaranty and all other Subordinated Note Obligations will
be subordinate in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness of the Company or the relevant Subsidiary
Guarantor, including all Bank Indebtedness of the Company and such Subsidiary
Guarantor under the Credit Agreement.
As of March 31, 2002, after giving effect to the Transactions and the sale
of the Company's AmerCable division, the Company and its Subsidiary would have
had $98.7 million of Senior Indebtedness all of which is secured.
In addition, the Company would have had additional availability of $37.4
million for borrowing of Senior Indebtedness under the Credit Agreement after
completion of the Transactions and the sale of the Company's AmerCable division.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and the Subsidiary Guarantors may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "-- Certain
Covenants -- Limitation on Indebtedness."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NOTES
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Guaranty in
accordance with the provisions of the Indenture. The Notes and each Subsidiary
Guaranty will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company and the relevant Subsidiary Guarantor, respectively.
We and the Subsidiary Guarantors have agreed in the Indenture that we and
they will not Incur, any Indebtedness that is contractually subordinate or
junior in right of payment to our Senior Indebtedness or the Senior Indebtedness
of such Subsidiary Guarantors, unless such Indebtedness is Senior Subordinated
Indebtedness of the applicable Person or is expressly subordinated in right of
payment to Senior Subordinated Indebtedness of such person. The Indenture does
not treat unsecured Indebtedness as subordinated or junior to Secured
Indebtedness merely because it is unsecured.
86
PAYMENT OF NOTES
We are not permitted to pay principal of, premium, if any, or interest on
the Notes or pay any other Subordinated Note Obligation or make any deposit
pursuant to the provisions described under "-- Defeasance" below and may not
purchase, redeem or otherwise retire any Notes (collectively, "pay the Notes")
if either of the following occurs (a "Payment Default")
(1) any Designated Senior Indebtedness of the Company is not paid in
full in cash when due; or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms;
unless, in either case, the Payment Default has been cured or waived and any
such acceleration has been rescinded or such Designated Senior Indebtedness has
been paid in full according to its terms. Regardless of the foregoing, we are
permitted to pay the Notes if we and the Trustee receive written notice
approving such payment from the Representatives of all Designated Senior
Indebtedness with respect to which the Payment Default has occurred and is
continuing.
During the continuance of any default (other than a Payment Default) with
respect to any Designated Senior Indebtedness of the Company pursuant to which
the maturity thereof may be accelerated without further notice (except such
notice as may be required to effect such acceleration) or the expiration of any
applicable grace periods, we will not be permitted to pay the Notes for a period
(a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a
copy to us) of written notice (a "Blockage Notice") of such default from the
Representative of the Bank Indebtedness or, if no Bank Indebtedness is
outstanding, the Representative of such other Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period and ending 179 days
thereafter. The Payment Blockage Period will end earlier if such Payment
Blockage Period is terminated
(1) by written notice to the Trustee and us from the Person or Persons
who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is cured,
waived or otherwise no longer continuing; or
(3) because such Designated Senior Indebtedness has been discharged or
repaid in full according to its terms.
Notwithstanding the provisions described above, unless a Payment Default
exists, we are permitted to resume paying the Notes after the end of such
Payment Blockage Period. The Notes shall not be subject to more than one Payment
Blockage Period in any consecutive 360-day period irrespective of the number of
defaults with respect to our Designated Senior Indebtedness during such period.
Upon any payment or distribution upon a total or partial liquidation or
dissolution or reorganization of or similar proceeding relating to the Company
or its property,
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full in cash or cash equivalents of such Senior
Indebtedness before the holders of the Notes are entitled to receive any
payment;
(2) until the Senior Indebtedness of the Company is paid in full in
cash or cash equivalents, any payment or distribution to which holders of
the Notes would be entitled but for the subordination provisions of the
Indenture will be made to holders of such Senior Indebtedness as their
interests may appear, except that holders of Notes may receive certain
Capital Stock and subordinated debt obligations; and
(3) if a distribution is made to holders of the Notes that, due to the
subordination provisions, should not have been made to them, such holders
of the Notes are required to hold it in trust for the holders of Senior
Indebtedness of the Company and pay it over to them as their interests may
appear.
87
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee must promptly notify the holders of Designated Senior
Indebtedness of the Company or the Representative of such Designated Senior
Indebtedness of the acceleration. If any Designated Senior Indebtedness of the
Company is outstanding, neither the Company nor any Subsidiary Guarantor may pay
the Notes until five Business Days after the Representatives of all the issues
of such Designated Senior Indebtedness receive notice of such acceleration and,
thereafter, may pay the Notes only if the Indenture otherwise permits payment at
that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of holders of the Notes to
receive payment by a Subsidiary Guarantor pursuant to a Subsidiary Guaranty will
be subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in
the event of a liquidation or insolvency proceeding, creditors of the Company or
a Subsidiary Guarantor who are holders of Senior Indebtedness of the Company or
a Subsidiary Guarantor, as the case may be, may recover more, ratably, than the
holders of the Notes, and creditors of ours who are not holders of Senior
Indebtedness may recover less, ratably, than holders of our Senior Indebtedness
and may recover more, ratably, than the holders of the Notes.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each, a "Change of
Control"), each Holder shall have the right to require that the Company purchase
such Holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof on the date of purchase plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than (directly or indirectly) one or more
Permitted Holders, is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), except that such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time, and except that any Person that is deemed
to have beneficial ownership of shares solely as the result of being part
of a group pursuant to Rule 13d-5(b)(1) of the Exchange Act shall be deemed
not to have beneficial ownership of any shares held by a Permitted Holder
forming a part of such group), directly or indirectly, of more than 35% of
the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders beneficially own (as defined in Rules
13d-3 and 13d-5 the Exchange Act), directly or indirectly, in the
aggregate, a lesser percentage of the total voting power of the Voting
Stock of the Company than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors of the Company (for the
purposes of this clause (1), such other person shall be deemed to
beneficially own any Voting Stock of a specified person held by a parent
entity, if such other person is the beneficial owner (as defined in this
provision), directly or indirectly, of more than 35% of the voting power of
the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in this provision), directly or indirectly, in
the aggregate a lesser percentage of the voting power of the Voting Stock
of such parent entity and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of such parent entity);
88
(2) individuals who after the first board meeting after the
consummation of the Merger constituted the Board of Directors of Parent or
the Company (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of the
Parent or the Company was approved by a vote of a majority of the directors
of the Parent or the Company then still in office who were either directors
after the first board meeting after the consummation of the Merger or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of Parent or
the Company then in office;
(3) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(4) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
Within 30 days following any Change of Control, unless we have exercised
our option to redeem all the Notes as described under "Redemption Upon a Change
of Control", we will mail a notice to each Holder with a copy to the Trustee
(the "Change of Control Offer") stating
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase price in
cash equal to 101% of the principal amount thereof on the date of purchase,
plus accrued and unpaid interest, if any, to the date of purchase (subject
to the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of
Control;
(3) the purchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions, as determined by us, consistent with the
covenant described hereunder, that a Holder must follow in order to have
its Notes purchased.
If the terms of the Credit Agreement or any other Senior Indebtedness
prohibit the Company from making a Change of Control Offer or from purchasing
the Notes pursuant thereto, prior to the mailing of the notice to noteholders
described in the preceding paragraph, but in any event within 30 days following
any Change of Control, the Company covenants to:
(1) repay in full all Indebtedness outstanding under the Credit
Agreement and such other Senior Indebtedness or offer to repay in full all
such Indebtedness and repay the Indebtedness of each lender who has
accepted such offer; or
(2) obtain the requisite consent under the Credit Agreement and such
other Senior Indebtedness to permit the purchase of the Notes as described
above.
The Company must first comply with the covenant described above before it
will be required to purchase Notes in the event of a Change of Control;
provided, however, that the Company's failure to comply with the covenant
described in the preceding sentence or to make a Change of Control Offer because
of any such failure shall constitute a Default described in clause (4) under
"-- Defaults" below (and not under clause (2) thereof). As a result of the
foregoing, a holder of the Notes may not be able to compel the Company to
purchase the Notes unless the Company is able at the time to refinance all
89
Indebtedness outstanding under the Credit Agreement or obtain requisite consents
under the Credit Agreement.
We will not be required to make a Change of Control Offer following a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of Notes as a result of a Change of Control. To
the extent that the provisions of any securities laws or regulations conflict
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature is a result of negotiations between the Company and the Initial
Purchasers. The Company does not have the present intention to engage in a
transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future.
Subject to the limitations discussed below, we could, in the future, enter
into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on our ability to Incur additional Indebtedness are contained in
the covenant described under "-- Certain Covenants -- Limitation on
Indebtedness." Such restrictions can only be waived with the consent of the
holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenants, however, the Indenture will not
contain any covenants or provisions that may afford holders of the Notes
protection in the event of a highly leveraged transaction.
The Credit Agreement will prohibit us from purchasing any Note and will
also provide that the occurrence of certain change of control events with
respect to the Company would constitute a default thereunder. In the event a
Change of Control occurs at a time when we are prohibited from purchasing Notes,
we may seek the consent of our lenders to the purchase of Notes or may attempt
to refinance the borrowings that contain such prohibition. If we do not obtain
such a consent or repay such borrowings, we will remain prohibited from
purchasing Notes. In such case, our failure to offer to purchase Notes would
constitute a Default under the Indenture, which would, in turn, constitute a
default under the Credit Agreement. In such circumstances, the subordination
provisions in the Indenture would likely restrict payment to holders of notes.
Future Indebtedness that we may incur may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require the repurchase of such Indebtedness upon a Change of Control. Moreover,
the exercise by the Holders of their right to require us to repurchase the Notes
could cause a default under such indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on us. Finally,
our ability to pay cash to the holders of Notes following the occurrence of a
Change of Control may be limited by our then existing financial resources. There
can be no assurance that sufficient funds will be available when necessary to
make any required repurchases.
The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company to any Person. Although there is
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of the Company. As a
90
result, it may be unclear as to whether a Change of Control has occurred and
whether a holder of Notes may require the Company to make an offer to repurchase
the Notes as described above.
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company and its Restricted Subsidiaries will be entitled to Incur Indebtedness
(including Additional Notes issued after the Issue Date) if, on the date of such
Incurrence and after giving effect thereto on a pro forma basis, no Default has
occurred and is continuing and the Consolidated Coverage Ratio exceeds 2 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and the
Restricted Subsidiaries will be entitled to Incur any or all of the following
Indebtedness ("Permitted Indebtedness"):
(1) Indebtedness Incurred by the Company and its Restricted
Subsidiaries pursuant to the Credit Agreement; provided, however, that,
immediately after giving effect to any such Incurrence, the aggregate
principal amount of all Indebtedness Incurred under this clause (1) and
then outstanding does not exceed the greater of (A) $165.0 million less the
sum of all mandatory principal payments with respect to such Indebtedness
pursuant to paragraph (a)(3)(A) of the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock" (which principal
payments in the case of revolving loans are accompanied by a corresponding
permanent commitment reduction) and (B) the sum of (x) 65% of the book
value of the inventory of the Company and its Restricted Subsidiaries and
(y) 85% of the book value of the accounts receivable of the Company and its
Restricted Subsidiaries;
(2) Indebtedness owed to and held by the Company or a Restricted
Subsidiary; provided, however, that (A) any subsequent issuance or transfer
of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Restricted Subsidiary or to
the holder of a Lien permitted under the Indenture) shall be deemed, in
each case, to constitute the Incurrence of such Indebtedness by the obligor
thereon and (B) if the Company is the obligor on such Indebtedness and the
holders of Bank Indebtedness do not have a security interest therein or the
obligee is a Restricted Subsidiary that is not a Guarantor, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all obligations with respect to the Notes;
(3) the Notes, the Exchange Notes and related Guarantees (other than
any Additional Notes);
(4) Indebtedness outstanding on the Issue Date and/or the Merger Date
(other than Indebtedness described in clause (1) or (3) of this covenant);
(5) Refinancing Indebtedness;
(6) Hedging Obligations of the Company or any Restricted Subsidiary
not for the purpose of speculation;
(7) obligations in respect of letters of credit, performance, bid,
surety, appeal and other similar bonds and completion guarantees, payment
obligations in connection with self-insurance or similar requirements
provided by the Company or any Restricted Subsidiary in the ordinary course
of business;
91
(8) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business; provided,
however,that such Indebtedness is extinguished within five Business Days of
its Incurrence;
(9) Indebtedness (including Capital Lease Obligations) Incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease, construction or improvement of property (real or personal) or
equipment (whether through the direct purchase of assets or the Capital
Stock of any Person owning such assets) within 180 days after such
purchase, lease or improvement in an aggregate principal amount which, when
added together with the amount of Indebtedness Incurred pursuant to this
clause (9) and then outstanding, does not exceed $5.0 million (including
any Refinancing Indebtedness with respect thereto);
(10) Indebtedness Incurred and outstanding on or prior to the date on
which such Person was acquired by the Company or any Restricted Subsidiary
or assumed by the Company or a Restricted Subsidiary at the time of
acquisition of all or any portion of the assets (or any business or product
line of another Person) (other than Indebtedness Incurred in connection
with or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Subsidiary became a Restricted Subsidiary or was
acquired by the Company); provided, however, at the time of such
acquisition and after giving effect thereto, the aggregate principal amount
of all Indebtedness Incurred pursuant to this clause (10) and then
outstanding does not exceed $5.0 million;
(11) any Guarantee (including the Subsidiary Guaranties) by the
Company or a Restricted Subsidiary of Indebtedness or other obligations of
the Company or any of its Restricted Subsidiaries so long as the Incurrence
of such Indebtedness by the Company or such Restricted Subsidiary is
permitted under the terms of the Indenture;
(12) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the disposition or
acquisition of any business, assets or a Restricted Subsidiary of the
Company; and
(13) Indebtedness of the Company or of any of its Restricted
Subsidiaries in an aggregate principal amount which, when taken together
with all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (13) above or paragraph (a)), does not
exceed $12.5 million (which amount may, but need not be, incurred in whole
or in part under clause (b)(1) above).
(c) Notwithstanding the foregoing, neither the Company nor any Subsidiary
Guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b)
(other than (b)(1) above or under the Credit Agreement pursuant to (b)(13)
above) if the proceeds thereof are used, directly or indirectly, to Refinance
any Subordinated Obligations of the Company or any Subsidiary Guarantor unless
such Indebtedness shall be subordinated to the Notes or the applicable
Subsidiary Guaranty to at least the same extent as such Subordinated
Obligations.
(d) Notwithstanding paragraphs (a) and (b) above, neither the Company nor
any Subsidiary Guarantor will Incur (1) any Indebtedness if such Indebtedness is
subordinate in right of payment to any Senior Indebtedness of the Company or
such Subsidiary Guarantor, as applicable, unless such Indebtedness is Senior
Subordinated Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness of the Company or such Subsidiary Guarantor, as
applicable, or (2) any Secured Indebtedness (for borrowed money including
Capital Lease Obligations) that is not Senior Indebtedness of such Person (other
than Indebtedness solely between or among the Company and a Subsidiary Guarantor
or between or among the Subsidiary Guarantors) unless contemporaneously
therewith such Person makes effective provision to secure the Notes or the
relevant Subsidiary Guaranty, as applicable, equally and ratably with such
Secured Indebtedness for so long as such Secured Indebtedness is secured by a
Lien.
92
(e) For purposes of determining compliance with this covenant, (1) in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described above, the Company, in its sole discretion, will
classify such item of Indebtedness at the time of Incurrence and only be
required to include the amount and type of such Indebtedness in one of the above
clauses and (2) the Company will be entitled to divide and classify an item of
Indebtedness in more than one of the types of Indebtedness described above and
(3) the Company will be entitled from time to time to reclassify any
Indebtedness Incurred pursuant to any clause in paragraph (b) above such that it
will be deemed as having been Incurred under another clause in paragraph (b).
Accrual of interest, accretion or amortization of original issue discount, the
payment of interest on any Indebtedness in the form of additional Indebtedness
with the same terms, the payment of dividends on Disqualified Stock in the form
of additional shares of the same class of Disqualified Stock and change in the
amount outstanding due solely to the result of fluctuations in the exchange
rates of currencies will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this covenant.
