As Filed With the Securities and Exchange Commission on July 30, 1998
Registration No. 333-43225
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3 on
FORM S-4
to Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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WESCO International, Inc.
(formerly known as CDW Holding Corporation)
(Exact name of Registrant as specified in its charter)
Delaware 5063 25-1723345
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
WESCO Distribution, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 5063 25-1723345
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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Commerce Court, Suite 700
Four Station Square
Pittsburgh, Pennsylvania 15219
(412) 454-2200
(Address, including zip Code, and telephone number, including area
code, of registrant"s principal executive offices)
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Jeffrey B. Kramp, Esq.
Commerce Court, Suite 700
Four Station Square
Pittsburgh, Pennsylvania 15219
(412) 454-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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With a copy to:
Vincent Pagano, Jr.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
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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: [ ]
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If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered per Note Offering Price (1) Registration Fee
9 1/8% Senior Subordinated
Notes Due 2008, Series B(2) $300,000,000 100% $300,000,000 $ 88,500
11 1/8% Senior Discount
Notes Due 2008, Series B(3) $ 87,000,000 58.3% $ 50,754,000 $ 14,975
Guarantee(4) ................... (5) (5) (5) (5)
Total .......................... $387,000,000 -- $350,754,000 $103,475(6)
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) To be issued by WESCO Distribution, Inc. (the "Company") in exchange for its
outstanding 9 1/8% Senior Subordinated Notes Due 2008, Series A.
(3) To be issued by WESCO International, Inc. ("Holdings") in exchange for its
outstanding 11 1/8% Senior Discount Notes Due 2008, Series A. The "Amount to
be Registered" with respect to such notes represents the aggregate principal
amount at maturity of such notes. The 11 1/8% Senior Discount Notes Due
2008, Series A were sold at a substantial discount from their principal
amount at maturity. The registration fee with respect to the 11 1/8% Senior
Discount Notes Due 2008, Series B was calculated based on the approximate
accreted value thereof as of June 23, 1998 determined pursuant to the
provisions of the Indenture governing such notes.
(4) Guarantees by Holdings of the Company's 9 1/8% Senior Subordinated Notes Due
2008, Series B to be issued in exchange for Holdings' outstanding guarantees
of the Company's 9 1/8% Senior Subordinated Notes Due 2008, Series A. The 11
1/8% Senior Discount Notes Due 2008, Series B are not guaranteed.
(5) Pursuant to Rule 457(n) under the Securities Act of 1933, as amended, no
separate registration fee is payable for the guarantees of Holdings, which
are guarantees of the Company's 9 1/8% Senior Subordinated Notes Due 2008,
Series B, which are being registered concurrently. (6) This amount was paid
previously.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, 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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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 30, 1998
PRELIMINARY PROSPECTUS
WESCO Distribution, Inc.
Offer to Exchange up to $300,000,000 of its 9 1/8% Senior
Subordinated Notes Due 2008, Series B,
which have been registered under the Securities Act of 1933,
for any and all of its outstanding
9 1/8% Senior Subordinated Notes Due 2008, Series A
WESCO International, Inc.
Offer to Exchange up to $87,000,000 of its 11 1/8% Senior
Discount Notes Due 2008, Series B,
which have been registered under the Securities Act of 1933,
for any and all of its outstanding
11 1/8% Senior Discount Notes Due 2008, Series A
THE EXCHANGE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
WESCO Distribution, Inc. (the "Company"), a wholly owned subsidiary of WESCO
International, Inc. ("Holdings"), hereby offers, upon the terms and subject to
the conditions set forth in this Prospectus and the related Letter of
Transmittal (which together constitute the "Senior Subordinated Exchange
Offer"), to exchange an aggregate of up to $300,000,000 principal amount of 9
1/8% Senior Subordinated Notes Due 2008, Series B (the "Senior Subordinated
Exchange Notes"), of the Company for an equal principal amount of the issued and
outstanding 9 1/8% Senior Subordinated Notes Due 2008, Series A (the "Senior
Subordinated Old Notes" and, together with the Senior Subordinated Exchange
Notes, the "Senior Subordinated Notes"), of the Company. The Senior Subordinated
Notes are fully and unconditionally guaranteed by Holdings.
