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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN BANKNOTE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 2799 13-0460520
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
AMERICAN BANK NOTE COMPANY NEW YORK 13-2735924
ABN SECURITIES SYSTEMS, INC. NEW YORK 13-2791166
HORSHAM HOLDING COMPANY, INC. PENNSYLVANIA 23-2204722
AMERICAN BANK NOTE HOLOGRAPHICS, INC. DELAWARE 13-3317668
AMERICAN BANKNOTE CARD SERVICES, INC. DELAWARE 13-3690286
AMERICAN BANKNOTE MERCHANT SERVICES, INC. DELAWARE 13-3962422
ABN INVESTMENTS, INC. DELAWARE 13-3753757
ABN EQUITIES INC. DELAWARE 13-3753756
AMERICAN BANKNOTE AUSTRALASIA HOLDINGS, INC. DELAWARE 13-3893332
ABN GOVERNMENT SERVICES, INC. DELAWARE 13-3869963
USBC CAPITAL CORP. DELAWARE 13-3778099
ABN CBA, INC. DELAWARE 13-3979794
(Exact Name of Registrant (State or Other Jurisdiction of (I.R.S. Employer
as Specified in its Charter) Incorporation or Organization) Identification No.)
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200 PARK AVENUE
NEW YORK, NY 10166
(212) 557-9100
(Address, including zip code, and telephone number, including area code of
Registrants' principal executive offices)
JOHN T. GORMAN
EXECUTIVE VICE PRESIDENT
AMERICAN BANKNOTE CORPORATION
200 PARK AVENUE
NEW YORK, NY 10166
(212) 557-9100
(Name, address, including zip code, and telephone number, including area code
of agent for service)
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Copies to:
HARVEY J. KESNER, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL DENNIS J. BLOCK, ESQ.
AMERICAN BANKNOTE CORPORATION WEIL, GOTSHAL & MANGES LLP
200 PARK AVENUE 767 FIFTH AVENUE
NEW YORK, NY 10166 NEW YORK, NY 10153-0119
(212) 557-9100 (212) 310-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE (1) REGISTRATION FEE
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11 1/4% Senior Subordinated Notes due
2007, Series B....................... $95,000,000 $1,000 $95,000,000 $28,025
Guarantees of 11 1/4% Senior
Subordinated Notes due 2007, Series
B.................................... $95,000,000 (2) (2) None
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f).
(2) No further fee is payable pursuant to Rule 457(n).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF PART I OF FORM S-4
REGISTRATION STATEMENT ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
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1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Page of
Prospectus........................................ Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................. Prospectus Summary; Selected Consolidated
Financial Data; Unaudited Pro Forma
Financial Information
4. Terms of the Transaction............................ Outside Front Cover Page; Summary;
Description of the Exchange Notes; The
Exchange Offer; Certain U.S. Federal
Income Tax Considerations
5. Pro Forma Financial Information..................... Unaudited Pro Forma Financial Information
6. Material Contracts with the Company Being Acquired.. Inapplicable
7. Additional Information Required..................... Inapplicable
8. Interests of Named Experts and Counsel.............. Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Inapplicable
10. Information with Respect to S-3 Registrants......... Outside Front Cover Page; Summary; Risk
Factors; The Refinancing; Use of
Proceeds; Capitalization; Selected
Consolidated Financial Data; Unaudited
Pro Forma Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Relationships and Related Transactions;
Security Ownership; Description of
Certain Indebtedness
11. Incorporation of Certain Information by Reference... Incorporation of Certain Documents by
Reference
12. Information with Respect to S-3 or S-2
Registrants....................................... Inapplicable
13. Incorporation of Certain Information by Reference... Inapplicable
14. Information with Respect to Registrants other than
S-3 or S-2 Registrants............................ Inapplicable
15. Information with Respect to S-3 Companies........... Inapplicable
16. Information with Respect to S-3 or S-2 Companies.... Inapplicable
17. Information with Respect to Companies Other than S-3
or S-2 Companies.................................. Inapplicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited............................... Inapplicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer... Management; Security Ownership; Certain
Relationships and Related Transactions
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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 JANUARY 12, 1998
PROSPECTUS
AMERICAN BANKNOTE CORPORATION
OFFER TO EXCHANGE ITS 11 1/4% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B, FOR ANY AND ALL OF ITS OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES A
[AMERICAN BANK NOTE LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
American Banknote Corporation, a Delaware corporation (the "Company") hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 11 1/4%
Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 11 1/4% Senior Subordinated Notes due 2007
(the "Old Notes"), of which $95,000,000 principal amount is outstanding. The Old
Notes were originally issued as part of units (the "Units") consisting of
$95,000,000 aggregate principal amount of Old Notes and 95,000 warrants (the
"Warrants") to purchase an aggregate of 1,185,790 shares of Common Stock, par
value $0.01 per share (the "Common Stock"), of the Company. The form and terms
of the Exchange Notes are the same as the form and terms of the Old Notes except
that (i) the Exchange Notes will bear a Series B designation, (ii) the Exchange
Notes will have been registered under the Securities Act and, therefore, will
not bear legends restricting the transfer thereof and (iii) holders of the
Exchange Notes will not be entitled to certain rights of holders of Old Notes
under the Registration Rights Agreement (as defined). The Old Notes and the
Exchange Notes are referred to herein collectively as the "Notes." The Exchange
Notes will evidence the same debt as the Old Notes (which they replace) and will
be issued under and be entitled to the benefits of the Indenture dated as of
December 12, 1997 (the "Indenture") by and among the Company, the Guarantors (as
defined) and The Bank of New York, as trustee, governing the Notes. See "The
Exchange Offer" and "Description of the Notes."
The Company will accept for exchange any and all Old Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date"). Tenders
of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration
Date. The Exchange Offer is subject to certain customary conditions. See "The
Exchange Offer."
The Old Notes were sold by the Company on December 12, 1997 to Chase Securities
Inc., Bear, Stearns & Co. Inc., NationsBanc Montgomery Securities, Inc. and
Societe Generale Securities Corporation (the "Initial Purchasers") in a
transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act (the "Initial Offering"). The Initial
Purchasers subsequently placed the Old Notes with qualified institutional buyers
in reliance on Rule 144A under the Securities Act and in offshore transactions
to Non-U.S. persons in reliance on Regulation S under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company and the Guarantors under the Registration Rights
Agreement entered into by the Company, the Guarantors and the Initial Purchaser
in connection with the Initial Offering (the "Registration Rights Agreement").
See "The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and will
be payable semi-annually in arrears on June 1 and December 1 of each year,
commencing June 1, 1998, at the rate of 11 1/4% per annum. The Notes will be
redeemable, in whole or in part, at the option of the Company on or after June
1, 2002, at the redemption prices set forth herein plus accrued and unpaid
interest to the date of redemption. In addition, at any time and from time to
time prior to December 1, 2000, the Company may, at its option, redeem up to 35%
of the aggregate principal amount of the Notes with the net cash proceeds of one
or more Public Equity Offerings (as defined) by the Company, at a redemption
price equal to 111.25% of the principal amount thereof plus accrued and unpaid
interest to the date of redemption; provided, however, that after giving effect
to any such redemption, at least 65% of the aggregate principal amount of the
Notes originally issued remains outstanding. Upon a Change in Control (as
defined), the Company will be required to make an offer to repurchase the Notes
at a price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of repurchase. In addition, the Company will be obligated
to offer to repurchase the Notes at 100% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase in the event of certain
Asset Sales (as defined). See "Description of the Notes."
The Notes will be general unsecured senior subordinated obligations of the
Company and will be subordinated in right of payment to all existing and future
Senior Indebtedness (as defined) of the Company. The Notes will rank pari passu
in right of payment with any future senior subordinated Indebtedness (as
defined) of the Company and will rank senior to all other Subordinated
Indebtedness (as defined) of the Company. The Notes will be guaranteed (the
"Guarantees"), jointly and severally, on a senior subordinated basis by all of
the Company's direct and indirect domestic operating Subsidiaries (as defined)
on the issue day of the Notes (the "Issue Date"), and by each direct and
indirect domestic operating Subsidiary of the Company (excluding Unrestricted
Subsidiaries (as defined)) formed or acquired thereafter (the "Guarantors"). As
of the Issue Date, the Guarantors under the Indenture were American Bank Note
Company, ABN Securities Systems, Inc., Horsham Holding Company, Inc., American
Bank Note Holographics, Inc., American Banknote Card Services, Inc., American
Banknote Merchant Services, Inc., ABN Investments, Inc., ABN Equities Inc.,
American Banknote Australasia Holdings, Inc., ABN Government Services, Inc.,
USBC Capital Corp. and ABN CBA, Inc. The Guarantees will be general unsecured
senior subordinated obligations of the Guarantors and will be subordinated in
right of payment to all existing and future Guarantor Senior Indebtedness (as
defined). The Guarantees will rank pari passu with any and all future senior
subordinated Indebtedness of the Guarantors and will rank senior to all other
subordinated Indebtedness of the Guarantors. As of September 30, 1997, after
giving pro forma effect to the Refinancing (as defined), including the issuance
of the Old Notes and the application of the net proceeds therefrom, the
aggregate principal amount of the Company's outstanding Senior Indebtedness
would have been approximately $222.5 million (excluding unused commitments),
including $80.9 million of Indebtedness of the Company's subsidiaries which
would have been effectively senior to the Notes, and the Company would have had
no senior subordinated Indebtedness outstanding other than the Notes. See
"Description of the Notes -- Ranking," "-- Subordination of the Notes" and
"-- Guarantees of the Notes."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
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(cover page continued)
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer -- Resale of the Exchange
Notes." Holders of Old Notes wishing to accept the Exchange Offer must represent
to the Company, as required by the Registration Rights Agreement, that such
conditions have been met. Each broker-dealer (a "Participating Broker-Dealer")
that receives Exchange Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver prospectus in connection with any resale
of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating 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 Participating Broker-Dealer in connection with resales
of Exchange Notes received in exchange for Old Notes where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer. Holders of Old Notes not
tendered and accepted in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture and with respect to transfer
under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors -- Absence of a Public Market
Could Adversely Affect the Value of Exchange Notes." Moreover, to the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected.
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(cover page continued)
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE GUARANTORS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE
ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN
THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTE
REPRESENTING THE EXCHANGE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE
EFFECTED THROUGH, RECORDS MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE
INITIAL ISSUANCE OF THE GLOBAL NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED
IN EXCHANGE FOR THE GLOBAL NOTE ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN
THE INDENTURE. SEE "BOOK-ENTRY; DELIVERY AND FORM."
PROSPECTIVE INVESTORS IN THE EXCHANGE NOTES ARE NOT TO CONSTRUE THE
CONTENTS OF THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR
SHOULD CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE EXCHANGE NOTES. NEITHER THE
COMPANY NOR ANY OF THE GUARANTORS IS MAKING ANY REPRESENTATION TO ANY
PROSPECTIVE INVESTOR IN THE EXCHANGE NOTES REGARDING THE LEGALITY OF AN
INVESTMENT THEREIN BY SUCH PERSON UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR
LAWS.
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(cover page continued)
FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS HEREIN UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO
FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS"
AND IN CERTAIN DOCUMENTS INCORPORATED BY REFERENCE HEREIN CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE UNKNOWN
AND UNCERTAIN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: (1) GENERAL ECONOMIC, POLITICAL, MARKET AND
BUSINESS CONDITIONS, WHICH MAY, AMONG OTHER THINGS, AFFECT DEMAND FOR THE
COMPANY'S PRODUCTS; (2) INFLATION AND CURRENCY EXCHANGE RATES IN THOSE FOREIGN
COUNTRIES IN WHICH THE COMPANY OPERATES (INCLUDING BRAZIL AND AUSTRALIA/NEW
ZEALAND WHICH ACCOUNTED FOR APPROXIMATELY 53% AND 16% OF SALES AND 63% AND 16%
OF HISTORICAL OPERATING EARNINGS, RESPECTIVELY, IN 1996 BEFORE ALLOCATION OF
CORPORATE OVERHEAD); (3) NEW PRODUCT DEVELOPMENT AND TECHNOLOGICAL ADVANCES
WHICH MAY, AMONG OTHER THINGS, COMPETE WITH OR REDUCE THE NEED FOR THE COMPANY'S
PRODUCTS; (4) COMPETITION; (5) THE LOSS OF ANY OF THE COMPANY'S SIGNIFICANT
CUSTOMERS; AND (6) THE ABILITY TO INTEGRATE ACQUISITIONS SUCCESSFULLY. THESE AND
OTHER FACTORS AFFECTING THE COMPANY'S BUSINESS ARE AS DESCRIBED IN THIS OFFERING
MEMORANDUM, ESPECIALLY UNDER "RISK FACTORS" BELOW, AND IN THE COMPANY'S FILINGS
WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF
1934. GIVEN THESE UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the Commission"). The reports,
proxy statements and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60601-2511. Copies of such material also can be
obtained from the Public Reference Section of the Commission, Washington, D.C.
20549 at prescribed rates. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov. In addition, material filed by the Company can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005
on which the Company's Common Stock is listed.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto.
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-3410) pursuant to the Exchange Act are incorporated herein by reference and
shall be deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, as amended on Form 10-K/A filed April 30, 1997;
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997; and
(5) The Company's Current Reports on Form 8-K/A filed January 24, 1997
and on Form 8-K filed September 25, 1997, October 9, 1997, October 24,
1997, October 29, 1997, November 4, 1997, November 7, 1997, November 10,
1997, November 17, 1997, November 24, 1997, November 25, 1997, December 2,
1997, December 9, 1997, December 10, 1997, December 12, 1997 and January 9,
1998.
All documents and reports filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Exchange Offer shall be deemed
incorporated herein by reference and shall be deemed to be a part hereof from
the date of filing of such documents and reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequent filed document or
report that also is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written request of such person, a copy of
any or all of the documents which are incorporated by reference herein other
than exhibits to such documents which are not specifically incorporated by
reference herein. Requests should be directed to the Company at 200 Park Avenue,
New York, New York 10166 (telephone number (212) 557-9100), Attention:
Director -- Investor Relations.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Offering Memorandum. Unless the context otherwise requires,
all references herein to the "Company" include American Banknote Corporation,
its subsidiaries and predecessors. The Company's principal subsidiaries are: in
the United States, American Bank Note Company ("ABN") and American Bank Note
Holographics, Inc. ("ABNH"); in Brazil, American Bank Note Company Graphica e
Servicos Ltda. ("ABNB"), which is 77.5% owned by the Company; in Australia and
New Zealand, ABN Australasia Limited, operating as Leigh-Mardon ("LM"); and in
Europe, Sati S.A., Satel S.A. and Cidel S.A. (collectively, the "Sati Group").
Unless otherwise stated, references to "dollars" and "$" are to United States
dollars. The results of the foreign operations included in the Company's
financial statements have been translated into dollars at specified rates at the
dates of such financial statements as required by Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation."
THE COMPANY
OVERVIEW
The Company is a leading global provider of secure transaction solutions,
documents and systems. The Company designs solutions and manufactures products
that incorporate anti-fraud and counterfeit resistant technologies, including
stored-value telephone, magnetic-stripe, memory and microprocessor-based
("smart-cards") transaction cards, holograms, currencies, travelers' and other
checks, stock and bond certificates and a wide variety of electronically or
digitally produced personalized documents. The Company sells these products and
services worldwide to financial institutions, governments and corporations
through its operations in the United States, Brazil, Australia, New Zealand and
France. Through selective acquisitions and strategic realignment, the Company
has positioned itself as a full service provider of technology-based solutions
for its customers' secure transaction needs. The Company's products and services
are divided into three principal groups: Transaction Cards & Systems, Printing
Services & Document Management and Security Printing Solutions. For the twelve
months ended September 30, 1997, the Company's pro forma sales and EBITDA (as
defined) were $357.7 million and $67.4 million, respectively.
The Company is capitalizing on the following trends: (i) the increasing
demand for secure transactions and documents as technological advances have
elevated concerns about counterfeiting; (ii) the increasing demand for secure
products, services and systems used in the rapidly expanding field of electronic
commerce; and (iii) the increasing outsourcing by financial institutions,
governments and major corporations of their secure document needs. The Company's
200-year heritage and its reputation for security, high quality and
accountability have enabled it to obtain additional contracts in its markets and
effectively market an expanded array of value-added products and services to its
customers. The Company continually works with customers to develop new products
and applications, blending its experience and traditional base of secure
handling and distribution expertise with its advanced technologies. Management
believes its reputation and its ability to provide a diverse mix of products and
services will allow it to obtain contracts with new customers and expand into
new geographic markets.
In 1993, the Company began positioning itself to capitalize on
international growth opportunities and began diversifying its product mix to
include technology-based products, services and solutions. The Company's
international expansion began with the acquisition of its Brazilian subsidiary,
the largest private-sector security printer and manufacturer of transaction
cards in Latin America and a leading stored-value telephone card manufacturer in
Brazil. This expansion continued in 1996 with the acquisition of Australia and
New Zealand's oldest, largest and only fully integrated provider of secure
document and transaction card solutions. Most recently, the Company expanded its
international presence in August 1997 through the acquisition of one of France's
leading providers
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of check personalization and electronic printing applications. The Company also
initiated, in 1994, a program to realign and upgrade its domestic manufacturing
operations, realize process efficiencies and reduce costs. These steps, together
with its international expansion, resulted in improved financial performance and
have allowed the Company to rapidly broaden its international presence,
technological base and product lines. From 1992 to 1996 (on a pro forma basis),
the Company's sales and EBITDA have increased from $171.9 million and $34.1
million to $365.2 million and $69.3 million, respectively, representing compound
annual growth rates of approximately 21% and 19% for sales and EBITDA,
respectively.
As illustrated by the charts below, the Company has successfully
diversified its product mix and expanded into higher growth markets, thereby
reducing its dependence on traditional security printing.
SALES BY PRODUCT GROUP
[PIE CHART]
The Company serves its customers through three principal groups:
Transaction Cards & Systems. The Company's Transaction Cards & Systems
products include credit, debit and automated teller machine ("ATM") cards,
stored-value telephone cards, transit and transportation cards and
identification systems manufactured at its facilities in Brazil, Australia and
New Zealand. Additionally, in certain markets, the Company supplies the
hardware, software and related services used in transaction processing. As the
use of magnetic-stripe cards and electronic transactions continues to increase,
the Company is expanding its capabilities and presence to service these highly
specialized markets. The Company is also developing its smart-card capabilities.
The Company was recently awarded a contract to produce smart-cards for Telstra,
the Australian national telephone company, and expects to begin manufacturing in
1998. Smart-card applications include financial transactions, secure access and
identification systems, prepaid telephone services, transportation systems, GSM
cellular phone systems, direct pay TV access, health cards and customer loyalty
programs for airlines, hotels and car rental services. The Company is also the
world's leading supplier of advanced holographic security devices used on such
branded transaction cards as MasterCard(TM), VISA(TM), Discover(TM), Europay(TM)
and Diners Club International(TM), as well as on a broad range of identification
cards and other products.
Printing Services & Document Management. The Company's Printing Services &
Document Management products and services provide customers with a full range of
document printing, personalization, inventory and distribution services. The
Company has leveraged its reputation as a leading security printer to expand its
business as public and private sector institutions increasingly outsource their
secure document needs. Utilizing advanced, computerized printing and
personalization technology as well as inventory control systems and
"just-in-time" distribution capabilities, the Company provides comprehensive
solutions for its clients. For example, over the last two years, the Company has
assumed the in-house check and document printing, processing and distribution
operations of Banco Bradesco, S.A. ("Bradesco") and Unibanco, S.A. ("Unibanco"),
two of the
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largest private banks in Brazil. In addition to its financial institution
clients, the Company also provides complete printing, personalization and
document management services for a number of other large enterprises including
utilities, insurance companies, telephone companies and government entities.
Security Printing Solutions. The Company is a leading global supplier of a
broad range of Security Printing Solutions, including travelers' cheques,
financial checks, food coupons, currency, stamps, stock and bond certificates,
transit tickets, gift certificates, passports and a wide range of other
commercial documents of value. The Company believes that it is one of the
largest printers of travelers' cheques in the world, serving such customers as
American Express, Citicorp, MasterCard(TM) and Visa(TM). The Company is the
leading private sector supplier of personalized checks in Brazil, Australia and
New Zealand and the second largest in France. The Company supplies many of the
largest private banks in its markets with checks, check personalization and
distribution of a wide array of additional printed products, in many cases under
multi-year contracts. Recent advances in color copying, desktop publishing and
laser printing have provided a unique growth opportunity as an increasing number
of customers demand enhanced security to prevent copying, counterfeiting and
fraud.
BUSINESS STRATEGY
The Company's strategy is to leverage its market leadership, superior
reputation and strong customer relationships to capitalize on the increasing
demand for high quality and cost effective secure transaction solutions. In
order to accomplish its goal, the Company intends to: (i) enhance its leadership
positions in diverse geographic markets; (ii) provide solutions-oriented
products and services; (iii) pursue strategic acquisitions and alliance
opportunities; and (iv) increase manufacturing efficiencies and reduce costs.
Enhance Leadership Positions in Diverse Geographic Markets. The Company
seeks to enhance its leadership position by developing new products and services
and expanding its geographic presence to provide customers with a full range of
secure transaction solutions. The Company targets new industries and geographic
markets in which it believes it can capture a large share of the market by
providing high quality, cost effective products and services and by offering its
advanced technological capabilities. Management believes that the growth
potential of products such as stored-value cards and electronic printing
applications as well as an increase in the demand for printing, storage and
document services will allow the Company to enhance its strong leadership
position in Brazil, Australia, New Zealand and France and to continue its
expansion into new geographic markets.
Provide Solutions-Oriented Products and Services. The Company focuses on
providing products and services designed to address all of a customer's secure
transaction and document needs. For example, in addition to printing documents
for Bradesco, Latin America's largest private bank, the Company personalizes
these documents and manages Bradesco's inventory by distributing on a
"just-in-time" basis to each of Bradesco's approximately 2,000 branches.
Additionally, Bradesco's branches are linked electronically with the Company's
310,000 square foot Sao Paulo, Brazil facility and place their orders directly
with the Company, eliminating the need for central inventory management at
Bradesco. Management believes that the ability to provide a full array of
products and services for all of its customers' secure transaction and document
needs will increase revenues from existing clients and allow the Company to
obtain contracts with new clients.
Pursue Strategic Acquisitions and Alliances. The Company continuously
evaluates domestic and international opportunities for strategic acquisitions,
joint ventures and alliances which complement and expand its core businesses.
The Company believes that significant opportunities exist that will enable the
Company to: (i) provide additional products and services to its existing
customer base; (ii) cross-sell products and services to an expanded customer
base; and (iii) expand its geographic presence. Examples of this strategy
include the acquisition of LM in June 1996 and the
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Sati Group in August 1997. LM is the leading manufacturer and personalizer of
checks and transaction cards in Australia and New Zealand and its acquisition
marked the Company's entry into the Australasian market. The Sati Group is the
second largest provider of check personalization and distribution services in
France and its acquisition marked the Company's entry into the European market.
The Company is presently exploring additional acquisition opportunities to: (i)
increase market share; (ii) broaden its product and service offerings to
existing customers; and (iii) expand its geographic presence.
Increase Manufacturing Efficiencies and Reduce Costs. The Company is
committed to continuous improvements throughout its business to increase product
value and lower the Company's manufacturing costs. For example, the Company
realigned and consolidated its domestic manufacturing operations by closing the
Company's Los Angeles and Chicago facilities and opening a state-of-the-art
manufacturing facility in Columbia, Tennessee. These changes significantly
decreased manufacturing costs and allowed the Company to increase profitability
and bid on contracts more competitively, as evidenced by its recently awarded
contract to produce currency at its Tennessee facility for the Reserve Bank of
India. The Company has also made significant investments, both domestically and
internationally, in state-of-the-art manufacturing and distribution equipment,
systems and technologies to allow the Company to reduce costs, increase capacity
and provide the most advanced secure transaction solutions available.
RECENT DEVELOPMENTS
The Company has executed contracts for the continued supply of phone cards
for Telebras, Brazil's national telephone company. The Company anticipates that
revenues from these contracts will total approximately $18 million for the one
year period beginning December 1997. In accordance with the Brazil privatization
program for Telebras, the Company has entered into six separate agreements with
local phone operators Telerj, Teleron, Telems, Telaima, Telest and Telasa for
Rio de Janeiro and five other states. Each of the six local phone operators has
the option to extend its contract for a second year.
The Company has acquired the printing assets of Commonwealth Bank of
Australia Limited ("Commonwealth") for a purchase price of AUS$6.5 million
(approximately US$4.6 million). In connection with the purchase, the Company has
entered into a three year supply agreement for the supply of printed products to
Commonwealth with two-three year extension periods exercisable by Commonwealth.
The Company has acquired the printing assets of Bank Itau ("Itau") in
Brazil for Reals 6 million (approximately US$5.5 million). In connection with
the purchase, Itau has agreed to a two year supply agreement for the supply of
printed products to Itau with two one-year extensions exercisable by Itau.
THE REFINANCING
The Initial Offering was part of a refinancing of certain of the Company's
outstanding indebtedness (the "Refinancing"). Pursuant to the Refinancing, the
Company: (i) consummated the Initial Offering; (ii) consummated the Tender Offer
and the related Consent Solicitation (each as defined) with respect to the
Company's 11 5/8% Senior Notes due 2002 (the "11 5/8% Notes"); and (iii) repaid
outstanding amounts under the Existing Credit Facility (as defined). See
"Description of Certain Indebtedness.".
Pursuant to the Tender Offer and Consent Solicitation, on December 12,
1997, the Company purchased approximately $57 million principal amount of the
11 5/8% Notes (constituting approximately 87.7% of the outstanding 11 5/8%
Notes) for an amount in cash equal to $1,094.47 per $1,000 principal amount of
11 5/8% Notes. Each tendering holder also received accrued and unpaid interest
up to, but not including, the payment date. Pursuant to the Consent
Solicitation, the Company also
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solicited consents from tendering holders of 11 5/8% Notes to modify certain
terms of the 11 5/8% Notes Indenture (as defined). In connection with the
Consent Solicitation, the 11 5/8% Notes Indenture was amended, which, among
other things, eliminated substantially all of the restrictive covenants
contained in the 11 5/8% Notes Indenture, and the Company paid a consent fee
(which is included in the tender price referred to above) to all tendering
holders.
------------------------
The Company is a Delaware corporation incorporated in 1993 as the successor
to United States Banknote Corporation, a New York corporation organized in 1925,
and changed its name to American Banknote Corporation in 1995. The Company's
common stock is traded on the New York Stock Exchange, Inc. under the symbol
"ABN." The Company's principal executive offices are located at 200 Park Avenue,
New York, New York 10166, and its telephone number is (212) 557-9100.
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THE INITIAL OFFERING
The Initial Offering....... The Old Notes were sold by the Company on December
12, 1997 (the "Initial Offering") to Chase
Securities, Inc., Bear, Stearns & Co. Inc.,
NationsBanc Montgomery Securities, Inc. and Societe
Generale Securities Corporation (the "Initial
Purchasers") pursuant to a Purchase Agreement dated
December 5, 1997 (the "Purchase Agreement") as part
of Units consisting of $95,000,000 aggregate
principal amount of Old Notes and 95,000 Warrants
to purchase an aggregate of 1,185,790 shares of
Common Stock. The Initial Purchaser subsequently
resold the Old Notes to qualified institutional
buyers in reliance on Rule 144A under the
Securities Act and in offshore transactions to
Non-U.S. persons in reliance on Regulation S under
the Securities Act.
Registration Rights
Agreement................ Pursuant to the Purchase Agreement, the Company,
the Guarantors and the Initial Purchasers entered
into a Registration Rights Agreement dated as of
December 12, 1997 (the "Registration Rights
Agreement"), which grants the holders of the Old
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
and registration rights which terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $95,000,000 aggregate principal amount of 11 1/4%
Senior Subordinated Notes due 2007, Series B, of
the Company (the "Exchange Notes").
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Old Notes that are properly
tendered and accepted. As of the date hereof,
$95,000,000 aggregate principal amount of Old Notes
are outstanding. The Company will issue the
Exchange Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
provided, that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own
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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 states that by so
acknowledging and by delivering a prospectus, a
Participating 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 Participating Broker-Dealer
in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration
Date, they will make this Prospectus available to
any Participating Broker-Dealer for use in
connection with any such resale. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is
extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of
the Exchange Notes.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
transmit an Agent's Message (as defined) in lieu
thereof), in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or Agent's message), together with the
Old Notes
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and any other required documentation to the
Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal (or transmitting an Agent's Message),
each holder will represent to the Company that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the holder, that neither the holder nor
any such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and that
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the Company. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"
and "-- Procedures for Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange or registration rights and such
Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected. See "Risk Factors -- Lack of
Public Market; Volatility; Restrictions on Resale."
Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement.................. If any holder of the Old Notes (other than any such
holder which is an "affiliate" of the Company or a
Guarantor within the meaning of Rule 405 under the
Securities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has satisfied certain
conditions relating to the provision of information
to the Company for use therein, the Company and the
Guarantors have agreed to register the Old Notes on
a shelf registration statement (the "Shelf
Registration Statement") and to use their best
efforts to cause it to be declared effective by the
Commission as promptly as practical on or after the
consummation of the Exchange Offer. The Company and
Guarantors have agreed to maintain the
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a maximum of two
years, to cover resales of the Old Notes held by
any such holders.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to
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tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of
Transmittal and delivering its Old Notes, either
make appropriate arrangements to register ownership
of the Old Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
comply with the procedures for book-entry
transfer), the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent (or transmit an Agent's message
in lieu thereof) prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Certain U.S. Federal Income
Tax Considerations....... For a discussion of certain material U.S. federal
income tax considerations relating to the exchange
of the Exchange Notes for the Old Notes, see
"Certain U.S. Federal Income Tax Considerations."
Use of Proceeds............ There will be no cash proceeds to the Company from
the issuance of the Exchange Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Exchange Agent............. The Exchange Agent is The Bank of New York. The
address and telephone and facsimile numbers of the
Exchange Agent are set forth under "The Exchange
Offer -- Exchange Agent" and in the Letter of
Transmittal.
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SUMMARY OF THE TERMS OF THE NOTES
The Exchange Offer applies to the Old Notes. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Old Notes, except that (i) the Exchange Notes will bear a Series B
designation, (ii) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to certain
rights of holders of Old Notes under the Registration Rights Agreement, which
rights will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Old Notes (which they replace) and will
be issued under and be entitled to the benefits of the Indenture. For further
information and for definitions of certain capitalized terms used below, see
"Description of the Notes."
Notes Offered.............. $95.0 million aggregate principal amount of 11 1/4%
Senior Subordinated Notes due 2007, Series B.
Maturity................... December 1, 2007.
Interest Payment Dates..... June 1 and December 1 of each year, commencing on
June 1, 1998.
Sinking Fund............... None.
Optional Redemption........ Except as described below, the Company may not
redeem the Notes prior to December 1, 2002. On or
after such date, the Company may redeem the Notes,
in whole or in part, at the redemption prices set
forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In
addition, at any time and from time to time on or
prior to December 1, 2000, the Company may redeem
up to 35% of the aggregate principal amount of the
Notes with the net cash proceeds from one or more
Public Equity Offerings (as defined) by the
Company, at a redemption price equal to 111.25% of
the principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the date of
redemption, provided that at least 65% of the
originally issued aggregate principal amount of the
Notes remains outstanding after each such
redemption. See "Description of the Notes --
Optional Redemption."
Change of Control.......... Upon a Change of Control, the Company will be
required to make an offer to purchase the Notes at
a price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest,
if any, to the date of purchase. See "Description
of the Notes -- Change of Control."
Subsidiary Guarantees...... The Notes will be guaranteed (the "Guarantees"),
jointly and severally on a senior subordinated
basis, by all of the Company's direct and indirect
domestic operating subsidiaries on the issue date
of the Notes (the "Issue Date") and by each direct
and indirect domestic operating subsidiary of the
Company (excluding Unrestricted Subsidiaries (as
defined)) formed or acquired thereafter. The
Guarantees will be general unsecured senior
subordinated obligations of the Guarantors. The
obligations of each Guarantor under its Guarantee
will be subordinated in right of payment to the
prior payment in full of all Guarantor Senior
Indebtedness (as defined) of such Guarantor to
substantially the same extent as the Notes are
subordinated to all existing and
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future Senior Indebtedness of the Company. See
"Description of the Notes -- Guarantees of the
Notes."
Ranking.................... The Notes will be unsecured and will be
subordinated in right of payment to all existing
and future Senior Indebtedness (as defined) of the
Company. The Notes will rank pari passu in right of
payment with any future senior subordinated
Indebtedness of the Company and will rank senior to
all Subordinated Indebtedness (as defined) of the
Company. As of September 30, 1997, after giving pro
forma effect to the Refinancing, including the
issuance of the Old Notes and the application of
the net proceeds therefrom, the aggregate principal
amount of the Company's outstanding Senior
Indebtedness would have been approximately $222.5
million (excluding unused commitments), including
$80.9 million of Indebtedness of the Company's
subsidiaries which would have been effectively
senior to the Notes, and the Company would have had
no senior subordinated Indebtedness outstanding
other than the Notes. See "Description of the
Notes -- Ranking" and "-- Subordination of the
Notes."
Restrictive Covenants...... The indenture under which the Notes will be issued
(the "Indenture") will limit, among other things:
(i) the incurrence of additional indebtedness by
the Company and its Restricted Subsidiaries (as
defined); (ii) the payment of dividends on, and
redemption of, capital stock of the Company and its
Restricted Subsidiaries and the redemption of
certain subordinated obligations of the Company and
its Restricted Subsidiaries; (iii) investments;
(iv) sales of assets and Restricted Subsidiary
stock, (v) transactions with affiliates; and (vi)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture will also prohibit certain restrictions
on distributions from Restricted Subsidiaries.
However, all of these limitations and prohibitions
are subject to a number of important qualifications
and exceptions. See "Description of the Notes --
Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for Exchange Notes. The risk
factors are generally applicable to the Old Notes as well as the Exchange Notes.
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical financial data for each
of the three years in the period ended December 31, 1996, and the nine months
ended September 30, 1997 and 1996 and pro forma financial data for the year
ended December 31, 1996 and the nine months and twelve months ended September
30, 1997. The historical financial data for each of the three years in the
period ended December 31, 1996 have been derived from the Company's audited
consolidated financial statements, which are included elsewhere herein. The
historical financial data for the nine months ended September 30, 1997 and 1996
have been derived from the Company's unaudited condensed consolidated financial
statements, included elsewhere herein, which in the opinion of management
include all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the information. The historical financial
data for the nine months ended September 30, 1997 are not necessarily indicative
of results that may be expected for the entire year. The unaudited pro forma
financial data have been derived from the Company's historical financial
statements and give effect to the Refinancing and the acquisitions of LM and the
Sati Group, in each case as if it had occurred as of the beginning of the
periods indicated, including the repayment of all amounts outstanding under the
Existing Credit Facility during each respective period, and the Refinancing and
the private placement in November 1997 of a $5 million accreted value Zero
Coupon Convertible Subordinated Debenture due 2002 (the "Convertible
Debenture"), in each case as if it had occurred on September 30, 1997. The
unaudited pro forma financial data are not intended to represent and are not
indicative of what the Company's results of operations actually would have been
or to project the Company's results of operations for any future period. The
following information is qualified by reference to, and should be read in
conjunction with, "Capitalization," "Unaudited Pro Forma Condensed Consolidated
Financial Information," "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the unaudited condensed consolidated
financial statements and notes thereto of the Company and of LM, included
elsewhere herein.
PRO FORMA AS ADJUSTED
----------------------------------------------
NINE TWELVE
NINE MONTHS ENDED YEAR MONTHS MONTHS
YEAR ENDED DECEMBER 31 SEPTEMBER 30 ENDED ENDED ENDED
-------------------------------- -------------------- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994 1997 1996 1996 1997 1997
-------- -------- -------- -------- -------- ------------ ------------- -------------
(Dollars in thousands)
STATEMENT OF
OPERATIONS DATA:
Sales................ $309,450 $206,164 $208,133 $248,416 $217,560 $365,173 $ 260,040 $ 357,699
Income (loss) from
operations before
restructuring and
idle equipment
charge(a).......... 38,987 (11,850) 18,176 29,473 26,709 44,386 30,095 42,648
Interest expense..... 28,864 23,147 21,057 24,353 20,124 36,117 26,935 36,688
Income (loss) before
extraordinary
item(b)............ 4,099 (22,415) (5,701) 4,688 2,791 2,909 3,363 4,477
OTHER FINANCIAL DATA:
EBITDA(c)............ $ 59,029 $ 2,974 $ 31,270 $ 47,272 $ 41,440 $ 69,312(d) $ 48,948(d) $ 67,379(d)
Adjusted EBITDA(c)... 59,029 17,278 38,270 47,272 41,440 69,312(d) 48,948(d) 67,379(d)
Adjusted EBITDA
margin(e).......... 19.1% 8.4% 18.4% 19.0% 19.0% 19.0% 18.8% 18.8%
Depreciation and
amortization(f).... $ 21,223 $ 15,582 $ 13,876 $ 18,948 $ 15,501 $ 26,290 $ 19,919 $ 26,148
Capital
expenditures....... 22,283 10,378 10,084 7,491 16,775 24,260 8,291 14,199
Cash interest
expense(g)......... 27,683 22,389 20,275 23,204 19,354 34,753 25,869 35,271
Ratio of EBITDA to cash interest expense........................................................................ 1.9x
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital................................................................................................. $ 70,533
Property, plant and equipment, net.............................................................................. 250,326
Total assets.................................................................................................... 521,935
Long-term debt (including current maturities)................................................................... 316,171
Stockholders' equity(b)......................................................................................... 57,528
See notes to Summary Historical and Pro Forma Financial Data
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NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(a) In 1995 and 1994, income from operations include charges for restructuring
and idle equipment of $14.3 million and $7.0 million, respectively.
(b) Pro Forma As Adjusted includes an extraordinary charge of $5.6 million, net
of applicable taxes, for the early extinguishment of debt in connection with
the Refinancing. The extraordinary charge is reflected in Pro Forma As
Adjusted stockholders' equity.
(c) EBITDA represents income (loss) from operations before depreciation and
amortization. Adjusted EBITDA represents income (loss) from operations
before depreciation and amortization, and charges for restructuring and idle
equipment. EBITDA and Adjusted EBITDA are not intended to represent cash
flow from operations as defined by generally accepted accounting principles
and should not be considered as an alternative to net income as an indicator
of operating performance or to cash flow as a measure of liquidity. The
Company has included information concerning EBITDA and Adjusted EBITDA as it
understands that such items are used by certain investors as measures of a
borrower's historical ability to service its debt. EBITDA and Adjusted
EBITDA, as presented, may not be comparable to similarly titled measures
reported by other companies, since not all companies necessarily calculate
EBITDA and Adjusted EBITDA in identical manners, and therefore are not
necessarily accurate means of comparisons between companies.
(d) Pro Forma As Adjusted EBITDA excludes cash flows from the Commonwealth and
Itau agreements.
(e) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of
sales.
(f) Includes the amortization of deferred financing costs of $1.2 million,
$758,000, $782,000, $1.1 million, $770,000, $1.4 million, $1.1 million and
$1.4 million for the years ended December 31, 1996, 1995, 1994, for the nine
months ended September 30, 1997 and 1996, and for the pro forma periods
ended December 31, 1996 and the nine and twelve months ended September 30,
1997, respectively.
(g) Cash interest expense represents interest expense less the amortization of
deferred financing costs noted in (f) above.
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully before tendering Old Notes in
exchange for Exchange Notes. The risk factors set forth below are generally
applicable to the Old Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is, and upon consummation of the Refinancing will be, highly
leveraged. At September 30, 1997, after giving effect to the sale of the
Convertible Debenture in November 1997 and the Refinancing and the application
of the estimated net proceeds thereof, the Company would have had: (i) total
consolidated long-term debt, including the current portion, of $316.2 million;
(ii) total stockholders' equity of $57.5 million; and (iii) a ratio of earnings
to fixed charges for the twelve months ended September 30, 1997 of 1.2 to 1.
The degree to which the Company is leveraged could have important
consequences to the holders of the Units, including: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures or
acquisitions in the future may be limited; (ii) a substantial portion of the
Company's cash flow from operations may be dedicated to the payment of the
principal of and interest on its indebtedness, thereby reducing funds available
for future operation; (iii) certain of the Company's borrowings, including all
borrowings under the Existing Credit Facility, will be at variable rates of
interest, which exposes the Company to the risk of increased interest rates; and
(iv) the Company may be more vulnerable to economic downturns and be limited in
its ability to withstand competitive pressures. Certain of the Company's
competitors may currently operate on a less leveraged basis and therefore the
Company could be placed at a disadvantage relative to its competitors which have
significantly greater operating and financing flexibility than the Company. The
Company's ability to make scheduled payments of the principal of or interest on,
or to refinance, its indebtedness will depend on its future operating
performance and cash flow, which are subject to prevailing economic conditions,
prevailing interest rate levels, and financial, competitive, business and other
factors, many of which are beyond its control.
The Company believes that, based upon current levels of operations, it
should be able to meet its debt service obligations, including principal and
interest payments on the Notes when due. However, if the Company cannot generate
sufficient cash flow from operations to meet its debt service obligations, then
the Company might be required to refinance its indebtedness and may be forced to
adopt an alternative strategy that may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. There is no assurance that
refinancings would be permitted by the terms of the Existing Credit Facility,
the 10 3/8% Notes Indenture (as defined), the Indenture or any other lending
arrangements then in effect or, along with the alternative strategies, could be
effected on satisfactory terms. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Existing Credit Facility and the 10 3/8% Notes Indenture contain and
the Indenture will contain numerous restrictive covenants that limit the
discretion of the Company's management with respect to certain business matters.
These covenants place significant restrictions on, among other things, the
ability of the Company to incur additional indebtedness, to create liens or
other encumbrances, to pay dividends or make certain other payments,
investments, loans and guarantees and to sell or otherwise dispose of assets and
merge or consolidate with another entity. The Existing Credit Facility and the
10 3/8% Notes Indenture also contain a number of financial covenants that
require the Company to meet certain financial ratios and financial condition
tests. See "Description of Certain Indebtedness -- Existing Credit Facility,"
"Description of Certain Indebtedness -- Senior Notes -- 10 3/8% Notes" and
"Description of the Notes -- Certain Covenants." The Company's ability to meet
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23
these financial ratios and financial condition tests can be affected by events
beyond its control, and there can be no assurance that the Company will meet
such ratios or such tests. A failure to comply with the obligations in the
Existing Credit Facility, the 10 3/8% Notes Indenture or the Indenture could
result in an event of default under the Existing Credit Facility or the 10 3/8%
Notes Indenture or an Event of Default (as defined) under the Indenture that, if
not cured or waived, could permit acceleration of the relevant indebtedness and
acceleration of indebtedness under other instruments that may contain
cross-acceleration or cross-default provisions. In the event of an event of
default under the Existing Credit Facility or the 10 3/8% Notes Indenture or an
Event of Default under the Indenture the lenders thereunder could elect to
declare all amounts outstanding thereunder, together with accrued and unpaid
interest, to be immediately due and payable. If the indebtedness under the
Existing Credit Facility or the 10 3/8% Notes Indenture were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full that indebtedness and the other indebtedness of the Company,
including the Notes. Other indebtedness of the Company and its subsidiaries that
may be incurred in the future may contain financial or other covenants more
restrictive than those applicable to the Notes.
SUBORDINATION; HOLDING COMPANY STRUCTURE
The Notes will be general unsecured obligations of American Banknote
Corporation (exclusive of its subsidiaries, the "Parent") and will be
subordinated in right of payment to all existing and future Senior Indebtedness
of the Parent, including the Parent's obligations under the Existing Credit
Facility and the 10 3/8% Notes Indenture. By reason of the subordination
provisions of the Indenture, in the event of the bankruptcy, liquidation,
dissolution, reorganization or other winding-up of the Parent, the assets of the
Parent will be available to pay obligations on the Notes only after all Senior
Indebtedness (including amounts incurred under the Existing Credit Facility and
the 10 3/8% Notes Indenture) has been so paid in full; accordingly, there may
not be sufficient assets remaining to pay amounts due on any or all of the Notes
then outstanding. In addition, under certain circumstances, the Parent may not
pay principal of, premium, if any, or interest on, or pay other amounts owing in
respect of the Notes, or purchase, redeem or otherwise retire the Notes, in the
event of certain defaults with respect to certain classes of Senior
Indebtedness, including Senior Indebtedness incurred under the Existing Credit
Facility and the 10 3/8% Notes Indenture. As of September 30, 1997, after giving
pro forma effect to the Refinancing, including the Offering and the application
of the net proceeds therefrom, there would have been approximately $224.2
million of Senior Indebtedness outstanding (excluding unused commitments),
including $80.9 million of Indebtedness of the Company's subsidiaries which
would have been effectively senior to the Notes. Additional Senior Indebtedness
may be incurred by the Parent from time to time, subject to certain
restrictions. See "Description of Certain Indebtedness -- Existing Credit
Facility," "Description of Certain Indebtedness -- Senior Notes -- 10 3/8%
Notes" and "Description of the Notes -- Certain Covenants -- Limitation on
Indebtedness."