(f) For purposes of determining compliance with any U.S. dollar restriction
on the Incurrence of Indebtedness where the Indebtedness Incurred is denominated
in a different currency, the amount of such Indebtedness will be the U.S. Dollar
Equivalent determined on the date of the Incurrence of such Indebtedness,
provided, however, that if any such Indebtedness denominated in a different
currency is subject to a Currency Agreement with respect to U.S. dollars
covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced
will be the U.S. Dollar Equivalent of the Indebtedness Refinanced, except to the
extent that (1) such U.S. Dollar Equivalent was determined based on a Currency
Agreement, in which case the Refinancing Indebtedness will be determined in
accordance with the preceding sentence, and (2) the principal amount of the
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being
Refinanced, in which case the U.S. Dollar Equivalent of such excess will be
determined on the date such Refinancing Indebtedness is Incurred.
LIMITATION ON RESTRICTED PAYMENTS
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if, at the time the Company
or such Restricted Subsidiary makes such Restricted Payment,
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not entitled to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date (the amount expended for such
purpose if other than in cash, having the fair market value of such
property as determined in good faith by the Company) would exceed the sum
of (without duplication)
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the first fiscal quarter ending
after the Issue Date occurs to the end of the most recent fiscal
quarter for which internal financial statements are available on or
prior to the date of such Restricted Payment (or, in case such
Consolidated Net Income shall be a deficit, minus 100% of such
deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company) and 100% of any cash capital contribution
received by the Company from its shareholders subsequent to the Issue
Date; plus
(C) the amount by which Indebtedness of the Company is reduced on
the Company's balance sheet upon the conversion or exchange (other than
by a Subsidiary of the Company)
93
subsequent to the Issue Date of any Indebtedness of the Company for
Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property, distributed
by the Company upon such conversion or exchange); plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments made by the Company or any Restricted Subsidiary in any
Person resulting from repurchases, repayments or redemptions of such
Investments by such Person, proceeds realized on the sale of such
Investment and proceeds representing the return of capital, in each case
received by the Company or any Restricted Subsidiary, and (y) to the
extent such Person is an Unrestricted Subsidiary, the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Unrestricted Subsidiary
is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any such Person, the
amount of Investments (excluding Permitted Investments) previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Person.
(b) The preceding provisions will not prohibit
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees to the extent that the
purchase by such plan or trust is financed by Indebtedness of such plan or
trust to the Company or any Restricted Subsidiary or Indebtedness
Guaranteed by the Company or a Restricted Subsidiary) or a substantially
concurrent cash capital contribution received by the Company from its
shareholders; provided, however, that (A) such Restricted Payment shall be
excluded in the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale or such cash capital contribution (to
the extent so used for such Restricted Payment) shall be excluded from the
calculation of amounts under clause (3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company or any Subsidiary Guarantor made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness which is
permitted to be Incurred pursuant to the covenant described under
"-- Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value shall be excluded in the calculation of the amount of Restricted
Payments;
(3) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with this covenant; provided however that such dividend shall be included
in the calculation of the amount of Restricted Payments;
(4) so long as no Default has occurred and is continuing, the
repurchase or other acquisition of, shares of, or options to purchase
shares of, common stock or preferred stock of the Parent or the Company or
any of its Subsidiaries by the Company or any of its Subsidiaries (or
payments paid to the Parent to consummate such repurchases or other
acquisitions in accordance with the provisions of this clause (4)) from
employees, former employees, directors, consultants, former consultants or
former directors of the Company or any of its Subsidiaries upon the death,
disability or termination of employment of such employees, directors or
consultants, pursuant to the terms of the agreements (including employment
and consulting agreement or amendments thereto) or plans approved by the
Board of Directors; provided, however, that the aggregate amount of such
repurchases and other acquisitions shall not exceed the sum of (A) $2.5
million in any fiscal year and (B) the cash proceeds of any "key man" life
insurance policies that are used to make such repurchases; provided,
however, that amounts not used pursuant to this clause (4) in a year may be
carried forward for use in future years; provided further, however, that
such repurchases and other acquisitions shall be included in the
calculation of the amount of Restricted Payments;
94
(5) the Transactions; provided, however, that Restricted Payments used
to effect the Transactions will be excluded in the calculation of the
amount of Restricted Payments;
(6) dividends, loans, advances or other distributions to Parent to be
used by Parent solely (a) to pay its franchise taxes and other fees
required to maintain its corporate existence and to pay for general
corporate and overhead expenses (including salaries and other compensation
of the employees, directors fees, indemnification obligations, professional
fees and expenses) incurred by Parent in the ordinary course of its
business; provided, however, that such dividends shall not exceed $750,000
in any calendar year; provided, further, however, that such dividends shall
be excluded in the calculation of the amount of Restricted Payments;
(7) payments to Parent in respect of Federal, state, foreign and local
taxes attributable to (or arising as a result of) the operations of the
Company and its Subsidiaries; provided, however, that the amount of such
payments in any fiscal year do not exceed the amount that the Company and
its Subsidiaries would be required to pay in respect of Federal, state,
foreign and local taxes for such fiscal year were the Company to pay such
taxes as a stand-alone taxpayer (whether or not all such amounts are
actually used by Parent for such purposes); provided, further, however,that
such payments shall be excluded in the calculation of the amount of
Restricted Payments;
(8) repurchase of Capital Stock deemed to occur upon the exercise of
stock options or warrants if such Capital Stock represents a portion of the
exercise price thereof and repurchases of Capital Stock deemed to occur
upon the withholding of a portion of the Capital Stock granted or awarded
to an employee to pay for the statutory minimum taxes payable by such
employee upon such grant or award; provided, however, that such amount
shall be excluded in the calculation of the amount of Restricted Payments;
or
(9) Restricted Payments not exceeding $7.5 million in the aggregate;
provided, however, that (A) at the time of such Restricted Payments, no
Default shall have occurred and be continuing (or result therefrom) and (B)
such Restricted Payments shall be included in the calculation of the amount
of Restricted Payments.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED SUBSIDIARIES
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date (including the Indenture and the
Credit Agreement);
(ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred
by such Restricted Subsidiary on or prior to the date on which such
Restricted Subsidiary was acquired by the Company (other than Indebtedness
Incurred as consideration in, or to provide all or any portion of the funds
or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(iii) any encumbrance or restriction pursuant to any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or Refinancings of the Indebtedness referred to in any of the
foregoing clauses and restrictions contained in Indebtedness incurred after
the date hereof in accordance with the terms of the Indenture; provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or Refinancings are not materially
more restrictive with respect to such dividend and other payment
restrictions than those contained in the applicable instrument governing
such indebtedness as in effect on the date
95
of the Indenture; provided that, with respect to any agreement governing
such other Indebtedness, the provisions relating to such encumbrance or
restriction are no less favorable to the Company in any material respect as
determined by the Company in its reasonable and good faith judgment than
the provisions contained in the Credit Agreement as in effect on the Issue
Date;
(iv) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
(v) any such encumbrance or restriction consisting of customary
non-assignment provisions in contracts or in leases governing leasehold
interest and in intellectual property contracts and licenses;
(vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of assets
(including Capital Stock) of such Restricted Subsidiary permitted by the
Indenture pending the closing of such sale or disposition;
(vii) any restriction arising under applicable law, regulation or
order;
(viii) restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; and
(ix) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien.
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless
(1) the Company or such Restricted Subsidiary receives consideration
at the time of such Asset Disposition at least equal to the fair market
value (including as to the value of all non-cash consideration), as
determined in good faith by the Company, or in the case of an Asset
Disposition in excess of $10 million, by the Board of Directors of the
Company, of the shares and assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of cash or cash equivalents;
and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be) pursuant to one or more of the following:
(A) to the extent the Company elects (or is required by the terms
of any Indebtedness), to prepay, repay, redeem or purchase Senior
Indebtedness of the Company (including cash collateralization of letters
of credit and similar credit transactions constituting Senior
Indebtedness) or Indebtedness (other than any Disqualified Stock) of a
Restricted Subsidiary (or, in the case of a revolving credit facility,
effect a permanent reduction in availability thereunder regardless of
the fact that no prepayment may be required) (in each case other than
Indebtedness owed to the Company or a Subsidiary of the Company) or
repay Indebtedness secured by such asset within one year from the later
of the date of such Asset Disposition or the receipt of such Net
Available Cash;
(B) to the extent of the balance of such Net Available Cash after
application (if any) in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets within one year from the
later of the date of such Asset Disposition or the receipt of such Net
Available Cash; and
(C) to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make an offer to
the holders of the Notes (and to holders of other
96
Senior Subordinated Indebtedness of the Company designated by the
Company) to purchase Notes at 100% of their principal amount thereof
(and such other Senior Subordinated Indebtedness of the Company)
pursuant to and subject to the conditions set forth in paragraph (b)
below;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the Company
or such Restricted Subsidiary shall permanently retire such Indebtedness
and shall cause the related loan commitment (if any) to be permanently
reduced in an amount equal to the principal amount so prepaid, repaid or
purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which is not applied in accordance
with this covenant exceeds $10.0 million. Pending application of Net Available
Cash pursuant to this covenant, such Net Available Cash may be invested in a
manner not prohibited by the Indenture and/or applied to temporarily reduce
revolving credit indebtedness.
For the purposes of clause (a)(2) above of this covenant, any of the
following are deemed to be cash or cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition;
(2) securities, notes or other obligations received by the Company or
any Restricted Subsidiary from the transferee that are converted by the
Company or such Restricted Subsidiary into cash within 90 days after the
date of such Asset Disposition (to the extent of the cash received); and
(3) any Additional Assets (so long as such Additional Assets are
acquired for fair market value in connection with the transaction giving
rise to such Asset Disposition, as determined in good faith by the Board of
Directors of the Company or such Restricted Subsidiary, as applicable).
(b) In the event of an Asset Disposition that requires the purchase of
Notes (and other Senior Subordinated Indebtedness of the Company) pursuant to
clause (a)(3)(C) above, the Company will purchase Notes tendered pursuant to an
offer by the Company for the Notes (and such other Senior Subordinated
Indebtedness) at a purchase price of 100% of their principal amount (or, in the
event such other Senior Subordinated Indebtedness of the Company was issued with
significant original issue discount, 100% of the accreted value thereof) without
premium, plus accrued but unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness of the Company, such lesser price, if any, as may be
provided for by the terms of such Senior Subordinated Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. If the aggregate purchase price of
the securities tendered exceeds the Net Available Cash allotted to their
purchase, the Company will select the securities to be purchased on a pro
ratabasis but in round denominations, which in the case of the Notes will be
denominations of $1,000 principal amount or multiples thereof. The Company shall
not be required to make such an offer to purchase Notes (and other Senior
Subordinated Indebtedness of the Company) pursuant to this covenant if the Net
Available Cash available therefor is less than $10.0 million (which lesser
amount shall be carried forward for purposes of determining whether such an
offer is required with respect to the Net Available Cash from any subsequent
Asset Disposition). Upon completion of each offer to purchase Notes pursuant to
this covenant, the amount of Net Available Cash will be reset to zero.
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue of its compliance
with such securities laws or regulations.
97
LIMITATION ON AFFILIATE TRANSACTIONS
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are not materially less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained at the time of the Affiliate Transaction in arm's-length
dealings with a Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $2.0
million, a majority of the Board of Directors of the Company have
determined in good faith that the criteria set forth in clause (1) are
satisfied and have approved the relevant Affiliate Transaction as evidenced
by a resolution of the Board of Directors; and
(3) if such Affiliate Transaction involves an amount in excess of
$10.0 million, the Board of Directors of the Company shall also have
received a written opinion from an Independent Qualified Party to the
effect that such Affiliate Transaction is fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries or is not
materially less favorable to the Company and its Restricted Subsidiaries
than could reasonably be expected to be obtained at the time in an
arm's-length transaction with a Person who was not an Affiliate.
(b) The provisions of the preceding paragraph (a) will not apply to
(1) any Investment (including a Permitted Investment) or other
Restricted Payment, in each case permitted to be made pursuant to the
covenant described under "-- Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors of the Company;
(3) loans or advances to employees or consultants in the ordinary
course of business, but in any event not to exceed $2.0 million in the
aggregate outstanding at any one time;
(4) the payment of reasonable fees and compensation to, the provision
of employee benefit arrangements and indemnity for the benefit of,
directors, officers, employees and consultants of the Company and its
Restricted Subsidiaries;
(5) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries;
(6) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company and loans or advances to employees to purchase
Capital Stock;
(7) any agreement with the Company or any Restricted Subsidiary as in
effect as of the Issue Date or any amendment or replacement thereto or any
transaction contemplated thereby (including pursuant to any amendment or
replacement thereto) so long as any such amendment or replacement agreement
is not more disadvantageous to the Company or such Restricted Subsidiary in
any material respect than the original agreement as in effect on the Issue
Date;
(8) the payment of management, consulting and advisory fees and
related expenses made pursuant to the Harvest Management Services Agreement
as in effect on the Issue Date or any amendment or replacement thereto or
any transaction contemplated thereby (including pursuant to any amendment
or replacement thereto) so long as any such amendment or replacement
agreement is not more disadvantageous to the Company or such Restricted
Subsidiary in any material respect than the original agreement as in effect
on the Issue Date;
98
(9) any consulting or employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business
consistent with the past practice of the Company or such Restricted
Subsidiary; and
(10) any tax sharing agreement or arrangement and payments pursuant
thereto among the Company and its Subsidiaries and other Person (including
Parent) with which the Company or its Subsidiaries is required or permitted
to file a consolidated tax return or with which the Company or any of its
Restricted Subsidiaries is or could be part of a consolidated group for tax
purposes in amounts not otherwise prohibited by the Indenture.
LIMITATION ON THE SALE OR ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company
(1) will not, and will not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any Capital Stock of a Restricted
Subsidiary to any Person (other than the Company or a Restricted
Subsidiary), and
(2) will not permit any Restricted Subsidiary, directly or indirectly,
to issue or sell or otherwise dispose of any of its Capital Stock (other
than, if necessary, shares of its Capital Stock constituting directors' or
other legally required qualifying shares) to any Person (other than to the
Company or a Restricted Subsidiary),
unless
(A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries own any
Capital Stock of such Restricted Subsidiary; or
(B) immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after
giving effect thereto would have been permitted to be made under the
covenant described under "-- Limitation on Restricted Payments" if made
on the date of such issuance, sale or other disposition; or
(C) the sale or issuance of Capital Stock if the proceeds therefrom
are applied in accordance with "-- Limitation on Sales of Assets and
Subsidiary Stock".
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless
(1) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in
form reasonably satisfactory to the Trustee, all the obligations of the
Company under the Notes and the Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) immediately after giving pro forma effect to such transaction, the
Successor Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; and
99
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture;
provided, however, that (i) the Company may effect the Transactions, and (ii)
clause (3) will not be applicable to (A) a Restricted Subsidiary consolidating
with, merging into or transferring all or part of its properties and assets to
the Company or (B) the Company merging with an Affiliate of the Company solely
for the purpose and with the sole effect of reincorporating the Company in
another jurisdiction.
The Successor Company will be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and
interest on the Notes.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person (other
than the Company or the Subsidiary Guarantor) unless
(1) except in the case of a Subsidiary Guarantor that has been
disposed of in its entirety to another Person (other than to the Company or
a Subsidiary of the Company), whether through a merger, consolidation or
sale of Capital Stock or assets, if in connection therewith the Company
provides an Officers' Certificate to the Trustee to the effect that the
Company will comply with its obligations under the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock" in respect of such
disposition, the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
jurisdiction under which such Subsidiary was organized or under the laws of
the United States of America, or any State thereof or the District of
Columbia, and such Person shall expressly assume, by a Guaranty Agreement,
in a form satisfactory to the Trustee, all the obligations of such
Subsidiary under its Subsidiary Guaranty;
(2) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement, if any, complies with the Indenture.
FUTURE SUBSIDIARY GUARANTORS
The Company will cause each domestic Restricted Subsidiary that guarantees
or incurs any Indebtedness under the Credit Agreement to, at the same time,
execute and deliver to the Trustee a Guaranty Agreement pursuant to which such
Restricted Subsidiary will Guarantee payment of the Notes on the same terms and
conditions as those set forth in the Indenture.
SEC REPORTS
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the SEC (unless the SEC will not accept such a filing and commencing with
the effectiveness of the Exchange Offer or Shelf Registration Statement) and
will in any event provide the Trustee and Noteholders within 15 days after it
files with the SEC with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filings of such information, documents and reports under such Sections;
provided, however, that the Company shall not be so obligated to file such
reports with the SEC if the SEC does not permit such filing, in
100
which event the Company will make available such information to the Trustee and
Holders of Notes within 15 days after the time the Company would be required to
file such information with the SEC if it were subject to Section 13 or 15(d) of
the Exchange Act.