Holdings hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the related Letter of Transmittal (which together
constitute the "Senior Discount Exchange Offer"), to exchange an aggregate of up
to $87,000,000 principal amount at maturity of 11 1/8% Senior Discount Notes Due
2008, Series B (the "Senior Discount Exchange Notes"), of Holdings for an equal
principal amount of the issued and outstanding 11 1/8% Senior Discount Notes Due
2008, Series A (the "Senior Discount Old Notes" and, together with the Senior
Discount Exchange Notes, the "Senior Discount Notes"), of Holdings.
The Senior Discount Notes are not guaranteed.
The Company and Holdings are herein sometimes collectively called the "Issuers";
the Senior Subordinated Exchange Offer and the Senior Discount Exchange Offer
are herein sometimes collectively called the "Exchange Offers"; the Senior
Subordinated Exchange Notes and the Senior Discount Exchange Notes are herein
sometimes collectively called the "Exchange Notes"; the Senior Subordinated Old
Notes and the Senior Discount Old Notes are herein sometimes collectively called
the "Old Notes"; and the Senior Subordinated Notes and the Senior Discount Notes
are herein sometimes collectively called the "Notes".
The Old Notes were issued in connection with the Recapitalization (as defined),
pursuant to which, among other things, (i) Holdings repurchased from certain of
its former holders of its common stock and stock options such stock and options
for $653.5 million and (ii) an investor group led by affiliates of The Cypress
Group L.L.C. ("Cypress") acquired approximately 88.7% of the outstanding common
stock of Holdings. See "The Recapitalization."
As of the date of this Prospectus, $300,000,000 aggregate principal amount of
the Senior Subordinated Old Notes and $87,000,000 aggregate principal amount at
maturity of the Senior Discount Old Notes are outstanding. The terms of the
Exchange Notes are identical in all material respects to the terms of the Old
Notes, except that the Exchange Notes have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and therefore will not bear
legends restricting their transfer and will not contain certain provisions
providing for liquidated damages under certain circumstances described in the
Registration Rights Agreements (as hereinafter defined), which provisions will
terminate as to all of the Notes upon the consummation of the Exchange Offers.
(continued on next page)
See "Risk Factors," beginning on page 21, for a discussion of certain factors
that should be considered by investors in connection with the Exchange Offers
and an investment in the Senior Subordinated Exchange Notes or the Senior
Discount Exchange Notes.
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THE 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.
The date of this Prospectus is , 1998.
(continued from previous page)
Interest on the Senior Subordinated Exchange Notes will be payable semi-annually
on June 1 and December 1 of each year, commencing on December 1, 1998. The
Senior Subordinated Exchange Notes will mature on June 1, 2008. Except as
described below, the Senior Subordinated Exchange Notes will not be redeemable
at the option of the Company prior to June 1, 2003. Thereafter, the Senior
Subordinated Exchange Notes will be redeemable at the option of the Company, in
whole or in part, at the redemption prices set forth herein, together with
accrued and unpaid interest and liquidated damages, if any, to the date of
redemption. In addition, at any time and from time to time prior to June 1,
2001, the Company may, subject to certain requirements, redeem up to 35% of the
original aggregate principal amount of the Senior Subordinated Exchange Notes
with the net cash proceeds of one or more Equity Offerings (as defined), at a
redemption price equal to 109.125% of the principal amount thereof, together
with accrued and unpaid interest and liquidated damages, if any, to the date of
redemption; provided that at least 65% of the original aggregate principal
amount of the Senior Subordinated Notes remains outstanding immediately after
each such redemption. The Senior Subordinated Exchange Notes will not be subject
to any sinking fund requirement. Upon the occurrence of a Change of Control (as
defined), (i) the Company will have the option, at any time on or prior to June
1, 2003, to redeem the Senior Subordinated Exchange Notes, in whole but not in
part, at a redemption price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest and liquidated damages, if any, to the
date of redemption plus the Applicable Premium (as defined) and (ii) if the
Senior Subordinated Exchange Notes are not so redeemed or if such Change of
Control occurs after June 1, 2003, each holder of the Senior Subordinated
Exchange Notes will have the right to require the Company to make an offer to
repurchase such holder's Senior Subordinated Exchange Notes at a price equal to
101% of the principal amount thereof, together with accrued and unpaid interest
and liquidated damages, if any, to the date of repurchase. There can be no
assurance that sufficient funds will be available to make any such repurchases.