The Existing Credit Facility and the 10 3/8% Notes are secured by
substantially all of the assets of the Company and its domestic operating
subsidiaries and the existing indebtedness of LM and the Sati Group is secured
by certain assets of such foreign subsidiaries and, therefore, claims of holders
of the Notes will be subordinated to the extent of the value of the assets
securing such indebtedness.
The Parent is a holding company that has no significant assets other than
its direct and indirect investments in its operating subsidiaries. Accordingly,
the Parent must rely on its subsidiaries to generate the funds necessary to meet
its obligations, including the payment of principal of and interest on the
Notes. The ability of the subsidiaries to pay dividends or make other payments
or advances will depend upon their operating results and will be subject to
applicable laws and contractual restrictions contained in the instruments
governing any indebtedness of such subsidiaries (including the Existing Credit
Facility and indebtedness of LM and the Sati Group). Certain of the Parent's
subsidiaries have incurred, and in the future may incur, indebtedness. As a
result, cash flow
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24
from the operations of such subsidiaries may be dedicated to the payment of
principal of and interest on the indebtedness of such subsidiaries, thereby
limiting the ability of such subsidiaries to pay dividends. In addition, any
dividends declared by a less than wholly owned subsidiary will be paid on a pro
rata basis to the owners of such subsidiary. In 1996, ABNB distributed an
aggregate of $12.7 million to its owners (of which the Parent received $9.9
million, or 77.5%). Although the Indenture limits the ability of Restricted
Subsidiaries to enter into consensual restrictions on their ability to pay
dividends and make other payments, such limitations are subject to a number of
significant qualifications and do not apply to Unrestricted Subsidiaries. See
"Description of the Notes -- Certain Covenants -- Limitation on Dividends and
Other Payment Restrictions Affecting Restricted Subsidiaries."
The Notes will be guaranteed, jointly and severally, by each of the
Company's direct and indirect domestic operating subsidiaries in existence on
the Issue Date and each direct and indirect domestic operating subsidiary
acquired thereafter (other than Unrestricted Subsidiaries). In addition, the
Guarantees will be subordinated in right of payment to all existing and future
Guarantor Senior Indebtedness, including the Existing Credit Facility. The Notes
will not, however, be guaranteed by the Company's foreign subsidiaries. Holders
of the Notes will not have a direct claim on the Company's interest in or assets
of such foreign subsidiaries and the Notes and the Guarantees will be
structurally subordinated to any indebtedness or other liabilities existing or
in the future incurred by such foreign subsidiaries. In 1996, approximately
68.3% of the Company's net sales (or $211.4 million) were derived from the
operations of its foreign subsidiaries.
FOREIGN OPERATIONS
The Company's financial performance on a dollar-denominated basis can be
significantly affected by changes in currency exchange rates. The Company's
foreign exchange exposure policy generally calls for selling its domestic
manufactured product in US dollars and, in the case of ABNB, LM and the Sati
Group, selling in the national currencies of the countries in which such
subsidiaries operate, in order to minimize transactions occurring in currencies
other than those of the originating country. The Company may, from time to time,
enter into foreign currency option contracts to limit the effect of currency
fluctuations on future expected cash receipts to be used for parent company
purposes, including debt service. Such activities may be discontinued at any
time depending on, among other things, management's views concerning future
exchange rates and the cost of such contracts. The Company has not engaged in
material hedging activities in connection with foreign operations. Adverse
changes in foreign interest and exchange rates could adversely affect the
Company's ability to meet its interest and principal obligations as well as
applicable financial covenants with respect to its debt, including the Notes,
the Existing Credit Facility, the 10 3/8% Notes and other indebtedness of the
Company.
Earnings on foreign investments, including operations and earnings of
foreign companies in which the Company may invest or upon which it may rely for
sales, are subject to a number of general risks, including high rates of
inflation, currency exchange rate fluctuations, trade barriers, exchange
controls, government expropriation and political instability and other risks.
These factors may affect the results of operations in selected markets included
in the Company's growth strategy. Dividends or distributions from the Company's
foreign operations could be subject to government restrictions in the future.
Currently, repatriation of earnings from the Company's foreign operations is
permitted.
The Company operates in Brazil, which in past years suffered
hyperinflationary conditions; however, the inflation rate in Brazil has
decreased substantially to approximately 6% for the first nine months of 1997,
10% for 1996 and 23% for 1995 as compared to 941% for 1994. Inflation and
currency exchange rate fluctuation in countries in which the Company generates a
large portion of its sales and earnings (including Brazil and Australia/New
Zealand, which accounted for approximately 53% and 16% of sales and 63% and 16%
of operating earnings, respectively, in 1996, before allocation of corporate
overhead) could in the future adversely affect the Company.
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25
Actions taken by foreign governments could have an important effect on the
Company's foreign operations, including ABNB, LM and the Sati Group. Political,
economic or social instability or other developments could adversely affect
these companies' financial conditions or results of operations and thereby
adversely affect the Company's ability to repay the Notes or other indebtedness
of the Company and its subsidiaries. As a result of market conditions, the
Brazilian government has recently proposed various economic austerity measures
which may impact the Brazilian economy. There can be no assurance that
substantially greater governmental restrictions will not be imposed in the
future, including restrictions or prohibitions on the repatriation of funds.
Furthermore, remittances of dividends from any foreign subsidiaries acquired or
formed by the Company in the future may be subject to certain withholding taxes
and other governmental restrictions. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Impact of Inflation."
FOREIGN TAXES
Earnings of foreign subsidiaries are subject to foreign income taxes that
reduce cash flow available to meet required debt service and other obligations
of the Company. The Company presently cannot utilize foreign tax credits in the
United States until its domestic net operating loss carry forwards are
exhausted. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Tax Law Changes."
The Company has from time to time reorganized and restructured, and may in
the future reorganize and restructure, its foreign operations based on certain
assumptions about the various tax laws (including capital gains and withholding
tax), foreign currency exchange and capital repatriation laws and other relevant
laws of a variety of foreign jurisdictions. While management believes that such
assumptions are correct, there can be no assurance that foreign taxing or other
authorities will reach the same conclusion. If such assumptions are incorrect,
or if such foreign jurisdictions were to change or modify such laws, the Company
may suffer adverse tax and other financial consequences which could impair the
Company's ability to meet its payment obligations on the Notes and its other
indebtedness.
MAJOR CUSTOMERS; GOVERNMENT SALES
The Company has several key customers. Sales under contracts of
stored-value phone cards to Telebras, the Brazilian national telephone company,
accounted for approximately 13% and 24% of the Company's consolidated sales for
the years ended December 31, 1995 and 1996, respectively. The Company expects
that revenues from sales of phone cards to Telebras during 1997 will account for
less than 15% of the Company's consolidated sales. The Company's contracts with
Telebras extend through December 1998 and may be further extended through
December 1999 at the option of each of the six Telebras affiliated companies
which have executed contracts with ABNB. See "Summary -- The Company -- Recent
Developments." Sales of products and services to Bradesco accounted for 12% and
14% of the Company's consolidated sales for the years ended December 31, 1995
and 1996, respectively. Sales of food coupons to the United States Department of
Agriculture ("USDA") accounted for approximately 22%, 11% and 5% of the
Company's consolidated sales for the years ended December 31, 1994, 1995 and
1996, respectively. In September 1996, the USDA awarded ABN a contract for the
production of food coupons through September 30, 1997 with a one-year option,
which option has been exercised by USDA. The contract is expected to represent
sales of approximately $14 million per year.
There can be no assurance as to whether, or when, or on what terms, the
Company will be awarded any additional contracts from these customers in the
future, especially those that are subject to competitive bids. There also can be
no assurance that any options for continued production under any of the
Company's contracts will be exercised. In addition, the Brazilian government has
implemented a plan for the privatization of Telebras, which resulted in a split
up of
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certain operations of Telebras into numerous smaller companies. This split up
could result in multiple competitive bids in future years. The loss of all or a
significant portion of the Company's business with these entities would have a
material adverse effect on the sales and earnings of the Company.
Each of the agencies of the United States government for which the Company
provides products or services acts independently of the others in soliciting
bids. Government contracts are generally awarded on the basis of a competitive
bidding process and a variety of other factors, which may include price, plant
security, manufacturing controls, a preference for domestic contractors and past
performance. In addition, contracts with governmental agencies generally contain
provisions permitting termination at any time at the convenience of the agency
and give the agency the right to audit contract compliance and adjust the
contract amount for noncompliance.
ABILITY TO INTEGRATE ACQUISITIONS
A core part of the Company's business strategy is to grow through strategic
acquisitions, joint ventures and alliances. The Company's financial condition
could be adversely affected if the Company cannot successfully integrate
acquired businesses into its existing operations or if the Company is required
to materially increase the amount of its financial commitment to such
acquisitions, joint ventures or alliances. In addition, the Company may seek
strategic acquisitions, joint ventures or alliances in countries or markets in
which it does not currently operate. There can be no assurance that the Company
will be able to successfully integrate or manage such operations.
COMPETITION
The Company's principal subsidiaries conduct their businesses in highly
competitive markets. Competition in the Company's product markets is based upon
service, quality, reliability and price. In certain markets in which the Company
competes, some of the Company's competitors have greater financial and other
resources than the Company.
The future of the Company's food coupon printing is subject to competition
from electronic card-based Electronic Benefits Transaction (EBT) systems. In
addition, benefit reforms and levels of food coupon inventory caused a reduction
in the Company's 1996 food coupon production volume and continues to impact the
USDA's food coupon orders. The elimination or a substantial reduction in the use
of paper food coupons would have a material adverse effect on the sales and
earnings of the Company.
SALES OF STOCK AND BOND CERTIFICATES
Stock and bond printing accounted for approximately 14%, 11% and 8% of the
Company's consolidated sales for the years ended December 31, 1994, 1995 and
1996, respectively. The Company's overall volume of sales of stock and bond
certificates increased in 1996, but declined as a percent of sales as a result
of increases in consolidated sales. Sales of stock and bond certificates,
primarily a domestic product, are a function of trading activity, the number of
public offerings, the mix of debt and equity security issuances and regulatory
considerations. The elimination of certificates has been advocated by various
organizations in favor of the use of book-entry systems for recording security
ownership. Security sales to institutions, which have been growing, have reduced
demand for printed certificates, particularly for debt issues. Domestic stock
and bond printing has historically accounted for a sizeable portion of the
security printing sales of the Company. The Company's sales of stock and bond
certificates increased from 1995 to 1996 as a result of the increase in new
issues, stock splits and stock distributions (due to greater activity in the
domestic securities markets). No assurance can be given, however, that the high
level of activity in the domestic securities markets will continue. The
elimination or a substantial reduction in the use of certificates would have a
material adverse effect on the sales and earnings of the Company. See
"Business -- Product Lines -- Security Printing Solutions -- Stocks and Bonds."
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DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the services of its senior management,
including Morris Weissman, Chairman of the Board and Chief Executive Officer,
and the loss of their services could have an adverse effect on the Company. The
Company has entered into employment agreements with several members of its
senior management, including Mr. Weissman. See "Management."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (x) a Guarantee was incurred by a Guarantor with intent
to hinder, delay or defraud any present or future creditor or the Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion in whole or in part of others or (y) a Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of such Guarantee, (iii) was engaged or about to engage in a business
or transaction for which the remaining assets of such Guarantor constituted
unreasonably small capital to carry on its business or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, the court could avoid or subordinate such Guarantee in favor of
the Guarantor's creditors. Among other things, a legal challenge of a Guarantee
on fraudulent conveyance grounds may focus on the benefits, if any, realized by
the Guarantor as a result of the issuance by the Company of the Notes. The
Indenture will contain a savings clause, which generally will limit the
obligations of each Guarantor under its Guarantee to the maximum amount as will,
after giving effect to all of the liabilities of such Guarantor, result in such
obligations not constituting a fraudulent conveyance. To the extent a Guarantee
of any Guarantor was voided as a fraudulent conveyance or held unenforceable for
any other reason, holders of the Notes would cease to have any claim against
such Guarantor and would be creditors solely of the Company and any Guarantor
whose Guarantee was not voided or held unenforceable. In such event, the claims
of the holders of the Notes against the issuer of an invalid Guarantee would be
subject to the prior payment of all liabilities of such Guarantor. There can be
no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the Notes relating to
any avoided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Guarantor may be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than the fair marketable value of all of its
assets at a fair valuation or if the present fair marketable value of its assets
was less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute
and mature.
Based upon financial and other information, the Company and the Guarantors
believe that the Guarantees are being incurred for proper purposes and in good
faith and that the Company and each Guarantor is solvent and will continue to be
solvent after issuing its Guarantee, will have sufficient capital for carrying
on its business after such issuance and will be able to pay its debts as they
mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company.
CHANGE OF CONTROL PROVISIONS
In the event of a Change of Control, each holder of Notes will be entitled
to require the Company to purchase any or all of the Notes held by such holder
at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Additional Interest if any thereon
to the date of purchase. See "Description of the Notes -- Offer to Purchase Upon
Change of Control." The Company expects that prepayment of the Notes following a
Change of Control
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would constitute a default under the Existing Credit Facility and the 10 3/8%
Notes Indenture. In the event that a Change of Control occurs, the Company would
likely be required to refinance the indebtedness outstanding under the Existing
Credit Facility, the 10 3/8% Notes (as defined) and the Notes. There can be no
assurance that the Company would be able to refinance such indebtedness or, if
such refinancing were to occur, that such refinancing would be on terms
favorable to the Company.
The holders of Notes have limited rights to require the Company to purchase
or redeem the Notes in the event of a takeover, recapitalization or similar
restructuring, including an issuer recapitalization or similar transaction with
management. Consequently, the Change of Control provisions will not afford any
protection in a highly leveraged transaction, including such a transaction
initiated by the Company, management of the Company or an affiliate of the
Company, if such transaction does not result in a Change of Control or otherwise
result in an event of default under the Notes. In addition, because the
obligations of the Company with respect to the Notes are subordinated to Senior
Indebtedness of the Company, existing or future Senior Indebtedness of the
Company may prohibit the Company from repurchasing or redeeming any of the Notes
upon a Change of Control. Moreover, the ability of the Company to repurchase or
redeem the Notes following a Change of Control will be limited by the Company's
then-available resources. Accordingly, the Change of Control provision is likely
to be of limited usefulness in such situations. See "Description of the
Notes--Subordination."
The Change of Control provisions may not be waived by the Board of
Directors of the Company or the Trustee of the Notes without the consent of the
holders of at least a majority in principal amount of the Notes. As a result,
the Change of Control provisions of the Notes may in certain circumstances
discourage or make more difficult a sale or takeover of the Company and, thus,
the removal of incumbent management.
ABSENCE OF PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old Notes. The Old Notes have not
been registered under the Securities Act and will be subject to restrictions on
transferability to the extent that they are not exchanged for Exchange Notes by
holders who are entitled to participate in the Exchange Offer. The market for
Old Notes not tendered for exchange in the Exchange Offer is likely to be more
limited than the existing market for such Notes. The holders of Old Notes (other
than any such holder that is an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) who are not eligible to participate in the
Exchange Offer are entitled to certain registration rights, and the Company is
required to filed a Shelf Registration Statement (as defined) with respect to
such Old Notes. The Exchange Notes will constitute a new issue of securities
with no established trading market. The Company does not intend to list the
Exchange Notes on any national securities exchange or seek the admission thereof
to trading in the National Association of Securities Dealers Automated Quotation
System. The Initial Purchasers have advised the Company that they currently
intend to make a market in the Exchange Notes, but they are not obligated to do
so and may discontinue such market making at any time. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act and may be limited during the Exchange Offer and the pendency
of the Shelf Registration Statement. Accordingly, no assurance can be given that
an active public or other market will develop for the Exchange Notes or as to
the liquidity of the trading market for the Exchange Notes. If a trading market
does not develop or is not maintained, holders of Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market making may be
discontinued at any time.
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29
FAILURE TO EXCHANGE OLD NOTES
Exchange Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal (or Agent's Message) and all other required
documentation. Therefore, holders of Old Notes desiring to tender such Old Notes
in exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Old Notes that are not tendered or are tendered but not accepted
will, following consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities, and if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or any other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
24
30
THE REFINANCING
The Initial Offering was part of the Refinancing of certain of the
Company's outstanding indebtedness. Pursuant to the Refinancing, the Company:
(i) consummated the Initial Offering; (ii) consummated the Tender Offer and the
related Consent Solicitation with respect to the Company's 11 5/8% Notes; and
(iii) repaid outstanding amounts under the Existing Credit Facility.
The closing of each of the transactions that constituted the Refinancing
occurred concurrently with the closing of the sale of the Units in the Initial
Offering.
TENDER OFFER AND CONSENT SOLICITATION
Pursuant to a separate Offer to Purchase and Consent Solicitation Statement
dated September 25, 1997, the Company offered to repurchase all, but not less
than a majority, of its outstanding 11 5/8% Notes (the "Tender Offer") for an
amount in cash equal to $1,094.47 per $1,000 principal amount of 11 5/8% Notes.
Each tendering holder also received accrued and unpaid interest up to, but not
including, the payment date. In connection with the Tender Offer, the Company
also solicited consents (the "Consent Solicitation") from tendering holders of
11 5/8% Notes to certain proposed amendments (the "Indenture Amendments") to the
11 5/8% Notes Indenture (as defined), which amendments would, among other
things, eliminate substantially all of the restrictive covenants contained in
the 11 5/8% Notes Indenture. Holders of 11 5/8% Notes who timely tendered
received a consent payment equal to 2% of the principal amount of the related
11 5/8% Notes ($20.00 per $1,000 principal amount) (which consent payment is
included in the tender price referred to above). Following the tender of 11 5/8%
Notes and receipt of consents of holders of a majority of the 11 5/8% Notes (in
excess of $32.5 million aggregate principal amount) on October 8, 1997, the
Company and the Trustee executed a supplemental indenture containing the
Indenture Amendments, which became effective upon acceptance for purchase of the
tendered 11 5/8% Notes. In connection with the Tender Offer and Consent
Solicitation, the Company purchased, and received consents relating to,
approximately 87.7% of the outstanding 11 5/8% Notes.
25
31
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
pro forma statements or capitalization tables.
The net proceeds from the sale of the Units in the Initial Offering were
used to purchase 11 5/8% Notes tendered pursuant to the Tender Offer and to pay
the consent fees pursuant to the related Consent Solicitation and to repay
indebtedness under the Existing Credit Facility, with the remaining proceeds
used for general corporate purposes.
26
32
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of September 30, 1997 and as adjusted (on a pro forma basis) to
give effect to: (i) the Refinancing; and (ii) the issuance of the Convertible
Debenture in November 1997. This information should be read in conjunction with
the unaudited condensed consolidated financial statements of the Company,
including the notes thereto, "Unaudited Pro Forma Condensed Consolidated
Financial Information," "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
Long-term debt (including current portion)
10 3/8% Notes..................................................... $126,500 $ 126,500
11 5/8% Notes (less unamortized discount of $907 and $112)........ 64,093 7,888
Leigh-Mardon Debt (a)............................................. 57,763 57,763
Existing Credit Facility (b)...................................... 3,191 --
Notes offered hereby (c).......................................... -- 93,800
Other long-term debt (d).......................................... 30,220 30,220
-------- --------
Total long-term debt.............................................. 281,767 316,171
Total stockholders' equity (e)...................................... 57,108 57,528
-------- --------
Total capitalization...................................... $338,875 $ 373,699
======== ========
- ---------------
(a) Consists of Non-Recourse Senior Debt of LM, which matures June 2001 (the
"Leigh-Mardon Senior Debt"), and Non-Recourse Subordinated Debt of LM, which
matures September 2001 (the "Leigh-Mardon Subordinated Debt" and together
with the Leigh-Mardon Senior Debt, the "Leigh-Mardon Debt"). The
Leigh-Mardon Senior Debt is a term loan of approximately US$41.3 million and
a US$4.0 million working capital facility, of which US$700,000 of
availability was used for letters of credit. The Leigh-Mardon Subordinated
Debt is a term loan of which approximately US$16.5 million was outstanding.
As of September 30, 1997, interest accrued at the rate of 7.15% per annum on
the Leigh-Mardon Senior Debt and at the rate of 8.07% per annum plus 4% upon
amounts outstanding in excess of US$15.2 million on the Leigh-Mardon
Subordinated Debt. See "Description of Certain Indebtedness -- Leigh-Mardon
Debt."
(b) The Existing Credit Facility was repaid from the proceeds of the
Refinancing. As of September 30, 1997, the interest rate under the Existing
Credit Facility was 9.0% per annum. The Existing Credit Facility expires on
October 30, 1998. See "Description of Certain Indebtedness -- Existing
Credit Facility."
(c) Net of discount to the face amount of the Old Notes attributable to the
value of the Warrants issued as part of the Units.
(d) Amounts include debt incurred in Brazil, debt incurred in connection with
the acquisition of the Sati Group and mortgages and other financings in the
United States with varying maturities.
(e) Pro Forma As Adjusted includes the net proceeds of $4.9 million from the
sale in a private placement of a Convertible Debenture, an extraordinary
charge, net of applicable income taxes, of approximately $5.6 million in
connection with the Refinancing and $1.2 million attributed to the value of
the Warrants issued as part of the Units.
27
33
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1997 includes the historical accounts of the Company and gives
effect to: (i) the sale of a Convertible Debenture in November 1997; and (ii)
the Refinancing, in each case as if it had occurred on September 30, 1997. The
unaudited pro forma condensed consolidated statements of operations of the
Company for the year ended December 31, 1996, the nine months ended September
30, 1997 and the twelve months ended September 30, 1997 include the historical
operations of the Company and give effect to the Refinancing and the acquisition
of LM, which was acquired in a two-step acquisition in June and October 1996,
and the acquisition of the Sati Group, acquired in August 1997, in each case as
if it had occurred at the beginning of each of the periods indicated. The
Refinancing Adjustments shown below do not give effect to the repayment of $10.5
million of additional borrowings under the Existing Credit Facility which were
made subsequent to September 30, 1997, nor to the acquisition of assets (and
related earnings) from Commonwealth (for approximately US$4.6 million) and from
Itau (for approximately US$5.5 million). The pro forma adjustments give effect
to the repayment of all amounts outstanding under the Existing Credit Facility
during each respective period. See "Use of Proceeds."
The unaudited pro forma condensed consolidated financial information, which
has been prepared by the Company's management, has been derived from the
historical statements of operations and balance sheets of the Company in US
dollars in accordance with generally accepted accounting principles. The
acquisition of the Sati Group has been accounted for under the purchase method
of accounting. A preliminary allocation of the purchase price has been made
based on available information and is subject to adjustment. Management does not
expect that differences between the preliminary and final purchase price
allocation will have a material impact on the Company's consolidated financial
position or results of operations.
The unaudited pro forma condensed consolidated financial information is not
intended to represent and is not indicative of what the Company's results of
operations actually would have been if the aforementioned transactions had been
consummated as of the beginning of the periods indicated, or to project the
Company's results of operations for any future period. The pro forma adjustments
are based on available information and certain assumptions that the Company
currently believes are reasonable under the circumstances. The unaudited pro
forma condensed consolidated financial information should be read in conjunction
with "The Refinancing," "Use of Proceeds," "Capitalization," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and related notes thereto of the Company and
of LM, included elsewhere herein.
28
34
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
AMERICAN PRO FORMA
BANKNOTE REFINANCING AS
CORPORATION ADJUSTMENTS ADJUSTED
----------- ----------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets
Cash and cash equivalents(c)............................................... $ 3,611 $ 5,000 (a)
24,090 (b) $ 32,701 (c)
Accounts receivable, net................................................... 56,640 56,640
Inventories................................................................ 41,130 41,130
Deferred income taxes...................................................... 4,616 4,616
Prepaid expenses and other................................................. 16,161 16,161
-------- ------- -------
Total current assets................................................. 122,158 29,090 151,248
Property, plant and equipment, net........................................... 250,326 250,326
Other assets................................................................. 24,815 1,700 (b) 26,515
Excess of cost of investment in subsidiaries over net assets acquired........ 93,846 93,846
-------- ------- -------
$ 491,145 $ 30,790 $521,935
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit........................................................... $ 3,191 ($ 3,191)(b)
Current portion of long-term debt.......................................... 17,797 $ 17,797
Accounts payable and accrued expenses...................................... 63,922 150 (a)
(1,154)(b) 62,918
-------- ------- -------
Total current liabilities............................................ 84,910 (4,195) 80,715
Long-term debt, net of current maturities.................................... 260,779 38,795 (b)
(1,200)(b) 298,374
Other liabilities............................................................ 25,623 -- 25,623
Deferred income taxes........................................................ 42,372 (3,030)(b) 39,342
Minority interest............................................................ 20,353 20,353
-------- ------- -------
434,037 30,370 464,407
Stockholders' equity(d)...................................................... 57,108 4,850 (a)
1,200 (b)
(5,630)(b) 57,528
-------- ------- -------
$ 491,145 $ 30,790 $521,935
======== ======= =======
See notes to Unaudited Pro Forma Condensed Consolidated Financial Information
29
35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AMERICAN PRO FORMA PRO FORMA
BANKNOTE SATI ACQUISITION AFTER REFINANCING AS
CORPORATION LM GROUP ADJUSTMENTS ACQUISITIONS ADJUSTMENTS ADJUSTED
----------- ------- ------- ----------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales............................ $ 309,450 $33,474 $22,249 $365,173 $365,173
Cost of goods sold............... 202,158 21,783 16,329 240,270 240,270
-------- ------- ------- -------- --------
Gross profit..................... 107,292 11,691 5,920 124,903 124,903
Selling and administrative....... 48,263 4,504 2,824 55,591 55,591
Depreciation and amortization.... 20,042 2,077 1,795 $ 1,012(e) 24,926 24,926
-------- ------- ------- ------- -------- --------
Operating expenses............... 68,305 6,581 4,619 1,012 80,517 80,517
-------- ------- ------- ------- -------- --------
Income from operations........... 38,987 5,110 1,301 (1,012) 44,386 44,386
Interest expense................. 28,864 987 162 2,610(f) 32,623 $ 3,494(i) 36,117
Foreign translation losses,
net............................ 255 255 255
Provision for litigation......... 2,400 2,400 2,400
Other, net....................... (2,265) (5) (2,270) (2,270)
-------- ------- ------- ------- -------- ------ --------
Income before taxes on income
(benefit) and minority
interest....................... 9,733 4,128 1,139 (3,622) 11,378 (3,494) 7,884
Taxes on income (benefit)........ 400 1,793 376 (1,166)(g) 1,403 (1,223)(j) 180
-------- ------- ------- ------- -------- ------ --------
Income before minority interest
and extraordinary item......... 9,333 2,335 763 (2,456) 9,975 (2,271) 7,704
Minority interest................ 5,234 (439)(h) 4,795 4,795
-------- ------- ------- ------- -------- ------ --------
Income before extraordinary
item........................... $ 4,099 $ 2,335 $ 763 $(2,017) $ 5,180 $(2,271) $ 2,909
======== ======= ======= ======= ======== ====== ========
OTHER FINANCIAL DATA:
EBITDA (k).................................................................................................... $ 69,312 (l)
EBITDA margin (m)............................................................................................. 19.0 %
Depreciation and amortization (n)............................................................................. $ 26,290
Capital expenditures.......................................................................................... 24,260
Cash interest expense (o)..................................................................................... 34,753
Ratio of EBITDA to cash interest expense...................................................................... 2.0 x
See notes to Unaudited Pro Forma Condensed Consolidated Financial Information
30
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AMERICAN PRO FORMA PRO FORMA
BANKNOTE SATI ACQUISITION AFTER REFINANCING AS
CORPORATION GROUP ADJUSTMENTS ACQUISITIONS ADJUSTMENTS ADJUSTED
----------- ------- ----------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 248,416 $11,624 $260,040 $260,040
Cost of goods sold....................... 166,263 8,611 174,874 174,874
-------- ------- -------- --------
Gross profit............................. 82,153 3,013 85,166 85,166
Selling and administrative............... 34,881 1,337 36,218 36,218
Depreciation and amortization............ 17,799 850 $ 204(e) 18,853 18,853
-------- ------- ----- -------- --------
Operating expenses....................... 52,680 2,187 204 55,071 55,071
-------- ------- ----- -------- --------
Income from operations................... 29,473 826 (204) 30,095 30,095
Interest expense......................... 24,353 50 221(f) 24,624 $ 2,311(i) 26,935
Foreign translation losses, net.......... 122 122 122
Other, net............................... (2,519) (2,519) (2,519)
-------- ------- ----- -------- ------- --------
Income before taxes on income (benefit)
and minority interest.................. 7,517 776 (425) 7,868 (2,311) 5,557
Taxes on income (benefit)................ 371 265 (91)(g) 545 (809)(j) (264)
-------- ------- ----- -------- ------- --------
Income before minority interest and
extraordinary item..................... 7,146 511 (334) 7,323 (1,502) 5,821
Minority interest........................ 2,458 2,458 2,458
-------- ------- ----- -------- ------- --------
Income before extraordinary item......... $ 4,688 $ 511 $(334) $ 4,865 $(1,502) $ 3,363
======== ======= ===== ======== ======= ========
OTHER FINANCIAL DATA:
EBITDA(k).................................................................................................... $ 48,948 (l)
EBITDA margin(m)............................................................................................. 18.8 %
Depreciation and amortization(n)............................................................................. $ 19,919
Capital expenditures......................................................................................... 8,291
Cash interest expense(o)..................................................................................... 25,869
Ratio of EBITDA to cash interest expense..................................................................... 1.9 x
See notes to Unaudited Pro Forma Condensed Consolidated Financial Information
31
37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
AMERICAN PRO FORMA PRO FORMA
BANKNOTE SATI ACQUISITION AFTER REFINANCING AS
CORPORATION GROUP ADJUSTMENTS ACQUISITIONS ADJUSTMENTS ADJUSTED
----------- ------- ----------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Sales.................................... $ 340,306 17,393 $357,699 $357,699
Cost of goods sold....................... 225,628 12,849 238,477 238,477
-------- ------- -------- --------
Gross profit............................. 114,678 4,544 119,222 119,222
Selling and administrative............... 49,817 2,026 51,843 51,843
Depreciation and amortization............ 23,110 1,311 $ 310(e) 24,731 24,731
-------- ------- ----- -------- --------
Operating expenses....................... 72,927 3,337 310 76,574 76,574
-------- ------- ----- -------- --------
Income from operations................... 41,751 1,207 (310) 42,648 42,648
Interest expense......................... 33,093 91 363(f) 33,547 $ 3,141(i) 36,688
Foreign translation losses, net.......... 176 176 176
Provision for litigation................. 2,400 2,400 2,400
Other, net............................... (4,073) (4,073) (4,073)
-------- ------- ----- -------- ----- --------
Income before taxes on income (benefit)
and minority interest.................. 10,155 1,116 (673) 10,598 (3,141) 7,457
Taxes on income (benefit)................ (106) 369 (150)(g) 113 (1,099)(j) (986)
-------- ------- ----- -------- ----- --------
Income before minority interest and
extraordinary item..................... 10,261 747 (523) 10,485 (2,042) 8,443
Minority interest........................ 4,265 (299)(h) 3,966 3,966
-------- ------- ----- -------- ----- --------
Income before extraordinary item......... $ 5,996 $ 747 $(224) $ 6,519 $(2,042) $ 4,477
======== ======= ===== ======== ===== ========
OTHER FINANCIAL DATA:
EBITDA(k).................................................................................................... $ 67,379 (l)
EBITDA margin(m)............................................................................................. 18.8 %
Depreciation and amortization(n)............................................................................. $ 26,148
Capital expenditures......................................................................................... 14,199
Cash interest expense(o)..................................................................................... 35,271
Ratio of EBITDA to cash interest expense..................................................................... 1.9 x
See notes to Unaudited Pro Forma Condensed Consolidated Financial Information
32
38
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(a) In November 1997, the Company sold in a private placement $5.0 million
accreted value Convertible Debenture with warrants. The following reflects
the private placement:
Proceeds from private placement............................................... $ 5,000
Accrued fees and expenses..................................................... 150
-------
Stockholders' equity.......................................................... $ 4,850
=======
(b) The following reflects the effect of the Refinancing:
Proceeds from Old Notes.................................................... $ 93,800
Proceeds from Warrants..................................................... 1,200
--------
95,000
Tender Offer for 11 5/8% Notes (less unamortized original
issue discount of $795).................................................. (56,205) $ 38,795
Repayment of Existing Credit Facility...................................... (3,191)
Net premium and expenses paid to retire above debt, including
above unamortized original issue discount of $795........................ (6,210)
Payment of accrued interest................................................ (1,154) (7,364)
--------
Payment of fees and expenses related to the new borrowings................. (4,150)
-------
Net increase in cash................................................... $ 24,090
=======
Other assets were affected as follows:
Increases in deferred financing costs relating to the Refinancing.......... $ 4,150
Write-off of deferred financing costs associated with debt retired......... (2,450) $ 1,700
--------
=======
As a result of the Refinancing, stockholders' equity has been charged for an
extraordinary item relating to early extinguishment of debt, as follows:
Net premium and expenses paid to retire above debt......................... $ (6,210)
Write-off of deferred financing costs associated with debt retired......... (2,450)
Deferred tax benefit, at statutory tax rates............................... 3,030 $ (5,630)
--------
=======
(c) Pro Forma As Adjusted cash and cash equivalents excludes the repayment of
approximately $10.5 million of additional borrowings under the Existing
Credit Facility which were made subsequent to September 30, 1997 and the
acquisition of assets from Commonwealth (for approximately US$4.6 million)
and from Itau (for approximately US$5.5 million). See "Use of Proceeds."
Giving effect for these transactions, Pro Forma As Adjusted cash and cash
equivalents would be approximately $12.1 million.
(d) Stockholders' equity consist of the following:
AMERICAN PRO FORMA
BANKNOTE AS
CORPORATION ADJUSTED
-------- --------
(IN THOUSANDS)
Preferred Stock................................................................... -- --
Convertible Debentures............................................................ $ 3,620 $ 8,070
Common Stock...................................................................... 211 211
Capital surplus................................................................... 73,173 74,773
Retained earnings (deficit)....................................................... (16,739) (22,369)
Treasury stock.................................................................... (1,253) (1,253)
Cumulative currency translation adjustment........................................ (1,904) (1,904)
-------- --------
$ 57,108 $ 57,528
======== ========
33
39
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION -- (CONCLUDED)
NINE TWELVE
YEAR MONTHS MONTHS
ENDED ENDED ENDED
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997
------------ ------------- -------------
(IN THOUSANDS)
(e)
Additional amortization of excess cost of investment in
subsidiaries over net assets acquired over 25 years, for the
periods prior to acquisition.................................... $ 353 $ 146 $ 220
Additional depreciation and amortization based on the estimated
fair value received............................................. 659 58 90
-------- -------- --------
$ 1,012 $ 204 $ 310
======== ======== ========
(f)
Additional interest expense in connection with acquisition
borrowings...................................................... $ 2,610 $ 221 $ 363
======== ======== ========
(g)
Tax effect of deductible pro forma items at statutory rates..... $ (1,166) $ (91) $ (150)
======== ======== ========
(h)
Elimination of LM minority interest............................. $ (439) $ (299)
======== ========
(i)
Refinancing interest, including amortization of deferred
financing costs................................................. $ 10,988 $ 8,241 $ 10,988
Elimination of interest and amortization of deferred financing
costs of borrowings refinanced.................................. (7,494) (5,930) (7,847)
-------- -------- --------
$ 3,494 $ 2,311 $ 3,141
======== ======== ========
(j)
Tax effect of deductible pro forma items at statutory rates..... $ (1,223) $ (809) $ (1,099)
======== ======== ========
(k) EBITDA represents income from operations before depreciation and
amortization, and is not intended to represent cash flow from operations as
defined by generally accepted accounting principles and should not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow as a measure of liquidity. The Company has
included information concerning EBITDA as it understands that it is used by
certain investors as one measure of a borrower's historical ability to
service its debt. EBITDA, as presented, may not be comparable to similarly
titled measures reported by other companies, since not all companies
necessarily calculate EBITDA in an identical manner, and therefore is not
necessarily an accurate means of comparison between companies. The
calculation of EBITDA to cash interest set forth above is not calculated on
the same basis as similar calculations in various other agreements of the
Company.
(l) Pro Forma As Adjusted EBITDA excludes cash flows from the Commonwealth and
Itau agreements.
(m) EBITDA margin is computed as EBITDA as a percentage of sales.
(n) Includes the amortization of deferred financing costs of $1.4 million, $1.1
million, and $1.4 million for the year ended December 31, 1996 and the nine
months and twelve months ended September 30, 1997, respectively.
(o) Cash interest expense represents interest expense less the amortization of
deferred financing costs noted in note (n) above.
34
40
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary selected historical financial data
for each of the five years in the period ended December 31, 1996 and for the
nine months ended September 30, 1997 and 1996. The historical financial data for
each of the three years in the period ended December 31, 1996 have been derived
from the Company's audited consolidated financial statements, which are included
elsewhere herein. The historical financial data for the nine months ended
September 30, 1997 and 1996 have been derived from the Company's unaudited
condensed consolidated financial statements, included elsewhere herein, which in
the opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information. The
historical financial data for the nine months ended September 30, 1997 are not
necessarily indicative of results that may be expected for the entire year. The
following information is qualified by reference to, and should be read in
conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto of the Company and LM, included elsewhere herein.
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31 SEPTEMBER 30
------------------------------------------------------------ ---------------------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Sales......................... $309,450 $206,164 $208,133 $200,079 $171,877 $248,416 $217,560
Gross profit.................. 107,292 57,129 77,244 82,879 62,438 82,153 74,767
Operating expenses(a)......... 68,305 54,675 52,068 45,191 36,792 52,680 48,058
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations
before restructuring and
idle equipment charge(a).... 38,987 (11,850) 18,176 25,688 25,646 29,473 26,709
Interest expense.............. 28,864 23,147 21,057 14,605 14,609 24,353 20,124
Other, net(b)................. 390 11,518 12,221 16,939 (811) (2,397) (510)
Taxes on income (benefit)(c).. 400 (11,359) (2,401) 4,289 5,367 371 877
Minority interest............. 5,234 1,563 262 797 2,458 3,427
Extraordinary items and
cumulative effect of
accounting change(d)........ 114 11,135
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........... $ 4,099 $(22,415) $ (5,815) $ 1,593 $ (5,451) $ 4,688 $ 2,791
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share:
Earnings before
extraordinary item........ $ 0.20 $ (1.17) $ (0.30) $ 0.08 $ 0.31 $ 0.22 $ 0.14
Net income (loss)........... 0.20 (1.17) (0.31) 0.08 (0.35) 0.22 0.14
OTHER FINANCIAL DATA:
EBITDA(e)..................... $ 59,029 $ 2,974 $ 31,270 $ 36,868 $ 34,084 $ 47,272 $ 41,440
Adjusted EBITDA(e)............ 59,029 17,278 38,270 48,868 34,084 47,272 41,440
Adjusted EBITDA margin(f)..... 19.1% 8.4% 18.4% 24.4% 19.8% 19.0% 19.0%
Depreciation and
amortization(g)............. $ 21,223 $ 15,582 $ 13,876 $ 11,880 $ 9,876 $ 18,948 $ 15,501
Capital expenditures.......... 22,283 10,378 10,084 4,263 1,961 7,491 16,775
Cash interest expense(h)...... 27,683 22,389 20,275 13,905 13,171 23,204 19,354
Ratio of earnings to fixed
charges(i).................. 1.3x 1.4x 1.7x 1.3x 1.3x
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............... $ 35,533 $ 54,973 $ 65,887 $ 50,351 $ 54,973 $ 37,248
Property, plant and equipment,
net......................... 253,987 225,974 215,859 221,206 204,606 250,326
Total assets.................. 480,378 379,402 382,950 357,212 300,349 491,145
Long-term debt (including
current maturities)......... 277,998 194,488 191,551 168,318 128,835 278,576
Stockholders' equity.......... 46,277 40,353 62,777 68,330 61,827 57,108
See notes to Selected Historical Financial Data
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NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(a) Operating expenses include charges for restructuring and idle equipment of
$14.3 million, $7.0 million and $12.0 million in 1995, 1994 and 1993,
respectively.
(b) Other, net includes the restructuring and idle equipment charges noted
above, foreign translation losses, net, of $255,000, $38,000, $7.0 million,
$5.2 million, $122,000 and $201,000 in 1996, 1995, 1994, 1993 and nine
months ended September 30, 1997 and 1996, respectively, litigation reserve
of $2.4 million in 1996, and other income, net which includes interest
income and gains on marketable securities, net of $2.3 million, $2.8
million, $1.8 million, $222,000, $811,000, $2.5 million and $711,000 in
1996, 1995, 1994, 1993, 1992 and nine months ended September 30, 1997 and
1996.
(c) 1995 includes a $2.8 million charge and 1993 includes a $1.5 million
benefit for adjustment of deferred taxes for changes in enacted tax rates.
The 1995 amount pertained to decreases in Brazilian local tax rates and the
1993 amount pertained to increases in the U.S. federal corporate tax rate.
(d) Represents charges in connection with the early extinguishment of
indebtedness in 1994 and 1992 of $114,000 and $9.6 million, respectively,
net of associated tax benefits of approximately $5.0 million in 1992 and
the cumulative effect in 1992 on prior years of adopting Statement of
Financial Accounting Standards No 109, "Accounting for Income Taxes," of
$1.6 million.
(e) EBITDA represents income (loss) from operations before depreciation and
amortization. Adjusted EBITDA represents income from operations before
depreciation and amortization, and charges for restructuring and idle
equipment. EBITDA and Adjusted EBITDA are not intended to represent cash
flow from operations as defined by generally accepted accounting principles
and should not be considered as alternatives to net income as an indicator
of operating performance or to cash flow as a measure of liquidity. The
Company has included information concerning EBITDA and Adjusted EBITDA as
it understands that such items used by certain investors as measures of a
borrower's historical ability to service its debt. EBITDA and Adjusted
EBITDA, as presented, may not be comparable to similarly titled measures
reported by other companies, since not all companies necessarily calculate
EBITDA and Adjusted EBITDA in identical manners, and therefore are not
necessarily accurate means of comparisons between companies.
(f) Adjusted EBITDA margin is computed as Adjusted EBITDA as a percentage of
sales.
(g) Includes the amortization of deferred financing costs of $1.2 million,
$758,000, $782,000, $700,000, $1.4 million, $1.1 million and $770,000 in
1996, 1995, 1994, 1993 and 1992 and the nine months ended September 30,
1997 and 1996, respectively.
(h) Cash interest expense represents interest expense less amortization of
deferred financing costs noted in the above note(g).
(i) For purposes of determining the ratio of earnings to fixed charges,
"earnings" consist of income before income taxes and fixed charges and
fixed charges consist of interest (including capitalized interest) on all
indebtedness, amortization of deferred financing costs and that portion of
rental expense that management believes to be representative of interest.
The deficiency in earnings to fixed charges for the years 1995 and 1994
amounted to $32.2 million and $8.1 million, respectively.
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42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading global provider of secure transaction solutions,
documents and systems for financial institutions, governments and corporations
through its operations in the United States, Brazil, Australia, New Zealand and
France. The Company designs solutions and manufactures products that incorporate
anti-fraud and counterfeit resistant technologies, including stored-value
telephone, magnetic-stripe, memory and microprocessor-based ("smart-card")
transaction cards, holograms, currencies, travelers' and other checks, stock and
bond certificates and a wide variety of electronically or digitally produced
personalized documents. Through selective acquisitions in international markets
and a program to realign its domestic manufacturing operations, the Company has
improved its financial performance and expanded its global presence,
technological base and product lines. From 1992 to 1996 (on a pro forma basis),
the Company's sales and EBITDA increased from $171.9 million and $34.1 million
to $365.2 million and $69.3 million, respectively.