In addition, the Company will furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due,
continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon redemption, upon required purchase, upon declaration
of acceleration or otherwise;
(3) the failure by the Company or any Subsidiary Guarantor to comply
with its obligations under "-- Certain Covenants -- Merger and
Consolidation" above;
(4) the failure by the Company or any Subsidiary Guarantor to comply
for 30 days after notice with any of its obligations in the covenants
described above under "Change of Control" (other than a failure to purchase
Notes) or under "-- Certain Covenants" under "-- Limitation on
Indebtedness," "-- Limitation on Restricted Payments," "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries," "-- Limitation
on Sales of Assets and Subsidiary Stock" (other than a failure to purchase
Notes), "-- Limitation on Affiliate Transactions," or "-- Limitation on the
Sale or Issuance of Capital Stock of Restricted Subsidiaries";
(5) the failure by the Company or any Subsidiary Guarantor to comply
for 60 days after notice with its other agreements contained in the
Indenture;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10.0 million
(the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money (other than
judgments which are covered by enforceable insurance policies issued by
solvent carriers) in excess of $10.0 million is entered against the Company
or any Significant Subsidiary, and is not discharged, paid, waived or
stayed within 60 days after same becomes final and non-appealable (the
"judgment default provision"); or
(9) any Subsidiary Guaranty of a Significant Subsidiary ceases to be
in full force and effect (other than in accordance with the terms of such
Guaranty) for 30 days after notice or any Subsidiary Guarantor that is a
Significant Subsidiary denies or disaffirms its obligations under its
Guaranty.
However, a default under clauses (4), (5) and (8) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default (and demand that same be
remedied) and the Company does not cure such default within the time specified
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will
101
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Notwithstanding the foregoing, in the event of a declaration of
acceleration in respect of the Notes because an Event of Default specified in
clause (6) above shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or paid or such Event of
Default shall have been cured or waived by the holders of such Indebtedness and
written notice of such discharge, cure or waiver, as the case may be, shall have
been given to the Trustee by the Company or by the requisite holders of such
Indebtedness or a trustee, fiduciary or agent for such holders, within 30 days
after such declaration of acceleration in respect of the Notes and (a) no Person
shall have commenced judicial proceedings to foreclose upon assets of the
Company or any of its Restricted Subsidiaries or shall have exercised any right
under applicable law or applicable security documents to take ownership of any
of such assets in lieu of foreclosure and (b) no other Event of Default with
respect to the Notes shall have occurred which has not been cured or waived
during such 30-day period.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless
(1) such holder has previously given the Trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the Notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or
interest on any Note, the Trustee may withhold notice if and so long as a
committee of its Trust Officers determines that withholding notice is not
opposed to the interest of the holders of the Notes. In addition, we are
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default
that occurred during the previous year. We are required to deliver to the
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Defaults, their status and what action we
are taking or propose to take in respect thereof.
102
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (voting as a single class) (including consents obtained in
connection with a tender offer for, exchange for or purchase of, the Notes) and
any past default or compliance with any provisions may also be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected thereby, an amendment or waiver may not, among other things,
(1) reduce the amount of Notes whose holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"-- Optional Redemption" or shall be redeemed as described under "-- Escrow
of Proceeds; Special Mandatory Redemption" above;
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes;
(7) make any change in the amendment provisions which require each
holder's consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders; or
(9) make any change in any Guaranty that would adversely affect the
Noteholders in any material respect.
Notwithstanding the preceding, without the consent of any holder of the
Notes, the Company, the Subsidiary Guarantors and Trustee may amend the
Indenture
(1) to cure any ambiguity, omission, mistake, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company or any Subsidiary Guarantor under the Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) to add guarantees with respect to the Notes, including any
Subsidiary Guaranties, or to secure the Notes;
(5) to add to the covenants of the Company or a Subsidiary Guarantor
for the benefit of the holders of the Notes or to surrender any right or
power conferred upon the Company or a Subsidiary Guarantor;
(6) to make any change that does not adversely affect the rights of
any holder of the Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
However, no amendment may be made to the subordination provisions of the
Indenture that adversely affects the rights of any holder of Senior Indebtedness
of the Company or a Subsidiary Guarantor then
103
outstanding unless the holders of such Senior Indebtedness (or their
Representative) consent to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, we are required
to mail to holders of the Notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the Notes, or any
defect therein, will not impair or affect the validity of the amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges.
DEFEASANCE
At any time, we may terminate all our obligations under the Notes, the
Guaranties and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Notes, to replace mutilated, destroyed,
lost or stolen Notes and to maintain a registrar and paying agent in respect of
the Notes.
In addition, at any time we may terminate our obligations under "-- Change
of Control" and under the covenants described under "-- Certain Covenants," the
operation of clauses (3) and (4) of the first paragraph under "-- Defaults," the
cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clause (3) of the first
paragraph under "-- Certain Covenants -- Merger and Consolidation" above
("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Notes and the guarantees may not be accelerated because
of an Event of Default with respect thereto. If we exercise our covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (6), or (7) (with respect only to
Significant Subsidiaries) above or because of the failure of the Company to
comply with clause (3) of the first paragraph under "-- Certain
Covenants -- Merger and Consolidation" above. If we exercise our legal
defeasance option or our covenant defeasance option, each Subsidiary Guarantor
will be released from all of its obligations with respect to its Guaranty.
In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amounts and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law). In addition, in order to exercise our
defeasance option, the defeasance shall not result in a breach or violation of,
or constitute a default under the Indenture (other than a breach or violation of
the Indenture resulting from the borrowing of funds to be applied to such
deposit and the grant of any Lien securing such borrowing), the Credit Agreement
or any other material agreement or instrument to which the Company or any of its
Restricted Subsidiaries is a party or is bound.
104
CONCERNING THE TRUSTEE
Wilmington Trust Company is to be the Trustee under the Indenture. We have
appointed the Trustee as Registrar and Paying Agent with regard to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
either eliminate such conflict within 90 days, apply to the SEC for permission
to continue or resign.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. If an Event of Default occurs (and is not cured), the Trustee will
be required, in the exercise of its power, to use the degree of care of a
prudent man in the conduct of his own affairs. Subject to such provisions, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any Holder of Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense and then only to the extent required by
the terms of the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, member,
incorporator or stockholder of the Company, Parent or any Subsidiary Guarantor
will have any liability for any obligations of the Company or any Subsidiary
Guarantor under the Notes, any Subsidiary Guaranty or the Indenture or for any
claim based on, in respect of, or by reason of such obligations or their
creation. Each Holder of the Notes by accepting a Note waives and releases all
such liability and such waiver and release are part of the consideration for
issuance of the Notes. The waiver and release are part of the consideration for
issuance of the Notes. Such waiver and release may not be effective to waive
liabilities under the U.S. Federal securities laws, and it is the view of the
SEC that such a waiver is against public policy.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means
(1) any property, plant, equipment or other assets used or usable in a
Related Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary
as a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary;
provided, however, that any such Restricted Subsidiary described in clause (2)
or (3) above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants described under "-- Certain Covenants -- Limitation on
105
Restricted Payments," and "-- Certain Covenants -- Limitation on Affiliate
Transactions" only, "Affiliate" shall also mean any beneficial owner of Capital
Stock representing 10% or more of the total voting power of the Voting Stock (on
a fully diluted basis) of the Company or of rights or warrants to purchase such
Capital Stock (whether or not currently exercisable) and any Person who would be
an Affiliate of any such beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease (other than operating leases
entered into in the ordinary course of business), transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary
other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition or transfer by a Restricted Subsidiary to the
Company or by the Company or a Restricted Subsidiary to a Restricted
Subsidiary;
(B) for purposes of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only, (x)
a disposition that constitutes a Restricted Payment permitted by the
covenant described under "-- Certain Covenants -- Limitation on Restricted
Payments" or a Permitted Investment or (y) a disposition of all or
substantially all the assets of the Company in accordance with the covenant
described under "-- Certain Covenants -- Merger and Consolidation";
(C) sales or other dispositions of obsolete, uneconomical, negligible,
damaged, worn-out or surplus assets in the ordinary course of business
(including but not limited to equipment, inventory and intellectual
property);
(D) a disposition of assets with a fair market value of less than or
equal to $1.0 million, not to exceed $5.0 million in the aggregate in any
12 month period;
(E) sale or discount of accounts receivable in connection with the
compromise or collection thereof;
(F) sale or exchange of equipment in connection with the purchase or
other acquisition of equipment; and
(G) sales or grants of licenses to use intellectual property.
provided, however, that a disposition of all or substantially all the assets of
the Company and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of the Indenture described above under the caption "-- Change of
Control" and/or the provisions described above under the caption "-- Merger and
Consolidation" and not by the provisions described above under the caption
"-- Limitation on Sales of Assets and Subsidiary Stock" covenant.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended); provided, however, that if such Sale/Leaseback Transaction results in
a Capital Lease
106
Obligation, the amount of Indebtedness represented thereby will be determined in
accordance with the definition of "Capital Lease Obligation."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Facilities" means the bank facilities under to the Credit Agreement.
"Bank Indebtedness" means all Obligations pursuant to the Credit Agreement.
"Board of Directors" with respect to a Person means the Board of Directors
of such Person or any committee thereof duly authorized to act on behalf of such
Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available on or prior to the date of such determination to (y) Consolidated
Interest Expense for such four fiscal quarters; provided, however, that
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (and, if
such Indebtedness is revolving Indebtedness, the amount of Indebtedness
deemed to be outstanding for such period shall be the average outstanding
amount of such Indebtedness during such period);
(2) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense for
such period shall be calculated on a pro forma basis as if such discharge
had occurred on the first day of such period and as if the Company or such
Restricted Subsidiary had not earned the interest income actually earned
during such period in respect of cash or Temporary Cash Investments used to
repay, repurchase, defease or otherwise discharge such Indebtedness;
107
(3) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, EBITDA for
such period shall be reduced by an amount equal to EBITDA (if positive)
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to EBITDA (if negative),
attributable thereto for such period and Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated
Interest Expense attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Disposition for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period attributable to the Indebtedness of such Restricted
Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale);
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any person which becomes a
Restricted Subsidiary) or an acquisition of assets, including any
acquisition of assets occurring in connection with a transaction requiring
a calculation to be made hereunder, which constitutes all or substantially
all of an operating unit of a business, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto (including the Incurrence of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets (including Capital Stock), the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in accordance with Regulation S-X under the
Exchange Act or as otherwise acceptable to the SEC. If any Indebtedness bears a
floating rate of interest and is being given pro forma effect, the interest on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, without duplication,
(1) interest expense attributable to Capital Lease Obligations and the
interest expense attributable to leases constituting part of a
Sale/Leaseback Transaction;
(2) amortization of debt discount and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense;
(5) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
(6) net payments or receipts pursuant to Hedging Obligations;
108
(7) dividends declared and paid in cash or Disqualified Stock in
respect of (A) all Preferred Stock of Restricted Subsidiaries and (B) all
Disqualified Stock of the Company, in each case held by Persons other than
the Company or a Wholly Owned Subsidiary in each case other than dividends
payable in Qualified Stock;
(8) interest incurred in connection with Investments in discontinued
operations; and
(9) interest accruing on any Indebtedness of any other Person (other
than a Subsidiary) to the extent such Indebtedness is Guaranteed by (or
secured by the assets of) the Company or any Restricted Subsidiary and such
Indebtedness is accelerated or any payment is actually made in respect of
such Guarantee; and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company or a
Restricted Subsidiary thereof) in connection with Indebtedness Incurred by
such plan or trust,
and less, to the extent included in such interest expense the amortization
during such period of capitalized financing costs; provided, however, that the
aggregate amount of amortization relating to any such capitalized financing
costs deducted in calculating Consolidated Interest Expense shall not exceed
5.0% of the aggregate amount of the financing giving rise to such capitalized
financing costs.
"Consolidated Net Income" means, for any period, the sum of (1) net income
of the Company and its Subsidiaries and (2) to the extent deducted in
calculating net income of the Company and its Subsidiaries, any non-recurring
fees, expenses or charges related to the Transactions; provided, however, that
there shall not be included in such Consolidated Net Income
(1) any net income of any Person (other than the Company) if such
Person is not a Restricted Subsidiary, except that
(A) subject to the exclusion contained in clause (3) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period to
the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(2) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that
(A) subject to the exclusion contained in clause (3) below, the
Company's equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash that could have been distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in
the case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(3) any gain or loss (and the related tax effects) realized upon the
sale or other disposition of any assets of the Company, its consolidated
Restricted Subsidiaries or any other Person (including pursuant to any
sale-and-leaseback arrangement) which is not sold or otherwise disposed of
in the ordinary course of business and any gain or loss realized upon the
sale or other disposition of any Capital Stock of any Person;
109
(4) extraordinary, non-cash or non-recurring gains, losses or charges,
including (i) those related to impairment of goodwill and other intangible
assets and (ii) the write-off of deferred financing costs and related
premiums paid in connection with any early extinguishment of Indebtedness
and the related tax effects;
(5) the cumulative effect of a change in accounting principles; and
(6) any net income or loss attributable to discontinued operations.
Notwithstanding the foregoing, for the purposes of the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" only, there shall be
excluded from Consolidated Net Income any repurchases, repayments or redemptions
of Investments, proceeds realized on the sale of Investments or return of
capital to the Company or a Restricted Subsidiary to the extent such
repurchases, repayments, redemptions, proceeds or returns increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Credit Agreement" means the Credit Agreement dated as of April 19, 2002,
by and among the Company, the lenders referred to therein, UBS AG, Stamford
Branch, as Administrative Agent, Credit Suisse First Boston, as Syndication
Agent and CIBC World Markets Corp., as Documentation Agent, together with the
related documents thereto (including any guarantees and security documents,
whether in effect on the Issue Date or entered into thereafter), as amended,
extended, renewed, restated, supplemented or otherwise modified (in whole or in
part, and without limitation as to amount, terms, conditions, covenants and
other provisions) from time to time, and any agreement (and related document)
governing Indebtedness incurred to Refinance, in whole or in part, the
borrowings and commitments then outstanding or permitted to be outstanding under
such Credit Agreement or a successor Credit Agreement, whether by the same or
any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to protect
such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" with respect to a Person means
(1) the Bank Indebtedness; and
(2) any other Senior Indebtedness of such Person which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to, at least $25.0 million and is specifically designated by such
Person in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, that portion of any
Capital Stock which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable at the option of the holder) or
upon the happening of any event
(1) matures (excluding any maturity as a result of an optional
redemption by the issuer thereof) or is mandatorily redeemable (other than
redeemable only for Capital Stock of such Person which is not itself
Disqualified Stock) pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence
of certain events or otherwise, in whole or in part;
in each case on or prior to the date that is 91 days after the Stated Maturity
of the Notes; provided, however, that if such Capital Stock is issued to any
employee or to any plan for the benefit of employees
110
of the Company or its Subsidiaries or by any such plan to such employees, such
Capital Stock shall not constitute Disqualified Stock solely because it may be
required to be repurchased by the Company in order to satisfy obligations as a
result of such employee's death or disability; and provided further, however,
that any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
purchase or redeem such Capital Stock upon the occurrence of an "asset sale" or
"change of control" occurring prior to the date that is 91 days after the Stated
Maturity of the Notes shall not constitute Disqualified Stock if
(1) the "asset sale" or "change of control" provisions applicable to
such Capital Stock are not more favorable to the holders of such Capital
Stock than the terms applicable to the Notes as described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and
"-- Certain Covenants -- Change of Control."
The amount of any Disqualified Stock that does not have a fixed redemption,
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or
repurchased on any date on which the amount of such Disqualified Stock is to be
determined pursuant to the Indenture; provided, however, that if such
Disqualified Stock could not be required to be redeemed, repaid or repurchased
at the time of such determination, the redemption, repayment or repurchase price
will be the book value of such Disqualified Stock as reflected in the most
recent financial statements of such Person.