Any such repurchase will comply with the applicable regulations under federal
securities laws, including Rules 13e-4 and 14e-1 under the Exchange Act (as
defined). See "Description of the Senior Subordinated Exchange Notes."
The Senior Discount Old Notes were issued at a discount to their aggregate
principal amount at maturity so as to generate gross proceeds to Holdings of
$50,478,270. The yield to maturity of the Senior Discount Notes is 11.175%
(computed on a semi-annual bond equivalent basis) calculated from June 5, 1998.
Cash interest will not accrue or be payable on the Senior Discount Exchange
Notes prior to June 1, 2003. Thereafter, cash interest on the Senior Discount
Exchange Notes will accrue at a rate of 11 1/8% per annum and will be payable
semi-annually on June 1 and December 1 of each year, commencing on December 1,
2003. The Senior Discount Exchange Notes will mature on June 1, 2008. Except as
described below, the Senior Discount Exchange Notes will not be redeemable at
the option of Holdings prior to June 1, 2003. On June 1, 2003 Holdings will be
required to redeem an amount equal to $354.96 per $1,000 principal amount at
maturity of each Senior Discount Note then outstanding ($30,881,520 in aggregate
principal amount at maturity of the Senior Discount Notes, assuming all of the
Senior Discount Notes remain outstanding on such date (the "Mandatory Principal
Redemption Amount")) on a pro rata basis at a redemption price of 100% of the
principal amount at maturity of the Senior Discount Notes so redeemed. The
Mandatory Principal Redemption Amount represents (i) the excess of the aggregate
Accreted Value (as defined) of all Senior Discount Notes outstanding on June 1,
2003 over the aggregate issue price thereof less (ii) an amount equal to one
year's simple uncompounded interest on the aggregate issue price of such Senior
Discount Notes at a rate per annum equal to the yield to maturity on the Senior
Discount Notes. The Senior Discount Exchange Notes will be redeemable at the
option of Holdings, in whole or in part, at any time after June 1, 2003, at the
redemption prices set forth herein, together with accrued and unpaid interest
and liquidated damages, if any, to the date of redemption. In addition, at any
time prior to June 1, 2001, Holdings may, subject to certain requirements,
redeem, in whole but not in part, the Senior Discount Notes with the net cash
proceeds of one or more Equity Offerings at a redemption price equal to 111.125%
of the Accreted Value, together with liquidated damages, if any, to the date of
redemption. The Senior Discount Exchange Notes will not be subject to any
sinking fund requirement. Upon the occurrence of a Change of Control, (i)
Holdings will have the option, at any time on or prior to June 1, 2003, to
redeem the Senior Discount Exchange Notes, in whole but not in part, at a
redemption price equal to 100% of the Accreted Value thereof, together with
liquidated damages, if any, to the date of redemption plus the Applicable
Premium and (ii) if the Senior Discount Exchange Notes are not so redeemed or if
such Change of Control occurs after June 1, 2003, each holder of the Senior
Discount Exchange Notes will have the right to require Holdings to make an offer
to repurchase such holder's Senior Discount Notes at a price equal to (a) 101%
of the Accreted Value thereof, together with liquidated damages, if any, to the
date of repurchase if repurchased on or before June 1, 2003, and (b) 101% of the
principal amount at maturity thereof, together with accrued and unpaid interest
and liquidated damages, if any, to the date of repurchase if repurchased after
June 1, 2003. There can be no assurance that sufficient funds will be available
to make any such repurchases. Any such repurchase will comply with the
applicable regulations under federal securities laws, including Rules 13e-4 and
14e-1 under the Exchange Act (as defined). See "Description of the Senior
Discount Exchange Notes."