In 1993, in order to address the high cost structure in its domestic
manufacturing facilities, to diversify its product offerings and reduce its
dependence on traditional security printing, the Company began to expand
internationally and realign, consolidate and upgrade its domestic manufacturing
operations. The Company closed its Los Angeles and Chicago manufacturing
facilities and opened a state-of-the-art manufacturing facility in Columbia,
Tennessee. In connection with this program, the Company incurred restructuring
charges of $12.0 million, $7.0 million and $14.3 million in 1993, 1994 and 1995,
respectively. The substantial completion of the Company's realignment in 1996
resulted in increased operating efficiencies and a reduction in manufacturing
and overhead costs, and has enabled the Company to bid on contracts more
competitively, as evidenced by its recently awarded contract to produce currency
at its new Tennessee facility for the Reserve Bank of India. In addition, over
the last three years, the Company has made significant investments, across its
geographic markets, in state-of-the-art manufacturing and distribution
equipment, systems and technologies to allow it to further reduce manufacturing
costs and provide advanced solutions for its customers.
The Company's international expansion began in 1993 with the acquisition of
its Brazilian subsidiary, the largest private-sector security printer and
manufacturer of transaction cards in Latin America and a leading stored-value
telephone card manufacturer in Brazil. This expansion continued in 1996 with the
acquisition of LM, Australia and New Zealand's oldest, largest and only fully
integrated provider of secure document and transaction card solutions. Most
recently, the Company expanded its international presence in August 1997 through
the acquisition of the Sati Group, one of France's leading providers of check
personalization and electronic printing applications. The Company's
international expansion has allowed it to capitalize on high growth markets and
diversify into new geographic markets.
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43
The realignment of the Company's domestic manufacturing facilities and its
international expansion have allowed it to successfully diversify its product
mix and customer base and to expand into higher growth markets. The following
table illustrates the shift in the composition of the Company's sales by product
group.
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
---------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN MILLIONS)
SALES:
Transaction Cards &
Systems................ $27.4 13.2% $51.0 24.8% $120.6 39.0% $84.1 38.7% $83.3 33.5
Printing Services &
Document Management.... 2.5 1.2 21.3 10.3 49.2 15.9 36.0 16.5 43.6 17.6
Security Printing
Solutions.............. 178.2 85.6 133.9 64.9 139.7 45.1 97.5 44.8 121.5 48.9
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
$208.1 100.0% $206.2 100.0% $309.5 100.0% $217.6 100.0% $248.4 100.0%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
In 1996, the Company's customers included some of the largest users of
secure transaction solutions in each of its markets, such as Bradesco and
Telebras in Brazil, Telstra, Westpac, ANZ and National Australia Bank in
Australia, Visa(TM), MasterCard(TM), American Express and the federal government
in the United States and Banque Nationale de Paris in France. Management
believes that the Company's 200-year history, reputation for high quality
products and services, long-standing customer relationships and
solutions-oriented approach for secure transactions allow the Company to capture
an increasing part of its customers' business and provides a competitive
advantage in obtaining new business.
The Company's expansion into international markets has increased its sales
and earnings from foreign subsidiaries. See Notes A and L of "Notes to
Consolidated Financial Statements." The foreign jurisdictions in which the
Company currently operates do not restrict the repatriation of dividends and the
distribution of funds. The Company received an aggregate of $9.9 million in 1996
and $8.9 million for the nine months ended September 30, 1997 from its Brazilian
subsidiary. The Company's Australian subsidiary was prohibited under its
existing credit agreement from making dividend distributions to the Company in
1996.
RESULTS OF OPERATIONS
Comparison of Nine Months Ended September 30, 1997 and 1996
Sales increased by $30.8 million or 14.2% from the 1996 period. Sales of
Transaction Cards & Systems decreased $0.8 million or 1.0%, sales of Printing
Services & Document Management increased $7.6 million or 21.1%, and sales of
Security Printing Solutions increased $24.0 million or 24.6%. The net increase
in sales is due primarily to the inclusion of LM's sales for the entire 1997
period and the Sati Group's sales in 1997, aggregating $41.8 million. This
increase in sales was partially offset by reduced Transaction Cards & Systems
sales of stored-value telephone cards ($20.9 million). Sales by foreign
subsidiaries represented 70.7% of the Company's consolidated sales in the 1997
period as compared to 67.8% in the 1996 period, primarily due to the
acquisitions discussed above.
Cost of goods sold increased $23.5 million or 16.4%, principally due to the
inclusion of LM's cost of sales in the 1997 period. As a percentage of sales,
cost of goods sold was 66.9% in the 1997 period as compared to 65.6% in the 1996
period. This increase is primarily attributable to additional fixed costs
associated with the expanded manufacturing capacity in Brazil. Costs of goods
sold can be impacted by the mix of product sold. The product mix in any given
period is not indicative of the expected product mix in future periods.
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44
Selling and administrative expenses increased $1.6 million (4.7%) from
1996, principally due to the LM acquisition. As a percentage of sales, selling
and administrative expenses were 14.0% in the 1997 period as compared to 15.3%
in the 1996 period.
Depreciation expense increased $3.1 million, primarily due to the LM
acquisition and the expansion of manufacturing capacity.
Interest expense increased $4.2 million in the 1997 period, primarily due
to debt incurred in Australia and New Zealand to acquire LM and debt in Brazil
to fund increased manufacturing capacity.
Foreign translation losses, net, are a result of the translation of
Brazilian local currency financial statements into US dollars.
Other income, net, increased $1.8 million, primarily due to gains on
marketable securities, increased interest income and a decrease in other
expenses.
The cumulative tax provision is calculated using an estimated annual
effective income tax rate at the end of each reporting period. The rate is
reviewed and adjusted periodically to reflect changes in estimates by tax
jurisdictions in regulations, rates, deductibility of expenses, utilization of
tax credits, potential tax exposures, and state and local taxes. Reductions in
liabilities for taxes no longer required considerably impacted the estimated
annual effective income tax rate.
Minority interest in 1997 and 1996 represents the 22.5% minority interest
in ABNB, and in 1996 also included a 45% minority interest in LM.
Comparison of 1996 and 1995
Sales increased by $103.3 million or 50.1% from 1995. Sales of Transaction
Cards & Systems increased $69.6 million or 136.5%, principally due to increases
in sales of stored-value telephone cards ($48.7 million) and LM's sales since
June 1, 1996 ($20.6 million). Sales of Printing Services & Document Management
increased $27.9 million or 131.0%, principally due to including Grafica Bradesco
Ltda.'s ("Grafica Bradesco") sales for the full 1996 year and LM's sales since
June 1, 1996. Sales of Security Printing Solutions increased $5.8 million or
4.3%, principally due to LM's sales since June 1, 1996 ($25.6 million), offset
partially by decreased sales of food coupons ($9.0 million), personalized checks
($5.5 million, excluding LM's sales), currency ($3.0 million) and other
products.
Cost of goods sold increased $53.1 million or 35.6%, including LM's cost of
sales ($30.1 million), from 1995, as a result of increased sales. As a
percentage of sales, cost of goods sold declined to 65.3% in 1996 from 72.3% in
1995. Security Printing Solutions margins improved in 1996 due to product mix
and the nonrecurrence of certain charges that are included in the 1995 cost of
sales. In addition, the percentage of cost of goods sold was also favorably
impacted due to the cost reductions realized from the 1995 plant closure and
downsizing plan, which was offset in part by the start-up of the Tennessee
facility. The 1995 plant closure and downsizing plan was substantially completed
in the second quarter of 1996. Margins were favorably impacted by increased
sales of Transaction Cards & Systems as discussed above. The product mix in any
given period is not indicative of the expected product mix in future periods.
Selling and administrative expenses increased $8.4 million (21.1%) from
1995 principally due to the above acquisitions ($13.4 million), partially offset
by reduced corporate overhead ($4.0 million) and Security Printing Solutions
selling expenses ($1.0 million) as a result of the 1995 restructuring. As a
percentage of sales, selling and administrative expenses declined to 15.6% in
1996 from 19.3% in 1995.
Depreciation expense increased $5.2 million in 1996 from 1995 principally
due to the above acquisitions and to the expansion of the Transaction Cards &
Systems manufacturing capacity.
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45
Interest expense increased $5.7 million in 1996 primarily due to debt
incurred in Australia and New Zealand to acquire LM and to fund the expansion of
the Transaction Cards & Systems manufacturing capacity.
The Company recorded a $2.4 million provision relating to shareholder
litigation. See Note M of "Notes To Consolidated Financial Statements."
Foreign translation losses, net is a result of the translation of Brazilian
local currency financial statements into US dollars.
Other income, net, decreased $0.6 million principally due to an unrealized
loss in marketable securities ($1.0 million) partially offset by increased
interest and other income.
Taxes on income (benefit) are calculated using effective tax rates for each
tax jurisdiction and various assumptions such as state and local taxes and
utilization of foreign tax credits. See Note F of "Notes To Consolidated
Financial Statements."
Minority interest principally represents the ABNB 22.5% minority interest.
Comparison of 1995 and 1994
Sales decreased by $1.9 million or 0.9% from 1994. Transaction Cards &
Systems sales increased $23.6 million or 86.1%, principally due to stored-value
telephone cards ($19.0 million) and optical variable devices ($4.8 million).
Printing Services & Document Management sales increased $18.8 million or 752.0%,
principally due to the inclusion of Grafica Bradesco sales since the July 1,
1995 acquisition date. Security Printing Solutions sales decreased $44.3 million
or 24.9%, principally due to food coupons ($22.2 million), foreign security
products ($15.1 million), personalized checks ($6.8 million), stock and bonds
($5.7 million) and was partially offset by increases in sales of other products.
Cost of goods sold increased $18.1 million or 13.9% from 1994 and as a
percentage of sales was 72.3% in 1995 as compared to 62.9% in 1994. Cost of
goods sold attributable to Printing Services & Document Management increased as
a result of the Grafica Bradesco acquisition, which resulted in a change in
product mix. In addition, in the second quarter of 1995 increased costs
associated with the write-off of inventory related to work for an overseas
customer that went out of business and manufacturing losses on certain other
orders. The cost of sales percentage also was impacted by reduced margins in
Brazil since margins in the prior year were higher as sales included
inflationary price adjustments which were eliminated as part of Brazil's
Economic Stabilization Program. While margins were lower due to this program,
earnings were favorably impacted by the substantial elimination of translation
losses. The added Transaction Cards & Systems stored-value telephone card
production lines increased fixed manufacturing costs, which was offset, in part,
by lower Security Printing Solutions fixed manufacturing cost.
Selling and administrative expenses increased by $0.9 million from 1994
(2.3%) primarily as a result of the settlement of an executive severance
agreement and increased selling and administrative expenses due principally to
the Grafica Bradesco acquisition. As a percentage of sales, selling and
administrative expenses increased to 19.3% from 18.7% in 1994.
Depreciation expense increased $1.7 million in 1995, principally as a
result of the Grafica Bradesco acquisition ($0.7 million) and the expansion of
the Transaction Cards & Systems manufacturing capacity.
Interest expense increased $2.1 million in 1995 primarily due to the
issuance in May 1994 of the $65.0 million 11 5/8% Notes at a higher rate of
interest than the $40.0 million of bank debt it replaced.
Foreign translation losses, net is a result of the translation of Brazilian
local currency financial statements into US dollars. Improving economic
conditions in Brazil stemming from the country's
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46
July 1994 Economic Stabilization Program resulted in a $7.0 million reduction in
foreign translation losses.
Other income, net, increased $1.0 million principally due to an unrealized
gain in marketable securities.
Income taxes reflect a benefit in 1995 as a result of losses. The benefit
rate was lower than the 1994 effective tax rate, principally due to limitations
on deducting certain expenses for state tax purposes. As a result of changes in
enacted tax rates in 1995 ABNB realized a reduction in the net deferred tax
liability of $2.8 million.
The minority interest represents a 22.5% minority interest in ABNB's
operations since July 1, 1995.
Restructuring
In 1995, the Company recorded a pre-tax restructuring charge of
approximately $14.3 million pursuant to a restructuring plan developed by
management for the domestic security printing operations and the downsizing of
its corporate offices. The plan was substantially completed in the second
quarter of 1996.
The 1995 restructuring charge provided for those reasonably estimable costs
resulting from the plan, including costs that are: (i) associated with and will
not benefit activities that will continue or generate future revenue and are
incremental as a result of the plan; (ii) incurred under contractual agreements
(i.e. leases and employment agreements) that existed prior to the commitment
date that provide no future economic benefit; or (iii) related to asset
impairments and writedowns resulting directly from the plan. The Company had
estimated the pre-tax annual cost savings would be approximately $6.5 million,
of which approximately $5.3 million were manufacturing related fixed costs. The
Company began to realize the cost savings in the second quarter of 1996. The
Company reduced its domestic workforce by about 27% and provided a $2.9 million
reserve for severance and related costs.
Asset re-valuations and writedowns accounted for $5.0 million of the 1995
charge which reduced certain assets to their net realizable value and primarily
related to leasehold improvements.
Lease and other facility obligations accounted for $6.4 million of the 1995
charge for facilities closed in 1996.
The future cash outlays for the remaining restructuring reserve of $5.0
million at December 31, 1996 are anticipated to be $1.5 million in 1997, $1.2
million in 1998, $1.1 million in 1999 and 2000, and $0.1 million in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had approximately $3.6 million in cash
and cash equivalents and marketable securities. The Existing Credit Facility
provides for a three-year, $20.0 million revolving credit facility for general
working capital and letters of credit. At September 30, 1997, the Company had
approximately $13.3 million of availability under the Existing Credit Facility
before reductions for $3.6 million of outstanding letters of credit and $3.2
million of borrowings. In November 1997, the Existing Credit Facility was
amended through May 1998 to increase the current availability by $10.0 million.
In addition, LM and the Sati Group had available unused lines of credit of
approximately $2.4 million and $1.4 million, respectively. The Company's
long-term debt included $126.5 million of 10 3/8% Notes outstanding, $65.0
million of 11 5/8% Notes outstanding, $57.8 million of Leigh-Mardon Debt, $11.7
million of borrowings in Brazil, $9.5 million of the Sati Group debt and $8.6
million of other debt. Approximately $55.3 million of the 11 5/8% Notes and
outstanding amounts under the Existing Credit Facility are intended to be repaid
with the proceeds of the Offering. See
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47
"The Refinancing," "Use of Proceeds" and "Description of Certain
Indebtedness -- Existing Credit Facility."
Operating cash flows increased $4.0 million for the nine months ended
September 30, 1997 as compared to the same period in 1996 (before changes in
operating assets and liabilities) primarily as a result of increased earnings
and higher depreciation and amortization, partially offset by reduced non-cash
minority interest charges. The increase in certain non-cash charges, such as
depreciation and amortization, is due mainly to the LM and Sati Group
acquisitions and increased capital expenditures in the prior year.
Operating assets and liabilities also affected cash flows. The net decrease
in operating cash flows from such changes of $1.7 million, in the nine months
ended September 30, 1997 as compared to the same period in 1996, was primarily
due to the timing of accounts payable and accrued expenses.
Investing activities for the nine months ended September 30, 1997 included
$5.5 million for an acquisition in Brazil of the leading manufacturer of
personalized financial transaction cards. The acquisition did not have a
significant effect on the Company's results of operations. The reduced level of
capital expenditures in the 1997 period reflected the completion of the
expansion of manufacturing capacity in Brazil.
Financing activities for the nine months ended September 30, 1997 included
the issuance of a Convertible Debenture, exercise of warrants and stock options,
increased debt payments, reduced borrowings and an increased dividend payment to
ABNB's minority shareholder.
For the year ended December 31, 1996, the Company generated $7.6 million of
cash flow from operating activities compared to a use of cash of $4.5 million in
1995, and cash generated of $6.2 million in 1994.
Operating cash flows (before changes in operating assets and liabilities)
increased $33.3 million, in 1996 as compared to 1995, principally as a result of
increased earnings ($26.5 million), depreciation and amortization ($6.6
million), and minority interest charges ($3.7 million), partially offset by
decreased non-cash provisions for restructuring ($14.2 million) and deferred tax
benefits ($6.3 million). Operating cash flows (before changes in operating
assets and liabilities) decreased $24.3 million, in 1995 as compared to 1994,
principally as a result of decreased earnings ($16.7 million), increased
non-cash deferred tax benefits ($13.6 million) and decreased foreign translation
losses ($7.0 million), partially offset by increased non-cash provisions for
restructuring ($8.1 million), depreciation and amortization ($4.1 million) and
minority interest charges ($1.6 million). The increase in certain non-cash
charges, such as depreciation and amortization, and minority interest is due in
part to acquisitions.
Changes in operating assets and liabilities also affected operating cash
flows. The net decrease in operating cash flows from such changes of $21.2
million, in 1996 as compared to 1995, was principally due to the LM acquisition,
as certain operating assets, principally receivables ($8.5 million), were not
acquired, and to increased levels of receivables and inventory in 1996 ($31.9
million), partially offset by changes in other assets and liabilities. Operating
cash flows from such changes increased $13.6 million, in 1995 as compared to
1994, and was principally due to decreased levels of receivables and inventory
($27.8 million) in 1995, partially offset by decreased levels of accounts
payable ($11.3 million). The changes in assets and liabilities is due in part to
acquisitions and levels required to support sales and production requirements.
Investing activities for the years ended December 31, 1996, 1995 and 1994
used net cash flows of $24.5 million, $6.1 million and $8.4 million,
respectively, primarily for capital expenditures of $22.3 million, $10.4 million
and $10.1 million, respectively. In 1995, proceeds from the sale of a joint
venture provided $4.7 million of cash.
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48
The significant increase in capital expenditures in 1996 was due to several
programs, including the completion of a three-year program at the Company's Rio
de Janero facility, which added significant stored-value card production
capabilities, and the establishment of advanced document printing, storage and
distribution capabilities in its new Sao Paulo facility. The Company anticipates
that capital expenditures in 1997 and 1998 will be approximately $17.0 million
and $16.0 million, respectively. These amounts include approximately $5.0
million in each of 1997 and 1998 that management estimates will be required for
maintenance levels of capital expenditures. Such capital commitments include
amounts that will be financed through operating leases, capital leases, working
capital and cash flow.
Financing activities for the years ended December 31, 1996, 1995 and 1994
provided net cash flows of $7.5 million, $3.0 million and $18.9 million,
respectively. The activity in 1996 and 1995 was principally from borrowings in
connection with capital expenditures, as well as repayment of debt. In 1996, a
$2.8 million dividend payment was made to the ABNB minority shareholder. The
1994 activity was principally in connection with the 11 5/8% Notes which were
principally used to refinance certain debt ($40.0 million).
Management of the Company believes that cash flows from operations together
with cash balances, availability of funds under its and its subsidiaries' credit
facilities and proceeds from asset sales will be sufficient to service debt and
fund capital expenditures for the foreseeable future. The Company also believes
that it and its subsidiaries possess sufficient unused debt capacity and access
to debt and equity markets to pursue additional acquisition opportunities and
meet extraordinary working capital needs as they arise. In connection with a
proposed refinancing of all its indebtedness, the Company entered into certain
Treasury interest rate agreements in October 1997 that will result in a pre-tax
loss of approximately $2.3 million. The loss will be recorded in the fourth
quarter of 1997.
TAX LAW CHANGES
As a result of Brazilian tax legislation, effective for 1996, the 15%
dividend withholding tax on earnings after 1995 was eliminated. Additionally, in
1996, tax legislation which permits Brazilian companies to elect, subject to
certain limitations, to deduct dividends in computing taxable income; however,
there is a 15% withholding tax on dividends distributed in this manner. The
statutory tax rate in Brazil is approximately 33%.
IMPACT OF INFLATION
In 1994, the Brazilian government introduced a new currency as part of the
government's economic stabilization program designed to reduce the country's
hyper-inflation. As a result of this program, the inflation rate has decreased
substantially to approximately 4.6% for the first nine months of 1997, 10% for
1996 and 23% for 1995 as compared to 941% for 1994. The Company translates
ABNB's financial statements as if ABNB were operating in a hyperinflationary
economy. Currently, gains and losses resulting from translation and transactions
are determined using a combination of current and historical rates and are
reflected in earnings. If inflation rates in Brazil remain at current levels,
the method of translating ABNB's financial statements will be changed during the
fourth quarter of 1997 to the method used to translate LM's and the Sati Group's
financial statements, with such gains and losses reflected in a separate
component of equity. The Company's domestic and LM's and the Sati Group's
operations are not significantly affected by inflation. ABNB sales for the first
nine months of 1997 and for 1996 contributed 43% and 56%, respectively, of the
Company's consolidated sales. See "Risk Factors -- Foreign Operations."
See Note L of "Notes to Consolidated Financial Statements" for the
disclosure of certain financial information relating to foreign operations.
The Company has from time to time reorganized and restructured, and may in
the future reorganize and restructure, its foreign operations based on certain
assumptions about the various tax laws (including capital gains and withholding
tax), foreign currency exchange and capital repatriation laws and other relevant
laws of a variety of foreign jurisdictions.
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49
BUSINESS
OVERVIEW
The Company is a leading global provider of secure transaction solutions,
documents and systems. The Company designs solutions and manufactures products
that incorporate anti-fraud and counterfeit resistant technologies, including
stored-value telephone, magnetic-stripe, memory and microprocessor-based
("smart-cards") transaction cards, holograms, currencies, travelers' cheques,
personal and corporate checks, stock and bond certificates, food coupons,
passports, ID systems/driver's licenses and a wide variety of electronically or
digitally produced personalized documents. The Company sells these products and
services worldwide to financial institutions, governments and corporations
through its operations in the United States, Brazil, Australia, New Zealand and
France. Through selective acquisitions and strategic realignment, the Company
has positioned itself as a full service provider of technology-based solutions
for its customers' secure transaction needs. The Company's products and services
are divided into three principal groups: Transaction Cards & Systems, Printing
Services & Document Management and Security Printing Solutions. For the twelve
months ended September 30, 1997, the Company's pro forma sales and EBITDA were
$357.7 million and $67.4 million, respectively.
The Company is capitalizing on the following trends: (i) the increasing
demand for secure transactions and documents as technological advances have
elevated concerns about counterfeiting; (ii) the increasing demand for secure
products, services and systems used in the rapidly expanding field of electronic
commerce; and (iii) the increasing outsourcing by financial institutions,
governments and major corporations of their secure document needs. The Company's
200-year heritage and its reputation for security, high quality and
accountability have enabled it to obtain additional contracts in its markets and
effectively market an expanded array of value-added products and services to its
customers. The Company continually works with customers to develop new products
and applications, blending its experience and traditional base of secure
handling and distribution expertise with its advanced technologies. Management
believes its reputation and its ability to provide a diverse mix of products and
services will allow it to obtain contracts with new customers and expand into
new geographic markets.
In 1993, the Company began positioning itself to capitalize on
international growth opportunities and began diversifying its product mix to
include technology-based products, services and solutions. The Company's
international expansion began with the acquisition of its Brazilian subsidiary,
the largest private-sector security printer and manufacturer of transaction
cards in Latin America and a leading stored-value telephone card manufacturer in
Brazil. This expansion continued in 1996 with the acquisition of Australia and
New Zealand's oldest, largest and only fully integrated provider of secure
document and transaction card solutions. Most recently, the Company expanded its
international presence in August 1997 through the acquisition of one of France's
leading providers of check personalization and electronic printing applications.
The Company also initiated, in 1994, a program to realign and upgrade its
domestic manufacturing operations, realize process efficiencies and reduce
costs. These steps, together with its international expansion, resulted in
improved financial performance and have allowed the Company to rapidly broaden
its international presence, technological base and product lines. From 1992 to
1996 (on a pro forma basis), the Company's sales and EBITDA have increased from
$171.9 million and $34.1 million to $365.2 million and $69.3 million,
respectively, representing compound annual growth rates of approximately 21% and
19% for sales and EBITDA, respectively.
BUSINESS STRATEGY
The Company's strategy is to leverage its market leadership, superior
reputation and strong customer relationships to capitalize on the increasing
demand for high quality and cost effective secure transaction solutions. In
order to accomplish its goal, the Company intends to: (i) enhance its leadership
positions in diverse geographic markets; (ii) provide solutions-oriented
products and
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services; (iii) pursue strategic acquisitions and alliance opportunities; and
(iv) increase manufacturing efficiencies and reduce costs.
Enhance Leadership Positions in Diverse Geographic Markets. The Company
seeks to enhance its leadership position by developing new products and services
and expanding its geographic presence to provide customers with a full range of
secure transaction solutions. The Company targets new industries and geographic
markets in which it believes it can capture a large share of the market by
providing high quality, cost effective products and services and by offering its
advanced technological capabilities. Management believes that the growth
potential of products such as stored-value cards and electronic printing
applications as well as an increase in the demand for printing, storage and
document services will allow the Company to enhance its strong leadership
position in Brazil, Australia, New Zealand and France and to continue its
expansion into new geographic markets.
Provide Solutions-Oriented Products and Services. The Company focuses on
providing products and services designed to address all of a customer's secure
transaction and document needs. For example, in addition to printing documents
for Bradesco, Latin America's largest private bank, the Company personalizes
these documents and manages Bradesco's inventory by distributing on a
"just-in-time" basis to each of Bradesco's approximately 2,000 branches.
Additionally, Bradesco's branches are linked electronically with the Company's
310,000 square foot Sao Paulo, Brazil facility and place their orders directly
with the Company, eliminating the need for central inventory management at
Bradesco. Management believes that the ability to provide a full array of
products and services for all of its customers' secure transaction and document
needs will increase the revenues from existing clients and allow the Company to
obtain contracts with new clients.
Pursue Strategic Acquisitions and Alliances. The Company continuously
evaluates domestic and international opportunities for strategic acquisitions,
joint ventures and alliances which complement and expand its core businesses.
The Company believes that significant opportunities exist that will enable the
Company to: (i) provide additional products and services to its existing
customer base; (ii) cross-sell products and services to an expanded customer
base; and (iii) expand its geographic presence. Examples of this strategy
include the acquisition of LM in June 1996 and the Sati Group in August 1997. LM
is the leading manufacturer and personalizer of checks and transaction cards in
Australia and New Zealand and its acquisition marked the Company's entry into
the Australasian market. The Sati Group is the second largest provider of check
personalization and distribution services in France and its acquisition marked
the Company's entry into the European market. The Company is presently exploring
additional acquisition opportunities to: (i) increase market share; (ii) broaden
its product and service offerings to existing customers; and (iii) expand its
geographic presence.
Increase Manufacturing Efficiencies and Reduce Costs. The Company is
committed to continuous improvements throughout its business to increase product
value and lower the Company's manufacturing costs. For example, the Company
realigned and consolidated its domestic manufacturing operations by closing the
Company's Los Angeles and Chicago facilities and opening a state-of-the-art
manufacturing facility in Columbia, Tennessee. These changes significantly
decreased manufacturing costs and allowed the Company to increase profitability
and bid on contracts more competitively, as evidenced by its recently awarded
contract to produce currency at its Tennessee facility for the Reserve Bank of
India. The Company has also made significant investments, both domestically and
internationally, in state-of-the-art manufacturing and distribution equipment,
systems and technologies to allow the Company to reduce costs, increase capacity
and provide the most advanced secure transaction solutions available.
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PRODUCT LINES
The Company serves its customers through three principal groups:
Transaction Cards & Systems; Printing Services & Document Management; and
Security Printing Solutions.
As illustrated by the charts below, the Company has successfully
diversified its business mix and expanded into growth markets, thereby reducing
its dependence on traditional security printed products.
SALES BY PRODUCT GROUP
[PIE CHART A]
TRANSACTION CARDS & SYSTEMS
The Company is a leading supplier of a wide range of transaction cards and
products and systems in Brazil, Australia, New Zealand and the United States.
The Company is rapidly expanding its production and services capabilities to
capitalize on the increasingly cashless nature of financial transactions, which
primarily include: (i) stored-value cards, of which the Company is the largest
producer in Brazil and Australia; (ii) transaction cards and personalization
services; (iii) holograms, of which the Company is the world's leading supplier;
and (iv) equipment sales and services.
Stored-Value Cards. The Company entered the stored-value card market in
Brazil with the acquisition of ABNB and in Australia with the acquisition of LM.
These acquisitions have allowed the Company to rapidly expand its capabilities
and presence in regions where cashless transactions are expected to have
significant future growth. The Company is the largest supplier of stored-value
telephone cards in Brazil and Australia through its contracts with Telebras,
Brazil's national telephone company, and Telstra, Australia's national telephone
company. The Company also supplies stored-value cards to firms in the financial
and transportation industries.
The Company is also investing in smart-card development, which management
believes will complement much of the traditional magnetic-stripe card market.
The Company secured its first major smart-card contract with Telstra to supply
Telstra Eurochip telephone cards and is the only accredited third party supplier
and initializer of Visa Cash smart-cards in the world. The Company has also
identified a number of opportunities to produce smart-cards in Brazil, Australia
and New Zealand and has made significant investments in the equipment and
technology necessary to make and manufacture smart-cards for existing markets,
as well as export markets. The Company also believes that its significant
investments in smart-card technology will allow it entry into new markets,
including the United States.
Transaction Cards and Personalization Services. The Company is a leading
producer and personalizer of magnetic-stripe transaction cards, including
credit, debit, ATM, transportation, access and identification cards, supplying
customers in Brazil, Australia and New Zealand and certain other countries. The
Company supplies cards to financial institutions, including those issued
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for American Express, VISA(TM) and MasterCard(TM), as well as cards for major
corporations and other institutions. The Company has the ability to incorporate
a number of security features, including holograms, in substantially all of the
cards it produces.
In Australia, New Zealand and Brazil, the Company is a leader in the
manufacturing and personalization of plastic transaction cards, including
credit, debit and loyalty cards. The Company also handles large scale license
contracts for many Brazilian and Australian states and New Zealand, including
the production and personalization of drivers' and shooters' licenses. In
addition, the Company issues licenses and acts as administrative agent for the
motor vehicle departments of a number of Brazilian states.
Holograms. The Company is the world's leading supplier of holographic
security applications principally used as counterfeit deterrents on transaction
cards and other products. Holograms are two or three dimensional laser generated
optical variable devices which the Company produces and can be applied to
documents and products using a patented hot stamp application procedure. The
Company is the sole provider of transaction card holograms to MasterCard(TM),
Discover(TM), Europay(TM) and Diners Club International, and is the majority
provider of transaction card holograms to Visa(TM). To date, the Company has
produced and sold over six billion holograms for use on financial transaction
cards.
Equipment Sales and Service. The Company is a direct and third party
supplier of point of sale ("POS") and electronic funds transfer point of a sale
terminals ("EFTPOS") suitable for magnetic-stripe and smart-card applications,
PIN pads, customer service equipment and specialized software in Australia and
New Zealand. In addition, the Company has recently entered into a memorandum of
understanding with a major foreign manufacturer of terminals to develop POS and
EFTPOS terminals in Brazil. The Company's management believes a major
opportunity exists in these markets as transaction terminals are converted to
read both magnetic-stripe cards and smart-cards.
PRINTING SERVICES & DOCUMENT MANAGEMENT
The Company is continuing to expand its Printing Services & Document
Management business, as public and private sector institutions increasingly
outsource their in-house printing, personalization and document processing
operations around the world. Utilizing advanced inventory control systems and
"just-in-time" distribution capabilities, the Company helps businesses and
governmental institutions effectively lower costs by supplying all of their
printing, storage, processing and distribution needs.
Electronic Printing Applications. The Company is a full service provider
of electronic printing applications to a number of its corporate and government
customers. Electronic printing applications encompass the secure data handling,
electronic printing, personalization and mailing of documents for large-scale
billing cycles. This process consists of computer-driven, variable data
electronic printing, normally onto pre-printed base stock. Primary applications
are billing and fund collection systems, check and credit card statements,
letter checks and invoices.
In Australia, New Zealand, Brazil and France, the Company provides
electronic printing application services for institutions in the banking,
insurance, utilities and telecommunication industries, as well as a number of
state and federal government agencies. In Australia and New Zealand, for
example, LM has been awarded contracts by Victoria Workcover, Department of
Social Security, and Gas & Fuel. In Brazil, the Company is a leading provider to
the banking industry with multi-year contracts with, among others, Bradesco, and
supply purchase arrangements with major banks, such as Unibanco.
Printing, Storage & Distribution. The Company prints products such as
business forms and checks, and provides storage and distribution services to the
end user on behalf of its customers. For example, in September 1996, the Company
won a major contract to print and distribute medical forms for the Australian
Health Insurance Commission, a government agency which previously had
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performed this function in-house. In connection with this contract, the Company
prints, stores and distributes more than 500 million Medicare Direct Bill
Payment Program forms annually, to more than 45,000 doctors throughout
Australia. The Company also prints, stores and distributes many other products
for its customers, such as travelers' cheques, which it distributes worldwide,
and food coupons for the USDA, which it distributes throughout the United
States.
SECURITY PRINTING SOLUTIONS
The Company is one of the world's leading printers of counterfeit-resistant
documents of value, including checks, money orders, passports, foreign currency,
stock and bond certificates and other commercial documents of value such as gift
certificates. Special materials, elaborate steel-engraved designs and
distinctive lithographic and intaglio printing techniques enable the Company to
manufacture products containing state-of-the-art security features. The Company
also offers anti-counterfeit features such as hidden, invisible and holographic
images used to verify authenticity on packaging. The Company's holograms are
used for accountability programs and product authentication with major licensing
organizations to prevent the sale of counterfeit goods. To ensure the protection
of its customers' orders, the Company's manufacturing, storage and distribution
facilities employ high levels of plant security, including guards, alarms, video
monitoring and extensive accountability controls. The Company recently opened a
security printing facility in Columbia, Tennessee, which utilizes
state-of-the-art multi-color presses that produce the cost effective, high
quality documents demanded by its customers. As a result of its reputation,
experience and technological expertise, the Company was recently awarded a $14
million contract to print currency for the Reserve Bank of India at its new
Tennessee facility.
Checks. The Company is the leading private sector supplier of personalized
checks for major banks in Brazil, Australia and New Zealand and the second
largest in France. Under multi-year contracts, the Company supplies the largest
banks and other financial institutions in their respective markets with checks,
same-day check personalization, and a wide array of security printing products
such as money orders and deposit books. Management of the Company believes that
additional Brazilian, Australian, New Zealand and French banks will seek to
outsource check printing and personalization, thus providing opportunities for
the Company to expand its leadership in this product area.
The Company believes that it is one of the largest printers and
distributors of travelers' cheques in the world. Customers include American
Express, Citicorp, MasterCard(TM), VISA(TM) and their issuing banks. Management
believes a large number of its contracts are the results of the Company's
success in cross-selling to existing transaction card customers.
Stocks and Bonds. The Company is the largest producer of traded stock and
bond certificates in the world. The Company produces intaglio printed
certificates with the unique border designs and vignettes as are required by the
New York Stock Exchange. The Company maintains a library of engraving plates for
a large percentage of publicly traded securities.
Government Products. Government products include a variety of security
documents printed for federal, state and local governments throughout the world.
The Company manufactures food coupons, currency, passports, visas, tax revenue
stamps, postal panels, social security cards and similar products for federal
governments. The Company also supplies secure documents, such as motor vehicle
registrations, title certificates and licenses, birth certificates, identity
cards, and transportation passes for its government customers. For example, the
Company prints American Commemorative Postage Stamp Panels for the United States
Postal Service, money orders for the Australian Post, U.S. Social Security
cards, and passports for such countries as Venezuela and Lebanon.
The USDA is the Company's largest domestic customer for whom it has printed
food coupon requirements for more than 20 years. Food coupons are intaglio
printed documents accepted by grocery stores in lieu of currency used by
millions of Americans every year.
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SALES AND MARKETING
The Company sells its products and services through a combination of direct
sales personnel, commissioned sales personnel, independent sales representatives
and alliances. The Company markets and sells secure products and services to a
number of financial institutions, corporations, governments and government
agencies worldwide. The sales force is supported by marketing professionals who
provide research and product development assistance. The sales and marketing
activity is focused on the three main product groups with markets defined by
geographic territories.
Customers consider security, quality, reputation, features and
accountability as key factors when selecting a supplier of secure transaction
solutions, documents and systems. The Company believes that it satisfies each of
these criteria in a cost effective manner, which has contributed to its growth.
The Company's sales and product development personnel also work with customers
to develop new products and security features to insure that they will have the
most advanced security features and products available.
NEW INITIATIVES
The Company has recently added capabilities in transaction processing to
its domestic operations and has begun the acquisition of merchant processing
portfolios. These businesses, operating as American Banknote Card Services, Inc.
and American Banknote Merchant Services, Inc., service credit, debit, ATM and
EBT transactions through proprietary computer and telephone switching hardware
and software which process the financial transactions, provide customized client
reporting and offer 7 day per week, 24 hours per day customer service and
support. The Company currently has relations with nearly 1,000 merchants which
process in excess of $60 million in merchant transactions per year and believes
this will grow through the acquisition of additional merchant accounts.
The Company recently invested in a 25% interest in Ordacard Hitech
Industries (1995) Ltd. in order to take advantage of expansion opportunities in
the Middle East and Africa. Through its facilities in an industrial development
zone located in Caesarea, Israel, the Company has access to a modern plastic
card facility with smart-card and advanced personalization capabilities. During
1996, the Company and Ordacard received a $1 million grant from the BIRD
Foundation of Israel to jointly develop smart-card based medical information and
payment systems to offer to the medical community. The Company offers
identification systems, security print and card manufacturing through its
arrangements with Ordacard in the Middle East and Africa.
PROPERTIES AND FACILITIES
LOCATION SIZE (IN SQ. FEET) OWNED OR LEASED OPERATIONS
- ------------------------------ ------------------ --------------- ------------------------------
UNITED STATES:
200 Park Avenue
New York, New York............ 12,500 Leased Executive, administration and
sales offices
Horsham, Pennsylvania......... 111,000 Owned Administration and sales
offices; printing
Columbia, Tennessee........... 50,000 Owned Printing
Elmsford, New York............ 59,000 Leased Administration, sales offices,
research and development and
hologram production
Caroline Road
Horsham, Pennsylvania......... 104,000 Owned Food coupon distribution and
storage
Philadelphia
Pennsylvania.................. 95,000 Owned Ink manufacturing and storage
Huntington Valley
Pennsylvania.................. 30,000 Leased Hologram production
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LOCATION SIZE (IN SQ. FEET) OWNED OR LEASED OPERATIONS
- ------------------------------ ------------------ --------------- ------------------------------
AUSTRALIA & NEW ZEALAND:
Highett, Victoria............. 139,000 Leased ABAL head office,
administration, sales imaging,
plastic cards, manufacturing
and personalization, smart-
card manufacturing and
personalization
Dry Creek
South Australia............... 32,000 Leased Sales, check personalization
and other printing
applications
Cheltenham, Victoria.......... 24,000 Leased Sales, manufacturing and
service of point-of-sale
devices
Wellington
New Zealand................... 23,000 Leased Sales, card manufacturing and
check and card
personalization; executive
offices
Kedron, Queensland............ 18,000 Leased Sales, check and card
personalization and printing
Rosebery
New South Wales............... 16,000 Leased Card printing and
personalization
Regents Park
New South Wales............... 16,000 Leased Sales and check
personalization
Auckland, New Zealand......... 15,000 Leased Check and card manufacturing
and personalization
Perth
Western Australia............. 13,000 Leased Sales, check personalization
and printing
Canberra, ACT................. 5,000 Leased Passport production
Auckland
New Zealand................... 4,000 Leased Card manufacturing and
personalization
BRAZIL:
Jandira
Sao Paolo..................... 310,000 Leased Printing, storage and
distribution, electronic
printing and smart-card
manufacturing and
personalization
Rio de Janeiro
Rio de Janeiro................ 140,000 Owned Checks, financial and
telephone cards, intaglio
documents and printing
Erechim
Rio Grande do Sul............. 30,000 Leased Production and personalization
of transaction cards
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LOCATION SIZE (IN SQ. FEET) OWNED OR LEASED OPERATIONS
- ------------------------------ ------------------ --------------- ------------------------------
FRANCE:
Chambray les
Tours, Tours.................. 43,000 Owned Headquarters, sales check
personalization and other
printing operations
Carquefou
Nantes........................ 18,000 Owned Sales and check
personalization
Dijon
Dijon......................... 18,000 Owned Sales and check
personalization
Meyzieu
Lyon.......................... 11,000 Owned Sales and check
personalization
COMPETITION
Competition in the Company's markets is based upon price, service, quality,
reliability and the ability to offer a broad range of secure transaction
products and services. Each of the Company's domestic and foreign operations
conducts its business in highly competitive markets. However, no one company is
a competitor across all of the Company's products and markets. Internationally,
the Company has competitors in currencies and passports in the United Kingdom,
Germany, France and Canada, while domestically there are several different
competitors depending on the product line. In Brazil and Australia, there is
competition across different products and services, but no one company offers
the full range of secure products and services as well as the national sales and
service coverage. In France, the Company, which has a number two market share
position, has many smaller competitors in a highly fragmented market. Certain of
the Company's competitors have greater financial resources than the Company. The
Company also competes with other printers in various product lines as well as
card manufacturers and other companies engaged in businesses unrelated to
printing. Goods or services that replace printed products and holograms could
also affect demand for the Company's products.
PATENTS
The Company presently holds, or is licensed under, many United States and
foreign patents, trademarks and copyrights and continues to pursue protection
when available in strategic markets.
BACKLOG
At September 30, 1997 and December 31, 1996, the Company had an overall
backlog of approximately $70 million and $77 million, respectively. The 1997 and
1996 backlog principally consisted of orders relating to stored-value telephone
cards, currency, food coupons, travelers' cheques, passports, personal checks
and financial payment cards. Generally, a substantial portion of the Company's
backlog is produced and shipped within twelve months.
RAW MATERIALS
The Company is not materially dependent upon any one supplier for raw
materials used in its business. Certain raw materials used are available from a
limited number or only a single source supplier and certain other products,
particularly for national governments, require domestic content which limits the
number of potential suppliers. The Company's relationships with its primary
suppliers are generally reliable.
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ENVIRONMENT
The Company engages in the use or disposal of substances that may be
considered to be toxic or hazardous substances under applicable environmental
laws. The Company believes that its compliance with such laws has not had, and
will not have, a material effect on its capital expenditures, earnings,
financial position or competitive position.
EMPLOYEES
At October 31, 1997, the Company had approximately 3,372 employees
consisting of 2,980 employees engaged in manufacturing, 362 engaged in plant
administration and sales and 30 in executive, corporate and administrative
functions. Approximately 64% of the Company's domestic employees, 43% of LM's
employees, and all of ABNB's employees are represented by labor unions. The
Company has multi-year contracts with labor unions covering a substantial number
of employees of ABN and ABNH, several of which were renegotiated or entered into
during 1997. The Company's future profitability will be dependent, in part, on
its ability to maintain satisfactory relationships with labor unions and
employees and in avoiding strikes and work stoppages. The Company considers its
employee relations to be very good.
LEGAL PROCEEDINGS
In January 1994, Vladimir v. United States Banknote Corporation, et al.,
and in February 1994, Sinay v. United States Banknote Corporation, et al., were
filed in the United States District Court for the Southern District of New York
(the "Class Action"). On June 16, 1995, the Court approved certification of a
class in Vladimir consisting of all persons who purchased stock in the open
market from April 1, 1993 through January 6, 1994. On February 26, 1996, the
Court dismissed the Sinay action, without prejudice. The parties have reached a
settlement in Vladimir, pursuant to a Stipulation of Class Action Settlement
executed on June 17, 1997. On September 30, 1997, the Court approved the
settlement dismissing the action, with prejudice.
Also, in January 1994, Atencio v. Morris Weissman, et al. was filed in the
Court of Chancery for the State of Delaware, New Castle County, against various
directors and/or officers of the Company, on behalf of a purported class and
derivatively on behalf of the Company. In February 1994, Rosenberg v. Morris
Weissman, et al. was filed in the same court. The Atencio and Rosenberg actions
assert claims for breach of fiduciary duty and allege the sale of Common Stock
while in possession of material non-public information. These cases have not
been actively pursued against the Company or the individual defendants. As
derivative actions, the Company's insurers will be responsible for the costs of
defending against such actions.
On November 1, 1994, the Company filed an action against Thomas De La Rue,
AG ("DLR") and its parent, De La Rue Plc in New York State Supreme Court, which
in December 1994 was removed to the United States District Court for the
Southern District of New York. The complaint alleges breach of contract in
connection with the 1993 purchase of the Company's Brazilian subsidiary from DLR
and seeks approximately $1.5 million in damages. DLR has asserted approximately
$400,000 in counterclaims. On September 17, 1997, the Court denied DLR's motions
for summary judgment, ruling the contract language ambiguous, and directed as an
issue for the jury whether the Company may pierce the corporate veil and proceed
with its claims against DLR's parent, De La Rue, Plc. A trial is expected to be
scheduled for early 1998.