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(1) all income tax expense of the Company and its consolidated
Restricted Subsidiaries;
(2) Consolidated Interest Expense;
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in
a prior period); and
(4) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
in each case for such period determined in accordance with GAAP. Notwithstanding
the foregoing, the provision for taxes based on the income or profits of, and
the depreciation and amortization and non-cash charges of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion, including by reason of minority
interest) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Equity Financing" means the financing by Parent of at least $172.0 million
of equity capital to provide a portion of the funds for the Equity Tender Offer
and the Merger.
"Equity Offering" means a primary offering of common stock or common equity
of Parent or the Company.
"Equity Tender Offer" means the cash tender offer for 100% of the shares of
common stock of the Company at a price of $50.00 per share.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in
111
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants;
(2) statements and pronouncements of the Financial Accounting
Standards Board;
(3) such other statements by such other entity as approved by a
significant segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep well, to purchase
assets, goods, securities or services, to take or pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Guaranty" means each Subsidiary Guaranty, as applicable.
"Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the
Company's obligations with respect to the Notes on the terms provided for in the
Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement or similar
Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication),
(1) the principal in respect of (A) indebtedness of such Person for
borrowed money and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(2) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/ Leaseback Transactions entered into by such
Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Per son under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business);
112
(4) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (1)
through (3) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following payment on the letter of credit);
(5) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock of such
Person or, with respect to any Preferred Stock of any Subsidiary of such
Person, the principal amount of such Preferred Stock to be determined in
accordance with the Indenture (but excluding, in each case, any accrued
dividends);
(6) all obligations of the type referred to in clauses (1) through (5)
of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets and the amount of the obligation so secured; and
(8) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of the Company.
"Interest Rate Agreement" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements to protect such Person against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. Except as otherwise provided for
herein, the amount of an Investment shall be its fair value at the time the
Investment is made and without giving effect to subsequent changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments",
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; and
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by the Board of Directors of the
Company.
113
"Issue Date" means April 23, 2002.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lenders" means the lenders from time to time party to the Credit
Agreement.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Merger" means the merger of Simon Acquisition Corp. with and into the
Company pursuant to the Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger dated as of March
16, 2002 by and among Simon Acquisition Corp., Parent and the Company.
"Merger Date" means April 19, 2002.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration,
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
non-cash form), in each case net of
(1) all legal, title and recording tax expenses, underwriting
discounts, commissions and other fees and expenses incurred (including,
without limitation, fees and expenses of counsel, accountants and
investment bankers), and all Federal, state, provincial, foreign and local
taxes required to be accrued as a liability under GAAP, as a consequence of
such Asset Disposition;
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of
the proceeds from such Asset Disposition;
(3) all distributions and other payments required to be made to
minority interest holders in Restricted Subsidiaries as a result of such
Asset Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any current or contingent
liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Tender Offer" means the tender offer by the Company of all of our
existing 9 1/4% senior subordinated notes due 2008 of the Company, including the
change of control offer required pursuant to the indenture governing the
existing notes and the defeasance of any remaining existing notes after such
change of control offer.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements
and other amounts payable pursuant to the documentation governing such
Indebtedness.
"Officer" means the Chairman of the Board, the President, Chief Financial
Officer, any Vice President, the Treasurer or the Secretary of the Company.
114
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Parent" means Associated Materials Holdings, Inc., a Delaware corporation,
and its successors.
"Permitted Holders" means Harvest Partners, Inc., and its affiliates and
funds managed by Harvest Partners, Inc. and/or its affiliates.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
(1) the Company, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however,that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related
Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided,
however,that such trade terms may include such concessionary trade terms as
the Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, moving, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(6) loans or advances to employees, directors or consultants made in
the ordinary course of business in an aggregate amount not to exceed $2.0
million at any time outstanding;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
(9) any Person where such Investment was acquired by the Company or
any of its Restricted Subsidiaries (a) in exchange for any other Investment
or accounts receivable held by the Company or any such Restricted
Subsidiary in connection with or as a result of a bankruptcy, workout,
reorganization or recapitalization of the issuer of such other Investment
or accounts receivable or (b) as a result of a foreclosure by the Company
or any of its Restricted Subsidiaries with respect to any secured
Investment or other transfer of title with respect to any secured
Investment in default;
(10) Hedging Obligations of the Company's or any Restricted
Subsidiary's business and not for the purpose of speculation;
(11) Investments existing on the Issue Date and any such Investment
that replaces or refinances such Investment in such Person existing on the
Issue Date in an amount not exceeding the amount of the Investment being
replaced or refinanced; provided, however, the new Investment is on terms
and conditions no less favorable than the Investment being renewed or
replaced;
(12) Guarantees of Indebtedness otherwise permitted under the
Indenture;
(13) Investments the payment of which consists of Qualified Stock of
Parent or the Company;
(14) Investments in the Notes;
115
(15) Investments consisting of obligations of one or more consultants,
officers, directors or other employees of the Company or any of its
Subsidiaries in connection with such consultants, officers', directors' or
employees' acquisition of shares of capital stock of Parent or the Company
so long as no cash is paid by the Company or any of its Subsidiaries to
such consultants, officers, directors or employees in connection with the
acquisition of any such obligations; and
(16) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without
giving effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (16) that are at the time
outstanding, not to exceed $2.5 million.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary incurred pursuant to
paragraph (a) of the covenant "Limitation on Indebtedness" or subclause (3),
(4), (5), (7), (8) or (10) of paragraph (b) of the covenant "Limitation on
Indebtedness"; provided, however, that
(1) such Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount
(or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced;
provided, further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
among the Company, Credit Suisse First Boston Corporation, UBS Warburg LLC and
CIBC World Markets Corp. entered into in connection with the issuance of the
Notes.
"Related Business" means any business in which the Company or any of its
Restricted Subsidiaries was engaged on the Issue Date and any business
reasonably related, ancillary or complementary to any business of the Company or
any of its Restricted Subsidiaries in which the Company was engaged on the Issue
Date or a reasonable expansion thereof.
116
"Representative" means with respect to a Person any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
"Restricted Payment" with respect to any Person means
(1) the declaration or payment of any dividends or any other
distributions of any sort in respect of its Capital Stock (including any
payment in connection with any merger or consolidation involving such
Person) or similar payment to the direct or indirect holders of its Capital
Stock (other than dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary);
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the
Company (other than a Restricted Subsidiary), including the exercise of any
option to exchange any Capital Stock (other than into Capital Stock of the
Company that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
of such Person (other than the purchase, re purchase or other acquisition
of Subordinated Obligations purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase, repurchase or other
acquisition); or
(4) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the U.S. Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor for borrowed money that is secured by a Lien on an asset of
the Company or a Subsidiary Guarantor.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means with respect to any Person
(1) Indebtedness of such Person, whether outstanding on the Issue Date
or thereafter Incurred, including, and together with, all Obligations under
the Credit Agreement; and
(2) accrued and unpaid interest (including interest accruing on or
after the filing of, or which would have accrued but for the filing of, any
petition in bankruptcy or for reorganization relating to such Person
whether or not post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of such Person for borrowed money, including,
and together with, all Obligations under the Credit Agreement, (B) Hedging
Obligations and (C) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
expressly provided that such obligations are subordinate or pari passu in right
of payment to the Notes or the Guaranty of such Person, as the case may be;
provided, however, that Senior Indebtedness shall not include
(1) any obligation of such Person to any Subsidiary;
(2) any liability for Federal, state, local or other taxes owed or
owing by such Person;
117
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
to any other Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence
is Incurred in violation of the Indenture, except to the extent that the
Indebtedness so incurred was extended by the lenders thereof in reliance on
a certificate executed and delivered by the president, chief executive
officer or chief financial or accounting officer of the Company in which
certificate such officer certified that the incurrence of such Indebtedness
was permitted under the proviso in paragraph (a) or clause (1) or (13) in
paragraph (b) under the caption "Certain Covenants -- Limitation on
Indebtedness."
"Senior Subordinated Indebtedness" means, with respect to a Person, the
Notes (in the case of the Company), the Guaranty (in the case of a Subsidiary
Guarantor) and any other Indebtedness of such Person that specifically provides
that such Indebtedness is to rank pari passu with the Notes or such Guaranty, as
the case may be, in right of payment and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of such Person which is
not Senior Indebtedness of such Person.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Note Obligations" means all Obligations with respect to the
Notes, including, without limitation, principal, premium (if any), interest
payable pursuant to the terms of the Notes (including upon the acceleration or
redemption thereof), together with and including any amounts received or
receivable upon the exercise of rights of rescission or other rights of action
(including claims for damages) or otherwise.
"Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or a Guaranty of
such Person, as the case may be, pursuant to a written agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock or is at the time owned or
controlled, directly or indirectly, by
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each domestic Subsidiary of the Company that
executes the Indenture as a guarantor on the Issue Date and each other domestic
Subsidiary of the Company that thereafter guarantees the Notes pursuant to the
terms of the Indenture.
"Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
118
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency thereof or obligations guaranteed by the United
States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 365 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws
of the United States of America, any State thereof or any foreign country
recognized by the United States of America, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $50.0
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than 365 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard & Poor's Ratings
Group;
(5) investments in securities with maturities of one year or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by Standard & Poor's Ratings Group or "A" by Moody's Investors Service,
Inc.; and
(6) money market funds at least 95% of the assets of which constitute
Temporary Cash Investments of the kind described in clauses (1) through (5)
of this definition.
"Transactions" means, collectively, the Merger, the Equity Tender Offer,
the Note Tender Offer, the Equity Financing, the Bank Facilities and this
Offering.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
sec.sec. 77aaa-77bbbb) as in effect on the Issue Date.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means Wilmington Trust Company until a successor replaces it and,
thereafter, means the successor.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as published in The Wall Street
Journal in the "Exchange Rates" column under the heading "Currency Trading" on
the date two Business Days prior to such determination.
Except as described under "-- Certain Covenants -- Limitation on
Indebtedness", whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. dollars, such amount will be
treated as the U.S. Dollar Equivalent determined as of the date such amount is
initially determined in such currency.
119
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Unrestricted Subsidiary" means
(1) any Subsidiary of an Unrestricted Subsidiary; and
(2) any Subsidiary of the Company which is designated after the Issue
Date as an Unrestricted Subsidiary by a board resolution of the Board of
Directors of the Company;
provided that a Subsidiary may be so designated as an Unrestricted Subsidiary
only if
(A) such designation is in compliance with "-- Certain Covenants --
Limitation on Restricted Payments" above;
(B) immediately after giving effect to such designation, the Company
could have incurred at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to "Certain Covenants -- Limitation on
Indebtedness" above;
(C) no Default or Event of Default has occurred and is continuing or
results therefrom; and
(D) neither the Company nor any Restricted Subsidiary will at any time
(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness),
(ii) be directly or indirectly liable for any Indebtedness of such
Subsidiary or
(iii) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may (upon notice, lapse of time
or both) declare a default thereon (or cause the payment thereof to be
accelerated or payable prior to its final scheduled maturity) upon the
occurrence of a default with respect to any other Indebtedness that is
Indebtedness of such Subsidiary (including any corresponding right to
take enforcement action against such Subsidiary),
except in the case of clause (i) or (ii) to the extent
(i) that the Company or such Restricted Subsidiary could otherwise
provide such a guarantee or incur such Indebtedness (other than as
Permitted Indebtedness) pursuant to "-- Certain Covenants -- Limitation
on Indebtedness" above and
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under "-- Certain Covenants --
Limitation on Restricted Payments" above.
The Trustee will be provided with an officers' certificate stating that such
designation is permitted and setting forth the basis upon which the calculations
required by this definition were computed, together with a copy of the board
resolution adopted by the Board of Directors of the Company making such
designation.
The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (A) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness" and (B) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
of the Company shall be evidenced to the Trustee by promptly filing with the
Trustee a copy of the resolution of the Board of Directors of the Company giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
120
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and other legally
required qualifying shares) is owned by the Company or one or more Wholly Owned
Subsidiaries.
121
BOOK-ENTRY, DELIVERY AND FORM
The outstanding notes were offered and sold to qualified institutional
buyers in reliance on Rule 144A and in offshore transactions in reliance on
Regulation S. Except as set forth below, exchange notes will be issued in
registered, global form in minimum denominations of $1,000 and integral
multiples of $1,000 in excess of $1,000.
THE GLOBAL NOTES
Except as described below, we initially issued the outstanding notes and we
will initially issue the exchange notes in the form of one or more notes in
registered, global form without interest coupons. These global notes will be
deposited upon issuance with, or on behalf of, DTC and registered in the name of
DTC, or its nominee, or will remain in the custody of the trustee pursuant to
the FAST Balance Certificate Agreement between DTC and the trustee. All
interests in global notes, including those held through Euroclear Bank SA/N.V.,
as operator of the Euroclear System, or Clearstream Banking, societe anonyme may
be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Clearstream may also be subject to the procedures and
requirements of these systems.
Except as set forth below, the global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in physical, certificated form except in the limited circumstances described
below. You may hold your beneficial interests in the global notes directly
through DTC if you have an account with DTC or directly through organizations
that have an account with DTC.
Any beneficial interest in one of the global notes that is transferred to a
person who takes delivery in the form of an interest in another global note
will, upon transfer, cease to be an interest in this global note and become an
interest in the other global note and, accordingly, will thereafter be subject
to all transfer restrictions, if any, and other procedures applicable to
beneficial interests in such other global note for as long as it remains such an
interest.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. We take no responsibility
for these operations and procedures and urge investors to contact the system or
its participants directly to discuss these matters.
DTC has advised us that it is
- a limited purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of the New York Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers of the outstanding notes; banks and trust companies; clearing
corporations and some other organizations. Indirect access to DTC's system is
also available to other entities such as banks, brokers, dealers and trust
companies; these indirect participants clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Investors who
are not participants may beneficially own securities held by or on behalf of DTC
only through participants or indirect participants. The ownership interests in,
and transfers of ownership
122
interests in, each security held by or on behalf of DTC are recorded on the
records of the participants and indirect participants.
DTC has also advised us that, pursuant to procedures established by it,
(1) upon deposit of the global notes, DTC will credit the accounts of
participants with an interest in the global notes; and
(2) ownership of these interests in the global notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the participants) or by
the participants and the indirect participants (with respect to other
owners of beneficial interest in the global notes).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons will be limited
to that extent. Because DTC can act only on behalf of participants, which in
turn act on behalf of indirect participants, the ability of a person having
beneficial interests in a global note to pledge such interests to persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate evidencing
such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE GLOBAL NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY
OF GLOBAL NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED
OWNERS OR "HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Accordingly, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC and, if the holder is not a participant or an
indirect participant in DTC, on the procedures of the participant through which
the holder owns its interest, to exercise any rights of a holder of Notes under
the indenture or the global note. We understand that under existing industry
practice, if we request any action of holders of notes, or a holder that is an
owner of a beneficial interest in a global note desires to take any action that
DTC, as the holder of the global note, is entitled to take, then DTC would
authorize its participants to take the action and the participants would
authorize holders owning through participants to take the action or would
otherwise act upon the instruction of these holders. Neither we nor the trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of notes by DTC, or for maintaining, supervising
or reviewing any records of DTC relating to the notes.
Payments in respect of the principal of, and interest and premium and
additional interest, if any, on a global note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, we and the trustee will
treat the persons in whose names the notes, including the global notes, are
registered as the owners of the notes for the purpose of receiving payments and
for all other purposes. Consequently, neither we, the trustee nor any agent of
us or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interest in the global notes or for maintaining, supervising or
reviewing any of DTC's records or any participant's or indirect
participant's records relating to the beneficial ownership interests in the
global notes; or (2) any other matter relating to the actions and practices
of DTC or any of its participants or indirect participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the global notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
participants and the indirect participants to the beneficial owners of the
global notes will be governed by standing instructions and customary practices
and will be the responsibility of the participants or the indirect participants
and will not be the responsibility of DTC, the trustee or us.
123
Neither we nor the trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the global notes, and we
and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants, in Euroclear and Clearstream will be effected in accordance with
their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf of delivering or receiving interests in the relevant global note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositaries for Euroclear or Clearstream.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more participants to whose
account DTC has credited the interests in the global notes and only in respect
of such portion of the aggregate principal amount of the notes as to which such
participant or participants has or have given such direction. However, if there
is an event of default under the notes, DTC reserves the right to exchange the
global notes for notes in certificated form, and to distribute such notes to its
participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the global notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither we nor the trustee nor any of their respective
agents will have any responsibility for the performance by DTC, Euroclear or
Clearstream or their respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global notes and DTC fails to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of certificated notes; or
(3) there has occurred and is continuing a default or event of default
with respect to the notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend, unless that legend
is not required by applicable law.