The Exchange Notes will be general obligations of the relevant Issuer. The
Senior Subordinated Exchange Notes will be unsecured, will be subordinated in
right of payment to all existing and future Senior Indebtedness (as defined) of
the Company and will be effectively subordinated to all obligations of the
subsidiaries of the Company. The Senior Discount Exchange Notes will be senior
unsecured obligations of Holdings and will be effectively subordinated to all
obligations of the subsidiaries of Holdings (including the Company). The Senior
Subordinated Exchange Notes will be fully and unconditionally guaranteed by
Holdings (the "Holdings Guarantee") on a senior subordinated basis. Because the
Holdings Guarantee will be subordinated in right of payment to all Senior
Indebtedness of Holdings and effectively subordinated to all indebtedness and
other liabilities of Holdings' subsidiaries, investors should not rely on the
Holdings Guarantee in evaluating an investment in the Senior Subordinated
Exchange Notes. The Senior Discount Exchange Notes will not have
the benefit of any guarantees. The Senior Subordinated Exchange Notes will rank
pari passu with any existing and future Senior Subordinated Indebtedness (as
defined) of the Company and will rank senior to all Subordinated Obligations (as
defined) of the Company. The Senior Discount Exchange Notes will rank pari passu
with any existing and future Senior Indebtedness of Holdings and will rank
senior to all Subordinated Obligations of Holdings. The Indentures (as defined)
permit the Issuers to incur additional indebtedness, including up to $400.0
million of Senior Indebtedness of the Company under the Credit Facilities (as
defined), subject to certain limitations. See "Description of the Senior
Subordinated Exchange Notes" and "Description of the Senior Discount Exchange
Notes." As of June 30, 1998, (i) Holdings had no outstanding Senior Indebtedness
(other than the Senior Discount Notes and guarantees under the Credit
Facilities) or Secured Indebtedness (as defined); (ii) the outstanding Senior
Indebtedness of the Company was $196.4 million, of which $176.8 million was
Secured Indebtedness (exclusive of unused commitments under the Credit
Facilities); (iii) the Company had no outstanding Senior Subordinated
Indebtedness (other than the Senior Subordinated Notes) and no outstanding
indebtedness that is subordinate or junior in right of repayment to the Senior
Subordinated Notes; (iv) the Company's subsidiaries had no indebtedness,
excluding guarantees of $176.8 million of indebtedness under the Credit
Facilities (but had trade payables and other liabilities incurred in the
ordinary course of business); and (v) Holdings' subsidiaries had total
liabilities of $807.4 million, excluding $176.8 million of indebtedness and
guarantees under the Credit Facilities. See "Unaudited Pro Forma Financial
Information," "Risk Factors -- Subordination of the Senior Subordinated Notes
and Holdings Guarantee" and " -- Structural Subordination of the Senior Discount
Notes."
The Old Notes were issued and sold on June 5, 1998 in transactions (the
"Offerings") not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Old Notes
may not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The Exchange Notes are being offered hereby in order to satisfy
certain obligations of the Issuers contained in the Registration Rights
Agreements. Based on interpretations by the Staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that the Exchange Notes issued pursuant to the
respective Exchange Offers in exchange for the respective series of Old Notes
may be offered for resale, resold or otherwise transferred by any holder thereof
(other than any such holder that is an "affiliate" of the Issuers of such
Exchange Notes within the meaning of Rule 405 promulgated 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, such holder has no arrangement with
any person to participate in the distribution of such Exchange Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such Exchange Notes. However, the Issuers have not sought, and
do not intend to seek, their own no-action letter, and there can be no assurance
that the Staff of the Commission would make a similar determination with respect
to the Exchange Offers. Notwithstanding the foregoing, each broker-dealer that
receives Exchange Notes for its own account pursuant to an Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letters of Transmittal state that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with any resale of Exchange Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers thereof). A
broker-dealer may not participate in any of the Exchange Offers with respect to
Old Notes acquired other than as a result of market-making activities or other
trading activities. The Issuers have agreed that, for a period of 180 days after
the date of this Prospectus, they will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. There is no established
trading market for the Exchange Notes. The Issuers currently do not intend to
list any of the Exchange Notes on any securities exchange or to seek approval
for quotation of the Exchange Notes through any automated quotation system.