On November 2, 1994, Thomas De La Rue AG v. United States Banknote
Corporation, et al. was commenced in the United States District Court for the
Southern District of New York. DLR alleges, among other things, breach of
contract in connection with the Brazil purchase agreement and the alleged
failure to expeditiously register with the SEC Company Common Stock issued to
DLR. DLR seeks approximately $4.0 million in connection with its claims. A trial
is expected to be scheduled for early 1998.
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During the year ended December 31, 1996, the Company recorded a $2.4
million ($0.07 per share after taxes) provision relating to pending litigation.
The Company's cost of settlement of the Vladimir action was $500,000.
The Company and its subsidiaries are parties to various additional lawsuits
(as both plaintiff and defendant) related to various matters in the normal
course of business, including patent infringement, contract, labor and
environmental, which in the opinion of management, are not anticipated to have a
material impact on its consolidated financial position or results of operations.
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MANAGEMENT
The following table sets forth certain information regarding the current
directors and executive officers of the Company and the Guarantors.
NAME AGE POSITIONS AND OFFICES
- ------------------------------------------- --- -------------------------------------------
Morris Weissman............................ 56 Chairman of the Board and Chief Executive
Officer of the Company and each Guarantor
John T. Gorman............................. 53 Executive Vice President and Chief
Financial Officer of the Company and each
Guarantor; Director of each Guarantor other
than ABN Investments, Inc. and ABN
Equities, Inc.
Harvey J. Kesner........................... 40 Executive Vice President, General Counsel
and Secretary of the Company and each
Guarantor; Director of ABN Securities
Systems, Inc., American Banknote Card
Services, Inc., American Banknote Merchant
Services, Inc., ABN Government Services,
Inc. and ABN CBA, Inc.
Patrick J. Gentile......................... 38 Vice President and Corporate Comptroller of
the Company and each Guarantor
Ward A.W. Urban............................ 37 Vice President, Treasurer and Assistant
Secretary of the Company and each Guarantor
Phillip Gray............................... 49 Managing Director of LM
Francis Lavelle............................ 48 Managing Director of Sati
Sidney Levy................................ 41 Managing Director of ABNB
Robert K. Wilcox........................... 50 Senior Vice President -- Manufacturing,
General Manager ABN
Josh Cantor................................ 38 Executive Vice President, General Manager
ABNH
Bette B. Anderson.......................... 69 Director of the Company
Dr. Oscar Arias S.......................... 57 Director of the Company
C. Gerald Goldsmith........................ 69 Director of the Company
Ira J. Hechler............................. 79 Director of the Company
David S. Rowe-Beddoe....................... 59 Director of the Company
Alfred Teo................................. 51 Director of the Company
Morris Weissman. Mr. Weissman has served as Chairman of the Board and
Chief Executive Officer and as a Director of the Company since 1990. Mr.
Weissman assumed the additional duties of Chief Operating Officer in July 1995.
Mr. Weissman was Chairman and Chief Executive Officer of United States Banknote
Company, L.P. ("USBC") a predecessor of the Company, from 1986 to 1990 and Vice
Chairman and Director of USBC's predecessor from 1976 to 1986. Mr. Weissman is a
Director of the Convenience and Safety Corporation and a Trustee of the Jackie
Robinson Foundation and the Business Council for the United Nations.
John T. Gorman. Mr. Gorman has served as Executive Vice President and
Chief Financial Officer of the Company since 1990. Mr. Gorman was Executive Vice
President and Chief Financial Officer of USBC from 1983 to 1990 and Senior Vice
President of Finance of USBC's predecessor from 1978 to 1983.
Harvey J. Kesner, Esq. Mr. Kesner has served as Executive Vice President
of the Company since June 1996 and as General Counsel and Secretary of the
Company since 1991. Mr. Kesner was an attorney in private practice for more than
five years prior to joining the Company.
Patrick J. Gentile. Mr. Gentile has served as a Vice President of the
Company since June 1995, as Comptroller since 1989 and has been an employee of
the Company's predecessors since 1986.
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Ward A.W. Urban. Mr. Urban has served as Treasurer of the Company since
August 1993 and as Vice President and Assistant Secretary since June 1995. Mr.
Urban was employed as an Assistant Vice President in the leveraged finance
department of Citibank, N.A. from August 1988 to August 1993.
Phillip Gray. Mr. Gray has served as General Manager of LM since 1990 and
was General Manager of its Data Card Division prior thereto since 1987.
Francis Lavelle. Mr. Lavelle has served as Managing Director of the Sati
Group since its acquisition by the Company in August 1997. Mr. Lavelle had
served as President of Solaic, S.A. since 1991, where he headed check
personalization and card operations, including smart-card manufacturing and
development, with facilities in France and Spain. Mr. Lavelle joined Sligos,
S.A., the prior owners of the Sati Group, in 1973.
Sidney Levy. Mr. Levy has served as Managing Director of ABNB since
February 1994. Prior to joining ABNB, Mr. Levy was employed as Managing Director
of De La Rue Lerchundi in Spain since 1991 and prior thereto was employed by
Thomas De La Rue Grafica e Servicos Ltda. in Brazil, serving in various
management capacities.
Robert K. Wilcox. Mr. Wilcox has served as Senior Vice
President -- Manufacturing of the Company since August 1995 and as Executive
Vice President -- Operations and General Manager of ABN since November 1995. Mr.
Wilcox was Vice President of US Operations for Transcontinental Printing and
previously held senior positions at the Bureau of Engraving and Printing as well
as Gowe Printing, Arcata Graphics and C.P.Y. Jeffries Banknote Co.
Josh Cantor. Mr. Cantor has served as Executive Vice President and General
Manager of ABNH since November 1995 and Executive Vice President of ABN since
September 1994. Mr. Cantor was Vice President -- Sales of ABN for more than five
years prior thereto.
Bette B. Anderson. Mrs. Anderson has served as a Director of the Company
since June 1994. She has served as President of Kelly, Anderson, Pethick &
Associates, Inc., a Washington based management firm, since 1991 until January
1996 when she became Vice Chairperson. Mrs. Anderson served as Undersecretary of
the Treasury from 1977 to 1981. Mrs. Anderson is a Director of ITT Corporation,
ITT Educational Services, Inc, United Payors & United Providers, Inc. and ITT
Hartford Group, Inc, and serves on various Board Committees of such companies.
Mrs. Anderson also is a member of the Treasury Historical Association, a
Director of the Miller Foundation at the University of Virginia and a member of
the Advisory Council of the Girl Scouts of America.
Dr. Oscar Arias S. Dr. Arias has served as a Director of the Company since
September 1995. He is the former President of Costa Rica and the 1987 Nobel
Peace Prize recipient. He is President of International Press Service, a
Director of the Arias Foundation for Peace and Human Progress, Stockholm
International Peace Research Institute and International Center for Human Rights
and Democratic Development Institute for International Studies at Stanford
University. In addition, Dr. Arias serves on the Board for the InterAction
Council, the International Negotiation Network of the Carter Center and
Transparency International and is an active member of The Commission on Global
Governance, the International Dialogue and the Society for International
Development.
C. Gerald Goldsmith. Mr. Goldsmith is a private investor. He has served as
a Director of the Company since 1990. He is a Director of Palm Beach National
Bank and Trust, a Director of Nine West Group, Inc. and a Director of
Innkeepers, USA.
Ira J. Hechler. Mr. Hechler is a private investor. He has served as a
Director of the Company since 1990. He is a Director of Leslie Fay Companies,
Inc. and Concord Camera Corp.
David S. Rowe-Beddoe. Mr. Rowe-Beddoe has served as a Director of the
Company since 1990. He has been Chairman of the Board of Welsh Development
Agency since 1993 and Chairman of the Development Board of Rural Wales since
1994. Mr. Rowe-Beddoe is also a Director of
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Cavendish Services Ltd. and Development Securities plc. Mr. Rowe-Beddoe
previously held various senior management positions, including at Revlon Inc.
and De La Rue plc, where he was an Executive Director.
Alfred Teo. Mr Teo has served as a Director of the Company since 1996. He
has been Chairman and Chief Executive Officer of Alpha Industries, Inc. of the
Sigma Plastics Group since 1979. Chairman and Chief Executive Officer of Red
Line Express since 1984, Hillman Eyes since 1992 and Alpha Technologies since
1990. Mr. Teo is a Director of Fleet Bank N.A. and a Trustee of St. Joseph's
Hospital and Stevens Institute of Technology.
EMPLOYMENT AGREEMENTS
Mr. Weissman serves pursuant to an employment agreement with the Company
with a term ending on December 31, 1999. The term of Mr. Weissman's agreement is
subject to automatic extension unless advance notice of non-renewal is given.
The agreement provides for a base salary of $800,000, with no guaranteed bonus.
Mr. Weissman participates in the Company's Executive Incentive Plan and pursuant
thereto, receives an annual bonus of up to 200% of base salary (as adjusted).
Mr. Gorman serves pursuant to an employment agreement with the Company with
a term ending on August 31, 1999. The term of Mr. Gorman's agreement is subject
to automatic extension unless advance notice of non-renewal is given. The
agreement provides for a base salary of $250,000 with no guaranteed bonus. For
1996, Mr. Gorman's agreement provides for an annual bonus in accordance with the
Company's Challenge 2000 Program. The bonus can range from 0-100% of base salary
based upon the level of achievement of corporate and personal goals.
Messrs. Kesner, Urban and Gentile participate in the Challenge 2000 Program
under which they are entitled to bonuses which can range from 0-100% of base
salary for Mr. Kesner, 0-75% for Mr. Urban and 0-75% for Mr. Gentile.
During 1995, the Company adopted Challenge 2000, a comprehensive program
unifying the calculation of bonuses among senior officers and providing the
award of stock-based compensation to the management of the Company. Bonuses for
management are not mandatory and are not provided in years in which the
Company's financial performance fails to meet certain targets. Subsidiary
managers receive bonuses based upon satisfaction of targets applicable to their
subsidiary as well as to the Company as a whole. In this way, the Company has
sought to align the interests of its management with the success of the Company
and increases in shareholder value. Approximately 30 of the senior Company and
subsidiary management presently participate in the Challenge 2000 program.
Executive officers of the Company are entitled to receive payments upon
termination of employment, disability or death in addition to post-termination
maintenance of certain life insurance and benefits. Upon termination by the
Company (other than for cause) or by the executive in certain circumstances,
payments would include a lump sum equal to the greater of total direct
compensation for 1994 or the total direct compensation then in effect, as if his
employment had remained in effect for the entire term or, if following a "change
in control," the greater of such amount or $5,000,000, plus the value of
unexercised options, in the case of Mr. Weissman. Upon termination by the
Company (other than for cause) or by Mr. Gorman or Mr. Kesner in certain
circumstances, payments would include a lump-sum cash payment in an amount equal
to two times annual base salary, plus bonus then in effect for Mr. Gorman and
one times annual base salary, plus, in certain circumstances, bonus then in
effect, for Mr. Kesner, plus the value of their unexercised options. Upon
termination by the Company (other than for cause), Mr. Urban is entitled to
receive an amount equal to his annual base salary.
The Company has made available certain loans to participants in its
Challenge 2000 program. Mr. Weissman is indebted to the Company in an amount
equal to approximately $685,000, plus interest, including a Challenge 2000 loan
in the amount of $500,000, which presently accrues
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interest at 8.50%. Challenge 2000 loans are secured by Challenge 2000 stock
awards, including 140,000 shares of Restricted Stock in the case of Mr.
Weissman.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company retained Kelly, Anderson, Pethick & Associates, of which Ms.
Anderson, a Director, is Vice Chairperson and an owner, for marketing and
business development services primarily involving the Company's government
contracts business. During 1996, the Company paid approximately $72,400 for
services performed. The Company has for many years prior to Ms. Anderson's
election as a Director utilized the services of Ms. Anderson's firm as a
government consultant.
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SECURITY OWNERSHIP
The following table reflects the number of shares of Common Stock
beneficially owned as of December 31, 1997 by (i) the Chief Executive Officer
and each of the other four most highly compensated executive officers, (ii) all
Directors and executive officers as a group and (iii) each other person known by
the Company to beneficially own as of such date more than 5% of any class of
equity securities of the Company.
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL COMMON STOCK
NAME AND ADDRESS OWNERSHIP(1)(2) BENEFICIALLY OWNED
- ---------------------------------------------------- ----------------- ------------------
Bette B. Anderson................................... 16,600 *
Dr. Oscar Arias S................................... 14,150 *
Patrick J. Gentile.................................. 10,708 *
C. Gerald Goldsmith................................. 21,200 *
John T. Gorman...................................... 184,767(3) *
Ira J. Hechler...................................... 234,300 1.1%
Harvey J. Kesner.................................... 65,826(4) *
David S. Rowe-Beddoe................................ 20,100 *
Alfred Teo.......................................... 1,899,000 9.1%
Ward A.W. Urban..................................... 7,108 *
Morris Weissman..................................... 1,861,636(3)(5)(6) 8.5%
All Directors and executive officers as a group (11
persons).......................................... 4,338,728(4)(5)(6) 19.7%
Bay Harbour Management, L.C., Tower Investment
Group, Inc., Steven A. Van Dyke, 777 South Harbor
Island Blvd., Suite 270, Tampa, FL 33602(7)....... 2,287,950 11.3%
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, each stockholder has sole voting and investment
power.
(2) Includes Common Stock issuable upon the exercise of stock options
exercisable within 60 days of December 31, 1997 in the amount of 8,333,
76,867, 25,351, 8,566 and 458,666 for Messrs. Gentile, Gorman, Kesner, Urban
and Weissman, and 578,283, for all executive officers, respectively.
Includes Director Common Stock equivalent units under the Deferred Stock and
Compensation Plan for Non-employee Directors in the amount of 16,600,
14,150, 20,100, 20,100, 20,100 and 10,500 units for Ms. Anderson, Dr. Arias
and Messrs. Goldsmith, Hechler, Rowe-Beddoe and Teo, respectively. Excludes
shares of Common Stock that may be issued to Directors in connection with
deferred director fees under the Deferred Stock and Compensation Plan for
Non-employee Directors in the amount of 242, 1,091, 788, 667, and 121 shares
for Ms. Anderson and Messrs. Goldsmith, Hechler, Rowe-Beddoe and Teo,
respectively.
(3) Includes Common Stock issuable upon the exercise of performance warrants
issued under the Company's Performance Warrant Plan that are exercisable
within 60 days of November 30, 1997 in the amount of 139,500 and 16,000
shares for Messrs. Weissman and Gorman and 155,500 shares for all executive
officers, respectively.
(4) Includes 30,625 shares held in trust, as to which Mr. Kesner has sole voting
and investment power.
(5) Includes (i) 95,000 shares held by spouse as to which Mr. Weissman disclaims
beneficial ownership and (ii) 60,000 shares as to which Mr. Weissman has
sole voting power and a right of first refusal with respect to any future
sales.
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(6) Excludes 30,625 shares of Common Stock held in trust as to which Mr.
Weissman disclaims
beneficial ownership, issued March 27, 1995 in lieu of a portion of Mr.
Weissman's 1994 bonus.
(7) Based on a Schedule 13G Statement dated November 10, 1997 as filed with the
Securities and Exchange Commission.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SATI GROUP DEBT
In connection with the acquisition of the Sati Group, the Company's French
holding company incurred FF56 million (approximately US$9.1 million) under term
loans which mature in 2003 and 2004. In addition, the Sati Group has a FF10
million (approximately US$1.6 million) working capital facility. As of September
30, 1997, no drawings were outstanding under the working capital facility. As of
such date, interest accrued at the rate of 5.6% per annum on the term loans. The
Sati Group debt is secured by the stock and certain assets of the Sati Group.
BRAZIL DEBT
As of September 30, 1997, ABNB had outstanding approximately R$8.1 million
(approximately
US$7.4 million) under term loans incurred to acquire equipment, which mature in
2001. In addition, ABNB had approximately R$4.7 million (approximately US$4.3
million) outstanding of debt, which matures in 1998. As of such date, interest
accrued at the average rate of 15.7% per annum on the term loan and 12% on the
other debt.
EXISTING CREDIT FACILITY
General. In January 1996, ABN and ABNH entered into a $20.0 million
revolving credit facility (the "Existing Credit Facility") with the Chase
Manhattan Bank (as successor to Chemical Bank). At September 30, 1997,
approximately $13.3 million was available under the Existing Credit Facility
before reduction for outstanding letters of credit ($3.6 million) and borrowings
($3.2 million). At September 30, 1997, interest under the Existing Credit
Facility was 9.00%. During November 1997, the Existing Credit Facility was
increased to $25.0 million and an additional $10.0 million of current
availability was provided. Upon consummation of the Initial Offering, the
Existing Credit Facility was reduced to $20.0 million and the availability
reduced in accordance with the original terms.
Guarantees. The Company acts as guarantor in respect of all monies
borrowed under the Existing Credit Facility.
Security. The Existing Credit Facility is secured by certain accounts
receivable and inventory (total carrying value of approximately $18.1 million at
September 30, 1997).
Maturity. The Existing Credit Facility will expire on October 30, 1998.
Mandatory Prepayment. The borrowing entities may be required to make
partial prepayments where their respective Availabilities (as defined in the
Existing Credit Facility) fail to equal or exceed zero.
Optional Prepayment. Any and all loans may be prepaid in specified minimum
amounts.
Interest Rates. The interest rate applicable to borrowings under the
Existing Credit Facility will vary depending on whether the funds are borrowed
as a Eurodollar Loan (as defined in the Existing Credit Facility) basis or as an
Alternate Base Loan (as defined in the Existing Credit Facility). In the case of
a Eurodollar Loan interest will be charged at specified margins over LIBO Rate
(as defined in the Existing Credit Facility). In the case of Alternate Base
Loan, interest will be charged at specified margins over the Alternate Base Rate
(as defined in the Existing Credit Facility).
Covenants; Events of Default. The Existing Credit Facility contains
covenants and events of default customary for financings of this type.
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LEIGH-MARDON DEBT
In connection with the acquisition of LM, the Company incurred the
Leigh-Mardon Senior Debt. The Leigh-Mardon Senior Debt, which matures June 2001,
is a term loan of approximately US$41.3 million and a US$4.0 million working
capital facility, of which approximately US$0.7 million of availability was used
for letters of credit as of September 30, 1997. As of such date, interest
accrued at the rate of 7.15% per annum on the Leigh-Mardon Senior Debt. The term
loan is secured by a fixed and floating charge on LM's assets and undertakings.
The Leigh-Mardon Subordinated Debt, which matures September 2001, is a term
loan of which approximately US$16.5 million was outstanding as of September 30,
1997. As of such date, interest accrued at the rate of 8.07% per annum plus 4%
upon amounts outstanding in excess of US$15.2 million on the Leigh-Mardon
Subordinated Debt.
The Company is seeking to refinance the Leigh-Mardon Debt in whole or in
part.
SENIOR NOTES
10 3/8% Notes
In May 1992, the Company issued and sold $126.5 million aggregate principal
amount of 10 3/8% Senior Notes due 2002 (the "10 3/8% Notes"). The Notes were
issued pursuant to an indenture dated as of May 18, 1992 between the Company and
The Chase Manhattan Bank (as successor to Chemical Bank), as trustee (the
"10 3/8% Notes Indenture"), as amended. The 10 3/8% Notes were sold pursuant to
the Company's Registration Statement on Form S-1 (Reg. No. 33-46806) declared
effective by the Commission on May 18, 1992 (the "10 3/8% Notes Registration
Statement").
The 10 3/8% Notes will mature on June 1, 2002, are limited to $126.5
million in aggregate principal amount, and are senior obligations of the
Company. The 10 3/8% Notes are secured by a pledge of the capital stock of
certain of the Company's subsidiaries, as well as certain intercompany
obligations. As of the date of this Offering Memorandum, $126.5 million
principal amount of the 10 3/8% Notes were outstanding. Reference is made to the
10 3/8% Notes Indenture, which was filed as an exhibit to the 10 3/8% Notes
Registration Statement.
11 5/8% Notes
In April 1994, the Company issued and sold (the "1994 Notes Offering")
$65.0 million aggregate principal amount of 11 5/8% Senior Notes due 2002 (the
"1994 Notes"). The 1994 Notes were issued pursuant to the indenture dated as of
May 1, 1994 between the Company and State Street Bank & Trust Company (as
successor to First National Bank of Boston), as trustee (the "11 5/8% Notes
Indenture"), to qualified institutional buyers pursuant to Rule 144A under the
Securities Act. In September 1994, the Company consummated an exchange offer
pursuant to which the Company, in exchange for the $65.0 million principal
amount of the 1994 Notes outstanding, issued an equal amount of 11 5/8% Notes,
which are identical to the 1994 Notes, with the exception that the 11 5/8% Notes
have been registered under the Securities Act.
The 11 5/8% Notes will mature on August 1, 2002, are limited to $65 million
in aggregate principal amount, and are unsecured senior obligations of the
Company. As of the date of this Prospectus approximately $8.0 million principal
amount of the 11 5/8% Notes are outstanding. Reference is made to the 11 5/8%
Notes Indenture, which was filed as an exhibit to the 11 5/8% Notes Registration
Statement.
Pursuant to the Tender Offer and related Consent Solicitation, on December
12, 1997, the Company purchased approximately $57 million in aggregate principal
amount of the 11 5/8% Notes and the supplemental indenture containing the
Indenture Amendment eliminating substantially all of the restrictive covenants
contained in the 11 5/8% Notes Indenture became effective. See "The
Refinancing."
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DESCRIPTION OF THE NOTES
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture (the "Indenture") dated as of December 12, 1997 among the Company,
the Guarantors and The Bank of New York, as trustee (the "Trustee"). The form
and terms of the Exchange Notes are the same and the form and terms of the Old
Notes (which they replace) except that (i) the Exchange Notes will bear a Series
B designation, (ii) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (iii) holders of the Exchange Notes will not be entitled to certain
rights of holders of Old Notes under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
which rights will terminate when the Exchange Offer is consummated. The Old
Notes issued in the Initial Offering and the Exchange Notes offered hereby are
referred to collectively as the "Notes."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain capitalized terms used in the following summary are
set forth below under "Certain Definitions." References in this "Description of
the Notes" section to "the Company" mean only American Banknote Corporation and
not any of its Subsidiaries.
GENERAL
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Company will
appoint the Trustee to serve as registrar and paying agent under the Indenture
at its offices at 101 Barclay Street, New York, New York. No service charge will
be made for any registration of transfer or exchange of the Notes, except for
any tax or other governmental charge that may be imposed in connection
therewith.
RANKING
The Notes will rank junior to, and be subordinated in right of payment to,
all existing and future Senior Indebtedness of the Company, pari passu in right
of payment with all senior subordinated Indebtedness of the Company and senior
in right of payment to all Subordinated Indebtedness of the Company. At
September 30, 1997, on a pro forma basis after giving effect to the Refinancing
(assuming purchase in the Tender Offer of 85% of the 11 5/8% Notes), including
the issuance of the Notes and the application of the net proceeds therefrom, the
Company would have had approximately $224.2 million of Senior Indebtedness
outstanding (exclusive of unused commitments, including $80.9 million of
Indebtedness of the Company's subsidiaries which would have been effectively
senior to the Notes).
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes will be limited to $95.0 million aggregate principal amount and
will mature on December 1, 2007. Interest on the Notes will accrue at a rate of
11 1/4% per annum and will be payable semi-annually in arrears on each June 1
and December 1, commencing June 1, 1998, to the holders of record of Notes at
the close of business on May 15 and November 15, respectively, immediately
preceding such interest payment date. Interest will accrue from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from December 12, 1997. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
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OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after December 1, 2002, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus accrued
and unpaid interest thereon, if any, to the redemption date (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
beginning on December of the years indicated below:
REDEMPTION
YEAR PRICE
----------------------------------------------------------------- ----------
2002............................................................. 105.625%
2003............................................................. 103.750%
2004............................................................. 101.875%
2005 and thereafter.............................................. 100.000%
Notwithstanding the foregoing, at any time and from time to time on or
prior to December 1, 2000, the Company may redeem in the aggregate up to 35% of
the originally issued aggregate principal amount of the Notes with the net cash
proceeds of one or more Public Equity Offerings by the Company at a redemption
price in cash equal to 111.25% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the date of redemption (subject to the right
of Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 65% of the
originally issued aggregate principal amount of the Notes must remain
outstanding immediately after giving effect to each such redemption. Notice of
any such redemption must be given within 60 days after the date of the closing
of the relevant Public Equity Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided, however, that no Notes of a principal amount of $1,000 or less shall
be redeemed in part; provided, further, however, that if a partial redemption is
made with the net cash proceeds of a Public Equity Offering by the Company,
selection of the Notes or portions thereof for redemption shall be made by the
Trustee only on a pro rata basis or on as nearly a pro rata basis as is
practicable (subject to the procedures of The Depository Trust Company), unless
such method is otherwise prohibited. Notice of redemption shall 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
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent for the Notes funds in satisfaction of the
applicable redemption price pursuant to the Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
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Upon any payment or distribution of assets or securities of the Company of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "Satisfaction and Discharge of Indenture;
Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding-up
or total liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness shall first be paid in full in cash before the Holders of
the Notes or the Trustee on behalf of such Holders shall be entitled to receive
any payment by the Company of the principal of, premium, if any, or interest on
the Notes, or any payment by the Company to acquire any of the Notes for cash,
property or securities, or any distribution by the Company with respect to the
Notes of any cash, property or securities (excluding any payment or distribution
of Permitted Junior Securities and excluding any Defeasance Trust Payment).
Before any payment may be made by, or on behalf of, the Company of the principal
of, premium, if any, or interest on the Notes upon any such dissolution or
winding-up or total liquidation or reorganization, any payment or distribution
of assets or securities of the Company of any kind or character, whether in
cash, property or securities (excluding any payment or distribution of Permitted
Junior Securities and excluding any Defeasance Trust Payment), to which the
Holders of the Notes or the Trustee on their behalf would be entitled, but for
the subordination provisions of the Indenture, shall be made by the Company or
by any receiver, trustee in bankruptcy, liquidation trustee, agent or other
Person making such payment or distribution, directly to the holders of the
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders) or their representatives or
to the trustee or trustees or agent or agents under any agreement or indenture
pursuant to which any of such Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all such Senior
Indebtedness in full in cash after giving effect to any prior or concurrent
payment, distribution or provision therefor to or for the holders of such Senior
Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Company of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Indebtedness, whether at maturity, on
account of mandatory redemption or prepayment, acceleration or otherwise, and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Designated Senior
Indebtedness. In addition, during the continuance of any non-payment event of
default with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be immediately accelerated, and upon receipt by the Trustee
of written notice (a "Payment Blockage Notice") from the holder or holders of
such Designated Senior Indebtedness or the trustee or agent acting on behalf of
the holders of such Designated Senior Indebtedness, then, unless and until such
event of default has been cured or waived or has ceased to exist or such
Designated Senior Indebtedness has been discharged or repaid in full in cash or
the benefits of these provisions have been waived by the holders of such
Designated Senior Indebtedness, no direct or indirect payment (excluding any
payment or distribution of Permitted Junior Securities and excluding any
Defeasance Trust Payment) will be made by or on behalf of the Company of
principal of, premium, if any, or interest on the Notes, to such Holders, during
a period (a "Payment Blockage Period") commencing on the date of receipt of such
notice by the Trustee and ending 179 days thereafter. Notwithstanding anything
in the subordination provisions of the Indenture or the Notes to the contrary,
(x) in no event will a Payment Blockage Period extend beyond 179 days from the
date the Payment Blockage Notice in respect thereof was given, (y) there shall
be a period of at least 181 consecutive days in each 360-day period when no
Payment Blockage Period is in effect and (z) not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 360
consecutive days. No event of default that existed or was continuing on the date
of commencement of any
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Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period (to the extent the holder of Designated
Senior Indebtedness, or trustee or agent, giving notice commencing such Payment
blockage Period had knowledge of such existing or continuing event of default)
may be, or be made, the basis for the commencement of any other Payment Blockage
Period by the holder or holders of such Designated Senior Indebtedness or the
trustee or agent acting on behalf of such Designated Senior Indebtedness,
whether or not within a period of 360 consecutive days, unless such event of
default has been cured or waived for a period of not less than 90 consecutive
days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Company may be
unable to meet fully its obligations with respect to the Notes.
Subject to the restrictions set forth in the Indenture, in the future the
Company may issue additional Senior Indebtedness to refinance existing
Indebtedness or for other corporate purposes. In addition, the Notes will be
structurally subordinate to all Indebtedness of the Company's Subsidiaries that
are not Guarantors.
GUARANTEES OF THE NOTES
The Indenture will provide that each of the Guarantors will unconditionally
guarantee on a joint and several basis (the "Guarantees") all of the Company's
obligations under the Notes, including its obligations to pay principal,
premium, if any, and interest with respect to the Notes. The obligations of each
Guarantor are limited to the maximum amount that, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving effect
to any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in the
obligations of such Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under Federal or state law. Each Guarantor
that makes a payment or distribution under a Guarantee shall be entitled to a
contribution from each other Guarantor in a pro rata amount, based on the net
assets of each Guarantor determined in accordance with GAAP.
The Company shall cause each Restricted Subsidiary issuing a Guarantee
after the Issue Date to (i) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Restricted Subsidiary shall become a party to the Indenture and thereby
unconditionally guarantee all of the Company's Obligations under the Notes and
the Indenture on the terms set forth therein and (ii) deliver to the Trustee an
Opinion of Counsel that such supplemental indenture has been duly authorized,
executed and delivered by such Restricted Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Restricted Subsidiary (which
opinion may be subject to customary assumptions and qualifications). Thereafter,
such Restricted Subsidiary shall (unless released in accordance with the terms
of this Indenture) be a Guarantor for all purposes of the Indenture.
The Indenture will provide that if the Notes are defeased in accordance
with the terms of the Indenture or if, subject to the requirements of the first
paragraph under "-- Merger, Sale of Assets, Etc.," all or substantially all of
the assets of any Guarantor or the Equity Interests of any Guarantor are sold
(including by issuance or otherwise) by the Company in a transaction
constituting an Asset Sale, and if (x) the Net Cash Proceeds from such Asset
Sale are used in accordance with the covenant described under "Certain
Covenants-Disposition of Proceeds of Asset Sales" or (y) the Company delivers to
the Trustee an Officers' Certificate to the effect that the Net Cash Proceeds
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from such Asset Sale shall be used in accordance with the covenant described
under "Certain Covenants -- Disposition of Proceeds of Asset Sales" and within
the time limits specified by such covenant, then such Guarantor (in the event of
a sale or other disposition of all of the Equity Interests of such Guarantor) or
the corporation acquiring such assets (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) shall
be released and discharged of its Guarantee obligations in respect of the
Indenture and the Notes effective upon consummation of such transactions.
The Guarantees will be general unsecured obligations of the Guarantors. The
obligations of each Guarantor under its Guarantee will be subordinated and
junior in right of payment to the prior payment in full of all existing and
future Guarantor Senior Indebtedness of such Guarantor (which will include such
Guarantor's guarantee of the obligations of the Company under the New Credit
Facility) to substantially the same extent as the Notes are subordinated to all
existing and future Senior Indebtedness of the Company.
Any Guarantor (i) that is designated an Unrestricted Subsidiary pursuant to
and in accordance with the covenant described under "Designation of Unrestricted
Subsidiaries" or (ii) that is designated an Investment in accordance with the
definition of "Investment" shall upon such designation be released and
discharged of its Guarantee obligations in respect of the Indenture and the
Notes and any domestic Unrestricted Subsidiary whose Designation is revoked
pursuant to "Designation of Unrestricted Subsidiaries" below will be required to
become a Guarantor in accordance with the procedure described in the third
preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the Notes of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase Date (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date).
If an Offer to Purchase is made, there can be no assurance that the Company
will have available funds sufficient to pay for all of the Notes that might be
tendered by Holders of Notes seeking to accept the Offer to Purchase. If the
Company fails to purchase all of the Notes tendered for purchase, such failure
will constitute an Event of Default under the Indenture. See "Events of Default"
below.
If the Company makes an Offer to Purchase, the Company will comply with all
applicable tender offer laws and regulations, including, to the extent
applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other
applicable Federal or state securities laws and regulations and any applicable
requirements of any securities exchange on which the Notes are listed, and any
violation of the provisions of the Indenture relating to such Offer to Purchase
occurring as a result of such compliance shall not be deemed an Event of Default
or an event that, with the passing of time or giving of notice, or both, would
constitute an Event of Default.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Restricted Payments. The Indenture will provide that the
Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly,
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(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) purchase, redeem, defease or retire for value, or make any
principal payment on, prior to any scheduled maturity, scheduled repayment
or scheduled sinking fund payment, any Subordinated Indebtedness; or
(iv) make any Investment in any Person (other than Permitted
Investments)
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be
continuing at the time or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the
Company would be able to Incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of "-- Limitation on Indebtedness" below; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after
the Issue Date does not exceed an amount equal to the sum of (1) 50% of
cumulative Consolidated Net Income determined for the period (taken as one
period) from the beginning of the first fiscal quarter commencing after the
Issue Date and ending on the last day of the most recent fiscal quarter
immediately preceding the date of such Restricted Payment for which
consolidated financial information of the Company is available (or if such
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss), plus (2) 100% of the aggregate net cash proceeds received by the
Company either (x) as capital contributions to the Company after the Issue
Date or (y) from the issue and sale (other than to a Restricted Subsidiary)
of its Qualified Equity Interests after the Issue Date (excluding the net
proceeds from any issuance and sale of Qualified Equity Interests financed,
directly or indirectly, using funds borrowed from the Company or any
Restricted Subsidiary until and to the extent such borrowing is repaid),
plus (3) the principal amount (or accreted amount (determined in accordance
with GAAP), if less) of any Indebtedness of the Company or any Restricted
Subsidiary Incurred after the Issue Date that has been converted into or
exchanged for Qualified Equity Interests of the Company, plus (4) so long
as the Designation thereof was treated as a Restricted Payment made after
the Issue Date, with respect to any Unrestricted Subsidiary that has been
redesignated as a Restricted Subsidiary after the Issue Date in accordance
with "Designation of Unrestricted Subsidiaries" below, the Company's
proportionate interest in an amount equal to the excess of (x) the total
assets of such Subsidiary, valued on an aggregate basis at Fair Market
Value, over (y) the total liabilities of such Subsidiary, determined in
accordance with GAAP (and provided that such amount shall not in any case
exceed the Designation Amount with respect to such Restricted Subsidiary
upon its Designation), minus (5) the Designation Amount (measured as of the
date of Designation) with respect to any Subsidiary of the Company that has
been designated as an Unrestricted Subsidiary after the Issue Date in
accordance with "Designation of Unrestricted Subsidiaries" below; plus (6)
$10 million.
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The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company in exchange for, or out of the net cash proceeds
of the substantially concurrent issue and sale (other than to a Restricted
Subsidiary) of, Qualified Equity Interests of the Company; provided, however,
that any such net cash proceeds and the value of any Qualified Equity Interests
issued in exchange for such retired Equity Interests are excluded from clause
(c)(2) of the preceding paragraph (and were not included therein at any time)
and are not used to redeem the Notes pursuant to "-- Optional Redemption" above;
(iii) the purchase, redemption, retirement, defeasance or other acquisition of
Subordinated Indebtedness, or any other payment thereon, made in exchange for,
or out of the net cash proceeds of, a substantially concurrent issue and sale
(other than to a Restricted Subsidiary) of (x) Qualified Equity Interests of the
Company; provided, however, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for Subordinated Indebtedness are
excluded from clauses (c)(2) and (c)(3) of the preceding paragraph (and were not
included therein at any time) and are not used to redeem the Notes pursuant to
"-- Optional Redemption" above or (y) Subordinated Indebtedness permitted to be
Incurred pursuant to clause (g) of the second paragraph under "-- Limitation on
Indebtedness;" (iv) the purchase of Equity Interests from officers and directors
of the Company or any Restricted Subsidiary in an amount not to exceed $1.0
million; (v) the redemption of the Company's zero coupon convertible
subordinated debenture due 2002; and (vi) the declaration and payment of pro
rata dividends or pro rata redemptions with respect to holders of minority
interests in the common stock of a Restricted Subsidiary of the Company;
provided, however, that in the case of each of clauses (ii), (iii), (iv), (v)
and (vi), no Default or Event of Default shall have occurred and be continuing
or would arise therefrom.
In determining the amount of Restricted Payments permissible under the
immediately preceding paragraph of this covenant, amounts expended pursuant to
clauses (i), (iv) and, to the extent the redemption contemplated by clause (v)
is in cash, (v) of the immediately preceding paragraph shall be included as
Restricted Payments. The amount of any non-cash Restricted Payment shall be
deemed to be equal to the Fair Market Value thereof at the date of the making of
such Restricted Payment.
Limitation on Indebtedness. The Indenture will provide that the Company
will not, and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, Incur any Indebtedness (including Acquired Indebtedness), except for
Permitted Indebtedness; provided, however, that the Company may Incur
Indebtedness (including Acquired Indebtedness), and any Restricted Subsidiary
may Incur Indebtedness (including Acquired Indebtedness), if, at the time of and
immediately after giving pro forma effect to such Incurrence of Indebtedness and
the application of the proceeds therefrom, the Consolidated Coverage Ratio would
be greater than 2.00 to 1.0.
The foregoing limitations will not apply to the Incurrence by the Company
or any Restricted Subsidiary of any of the following (collectively, "Permitted
Indebtedness"), each of which shall be given independent effect:
(a) Indebtedness under the Notes, the Indenture and the Guarantees;
(b) Indebtedness incurred under a credit facility (including the
Existing Credit Facility) or credit facilities in an aggregate principal
amount at any one time outstanding not to exceed $80.0 million or the
non-U.S. denominated equivalent thereof;
(c) Indebtedness under the 10 3/8% Notes;
(d) intercompany Indebtedness permitted by the covenant "Limitation on
Restricted Payments;"
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(e) Interest Rate Agreements and Currency Agreements of the Company
relating to Indebtedness of the Company (which Indebtedness is otherwise
permitted to be Incurred under this covenant);
(f) Existing Indebtedness (other than Indebtedness under the Existing
Credit Facility);
(g) Indebtedness to the extent representing a replacement, renewal,
refinancing or extension (collectively, a "refinancing") of outstanding
Indebtedness Incurred in compliance with the Consolidated Coverage Ratio of
the first paragraph of this covenant or clauses (a), (c) and (f) of this
paragraph of this covenant; provided, however, that (i) any such
refinancing shall not exceed the sum of the principal amount (or accreted
amount (determined in accordance with GAAP), if less) of the Indebtedness
being refinanced, plus the amount of accrued interest thereon, plus the
amount of any reasonably determined prepayment premium necessary to
accomplish such refinancing and such reasonable fees and expenses incurred
in connection therewith; (ii) Indebtedness representing a refinancing of
Indebtedness other than Senior Indebtedness shall have a Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being refinanced; (iii) Indebtedness that is
pari passu with the Notes may only be refinanced with Indebtedness that is
made pari passu with or subordinate in right of payment to the Notes and
Subordinated Indebtedness may only be refinanced with Subordinated
Indebtedness and (iv) Indebtedness of a Restricted Subsidiary may only be
refinanced by Indebtedness of such Restricted Subsidiary or the Company;
(h) the Guarantees and guarantees by any Guarantor of any Indebtedness
of the Company;
(i) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any Restricted Subsidiary
pursuant to such agreements, incurred or assumed in connection with the
acquisition or disposition of any business, assets or Restricted Subsidiary
of the Company, other than guarantees or similar credit support by the
Company of Indebtedness incurred by any person acquiring all or any portion
of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition;
(j) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness
referred to in this clause (i) is extinguished within three Business Days
of its incurrence; and
(k) In addition to the items referred to in clauses (a) through (j)
above, Indebtedness of the Company and the Restricted Subsidiaries
(including any Indebtedness under the Existing Credit Facility, any
Purchase Money Indebtedness and/or any Capital Lease Obligations that
utilizes this subparagraph (k)) having an aggregate principal amount and/or
attributable indebtedness not to exceed $25.0 million at any one time
outstanding.
Limitation on Senior Subordinated Indebtedness. The Indenture will provide
that the Company will not, directly or indirectly, Incur any Indebtedness that
by its terms would expressly rank senior in right of payment to the Notes and
subordinate in right of payment to any other Indebtedness of the Company.
The Company will not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guarantee of such Guarantor and
subordinate in right of payment to any other Indebtedness of such Guarantor.
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company will not, and will
not cause or permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends or
make any other distributions to the Company or any other Restricted Subsidiary
on its Equity Interests or with respect to any other interest or participation
in, or measured by, its profits, or pay any Indebtedness owed to the Company or
any other Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company or
any other Restricted Subsidiary or (c) transfer any of its properties or assets
to the Company or any other Restricted Subsidiary, except for such encumbrances
or restrictions existing under or by reason of (i) the Existing Credit Facility,
or any other agreement of the Company or the Restricted Subsidiaries outstanding
on the Issue Date, in each case as in effect on the Issue Date, and any
amendments, restatements, renewals, replacements or refinancings thereof;
provided, however, that any such amendment, restatement, renewal, replacement or
refinancing is not materially more restrictive in the aggregate with respect to
such encumbrances or restrictions than those contained in the agreement being
amended, restated, reviewed, replaced or refinanced; (ii) applicable law; (iii)
any instrument governing Indebtedness or Equity Interests of an Acquired Person
acquired by the Company or any Restricted Subsidiary as in effect at the time of
such acquisition (except to the extent such Indebtedness was Incurred by such
Acquired Person in connection with, as a result of or in contemplation of such
acquisition); provided, however, that such encumbrances and restrictions are not
applicable to the Company or any Restricted Subsidiary, or the properties or
assets of the Company or any Restricted Subsidiary, other than the Acquired
Person; (iv) customary non-assignment provisions in leases, licenses or other
agreements entered into in the ordinary course of business and consistent with
past practices; (v) any agreement for the sale or disposition of the Equity
Interests or assets of any Restricted Subsidiary; provided, however, that such
encumbrances and restrictions described in this clause (v) are only applicable
to such Restricted Subsidiary or assets, as applicable, and any such sale or
disposition is made in compliance with "Disposition of Proceeds of Asset Sales"
below to the extent applicable thereto; (vi) refinancing indebtedness permitted
under clause (g) of the second paragraph of "Limitation on Indebtedness" above;
provided, however, that such encumbrances and restrictions contained in the
agreements governing such Indebtedness are not materially more restrictive in
the aggregate than those contained in the agreements governing the Indebtedness
being refinanced immediately prior to such refinancing; (vii) the Indenture, the
Notes and the Guarantees; and (viii) Purchase Money Indebtedness that impose
restrictions of the nature described in clause (c) above on the property
acquired.
Designation of Unrestricted Subsidiaries. The Company may (A) organize one
or more Unrestricted Subsidiaries or (B) designate after the Issue Date any
Subsidiary of the Company as an "Unrestricted Subsidiary" under the Indenture (a
"Designation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such Designation;
(ii) in the case of (B) only, at the time of and after giving effect
to the Designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, the Company could Incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the Consolidated Coverage Ratio of the
first paragraph of "Limitation on Indebtedness" above; and
(iii) the Company would be permitted to make an Investment (including
a Permitted Investment) in the case of (B) only, at the time of Designation
(assuming the effectiveness of such Designation) or, in the case of (A)
only, at the time of an Investment in such Subsidiary, pursuant to the
first paragraph of "Limitation on Restricted Payments" above in an amount
(the "Designation Amount") equal to the Fair Market Value of the Company's
proportionate interest in the net worth of such Subsidiary on such date
calculated in accordance with GAAP.
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Neither the Company nor any Restricted Subsidiary shall at any time (x)
provide credit support for, subject any of its property or assets (other than
the Equity Interests of any Unrestricted Subsidiary) to the satisfaction of, or
guarantee, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary, except for (i) any non-recourse guarantee given solely to support
the pledge by the Company or any Restricted Subsidiary of the capital stock of
any Unrestricted Subsidiary and (ii) any such guarantee that is otherwise a
Permitted Investment or would be permitted under the first paragraph of
"Limitation on Restricted Payments" above. For purposes of the foregoing, the
Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall
be deemed to include the Designation of all of the Subsidiaries of such
Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors of the Company, delivered to the Trustee certifying
compliance with the foregoing provisions.