124
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated notes may not be exchanged for beneficial interests in any
global note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the notes represented by the global
notes (including principal, premium, if any, interest and liquidated damages, if
any) by wire transfer of immediately available funds to the accounts specified
by the global note holder. We will make all payments of principal, interest and
premium and additional interest, if any, with respect to certificated notes by
wire transfer of immediately available funds to the accounts specified by the
holders of the certificated notes or, if no such account is specified, by
mailing a check to each such holder's registered address.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures and will be settled in same-day funds. Transfers between
participants in Euroclear or Clearstream will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a global note by or through a Euroclear or Clearstream participant
to a participant in DTC will be received with value on the settlement date of
DTC but will be available in the relevant Euroclear or Clearstream cash account
only as of the business day for Euroclear or Clearstream following DTC's
settlement date.
125
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following section describes certain anticipated U.S. federal income tax
consequences relating to the exchange of outstanding notes for exchange notes
pursuant to the exchange offer. This description is based upon the Internal
Revenue Code of 1986, as amended, existing and proposed Treasury regulations,
existing administrative pronouncements and judicial decisions, each as available
and in effect as of the date hereof. All of the foregoing are subject to change,
and any such change could be retroactive and could affect the continuing
validity of this description.
This description deals only with exchange notes held as capital assets by
initial holders that acquire the exchange notes pursuant to the exchange offer.
This description does not discuss all of the tax consequences that may be
relevant to holders that are subject to special tax rules, such as (1) certain
financial institutions, (2) real estate investment trusts, (3) regulated
investment companies, (4) grantor trusts, (5) insurance companies, (6) dealers
or traders in securities or currencies, (7) persons holding notes in connection
with a hedging transaction, straddle, conversion transaction or other integrated
transaction, or (8) persons who have ceased to be United States citizens or to
be taxed as resident aliens. This description also does not address the U.S.
federal estate and gift tax consequences or any applicable foreign, state or
local tax laws.
Holders should consult their tax advisors with regard to the application of
U.S. federal income and estate tax laws to their particular situation, as well
as any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
EXCHANGE OFFER
The exchange of outstanding notes by a holder for exchange notes pursuant
to the exchange offer will not constitute a taxable exchange for U.S. federal
income tax purposes. A holder will not recognize gain or loss upon the receipt
of exchange notes pursuant to the exchange offer and will be required to treat
the exchange notes and any payments thereon for U.S. federal income tax purposes
as if the exchange offer had not occurred. A holder's holding period for
exchange notes will include the holding period for the outstanding notes
exchanged pursuant to the exchange offer and a holder's adjusted basis in
exchange notes will be the same as such holder's adjusted basis in such
outstanding notes.
THE ABOVE DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL TAX CONSEQUENCES RELATING TO THE EXCHANGE OF OUTSTANDING NOTES FOR EXCHANGE
NOTES PURSUANT TO THE EXCHANGE OFFER OR THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE EXCHANGE NOTES. YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISOR
REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR
SITUATION, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
STATE, LOCAL, OR OTHER TAXING JURISDICTION.
126
PLAN OF DISTRIBUTION
We are not using any underwriters for this exchange offer. We are also
bearing the expenses of the exchange.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. We have agreed
that, for a period of 180 days after the expiration date, we will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 2002, all
dealers effecting transactions in the exchange notes may be required to deliver
a prospectus.
We will not receive any proceeds from any sale of outstanding notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concession received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests these documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
(including the expenses of one counsel for the holders of the outstanding notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the outstanding notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the notes offered hereby will be passed upon for us by
White & Case LLP, New York, New York.
EXPERTS
The financial statements of Associated Materials Incorporated at December
31, 2001 and 2000, and for each of the three years in the period ended December
31, 2001, appearing in this prospectus forming part of a registration statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
127
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
----
Audited Financial Statements:
Report of Independent Auditors............................ F-2
Balance Sheets at December 31, 2001 and 2000.............. F-3
Statements of Operations for the years ended December 31,
2001, 2000 and 1999.................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999....................... F-5
Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999.................................... F-6
Notes to Financial Statements............................. F-7
Unaudited Financial Statements:
Balance Sheets at March 31, 2002 and December 31, 2001.... F-20
Statements of Operations for the quarters ended March 31,
2002 and 2001.......................................... F-21
Statements of Cash Flows for the quarters ended March 31,
2002 and 2001.......................................... F-22
Notes to Financial Statements for the quarter ended March
31, 2002............................................... F-23
</Table>
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Associated Materials Incorporated
We have audited the accompanying balance sheets of Associated Materials
Incorporated as of December 31, 2001 and 2000 and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Materials
Incorporated at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Dallas, Texas
February 8, 2002
F-2
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 28,869 $ 15,879
Short term investment..................................... -- 5,019
Accounts receivable, net of allowance for doubtful
accounts of $5,117 and $6,168 at December 31, 2001 and
2000, respectively..................................... 65,784 50,853
Inventories............................................... 74,574 74,429
Income taxes receivable................................... -- 453
Other current assets...................................... 3,394 4,213
-------- --------
Total current assets........................................ 172,621 150,846
Property, plant and equipment, net.......................... 77,733 73,917
Investment in Amercord Inc.................................. -- 2,393
Other assets................................................ 3,953 3,985
-------- --------
Total assets...................................... $254,307 $231,141
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 29,579 $ 19,273
Accrued liabilities....................................... 35,356 29,509
Income taxes payable...................................... 1,498 --
-------- --------
Total current liabilities................................... 66,433 48,782
Deferred income taxes....................................... 5,091 3,927
Other liabilities........................................... 5,108 5,442
Long-term debt.............................................. 75,000 75,000
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 100,000 shares at December 31,
2001 and 2000
Issued shares -- 0 at December 31, 2001 and 2000....... -- --
Common stock, $.0025 par value:
Authorized shares -- 15,000,000 at December 31, 2001
and 2000
Issued shares -- 7,842,003 at December 31, 2001 and
7,164,024 at December 31, 2000........................ 19 18
Common stock Class B, $.0025 par value:
Authorized and issued shares -- 0 at December 31, 2001
and 1,550,000 at December 31, 2000.................... -- 4
Less: Treasury stock, at cost -- 1,078,476 shares at
December 31, 2001 and 955,170 at December 31, 2000..... (14,476) (12,425)
Capital in excess of par.................................. 17,124 14,862
Retained earnings......................................... 100,008 95,531
-------- --------
Total stockholders' equity.................................. 102,675 97,990
-------- --------
Total liabilities and stockholders' equity.................. $254,307 $231,141
======== ========
</Table>
See accompanying notes.
F-3
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.................................................. $595,819 $499,393 $455,268
Cost of sales.............................................. 425,366 353,994 317,596
-------- -------- --------
Gross profit............................................... 170,453 145,399 137,672
Selling, general and administrative expenses............... 119,945 107,255 96,028
-------- -------- --------
Income from operations..................................... 50,508 38,144 41,644
Interest expense, net...................................... 6,795 6,046 6,779
-------- -------- --------
43,713 32,098 34,865
Gain on the sale of UltraCraft............................. -- 8,012 --
Equity in loss of Amercord Inc............................. -- -- 1,337
Write-down of investment in Amercord Inc................... 2,393 -- --
-------- -------- --------
Income before income taxes................................. 41,320 40,110 33,528
Income tax expense......................................... 15,908 16,555 13,038
-------- -------- --------
Net income................................................. $ 25,412 $ 23,555 $ 20,490
======== ======== ========
Earnings Per Common Share -- Basic:
Net income............................................... $ 3.62 $ 2.94 $ 2.52
======== ======== ========
Earnings Per Common Share -- Assuming Dilution:
Net income............................................... $ 3.46 $ 2.85 $ 2.46
======== ======== ========
</Table>
See accompanying notes.
F-4
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<Table>
<Caption>
CLASS B CAPITAL
COMMON STOCK COMMON STOCK TREASURY STOCK IN TOTAL
--------------- --------------- ----------------- EXCESS RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT OF PAR EARNINGS EQUITY
------ ------ ------ ------ ------ -------- ------- -------- -------------
(IN THOUSANDS)
Balance at December 31,
1998....................... 6,939 $17 1,550 $ 4 88 $ (1,048) $12,273 $ 53,132 $ 64,378
Net income and total
comprehensive income..... -- -- -- -- -- -- -- 20,490 20,490
Cash dividends ($0.10 per
share)................... -- -- -- -- -- -- -- (845) (845)
Exercise of common stock
options and related tax
benefits................. 5 -- -- -- -- -- 30 -- 30
Purchase of treasury
shares................... -- -- -- -- 467 (5,578) -- -- (5,578)
Common stock issued under
Employee Stock Purchase
Plan..................... 81 -- -- -- -- -- 851 -- 851
----- --- ------ ---- ----- -------- ------- -------- --------
Balance at December 31,
1999....................... 7,025 17 1,550 4 555 (6,626) 13,154 72,777 79,326
Net income and total
comprehensive income..... -- -- -- -- -- -- -- 23,555 23,555
Cash dividends ($0.10 per
share)................... -- -- -- -- -- -- -- (801) (801)
Exercise of common stock
options and related tax
benefits................. 73 -- -- -- -- -- 860 -- 860
Purchase of treasury
shares................... -- -- -- -- 400 (5,799) -- -- (5,799)
Common stock issued under
Employee Stock Purchase
Plan..................... 66 1 -- -- -- -- 848 -- 849
----- --- ------ ---- ----- -------- ------- -------- --------
Balance at December 31,
2000....................... 7,164 18 1,550 4 955 (12,425) 14,862 95,531 97,990
Net income and total
comprehensive income..... -- -- -- -- -- -- -- 25,412 25,412
Cash dividends ($0.20 per
share)................... -- -- -- -- -- -- -- (1,438) (1,438)
Exercise of common stock
options and related tax
benefits................. 67 -- -- -- -- -- 1,387 -- 1,387
Purchase of treasury
shares................... -- -- -- -- 123 (2,051) -- -- (2,051)
Common stock issued under
Employee Stock Purchase
Plan..................... 61 -- -- -- -- -- 875 -- 875
Retirement of Class B
common stock............. -- -- (1,000) (3) -- -- -- (19,497) (19,500)
Conversion of Class B
common stock to common
stock.................... 550 1 (550) (1) -- -- -- -- --
----- --- ------ ---- ----- -------- ------- -------- --------
Balance at December 31,
2001....................... 7,842 $19 -- $ -- 1,078 $(14,476) $17,124 $100,008 $102,675
===== === ====== ==== ===== ======== ======= ======== ========
</Table>
See accompanying notes.
F-5
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income.................................................. $25,412 $23,555 $20,490
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 10,919 9,550 8,519
Deferred income taxes..................................... 1,164 1,691 (380)
Provision for losses on accounts receivable............... 1,468 2,884 2,323
Equity in loss of Amercord Inc............................ -- --
Write-down of investment in Amercord Inc.................. 2,393 -- --
Loss on sale of assets.................................... 43 558 51
Gain on the sale of UltraCraft............................ -- (8,012)
Tax benefit from stock option exercises................... 411 92 15
Changes in operating assets and liabilities:
Accounts receivable..................................... (16,022) (3,492) (9,150)
Inventories............................................. (145) (5,180) (13,406)
Other current assets.................................... 818 (677) (300)
Accounts payable........................................ 10,306 1,882 5,220
Accrued liabilities..................................... 5,847 2,556 1,536
Income taxes receivable/payable......................... 1,951 (227) (808)
Other assets............................................ (242) (1,804) (38)
Other liabilities....................................... (334) (408) (165)
------- ------- -------
Net cash provided by operating activities................... 43,989 22,968 15,244
INVESTING ACTIVITIES
Additions to property, plant and equipment.................. (15,022) (11,925) (18,915)
Proceeds from sale of assets................................ 142 86 65
Purchase of Alpine Industries, Inc. assets.................. -- (7,565) --
Proceeds from the sale of UltraCraft........................ -- 18,885 --
(Purchase)/sale of short-term investment.................... 5,019 (5,019) --
Proceeds from sale of Amercord interest..................... -- -- 1,231
------- ------- -------
Net cash used in investing activities....................... (9,861) (5,538) (17,619)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock.................. 875 849 851
Principal payments of long-term debt........................ -- -- (3,600)
Repurchase of Class B common stock.......................... (19,500) -- --
Options exercised........................................... 976 768 15
Dividends paid.............................................. (1,438) (801) (845)
Treasury stock acquired..................................... (2,051) (5,799) (5,578)
------- ------- -------
Net cash used in financing activities....................... (21,138) (4,983) (9,157)
------- ------- -------
Net increase (decrease) in cash............................. 12,990 12,447 (11,532)
Cash at beginning of period................................. 15,879 3,432 14,964
------- ------- -------
Cash at end of period....................................... $28,869 $15,879 $ 3,432
======= ======= =======
Supplemental Information:
Cash paid for interest.................................... $ 7,176 $ 7,177 $ 7,108
======= ======= =======
Cash paid for income taxes................................ $12,633 $15,292 $14,313
======= ======= =======
</Table>
See accompanying notes.
F-6
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
LINE OF BUSINESS
Associated Materials Incorporated (the "Company") consists of two operating
divisions, Alside and AmerCable. Alside is engaged principally in the
manufacture and distribution of exterior residential building products to
professional contractors throughout the United States. AmerCable manufactures
jacketed electrical cable utilized in a variety of industrial applications. The
Company also owns an interest in Amercord Inc. ("Amercord"), which was accounted
for using the equity method until November 1999 when Amercord was recapitalized,
reducing the Company's interest in Amercord from 50% to 9.9%. Since the
recapitalization, the Company has accounted for Amercord under the cost method.
See Note 2.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions regarding the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Product sales are recognized at the time of shipment and when payment is
reasonably certain. Revenues are recorded net of estimated customer programs and
incentive offerings including special pricing agreements, promotions and other
volume-based incentives. Revisions to these estimates are charged to income in
the period in which the facts that give rise to the revision become known.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market. The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets which
are as follows:
<Table>
Building and improvements................................... 7 to 30 years
Computer equipment.......................................... 3 years
Machinery and equipment..................................... 3 to 15 years
</Table>
INCOME TAX
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
F-7
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SHORT-TERM INVESTMENT
At December 31, 2000 the Company had a $5.0 million commercial paper
investment, with an original maturity of six months, reported as a short-term
investment on the balance sheet. The Company classified the investment as
held-to-maturity as the Company had the intent and held the investment to
maturity. The investment was carried at amortized cost.
DERIVATIVES
From time to time the Company hedges its position with respect to raw
material or currency fluctuations on specific contracts by entering into forward
contracts or purchase options, the cost of which are realized upon the
completion of the contract as cost of sales. The contracts effectively meet risk
reduction and correlation criteria and are recorded using hedge accounting. No
such contracts were in place at December 31, 2001 or 2000.
INTEREST INCOME
Interest income was $377,000, $1.1 million and $329,000 in 2001, 2000 and
1999, respectively, and is included in interest expense, net.
MARKETING AND ADVERTISING
The Company expenses marketing and advertising costs as incurred. Marketing
and advertising expense was $9.9 million, $9.2 million and $8.5 million in 2001,
2000 and 1999, respectively.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to undiscounted future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets held
for sale are reported at the lower of the carrying amount or fair value less
costs to sell.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" which has eliminated the pooling of interests method for
mergers and acquisitions. All business combinations initiated after June 30,
2001 are required to be accounted for using the purchase method of accounting.
SFAS No. 141 supersedes APB Opinion No. 16, "Business Combinations" and SFAS No.
38, "Accounting for Preacquisition Contingencies of Purchased Enterprises." The
Company has not made any acquisitions that were accounted for by the pooling of
interests method. The Company believes the adoption of this Statement will not
have a material effect on the Company's financial position, results of
operations or cash flows.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets" which addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets." SFAS No. 142 requires
F-8
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
goodwill and intangible assets with indefinite useful lives no longer be
amortized but instead be reviewed annually for impairment using a fair-value
based approach. Intangible assets that have a finite life will continue to be
amortized over their respective estimated useful lives. The Statement is
effective for fiscal years beginning after December 15, 2001. The Company has
not recorded goodwill or other intangible assets with respect to any
acquisition. The Company believes the adoption of this Statement will not have a
material effect on the Company's financial position, results of operations or
cash flows.