Limitation on Liens. The Indenture will provide that the Company will not,
and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, Incur any Liens of any kind against or upon any of their respective
properties or assets now owned or hereafter acquired, or any proceeds therefrom
or any income or profits therefrom, to secure any Indebtedness unless
contemporaneously therewith effective provision is made, in the case of the
Company, to secure the Notes and all other amounts due under the Indenture, and
in the case of a Restricted Subsidiary that is a Guarantor, to secure such
Restricted Subsidiary's Guarantee of the Notes and all other amounts due under
the Indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the Notes or such
Restricted Subsidiary's Guarantee, prior to such Indebtedness) with a Lien on
the same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness of the Company or Indebtedness of any Restricted Subsidiary
permitted to be incurred under the Indenture by any Restricted Subsidiary and
(ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Indenture will provide that
the Company will not, and will not cause or permit any Restricted Subsidiary to,
directly or indirectly, make any Asset Sale, unless (i) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets sold or
otherwise disposed of and (ii) at least 75% of such consideration consists of
(A) cash or Cash Equivalents, or (B) properties and capital assets that replace
the properties and assets that were the subject of such Asset Sale or in
properties and capital assets that will be used in the business of the Company
and its Restricted Subsidiaries as existing on the Issue Date or in businesses
reasonably related thereto (as determined in good faith by the Company's Board
of Directors) ("Replacement Assets"); provided, that, an exchange or sale of
Equity Interests in any Subsidiary of the Company may be made without complying
with clause (ii)(A) above; provided, further, that after giving effect to any
such exchange or sale, the Company has a Consolidated Coverage Ratio of 2.50 to
1.0. The amount of any Indebtedness or other liabilities of the Company or any
Restricted Subsidiary that is actually assumed by the transferee in such Asset
Sale and from which the Company and the Restricted Subsidiaries are fully and
unconditionally released shall be deemed to be cash for purposes of determining
the percentage of cash consideration received by the Company or the Restricted
Subsidiaries.
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The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 365 days of receipt thereof
to repay Senior Indebtedness or (ii) make an Investment in Replacement Assets.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied within 365 days of such Asset Sale as described in clause (i) or
(ii) of the immediately preceding paragraph (such Net Cash Proceeds, the
"Unutilized Net Cash Proceeds"), the Company shall, within 20 days after such
365th day, make an Offer to Purchase all outstanding Notes up to a maximum
principal amount (expressed as a multiple of $1,000) of Notes equal to the Notes
Pro Rata Share, at a purchase price in cash equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon, if any, to the
Purchase Date; provided, however, that the Offer to Purchase may be deferred
until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of
$10 million, at which time the entire amount of such Unutilized Net Cash
Proceeds, and not just the amount in excess of $10 million, shall be applied as
required pursuant to this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
to the extent the aggregate principal amount of Notes tendered pursuant to such
Offer to Purchase exceeds the Unutilized Net Cash Proceeds to be applied to the
repurchase thereof, such Notes shall be purchased pro rata based on the
aggregate principal amount of such Notes tendered by each Holder. To the extent
the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes tendered
by the Holders of the Notes pursuant to such Offer to Purchase, the Company may
retain and utilize any portion of the Unutilized Net Cash Proceeds not applied
to repurchase the Notes for any purpose consistent with the other terms of the
Indenture.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1 under,
the Exchange Act, and any violation of the provisions of the Indenture relating
to such Offer to Purchase occurring as a result of such compliance shall not be
deemed an Event of Default or an event that with the passing of time or giving
of notice, or both, would constitute an Event of Default.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
Merger, Sale of Assets, Etc. The Indenture will provide that the Company
will not consolidate with or merge with or into (whether or not the Company is
the Surviving Person) any other entity and the Company will not sell, convey,
assign, transfer, lease or otherwise dispose of all or substantially all of the
Company's and the Restricted Subsidiaries' properties and assets (determined on
a consolidated basis for the Company and the Restricted Subsidiaries) to any
entity in a single transaction or series of related transactions, unless: (i)
either (x) the Company shall be the Surviving Person or (y) the Surviving Person
(if other than the Company) shall be a corporation organized and validly
existing under the laws of the United States of America or any State thereof or
the District of Columbia, and shall, in any such case, expressly assume by a
supplemental indenture, the due and punctual payment of the principal of,
premium, if any, and interest on all the Notes and the performance and
observance of every covenant of the Indenture and the Registration Rights
Agreement to be performed or observed on the part of the Company; (ii)
immediately thereafter, no Default or Event of Default shall have occurred and
be continuing; and (iii) immediately after giving effect to any such transaction
involving the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person (A) shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such transaction and (B) could Incur, on a pro
forma basis after giving effect to
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such transaction as if it had occurred at the beginning of the four quarter
period immediately preceding such transaction for which consolidated financial
statements of the Company are available, at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the Consolidated Coverage
Ratio of the first paragraph of "Limitation on Indebtedness" above; provided
that the Company will not be subject to the provisions of this clause (iii)(B)
in the case of a merger of the Company with a Subsidiary of the Company effected
for the sole purpose of creating a holding company for the Company.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any other
Restricted Subsidiary.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the Indenture as provided in the
third paragraph under "Guarantees of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(i) the Surviving Person (if other than such Guarantor) is a corporation
organized and validly existing under the laws of the United States, any State
thereof or the District of Columbia; (ii) the Surviving Person (if other than
such Guarantor) expressly assumes by a supplemental indenture all the
obligations of such Guarantor under its Guarantee of the Notes and the
performance and observance of every covenant of the Indenture and the
Registration Rights Agreement to be performed or observed by such Guarantor;
(iii) at the time of and immediately after such Disposition, no Default or Event
of Default shall have occurred and be continuing; and (iv) immediately after
giving effect to any such transaction involving the Incurrence by such
Guarantor, directly or indirectly, of additional Indebtedness (and treating any
Indebtedness not previously an obligation of such Guarantor in connection with
or as a result of such transaction as having been Incurred at the time of such
transaction), the Company could Incur, on a pro forma basis after giving effect
to such transaction as if it had occurred at the beginning of the latest fiscal
quarter for which consolidated financial statements of the Company are
available, at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of
"Limitation of Indebtedness" above; provided, however, that clause (iv) of this
paragraph shall not be a condition to a merger or consolidation of a Guarantor
if such merger or consolidation only involves the Company and/or one or more
other Guarantors. Notwithstanding the foregoing, nothing in this covenant shall
prohibit the consolidation or merger with or into or the sale of all or
substantially all of the assets or properties of a Guarantor to any other
Restricted Subsidiary that is a Guarantor.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the Company
under the Notes, the Indenture and the Registration Rights Agreement or of such
Guarantor under its Guarantee, the Indenture and the Registration Rights
Agreement, as the case may be, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company, as the case may be, shall be discharged from its Obligations under
the Indenture and the Notes or such Guarantor shall be discharged from its
Obligations under the Indenture and its Guarantee.
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Transactions with Affiliates. The Indenture will provide that the Company
will not, and will not cause or permit any Restricted Subsidiary to, directly or
indirectly, conduct any business or enter into any transaction (or series of
related transactions) with or for the benefit of any of their respective
Affiliates or any officer, director or employee of the Company or any Restricted
Subsidiary (each an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than would be available in a
comparable transaction with an unaffiliated third party and (ii) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $10 million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Directors of the Company shall have
approved such Affiliate Transaction and determined that such Affiliate
Transaction complies with the foregoing provisions. In addition, any Affiliate
Transaction involving aggregate payments or other consideration having a Fair
Market Value in excess of $25 million will also require a written opinion from
an Independent Financial Advisor (filed with the Trustee) stating that the terms
of such Affiliate Transaction are fair, from a financial point of view, to the
Company or the Restricted Subsidiary involved in such Affiliate Transaction, as
the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Wholly
Owned Restricted Subsidiary or between or among Wholly Owned Restricted
Subsidiaries; (ii) reasonable fees and compensation paid to and indemnity
provided on behalf of, officers, directors, employees, consultants or agents of
the Company or any Restricted Subsidiary of the Company as determined in good
faith by the Company's Board of Directors; (iii) any transactions undertaken
pursuant to any contractual obligations in existence on the Issue Date (as in
effect on the Issue Date); (iv) any Restricted Payments made in compliance with
"Limitation on Restricted Payments" above; (v) loans, loan programs and advances
to officers, directors and employees of the Company or any Restricted
Subsidiary, in each case made in the ordinary course of business and approved by
the Company's Board of Directors or the Compensation Committee of the Board of
Directors; (vi) customary employment arrangements and benefit programs approved
in good faith by the Company's Board of Directors; and (vii) the grant of stock
options, stock grants, equity appreciation rights or similar rights to employees
and directors of the Company pursuant to plans approved by the Board of
Directors.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Indenture will provide that the Company will not sell any
Equity Interest of a Restricted Subsidiary, and will not cause or permit any
Restricted Subsidiary, directly or indirectly, to issue or sell any Equity
Interests, except: (i) to the Company or a Wholly Owned Restricted Subsidiary;
or (ii) in any other issuance or sale, provided such Restricted Subsidiary
remains a Restricted Subsidiary. The foregoing shall not apply to the sale by
the Company of all the Equity Interests of a Restricted Subsidiary as long as
the Company is in compliance with the terms of the covenant described under
"Disposition of Proceeds of Asset Sales" and, if applicable, "Merger, Sale of
Assets, Etc." above.
Limitation on Guarantees by Restricted Subsidiaries. The Indenture will
provide that in the event the Company (i) organizes or acquires any Domestic
Restricted Subsidiary after the Issue Date that is not a Guarantor or (ii)
causes or permits any Foreign Restricted Subsidiary that is not a Guarantor to,
directly or indirectly, guarantee the payment of any Indebtedness of the Company
or any Domestic Restricted Subsidiary ("Other Indebtedness") then, in each case
the Company shall cause such Restricted Subsidiary to simultaneously execute and
deliver a supplemental indenture to the Indenture pursuant to which it will
become a Guarantor under the Indenture; provided, however, that in the event a
Domestic Restricted Subsidiary is acquired in a transaction in which a merger
agreement is entered into, such Domestic Restricted Subsidiary shall not be
required to execute and deliver such supplemental indenture until the
consummation of the merger contemplated by any such merger agreement; provided,
further, that if such Other Indebtedness is (i) Indebtedness that is ranked pari
passu in right of payment with the Notes or the Guarantee of such Restricted
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Subsidiary, as the case may be, the Guarantee of such Subsidiary shall be pari
passu in right of payment with the guarantee of the Other Indebtedness; or (ii)
Subordinated Indebtedness, the Guarantee of such Subsidiary shall be senior in
right of payment to the guarantee of the Other Indebtedness (which guarantee of
such Subordinated Indebtedness shall provide that such guarantee is subordinated
to the Guarantees of such Subsidiary to the same extent and in the same manner
as the other Indebtedness is subordinated to the Notes or the Guarantee of such
Restricted Subsidiary, as the case may be); or (iii) Indebtedness that ranks
senior in right of payment to the Notes or the Guarantee of such Restricted
Subsidiary, as the case may be, the Guarantee of such Subsidiary shall be senior
in right of payment with the guarantee of the Other Indebtedness.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so subject, such documents to be filed with the SEC on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) file with the
Trustee and provide by mail to all Holders copies of all reports and other
documents which the Company generally provides to its stockholders, or, if such
filing is not so permitted, information and data of a similar nature, and (b)
if, notwithstanding the preceding sentence, filing such documents by the Company
with the SEC is not permitted by SEC practice or applicable law or regulations,
promptly upon written request supply copies of such documents to any Holder. In
addition, for so long as any Notes remain outstanding, the Company will furnish
to the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act, and, to any beneficial holder of Notes, if not
obtainable from the SEC, information of the type that would be filed with the
SEC pursuant to the foregoing provisions, upon the request of any such holder.
EVENTS OF DEFAULT
The occurrence of any of the following will be defined as an "Event of
Default" under the Indenture: (a) failure to pay principal of (or premium, if
any, on) any Note when due (whether or not prohibited by the provisions of the
Indenture described under "Subordination of the Notes" above); (b) failure to
pay any interest on any Note when due, continued for 30 days or more (whether or
not prohibited by the provisions of the Indenture described under "Subordination
of the Notes" above); (c) default in the payment of principal of or interest on
any Note required to be purchased pursuant to any Offer to Purchase required by
the Indenture when due and payable or failure to pay on the Purchase Date the
Purchase Price for any Note validly tendered pursuant to any Offer to Purchase
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (d) failure to perform or comply with any
of the provisions described under "Certain Covenants -- Merger, Sale of Assets,
Etc." above; (e) failure to perform any other covenant, warranty or agreement of
the Company under the Indenture or in the Notes or of the Guarantors under the
Indenture or in the Guarantees continued for 30 days or more after written
notice to the Company by the Trustee or Holders of at least 25% in aggregate
principal amount of the outstanding Notes; (f) default or defaults under the
terms of one or more instruments evidencing or securing Indebtedness of the
Company or any of its Restricted Subsidiaries having an outstanding principal
amount of $10.0 million or more individually or in the aggregate that has
resulted in the acceleration of the payment of such Indebtedness or failure by
the Company or any of its Restricted Subsidiaries to pay principal when due at
the stated maturity of any such Indebtedness and such default or defaults shall
have continued after any applicable grace period and shall not have been cured
or waived; (g) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any of its Restricted Subsidiaries in an amount
of $10.0
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million or more (net of any amounts covered by reputable and creditworthy
insurance companies) that remains undischarged or unstayed for a period of 60
days after the date on which the right to appeal has expired; (h) certain events
of bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Restricted Subsidiaries; or (i) other than as provided in or
pursuant to any Guarantee or the Indenture, any Guarantee ceases to be in full
force and effect or is declared null and void and unenforceable or found to be
invalid or any Guarantor denies its liability under its Guarantee (other than by
reason of a release of such Guarantor from its Guarantee in accordance with the
terms of the Indenture and such Guarantee).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (h) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary will become immediately
due and payable. If an Event of Default specified in clause (h) of the preceding
paragraph with respect to the Company occurs under the Indenture, the Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, Etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
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The Company will be required to furnish to the Trustee annually a statement
as to the performance by it of certain of its obligations under the Indenture
and as to any default in such performance.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any of its Affiliates, as such, shall have any liability for any obligations
of the Company or any of its Affiliates under the Notes or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its and the Guarantors' substantive obligations
in respect of the Notes by delivering all outstanding Notes to the Trustee for
cancellation and paying all sums payable by it on account of principal of,
premium, if any, and interest on all Notes or otherwise. In addition to the
foregoing, the Company may, provided that no Default or Event of Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default or Event of Default specified in clause (h) of "Events of Default"
above, occurs at any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) under the Indenture and provided that no
default under any Senior Indebtedness would result therefrom, terminate its and
the Guarantors' substantive obligations in respect of the Notes (except for its
obligations to pay the principal of (and premium, if any, on) and the interest
on the Notes and the Guarantors' Guarantee thereof) by (i) depositing with the
Trustee, under the terms of an irrevocable trust agreement, money or United
States Government Obligations sufficient (without reinvestment) to pay all
remaining Indebtedness on such Notes; (ii) delivering to the Trustee either an
Opinion of Counsel or a ruling directed to the Trustee from the Internal Revenue
Service to the effect that the Holders of the Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such deposit and
termination of obligations; and (iii) complying with certain other requirements
set forth in the Indenture. In addition, the Company may, provided that no
Default or Event of Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default or Event of Default specified in clause
(h) of "Events of Default" above, occurs at any time on or prior to the 91st
calendar day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day)) under the
Indenture and provided that no default under any Senior Indebtedness would
result therefrom, terminate all of its and the Guarantors' substantive
obligations in respect of the Notes (including its obligations to pay the
principal of (and premium, if any, on) and interest on the Notes and the
Guarantors' Guarantee thereof) by (i) depositing with the Trustee, under the
terms of an irrevocable trust agreement, money or United States Government
Obligations sufficient (without reinvestment) to pay all remaining Indebtedness
on the Notes; (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the Holders of the
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such deposit and termination of obligations or an Opinion of Counsel
addressed to the Trustee based upon such a ruling or based on a change in the
applicable federal tax law since the date of the Indenture, to such effect; and
(iii) complying with certain other requirements set forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision only
if at such time it is not prohibited from doing so under the subordination
provisions of the Indenture or certain covenants in the Senior Indebtedness and
the Company has delivered to the Trustee and any Paying Agent an Officers'
Certificate to that effect.
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GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of
the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) reduce the principal amount
of (or the premium) of any such Note; (c) reduce the rate of or extend the time
for payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note or any Guarantee in respect thereof or the
modification and amendment provisions of the Indenture and the Notes (other than
to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder therein affected); (f)
reduce the percentage of the principal amount of outstanding Notes necessary for
amendment to or waiver of compliance with any provision of the Indenture or the
Notes or for waiver of any Default in respect thereof; (g) waive a default in
the payment of principal of, interest on, or redemption payment with respect to,
the Notes (except a rescission of acceleration of the Notes by the Holders
thereof as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration); (h) modify the ranking or priority of any Note
or the Guarantee in respect thereof of any Guarantor or modify the definition of
Senior Indebtedness or Guarantor Senior Indebtedness or amend or modify the
subordination provisions of the Indenture in any manner adverse to the Holders
of the Notes; (i) modify the provisions of any covenant (or the related
definitions) in the Indenture requiring the Company to make an Offer to Purchase
in a manner materially adverse to the Holders of Notes affected thereby
otherwise than in accordance with the Indenture; or (j) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Company
and the Guarantors with certain restrictive provisions of the Indenture. Subject
to certain rights of the Trustee, as provided in the Indenture, the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Notes tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under the Indenture cannot
be modified or amended without the consent of the Holder of each Note that is
affected.
Without the consent of any Holder, the Company, the Guarantors and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, 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), to add Guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the Holders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the rights of any
Holder or to comply
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with any requirement of the SEC in connection with the qualification of the
Indenture under the TIA. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or any group or representative thereof authorized to give a
consent) consent to such change.
The consent of the Holders 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.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, any Guarantor or any other obligor upon the
Notes, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or otherwise.
The Trustee is permitted to engage in other transactions with the Company or an
Affiliate of the Company; provided, however, that if it acquires any conflicting
interest (as defined in the Indenture or in the Trust Indenture Act), it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary; in each case provided that such
Indebtedness is not incurred by such Person in connection with, or in
anticipation of or contemplation of, such Acquisition or such Person becoming a
Restricted Subsidiary of such merger or consolidation.
"Acquired Person" means, with respect to any specified Person, any other
Person that merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any acquisition or purchase of Equity Interests of
any other Person by the Company or any Restricted Subsidiary, in either case
pursuant to which such Person shall become a Restricted Subsidiary or shall be
consolidated with or merged into the Company or any Restricted Subsidiary or
(ii) any acquisition by the Company or any Restricted Subsidiary of the assets
of any Person which constitute substantially all of an operating unit or line of
business of such Person or which is otherwise outside of the ordinary course of
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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
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"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of the Company or any
Restricted Subsidiary (other than Equity Interests) that constitute
substantially all of an operating unit or line of business of the Company or any
Restricted Subsidiary; or (iii) any other property or asset of the Company or
any Restricted Subsidiary (other than Equity Interests) outside of the ordinary
course of business. For the purposes of this definition, the term "Asset Sale"
shall not include (a) any transaction consummated in compliance with "Certain
Covenants -- Merger, Sale of Assets, Etc." above and the creation of any Lien
not prohibited by "Certain Covenants -- Limitation on Liens" above; (b)sales of
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of the Company or any
Restricted Subsidiary, as the case may be; (c) any transaction consummated in
compliance with "Certain Covenants -- Limitation on Restricted Payments" above;
(d) any transfers of properties and assets between Wholly Owned Restricted
Subsidiaries; (e) sales of inventory or accounts receivable in the ordinary
course of business; and (f) sales of Equity Interests of the Company. In
addition, solely for purposes of "Certain Covenants -- Disposition of Proceeds
of Asset Sales" above, any sale, conveyance, transfer, lease or other
disposition of any property or asset, whether in one transaction or a series of
related transactions, involving assets with a Fair Market Value not in excess of
$1.0 million in any fiscal year shall be deemed not to be an Asset Sale.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Cash Equivalents" means: (a) U.S. dollars; (b) securities issued or
directly and fully guaranteed or insured by the U.S. government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition; (c) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any domestic commercial bank having capital and
surplus in excess of $500 million; (d) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(b) and (c) above entered into with any financial institution meeting the
qualifications specified in clause (c) above; (e) commercial paper rated P-1,
A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, and in each case maturing within six months
after the date of acquisition; and (f) in the case of any Foreign Restricted
Subsidiary, Investments: (i) in direct obligations of the sovereign nation (or
any agency thereof) in which such Foreign Restricted Subsidiary is organized and
is conducting business or in obligations fully and unconditionally guaranteed by
such sovereign nation (or any agency thereof) or (ii) of the type and maturity
described in clauses (b) and (c) above of foreign obligors, which Investments or
obligors (or the parents of such obligors) have ratings described in such
clauses or equivalent ratings or are indexed in U.S. dollar denominated
interests from comparable foreign rating agencies.
"Change of Control" means the occurrence of any of the following events:
(i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange
Act, including any group acting for the purpose of acquiring, holding or
disposing of securities within the meaning of Rule 13d-5(b)(1) under the
Exchange Act), other than one or more Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial ownership" of all
shares that any such Person has the right to acquire,
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whether such right is exercisable immediately or only after the passage of time,
upon the happening of an event or otherwise), directly or indirectly, of more
than 40% of the total voting power of the then outstanding Voting Equity
Interests of the Company; (ii) the Company consolidates with, or merges with or
into, another Person (other than the Company or a Wholly Owned Restricted
Subsidiary) or the Company or any of its Subsidiaries sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of the
assets of the Company and its Subsidiaries (determined on a consolidated basis)
to any Person (other than the Company or any Wholly Owned Restricted
Subsidiary), with the effect that the then existing holders of Voting Equity
Interests of the Company or Permitted Holders "beneficially own" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, less than a majority of the total
voting power of the then outstanding Voting Equity Interests of the surviving or
transferee Person; (iii) during any period of two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of a majority of the directors of the Company then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described under "-- Merger, Sale of Assets, etc."
"Change of Control Date" has the meaning set forth under "Offer to Purchase
upon Change of Control" above.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the most recent
four consecutive fiscal quarters ending prior to the date of such determination
for which financial statements are available (the "Four Quarter Period") to (ii)
Consolidated Fixed Charges for such Four Quarter Period; provided, however, that
(1) if the Company or any Restricted Subsidiary has incurred any Indebtedness
since the beginning of such Four Quarter Period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Fixed Charges for such Four Quarter 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 Four Quarter Period
and the discharge of any other Indebtedness repaid, repurchased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such Four Quarter Period, (2) if since the
beginning of such Four Quarter Period the Company or any Restricted Subsidiary
shall have made any Asset Sale, the Consolidated EBITDA for such Four Quarter
Period shall be reduced by an amount equal to the Consolidated EBITDA (if
positive) directly attributable to the assets that are the subject of such Asset
Sale for such Four Quarter Period or increased by an amount equal to the
Consolidated EBITDA (if negative) directly attributable thereto for such Four
Quarter Period and Consolidated Fixed Charges for such Four Quarter Period shall
be reduced by an amount equal to the Consolidated Fixed Charges directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset Sale for such
Four Quarter Period (or, if the Equity Interests of any Restricted Subsidiary
are sold, the Consolidated Fixed Charges for such Four Quarter Period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale), (3) if since the beginning of such Four Quarter
Period the Company or any Restricted Subsidiary (by merger or otherwise) shall
have made an Investment in any Restricted Subsidiary (or any Person that becomes
a Restricted Subsidiary) or an acquisition of assets, including any acquisition
of assets occurring in connection
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with a transaction causing a calculation to be made hereunder, which constitutes
all or substantially all of an operating unit of a business, Consolidated EBITDA
and Consolidated Fixed Charges for such Four Quarter Period shall be calculated
after giving pro forma effect to (x) such Investment or acquisition of assets
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such Four Quarter Period and (y) net
cost savings that the Company reasonably believes in good faith could have been
achieved during the Four Quarter Period as a result of such Investment or
acquisition and which cost savings could then be reflected in pro forma
financial statements under GAAP (provided that both (A) such cost savings were
identified and quantified in an Officer's Certificate delivered to the Trustee
at the date of determination and (B) with respect to each Investment or
acquisition completed prior to the 90th day preceding such date of
determination, actions were commenced or initiated by the Company within 90 days
of such Investment or acquisition to effect such cost savings identified in such
officer's certificate, and (4) if since the beginning of such Four Quarter
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 Four Quarter Period) shall have made any Asset Sale or any Investment or
acquisition of assets that would have required an adjustment pursuant to clause
(2) or (3) above if made by the Company or a Restricted Subsidiary during such
Four Quarter Period, Consolidated EBITDA and Consolidated Fixed Charges for such
Four Quarter Period shall be calculated after giving pro forma effect thereto as
if such Asset Sale, Investment or acquisition of assets occurred on, with
respect to any Investment or acquisition, the first day of such Four Quarter
Period and, with respect to any Asset Sale, the day prior to the first day of
such Four Quarter Period. Except as otherwise provided herein, for purposes of
this definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Fixed Charges associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in
accordance with Regulation S-X under the Securities Act as in effect on the
Issue Date. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest expense on such Indebtedness shall be
calculated as if the rate in effect on the date of determination had been the
applicable rate for the entire period (taking into account any agreement under
which Interest Rate Protection Obligations are outstanding applicable to such
Indebtedness if such agreement under which such Interest Rate Protection
Obligations are outstanding has a remaining term as at the date of determination
in excess of 12 months); provided, however, that the Consolidated Fixed Charges
of the Company attributable to interest on any Indebtedness Incurred under a
revolving credit facility computed on a pro forma basis shall be computed based
upon the average daily balance of such Indebtedness during the Four Quarter
Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period less (A) all non-cash items increasing
Consolidated Net Income for such period and (B) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in the most recent Four Quarter Period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all cash dividend payments on any series
of Preferred Equity Interest and all non-cash dividend payments (other than
dividends paid solely in Qualified Equity Interests) on any series of Preferred
Equity Interest that has a mandatory redemption obligation prior to the Maturity
Date paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
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"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for Federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Agreements
(including any amortization of discounts), (c) the interest portion of any
deferred payment obligation, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all capitalized interest and all accrued interest and excluding (x)
amortization of deferred financing fees and (y) interest recorded as an
accretion in the carrying value of liabilities (other than Indebtedness)
recorded at a discounted value and (ii) the interest component of Capital Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by the Company
and the Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Restricted Subsidiary,
except (A) to the extent of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution and (B) the Company's equity in a net loss of any such Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (loss) of any
Person acquired by the Company or a Restricted Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income (but not loss) 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 to the extent of such
restrictions; (iv) any gain or loss realized upon an Asset Sale by the Company
or the Restricted Subsidiaries (including pursuant to any sale/leaseback
transaction); (v) any extraordinary gain or loss; (vi) the cumulative effect of
a change in accounting principles; and (vii) any restoration to income of any
contingency reserve of an extraordinary, non-recurring or unusual nature, except
to the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Equity
Interests of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period (i) the sum of (A) depreciation, (B) amortization and (C) other non-cash
expenses or charges of such Person and its Restricted Subsidiaries reducing
Consolidated Net Income of such Person and its Restricted Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Tangible Assets" means, as of any date of determination, the
total assets, less goodwill and other intangibles (determined in accordance with
Accounting Principles Board Opinion No. 17), shown on the balance sheet of the
Company and its Restricted Subsidiaries as of the most recent date for which
such a balance sheet is available, determined on a consolidated basis in
accordance with GAAP. At September 30, 1997, on a pro forma basis giving effect
to the Refinancing and the private placement of the Convertible Debenture in
November 1997, the Consolidated Tangible Assets of the Company was approximately
$421 million.
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"Currency Agreement" means the obligations of any person pursuant to any
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its subsidiaries against
fluctuations in currency values.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Existing Credit Facility and (b) any other Senior Indebtedness that,
at the time of determination, has an aggregate principal amount outstanding,
together with any commitments to lend additional amounts, of at least $25.0
million, if the instrument governing such Senior Indebtedness expressly states
that such Indebtedness is "Designated Senior Indebtedness" for purposes of the
Indenture and a Board Resolution setting forth such designation by the Company
has been filed with the Trustee.
"Designation" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Designation Amount" has the meaning set forth under "Certain
Covenants -- Designation of Unrestricted Subsidiaries" above.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest that, 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 thereof), or upon the happening of any
event, matures (excluding any maturity as a result of optional redemption by the
issuer thereof) or is mandatorily redeemable (excluding, in each case, upon a
change of control; provided that the change of control provisions relating to
such Equity Interests (i) are no more favorable to the holders of the Equity
Interests than the provisions relating to the Notes and (ii) require that in the
event of any Change of Control the Notes are redeemed in accordance with the
terms of the Indenture prior to such Equity Interest), pursuant to a sinking
fund obligation or otherwise, or redeemable, at the option of the holder
thereof, in whole or in part, or exchangeable into Indebtedness on or prior to
the earlier of the maturity date of the Notes or the date on which no Notes
remain outstanding.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary of the
Company organized under the laws of the United States or any political
subdivision thereof.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Credit Facility" means the revolving credit facility dated as of
January 29, 1996 among American Bank Note Company, American Bank Note
Holographics, Inc. and The Chase Manhattan Bank (as successor to Chemical Bank),
including any deferrals, renewals, extension, replacements, refinancings or
refundings thereof, or amendments, modifications or supplements thereto and any
agreement providing therefor, whether or by or with the same or any other
lender, creditor, group of lenders or group of creditors, and including related
guarantee agreements, security agreements and mortgages and other instruments
and agreements executed in connection therewith.
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"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the Issue Date, until such amounts are repaid.
"Existing Investments" means Investments existing on the Issue Date.
"Expiration Date" has the meaning set forth in the definition of "Offer to
Purchase" below.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) that could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Directors of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Directors of the Company delivered to the Trustee.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary of the
Company not organized under the laws of the United States or any political
subdivision thereof.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Coverage Ratio" above.
"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantor" means (i) each of the direct and indirect domestic operating
Subsidiaries of the Company and their respective successors, and (ii) each other
Restricted Subsidiary, formed, created or acquired before or after the Issue
Date, required to become a Guarantor after the Issue Date pursuant to
"Guarantees of the Notes" above.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all Interest Rate Agreements of such Guarantor; (b) all
Obligations of such Guarantor under stand-by letters of credit; and (c) all
other Indebtedness of such Guarantor for borrowed money, including principal,
premium, if any, and interest (including Post-Petition Interest) on such
Indebtedness unless the instrument under which such Indebtedness of such
Guarantor for money borrowed is Incurred expressly provides that such
Indebtedness for money borrowed is not senior or superior in right of payment to
such Guarantor's Guarantee of the Notes, and all renewals, extensions,
modifications, amendments or refinancings thereof. Notwithstanding the
foregoing, Guarantor Senior Indebtedness shall not include (a) to the extent
that it may constitute Indebtedness, any Obligation for federal, state, local or
other taxes; (b) any Indebtedness among or between such Guarantor and any
Subsidiary of such Guarantor or any Affiliate of such Guarantor or any of such
Affiliate's Subsidiaries; (c) to the extent that it may constitute Indebtedness,
any Obligation in respect of any trade payable Incurred for the purchase of
goods or materials, or for services obtained, in the ordinary course of
business; (d) that portion of any Indebtedness that is Incurred in violation of
the Indenture; (e) Indebtedness evidenced by such Guarantor's Guarantee of the
Notes; (f) Indebtedness of such Guarantor that is expressly subordinate or
junior in right of payment to any other Indebtedness of such Guarantor; (g) to
the extent that it may constitute Indebtedness, any obligation owing under
leases (other than Capital Lease Obligations) or management agreements;
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and (h) any obligation that by operation of law is subordinate to any general
unsecured obligations of such Guarantor.
"Holders" means the registered holders of the Notes.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for money borrowed; (b)
every obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business or other accrued liabilities arising in the ordinary
course of business); (e) every Capital Lease Obligation of such Person; (f)
every net obligation under interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements of such Person; (g) every
obligation of the type referred to in clauses (a) through (f) of another Person
the payment of which such Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor, guarantor or otherwise; and (h) any and all
deferrals, renewals, extensions and refundings of, or amendments, modifications
or supplements to, any liability of the kind described in any of the preceding
clauses (a) through (g) above. Indebtedness (a) shall never be calculated taking
into account any cash and Cash Equivalents held by such Person; (b) shall not
include obligations of any Person (x) arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently drawn against insufficient funds in the ordinary course of
business, provided that such obligations are extinguished within three Business
Days of their incurrence, (y) resulting from the endorsement of negotiable
instruments for collection in the ordinary course of business and consistent
with past business practices and (z) under stand-by letters of credit to the
extent collateralized by cash or Cash Equivalents; (c) which provides that an
amount less than the principal amount thereof shall be due upon any declaration
of acceleration thereof shall be deemed to be incurred or outstanding in an
amount equal to the accreted value thereof at the date of determination; (d)
shall include the liquidation preference and any mandatory redemption payment
obligations in respect of any Disqualified Equity Interests of the Company or
any Restricted Subsidiary; and (e) shall not include obligations under
performance bonds, performance guarantees, surety bonds and appeal bonds,
letters of credit or similar obligations, incurred in the ordinary course of
business.
"Independent Financial Advisor" means a nationally recognized, accounting,
appraisal, investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
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"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Registration Rights Agreement"
below) on the Notes.
"Interest Rate Agreements" means the obligations of any person pursuant to
any interest rate swap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to protect such person or any of its
subsidiaries against fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit (other than any loan,
advance or extension of credit to any officers or directors of the Company or
any Restricted Subsidiary in compliance with the provisions of the covenant
"Transactions With Affiliates") or capital contribution to (by means of
transfers of cash or other property or assets to others or payments for property
or services for the account or use of others, or otherwise), or purchase or
acquisition of capital stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any other Person. For purposes of the
"Limitation on Restricted Payments" covenant above, the amount of any Investment
shall be the original cost of such Investment, plus the cost of all additions
thereto, but without any other adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment; reduced
by the payment of dividends or distributions in connection with such Investment
or any other amounts received in respect of such Investment; provided, however,
that no such payment of dividends or distributions or receipt of any such other
amounts shall reduce the amount of any Investment if such payment of dividends
or distributions or receipt of any such amounts would be included in
Consolidated Net Income. In determining the amount of any Investment involving a
transfer of any property or asset other than cash, such property shall be valued
at its fair market value at the time of such transfer, as determined in good
faith by the Board of Directors (or comparable body) of the Person making such
transfer. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Voting Equity Interests of any direct or indirect Restricted
Subsidiary such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Voting Equity Interests of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of Voting Equity Interests of such
former Restricted Subsidiary not sold or disposed of.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, sales commissions, title transfer fees, title insurance
premium, recording fees and appraiser fees and costs) and any relocation
expenses incurred as a result thereof; (b) taxes (including transfer taxes) paid
or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements); (c) amounts required to
be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such
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Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of
Directors of the Company to be provided as a reserve, in accordance with GAAP,
against any liabilities associated with such assets which are the subject of
such Asset Sale; including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale (provided that the amount of any such reserves shall be deemed
to constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Notes Pro Rata Share" means the amount of the applicable Unutilized Net
Cash Proceeds obtained by multiplying the amount of such Unutilized Net Cash
Proceeds by a fraction, (i) the numerator of which is the aggregate principal
amount of Notes outstanding at the time of the applicable Asset Sale with
respect to which the Company is required to use Unutilized Net Cash Proceeds to
repay or make an Offer to Purchase or repay and (ii) the denominator of which is
the sum of (a) the aggregate accreted value and/or principal amount, as the case
may be, of all Other Pari Passu Debt outstanding at the time of the applicable
Asset Sale and (b) the aggregate principal amount of all Notes outstanding at
the time of the applicable Offer to Purchase with respect to which the Company
is required to use the applicable Unutilized Net Cash Proceeds to offer to repay
or make an Offer to Purchase or repay.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer" has the meaning set forth in the definition of "Offer to Purchase"
below.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 20 Business Days nor more than 60 days after the date of such
Offer, and a settlement date (the "Purchase Date") for purchase of Notes to
occur no later than five Business Days after the Expiration Date. The Company
shall notify the Trustee at least 5 Business Days (or such shorter period as is
acceptable to the Trustee) prior to the mailing of the Offer of the Company's
obligation to make an Offer to Purchase, and the Offer shall be mailed by the
Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company. The Offer shall contain all the information required by
applicable law to be included therein.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Other Pari Passu Debt" means Indebtedness of the Company or any Guarantor
that neither constitutes Senior Indebtedness or Guarantor Senior Indebtedness,
as applicable, or Subordinated Indebtedness.
"Permitted Holder" means Mr. Morris Weissman and members of his immediate
family and any trust of which he is the beneficiary and any officers and
directors of the Company.
"Permitted Indebtedness" has the meaning set forth in the second paragraph
of "Certain Covenants -- Limitation on Indebtedness" above.
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"Permitted Investments" means (a) Cash Equivalents; (b) Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility
and workers' compensation, performance and other similar deposits; (c) Interest
Rate Agreements and Currency Agreements; (d) bonds, notes, debentures, other
securities or non-cash consideration received as a result of (x) Asset Sales
permitted under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
above not to exceed 25% of the total consideration for such Asset Sales or (y) a
disposition of assets that does not constitute an Asset Sale; (e) Investments in
the Company and Investments in a Restricted Subsidiary or a Person that, as a
result of or in connection with such Investment, becomes a Restricted Subsidiary
or is merged with or into or consolidated with the Company or another Restricted
Subsidiary; (f) Investments existing as of the Issue Date; (g) any Investment
consisting of a guarantee by a Restricted Subsidiary of Senior Indebtedness or
any guarantee of Indebtedness otherwise permitted by the Indenture; (h)
Investments acquired in exchange for Equity Interests (other than Disqualified
Equity Interests) of the Company; and (i) Investments that, when taken together
with all other Investments made pursuant to this clause (i), do not exceed the
greater of $40 million and 10% of Consolidated Tangible Assets of the Company
determined in accordance with GAAP.
"Permitted Junior Securities" means (a) debt securities of the Company as
reorganized or readjusted, or debt securities of the Company (or any other
company, trust or organization provided for by a plan of reorganization or
readjustment succeeding to the assets and liabilities of the Company) that, in
each case, are subordinated, to at least the same extent as the Notes, to the
payment of all Senior Indebtedness that will be outstanding after giving effect
to such plan of reorganization or readjustment, so long as (i) the rate of
interest on such debt securities shall not exceed the effective rate of interest
on the Notes on the date hereof, (ii) such debt securities shall not be entitled
to the benefits of covenants or defaults materially more beneficial to the
holders of such debt securities than those in effect with respect to the Notes
on the date hereof (or the Senior Indebtedness, after giving effect to such plan
of reorganization or readjustment) and (iii) such debt securities shall not
provide for amortization (including sinking fund and mandatory prepayment
provisions) commencing prior to the date one year and one day following the
final scheduled maturity date of the Senior Indebtedness (as modified by such
plan of reorganization or readjustment) or (b) shares of stock of the Company as
reorganized or readjusted pursuant to a plan of reorganization or readjustment;
provided that, in each case with respect to clauses (a) and (b) above, (x) if a
new corporation results from any such reorganization or readjustment, such
corporation assumes all Senior Indebtedness that will be outstanding after
giving effect thereto and (y) the rights of the holders of the Senior
Indebtedness are not, without the consent of such holders, altered by any such
reorganization or readjustment, including, without limitation, such rights being
impaired within the meaning of Section 1124 of Title 11 of the United States
Code, or any impairment of the right to receive interest accruing during the
pendency of a bankruptcy or insolvency proceeding, including proceedings under
Title 11 of the United States Code.
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business; (c) Liens
existing on the Issue Date; (d) Liens securing only the Notes or the Guarantees;
(e) Liens in favor of the Company or any Restricted Subsidiary; (f) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided, however, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (g) encroachments, encumbrances, easements, reservation
of rights of way, restrictions and other similar easements, licenses,
restrictions on the use of properties (including zoning or other such
restrictions), or minor imperfections of title that do
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not materially detract from the properties subject thereto or interfere with the
ordinary conduct of the business of the Company and the Restricted Subsidiaries;
(h) Liens resulting from the deposit of cash or notes in connection with
contracts, tenders or expropriation proceedings, or to secure workers'
compensation, surety or appeal bonds, costs of litigation when required by law
and public and statutory obligations or obligations under franchise arrangements
entered into in the ordinary course of business; (i) Liens securing Indebtedness
consisting of Capital Lease Obligations, Purchase Money Indebtedness, mortgage
financings, industrial revenue bonds or other monetary obligations, in each case
incurred solely for the purpose of financing all or any part of the purchase
price or cost of construction or installation of assets used in the business of
the Company or the Restricted Subsidiaries, or repairs, additions or
improvements to such assets, provided, however, that (I) such Liens secure
Indebtedness in an amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or improvement thereto
(plus an amount equal to the reasonable fees and expenses in connection with the
incurrence of such Indebtedness), (II) such Liens do not extend to any other
assets of the Company or the Restricted Subsidiaries (and, in the case of
repair, addition or improvements to any such assets, such Lien extends only to
the assets (and improvements thereto or thereon) repaired, added to or
improved), (III) the Incurrence of such Indebtedness is permitted by "Certain
Covenants -- Limitation on Indebtedness" above and (IV) such Liens attach within
180 days of such purchase, construction, installation, repair, addition or
improvement; (j) Liens to secure any refinancings, renewals, extensions,
modifications or replacements (collectively, "refinancing") (or successive
refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in the clauses above so long as such Lien does not extend to any
other property (other than improvements thereto); and (k) Liens securing
Indebtedness of the Company or any Restricted Subsidiary permitted to be
Incurred under the Indenture in an aggregate amount not to exceed $10.0 million.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
limited partnership, trust, unincorporated organization or government or any
agency or political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest of any
class or classes (however designated) that 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 Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8) or any similar provisions
under foreign law.
"Purchase Amount" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of any property,
provided that the aggregate principal amount of such Indebtedness does not
exceed the lesser of the Fair Market Value of such property or such
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purchase price or cost, including any refinancing of such Indebtedness that does
not increase the aggregate principal amount (or accreted amount, if less)
thereof as of the date of refinancing.
"Purchase Price" has the meaning set forth in the definition of "Offer to
Purchase" above.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Replacement Assets" has the meaning set forth in the first paragraph under
"Certain Covenants -- Disposition of Proceeds of Asset Sales" above.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a resolution of the
Board of Directors of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations of the
Company under the Existing Credit Facility; (b) all Interest Rate Protection
Obligations of the Company; (c) all Obligations of the Company under stand-by
letters of credit; and (d) all other Indebtedness of the Company for borrowed
money, including principal, premium, if any, and interest (including Post-
Petition Interest) on such Indebtedness, unless the instrument under which such
Indebtedness of the Company for money borrowed is Incurred expressly provides
that such Indebtedness for money borrowed is not senior or superior in right of
payment to the Notes, and all renewals, extensions, modifications, amendments or
refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall
not include (a) to the extent that it may constitute Indebtedness, any
Obligation for Federal, state, local or other taxes; (b) any Indebtedness among
or between the Company and any Subsidiary of the Company or any Affiliate of the
Company or any of such Affiliate's Subsidiaries; (c) to the extent that it may
constitute Indebtedness, any Obligation in respect of any trade payable Incurred
for the purchase of goods or materials, or for services obtained, in the
ordinary course of business; (d) that portion of any Indebtedness that is
Incurred in violation of the Indenture; (e) Indebtedness evidenced by the Notes;
(f) Indebtedness of the Company that is expressly subordinate or junior in right
of payment to any other Indebtedness of the Company; (g) to the extent that it
may constitute Indebtedness, any obligation owing under leases (other than
Capital Lease Obligations) or management agreements; and (h) any obligation that
by operation of law is subordinate to any general unsecured obligations of the
Company.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
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"Subordinated Indebtedness" means, with respect to the Company or any
Guarantor, any Indebtedness of the Company or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"10 3/8% Notes" means the Company's 10 3/8% Senior Notes due 2002.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to "Certain Covenants -- Designation of Unrestricted Subsidiaries"
above. Any such designation may be revoked by a resolution of the Board of
Directors of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"Unutilized Net Cash Proceeds" has the meaning set forth in the third
paragraph under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
above.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Directors or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment of final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary all of
the outstanding Voting Equity Interests (other than directors' qualifying
shares) of which are owned, directly or indirectly, by the Company.
BOOK-ENTRY; DELIVERY AND FORM
The Notes initially will be represented by one or more permanent global
certificates in definitive, duly registered form (the "Global Notes"). The
Global Notes will be deposited on the date of issuance with, or on behalf of,
The Depository Trust Company, New York, New York ("DTC") and registered in the
name of a nominee of DTC.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts
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with DTC ("participants") or persons who hold interests through participants.