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated retirement costs and establishes
consistent accounting treatment for these items. This Statement is effective for
fiscal years beginning after June 15, 2002. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which
addresses the financial reporting and accounting for the impairment or disposal
of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
the accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" for the disposal of a segment of a business (as previously defined
in that Opinion). This Statement also amends ARB No. 51, "Consolidated Financial
Statements" to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. This Statement is effective for fiscal
years beginning after December 15, 2001. The Company believes the adoption of
this Statement will not have a material effect on the Company's financial
position, results of operations or cash flows.
In September 2000, the Emerging Issues Task Force issued EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs" which was effective for
the fourth quarter of 2000. The EITF concluded that amounts billed to a customer
in a sale transaction related to shipping and handling should be classified as
revenue. The EITF also concluded that if costs incurred related to shipping and
handling are significant and not included in cost of sales, an entity should
disclose both the amount of such costs and the line item on the income statement
that includes such costs. Prior to implementing EITF 00-10, the Company
classified shipping and handling amounts billed to a customer as revenue. Costs
incurred related to shipping and handling were classified as a reduction of
revenue. The Company has reclassified prior period information to conform with
the provisions of EITF 00-10.
2. INVESTMENT IN AMERCORD
The Company owns a 9.9% interest in Amercord, a manufacturer of steel tire
cord and tire bead wire used in the tire manufacturing industry.
During the fourth quarter of 1999, Amercord was recapitalized, reducing the
Company's interest in Amercord from 50% to 9.9%. As a result of the
recapitalization, the Company received cash of $1.2 million (net of related
expenses) and a subordinated note for $1.5 million due November 2004. In
addition, the Company has the right to require Amercord to purchase the
Company's remaining 9.9% interest for $2.0 million in November 2003. After
Amercord's recapitalization, the Company accounted for Amercord using the cost
method of accounting. Prior to Amercord's recapitalization, the Company
accounted for Amercord using the equity method of accounting. The Company
recorded equity in the losses of Amercord of $1.3 million in 1999.
F-9
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amercord's operating results and financial position deteriorated during the
first quarter 2001. The Company believed it would not recover its investment in
Amercord and wrote off its $2.4 million investment in Amercord during the first
quarter of 2001. Amercord ceased operations during the second quarter of 2001.
In connection with the recapitalization of Amercord in November 1999, the
Company guaranteed a $3.0 million note secured by Amercord's real property. To
date, the lender has not requested the Company to make payment under the
guaranty. Should the guaranty be exercised by Amercord's lender, the Company and
Ivaco Inc., another stockholder of Amercord, have the option to assume the loan.
Ivaco Inc. has indemnified the Company for 50% of any loss under the guaranty up
to $1.5 million. Based on a third party appraisal of Amercord's real property,
the Company believes that it is adequately secured under its guaranty of the
$3.0 million Amercord note such that no losses are anticipated with respect to
this guaranty.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Changes in the allowance for doubtful accounts on accounts receivable for
the years ended December 31 consist of (in thousands):
<Table>
<Caption>
2001 2000 1999
------ ------ ------
Balance at beginning of period............................. $6,168 $4,864 $4,159
Provision for losses....................................... 1,468 2,884 2,323
Losses sustained (net of recoveries)....................... 2,519 1,358 1,618
Allowance for UltraCraft receivables sold.................. -- 222 --
------ ------ ------
Balance at end of period................................... $5,117 $6,168 $4,864
====== ====== ======
</Table>
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. The
allowance for doubtful accounts is based on review of the overall condition of
accounts receivable balances and review of significant past due accounts. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.
4. INVENTORIES
Inventories at December 31 consist of (in thousands):
<Table>
<Caption>
2001 2000
------- -------
Raw materials............................................... $21,102 $23,229
Work-in-progress............................................ 4,597 5,101
Finished goods and purchased stock.......................... 48,875 46,099
------- -------
$74,574 $74,429
======= =======
</Table>
F-10
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 consist of (in thousands):
<Table>
<Caption>
2001 2000
-------- --------
Land........................................................ $ 1,878 $ 1,878
Buildings................................................... 30,231 29,601
Construction in process..................................... 2,970 1,985
Machinery and equipment..................................... 119,151 106,596
-------- --------
154,230 140,060
Less accumulated depreciation............................... 76,497 66,143
-------- --------
$ 77,733 $ 73,917
======== ========
</Table>
6. ACCRUED LIABILITIES AND OTHER LIABILITIES
Accrued liabilities at December 31 consist of (in thousands):
<Table>
<Caption>
2001 2000
------- -------
Employee compensation....................................... $15,648 $12,450
Sales promotions and incentives............................. 8,929 6,813
Employee benefits........................................... 3,747 3,450
Interest.................................................... 2,322 2,313
Other....................................................... 4,710 4,483
------- -------
$35,356 $29,509
======= =======
</Table>
Other liabilities of $5,108,000 and $5,442,000 at December 31, 2001 and
2000, respectively, consist primarily of accruals for retiree medical benefits
related to the 1989 closure of the Company's metal plant.
7. DEBT
In May 1999, the Company amended its $50 million credit agreement with
KeyBank, N.A. ("Credit Agreement") to extend the term to May 31, 2002. Available
borrowings under the Credit Agreement are limited to the lesser of the total
facility less unused letters of credit or availability based on percentages of
eligible accounts receivable and inventories. Unused letters of credit totaled
$1,898,000 at December 31, 2001, primarily related to insurance coverage. The
Company's available borrowing capacity at December 31, 2001 was approximately
$48,102,000. The Credit Agreement includes covenants that require the
maintenance of certain financial ratios and net worth and that place
restrictions on the repurchase of common stock and the payment of dividends. One
covenant in the Credit Agreement requires the Company to maintain a minimum
ratio of cash inflows to cash outflows determined for the preceding twelve-month
period at the end of each calendar quarter. During 2001, the Company repurchased
1.0 million shares of its Class B common stock at an aggregate cost of $19.5
million. In order to complete the Class B common stock repurchase, the Company
obtained a waiver under the Credit Agreement to exclude the Class B common stock
repurchase from the covenant calculation of cash inflows to cash outflows. The
Company was in compliance with all Credit Agreement covenants at December 31,
2001. Outstanding borrowings under the Credit Agreement are secured by
substantially all of the assets of the Company other than the Company's real
property, equipment and its interest in Amercord.
F-11
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interest is payable on borrowings under the revolving credit facility at
either the prime commercial rate (4.75% at December 31, 2001) or LIBOR plus
1.00% at the option of the Company and on the unused credit facility at a rate
of .20%. Letter of credit fees of 1.125% are paid at origination.
The weighted average interest rate for borrowings under the revolving
credit facility was 5.9% and 8.4% for the years ended December 31, 2001 and
2000, respectively.
Long-term debt at December 31, 2001 and 2000 consists of $75 million of
9 1/4% Senior Subordinated Notes due 2008. The fair value of the 9 1/4% Notes at
December 31, 2001 was $76.6 million based upon quoted market price.
The Company's ability to make restricted payments, such as the repurchase
of stock and the payment of dividends, is restricted by covenants in its Credit
Agreement and the Indenture pursuant to which the Company's 9 1/4% Senior
Subordinated Notes were issued. At December 31, 2001, the Company had the
ability to make restricted payments of up to $15.7 million under the terms of
the Indenture, the more restrictive of the two agreements.
8. ACQUISITIONS AND DIVESTITURES
On October 6, 2000, the Company acquired substantially all of the assets of
Alpine Industries, Inc. for $7.6 million in cash and the assumption of certain
payroll related and property tax liabilities. Included in the acquired assets is
Alpine's leased window fabrication facility located in Bothell, Washington. This
facility manufactures vinyl windows for the new construction and remodeling
markets. The Company accounted for the acquisition using the purchase method of
accounting and the results of operations have been included in the Company's
income statement from the date of acquisition.
The Company completed the sale of its UltraCraft operation, a manufacturer
of semi-custom frameless cabinets, in June 2000. Pre-tax net proceeds from the
sale were $18.9 million after working capital adjustments and transaction costs.
The Company recorded a pre-tax gain on the sale of $8.0 million. UltraCraft
represented approximately 5% of the Company's 1999 net sales.
Under the terms of the 9 1/4% Note Indenture, the Company was obligated to
make an offer to repurchase the 9 1/4% Notes using the after-tax net proceeds
from the UltraCraft sale, to the extent the Company did not use these net
proceeds within one year of the sale to repay senior indebtedness or to acquire
assets used in, or other businesses similar to, the business currently conducted
by the Company. As a result of the Company's acquisition of the Alpine assets
together with other capital expenditures, the Company believes that it was not
obligated to make an offer to repurchase the 9 1/4% Notes.
9. COMMITMENTS
Commitments for future minimum lease payments under noncancelable operating
leases, principally for manufacturing and distribution facilities and certain
equipment, are as follows (in thousands):
<Table>
2002........................................................ $13,961
2003........................................................ 11,624
2004........................................................ 8,933
2005........................................................ 6,168
2006........................................................ 3,423
Thereafter.................................................. 5,410
</Table>
Lease expense was approximately $17,859,000, $14,673,000 and $13,141,000
for the years ended December 31, 2001, 2000 and 1999, respectively. The
Company's lease agreements typically contain renewal options.
F-12
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
Income tax expense for the years ended December 31 consists of (in
thousands):
<Table>
<Caption>
2001 2000 1999
------------------ ------------------ ------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
------- -------- ------- -------- ------- --------
Federal income taxes......... $13,835 $ 948 $13,800 $1,510 $11,776 $(364)
State income taxes........... 909 216 1,064 181 1,642 (16)
------- ------ ------- ------ ------- -----
$14,744 $1,164 $14,864 $1,691 $13,418 $(380)
======= ====== ======= ====== ======= =====
</Table>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred income taxes as of December 31 are as follows (in
thousands):
<Table>
<Caption>
2001 2000
------- -------
Deferred tax assets:
Medical benefits.......................................... $ 1,966 $ 2,095
Bad debt expense.......................................... 1,914 1,979
Inventory costs........................................... 763 1,108
Capital loss on Amercord Inc.............................. 472 472
Other..................................................... 1,222 616
------- -------
Total deferred tax assets................................... 6,337 6,270
Deferred tax liabilities:
Depreciation.............................................. 9,889 8,975
Pension expense........................................... 779 302
Other..................................................... 760 920
------- -------
Total deferred tax liabilities.............................. 11,428 10,197
------- -------
Net deferred tax liabilities................................ $(5,091) $(3,927)
======= =======
</Table>
The reconciliation of the statutory rate to the Company's effective income
tax rate for the years ended December 31 follows:
<Table>
<Caption>
2001 2000 1999
---- ---- ----
Statutory rate.............................................. 35.0% 35.0% 35.0%
State income tax, net of federal income tax benefit......... 1.8 2.0 3.2
Other....................................................... 1.7 4.3 0.7
---- ---- ----
Effective rate.............................................. 38.5% 41.3% 38.9%
==== ==== ====
</Table>
During the third quarter 2000, the Company recorded $1.1 million in
additional income tax expense due to an adjustment to a deferred tax asset,
which was recorded in 1986 pursuant to the spin-off of the Company's tire cord
operation into Amercord. The effect of this adjustment is included in the other
category in the rate reconciliation. Exclusive of this adjustment, the Company's
effective tax rate would have been 38.5%.
F-13
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCKHOLDERS' EQUITY
In October 1998 the Company's Board of Directors approved a stock
repurchase program that authorized the Company to purchase up to 800,000 shares
of common stock in open market transactions depending on market, economic and
other factors. In November 2000, the Board authorized the repurchase of an
additional 800,000 shares of common stock under the Company's stock repurchase
program, bringing the total number of shares under the plan to 1,600,000 shares.
During 2001, 2000 and 1999, the Company repurchased 123,306, 399,774 and 467,000
shares of its common stock under the stock repurchase program at a cost of
$2,051,000, $5,799,000 and $5,578,000. The repurchase of the Company's Class B
common stock described below was not part of this stock repurchase program.
On April 29, 2001, the Company repurchased 1,000,000 shares of its Class B
common stock from The Prudential Insurance Company of America ("Prudential") and
its wholly owned subsidiary, PCG Finance Company II, LLC ("PCG") at $19.50 per
share, or $19.5 million in the aggregate, which has been reflected primarily as
a reduction to retained earnings. The share purchase was financed through
available cash and borrowings under the Company's $50,000,000 credit facility.
Following the purchase, Prudential and PCG converted the remaining 550,000
shares of Class B common stock held by these entities into 550,000 shares of
common stock pursuant to the terms of the Company's Certificate of
Incorporation. The Company has retired all 1,550,000 previously authorized
shares of Class B common stock.
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
---------------------------
2001 2000 1999
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Numerator:
Numerator for basic and diluted earnings per common
share -- Net income................................ $25,412 $23,555 $20,490
Denominator:
Denominator for basic earnings per common share --
weighted-average shares............................ 7,023 8,007 8,126
Effect of dilutive securities:
Employee stock options............................. 311 251 218
------- ------- -------
Denominator for diluted earnings per common share --
adjusted weighted-average shares................... 7,334 8,258 8,344
======= ======= =======
Basic earnings per common share......................... $ 3.62 $ 2.94 $ 2.52
======= ======= =======
Diluted earnings per common share....................... $ 3.46 $ 2.85 $ 2.46
======= ======= =======
</Table>
Options to purchase 50,000 and 40,000 shares of common stock with a
weighted average exercise price of $16.11 and $16.00 per share were outstanding
for the years ended December 31, 2000 and December 31, 1999, respectively, but
were excluded from the diluted earnings per share calculation because the option
exercise price was greater than the average market price of the common stock
during the period.
F-14
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK PLANS
The Company has a stock option plan, whereby it grants stock options to
certain directors, officers and key employees. The Company has authorized
1,200,000 shares of common stock to be issued under the plan. Options were
granted at fair market value on the grant date and are exercisable for ten
years. Options vest by either of the following methods: 50% vests upon the grant
date with the other 50% vesting after two years or 20% vests upon the grant date
with an additional 20% vesting each year commencing on the first anniversary of
the grant date. All outstanding options granted under the stock option plan are
non-statutory stock options.
Transactions during 1999, 2000 and 2001 under this plan are summarized
below:
<Table>
<Caption>
WEIGHTED AVERAGE
SHARES PRICE EXERCISE PRICE
------- ------------------ ----------------
Options outstanding at December 31,
1998................................... 572,300 $2.925 to $16.00 $ 8.45
Exercised................................ (5,000) $2.925 $ 2.925
------- ------------------ -------
Options outstanding at December 31,
1999................................... 567,300 $2.925 to $16.00 $ 8.50
Exercised................................ (73,486) $5.00 to $11.875 $ 9.57
Granted.................................. 167,500 $11.875 to $16.563 $ 13.50
Expired or canceled...................... (26,514) $9.00 to $11.875 $ 9.72
------- ------------------ -------
Options outstanding at December 31,
2000................................... 634,800 $2.925 to $16.563 $ 9.65
Exercised................................ (67,300) $2.925 to $11.875 $ 5.76
Granted.................................. 20,000 $17.875 $17.875
Expired or canceled...................... (19,000) $9.00 to $11.875 $ 9.45
------- ------------------ -------
Options outstanding at December 31,
2001................................... 568,500 $2.925 to $17.875 $ 10.41
=======
</Table>
Options to purchase 456,000, 476,800 and 407,800 shares were exercisable at
December 31, 2001, 2000 and 1999, respectively. The weighted average exercise
price of options outstanding was $10.41, $9.65 and $8.50 at December 31, 2001,
2000 and 1999, respectively.
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE EXERCISE
RANGE SHARES LIFE IN YEARS PRICE SHARES PRICE
- ----- ------- ------------- -------- -------- ---------
$2.925 to $5.00.................... 105,500 2.21 $ 3.328 105,500 $ 3.328
$9.00 to $12.00.................... 293,000 6.20 $10.196 252,500 $10.268
$13.875 to $17.875................. 170,000 7.61 $15.169 98,000 $15.159
</Table>
The Company has adopted the disclosure provisions of SFAS No. 123 but
continues to measure stock-based compensation in accordance with APB No. 25. Pro
forma information regarding net income and earnings per share is required by
SFAS No. 123, and has been determined as if the Company had accounted for its
stock options under the fair value method of that statement. The weighted
average fair value at date of grant for options granted during 2001 and 2000
using the Black-Scholes method was $8.39 and $12.58 per option, respectively. No
options were granted in 1999. The fair value of the options was estimated at the
date of the grant using the Black-Scholes option pricing model with the
following assumptions for 2001 and 2000, respectively: dividend yield of .95%
and .67%, volatility factor of the
F-15
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expected market price of the stock of .330 and .307, a weighted-average risk
free interest rate of 5.10% and 6.38% and an expected life of the option of 10
years.
Stock based compensation costs would have reduced net income by $344,000,
$977,000 and $475,000 or $0.05, $0.12 and $0.06 per basic and diluted share in
2001, 2000 and 1999, respectively, if the fair values of the options granted in
that year had been recognized as compensation expense on a straight-line basis
over the vesting period of the grant. The pro forma effect on net income for
2001, 2000 and 1999 may not be representative of the pro forma effect on net
income in future years.
Effective October 1, 1998 the Company established an Employee Stock
Purchase Plan ("ESPP"). The ESPP allows employees to purchase the Company's
common stock at 85% of the lower of the fair market value on the first day of
the purchase period or the last day of the purchase period. The Company has
registered 500,000 shares of common stock for issuance under the ESPP. Employees
purchased 60,679, 65,873, and 80,919 shares under the ESPP at average prices of
$14.42, $12.87 and $10.52 per share during 2001, 2000 and 1999, respectively.
The Company's Board of Directors approved the suspension of the ESPP effective
December 31, 2001.
14. BUSINESS SEGMENTS
The Company has two reportable segments: building products and electrical
cable products. The principal business activities of the building products
segment are the manufacture of vinyl siding, vinyl windows and the wholesale
distribution of these and other complementary building products principally to
professional home remodeling and new construction contractors. The principal
business activity of the electrical cable segment is the manufacture and sale of
jacketed electrical cable.
The Company evaluates performance and allocates resources based on
operating profit, which is net sales less operating costs and expenses.
Comparative financial data by reportable segment for the years ended
December 31 are as follows (in thousands):
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Net sales:
Building products.................................. $524,528 $434,845 $410,107
Electrical cable products.......................... 71,291 64,548 45,161
-------- -------- --------
$595,819 $499,393 $455,268
======== ======== ========
Operating profits (losses):
Building products.................................. $ 48,889 $ 36,300 $ 42,408
Electrical cable products.......................... 6,653 5,815 2,875
Corporate expense.................................. (5,034) (3,971) (3,639)
-------- -------- --------
$ 50,508 $ 38,144 $ 41,644
======== ======== ========
Identifiable assets:
Building products.................................. $189,142 $165,990 $167,024
Electrical cable products.......................... 34,054 34,255 26,673
Corporate.......................................... 31,111 30,896 12,599
-------- -------- --------
$254,307 $231,141 $206,296
======== ======== ========
</Table>
F-16
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Depreciation and amortization:
Building products.................................. $ 8,901 $ 7,767 $ 6,900
Electrical cable products.......................... 1,708 1,493 1,347
Corporate.......................................... 310 290 272
-------- -------- --------
$ 10,919 $ 9,550 $ 8,519
======== ======== ========
Additions to property, plant and equipment:
Building products.................................. $ 11,652 $ 7,936 $ 16,018
Electrical cable products.......................... 3,359 3,708 2,897
Corporate.......................................... 11 281 --
-------- -------- --------
$ 15,022 $ 11,925 $ 18,915
======== ======== ========
</Table>
Identifiable assets by segment are those used in the Company's operations
in each segment. Corporate assets are principally the Company's cash and cash
equivalents and short-term investments. The Company operates principally in the
United States. Neither aggregate export sales nor sales to a single customer
have accounted for 10% or more of consolidated net sales in any of the years
presented.
15. RETIREMENT PLANS
The Company sponsors a defined benefit pension plan, The Premium Building
Products Company Hourly Employees Pension Plan ("Premium Plan"), which covers
approximately 250 participants. The Company froze the Alside defined benefit
retirement plan ("Alside Plan") effective December 31, 1998 and replaced it with
a defined contribution plan effective January 1, 1999. As a result of the plan
freeze, the Company recorded a $5,951,000 curtailment gain in 1998. Prepaid
pension and accrued pension liabilities are included in other assets and accrued
liabilities in the accompanying balance sheets.
Information regarding the Company's defined benefit plans is as follows:
<Table>
<Caption>
2001 2000
-------------------------- --------------------------
ALSIDE PLAN PREMIUM PLAN ALSIDE PLAN PREMIUM PLAN
----------- ------------ ----------- ------------
CHANGE IN PROJECTED BENEFIT
OBLIGATION
Projected benefit obligation at
beginning of year.............. $25,733,225 $1,099,907 $26,322,987 $ 990,155
Service cost..................... 209,068 37,396 221,534 41,091
Interest cost.................... 1,887,103 77,462 1,814,543 74,301
Plan amendments.................. -- 42,605 -- --
Actuarial (gain) loss............ 1,101,555 (1,618) (1,608,232) 7,202
Benefits paid.................... (1,307,134) (21,265) (1,017,607) (12,842)
----------- ---------- ----------- ----------
Projected benefit obligation at
end of year.................... $27,623,817 $1,234,487 $25,733,225 $1,099,907
=========== ========== =========== ==========
</Table>
F-17
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2000
-------------------------- --------------------------
ALSIDE PLAN PREMIUM PLAN ALSIDE PLAN PREMIUM PLAN
----------- ------------ ----------- ------------
CHANGE IN PLAN ASSETS
Fair value of assets at beginning
of year........................ $32,413,729 $ 880,459 $34,346,364 $ 918,140
Actual return on plan assets..... (2,374,681) (57,095) (915,028) (24,839)
Employer contributions........... -- 205,000 -- --
Benefits paid.................... (1,307,134) (21,265) (1,017,607) (12,842)
----------- ---------- ----------- ----------
Fair value of assets at end of
year........................... 28,731,914 1,007,099 32,413,729 880,459
Funded status.................... 1,108,097 (227,388) 6,680,504 (219,448)
Unrecognized:
Transition obligation.......... -- 14,200 -- 21,301
Prior service costs............ -- 80,488 -- 44,125
Cumulative net (gain) loss..... 875,940 42,592 (5,681,834) (102,245)
----------- ---------- ----------- ----------
Accrued pension asset
(liability)................. $ 1,984,037 $ (90,108) $ 998,670 $ (256,267)
=========== ========== =========== ==========
KEY ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................... 7.25% 7.25% 7.50% 7.50%
Long-term rate of return on
assets......................... 9.00% 9.00% 9.00% 9.00%
Salary increases................. N/A N/A N/A N/A
NET PERIODIC PENSION (BENEFIT)
COST
Service cost..................... $ 209,068 $ 37,396 $ 221,534 $ 41,091
Interest cost.................... 1,887,103 77,462 1,814,543 74,301
Expected return on assets........ (2,863,811) (84,314) (3,040,376) (82,002)
Amortization of unrecognized:
Transition obligation.......... -- 7,101 -- 7,101
Prior service costs............ -- 6,242 -- 6,242
Cumulative net gain............ (217,727) (5,046) (609,625) (10,239)
----------- ---------- ----------- ----------
Net periodic pension (benefit)
cost........................... $ (985,367) $ 38,841 $(1,613,924) $ 36,494
=========== ========== =========== ==========
</Table>
The Company sponsors two defined contribution plans (the "401(k) Plans")
intended to provide assistance in accumulating personal savings for retirement.
The 401(k) Plans are qualified as a tax-exempt plan under Sections 401(a) and
401(k) of the Internal Revenue Code. The Alside 401(k) Plan covers all
full-time, non-union employees of Alside and matches up to 4.0% of eligible
compensation. For the years ended December 31, 2001, 2000 and 1999, the
Company's pre-tax contribution to the Alside 401(k) Plan was $2.1 million, $2.0
million and $2.1 million, respectively. The AmerCable 401(k) Plan covers all
full-time employees of AmerCable and matches up to 4.0% of eligible compensation
(3.5% of eligible compensation prior to 2001). For the years ended December 31,
2001, 2000 and 1999, the Company's pre-tax contributions to the AmerCable 401(k)
Plan were $281,000, $238,000 and $215,000, respectively.
16. CONTINGENCIES
The Company entered into a consent order dated August 25, 1992 with the
United States Environmental Protection Agency pertaining to corrective action
requirements associated with the use of hazardous waste storage facilities at
its Akron, Ohio location. With the exception of a small container storage area,
the use of these facilities was terminated prior to the acquisition of the
facilities by the
F-18
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company from USX Corporation ("USX") in 1984. The Company believes that USX
bears financial responsibility for substantially all of the direct costs of
corrective action at these facilities under relevant contract terms and under
statutory and common law. The effects of the past practices of these facilities
are continuing to be investigated pursuant to the terms of the consent order and
as a result the Company is unable to reasonably estimate a reliable range of the
aggregate cost of corrective action at this time. To date, USX has reimbursed
the Company for substantially all of the direct costs of corrective action at
these facilities. The Company expects that USX will continue to reimburse the
Company for substantially all of the direct costs of corrective action at these
facilities. As a result, the Company believes that any material claims resulting
from this proceeding will not have a material adverse effect on the Company.
F-19
ASSOCIATED MATERIALS INCORPORATED
BALANCE SHEETS
<Table>
<Caption>
(UNAUDITED)
MARCH 31, DECEMBER 31,
2002 2001
----------- ------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,513 $ 28,869
Accounts receivable, net.................................. 61,658 65,784
Inventories............................................... 79,412 74,574
Income taxes receivable................................... 940 --
Other current assets...................................... 3,637 3,394
-------- --------
Total current assets........................................ 159,160 172,621
Property, plant and equipment, net.......................... 77,897 77,733
Other assets................................................ 4,112 3,953
-------- --------
Total assets................................................ $241,169 $254,307
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 33,187 $ 29,579
Accrued liabilities....................................... 20,904 35,356
Income taxes payable...................................... -- 1,498
-------- --------
Total current liabilities................................... 54,091 66,433
Deferred income taxes....................................... 4,996 5,091
Other liabilities........................................... 6,058 5,108
Long-term debt.............................................. 75,000 75,000
Commitments and contingencies Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 100,000 at March 31, 2002 and
December 31, 2001
Issued shares -- 0 at March 31, 2002 and December 31,
2001.................................................. -- --
Common stock, $.0025 par value:
Authorized shares -- 15,000,000
Issued shares -- 7,852,503 at March 31, 2002 and
7,842,003 at December 31, 2001...................... 20 19
Common stock, Class B, $.0025 par value:
Authorized and issued shares -- 0 at March 31, 2002
and December 31, 2001............................... -- --
Less: Treasury stock, at cost -- 1,078,476 shares at March
31, 2002 and December 31, 2001......................... (14,476) (14,476)
Capital in excess of par.................................. 17,330 17,124
Retained earnings......................................... 98,150 100,008
-------- --------
Total stockholders' equity.................................. 101,024 102,675
-------- --------
Total liabilities and stockholders' equity.................. $241,169 $254,307
======== ========
</Table>
See accompanying notes.
F-20
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
QUARTER ENDED MARCH 31,
-------------------------
2002 2001
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net sales................................................... $123,198 $108,611
Cost of sales............................................... 90,778 81,414
-------- --------
Gross margin................................................ 32,420 27,197
Selling, general and administrative expense................. 31,219 28,127
-------- --------
Income (loss) from operations............................... 1,201 (930)
Interest expense............................................ 1,669 1,579
-------- --------
Loss before other non-operating expenses and income taxes... (468) (2,509)
Merger transaction costs.................................... (2,002) --
Loss on the writedown of Amercord Inc....................... -- (2,393)
-------- --------
Loss before income taxes.................................... (2,470) (4,902)
Income tax benefit.......................................... (951) (1,887)
-------- --------
Net loss.................................................... $ (1,519) $ (3,015)
======== ========
Net loss per common share -- Basic and fully diluted........ $ (0.22) $ (0.39)
======== ========
Dividends per common share.................................. $ 0.05 $ 0.10
======== ========
</Table>
See accompanying notes.
F-21
ASSOCIATED MATERIALS INCORPORATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
QUARTER ENDED
MARCH 31,
-----------------
2002 2001
------- -------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net loss.................................................... $(1,519) $(3,015)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 2,979 2,661
Deferred income taxes.................................. (95) (189)
Loss on the writedown of Amercord Inc.................. -- 2,393
Loss on sale of assets................................. 36 50
Tax benefit from stock option exercise................. 113 --
Changes in operating assets and liabilities:
Accounts receivable, net............................. 4,126 (5,366)
Inventories.......................................... (4,838) (2,717)
Income taxes receivable/payable...................... (2,438) (1,698)
Accounts payable and accrued liabilities............. (10,844) (2,229)
Other assets and liabilities......................... 479 (17)
------- -------
Net cash used by operating activities....................... (12,001) (10,127)
INVESTING ACTIVITIES
Proceeds from sale of short-term investment................. -- 5,019
Proceeds from sale of assets................................ 8 20
Additions to property, plant and equipment.................. (3,118) (6,765)
------- -------
Net cash used by investing activities....................... (3,110) (1,726)
FINANCING ACTIVITIES
Dividends paid.............................................. (339) (765)
Treasury stock acquired..................................... -- (1,803)
Proceeds from exercise of stock options..................... 94 588
------- -------
Net cash used by financing activities....................... (245) (1,980)
------- -------
Net decrease in cash........................................ (15,356) (13,833)
Cash at beginning of period................................. 28,869 15,879
------- -------
Cash at end of period....................................... $13,513 $ 2,046
======= =======
Supplemental information:
Cash paid for interest...................................... $ 3,493 $ 3,502
======= =======
Net cash paid for income taxes.............................. $ 2,254 $ 257
======= =======
</Table>
See accompanying notes.
F-22
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited financial statements of Associated Materials Incorporated
(the "Company") for the quarter ended March 31, 2002 have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001 filed with the Securities and
Exchange Commission. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation of
the interim financial information have been included. The results of operations
for any interim period are not necessarily indicative of the results of
operations for a full year.
The Company's Alside division manufactures and distributes building
products. Because most of Alside's building products are intended for exterior
use, Alside's sales and operating profits tend to be lower during periods of
inclement weather. Weather conditions in the first quarter of each calendar year
historically result in that quarter producing significantly less sales revenue
and profits than in any other period of the year.
2. MERGER TRANSACTION
On March 16, 2002, the Company entered into a merger agreement (the "Merger
Agreement") with Associated Materials Holdings Inc. ("Holdings") and its wholly
owned subsidiary, Simon Acquisition Corp. The Merger Agreement provided for the
acquisition of all shares of the Company's common stock through a cash tender
offer for $50.00 per share. The Merger Agreement also required that the Company
commence a tender offer to purchase all of its outstanding 9 1/4% Senior
Subordinated Notes due March 1, 2008.
On April 19, 2002, the cash tender offers for the Company's common stock
and 9 1/4% Senior Subordinated Notes were completed. Approximately 95.9% of the
outstanding shares of common stock were validly tendered and approximately 98.7%
of the outstanding 9 1/4% notes were validly tendered. The Company also executed
a supplemental indenture removing substantially all of the restrictive covenants
in the indenture governing such notes. The Company is obligated to make a change
of control offer for the approximately $1 million of remaining 9 1/4% notes at a
price of 101% of the principal amount thereof, plus accrued and unpaid interest.
Subsequent to the completion of the tender offers, Simon Acquisition Corp.
was merged with and into the Company, with the Company continuing as the
surviving corporation and a privately held, wholly owned subsidiary of Holdings
(which is controlled by affiliates of Harvest Partners, Inc.). Following the
completion of the merger, the Company's shares were delisted from NASDAQ.
The merger has been accounted for using the purchase method of accounting.
The total purchase consideration of $378.1 million has been allocated to
tangible and intangible assets acquired and liabilities assumed based on
respective fair values at the date of acquisition based on preliminary valuation
estimates and certain assumptions. The preliminary allocation of purchase price
has resulted in $286.2 million in goodwill and other intangibles, including $8.6
million of preliminary purchase price allocated to patents with estimated useful
lives of 10 years and $86.5 million assigned to trademarks with indefinite
lives. The allocation of purchase price is being finalized by management and is
not reflected in the March 31, 2002 financial statements. The merger was
financed through the issuance of $165 million of 9 3/4% senior
F-23
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
subordinated notes due 2012, a $125 million new credit facility (see Note 5), a
$172 million equity contribution by Associated Materials Holdings Inc. (which
received an equity contribution of approximately $172 million consisting of cash
from the equity investors of $164.8 million and rollover equity by certain
members of management of $7.2 million) and cash on hand of approximately $2.5
million.