Qualified institutional buyers ("QIBs") and institutional Accredited Investors
who are not QIB's may hold their interests in the Global Notes directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any) and interest on the Global
Notes will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest on the Global Notes, will credit
participants' accounts with payments in amount proportionate to their respective
beneficial interests in the principal amount of the Global Notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in the Global Notes held through
such participants will be governed by standing instructions and customary
practice, as is now the case, with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
certificate in registered form (a "Certificated Security") for any reason,
including to sell Notes to persons in states which require physical delivery of
the Notes, or to pledge such securities, such holder must transfer its interest
in a Global Note in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will
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have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on December 12, 1997 to
the Initial Purchasers pursuant to the Purchase Agreement as part of Units
consisting of $95,000,000 aggregate principal amount of Old Notes and 95,000
Warrants to purchase an aggregate of 1,185,790 shares of Common Stock. The
Initial Purchasers subsequently resold the Old Notes to qualified institutional
buyers in reliance on Rule 144A under the Securities Act and in offshore
transactions to Non U.S. persons in reliance on Regulation S under the
Securities Act. As a condition to the Purchase Agreement, the Company and the
Guarantors (collectively, the "Issuers") and the Initial Purchasers entered into
the Registration Rights Agreement on December 12, 1997, the date of the Initial
Offering (the "Issue Date").
Pursuant to the Registration Rights Agreement, the Company and the
Guarantors agreed that, unless the Exchange Offer is not permitted by applicable
law or Commission policy, they would (i) file with the Commission on or prior to
45 days after the Issue Date a registration statement on Form S-1 or Form S-4,
if the use of such form is then available under the Securities Act with respect
to the Exchange Notes, (ii) use its best efforts to cause such registration
statement to become effective under the Securities Act within 120 days after the
Issue Date (the "Effectiveness Date") and (iii) use its best efforts to
consummate the Exchange Offer as promptly as practicable, but in any event prior
to 160 days after the Issue Date. The Exchange Offer is being made to satisfy
certain of the contractual obligations of the Company and the Guarantors under
the Registration Rights Agreement and the Purchase Agreement.
If the Exchange Offer is not consummated on or prior to the fifth day after
the Expiration Date (subject to extension in certain circumstances), additional
interest, as liquidated damages ("Additional Interest"), shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per week
(or any part thereof) per $1,000 principal amount of the Old Notes commencing on
the sixth day after the Expiration Date; provided, however, that upon the
exchange of Exchange Notes for all Old Notes validly tendered and not withdrawn,
Additional Interest on the Old Notes shall cease to accrue (but any accrued
amount shall be payable).
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old Notes
will continue to be subject to certain restrictions on transfer. Accordingly,
the liquidity of the market for such Old Notes could be adversely affected.
If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not commenced on or prior to the
Effectiveness Date, (iii) the Exchange Offer is not, for any reason, consummated
on or prior to the fifth day after the Expiration Date, (iv) any holder of
Private Exchange Notes (as defined in the Registration Rights Agreement) so
requests, or (v) in the case of any holder that participates in the Exchange
Offer, such holder does not receive Exchange Notes on the date of the exchange
that may be sold without restriction under Federal securities laws, then, in the
case of each of clauses (i) through (v) of this sentence, the Company shall
promptly deliver to the holders and the Trustee notice thereof and thereafter
the Company and each of the Guarantors shall file a Shelf Registration Statement
(as defined in the Registration Rights Agreement) pursuant to the terms of the
Registration Rights Agreement. If so required, the Company and the Guarantors
shall file with the SEC the Shelf Registration Statement on or prior to the
applicable Filing Date (as defined in the Registration Rights Agreement).
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior
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to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Old Notes accepted in the Exchange Offer. Holders may
tender some or all of their Old Notes pursuant to the Exchange Offer. However,
Old Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
all of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered. As of the date of this Prospectus, $95,000,000
aggregate principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
Any such extension, delay in acceptance, termination or amendment will be
followed promptly by oral (confirmed in writing) or written notice thereof to
the Exchange Agent and by making a public announcement thereof, and such
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
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Expiration Date. Without limiting the manner in which the Company may choose to
make any public announcement and subject to applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to an appropriate news
agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on June 1, 1998. Interest on the Old Notes accepted for exchange
will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each June 1 and
December 1, commencing on June 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantee, or (in the case of a book-entry
transfer) an Agent's Message in lieu of the Letter of Transmittal, and any other
required documents must be received by the Exchange Agent at the address set
forth under "Exchange Agent" prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the
Expiration Date, either (a) certificates for tendered Old Notes must be received
by the Exchange Agent at such address or (b) such Old Notes must be transferred
pursuant to the procedures for book-entry transfer described below (and a
confirmation of such tender received by the Exchange Agent, including an Agent's
Message if the tendering holder has not delivered a Letter of Transmittal). The
term "Agent's Message" means a message, transmitted by the book-entry transfer
facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), to
and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the tendering participant that such participant has
received and agrees to be bound by the Letter of Transmittal and that the
Company may enforce such Letter of Transmittal against such participant.
By tendering, each holder of Old Notes will represent to the Company that,
among other things, (i) the Exchange Notes to be acquired by such holder of Old
Notes in connection with the Exchange Offer are being acquired by such holder in
the ordinary course of business of such holder, (ii) such holder is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) except as otherwise disclosed in writing, such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company, and (iv) such holder acknowledges and agrees that any person
participating in the Exchange Offer with the intention or for the purpose of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale of the Exchange Notes acquired by such person and cannot rely on the
position of the Staff of the Commission set forth in the no-action letters that
are discussed under "Resale of the Exchange Notes." In addition, by accepting
the Exchange Offer, such holder will (i) represent and warrant that, if such
holder is a Participating Broker-Dealer, such Participating Broker-Dealer
acquired the Old Notes for its own account as a result of market-making
activities or other trading activities and has not entered into any arrangement
or understanding with the Company or any "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes
to be received in the Exchange Offer, and (ii) acknowledges that, by receiving
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired as a result of market-making activities or other trading
activities, such
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Participating Broker-Dealer will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such Exchange Notes.
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a member
of the NASD or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of the Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu
thereof) and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period
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provided under such procedures. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old 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 the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer (including delivery of an Agent's Message),
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the holder,
the certificate number(s) of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes (or a
confirmation of book-entry transfer of such Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility), and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number(s)
and principal amount of such Old Notes, or, in the case of Old Notes transferred
by book-entry transfer, the name and number of the account at the Book-Entry
Transfer Facility to be credited), (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such Old
Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee with respect
to the Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender and (iv) specify the name in which any such Old
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Old Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn are
validly retendered. Any Old Notes which have been tendered but which are not
accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the sole
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of holders to withdraw such Old Notes (see
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn.
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EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
THE BANK OF NEW YORK
By Hand Or Overnight Delivery: By Registered Or Certified Mail:
The Bank of New York Facsimile Transmissions: The Bank of New York
101 Barclay Street (Eligible Institutions Only) 101 Barclay Street, 7E
Corporate Trust Services Window (212) 571-3080 New York, New York 10286
Ground Level Attention: Reorganization Section
Attention: Reorganization To Confirm by Telephone
Section or for Information Call:
(212) 815-6333
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is the original principal amount, less the original issue discount
representing the value of the Warrants, plus accretion thereon, as reflected in
the Company's accounting records on the date of exchange. Accordingly, no gain
or loss for accounting purposes will be recognized by the Company. Certain
expenses of the Exchange Offer will be amortized over the term of the Exchange
Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
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upon an opinion of counsel reasonably acceptable to the Company), (iii) outside
the United States to a foreign person in a transaction meeting the requirements
of Rule 904 under the Securities Act, or (iv) pursuant to an effective
registration statement under the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating 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.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. For a description of
the procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material U.S. federal income tax
consequences expected to result to holders whose Old Notes are exchanged for
Exchange Notes in the Exchange Offer. This discussion is based on the current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conditions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below.
The Company believes that the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer will not be treated as a taxable transaction for
federal income tax purposes. As a result, there should be no federal income tax
consequences to holders exchanging Old Notes for Exchange Notes pursuant to the
Exchange Offer.
THE FOREGOING DISCUSSION IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, TREASURY REGULATIONS, RULING AND JUDICIAL DECISIONS NOW IN EFFECT,
ALL OF WHICH ARE SUBJECT TO CHANGE. ANY SUCH CHANGES MAY BE APPLIED
RETROACTIVELY IN A MANNER THAT COULD ADVERSELY AFFECT HOLDERS EXCHANGING NOTES.
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EACH HOLDER OF NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE TAX
CONSEQUENCES TO IT, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS, OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES PURSUANT TO THE
EXCHANGE OFFER.
PLAN OF DISTRIBUTION
Each Participating 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 Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 180 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
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 Participating Broker-Dealer and/or the purchasers of
any such Exchange Notes. Any Participating Broker-Dealer that resells the
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
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a Participating 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 the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Exchange Notes offered hereby will be passed upon for the Company by Weil,
Gotshal & Manges LLP, New York, New York. Certain United States federal income
tax matters in connection with the Exchange Offer will be passed upon for the
Company by Weil, Gotshal & Manges LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996 of American
Banknote Corporation included and incorporated by reference in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included and incorporated by reference
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herein, and have been so included and incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The special purpose financial statements of Leigh Mardon Security Division
included and incorporated in this Prospectus by reference from the Company's
Current Report on Form 8-K/A Amendment No. 1 dated August 14, 1996 have been
audited by KPMG, chartered accountants, as stated in their report, which is
included and incorporated herein by reference, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of American Banknote Corporation and
Subsidiaries
for the years ended December 31, 1996, 1995 and 1994:
PAGE
-----
Independent Auditors' Report..................................................... F-2
Consolidated Statements of Operations............................................ F-3
Consolidated Balance Sheets...................................................... F-4
Consolidated Statement of Stockholders' Equity................................... F-5
Consolidated Statements of Cash Flows............................................ F-6
Notes to Consolidated Financial Statements....................................... F-7
Unaudited Condensed Financial Statements of American Banknote Corporation and
Subsidiaries for the nine months ended September 30, 1997 and 1996:
Condensed Consolidated Statements of Operations -- Unaudited..................... F-26
Condensed Consolidated Balance Sheets -- Unaudited............................... F-27
Condensed Consolidated Statements of Cash Flows -- Unaudited..................... F-28
Condensed Consolidated Statement of Stockholders' Equity -- Unaudited............ F-29
Notes to Condensed Consolidated Financial Statements -- Unaudited................ F-30
Special Purpose Financial Statements of Leigh Mardon Security Division for the
three
years ended in the period ended 30 June 1995 (in Australian dollars):
Report of Independent Auditors................................................... F-32
Profit and Loss Statements....................................................... F-33
Balance Sheets................................................................... F-34
Statement of Cash Flows.......................................................... F-35
Notes to Special Purpose Financial Statements.................................... F-36
F-1
110
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
American Banknote Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of American
Banknote Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of American Banknote Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
February 21, 1997
New York, New York
F-2
111
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
-------- -------- --------
Sales................................................... $309,450 $206,164 $208,133
-------- -------- --------
Costs and expenses:
Cost of goods sold.................................... 202,158 149,035 130,889
Selling and administrative............................ 48,263 39,851 38,974
Restructuring and idle equipment...................... 14,304 7,000
Depreciation and amortization......................... 20,042 14,824 13,094
-------- -------- --------
270,463 218,014 189,957
-------- -------- --------
38,987 (11,850) 18,176
Other (expense) income:
Interest expense...................................... (28,864) (23,147) (21,057)
Foreign translation losses, net....................... (255) (38) (7,037)
Provision for litigation.............................. (2,400)
Other, net............................................ 2,265 2,824 1,816
-------- -------- --------
(29,254) (20,361) (26,278)
-------- -------- --------
Income (loss) before taxes on income (benefit) and
minority interest.................................. 9,733 (32,211) (8,102)
Taxes on income (benefit)............................... 400 (11,359) (2,401)
-------- -------- --------
Income (loss) before minority interest................ 9,333 (20,852) (5,701)
Minority interest....................................... 5,234 1,563
-------- -------- --------
Income (loss) before extraordinary item............... 4,099 (22,415) (5,701)
Extraordinary item -- early extinguishment of debt...... (114)
-------- -------- --------
Net income (loss)....................................... $ 4,099 $(22,415) $ (5,815)
======== ======== ========
Net Income (loss) per share:
Before extraordinary item............................. $ 0.20 $ (1.17) $ (0.30)
Extraordinary item.................................... (0.01)
-------- -------- --------
$ 0.20 $ (1.17) $ (0.31)
======== ======== ========
See Notes to Consolidated Financial Statements.
F-3
112
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31
---------------------
1996 1995
-------- --------
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 14,256 $ 23,525
Marketable securities -- at market (cost $1,746)................... 2,133 2,952
Accounts receivable, net of allowance for doubtful accounts of $981
and $816........................................................ 47,501 32,058
Inventories........................................................ 35,622 23,243
Deferred income taxes.............................................. 4,261 5,983
Prepaid expenses and other......................................... 9,362 12,527
-------- --------
Total current assets....................................... 113,135 100,288
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization...................................... 253,987 225,974
Other assets......................................................... 27,974 18,342
Excess of cost of investment in subsidiaries over net assets
acquired, net of accumulated amortization of $5,662 and $3,119..... 85,282 34,798
-------- --------
$480,378 $379,402
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit................................................... $ 3,103
Current portion of long-term debt.................................. 14,450 $ 332
Accounts payable and accrued expenses.............................. 60,049 44,983
-------- --------
Total current liabilities.................................. 77,602 45,315
Long-term debt....................................................... 263,548 194,156
Other liabilities.................................................... 24,706 20,181
Deferred income taxes................................................ 47,456 60,579
Minority interest.................................................... 20,789 18,818
-------- --------
434,101 339,049
Commitments and Contingencies
Stockholders' equity
Preferred Stock, authorized 5,000,000 shares, no shares issued or
outstanding
Common Stock, par value $.01 per share, authorized 50,000,000
shares; issued 20,137,880 shares and 19,391,763 shares.......... 202 194
Capital surplus.................................................... 68,609 67,091
Retained-earnings (deficit)........................................ (21,362) (25,461)
Treasury stock, at cost (281,000 shares)........................... (1,253) (1,253)
Pension liability adjustment....................................... (218)
Cumulative currency translation adjustment......................... 81
-------- --------
Total stockholders' equity................................. 46,277 40,353
-------- --------
$480,378 $379,402
======== ========
See Notes to Consolidated Financial Statements.
F-4
113
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1996
CUMULATIVE
COMMON STOCK RETAINED PENSION CURRENCY
--------------- CAPITAL EARNINGS TREAS. LIAB. TRANSLATION
SHARES AMOUNT SURPLUS (DEFICIT) STOCK ADJUST. ADJUSTMENT TOTAL
------ ------ ------- -------- ------- ------- ---------- --------
(AMOUNTS IN THOUSANDS)
BALANCE --
JANUARY 1, 1994........ 19,102 $191 $66,604 $ 2,769 $ (821) $(413) $ 68,330
Purchase of common
shares................. (432) (432)
Exercise of warrants..... 43 -- --
Issuance in connection
with option plans and
other.................. 145 2 279 281
Pension liability
adjustment............. 413 413
Net loss................. (5,815) (5,815)
------ ---- ------- -------- ------- ----- -------
BALANCE --
DECEMBER 31, 1994...... 19,290 193 66,883 (3,046) (1,253) 62,777
Issuance in connection
with option plans...... 102 1 208 209
Pension liability
adjustment............. (218) (218)
Net loss................. (22,415) (22,415)
------ ---- ------- -------- ------- ----- -------
BALANCE --
DECEMBER 31, 1995...... 19,392 194 67,091 (25,461) (1,253) (218) 40,353
Issuance of common shares
in connection with
acquisitions........... 427 5 825 830
Issuance in connection
with option and
compensation plans..... 319 3 693 696
Foreign currency
translation
adjustment............. $ 81 81
Pension liability
adjustment............. 218 218
Net income............... 4,099 4,099
------ ---- ------- -------- ------- ----- --- -------
BALANCE --
DECEMBER 31, 1996...... 20,138 $202 $68,609 $(21,362) $(1,253) $ -- $ 81 $ 46,277
====== ==== ======= ======== ======= ===== === =======
See Notes to Consolidated Financial Statements.
F-5
114
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Operating Activities:
Income (loss) before extraordinary item.......................... $ 4,099 $(22,415) $ (5,701)
Adjustments to reconcile income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 24,326 17,742 13,656
Unrealized loss (gain) on marketable securities.................. 819 (1,061) (104)
Extraordinary item............................................... (215)
Deferred taxes................................................... (10,395) (16,650) (3,057)
Minority interest................................................ 5,234 1,563
Provision for litigation......................................... 2,400
Restructuring and idle equipment................................. 14,223 6,075
Foreign translation losses, net.................................. 255 38 7,037
Changes in operating assets and liabilities, net of effects from
acquisitions:
Marketable securities.......................................... (1,253) (533)
Accounts receivable............................................ (15,203) 10,501 (10,894)
Inventories.................................................... (4,424) 1,734 (4,676)
Prepaid expenses and other..................................... 1,250 (7,466) (175)
Accounts payable and accrued expenses.......................... (788) (3,839) 7,447
Other.......................................................... 65 2,432 (2,670)
------- ------- -------
Net cash provided by (used in) operating activities................ 7,638 (4,451) 6,190
------- ------- -------
Investing Activities:
Acquisition of LM................................................ (2,491)
Capital expenditures............................................. (22,283) (10,378) (10,084)
Proceeds from sale of joint venture.............................. 4,718
Proceeds from sale of assets..................................... 699 211 1,694
Other............................................................ (385) (650)
------- ------- -------
Net cash used in investing activities.............................. (24,460) (6,099) (8,390)
------- ------- -------
Financing Activities:
Long-term borrowings............................................. 8,342 3,415
Revolving credit borrowings...................................... 3,103
Payment of long-term debt........................................ (1,076) (451) (537)
Proceeds from 11 5/8% Senior Notes, net of related costs......... 59,779
Repayment of bank financing...................................... (40,000)
Dividend to minority shareholder................................. (2,867)
Other............................................................ 20 (306)
------- ------- -------
Net cash provided by financing activities.......................... 7,502 2,984 18,936
------- ------- -------
Effect of foreign currency exchange rate changes on cash and cash
equivalents...................................................... 51 (567) (515)
------- ------- -------
(Decrease) increase in cash and cash equivalents................... (9,269) (8,133) 16,221
Cash and cash equivalents -- beginning of year..................... 23,525 31,658 15,437
------- ------- -------
Cash and cash equivalents -- end of year........................... $ 14,256 $ 23,525 $ 31,658
======= ======= =======
Supplemental cash payments:
Taxes............................................................ $ 9,490 $ 3,680 $ 1,604
Interest......................................................... $ 27,130 $ 21,857 $ 16,309
See Notes to Consolidated Financial Statements.
F-6
115
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Banknote Corporation is a holding company (the "Company") and
through its subsidiaries in the United States, Brazil, Australia and New
Zealand, operates in a single industry, secured products and systems, with three
principal product lines: Transaction Cards & Systems; Printing Services &
Document Management; and Security Printing Solutions. The Company's principal
subsidiaries are: American Bank Note Company ("ABN"), American Bank Note
Holographics, Inc. ("ABNH"), American Bank Note Company Grafica e Servicos Ltda.
("ABNB"), a 77.5% owned Brazilian company, and American Banknote Australasia
Holdings, Inc. ("ABAH") and its Australian subsidiary, ABN Australasia Limited
("LM").
1. Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. Certain
reclassifications have been made to the 1995 and 1994 balances to conform to the
1996 presentation. All significant intercompany items have been eliminated.
2. Pervasiveness of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and 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.
3. Translation of Financial Statements: LM's results of operations are
translated into US dollars using average exchange rates during the period, while
assets and liabilities are translated using current rates. Resulting translation
adjustments are accumulated as a separate component of stockholders' equity.
Foreign currency transaction gains and losses are included in earnings. ABNB
operates in a hyper-inflationary economy. Currently, gains and losses for ABNB
resulting from translation and transactions are determined using a combination
of current and historical rates. If inflation rates in Brazil remain at current
levels, the method of translating ABNB's financial statements will be changed to
the method used to translate LM's financial statements.
4. Cash and Cash Equivalents: All highly liquid investments with a
maturity of three months or less, when purchased, are considered to be cash
equivalents.
5. Marketable Securities: Such investments are held for trading purposes
and changes in the market value are reflected in earnings.
6. Inventories and Revenue Recognition: Inventories are stated at the
lower of cost or market with cost being determined on the first-in, first-out
(FIFO) method. Revenue is generally recognized when goods are shipped. However,
pursuant to terms with certain customers, completed items are sometimes stored
at the Company's premises and, in those instances, revenue is recognized when
the goods are transferred to the on-site storage location.
7. Depreciation and Amortization: Depreciation and amortization of
property, plant and equipment is computed principally by the straight-line
method over the estimated useful life of the asset as follows: buildings -- 25
to 40 years; rolls and dies -- 40 years; and machinery, equipment and
fixtures -- 5 to 22 years.
Amortization of leasehold improvements is computed by the straight-line
method based upon the remaining term of the applicable lease or the estimated
useful life of the asset, whichever is shorter.
F-7
116
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. Intangible Assets: Patents and other intangibles are amortized over
their useful lives. The excess of cost of investment in subsidiaries over net
assets acquired is amortized over periods ranging from 20 to 30 years using the
straight-line method.
9. Research and Development: Research and development costs are expensed
as incurred (1996 -- $0.9 million, 1995 -- $0.4 million and 1994 -- $1.6
million).
10. Net Income (Loss) Per Share: Net income (loss) per share has been
computed based on the weighted average number of outstanding shares of common
stock and in 1996 common equivalent shares (approximately 20.5 million in 1996,
19.1 million in 1995 and 19.0 million in 1994).
11. Business Information: Sales to the United States government
(principally food coupons) were 7%, 15% and 26% of consolidated sales for the
years ended December 31, 1996, 1995 and 1994, respectively. Sales to a customer
in Brazil (national telephone company) were 24% and 13% of consolidated sales
for the years ended December 31, 1996 and 1995, respectively. The current
contract with the customer expires in May 1997 and the Company is presently
negotiating either a new contract or a renewal of its existing contract but the
value of either has not yet been determined. Sales to the ABNB minority owner
were 14% and 12% of consolidated sales in 1996 and 1995, respectively.
Stock and bond printing accounted for approximately 8%, 11% and 14% of
consolidated sales for the years ended December 31, 1996, 1995 and 1994,
respectively. The elimination of printed certificates continues to be advocated
by various organizations in favor of the use of book-entry systems for recording
security ownership. The complete elimination of or substantial reduction in the
domestic use of certificates or NYSE requirements would have a material adverse
effect on the sales and earnings of the Company.
Government sales, particularly to the United States government and state
and local governments, is principally dependent on successful competitive bids
which are generally awarded on the basis of price but may also include other
factors. Many of the Company's contracts are re-bid annually or on a multiple
year basis. Government sales are generally subject to provisions allowing
termination for the convenience of the government.
12. Supplemental Cash Flow Information: In 1996 the Company entered into a
contract payable in connection with the LM acquisition in the face amount of
$4.8 million. In 1996, 426,617 shares of Common Stock (valued at approximately
$0.8 million) were issued, in connection with the acquisition of an equity
interest in a privately held transaction card business.
13. Export Sales: US export sales were 6%, 7% and 12% of consolidated
sales for the years ended December 31, 1996, 1995 and 1994, respectively.
14. Impact of Accounting Pronouncements: Effective January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-lived Assets and for Assets to be Disposed Of." The
adoption of this standard was not material.
In October 1996, the AICPA Accounting Standards Executive Committee issued
Statement of Position 96-1, "Environmental Remediation Liabilities," which
requires adoption in 1997. The adoption of this pronouncement will not have a
material effect on the Company's financial condition and results of operations.
NOTE B -- ACQUISITIONS
As of July 1, 1995, the Company acquired the security printing operations
of Grafica Bradesco Ltda. ("Bradesco") from Banco Bradesco S.A. (Brazil), in
exchange for a 22.5% interest in the
F-8
117
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's Brazilian subsidiary, valued at approximately $17 million. Bradesco's
business included check printing, and other forms for financial institutions.
Approximately $2.3 million was recorded as the excess of cost of investment in
subsidiaries over net assets acquired.
In 1996, in a two step transaction, the Company acquired a 100% equity
interest in LM. The total purchase price of and the net assets acquired in the
acquisition follows (in thousands):
Net working capital deficiency................................... $ (2,124)
Property, plant and equipment.................................... 23,488
Excess of cost of investment over net assets acquired............ 52,885
Other long-term assets........................................... 3,914
Deferred debt expense............................................ 3,273
Long-term liabilities............................................ (2,239)
--------
Net purchase price............................................. 79,197
Acquisition financing............................................ (76,706)
--------
Net cash cost of acquisition................................... $ 2,491
========
On an unaudited pro forma basis, assuming the above acquisitions had been
made as of January 1, 1995, the consolidated sales for the years ended December
31, 1996 and 1995 would have increased by approximately $33.5 million and $96.4
million, respectively, and net income (loss) would have increased (decreased) by
approximately $0.9 million ($.05 per share) and ($3.4 million) ($.17 per share),
respectively.
The above transactions were accounted under the purchase method. The
Company believes the unaudited pro forma results are not necessarily indicative
of the actual results of operations that would have occurred had the
acquisitions been made as of January 1, 1995 or of the results which will occur
in the future. The results of operations of the acquired entities are
consolidated in the Company's financial statements from the respective
acquisition dates.
NOTE C -- INVENTORIES
DECEMBER 31
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Finished goods......................................... $ 6,288
Work in process........................................ 14,905 $10,505
Raw materials and supplies............................. 14,429 12,738
------- -------
$35,622 $23,243
======= =======
F-9
118
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
Land................................................. $ 2,852 $ 2,727
Buildings and improvements........................... 25,861 20,858
Rolls and dies....................................... 174,037 177,154
Machinery, equipment and fixtures.................... 136,309 70,368
Leasehold improvements............................... 4,905 1,522
Construction in progress............................. 6,408 260
-------- --------
350,372 272,889
Accumulated depreciation and amortization............ 96,385 46,915
-------- --------
$253,987 $225,974
======== ========
NOTE E -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Accounts payable -- trade.............................. $23,967 $11,335
Accrued expenses....................................... 6,658 2,893
Customers' advances.................................... 2,120 7,026
Salaries and wages..................................... 9,431 5,666
Restructuring and acquisition related accruals......... 3,898 8,838
Interest payable....................................... 5,679 4,291
Other.................................................. 8,296 4,934
------- -------
$60,049 $44,983
======= =======
NOTE F -- TAXES ON INCOME
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities, and their reported amounts in the consolidated
financial statements.
The Company files a US corporate consolidated federal income tax return
which includes its domestic subsidiaries.
F-10
119
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Taxes on income (benefit) for the years ended December 31, follows:
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
Current
Foreign............................... $ 10,624 $ 4,755
State and local....................... 443 536 $ 656
-------- -------- -------
11,067 5,291 656
-------- -------- -------
Deferred
Federal............................... (8,598) (14,209) (2,892)
Foreign............................... (914) (1,993) (31)
State and local....................... (1,155) (448) (134)
-------- -------- -------
(10,667) (16,650) (3,057)
-------- -------- -------
$ 400 $(11,359) $ (2,401)
======== ======== =======
A reconciliation of the taxes on income (benefit) and the amount computed
by applying the federal income tax statutory rate follows:
1996 1995 1994
------- -------- -------
(IN THOUSANDS)
Statutory tax (benefit).................... $ 3,406 $(10,952) $(2,755)
Adjustments due to rate changes............ (2,837)
Difference between federal and foreign
statutory rates.......................... (1,311) 1,390
Non-deductible goodwill.................... 866
Brazil dividend deduction.................. (1,428) 601
State and local income taxes, net of
federal benefit.......................... (867) 58 345
Other...................................... (266) 381 9
------- -------- -------
$ 400 $(11,359) $(2,401)
======= ======== =======
In 1995, the Company adjusted its deferred tax assets and liabilities for
the estimated effect of a decrease in Brazil's tax rates enacted in the fourth
quarter of 1995. The effect of this non-cash item was to decrease deferred
income taxes in 1995 by $2.8 million ($0.15 per share).
The Company has an alternative minimum tax credit carryforward of
approximately $0.8 million, which expires in 1999 and is available to offset
future taxable income. In addition, in 1996, 1995 and 1994, the Company
generated net operating loss carryforwards of approximately $23.8 million, $20.9
million and $2.8 million, respectively, which are scheduled to expire in 2011,
2010 and 2009, respectively.
As a result of Brazilian tax legislation, effective for 1996, the 15%
dividend withholding tax on earnings after 1995 was eliminated. Additionally, in
1996, tax legislation which permits Brazilian companies to elect, subject to
certain limitations, to deduct dividends in computing taxable income; however,
there is a 15% withholding tax on dividends distributed in this manner.
At December 31, 1996, the unrepatriated earnings of ABNB and LM are
approximately $21.5 million and $1.6, respectively, and are considered
permanently invested overseas. A portion of ABNB's earnings ($3.4 million) has
previously been subject to US tax.
F-11
120
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of the items comprising the Company's deferred income tax
assets and liabilities are as follows:
DECEMBER 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
Current deferred tax assets:
Accrued expenses........................................... $ 1,544 $ 2,945
Other...................................................... 2,717 3,038
-------- --------
$ 4,261 $ 5,983
======== ========
Long-term deferred tax assets included in other assets....... $ 1,108
========
Deferred tax liabilities:
Difference between book and tax basis of assets acquired in
acquisitions and mergers................................ $ 65,952 $ 68,837
Excess tax over book depreciation.......................... 6,524 5,882
Other...................................................... 2,780 2,036
-------- --------
75,256 76,755
-------- --------
Non-current deferred tax assets:
Operating loss carryforwards and tax credits............... (17,979) (8,929)
Restructuring expenses..................................... (4,114) (3,205)
Litigation................................................. (984)
Other...................................................... (4,723) (4,042)
-------- --------
(27,800) (16,176)
-------- --------
Net deferred tax liabilities............................ $ 47,456 $ 60,579
======== ========
NOTE G -- REVOLVING CREDIT AND LONG-TERM DEBT
In 1996, the Company entered into a $20 million revolving credit facility
(the "Credit Agreement") which expires on October 30, 1998. At December 31,
1996, interest under the Credit Agreement, as defined was 9.25%. Effective
January 1, 1997, the interest rate as defined, decreased to 8.75%. The weighted
average interest expense on 1996 borrowings was approximately 9.25%. The Credit
Agreement is an asset-based facility secured by certain accounts receivable and
inventory (total carrying value of approximately $18.0 million at December 31,
1996). At December 31, 1996, approximately $14.0 million was available under the
Credit Agreement before reduction for outstanding letters of credit ($1.8
million) and borrowings ($3.1 million).
F-12
121
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-Term Debt consists of the following:
DECEMBER 31
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
10 3/8% Senior Notes, due June 1, 2002(a).................... $126,500 $126,500
11 5/8% Senior Notes, due August 1, 2002, net of unamortized
discount of $1,005 and $1,120(b)........................... 63,995 63,880
9.35% Non-Recourse Senior Debt due May 31, 2001(c)........... 52,419
8.07% Non-Recourse Subordinated Debt due May 31, 2001(c)..... 18,337
BNDES financing(d)........................................... 10,277 3,223
Other, ranging from 8% to 9%................................. 6,470 885
Less current portion......................................... (14,450) (332)
-------- --------
Net long-term debt........................................... $263,548 $194,156
======== ========
- ---------------
(a) The 10 3/8% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after June 1, 1997, at stated redemption prices.
Equal mandatory sinking fund payments on June 1, 2000 and June 1, 2001 are
required to retire an aggregate of 50% of the original principal amount.
The 10 3/8% Senior Notes are senior indebtedness of the Company and rank
equally in right of payment, on a pari passu basis, with all existing and
future senior indebtedness of the Company and are secured by a pledge of all
the issued and outstanding shares of capital stock of ABN and ABNH and by
65% of the shares of ABNB. ABN, ABNH and the 77.5% interest in ABNB
constitute a substantial portion of the assets of the Company.
(b) The 11 5/8% Senior Notes are redeemable at the option of the Company, in
whole or in part, on and after August 1, 1998, at stated redemption prices.
The 11 5/8% Senior Notes are unsecured senior indebtedness of the Company
and rank equally in right of payment, on a pari passu basis, with all
existing and future senior indebtedness of the Company. The 11 5/8% Senior
Notes are effectively subordinated to the 10 3/8% Senior Notes.
(c) LM's Non-Recourse Senior and Subordinated Debt are denominated in Australian
dollars, include various default, cross-default and acceleration of maturity
provisions and provide for mandatory principal prepayments in the event that
Surplus Cashflow of LM, as defined, is attained.
The LM Non-Recourse Senior Debt is a term loan of approximately $53.5
million and a $4.0 million working capital facility. The term loan is
secured by a fixed and floating charge on LM's assets and undertakings.
Approximately $0.6 million of letters of credit are outstanding under the
working capital facility which is subject to annual renewals. The first
renewal date is April 30, 1997. The working capital facility is supported by
a five-year committed letter of credit facility issued by the term-loan
lenders.
Interest on the Non-Recourse Subordinated Debt is generally payable
annually, or as permitted by the Non-Recourse Senior Debt, and accrues
interest at a rate of 8.07% per annum plus 4% upon amounts outstanding in
excess of $16.4 million.
(d) The BNDES financing (Brazilian Federal Government Development Bank debt) is
denominated in Brazilian reais and bears interest at 6.4% above the TJLP
(11.0% at December 31, 1996), which is a government administered long-term
interest rate. The borrowings are secured by an interest in equipment
(carrying value of approximately $6.1 million at December 31, 1996).
F-13
122
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's financing agreements contain covenants concerning interest
coverage ratios, EBITDA, sales of assets, sale and leaseback transactions,
liens, transactions with affiliates, distributions from subsidiaries,
indebtedness, capital expenditures, mergers and acquisitions, payment of cash
dividends, redemptions of capital stock and other matters. The Company's ability
to service its debt depends upon the future performance of the Company's
subsidiaries, which will be subject to prevailing economic and competitive
conditions and to other factors, including the continued ability to generate
cash, to distribute that cash to the Company for debt service and to repatriate
funds from foreign subsidiaries, particularly ABNB.
The fair value of the 10 3/8% Senior Notes and the 11 5/8% Senior Notes
based on market quotes at December 31, 1996 was approximately $124.6 million and
$62.4 million, respectively, and at December 31, 1995 was approximately $84.8
million and $39.0 million, respectively. The fair value of all other debt
approximates their carrying values.
Principal maturities of long-term debt follow:
DOMESTIC ABNB LM
-------- ------- ------
(IN MILLIONS)
1997........................................... $ 3.5 $ 3.4 $ 7.6
1998........................................... 1.3 3.1 6.0
1999........................................... .2 1.7 6.8
2000........................................... 31.8 1.7 8.4
2001........................................... 31.9 .4 41.9
2002 and thereafter............................ 129.3
NOTE H -- CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock,
with such terms as the Board of Directors may determine.
The Board of Directors, in 1994, adopted a Preferred Stock Purchase Rights
Plan pursuant to which it declared a dividend of one Preferred Stock Purchase
Right (the "Rights") for each outstanding share of Common Stock on March 24,
1994. Each Right entitles the registered holder to purchase from the Company one
one-hundredth ( 1/100) of a share of preferred stock, designated as Series A
Junior Preferred Stock, at a price of $15.50. The Rights will become exercisable
only in the event, with certain exceptions, an acquiring party accumulates 15
percent or more of the Company's voting stock or if a party announces an offer
to acquire 30 percent or more of the voting stock. The Rights expire on March
24, 2004. Upon the occurrence of certain events, holders of the Rights will be
entitled to purchase either the Company's stock or shares in an "acquiring
entity" at half of market value. The Company will generally be entitled to
redeem the Rights at $.01 per Right at any time until the tenth day following
the acquisition of 15 percent of its voting stock by an acquirer. The Rights are
not exercisable if redeemed.
At December 31, 1996, 176,500 warrants, issued to operating management in
1993 ("Warrants"), are outstanding and exercisable. The Warrants expire in 2000.
In 1994, Warrants for 43,000 common shares were exercised at $.011 per share.
At December 31, 1996, approximately 4,317,000 shares of Common Stock were
reserved for warrants and stock-based compensation plans.
F-14
123
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- STOCK-BASED COMPENSATION PLANS
The Company has four stock-based compensation plans, as follows: the 1990
Employee Stock Option Plan (the "1990 Plan"), the Long-Term Performance Plan
(the "LTP Plan"), the Executive Incentive Plan, and the Deferred Stock and
Compensation Plan for Non-Employee Directors (the "Directors Plan"). The terms
of option awards are determined on the date of grant, generally have an exercise
life of ten years, are granted at not less than the market price, and become
exercisable in equal amounts over a three-year period from the date of grant.
A summary of the option plans is presented below:
1996 1995 1994
---------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- --------- --------- --------- ---------
Options outstanding,
beginning of year.... 1,701,783 $4.55 1,771,783 $5.05 1,665,283 $5.09
Exercised............ (2,000) 1.88 (10,000) 1.81 (61,000) 2.11
Forfeited............ (38,200) 3.59 (345,000) 5.20 (252,000) 5.15
Granted.............. 1,083,750 2.06 285,000 2.19 419,500 4.51
Canceled............. (1,184,333) 5.38
---------- --------- ---------
Options outstanding,
end of year.......... 1,561,000 2.22 1,701,783 4.55 1,771,783 5.05
========== ========= =========
Option price range..... $1.38 to $1.81 to $1.81 to
at end of year....... $6.31 $6.63 $8.43
Option price range for
exercised shares..... $1.88 $1.81 $1.88 to
$2.11
Options available for
grant at end of
year................. 2,502,000 2,666,000 2,683,000
WEIGHTED-AVERAGE
-----------------------------
EXERCISE PRICE FAIR VALUE
-------------- ----------
Exercise price of options granted during 1996:
At market price.................................................. $ 1.61 $ 1.08
Above market price............................................... $ 2.24 $ 0.79
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- --------------------------- ----------- ---------------- --------- ----------- ---------
$1.38 to 1.88.............. 349,667 9.1 years $1.50 1,667 $1.88
$2.00 to 2.94.............. 1,119,583 8.4 years $2.23 223,334 $2.20
$4.19 to 4.38.............. 63,750 7.4 years $4.35 33,750 $4.32
$6.00 to 6.31.............. 28,000 5.9 years $6.18 28,000 $6.18
--------- -------
$1.38 to 6.31.............. 1,561,000 8.5 years $2.22 286,751 $2.83
========= =======
F-15
124
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1996 and 1994, 317,500 and 90,000 shares of restricted stock were issued
under the LTP Plan that fully vest after four years and three years,
respectively. The market value of the shares on the date of grant was
approximately $1.63 and $2.87 per share, respectively, and the cost of the grant
based on the market price is being amortized over the vesting period. The
vesting for the restricted stock awards granted in 1996 may be accelerated if
certain performance goals are achieved.
In 1996, as part of a compensation review, 1,184,333 outstanding options
were canceled under the 1990 Plan and the LTP Plan and 705,750 options with a
weighted average exercise price of $2.24 were issued under the same plans.
In 1995, an award under the Executive Incentive Plan for 91,875 restricted
shares was issued in lieu of a cash bonus.
Under the Directors Plan, as approved and amended by shareholders in 1996,
a maximum of 200,000 shares of Common Stock may be issued. In 1996, 1995 and
1994, directors received rights to the equivalent of 66,000, 5,850 and 5,200
shares, respectively. The market value of the equivalent shares on the dates of
grant was approximately $4.00, $2.19 and $3.69 per share, respectively. The
aggregate cost is charged to operations. The equivalent shares are issuable to
the directors only following their service on the Board of Directors.
The Directors Plan further provides that directors may elect to defer
receiving directors' fees until after their service on the Board ceases. At that
time the deferred fees may be paid in cash plus interest, or in shares of Common
Stock issuable by converting the amounts deferred into Common Stock based on the
market price in the year following the year of deferral (approximately 11,000
shares at December 31, 1996).
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Had compensation cost for the Company's stock option
plans been determined based on the fair value at the grant date for awards in
1996 and 1995, consistent with the provisions of SFAS 123, net income (loss)
would have been reduced (increased) by approximately $0.3 million or $.02 per
share and ($0.1 million) or ($.01) per share, respectively. Because SFAS 123
method of accounting has not been applied to options granted prior to 1995, the
resulting pro forma compensation cost may not be representative of that expected
in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: no dividend yield; expected
volatility of 50%; risk-free interest rate of 7.0%; and expected lives of 7.5
years.
NOTE J -- EMPLOYEE BENEFITS PLANS
Postretirement Health Care and Life Insurance Plans. The Company provides
certain health care and life insurance benefits for certain eligible retired
employees. The Company's employees, including employees subject to certain
collective bargaining agreements, may become eligible for these benefits if they
reach normal retirement age, with certain service requirements.
The Company accrues the estimated cost of retiree benefit payments other
than pensions during the years an employee provides services. The plan is not
funded.
F-16
125
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of this obligation:
DECEMBER 31
-------------------
1996 1995
------- -------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees............................................. $ 7,965 $ 7,329
Eligible active plan participants.................... 361 419
Other active plan participants.................... 1,822 1,812
------- -------
Accumulated postretirement benefit obligation........ 10,148 9,560
Unrecognized transition obligation................... (2,944) (3,119)
Unrecognized net loss................................ (876) (1,018)
------- -------
Accrued postretirement benefit obligation......... $ 6,328 $ 5,423
======= =======
Net postretirement benefit costs consisted of the following components:
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
Service cost-benefits earned................. $ 160 $ 154 $ 190
Interest cost on accumulated postretirement
benefit obligation........................ 684 715 627
Partial plan termination(1).................. 430
Amortization of transition obligation........ 184 209 209
------ ------ ------
$1,028 $1,508 $1,026
====== ====== ======
- ---------------
(1) In connection with the 1995 restructuring (see Note K), a portion of the
previously unrecognized transition obligation was charged to the restructuring
reserve.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation, as of January 1, 1996, was 12.0% for 1996
decreasing each successive year until it reaches 5.5%, after which it remains
constant. A one-percentage-point increase in the assumed health care cost trend
rate for each year would increase service cost plus interest on the accumulated
postretirement benefit obligation by approximately 13.3%. The assumed discount
rate used in determining the accumulated post-retirement benefit obligation was
7.5% at December 31, 1996 and 1995.
Pension Plans. ABN and ABNH are obligated to make regular defined
contributions to several multi-employer plans and contributions to a single
employer defined benefit pension fund, under the terms of various union
contracts. The aggregate contribution to such multi-employer plans for
retirement and welfare benefits was approximately $0.6 million, $1.7 million,
and $1.8 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Retirement benefits are also provided by ABN and ABNH, to eligible
union and nonunion employees, through defined contributions to an employee's
retirement plan; the aggregate contribution to such plan and charged to
operations was $1.1 million, $1.2 million, and $1.5 million for the years ended
December 31, 1996, 1995 and 1994, respectively.
ABN and ABNH also have a trusteed noncontributory defined benefit pension
plan. Benefits under the noncontributory defined benefit plan which were frozen
in 1992 were based on years of service and average final compensation. The
funding policy is to pay at least the minimum amounts required by the Employee
Retirement Income Security Act of 1974. The net pension expense for this defined
benefit pension plan was approximately $0.1 million, $0.2 million, and $0.1
million in 1996, 1995 and 1994, respectively.
F-17
126
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the 1996 and 1995 funded status and amounts
recognized for the Company's defined benefit pension plan in the consolidated
balance sheets:
1996 1995
------- -------
(IN THOUSANDS)
Actuarial present value of accumulated plan benefits,
including vested benefits of $9,112 and $8,798......... $ 9,122 $ 8,862
====== ======
Projected benefit obligation for service rendered to
date................................................... $ 9,122 $ 8,862
Plan assets at fair value, primarily equity securities... 8,698 7,612
------ ------
Accrued pension liability.............................. $ 424 $ 1,250
====== ======
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% at December 31, 1996
and 1995. The expected long-term rate of return was 8.5% in 1996 and in 1995.
Subsidiaries of LM have participated in three multi-employer defined
contribution schemes throughout 1996 and in two defined benefit schemes operated
for employees of the previous owner up until November 30, 1996. Effective from
December 1, 1996, the subsidiaries ceased to participate in the previous owner's
defined benefit schemes and a new defined benefit scheme solely for the benefit
of certain employees of the subsidiaries was established. Relevant assets and
liabilities of the previous owner's schemes are to be transferred to the new
scheme and it is estimated that the liabilities transferred will approximate the
assets transferred. Certain schemes are required to be funded on a current
basis. In connection with superannuation schemes for 1996, the subsidiaries have
expensed and funded approximately $0.9 million. It is further estimated, though
actuarial evaluations of the new defined benefit scheme have not been prepared,
the current funding would approximate pension expense that would be incurred
using US Generally Accepted Accounting Principles.
The Company has a noncontributory supplemental executive retirement plan
("SERP") for certain senior management employees adopted, effective as of April
1, 1994. Benefits under the noncontributory plan are based on years of service
and average final compensation. The plan is unfunded and benefits will be paid
from the assets of the Company.
The following table sets forth the status of this obligation:
DECEMBER 31
-----------------
1996 1995
------ ------
(IN THOUSANDS)
Accumulated benefit, including vested benefits of $1,935
and $735............................................... $2,153 $1,902
====== ======
Projected benefit obligation............................. $3,021 $2,706
Prior service cost....................................... (1,457) (1,558)
Unrecognized net loss.................................... (427) (362)
------ ------
Preliminary accrued pension costs........................ 1,137 786
Additional minimum liability*............................ 1,016 1,116
------ ------
Accrued pension cost for financial statements.......... $2,153 $1,902
====== ======
- ---------------
* There is an intangible asset equal to the additional minimum liability.
F-18
127
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost consisted of the following components:
1996 1995 1994
----- ----- -----
(IN THOUSANDS)
Service cost-benefits earned........................ $ 146 $ 185 $ 124
Interest cost on projected benefit obligation....... 189 191 106
Amortization of prior service cost................ 107 103 77
---- ---- ----
$ 442 $ 479 $ 307
==== ==== ====
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% at December 31, 1996
and 1995.
NOTE K -- RESTRUCTURING AND IDLE EQUIPMENT
In 1995, the Company recorded a pre-tax restructuring charge of
approximately $14.3 million pursuant to a restructuring plan developed by
management for the Company's domestic security printing operations, including
the downsizing of its corporate offices. The plan was substantially completed in
the second quarter of 1996. Remaining obligations under this plan relate to
lease commitments. Restructuring activities prior to 1995 related primarily to
the closing of a plant by ABN.
The following presents the Company's restructuring activities:
ASSET LEASES
SEVERANCE REVALUATIONS AND
AND RELATED AND OTHER
COSTS WRITEDOWNS OBLIGATIONS TOTAL
----------- ------------ ----------- -----
(IN MILLIONS)
Balance at January 1, 1994................... $ 0.3 $ 4.1 $ 4.4
Restructuring charge......................... 5.0 5.0
Imputed interest............................. 0.3 0.3
Cash payments................................ (0.3) (3.7) (4.0)
----- ----- -----
Balance at December 31, 1994................. 5.7 5.7
Restructuring charge......................... 2.9 $ 5.0 6.4 14.3
Imputed interest............................. 0.3 0.3
Noncash items................................ (1.8) (5.0) (6.8)
Cash payments................................ (0.1) (1.4) (1.5)
----- ----- ----- -----
Balance at December 31, 1995................. 1.0 11.0 12.0
Imputed interest............................. .4 .4
Noncash items................................ (1.6) (1.6)
Cash payments................................ (1.0) (4.8) (5.8)
----- ----- ----- -----
Balance at December 31, 1996................. $ -- $ -- $ 5.0 $ 5.0
===== ===== ===== =====
Future cash outlays for the remaining restructuring activities are
anticipated to be $1.5 million in 1997, $1.2 million in 1998, $1.1 million in
1999, $1.1 million in 2000, and $0.1 million in 2001.
In January 1994, the Company was notified that it was not awarded any
portion of a contract by the United States Postal Service in response to a
competitive bid for postage stamp products. As a result, the Company
re-evaluated the net carrying value of equipment and the cost of operating
leases used for postage stamp production and recorded a $2 million provision for
the write-down of idle postal equipment.
F-19
128
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- CONDENSED FINANCIAL INFORMATION AND GEOGRAPHIC AREA DATA
ABNB is domiciled in Brazil, LM is domiciled in Australia and New Zealand,
and all other subsidiaries of the Company are predominately domiciled in the
United States.
The following condensed consolidating financial information (amounts in
millions) illustrates the composition of the pledged subsidiaries (See Note
G -- Revolving Credit and Long-Term Debt) and provides additional information
which is useful in assessing the financial composition of the pledged
subsidiaries. Investments in subsidiaries are accounted for by the parent on the
equity method. Intercompany investments and transactions are eliminated in
consolidation.
CONDENSED BALANCE SHEETS
-----------------------------------------------
DOMESTIC ABNB LM CONSOLIDATED
-------- ------ ------ ------------
AS AT DECEMBER 31, 1996
Cash and cash equivalents....................... $ 2.8 $ 8.7 $ 2.7 $ 14.2
Marketable securities........................... 2.1 2.1
Accounts receivable, net........................ 24.3 14.4 8.8 47.5
Inventories..................................... 12.9 11.5 11.2 35.6
Deferred income taxes........................... 2.9 .3 1.0 4.2
Prepaid expenses and other...................... 5.0 2.5 1.9 9.4
Property, plant and equipment, net.............. 172.1 59.4 22.5 254.0
Other assets.................................... 98.0+ 8.4 6.1 28.0*
Excess of cost of investment in subs over net
assets acquired............................... 9.4 24.4 51.6 85.4
------ ------ ------ ------
Total assets.......................... $329.5 $129.6 $105.8 $480.4
====== ====== ====== ======
Total current liabilities....................... $ 38.0 $ 17.6 $ 22.0 $ 77.6
Long-term debt.................................. 189.6 6.9 67.0 263.5
Other liabilities............................... 14.8 7.4 2.5 24.7
Deferred income taxes........................... 40.8 6.7 47.5
Minority interest............................... 20.8 20.8
Total stockholders' equity............ 46.3 70.2 14.3 46.3*
------ ------ ------ ------
Total liabilities and stockholders'
equity.............................. $329.5 $129.6 $105.8 $480.4
====== ====== ====== ======
AS AT DECEMBER 31, 1995
Cash and cash equivalents....................... $ 16.5 $ 7.0 $ 23.5
Marketable securities........................... 3.0 3.0
Accounts receivable, net........................ 18.0 14.0 32.0
Inventories..................................... 12.3 10.9 23.2
Deferred income taxes........................... 5.7 0.3 6.0
Prepaid expenses and other...................... 9.9 2.7 12.6
Property, plant and equipment, net.............. 176.6 49.4 226.0
Other assets.................................... 72.9+ 8.8 18.3*
Excess of cost of investment in subs over net
assets acquired............................... 9.5 25.3 34.8
------ ------ ------
Total assets.......................... $324.4 $118.4 $379.4
====== ====== ======
Total current liabilities....................... $ 24.5 $ 20.8 $ 45.3
Long-term debt.................................. 191.1 3.0 194.1
Other liabilities............................... 14.5 5.7 20.2
Deferred income taxes........................... 53.9 6.7 60.6
Minority interest............................... 18.8 18.8
Total stockholders' equity............ 40.4 63.4 40.4*
------ ------ ------
Total liabilities and stockholders'
equity.............................. $324.4 $118.4 $379.4
====== ====== ======
F-20
129
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------------------
DOMESTIC ABNB LM CONSOLIDATED
-------- ------ ----- ------------
YEAR ENDED DECEMBER 31, 1996
Sales............................................ $ 98.1 $163.3 $48.1 $309.5
------ ------ ----- ------
Cost of goods sold............................... 62.9 109.1 30.1 202.1
Selling and administrative....................... 16.7 16.0 7.3 40.0
Depreciation and amortization.................... 8.3 8.4 3.3 20.0
------ ------ ----- ------
87.9 133.5 40.7 262.1
------ ------ ----- ------
10.2 29.8 7.4 47.4
Unallocated corporate overhead................... (8.3) (8.3)
Interest expense................................. (23.3) (1.9) (3.7) (28.9)
Foreign translation losses, net.................. (.3) (.3)
Provision for litigation......................... (2.4) (2.4)
Other income, net................................ 18.1+ 2.3 2.2*
------ ------ ----- ------
Income (loss) before taxes on income (benefit)
and minority interest.......................... (5.7) 29.9 3.7 9.7
Taxes on income (benefit)........................ (9.8) 8.5 1.7 .4
------ ------ ----- ------
Income before minority interest.................. 4.1 21.4 2.0 9.3
Minority interest................................ 4.8 .4 5.2
------ ------ ----- ------
Net income..................................... $ 4.1 $ 16.6 $ 1.6 $ 4.1
====== ====== ===== ======
YEAR ENDED DECEMBER 31, 1995
Sales............................................ $108.1 $ 98.1 $206.2
------ ------ ------
Cost of goods sold............................... 76.5 72.5 149.0
Selling and administrative....................... 17.7 9.9 27.6
Restructuring.................................... 14.3 14.3
Depreciation and amortization.................... 9.3 5.6 14.9
------ ------ ------
(9.7) 10.1 .4
Unallocated corporate overhead................... (12.3) (12.3)
Interest expense................................. (23.1) (23.1)
Other income, net................................ 8.5+ .2 2.8*
------ ------ ------
Income (loss) before taxes on income (benefit)
and minority interest.......................... (36.6) 10.3 (32.2)
Taxes on income (benefit)........................ (14.2) 2.8 (11.4)
------ ------ ------
Income (loss) before minority interest........... (22.4) 7.5 (20.8)
Minority interest................................ 1.6 1.6
------ ------ ------
Net income (loss).............................. $(22.4) $ 5.9 $(22.4)
====== ====== ======
F-21
130
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------------------
DOMESTIC ABNB LM CONSOLIDATED
-------- ------ ----- ------------
YEAR ENDED DECEMBER 31, 1994
Sales............................................ $150.0 $ 58.1 $208.1
------ ------ ------
Cost of goods sold............................... 94.9 36.0 130.9
Selling and administrative....................... 20.3 9.2 29.5
Restructuring and idle equipment................. 7.0 7.0
Depreciation and amortization.................... 9.3 3.8 13.1
------ ------ ------
131.5 49.0 180.5
------ ------ ------
18.5 9.1 27.6
Unallocated corporate overhead................... (9.5) (9.5)
Interest expense................................. (21.0) (21.0)
Foreign translation losses, net.................. (7.0) (7.0)
Other income, net................................ 3.9+ .2 1.8*
------ ------ ------
Income (loss) before taxes on income (benefit)
and extraordinary item......................... (8.1) 2.3 (8.1)
Taxes on income (benefit)........................ (2.4) (2.4)
------ ------ ------
Income (loss) before extraordinary item.......... (5.7) 2.3 (5.7)
Extraordinary item............................... (.1) (.1)
------ ------ ------
Net income (loss).............................. $ (5.8) $ 2.3 $ (5.8)
====== ====== ======
YEAR ENDED DECEMBER 31, 1996
Net cash -- operating activities................. $(17.1) $ 25.2 $ (.5) $ 7.6
------ ------ ----- ------
Investing activities
Acquisition of LM.............................. (7.3) 4.8 (2.5)
Capital expenditures........................... (3.6) (17.9) (.8) (22.3)
Other.......................................... .2 .1 .3
------ ------ ----- ------
Net cash -- investing activities............... (10.7) (17.9) 4.1 (24.5)
------ ------ ----- ------
Financing activities
Proceeds from borrowings....................... 4.3 7.1 11.4
Repayments of borrowing........................ (.1) (1.0) (1.1)
Dividends...................................... 9.9 (12.7) (2.8)
------ ------ ----- ------
Net cash -- financing activities................. 14.1 (5.6) (1.0) 7.5
------ ------ ----- ------
Effect of foreign currency exchange rate changes
on cash and cash equivalents................... .1 0.1
------ ------ ----- ------
Net increase (decrease).......................... (13.7) 1.7 2.7 (9.3)
Cash and cash equivalents:
Beginning of period.............................. 16.5 7.0 23.5
------ ------ ----- ------
End of period.................................... $ 2.8 $ 8.7 $ 2.7 $ 14.2
====== ====== ===== ======
- ---------------
+ Includes investment in subsidiaries, which is eliminated in consolidation.
* After elimination of intercompany investment.
F-22
131
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------------------
DOMESTIC ABNB LM CONSOLIDATED
-------- ----- ------ ------------
YEAR ENDED DECEMBER 31, 1995
Net cash -- operating activities................. $(15.9) $11.4 $ (4.5)
------ ----- ------
Investing activities
Capital expenditures........................... (1.2) (9.2) (10.4)
Proceeds from sales of assets.................. 4.9 4.9
Other.......................................... (.6) (.6)
------ ----- ------
Net cash -- investing activities................. 3.1 (9.2) (6.1)
------ ----- ------
Financing activities
Proceeds from bank financings.................. 3.4 3.4
Other.......................................... (0.4) (0.4)
------ ----- ------
Net cash -- financing activities................. (0.4) 3.4 3.0
------ ----- ------
Effect of foreign currency exchange rate changes
on cash and cash equivalents................... (0.6) (0.6)
------ ----- ------
Net increase (decrease).......................... (13.2) 5.0 (8.2)
Cash and cash equivalents:
Beginning of period.............................. 29.7 2.0 31.7
------ ----- ------
End of period.................................... $ 16.5 $ 7.0 $ 23.5
====== ===== ======
YEAR ENDED DECEMBER 31, 1994
Net cash -- operating activities................. $ .4 $ 5.8 $ 6.2
------ ----- ------
Investing activities
Proceeds from sale of assets................... 1.7 1.7
Capital expenditures........................... (3.2) (6.9) (10.1)
------ ----- ------
Net cash -- investing activities................. (1.5) (6.9) (8.4)
------ ----- ------
Financing activities
Proceeds from 11 5/8% Senior Notes............. 59.8 59.8
Repayment of bank financings................... (40.0) (40.0)
Other.......................................... (0.8) (0.8)
------ ------
Net cash -- financing activities................. 19.0 19.0
------ ------
Effect of foreign currency exchange rate changes
on cash and cash equivalents................... (0.5) (0.5)
------ ----- ------
Net increase (decrease).......................... 17.9 (1.6) 16.3
Cash and cash equivalents:
Beginning of period.............................. 11.8 3.6 15.4
------ ----- ------
End of period.................................... $ 29.7 $ 2.0 $ 31.7
====== ===== ======
F-23
132
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- COMMITMENTS AND CONTINGENCIES
In January 1994, Vladimir v. United States Banknote Corporation, et al.,
and in February 1994, Sinay v. United States Banknote Corporation, et al., were
filed in the United States District Court for the Southern District of New York.
Also, in January 1994, Atencio v. Morris Weissman, et al. was filed in the Court
of Chancery for the State of Delaware, New Castle County, against various
directors and/or officers of the Company, on behalf of a purported class and
derivatively on behalf of the Company which was named as a nominal defendant. In
February 1994, Rosenberg v. Morris Weissman, et al. was filed in the same court
as Atencio, alleging similar claims to Atencio, but not on behalf of a class of
plaintiffs.
On June 16, 1995, the Court approved certification of a class in the
Vladimir action consisting of all persons who purchased stock in the open market
from April 1, 1993 through January 6, 1994 and on February 26, 1996 dismissed
the Sinay action, without prejudice. On January 17, 1997, a jury verdict in
Vladimir was returned that found the Company's stock inflated by $0.79 per share
during the class period under Section 10(b) of the Securities Exchange Act of
1934 with respect to the Company with a finding of liability under Section 20(a)
to Mr. Weissman as a "control person" of the Company.
The Company and Mr. Weissman have filed Motions for Summary Judgment and
Motions for Judgment as a Matter of Law following the jury verdict and seeking a
new trial, which are pending.
The Atencio and Rosenberg actions assert claims for breach of fiduciary
duty by the individual defendants, and allege that certain of the defendants
sold Common Stock while in possession of material non-public information and
seek recapture of the profits earned by the defendants who purportedly traded,
the repayment by the defendants of their 1993 salaries, damages for the costs to
the Company of defending the Vladimir and Sinay actions and the annulment of the
1993 election of directors.
On November 1, 1994, the Company filed an action against De La Rue, AG
("DLR") and its parent, De La Rue Plc in New York State Supreme Court. The
complaint alleges breach of contract by DLR in connection with the 1993 purchase
of the Company's Brazilian subsidiary from DLR and seeks in excess of $1.5
million in damages. In December 1994, the action was removed by the defendants
to the United States District Court for the Southern District of New York.
Defendants have filed an answer denying liability and asserting counterclaims.
Discovery is presently underway.
On November 2, 1994, an action was commenced against the Company and
certain of its directors and officers entitled Thomas De La Rue AG v. United
States Banknote Corporation, et al. in the United States District Court for the
Southern District of New York. The complaint, as amended, alleges, among other
things, breach of contract and fraud by the Company in connection with the
Brazil purchase agreement based on the alleged failure to disclose the risk of
loss of the Company's stamp printing contracts with the USPS and the alleged
failure to register Common Stock paid to DLR expeditiously with the SEC. The
complaint seeks unspecified damages as well as $6.8 million for the Common Stock
received by DLR in the transaction. On November 20, 1995, plaintiff eliminated
all of the Company's directors and officers as defendants. Subsequent to the
verdict in Vladimir, DLR has asked the Court to rule that the verdict precludes
the Company from further contesting the breach of warranty claim of DLR.
During the year ended December 31, 1996, the Company recorded a $2.4
million ($0.07 per share after taxes) provision relating to its pending
litigation.
The Company and its subsidiaries are parties to various additional lawsuits
(as both plaintiff and defendant) related to various matters in the normal
course of business, including patent
F-24
133
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
infringement, contract, labor and environmental, which in the opinion of
management, are not anticipated to have a material impact on its consolidated
financial position or results of operations.
The Company has long-term operating leases for offices, manufacturing
facilities and equipment which expire through 2007. The Company has renewal
options on some locations, which provide for renewal rents based upon increases
tied to the consumer price index.
Net rental expense was $7.7 million, $8.0 million, and $8.1 million for the
years ended December 31, 1996, 1995 and 1994, respectively.
At December 31, 1996, future minimum lease payments under noncancelable
operating leases are as follows: $12.9 million in 1997; $10.9 million in 1998;
$9.5 million in 1999; $6.9 million in 2000; $3.6 million in 2001; and $6.2
million thereafter.
NOTE N -- QUARTERLY RESULTS OF OPERATIONS -- UNAUDITED
1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
1996
Sales.................................. $59,917 $70,764 $86,879 $ 91,890
Cost of sales.......................... $42,004 $46,566 $54,223 $ 59,365
Net income (loss)(1)................... $ (802) $ 1,365 $ 2,228 $ 1,308
Net income (loss) per share............ $ (.04) $ .07 $ .11 $ .06
======= ======= ======= =======
1995
Sales.................................. $49,068 $47,591 $56,783 $ 52,722
Cost of sales.......................... $31,949 $38,149 $39,414 $ 39,523
Net income (loss)(2)................... $ (797) $(9,608) $ 53 $(12,063)
Net income (loss) per share............ $ (.04) $ (.50) $ .00 $ (.63)
======= ======= ======= =======
- ---------------
(1) In the fourth quarter, pre-tax income was charged $2.4 million ($1.4 million
net of tax) in connection with certain litigation (see Note M).
(2) In the fourth quarter, pre-tax loss was charged $14.3 million ($11.1 million
net of tax) for restructuring charges (see Note J).
F-25
134
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
1997 1996 1997 1996
-------- -------- ------- -------
Sales......................................... $248,416 $217,560 $88,152 $86,879
-------- -------- ------- -------
Costs and expenses:
Cost of goods sold.......................... 166,263 142,793 58,435 54,223
Selling and administrative.................. 34,881 33,327 11,962 14,099
Depreciation and amortization............... 17,799 14,731 6,346 6,034
-------- -------- ------- -------
218,943 190,851 76,743 74,356
-------- -------- ------- -------
29,473 26,709 11,409 12,523
Other (expense) income:
Interest expense............................ (24,353) (20,124) (8,451) (7,483)
Foreign translation losses, net............. (122) (201) (15) (65)
Other, net.................................. 2,519 711 860 331
-------- -------- ------- -------
(21,956) (19,614) (7,606) (7,217)
-------- -------- ------- -------
Income before taxes on income and minority
interest.................................... 7,517 7,095 3,803 5,306
Taxes on income............................... 371 877 807 1,378
-------- -------- ------- -------
Income before minority interest............. 7,146 6,218 2,996 3,928
Minority interest............................. (2,458) (3,427) (564) (1,700)
-------- -------- ------- -------
Net Income.................................. $ 4,688 $ 2,791 $ 2,432 $ 2,228
======== ======== ======= =======
Weighted average number of common and common
equivalent shares outstanding............... 21,430 20,300 21,720 20,420
======== ======== ======= =======
Net income per share........................ $ .22 $ .14 $ .11 $ .11
======== ======== ======= =======
See Notes to Condensed Consolidated Financial Statements.
F-26
135
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS -- UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS
Current assets
Cash and cash equivalents..................................... $ 3,611 $ 14,256
Marketable securities -- at market, (cost $1,746 in 1996)..... 2,133
Accounts receivable, net of allowance for doubtful accounts of
$767 and $981.............................................. 56,640 47,501
Inventories................................................... 41,130 35,622
Deferred income taxes......................................... 4,616 4,261
Prepaid expenses and other.................................... 16,161 9,362
-------- --------
Total current assets.................................. 122,158 113,135
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $112,020 and $96,385......... 250,326 253,987
Other assets.................................................... 24,815 27,974
Excess of cost of investment in subsidiaries over net assets
acquired, net of accumulated amortization of $8,156 and
$5,662........................................................ 93,846 85,282
-------- --------
$ 491,145 $480,378
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving credit.............................................. $ 3,191 $ 3,103
Current portion of long-term debt............................. 17,797 14,450
Accounts payable and accrued expenses......................... 63,922 60,049
-------- --------
Total current liabilities............................. 84,910 77,602
Long-term debt.................................................. 260,779 263,548
Other liabilities............................................... 25,623 24,706
Deferred income taxes........................................... 42,372 47,456
Minority interest............................................... 20,353 20,789
-------- --------
434,037 434,101
Commitments and Contingencies
Stockholders' equity
Preferred Stock, authorized 5,000,000 shares, no shares issued
or outstanding.............................................
Zero Coupon Convertible Subordinated Debenture................ 3,620
Common Stock, par value $.01 per share, authorized 50,000,000
shares; issued 21,134,717 shares and 20,137,880 shares..... 211 202
Capital surplus............................................... 73,173 68,609
Retained-earnings (deficit)................................... (16,739) (21,362)
Treasury stock, at cost (281,000 shares)...................... (1,253) (1,253)
Cumulative currency translation adjustment.................... (1,904) 81
-------- --------
Total stockholders' equity............................ 57,108 46,277
-------- --------
$ 491,145 $480,378
======== ========
See Notes to Condensed Consolidated Financial Statements.
F-27
136
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
Operating Activities:
Net cash from operations, after adjustments to reconcile
income to net cash provided by operating activities........ $21,829 $ 9,693
Marketable securities...................................... 2,077 (650)
Accounts receivables....................................... (3,075) (10,834)
Inventories................................................ (7,021) 1,426
Prepaid and other assets................................... (5,757) (535)
Accounts payable and accrued expenses...................... (5,198) (3,809)
Other...................................................... (975) (3,136)
------- --------
Net cash provided by (used in) operating activities........... 1,880 (7,845)
------- --------
Investing Activities:
Acquisitions.................................................. (5,546) 1,789
Capital expenditures.......................................... (7,491) (10,964)
------- --------
Net cash used in investing activities......................... (13,037) (9,175)
------- --------
Financing Activities:
Borrowings.................................................... 6,280 7,349
Zero Coupon Convertible Subordinated Debenture................ 4,700
Revolving credit borrowings................................... 88 1,920
Dividend to minority shareholder.............................. (2,587) (685)
Proceeds from exercise of options and warrants................ 626
Payment of long-term debt..................................... (8,813) --
------- --------
Net cash or provided by financing activities.................. 294 8,584
------- --------
Effect of foreign currency exchange rate changes
on cash and cash equivalents.................................. 218 (67)
------- --------
Decrease in cash and cash equivalents........................... (10,645) (8,503)
Cash and cash equivalents beginning of period................... 14,256 23,525
------- --------
Cash and cash equivalents end of period......................... $ 3,611 $ 15,022
======= ========
Supplemental cash payments:
Taxes......................................................... $ 3,400 $ 4,300
Interest...................................................... $14,200 $ 11,200
See Notes to Condensed Consolidated Financial Statements.
F-28
137
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY -- UNAUDITED
NINE MONTHS ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
ZERO COUPON CUMULATIVE
COMMON STOCK CONVERTIBLE RETAINED CURRENCY
--------------- SUBORDINATED CAPITAL EARNINGS TREASURY TRANSL. TOTAL
SHARES AMOUNT DEBENTURE SURPLUS (DEFICIT) STOCK ADJUST. EQUITY
------ ------ ------------ ------- --------- -------- ---------- -------
BALANCE --
JANUARY 1, 1997............. 20,138 $202 $68,609 $ (21,362) $(1,253) $ 81 $46,277
Issuances in connection with:
Options, warrants and
compensation plans........ 349 3 1,291 1,294
Sati Group acquisition...... 423 4 2,130 2,134
Sale of convertible debenture
and warrants net of
expenses.................... $4,455 245 4,700
Imputed interest on
debenture................... 65 (65)
Conversion of debenture....... 225 2 (900) 898
Foreign currency translation
adjustment for period....... (1,985) (1,985)
Net income.................... 4,688 4,688
------ ---- ------ ------- -------- ------- ------ -------
BALANCE -- SEPTEMBER 30,
1997........................ 21,135 $211 $3,620 $73,173 $ (16,739) $(1,253) $ (1,904) $57,108
====== ==== ====== ======= ======== ======= ====== =======
See Notes to Condensed Consolidated Financial Statements.
F-29
138
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- UNAUDITED
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements do
not contain all disclosures required by generally accepted accounting
principles. Reference should be made to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. The accompanying unaudited condensed
consolidated financial statements reflect all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of the results of the interim periods presented and are not
necessarily indicative of the results which may be expected for a full fiscal
year.
Primary and fully-diluted income per share are the same and have been
computed after deducting from net income the imputed interest attributable to
the Zero Coupon Convertible Subordinated Debenture.
NOTE B -- ACQUISITION OF THE SATI GROUP
In August 1997, the Company acquired in France, the Sati Group's check
personalization, electronic printing and document management business. Sales of
the Sati Group for the seven months ended July 31, 1997 and for the year ended
December 31, 1996 were approximately $11.7 million and $22.2 million,
respectively. The results of the Sati Group from August 1, 1997 are reported
within the Company's Printing Services & Document Management product line. The
acquisition purchase price of $11.2 million was financed with approximately $9.1
million of non-recourse term loans in France and through the issuance of
approximately 423,000 shares of the Company's Common Stock. The acquisition was
accounted for by the purchase method of accounting. The purchase price was
allocated on a preliminary basis before final purchase accounting adjustments as
follows: assets acquired $13.2 million; liabilities assumed $7.8 million; and
excess cost of investment in subsidiaries over net assets acquired $5.8 million.
The Company has agreed to file a registration statement under the Securities Act
within 90 days following the acquisition date to register the shares of Common
Stock for resale.
NOTE C -- ZERO COUPON CONVERTIBLE SUBORDINATED DEBENTURE
On July 24, 1997, the Company sold in a private placement $5 million
principal amount of a Zero Coupon Subordinated Convertible Debenture, due August
2, 2002 (the "Security") plus warrants. At maturity, the outstanding Security is
automatically converted into Common Stock resulting in the Security being
treated as a component of stockholders' equity. In September 1997, $1.0 million
principal amount of the Security was converted into 224,688 shares of Common
Stock. Interest will accrete at 6% per annum on the Security.
Holders may convert the Security, from time to time, at 100% of the average
of the two consecutive trading days' closing prices yielding the lowest average
price during 25 trading days prior to conversion or $6.00, whichever is lower,
except during the 25 days following issuance when the conversion price is
$4.5625 (the closing price on the date of issuance). The Security may be
redeemed in cash at the election of the Company in lieu of issuing shares of
Common Stock if the closing price is below $3.50 per share and, at any time the
closing price during 10 consecutive days is greater than $6.50 per share.
Redemption prices vary depending on the type of redemption transaction from the
closing price on the date of conversion (or an average of 5 days prices)
multiplied by the number of shares that would have been issued upon conversion
to 110% of the principal amount called for redemption. No more than 20% of the
Security may be converted during the first 90-day period and each successive
60-day period until the 210th day, and 20% each 90 days thereafter following
closing unless the closing price exceeds $6.50 or is greater than 115% of the
prior day's closing price, whereupon full conversion is permitted on that day.
F-30
139
AMERICAN BANKNOTE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS -- UNAUDITED -- (CONCLUDED)
In connection with the Security, the Company issued 140,000 two-year
warrants exercisable at $5.70 (125% above the closing price on the date of
issuance), and 75,000 three-year warrants at $6.4125 (140% above the closing
price on the date of issuance), and the value of the warrants ($245,000) will be
accreted over the 5-year term of the Security. If the Company redeems the
Security, additional warrants for 21 shares for each $1,000 redeemed are
issuable with an exercise price equal to the closing price. The Security is
subordinated to all existing or future bank, institutional, financial
transaction or acquisition indebtedness.
NOTE D -- INVENTORIES
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
Finished goods.................................. $ 3,984 $ 6,288
Work in process................................. 17,766 14,905
Raw materials and supplies...................... 19,380 14,429
------- -------
$41,130 $ 35,622
======= =======
NOTE E -- COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation, reference is made to
"Business -- Legal Proceedings."
The Company and its subsidiaries are parties to various additional lawsuits
(as both plaintiff and defendant) related to various matters in the normal
course of business, which in the opinion of management, are not anticipated to
have a material adverse impact on its consolidated financial position or results
of operation.
NOTE F -- ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per
Share", was issued in February 1997 and is effective for interim and annual
periods ending after December 15, 1997. SFAS No. 128, establishes standards for
comparing and presenting earnings per share and will require the restatement of
all prior-period earnings-per-share data. The implementation of SFAS No. 128
will not have a material impact on the Company's earnings per share. SFAS No.
129, "Disclosure of Information about Capital Structure", was issued in February
1997 and is effective for periods ending after December 15, 1997. This statement
establishes standards for disclosing information about an entity's capital
structure by superseding and consolidating previously issued accounting
standards. The financial statements of the Company are prepared in accordance
with the requirements of SFAS No. 129.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued which will be effective for the Company
beginning January 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosure of certain financial and descriptive
information about a company's operating segments. The Company does not currently
anticipate that the adoption of SFAS No. 131 will result in expanded
disclosures.
F-31
140
REPORT OF INDEPENDENT AUDITORS
To the Directors of Amcor Limited
We have audited the accompanying financial statements of the Economic
Entity as defined in Note 1. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in Australia which do not differ in any significant respect from
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 overall financial statement presentation. We believe that our
audit provides 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 the Economic Entity at 30
June 1995 and 30 June 1994 and the results of its operations and its cash flows
for each of the years in the three year period ended 30 June 1995, in conformity
with accounting principles generally accepted in Australia.
As discussed in Note 1 to the financial statements, the Economic Entity
changed its method of accounting for employee entitlement provisions effective
30 June 1994, and recorded the cumulative effect as an adjustment to beginning
retained profits in accordance with accounting principles generally accepted in
Australia.
Accounting principles generally accepted in Australia vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of United States generally accepted accounting
principles would have affected the results of operations for each of the years
in the three year period ended 30 June 1995 and shareholders' equity at 30 June
1995 and 30 June 1994 to the extent summarised in Note 27 to the financial
statements.
KPMG
Chartered Accountants
Melbourne 14 August 1996
F-32
141
LEIGH MARDON SECURITY DIVISION
PROFIT AND LOSS STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
1995 1994 1993
----------- ----------- ----------
NOTE $A $A $A
----
REVENUE
Sales revenue............................. 2 104,844,693 102,628,356 67,330,627
Other revenue............................. 3 1,102,020 917,003 596,036
----------- ----------- ----------
TOTAL REVENUE............................. 105,946,713 103,545,359 67,926,663
OPERATING PROFIT BEFORE ABNORMAL ITEMS AND
INCOME TAX.............................. 4 15,960,957 15,743,994 8,169,191
Abnormal items............................ 5 (5,026,079) -- (1,800,000)
----------- ----------- ----------
OPERATING PROFIT BEFORE INCOME TAX........ 10,934,878 15,743,994 6,369,191
Income tax expense attributable to
operating profit........................ 6 (3,805,535) (5,436,186) (2,945,342)
----------- ----------- ----------
OPERATING PROFIT AFTER TAX................ 7,129,343 10,307,808 3,423,849
Retained profit/(loss) brought forward.... (6,342,732) (7,519,555) (5,230,784)
Adjustment due to initial adoption of
Accounting Standard AASB 1028,
Accounting for Employee Entitlements.... (781,584) -- --
----------- ----------- ----------
Total available for appropriation......... 5,027 2,788,253 (1,806,935)
Transfers (from)/to retained
profit/(loss)........................... 17 (5,849,555) (9,130,985) (5,712,620)
----------- ----------- ----------
Retained profit/(loss) at the end of the
period.................................. (5,844,528) (6,342,732) (7,519,555)
=========== =========== ==========
The profit and loss statements are to be read in conjunction with the notes to
and forming part
of the special purpose financial statements set out on pages F-36 to F-50.
F-33
142
LEIGH MARDON SECURITY DIVISION
BALANCE SHEETS
1995 1994
----------- -----------
NOTE $A $A
----
CURRENT ASSETS
Cash.................................................... 7 176,885 201,453
Receivables............................................. 8 12,830,264 13,481,553
Inventories............................................. 9 13,561,773 10,573,973
----------- -----------
TOTAL CURRENT ASSETS.................................... 26,568,922 24,256,979
----------- -----------
NON-CURRENT ASSETS
Property, plant and equipment........................... 10 20,573,248 21,586,776
Intangibles............................................. 11 59,913,665 60,542,806
Other................................................... 12 569,929 1,940,819
----------- -----------
TOTAL NON-CURRENT ASSETS................................ 81,056,842 84,070,401
----------- -----------
TOTAL ASSETS............................................ 107,625,764 108,327,380
----------- -----------
CURRENT LIABILITIES
Creditors and borrowings................................ 13 11,838,043 13,599,530
Provisions.............................................. 14 7,311,709 8,904,153
----------- -----------
TOTAL CURRENT LIABILITIES............................... 19,149,752 22,503,683
----------- -----------
NON-CURRENT LIABILITIES
Creditors and borrowings................................ 15 288,691 285,708
Provisions.............................................. 16 2,147,518 1,733,415
----------- -----------
TOTAL NON-CURRENT LIABILITIES........................... 2,436,209 2,019,123
----------- -----------
TOTAL LIABILITIES....................................... 21,585,961 24,522,806
----------- -----------
NET ASSETS.............................................. 86,039,803 83,804,574
=========== ===========
SHAREHOLDER'S EQUITY
Investors equity........................................ 17 90,594,665 89,111,812
Reserves (capital)...................................... 17 1,289,666 1,035,494
Retained profits/(losses)............................... 17 (5,844,528) (6,342,732)
----------- -----------
TOTAL SHAREHOLDER'S EQUITY.............................. 86,039,803 83,804,574
=========== ===========
The balance sheets are to be read in conjunction with the notes to and forming
part
of the special purpose financial statements set out on pages F-36 to F-50.
F-34
143
LEIGH MARDON SECURITY DIVISION
STATEMENT OF CASH FLOWS
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
NOTE 1995 1994 1993
------- ----------- ----------- -----------
$A $A $A
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts in the course of
operations.......................... 105,380,818 99,171,716 67,673,755
Cash payments in the course of
operations.......................... (86,311,525) (76,794,577) (53,090,427)
Interest received..................... 19,337 41,231 15,019
Interest paid......................... (1,248,745) (1,156,856) (1,093,000)
Abnormal items........................ (5,026,079) -- --
----------- ----------- -----------
Net cash provided by operating
activities.......................... 23(iii) 12,813,806 21,261,514 13,505,347
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and
equipment........................... (3,921,534) (5,000,280) (5,382,755)
Proceeds from sale on non-current
assets.............................. 410,524 201,515 151,803
Payments for acquisition of
businesses.......................... -- (20,043,604) --
----------- ----------- -----------
Net cash used in investing
activities.......................... (3,511,010) (24,842,369) (5,230,952)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advance/(repayments) of investors
equity.............................. (7,899,867) 3,462,614 (8,554,071)
Payment of finance leases............. (330,046) (651,163) --
----------- ----------- -----------
Net cash used by financing
activities.......................... (8,229,913) 2,811,451 (8,554,071)
----------- ----------- -----------
Net increase/(decrease) in cash
held................................ 1,072,883 (769,404) (279,676)
Cash at the beginning of the financial
year................................ 23(i) (853,789) (84,385) 195,291
----------- ----------- -----------
Cash at the end of the financial
year................................ 23(i) 219,094 (853,789) (84,385)
=========== =========== ===========
The statements of cash flows are to be read in conjunction with the notes to and
forming part of
the special purpose financial statements set out on pages F-36 to F-50.
F-35
144
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
1 ACCOUNTING POLICIES
The significant policies which have been adopted in the preparation of
these financial statements pursuant to Australian Generally Accepted Accounting
Principles are:
Basis of preparation
The financial statements have been drawn up as a special purpose financial
report as a result of sale agreements between certain Amcor Limited controlled
entities and the Purchaser, being certain controlled entities of American
Banknote Corporation.
The Economic Entity is the Leigh Mardon Security Division which comprises:
- Fortronic Technology Pty Ltd;
- The following divisions of Leigh Mardon Pty Ltd;
-- Datacard;
-- Security printing;
-- Barcodes;
- The Datacard division of Leigh Mardon (NZ) Limited;
- The Cheque print division of Containers Packaging (NZ) Limited; and
- The Echo Pacific division of Kiwi Packaging (Cartons) Limited.
All these entities are under the common control of Amcor Limited.
The financial statements have been drawn up in accordance with applicable
Australian Accounting Standards, Urgent Issues Group Consensus Views, and
Schedule 5 to the Corporations Regulations that have a material effect, with the
following exception:
- the financial statements are a combined set of accounts comprising a
number of entities and other financial information and do not satisfy the
definition of an economic entity as prescribed in AASB 1024 Consolidated
Accounts.
Reporting Currency
These financial statements have been prepared in Australian dollars ($A).
Taxation
The Economic Entity adopts the accounting policy for treatment of income
tax as set out in Accounting Standard AASB 1020 (Tax Effect Accounting) whereby
the taxation benefits or liabilities, calculated at the current rate of tax,
which arise due to differences between the time when items are taken up in the
entity's accounts and when they are to be taken up for income tax purposes are
shown either as a future tax benefit or as a deferred tax liability. Where
applicable, the future tax benefit relating to tax losses is not carried forward
as an asset unless the benefit can be regarded as being virtually certain of
realisation. These benefits will be brought to account as a reduction in income
tax expense in the period in which they are recouped.
F-36
145
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
Depreciation
Plant and equipment, are depreciated at rates based upon their expected
useful lives using the straight line method:
RATE
----
- Computer equipment; 20%
- Motor vehicles; and 15%
- All other assets. 8%
Leasehold improvements are amortised over the period of the lease or their
estimated useful lives, whichever is the shorter.
Employee benefits
Up to the period ended 30 June 1994, provisions for employee benefits such
as wages, salaries, sick leave, annual leave and long service leave, etc., were
calculated to cover accumulated entitlements at balance date.
From 1 July 1994, provisions for employee entitlements were calculated in
accordance with the new Accounting Standard AASB 1028 (Accounting for Employee
Entitlements). These employee entitlements include, where appropriate, forecast
future increases in wages and salaries, grossed up for on-costs, and based on
the Economic Entity's experience with staff departures. Provisions relating to
long service leave, related on-costs and WorkCover self-insurance have been
calculated to represent the present value of estimated future cash outflows
discounted to balance date. Liabilities for employee entitlements which are not
expected to be settled within 12 months are discounted using the rate attaching
to those national government securities at balance date which most closely match
the terms of maturity of the related liabilities.
The adjustment resulting from the initial adoption of AASB 1028 was booked
to retained earnings/accumulated losses.
Consolidated accounts
The financial statements are a combined set of accounts comprising a number
of entities (detailed above) and other financial information. The balances and
effects of transactions between these entities have been eliminated.
Property, plant and equipment
Depreciable property, plant and equipment are shown in the accounts at cost
or valuation less provisions for depreciation. Depreciation rates are based upon
expected useful lives using the straight line method.
The carrying amounts of all property, plant and equipment are reviewed
annually. If the carrying amount of an item of property, plant and equipment
exceeds recoverable amount, the asset is written down to the lesser amount. In
assessing recoverable amount, the relevant cash flows are not discounted to
their present value.
F-37
146
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
Inventories
Inventories on hand are valued at the lower of cost (including an
appropriate proportion of fixed and variable overheads) or net realisable value
in the normal course of business.
Foreign currency translation
The financial statements of overseas controlled entities which are
classified as being financially and operationally independent are converted to
the reporting currency at balance date using the current rate method as set out
in Accounting Standard AASB 1020 (Foreign Currency Translation). Any exchange
gains/losses arising from the effect of the translation of the balance sheets
are transferred to the exchange fluctuation reserve.
All material foreign currency transactions are subject to forward
cover/hedge contracts and any exchange gains/losses arising from the effect of
currency fluctuations on the underlying transactions are offset by the exchange
gains/losses on the forward cover/hedge contract.
The approximate rate of exchange as of the purchase date between the US$
and the $A was 0.79.
Leased assets
The Economic Entity adopts the provisions of Accounting Standard AASB 1008
(Accounting for Leases) in respect of those assets of the Economic Entity which
are the subject of finance leases.
Goodwill
The Economic Entity recognises goodwill on acquisitions of controlled
entities and businesses as required by Accounting Standard AASB 1013 (Accounting
for Goodwill). Substantially all of the Economic Entity's goodwill is
systematically amortised using the inverted-sum-of-the-digits method over the
period of time during which the benefits are expected to arise, but for a period
not exceeding twenty years. The unamortised balance of goodwill is reviewed
annually and adjusted where it is considered necessary.
Superannuation funds
The Economic Entity contributes to various superannuation funds.
Contributions are charged against profit as and when they are paid or are
payable.
2 SALES REVENUE
NOTE 1995 1994 1993
---- ----------- ----------- ----------
$A $A $A
Net sales
-- external....................... 104,844,693 102,610,613 67,101,782
-- to controlled entities of Amcor
Limited........................ -- 17,743 228,845
----------- ----------- -----------
Total sales revenue............... 104,844,693 102,628,356 67,330,627
=========== =========== ===========
F-38
147
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
3 OTHER REVENUE
NOTE 1995 1994 1993
---- ----------- ----------- ----------
$A $A $A
Interest received
-- from other persons................ 19,937 41,231 15,019
Other income
-- Proceeds of disposal of property,
plant and equipment............... 410,524 201,515 151,803
-- Other revenue from
other persons..................... 671,559 674,257 429,214
----------- --------- ---------
Total other income................... 1,082,083 875,772 581,017
----------- --------- ---------
Total other revenue.................. 1,102,020 917,003 596,036
=========== ========= =========
4 OPERATING PROFIT
Operating profit is arrived at after
charging/(crediting):
Amortisation and depreciation of:
-- property, plant and equipment..... 4,553,593 3,475,290 3,471,708
-- leased plant and equipment........ 14,319 188,000 --
-- goodwill.......................... 677,991 446,409 214,947
Amounts received or due and
receivable by the auditors
-- KPMG (Australia)*
auditing the financial
statements........................... -- -- --
other services.................... -- -- --
-- other Auditors auditing the
financial statements.............. 21,395 8,671 2,135
other services.................... -- -- --
Interest paid
-- to divisions of Amcor Limited..... 1,244,601 1,112,965 1,093,000
-- to other persons.................. -- 411 --
-- finance charges leased assets..... 4,144 43,480 --
Provisions
-- employee benefits................. 2,462,947 1,966,143 1,254,439
-- doubtful debts.................... 66,237 56,022 2,880
-- diminution in inventories......... 307,587 58,370 201,000
-- other............................. -- 790,590 260,000
(Profit) on disposal of property,
plant and equipment................ (66,014) (221,083) (2,845)
Loss on disposal of property, plant
and equipment...................... 22,640 236,124 70,758
Rental charges -- operating leases... 2,392,373 2,525,710 1,867,507
Research and development costs....... 290,041 144,339 --
Foreign currency exchange
(gains)/losses -- realised......... (15,325) (23,121) 5,011
Foreign currency exchange
(gains)/losses -- unrealised....... (3,605) (2,916) (82,399)
- ---------------
* KPMG audit fees in Australia are paid by Amcor Limited, the ultimate parent
entity.