In connection with the merger, the Company incurred merger related costs,
including legal, accounting and investment banking fees. These costs are
required to be expensed in accordance with generally accepted accounting
principles. These costs have been classified in merger transaction costs in the
accompanying statement of operations.
3. INVENTORIES
Inventories are valued at the lower of cost (first in, first out) or
market. Inventories consist of the following (in thousands):
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2002 2001
--------- ------------
Raw materials............................................... $23,263 $21,102
Work-in-process............................................. 5,421 4,597
Finished goods and purchased stock.......................... 50,728 48,875
------- -------
$79,412 $74,574
======= =======
</Table>
4. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<Table>
<Caption>
QUARTER ENDED
MARCH 31,
-----------------
2002 2001
------- -------
Numerator:
Numerator for basic and diluted earnings per common
share -- net loss...................................... $(1,519) $(3,015)
Denominator:
Denominator for basic and diluted earnings per common
share -- weighted-average shares....................... 6,770 7,677
Basic and diluted loss per common share..................... $ (0.22) $ (0.39)
======= =======
</Table>
In accordance with Statement of Financial Accounting Standard No. 128,
approximately 436,000 and 268,000 potential common shares were excluded from the
calculation of weighted average shares outstanding for the quarter ended March
31, 2002 and 2001, respectively. Due to the losses incurred during the quarters
ended March 31, 2002 and 2001, inclusion of these shares would have been
antidilutive.
5. SUBSEQUENT EVENTS
On April 19 and April 24, 2002, the Company filed a Form 15 with the SEC
suspending its obligations to file reports under Sections 12(g) and 15(d) of the
Securities Exchange Act of 1934.
On April 19, 2002, the Company relocated its principal executive offices to
3773 State Rd., Cuyahoga Falls, Ohio.
F-24
ASSOCIATED MATERIALS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On June 24, 2002, the Company completed the sale of its AmerCable division
to AmerCable Incorporated, a newly formed entity controlled by members of
AmerCable management and Wingate Partners III, L.P., for net proceeds of
approximately $28.3 million of cash and the assumption of certain liabilities
pursuant to an asset purchase agreement dated as of the same date. The Company
used the net cash proceeds to repay a portion of the new credit facility in
accordance with certain terms thereof.
F-25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ASSOCIATED LOGO)
ASSOCIATED MATERIALS INCORPORATED
OFFER TO EXCHANGE
ALL OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2012
FOR
REGISTERED 9 3/4% SENIOR SUBORDINATED NOTES DUE 2012
------------------------
PROSPECTUS
------------------------
, 2002
We have not authorized any dealer, salesperson, or other person to give any
information or represent anything not contained in this prospectus or the
accompanying letter of transmittal. You must not rely on any unauthorized
information. This prospectus and the accompanying letter of transmittal do not
offer to sell or ask you to buy any securities in any jurisdiction where it is
unlawful. The information contained in this prospectus is current as of
, 2002.
Until , 200 , all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(i) for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the DGCL (providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions), or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Amended and Restated Certificate of Incorporation contains the
provisions permitted by Section 102(b)(7) of the DGCL.
Reference is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including directors and officers, who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such director,
officer, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interest and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
that his conduct was unlawful. A Delaware corporation may indemnify directors
and/or officers in an action or suit by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the director or officer is adjudged to be liable to the
corporation. Where a director or officer is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him or her against the expenses which such director or officer
actually and reasonably incurred.
The above provisions of the DGCL are nonexclusive.
The Registrant's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and the Amended and Restated By-laws (the
"By-laws") provides that each person who is or was a director or officer of the
Registrant, or each such person who is or was serving at the request of the
Board of Directors or an officer of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including the heirs, executors, administrators or estate of
such person), shall be indemnified by the Registrant to the full extent
permitted from time to time by the DGCL as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Registrant to provide broader indemnification rights than
said law permitted the Registrant to provide prior to such amendment) or any
other applicable laws as presently or hereafter in effect. The indemnification
provided for under Article IV of the By-laws shall not be deemed exclusive of
any other rights to which any person seeking indemnification may be entitled,
under the Certificate of Incorporation or under any other bylaw, agreement,
insurance policy, vote of stockholders or disinterested directors, applicable
law or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
The Registrant's Certificate of Incorporation provides that to the full
extent permitted by the DGCL or any other applicable laws presently or hereafter
in effect, no director of the Registrant shall be personally liable to the
Registrant or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a director of the Registrant.
II-1
The Registrant provides insurance for each director and officer for certain
losses arising from claims or charges made against them while acting in their
capacities as directors or officers of the Registrant. Article IV, Section 6 of
the By-laws provides that, by action of the Board of Directors, notwithstanding
any interest of the directors in the action, the Registrant shall have the power
to purchase and maintain insurance, in such amounts as the Board of Directors
deems appropriate, on behalf of any person who is or was a director or officer
of the Registrant, or is or was serving at the request of the Registrant as
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, association or other enterprise, against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not he is indemnified against such liability or
expense under the provisions of Article IV of the Bylaws and whether or not the
Registrant would have the power or would be required to indemnify him against
such liability under the provisions of Article IV of the Bylaws or of the DGCL
or by any other applicable law.
ITEM 21. EXHIBIT AND FINANCIAL STATEMENTS INDEX
(a) Exhibits:
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of March 16, 2002, by
and among Associated Materials Holdings Inc. (formerly known
as Harvest/AMI Holdings Inc.), Simon Acquisition Corp. and
the Registrant (incorporated by reference to Exhibit
99(d)(1) of Schedule TO filed by Associated Materials
Holdings, Inc. and certain affiliates, File No. 005-53705,
filed on March 22, 2002).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Registration Rights Agreement, dated as of April 23, 2002,
by and among the Registrant, AMI Management Company, Credit
Suisse First Boston Corporation, UBS Warburg LLC and CIBC
World Markets Corp.
4.2 Indenture governing the Registrant's 9 3/4% Senior
Subordinated Notes Due 2012, dated as of April 23, 2002, by
and among the Registrant, AMI Management Company and
Wilmington Trust Company.
4.3 Supplemental Indenture governing the Registrant's 9 3/4%
Senior Subordinated Notes Due 2012, dated as of May 10, 2002
by and among the Registrant, AMI Management Company, Alside,
Inc. and Wilmington Trust Company.
4.4 Form of the Registrant's 9 3/4% Senior Subordinated Note due
2012.
4.5 Form of Indenture governing the Registrant's 9 1/4% Senior
Subordinated Notes due 2008, between the Company and The
Bank of New York Trust Company of Florida, N.A. (as
successor to U.S. Trust Company of Texas, N.A.)
(incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1/A, File No.
3333-42067, filed on January 30, 1998).
4.6 First Supplemental Indenture governing the Registrant's
9 1/4% Senior Subordinated Notes due 2008, dated as of April
4, 2002, by and among the Registrant and The Bank of New
York Trust Company of Florida, N.A (as successor to U.S.
Trust Company of Texas, N.A.).
4.7 Form of 9 1/4% Senior Subordinated Note due 2008
(incorporated by reference to Exhibit A of Exhibit 4.1 of
the Registrant's Registration Statement on Form S-1/A, File
No. 333-42067, filed on January 30, 1998).
5.1* Legal Opinion of White & Case LLP as to the legality of the
securities being issued.
10.1 Credit Agreement, dated as of April 19, 2002, by and among
the Registrant, Associated Materials Holdings Inc., the
various financial institutions and other Persons from time
to time parties thereto, UBS AG, Stamford Branch, as
administrative agent, Credit Suisse First Boston, Cayman
Islands Branch, as syndication agent, CIBC World Markets
Corp., as documentation agent, and UBS Warburg LLC and
Credit Suisse First Boston Corporation, as joint lead
arrangers (the "Credit Agreement").
</Table>
II-2
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.2 Borrower Security and Pledge Agreement of the Registrant,
dated as of April 19, 2002, by the Company, in favor of UBS
AG, Stamford Branch, as administrative agent.
10.3 Form of Subsidiary Security and Pledge Agreement, by each
subsidiary of the Registrant from time to time party thereto
in favor of UBS AG, Stamford Branch, as administrative
agent, on behalf of the Secured Parties (as defined in the
Credit Agreement).
10.4 Form of Subsidiary Guaranty, by each subsidiary of the
Registrant from time to time party thereto in favor of UBS
AG, Stamford Branch, as administrative agent, on behalf of
the Secured Parties (as defined in the Credit Agreement).
10.5 Assumption Agreement, dated as of April 19, 2002, by and
among the Registrant and AMI Management Company, as
guarantors.
10.6 Agreement of Sale, dated as of January 30, 1984, between USX
Corporation (formerly United States Steel Corporation)
("USX") and the Registrant (incorporated by reference to Ex-
hibit 10.1 of the Registrant's Registration Statement on
Form S-1, File No. 33-64788).
10.7 Amendment Agreement, dated as of February 29, 1984, between
USX and the Registrant (incorporated by reference to Exhibit
10.2 of the Registrant's Registration Statement on Form S-1,
File No. 33-64788).
10.8 Form of Indemnification Agreement between the Registrant and
each of the directors and executive officers of the
Registrant (incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1, File
No. 33-84110).
10.9 Incentive Bonus Plan of the Registrant (incorporated by
reference to Exhibit 10.10 of the Registrant's Annual Report
on Form 10-K filed for December 31, 2000).
10.10 Severance Agreement, dated December 27, 2001, between the
Registrant and Robert F. Hogan, Jr. (incorporated by
reference to Exhibit 10.13 of the Registrant's Annual Report
on Form 10-K filed for December 31, 2001).
10.11 Management Agreement, dated as of April 19, 2002, by and
between Harvest Partners, Inc. and the Registrant.
10.12 Asset Purchase Agreement, dated as of June 24, 2002, between
the Registrant and AmerCable Incorporated.
10.13 Associated Materials Holdings Inc. 2002 Stock Option Plan.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of White & Case LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page to
Registration Statement).
25.1* Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this Form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
II-3
(b) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(c) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Cuyahoga Falls, State of Ohio on July 3, 2002.
ASSOCIATED MATERIALS INCORPORATED
By: /s/ D. KEITH LAVANWAY
------------------------------------
Name: D. Keith LaVanway
Title: Vice President, Chief
Financial Officer,
Treasurer and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael J. Caporale, Jr. and D. Keith LaVanway,
and each of them severally, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments,
supplements, subsequent registration statements relating to the offering to
which this Registration Statement relates, or other instruments he deems
necessary or appropriate, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons, in the
capacities and on the dates indicated.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ IRA D. KLEINMAN Chairman of the Board July 3, 2002
------------------------------------------------
Ira D. Kleinman
/s/ MICHAEL J. CAPORALE, JR. President, Chief Executive July 3, 2002
------------------------------------------------ Officer and Director
Michael J. Caporale, Jr. (Principal Executive Officer)
/s/ D. KEITH LAVANWAY Vice President, Chief Financial July 3, 2002
------------------------------------------------ Officer, Treasurer and
D. Keith LaVanway Secretary
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ THOMAS ARENZ Director July 3, 2002
------------------------------------------------
Thomas Arenz
/s/ JONATHAN ANGRIST Director July 3, 2002
------------------------------------------------
Jonathan Angrist
</Table>
II-5
EXHIBITS INDEX
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated as of March 16, 2002, by
and among Associated Materials Holdings Inc. (formerly known
as Harvest/AMI Holdings Inc.), Simon Acquisition Corp. and
the Registrant (incorporated by reference to Exhibit
99(d)(1) of Schedule TO filed by Associated Materials
Holdings, Inc. and certain affiliates, File No. 005-53705,
filed on March 22, 2002).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Amended and Restated By-Laws of the Registrant.
4.1 Registration Rights Agreement, dated as of April 23, 2002,
by and among the Registrant, AMI Management Company, Credit
Suisse First Boston Corporation, UBS Warburg LLC and CIBC
World Markets Corp.
4.2 Indenture governing the Registrant's 9 3/4% Senior
Subordinated Notes Due 2012, dated as of April 23, 2002, by
and among the Registrant, AMI Management Company and
Wilmington Trust Company.
4.3 Supplemental Indenture governing the Registrant's 9 3/4%
Senior Subordinated Notes Due 2012, dated as of May 10, 2002
by and among the Registrant, AMI Management Company, Alside,
Inc. and Wilmington Trust Company.
4.4 Form of the Registrant's 9 3/4% Senior Subordinated Note due
2012.
4.5 Form of Indenture governing the Registrant's 9 1/4% Senior
Subordinated Notes due 2008, between the Company and The
Bank of New York Trust Company of Florida, N.A. (as
successor to U.S. Trust Company of Texas, N.A.)
(incorporated by reference to Exhibit 4.1 of the
Registrant's Registration Statement on Form S-1/A, File No.
3333-42067, filed on January 30, 1998).
4.6 First Supplemental Indenture governing the Registrant's
9 1/4% Senior Subordinated Notes due 2008, dated as of April
4, 2002, by and among the Registrant and The Bank of New
York Trust Company of Florida, N.A (as successor to U.S.
Trust Company of Texas, N.A.).
4.7 Form of 9 1/4% Senior Subordinated Note due 2008
(incorporated by reference to Exhibit A of Exhibit 4.1 of
the Registrant's Registration Statement on Form S-1/A, File
No. 333-42067, filed on January 30, 1998).
5.1* Legal Opinion of White & Case LLP as to the legality of the
securities being issued.
10.1 Credit Agreement, dated as of April 19, 2002, by and among
the Registrant, Associated Materials Holdings Inc., the
various financial institutions and other Persons from time
to time parties thereto, UBS AG, Stamford Branch, as
administrative agent, Credit Suisse First Boston, Cayman
Islands Branch, as syndication agent, CIBC World Markets
Corp.,
as documentation agent, and UBS Warburg LLC and Credit
Suisse First Boston Corporation, as joint lead arrangers
(the "Credit Agreement").
10.2 Borrower Security and Pledge Agreement of the Registrant,
dated as of April 19, 2002, by the Company, in favor of UBS
AG, Stamford Branch, as administrative agent.
10.3 Form of Subsidiary Security and Pledge Agreement, by each
subsidiary of the Registrant from time to time party thereto
in favor of UBS AG, Stamford Branch, as administrative
agent, on behalf of the Secured Parties (as defined in the
Credit Agreement).
10.4 Form of Subsidiary Guaranty, by each subsidiary of the
Registrant from time to time party thereto in favor of UBS
AG, Stamford Branch, as administrative agent, on behalf of
the Secured Parties (as defined in the Credit Agreement).
10.5 Assumption Agreement, dated as of April 19, 2002, by and
among the Registrant and AMI Management Company, as
guarantors.
10.6 Agreement of Sale, dated as of January 30, 1984, between USX
Corporation (formerly United States Steel Corporation)
("USX") and the Registrant (incorporated by reference to Ex-
hibit 10.1of the Registrant's Registration Statement on Form
S-1, File No. 33-64788).
10.7 Amendment Agreement, dated as of February 29, 1984, between
USX and the Registrant (incorporated by reference to Exhibit
10.2 of the Registrant's Registration Statement on Form S-1,
File No. 33-64788).
</Table>
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.8 Form of Indemnification Agreement between the Registrant and
each of the directors and executive officers of the
Registrant (incorporated by reference to Exhibit 10.14 to
the Registrant's Registration Statement on Form S-1, File
No. 33-84110).
10.9 Incentive Bonus Plan of the Registrant (incorporated by
reference to Exhibit 10.10 of the Registrant's Annual Report
on Form 10-K filed for December 31, 2000).
10.10 Severance Agreement, dated December 27, 2001, between the
Registrant and Robert F. Hogan, Jr. (incorporated by
reference to Exhibit 10.13 of the Registrant's Annual Report
on Form 10-K filed for December 31, 2001).
10.11 Management Agreement, dated as of April 19, 2002, by and
between Harvest Partners, Inc. and the Registrant.
10.12 Asset Purchase Agreement, dated as of June 24, 2002, between
the Registrant and AmerCable Incorporated.
10.13 Associated Materials Holdings Inc. 2002 Stock Option Plan.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of White & Case LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page to
Registration Statement).
25.1* Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</Table>
- ---------------
* To be filed by amendment.