F-39
148
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
5 ABNORMAL ITEMS
NOTE 1995 1994 1993
---- ---------- --------- ----------
$A $A $A
The operating profit includes the following
abnormal gains/(losses)
Research and development costs written
off...................................... -- -- (1,800,000)
Supply contract termination payment........ (5,026,079) -- --
---------- --------- ----------
Total abnormal items before tax............ (5,026,079) -- (1,800,000)
---------- --------- ----------
Income tax expense on abnormal items
Research and development costs written
off...................................... -- -- 702,000
Supply contract termination payment........ 1,658,606 -- --
---------- --------- ----------
Total income tax expense/(benefit) on
abnormal items........................... 1,658,606 -- 702,000
---------- --------- ----------
Net (loss) on abnormal items after income
tax...................................... (3,367,473) -- (1,098,000)
========== ========= ==========
6 INCOME TAX EXPENSE
Prima facie tax expense calculated at the
standard rate of 33% (1993: 39%)......... 3,608,510 5,195,518 2,483,985
Add/(deduct) the tax effect of permanent
differences:
Goodwill amortisation...................... 223,737 147,315 83,829
Entertainment expenses..................... 36,653 86,855 40,554
Fringe benefits tax........................ -- 40,185 37,440
Research & development incentive........... (30,413) (61,752) (166,407)
Investment allowance....................... -- (39,553) --
Other permanent differences................ 10,375 67,618 28,706
Foreign tax rate differential.............. -- -- (19,638)
Effect of local tax rate change............ (21,900) -- 456,873
Over provision of tax in prior years....... (21,427) -- --
---------- --------- ----------
Total income tax expense................... 3,805,535 5,436,186 2,945,342
========== ========= ==========
7 CURRENT ASSETS: CASH
1995 1994
---------- ----------
$A $A
Petty cash................................................ 22,308 33,336
Cash at bank.............................................. 154,577 168,117
---------- ----------
Total cash................................................ 176,885 201,453
========== ==========
F-40
149
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
8 CURRENT RECEIVABLES
1995 1994
----------- -----------
$A $A
Trade debtors.......................................... 12,449,978 12,590,777
Less provision for doubtful debts...................... (197,522) (139,362)
----------- -----------
Debtors net of provision............................... 12,252,456 12,451,415
----------- -----------
Other debtors.......................................... 231,373 43,075
Prepayments............................................ 101,837 976,635
Short term deposits.................................... 244,598 10,428
----------- -----------
Total current receivables.............................. 12,830,264 13,481,553
=========== ===========
9 CURRENT INVENTORIES
Raw materials and stores............................... 4,635,915 3,271,099
Work in progress....................................... 5,044,397 4,077,161
Finished goods......................................... 5,586,489 5,514,323
Provision for obsolescence............................. (1,705,028) (2,288,610)
----------- -----------
Total current inventories.............................. 13,561,773 10,573,973
=========== ===========
10 PROPERTY, PLANT AND EQUIPMENT
Leasehold buildings
At cost................................................ 322,380 316,380
Less: provision for amortisation....................... (151,612) (150,487)
----------- -----------
Total.................................................. 170,768 165,893
----------- -----------
Plant and equipment
At cost................................................ 47,679,269 43,958,618
Less: provision for depreciation....................... (27,276,789) (23,291,450)
----------- -----------
Total.................................................. 20,402,480 20,667,168
----------- -----------
Leased plant and equipment
Capitalised finance leases -- at cost.................. -- 973,087
Less: provision for amortisation....................... -- (219,372)
----------- -----------
Total.................................................. -- 753,715
----------- -----------
Total property, plant and equipment.................... 20,573,248 21,586,776
=========== ===========
F-41
150
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
11 INTANGIBLES
1995 1994
----------- -----------
$A $A
Goodwill -- at cost.................................... 61,253,597 61,204,161
Less: provision for amortisation....................... (1,339,932) (661,355)
----------- -----------
Total intangibles...................................... 59,913,665 60,542,806
=========== ===========
12 OTHER NON-CURRENT ASSETS
Future income tax benefits arising from:
-- accumulated timing differences...................... 372,205 227,690
-- accumulated tax losses.............................. -- 1,636,835
Other non-current assets............................... 197,724 76,294
----------- -----------
Total other non-current assets......................... 569,929 1,940,819
=========== ===========
13 CURRENT CREDITORS AND BORROWINGS
Bank overdraft......................................... 202,389 1,065,670
Trade creditors and accruals........................... 8,434,083 9,171,474
Deferred revenue....................................... 478,668 754,901
Lease liabilities...................................... -- 330,046
Other creditors........................................ 1,909,343 1,650,983
Amounts owing to:
-- controlled entities of Amcor Limited (trade
related)............................................. 813,560 626,456
----------- -----------
Total current creditors and borrowings................. 11,838,043 13,599,530
=========== ===========
14 CURRENT PROVISIONS -- LIABILITY
Income tax............................................. 3,839,489 5,183,172
Employee benefits...................................... 3,055,807 2,613,737
Other.................................................. 416,413 1,107,244
---------- ----------
Total current provisions -- liability.................. 7,311,709 8,904,153
========== ==========
15 NON-CURRENT CREDITORS AND BORROWINGS
Other creditors........................................ 288,691 285,708
---------- ----------
Total non-current creditors and borrowings............. 288,691 285,708
========== ==========
16 NON-CURRENT PROVISIONS -- LIABILITY
Employee benefits...................................... 1,953,712 1,671,078
Other.................................................. 193,806 62,337
---------- ----------
Total non-current provisions -- liability.............. 2,147,518 1,733,415
========== ==========
F-42
151
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
17 SHAREHOLDER'S EQUITY
SHARE EXCHANGE
PREMIUM RETAINED FLUCTUATION
INVESTOR'S RESERVE PROFITS/ RESERVE
EQUITY (CAPITAL) (LOSSES) (CAPITAL) TOTAL
---------- --------- ---------- ----------- ----------
$A $A $A $A $A
Balance -- 1 July 1992............ 74,929,664 1,031,862 (5,230,784) -- 70,730,742
Operating profit after tax........ 3,423,849 3,423,849
Profit transferred(1)............. 5,712,620 (5,712,620) --
Advance/(repayments) of investors
equity(2)....................... (8,554,071) (8,554,071)
---------- --------- ---------- --------- ----------
Balance -- 30 June 1993........... 72,088,213 1,031,862 (7,519,555) -- 65,600,520
Operating profit after tax........ 10,307,808 10,307,808
Profit transferred(1)............. 9,130,985 (9,130,985)
Fluctuation on translation of
foreign controlled entities..... 3,632 3,632
Advance/(repayments) of investors
equity(2)....................... 3,462,614 3,462,614
Tax liability transferred to
investors....................... 4,430,000 4,430,000
---------- --------- ---------- --------- ----------
Balance -- 30 June 1994........... 89,111,812 1,031,862 (6,342,732) 3,632 83,804,574
AASB 1028 Adjustment.............. (781,584) (781,584)
Operating profit after tax........ 7,129,343 7,129,343
Profit transferred(1)............. 5,849,555 (5,849,555) --
Fluctuation on translation of
foreign controlled entities..... 254,172 254,172
Advance/(repayments) of investors
equity(2)....................... (7,899,867) (7,899,867)
Tax liability transferred to
investors....................... 3,533,165 3,533,165
---------- --------- ---------- --------- ----------
Balance -- 30 June 1995........... 90,594,665 1,031,862 (5,844,528) 257,804 86,039,803
========== ========= ========== ========= ==========
- ---------------
(1) The Datacard, Security Printing and Echo Pacific divisions transfer their
profits to their respective parent entity at the end of each year.
(2) Refer Note 23 (ii): financing facilities.
F-43
152
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
18 CAPITAL EXPENDITURE COMMITMENTS
1995 1994
--------- ----------
$A $A
Contracted but not provided for:
- -- land and buildings.............................................. -- --
- -- plant and equipment............................................. -- --
- -- other........................................................... 84,000 --
--------- ----------
Total.............................................................. 84,000 --
Periods during which these commitments are payable:
- -- not later than one year......................................... 84,000 --
--------- ----------
Total.............................................................. 84,000 --
========= ==========
19 LEASE COMMITMENTS
FINANCE LEASES
Lease commitments payable and provided for:
- -- not later than one year......................................... -- 334,190
--------- ----------
Total minimum lease payments....................................... 334,190
Deduct: future finance charges..................................... -- 4,144
--------- ----------
Lease liability (current).......................................... -- 330,046
========= ==========
OPERATING LEASES
Lease and hire commitments payable but not provided for:
- -- not later than one year......................................... 2,160,609 2,465,213
- -- later than one year but not later than two years................ 1,929,292 1,839,344
- -- later than two years but not later than five years.............. 4,264,740 3,964,957
- -- later than five years........................................... 1,152,502 2,160,320
--------- ----------
Total minimum operating lease payments............................. 9,507,143 10,429,834
========= ==========
20 CONTINGENT LIABILITIES
The Entity is a party to legal proceedings that are considered to be either
ordinary, routine litigation incidental to its business and not material to its
financial position.
Under the terms of the Class Order issued by the Australian Securities
Commission on 19 December 1991, which relieved certain wholly owned Australian
subsidiaries from the requirement to prepare audited financial statements, Amcor
Limited and certain subsidiaries have entered into approved deeds for the Gross
Guarantee of liabilities. Fortronic Technology Pty Ltd and Leigh Mardon Pty Ltd
have entered into these approved deeds. No liabilities subject to the Deeds of
Gross Guarantee are expected to arise.
F-44
153
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
21 PARENT AND ULTIMATE PARENT ENTITY
The parent entity of each legal entity in the Leigh Mardon Security
Division is:
PARENT ENTITY
----------------------------------------
Fortronic Technology Pty Ltd Leigh Mardon Pty Ltd
Leigh Mardon Pty Ltd Containers Pty Ltd
Leigh Mardon (NZ) Limited CPE Data Card Pty Ltd
Containers Packaging (NZ) Limited Amcor Packaging (New Zealand) Ltd
Kiwi Packaging (Cartons) Limited Containers Packaging (NZ) Limited
The ultimate parent entity for the purpose of Schedule 5 of the
Corporations Regulations is Amcor Limited, a company incorporated in NSW.
22 SEGMENT REPORTING
The Economic Entity manufactures various security products.
GEOGRAPHIC SEGMENTS
PROFIT BEFORE TAX SALES REVENUE
------------------------------------ --------------------------------------
1995 1994 1993 1995 1994 1993
---------- ---------- ---------- ----------- ----------- ----------
$A $A $A $A $A $A
Australia....... 16,147,072 15,659,911 8,910,015 98,052,681 96,763,227 64,579,832
New Zealand..... 1,042,693 1,199,708 337,157 7,243,072 6,233,725 3,069,950
---------- ---------- ---------- ----------- ----------- ----------
Profit before
interest and
tax........... 17,189,765 16,859,619 9,247,172
Net interest.... (1,228,808) (1,115,625) (1,077,981)
Abnormals....... (5,026,079) -- (1,800,000)
Inter-segment
sales......... (451,060) (368,596) (319,155)
---------- ---------- ---------- ----------- ----------- ----------
10,934,878 15,743,994 6,369,191 104,844,693 102,628,356 67,330,627
========== ========== ========== =========== =========== ==========
TOTAL ASSETS
----------------------------
1995 1994
------------ ------------
$A $A
Australia...................................................... 103,295,331 104,623,439
New Zealand.................................................... 4,330,433 3,703,941
----------- -----------
107,625,764 108,327,380
=========== ===========
F-45
154
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
23 NOTES TO THE STATEMENTS OF CASH FLOWS
(i) Reconciliation of cash
For the purpose of the Statements of Cash Flows, cash includes cash on hand
and at bank and short term deposits at call, net of outstanding bank overdrafts.
Cash as at the end of the financial year as shown in the Statements of Cash
Flows is reconciled to the related items in the balance sheets as follows:
NOTE 1995 1994
---- -------- ----------
$A $A
Cash................................................ 7 176,885 201,453
Short term deposits................................. 8 244,598 10,428
Bank overdraft...................................... 13 (202,389) (1,065,670)
-------- ----------
219,094 (853,789)
======== ==========
(ii) Financing facilities
The Economic Entity has no financing facilities. Cash balances are swept
daily to Amcor Limited and/or its controlled entities.
F-46
155
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
(iii) Reconciliation of operating profit after income tax to net cash provided
by operating activities
1995 1994 1993
---------- ---------- ----------
$A $A $A
Operating profit after income tax.................. 7,129,343 10,307,808 3,423,849
Add/(less) items classified as investing/financing
activities:
(Profit)/loss on sale of non-current assets...... (43,374) 15,041 67,913
Add/(less) non-cash items:
Amortisation..................................... 692,310 634,409 214,947
Amounts set aside to provisions.................. 2,836,771 2,871,125 1,718,319
Depreciation..................................... 4,553,593 3,475,290 3,471,708
Notional tax charge.............................. 3,604,000 4,901,000 4,023,000
Research and development costs written off....... -- -- 1,800,000
---------- ---------- ----------
Net cash provided by operating activities before
change in assets and liabilities................. 18,772,643 22,204,673 14,719,736
Change in assets and liabilities adjusted for
effects of purchase and disposal of controlled
entities during the financial year:
(Increase)/decrease in inventories............... (3,295,387) (140,518) 1,667,513
(Increase)/decrease in other debtors and
prepayments................................... 686,500 925,771 (427,122)
(Increase)/decrease in trade debtors............. 140,799 (4,130,897) (86,086)
(Increase)/decrease in other assets.............. 83,892 (72,663) (196,145)
(Decrease)/increase in trade creditors........... (550,287) 4,436,189 1,177,251
(Decrease)/increase in deferred revenue.......... (276,233) -- --
(Decrease)/increase in provisions................ (3,087,266) (3,125,080) (1,195,722)
(Decrease)/increase in other creditors........... 261,343 946,940 (1,044,519)
(Decrease)/increase in income taxes payable...... 77,802 217,099 (1,109,559)
---------- ---------- ----------
Net cash provided by operating activities.......... 12,813,806 21,261,514 13,505,347
========== ========== ==========
24 SUPERANNUATION COMMITMENTS
The Economic Entity participates in a number of superannuation funds which
were established to provide benefits for employees and their dependents. The
funds cover Amcor Limited (and/or its controlled entities) sponsored plans,
industry/union plans and government plans.
AMCOR LIMITED SPONSORED PLANS
The principal benefits are pensions or lump sums for members on
resignation, retirement, death or total permanent disablement. These benefits
are determined on either a defined benefit or accumulation benefit basis.
Employee contribution rates are either fixed by the rules of each fund or
selected by members from a specified range of dates. In addition to legislative
requirements, employer companies contribute to the balance of the cost required
to fund the defined benefits or, in the case of accumulation funds, the amounts
set out in the appropriate fund rules. There exists a legally
F-47
156
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
enforceable obligation on the employer companies to make such contributions as
are required under the rules.
1995 1994 1993
------- ------- -------
$A $A $A
Employer contributions made to Defined Benefit Funds........ 882,402 986,436 429,392
======= ======= =======
Following the sale agreement, members of the Amcor Limited (and/or its
controlled entities) sponsored plans will be transferred to the Purchaser's
fund(s). The transfer amounts will be determined by Actuaries. Following the
most recent actuarial review of each fund the actuary in each case concluded
that the assets of each fund were sufficient to cover the value of accrued
benefits.
25 RELATED PARTY DISCLOSURES
1995 1994 1993
---------- ---------- ----------
$A $A $A
Transactions with Amcor Limited and/or its
controlled entities:
(1) Management fee paid to Containers Packaging
head office (Amcor Limited)(i)............... 474,000 418,000 313,000
(2) Management fee paid to Leigh Mardon Pty Ltd
head office(i)............................... 1,837,000 1,336,000 151,000
(3) Working capital interest paid to Containers
Packaging head office (Amcor Limited)(ii).... 1,212,572 1,112,965 1,093,000
(4) Paper products purchased from Amcor Limited
controlled entities(iii)..................... 4,703,117 3,323,666 3,111,571
(5) Sales by the Security division to Amcor
Limited controlled entities(iii)............. 84,758 17,743 228,845
(6) During the year ended 30 June 1995, $A1,625,363 of carried forward tax losses were
transferred at full consideration, to Leigh Mardon Pty Ltd group companies. The
transferee companies are not part of the Economic Entity.
- ---------------
(i) Fees paid to respective head office to recover head office expenditure such
as administration, accounting, credit control, IT System support, audit,
business development etc. Charges based on proportional revenue basis.
(ii) Working capital interest is calculated monthly based on levels of stock,
trade debtors less trade creditors. Interest rate used is the Westpac
Reference Lending Rate.
(iii) These transactions are in the ordinary course of business and on normal
terms and conditions.
26 ACQUISITION OF BUSINESSES
In August 1993 the Security Printing business of John Sands was acquired
for cash consideration of $A19,025,253.
In May 1994 the Chequeprint business was acquired in New Zealand for cash
consideration of $A1,018,351.
27 INFORMATION FOR UNITED STATES INVESTORS
The special purpose financial statements of the Economic Entity are
prepared in accordance with Generally Accepted Accounting Principles applicable
in Australian ("Australian GAAP") (refer
F-48
157
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
Note 1), which differ in certain significant respects from Generally Accepted
Accounting Principles in the United States ("US GAAP").
The following is a summary of the major differences between Australian GAAP
and US GAAP that affect the Economic Entity which provides an expansion of
certain information included in the notes to and forming part of the accounts.
(a) The term "provisions" is used in Australian GAAP to designate accrued
expenses with no definitive payment date. This can include such items as
employee leave entitlements not yet taken. Classification between current
and non-current is generally based on management assessments.
Provisions disclosed in notes 14 and 16 comply in all material respects with
US GAAP.
(b) Goodwill amortisation
Under Australian GAAP goodwill is amortised using the inverse sum of the
digits method over periods not exceeding 20 years.
The Economic Entity has formally adopted for US GAAP purposes the policy of
straight line amortisation and a 25 year life for goodwill.
(c) Research and development
In the fiscal year ended 30 June 1993, the accounts include an abnormal
write-off of research and development costs of $A1,800,000. This amount
includes $A1,603,855 which was incurred prior to 30 June 1992. To comply
with US GAAP an adjustment has been made to expense the $A1,603,855 in the
fiscal years prior to 30 June 1993.
(d) Employee entitlements
As described in note 1, the Economic Entity adopted the accounting for
employee entitlements in accordance with Accounting Standard AASB 1028
"Accounting for Employee Entitlements". Under Australian GAAP, the
cumulative effect was recorded as an adjustment to beginning retained
profits at 1 July 1994. The cumulative effect of such adoption under
Australian GAAP is materially consistent with the requirements of SFAS 112,
"Employees' Accounting for Postemployment Benefits", which was effective for
fiscal 1995. However, under US GAAP the cumulative effect of such adoption
is required to be presented as a separate component of fiscal 1995's
statement of income.
(e) Pension Plans
As detailed in Note 24, contributions to defined benefit plans have resulted
in the plans, in respect of employees of the Economic Entity, being fully
funded and adequate to sustain the actuarially calculated obligations. As
the actuarial obligation entitlements will be transferred as part of the
sale agreement, the expense per Australian GAAP represents actual expenses
incurred by the entities during the periods reported. While it is not
practical to complete the detailed calculations required by SFAS 87 in
respect of the entities' employees -- in order to determine whether pension
expense disclosed in Note 24 would conform with US GAAP requirements, it is
estimated, based on the relationship of total Amcor SFAS 87 pension expense
to the total Australian GAAP pension expense of the Amcor Limited Group,
that the proportionately equivalent expense borne by these entities would
not be materially different.
F-49
158
LEIGH MARDON SECURITY DIVISION
NOTES TO AND FORMING PART OF THE
SPECIAL PURPOSE FINANCIAL STATEMENTS -- (CONCLUDED)
FOR THE THREE YEARS IN THE PERIOD ENDED 30 JUNE 1995
RECONCILIATION OF ACCOUNTS TO US GAAP
NOTE 1995 1994 1993
---- ----------- ----------- ----------
$A $A $A
Sales..................................... 104,844,693 102,628,356 67,330,627
----------- ----------- ----------
Costs & expenses
Cost of goods sold...................... 64,104,000 62,277,000 40,634,000
Selling & administrative................ 19,406,038 20,283,847 14,421,205
Depreciation & amortisation............. 5,245,903 4,109,699 3,686,655
----------- ----------- ----------
88,755,941 86,670,546 58,741,860
----------- ----------- ----------
Other (expense) income
Interest expense........................ (1,248,745) (1,156,856) (1,093,000)
Foreign exchange gains/(losses), net.... 18,930 26,037 77,388
Other (note 3).......................... 1,102,020 917,003 596,036
Abnormal items (note 5)................. (5,026,079) -- (1,800,000)
----------- ----------- ----------
(5,153,874) (213,816) (2,219,576)
Income before income taxes.............. 10,934,878 15,743,994 6,369,191
Income tax charge....................... (3,805,535) (5,436,186) (2,945,342)
----------- ----------- ----------
Net profit reported using Australian
GAAP.................................... 7,129,343 10,307,808 3,423,849
Adjustment for goodwill amortisation...... (b) (1,772,152) (2,041,758) (1,590,606)
Research and development written off...... (c) -- -- 1,603,855
Tax effect of above adjustments........... -- -- (625,503)
----------- ----------- ----------
Income according to US GAAP before changes
in accounting principles................ 5,357,191 8,266,050 2,811,595
----------- ----------- ----------
Cumulative effect of adoption of SFAS
112..................................... (781,584) -- --
----------- ----------- ----------
Net income according to US GAAP........... 4,575,607 8,266,050 2,811,595
=========== =========== ==========
Total assets reported using Australian
GAAP.................................... 107,625,764 108,327,380
Cumulative adjustment for goodwill
amortisation............................ (b) (5,404,516) (3,632,364)
----------- -----------
Total assets according to US GAAP......... 102,221,248 104,695,016
=========== ===========
Shareholders' equity at year end.......... 86,039,803 83,804,574
Cumulative adjustment for goodwill
amortisation............................ (b) (5,404,516) (3,632,364)
Restatement of beginning retained
profits................................. 781,584 --
Cumulative adjustment for adoption of SFAS
112..................................... (781,584) --
----------- -----------
80,635,287 80,172,210
=========== ===========
F-50
159
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- ------------------------------------------------------
TABLE OF CONTENTS
Available Information................. 2
Incorporation of Documents by
Reference........................... 3
Summary............................... 4
Risk Factors.......................... 17
The Refinancing....................... 25
Use of Proceeds....................... 26
Capitalization........................ 27
Unaudited Pro Forma Condensed
Consolidated Financial
Information......................... 28
Selected Historical Financial Data.... 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 44
Management............................ 54
Certain Relationships and Related
Transactions........................ 57
Security Ownership.................... 58
Description of Certain Indebtedness... 59
Description of the Notes.............. 61
Book-Entry; Delivery and Form......... 91
The Exchange Offer.................... 94
Certain U.S. Federal Income Tax
Considerations...................... 101
Plan of Distribution.................. 102
Legal Matters......................... 102
Experts............................... 102
Index to Financial Statements......... F-1
$95,000,000
AMERICAN BANKNOTE
CORPORATION
11 1/4% SENIOR SUBORDINATED NOTES
DUE 2007, SERIES B
[AMERICAN BANK NOTE LOGO]
- ------------------------
Prospectus
- ------------------------
, 1998
160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company and each of American Bank Note Holographics, Inc., American
Banknote Card Services, Inc., American Banknote Merchant Services, Inc., ABN
Investments, Inc., ABN Equities, Inc., American Banknote Australasia Holdings,
Inc., ABN Government Services, Inc., USBC Capital Corp. and ABN CBA, Inc. (the
"Delaware Corporate Guarantors") are incorporated under the laws of the State of
Delaware. Section 145 of the General Corporation Law of the State of Delaware
("Section 145") provides that a Delaware corporation may indemnify any persons
who are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorney' 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
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify any persons who are,
or are threatened to be made, a party to any threatened, pending or completed
action or suit by or in the right of the corporation by reason of the fact that
such person was a director, officer, employee or agent of such corporation, or
is or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorney's fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director has actually and reasonably incurred.
The respective certificates of incorporation, as amended, of the Company
and each Delaware Corporate Guarantor, other than American Banknote Card
Services Inc., provide that no director of the corporation shall be liable to
such corporation or its stockholders for monetary damages arising from a breach
of fiduciary duty owed to the corporation or its stockholders. The certificate
of incorporation, as amended, of each such Delaware Corporate Guarantor excludes
from such provision liabilities arising (i) from breach of the director's duty
of loyalty to each such company, or its stockholders, (ii) from 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 Delaware General
Corporation Law, or (iv) from any transaction from which the director derived an
improper personal benefit.
The Certificate of Incorporation of each of American Banknote Card Services
Inc., ABN Equities Inc. and ABN Investments Inc. provide that each of these
companies will indemnify its directors, officers and agents to the full extent
permitted by law.
The respective by-laws of the Company and each Delaware Corporate
Guarantor, other than American Banknote Card Services, Inc., provide that the
Company shall indemnify, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, any person who was or is a party or is
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by
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reason of the fact that he or she is or was a director or officer of such
corporation or other entity, or is or was serving at the request of such
corporation as a director, officer or member of another corporation, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding and that such indemnification shall continue as to an
indemnitee who has ceased to be a director or officer and shall inure to the
benefit of the indemnitee's heirs, executors and administrators. The by-laws of
the Company and each Delaware Corporate Guarantor, except American Banknote Card
Services Inc., further provide that any employee or agent of such corporation,
or any person serving at the request of the Company or such respective Delaware
Corporate Guarantor as an employee or agent of another corporation, partnership,
joint venture or other enterprise shall be indemnified in the same manner as a
director or officer of such entity.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him and incurred by him in any such
capacity, arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The respective by-laws of the Company and American Banknote Holographics,
Inc. Guarantor provide that each such corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of such corporation or was
serving at the request of that corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity, whether or not the corporation would have the power
to indemnify such person against such liability under its by-laws.
All of the directors and officers of the Company and each Delaware
Corporate Guarantor are covered by insurance policies maintained and held in
effect by either the Company or such corporation against certain liabilities for
actions taken in such capacities, including liabilities under the Securities Act
of 1933.
American Bank Note Company and ABN Securities Systems, Inc. are
incorporated under the laws of the State of New York. Sections 722 through 725
of the New York Business Corporation Law (the "Business Corporation Law")
provide that a corporation may indemnify, with certain limitations and
exceptions, a director or officer as follows: (1) in a derivative action,
against his reasonable expenses, including attorneys' fees but excluding certain
settlement costs, actually and necessarily incurred by him in connection with
the defense thereof, or an appeal therein, if such director or officer acted, in
good faith, for a purpose which he reasonably believed to be in (or in the case
of service for another corporation, not opposed to) the best interests of the
corporation; and (2) in a civil or criminal non-derivative action or proceeding
including a derivative action by another corporation, partnership or other
enterprise in which any director or officer of the indemnifying corporation
served in any capacity at the indemnifying corporation's request, against
judgments, fines, settlement payments and reasonable expenses, including
attorneys' fees, incurred as a result thereof, or any appeal therein, if such
director or officer acted in good faith, for a purpose which he reasonably
believed to be in (or, in the case of service for any other corporation, not
opposed to) the best interests of the corporation and, in criminal actions and
proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful. Such indemnification is a matter of right where the director or
officer has been successful on the merits or otherwise, and otherwise may be
granted upon corporate authorization or court award as provided in the statute.
Section 721 of the Business Corporation Law provides that indemnification
arrangements can be established for directors and officers, by contract, by-law,
charter provision, action of shareholders or board of directors, on terms other
than those specifically provided by Article 7 of the Business Corporation Law,
provided that no indemnification may be made to or on behalf of any director or
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162
officer if a judgment or other final adjudication adverse to the director or
officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled. Article 6 of American Bank Note
Company's By-Laws provides for the indemnification, to the full extent
authorized by law, of any person made or threatened to be made a party in any
civil or criminal action or proceeding by reason of the fact that he is or was a
director or officer of American Bank Note Company. In addition, Article 10 of
American Banknote Company's Certificate of Incorporation provides that there
shall be no limit on the company's right to indemnify other than as set forth in
applicable law. Article VI of ABN Securities Systems, Inc.'s By-laws contains
extensive provisions pertaining to indemnification. In essence, subject to a
number of qualifications, ABN Securities Systems, Inc. may indemnify, to the
full extent authorized by law, of any person made or threatened to be made a
party in any civil or criminal action or proceeding by reason of the fact that
he is or was a director or officer of ABN Securities Systems, Inc.
Horsham Holding Company, Inc. is incorporated under the laws of the
Commonwealth of Pennsylvania. Sections 1741 and 1742 of the Pennsylvania
Business Corporation Law ("PBCL") provide that a business corporation shall have
the power to indemnify any person who was or is a party, or is threatened to be
made a party, to any proceeding, whether civil, criminal, administrative or
investigative, 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 the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such proceeding, if such person acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. In the case of an
action by or in the right of the corporation, such indemnification is limited to
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action, except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person has been adjudged to be liable to the corporation unless, and
only to the extent that, a court determines upon application that, despite the
adjudication of liability but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for the expenses that the court
deems proper.
PBCL Section 1744 provides that, unless ordered by a court, any
indemnification referred to above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding; or
(2) if such a quorum is not obtainable, or if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) by the shareholders.
Notwithstanding the above, PBCL Section 1743 provides that to the extent
that a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding referred to
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
PBCL Section 1745 provides that expenses (including attorneys' fees)
incurred by an officer, director, employee or agent of a business corporation in
defending any proceeding may be paid by the corporation in advance of the final
disposition of the proceeding upon receipt of an undertaking
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163
to repay the amount advanced if it is ultimately determined that the indemnitee
is not entitled to be indemnified by the corporation.
PBCL Section 1746 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the foregoing provisions is not
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise, and that indemnification may be granted under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise for any action
taken or any failure to take any action whether or not the corporation would
have the power to indemnify the person under any other provision of law and
whether or not the indemnified liability arises or arose from any action by or
in the right of the corporation; provided, however, that no indemnification may
be made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
PBCL Section 1747 permits a Pennsylvania business corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against any liability asserted against such
person and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify the
person against such liability under the provisions described above.
Article XVII of Horsham Holding Company Inc.'s By-Laws, as amended provide
that, to the fullest extent that the laws of Pennsylvania permit elimination or
limitation of the liability of directors, no director of the Corporation shall
be personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a director. The PBCL provides that whenever the
by-laws of a corporation by a vote of the shareholders so provide, a director
shall not be personally liable for monetary damages as such for any action
taken, or failure to take any action, unless (i) the director has breached or
failed to perform the duties of his office under the standard of care and
justifiable reliance specified in the PBCL and (ii) the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. These
provisions do not apply to (i) responsibility or liability of a director
pursuant to any criminal statute or (ii) the liability of a director for payment
of taxes.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
3.1 (a)(i) -- Certificate of Incorporation of American Banknote Corporation (the
"Company"), including Amendment No. 1 thereto (filed as Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995)
(the "June 1995 10-Q").*
(a)(ii) -- Certificate of Designation of the Company authorizing Preferred Stock as
Series A (filed as Exhibit 4 to the Company's Report on Form 8-A filed April
6, 1994).*
(b) -- Certificate of Incorporation of American Bank Note Company, as amended.
(c) -- Certificate of Incorporation of ABN Securities Systems, Inc.
(d) -- Articles of Incorporation of Horsham Holding Company, Inc.
(e) -- Certificate of Incorporation of American Bank Note Holographics, Inc., as
amended.
(f) -- Certificate of Incorporation of American Banknote Card Services, Inc., as
amended.
(g) -- Certificate of Incorporation of American Banknote Merchant Services, Inc.
(h) -- Certificate of Incorporation of ABN Investments, Inc.
(i) -- Certificate of Incorporation of ABN Equities Inc.
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164
(j) -- Certificate of Incorporation of American Banknote Australasia Holdings, Inc.
(k) -- Certificate of Incorporation of ABN Government Services, Inc.
(l) -- Certificate of Incorporation of USBC Capital Corp.
(m) -- Certificate of Incorporation of ABN CBA, Inc.
3.2 (a) -- By-laws of the Company (filed as Exhibit 3.2 to the June 1995 10-Q).*
(b) -- By-laws of American Bank Note Company.
(c) -- By-laws of ABN Securities Systems, Inc.
(d) -- By-laws of Horsham Holding Company, Inc.
(e) -- By-laws of American Bank Note Holographics, Inc.
(f) -- By-laws of American Banknote Card Services, Inc.
(g) -- By-laws of American Banknote Merchant Services, Inc.
(h) -- By-laws of ABN Investments, Inc.
(i) -- By-laws of ABN Equities Inc.
(j) -- By-laws of American Banknote Australasia Holdings, Inc.
(k) -- By-laws of ABN Government Services, Inc.
(l) -- By-laws of USBC Capital Corp.
(m) -- By-laws of ABN CBA, Inc.
4.1 -- Indenture for the 11 1/4% Senior Subordinated Notes due 2007, Series A (the
"Old Notes") and 11 1/4% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes"), dated as of December 12, 1997 among the Company, the
Guarantors and The Bank of New York, as trustee.
4.2 -- Form of Old Note (included in Exhibit 4.1).
4.3 -- Form of Exchange Note (included in Exhibit 4.1).
4.4 -- Forms of Guarantee k(included in Exhibits 4.2 and 4.3).
4.5 -- First Supplement dated as of October 8, 1997 to the Indenture dated as of May
1, 1994 between the Company and State Street Bank & Trust Company (as
successor to First National Bank of Boston), as Trustee, relating to the
11 5/8% Senior Notes due August 1, 2002, Series B.
4.6 -- Registration Rights Agreement dated as of December 12, 1997 among the
Company, the Guarantors and Chase Securities Inc., Bear, Stearns & Co. Inc.,
NationsBanc Montgomery Securities, Inc. and Societe Generale Securities
Corporation.
4.7 -- The Company undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt not
filed herewith.
5 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of the Exchange
Notes to be issued by the Company.**
8 -- Opinion of Weil, Gotshal & Manges LLP as to certain federal income tax
matters.**
11 -- Computation of per share income (loss) (filed as Exhibit 11 to the 1996
10-K).*
12 -- Statement of Computation of Ratios of Earnings to Fixed Charges.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of KPMG.
23.3 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as
Exhibit 5 to this Registration Statement).
23.4 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed as
Exhibit 8 to this Registration Statement).
24 -- Power of Attorney (included on signature pages of this Part II).
25 -- Statement of Eligibility and Qualification of The Bank of New York, as
Trustee on Form T-1 with respect to the 11 1/4% Senior Subordinated Notes due
2007.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
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165
99.3 -- Form of Instructions to Registered Holders and/or Book-Entry Facility
Participant from Beneficial Owner.
99.4 -- Form of Exchange Agent Agreement.
- ---------------
* Incorporated herein by reference.
** To be filed by amendment.
ITEM 22. UNDERTAKINGS.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Each of the undersigned registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of a registrant's annual report pursuant to Section 13(a) or 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.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the provisions, or otherwise, each of the
registrants has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by a
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
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166
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(d) Each of the undersigned registrants hereby undertakes 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.
(e) Each of the undersigned registrants hereby undertakes 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.
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167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
named below have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City and State of
New York, on this 12th day of January, 1998.
AMERICAN BANKNOTE CORPORATION
AMERICAN BANK NOTE COMPANY
ABN SECURITIES SYSTEMS, INC.
HORSHAM HOLDING COMPANY INC.
AMERICAN BANK NOTE HOLOGRAPHICS, INC.
AMERICAN BANKNOTE CARD SERVICES, INC.
AMERICAN BANKNOTE MERCHANT
SERVICES, INC.
ABN INVESTMENTS, INC.
ABN EQUITIES INC.
AMERICAN BANKNOTE AUSTRALASIA
HOLDINGS, INC.
ABN GOVERNMENT SERVICES, INC.
USBC CAPITAL CORP.
ABN CBA, INC.
By: /s/ JOHN T. GORMAN
------------------------------------
JOHN T. GORMAN
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Morris Weissman, John T. Gorman and Harvey J.
Kesner, and each of them, with full power to act without the other, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully 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 any of them, or their or his substitute or
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 on behalf
of the Registrant named below and in the capacities indicated, on the dates
indicated.
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AMERICAN BANKNOTE CORPORATION
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------- -------------------
/s/ MORRIS WEISSMAN Chairman of the Board and Chief January 12, 1998
- ------------------------------------- Executive Officer (Principal
(MORRIS WEISSMAN) Executive Officer)
/s/ JOHN T. GORMAN Executive Vice President and January 12, 1998
- ------------------------------------- Chief Financial Officer
(JOHN T. GORMAN) (Principal Financial and
Accounting Officer)
/s/ BETTE B. ANDERSON Director January 12, 1998
- -------------------------------------
(BETTE B. ANDERSON)
/s/ DR. OSCAR ARIAS S. Director January 12, 1998
- -------------------------------------
(DR. OSCAR ARIAS S.)
/s/ C. GERALD GOLDSMITH Director January 12, 1998
- -------------------------------------
(C. GERALD GOLDSMITH)
/s/ IRA J. HECHLER Director January 12, 1998
- -------------------------------------
(IRA J. HECHLER)
/s/ DAVID S. ROWE-BEDDOE Director January 12, 1998
- -------------------------------------
(DAVID S. ROWE-BEDDOE)
/s/ ALFRED TEO Director January 12, 1998
- -------------------------------------
(ALFRED TEO)
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169
AMERICAN BANK NOTE COMPANY
AMERICAN BANK NOTE HOLOGRAPHICS, INC.
HORSHAM HOLDING COMPANY, INC.
AMERICAN BANK NOTE AUSTRALASIA HOLDINGS, INC.
USBC CAPITAL CORP.
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------- -------------------
/s/ MORRIS WEISSMAN Chairman of the Board and Chief January 12, 1998
- ------------------------------------- Executive Officer (Principal
(MORRIS WEISSMAN) Executive Officer)
/s/ JOHN T. GORMAN Executive Vice President and January 12, 1998
- ------------------------------------- Chief Financial Officer
(JOHN T. GORMAN) (Principal Financial and
Accounting Officer) and Director
ABN INVESTMENTS, INC.
ABN EQUITIES INC.
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------- -------------------
/s/ MORRIS WEISSMANN Chairman of the Board and Chief January 12, 1998
- ------------------------------------- Executive Officer (Principal
(MORRIS WEISSMANN) Executive Officer)
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ABN SECURITIES SYSTEMS, INC.
AMERICAN BANKNOTE CARD SERVICES, INC.
AMERICAN BANKNOTE MERCHANT SERVICES, INC.
ABN GOVERNMENT SERVICES, INC.
ABN CBA, INC.
SIGNATURE TITLE DATE
- ------------------------------------- -------------------------------- -------------------
/s/ MORRIS WEISSMANN Chairman of the Board and Chief January 12, 1998
- ------------------------------------- Executive Officer (Principal
(MORRIS WEISSMANN) Executive Officer)
/s/ JOHN T. GORMAN Executive Vice President and January 12, 1998
- ------------------------------------- Chief Financial Officer
(JOHN T. GORMAN) (Principal Financial and
Accounting Officer) and Director
/s/ HARVEY J. KESNER Director January 12, 1998
- -------------------------------------
(HARVEY J. KESNER)
II-11
171
EXHIBIT INDEX
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
- ----------- -------------------------------------------------------------------- ---------
3.1(a)(i) -- Certificate of Incorporation of American Banknote Corporation (the
"Company"), including Amendment No. 1 thereto (filed as Exhibit 3.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995) (the "June 1995 10-Q")*..............................
(a)(ii) -- Certificate of Designation of the Company authorizing Preferred
Stock as Series A (filed as Exhibit 4 to the Company's Report on
Form 8-A filed April 6, 1994)*......................................
(b) -- Certificate of Incorporation of American Bank Note Company, as
amended.............................................................
(c) -- Certificate of Incorporation of ABN Securities Systems, Inc. .......
(d) -- Articles of Incorporation of Horsham Holding Company, Inc. .........
(e) -- Certificate of Incorporation of American Bank Note Holographics,
Inc., as amended....................................................
(f) -- Certificate of Incorporation of American Banknote Card Services,
Inc., as amended....................................................
(g) -- Certificate of Incorporation of American Banknote Merchant Services,
Inc. ...............................................................
(h) -- Certificate of Incorporation of ABN Investments, Inc. ..............
(i) -- Certificate of Incorporation of ABN Equities Inc. ..................
(j) -- Certificate of Incorporation of American Banknote Australasia
Holdings, Inc. .....................................................
(k) -- Certificate of Incorporation of ABN Government Services, Inc. ......
(l) -- Certificate of Incorporation of USBC Capital Corp. .................
(m) -- Certificate of Incorporation of ABN CBA, Inc. ......................
3.2(a) -- By-laws of the Company (filed as Exhibit 3.2 to the June 1995
10-Q)*..............................................................
(b) -- By-laws of American Bank Note Company...............................
(c) -- By-laws of ABN Securities Systems, Inc. ............................
(d) -- By-laws of Horsham Holding Company, Inc. ...........................
(e) -- By-laws of American Bank Note Holographics, Inc. ...................
(f) -- By-laws of American Banknote Card Services, Inc. ...................
(g) -- By-laws of American Banknote Merchant Services, Inc. ...............
(h) -- By-laws of ABN Investments, Inc. ...................................
(i) -- By-laws of ABN Equities Inc. .......................................
(j) -- By-laws of American Banknote Australasia Holdings, Inc. ............
(k) -- By-laws of ABN Government Services, Inc. ...........................
(l) -- By-laws of USBC Capital Corp. ......................................
(m) -- By-laws of ABN CBA, Inc. ...........................................
4.1 -- Indenture for the 11 1/4% Senior Subordinated Notes due 2007, Series
A (the "Old Notes") and 11 1/4% Senior Subordinated Notes due 2007,
Series B (the "Exchange Notes"), dated as of December 12, 1997 among
the Company, the Guarantors and The Bank of New York, as trustee....
4.2 -- Form of Old Note (included in Exhibit 4.1)..........................
4.3 -- Form of Exchange Note (included in Exhibit 4.1).....................
4.4 -- Forms of Guarantee (included in Exhibits 4.2 and 4.3)...............
4.5 -- First Supplement dated as of October 8, 1997 to the Indenture dated
as of May 1, 1994 between the Company and State Street Bank & Trust
Company (as successor to First National Bank of Boston), as Trustee,
relating to the 11 5/8% Senior Notes due August 1, 2002, Series B...
172
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
- ----------- -------------------------------------------------------------------- ---------
4.6 -- Registration Rights Agreement dated as of December 12, 1997 among
the Company, the Guarantors and Chase Securities Inc., Bear, Stearns
& Co. Inc., NationsBanc Montgomery Securities, Inc. and Societe
Generale Securities Corporation.....................................
4.7 -- The Company undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with respect to
long-term debt not filed herewith...................................
5 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of the
Exchange Notes to be issued by the Company**........................
8 -- Opinion of Weil, Gotshal & Manges LLP as to certain federal income
tax matters**.......................................................
11 -- Computation of per share income (loss) (filed as Exhibit 11 to the
1996 10-K)*.........................................................
12 -- Statement of Computation of Ratios of Earnings to Fixed Charges.....
23.1 -- Consent of Deloitte & Touche LLP....................................
23.2 -- Consent of KPMG.....................................................
23.3 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed
as Exhibit 5 to this Registration Statement)........................
23.4 -- Consent of Weil, Gotshal & Manges LLP (included in the opinion filed
as Exhibit 8 to this Registration Statement)........................
24 -- Power of Attorney (included on signature pages of this Part II).....
25 -- Statement of Eligibility and Qualification of The Bank of New York,
as Trustee on Form T-1 with respect to the 11 1/4% Senior
Subordinated Notes due 2007.........................................
99.1 -- Form of Letter of Transmittal.......................................
99.2 -- Form of Notice of Guaranteed Delivery...............................
99.3 -- Form of Instructions to Registered Holders and/or Book-Entry
Facility Participant from Beneficial Owner..........................
99.4 -- Form of Exchange Agent Agreement....................................
- ---------------
* Incorporated herein by reference.
** To be filed by amendment.