Accordingly, there can be no assurance as to the development or liquidity of any
market for any of the Exchange Notes.
The respective Exchange Offers are not conditioned upon any minimum aggregate
principal amount of any series of Old Notes being tendered for exchange. The
date of acceptance and exchange of each series of Old Notes (each an "Exchange
Date") will be the fourth business day following the applicable Expiration Date
(as hereinafter defined). Old Notes tendered pursuant to an Exchange Offer may
be withdrawn at any time prior to the applicable Expiration Date. The Exchange
Offers will expire at 5:00 p.m., New York City time, on , 1998 (the date of
expiration of each Exchange Offer, as extended, being herein called an
"Expiration Date"). The Issuers do not currently intend to extend any of the
Expiration Dates.
The Issuers will not receive any proceeds from any of the Exchange Offers. The
Issuers will pay all of the expenses incident to the Exchange Offers.
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Exchange Notes being offered hereby. This Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Issuers and
the Exchange Notes, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Issuers are not currently subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Upon completion of the Exchange Offers, the Issuers will be subject to
the information requirements of the Exchange Act and, in accordance therewith,
will file periodic reports and other information with the Commission. The
Registration Statement, such reports and other information can be inspected and
copied at the Public Reference Section of the Commission located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at regional
public reference facilities maintained by the Commission located at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material, including copies of all or any portion of the Registration Statement,
can be obtained from the Public Reference Section of the Commission at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet (http://www.sec.gov). In addition,
pursuant to the Indentures covering the Notes, the Issuers have agreed that the
Issuers shall file with the Commission and provide to the Holders of the Notes
the annual reports and the information, documents and other reports otherwise
required pursuant to Section 13 and 15(d) of the Exchange Act.
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, 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.
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FORWARD LOOKING STATEMENTS
THE FACTORS DISCUSSED UNDER "RISK FACTORS," AMONG OTHERS, COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM FORWARD-LOOKING STATEMENTS MADE IN THIS
PROSPECTUS INCLUDING, WITHOUT LIMITATION, IN "BUSINESS" AND "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," IN
THE ISSUERS' PRESS RELEASES AND IN ORAL STATEMENTS MADE BY AUTHORIZED OFFICERS
OF THE ISSUERS. WHEN USED IN THIS PROSPECTUS THE WORDS "ESTIMATE," "PROJECT,"
"ANTICIPATE," "EXPECT," "INTEND," "BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED
TO IDENTIFY FORWARD-LOOKING STATEMENTS, ALTHOUGH NOT ALL FORWARD-LOOKING
STATEMENTS CONTAIN SUCH WORDS. ALL OF THESE FORWARD-LOOKING STATEMENTS ARE BASED
ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE ISSUERS, WHICH, ALTHOUGH
BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE
SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH STATEMENTS OR ESTIMATES WILL BE REALIZED AND ACTUAL
RESULTS MAY DIFFER FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
SEE "RISK FACTORS -- FORWARD-LOOKING STATEMENTS."
i
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. Unless the
context otherwise requires, references to (i) "Holdings" refer to WESCO
International, Inc., a Delaware corporation; (ii) the "Company" refers to WESCO
Distribution, Inc., a Delaware corporation, and its subsidiaries; "WESCO" refers
to Holdings and its subsidiaries collectively; and (iv) "Westinghouse" refer to
Westinghouse Electric Corporation, now known as CBS Corporation. The only asset
of Holdings is all of the outstanding capital stock of the Company. Market and
market share data for the electrical wholesale industry are from Electrical
Wholesaling magazine or Distributor Information Services Corporation, unless
otherwise indicated. Except where specified, market share and market data are
for the U.S. electrical wholesale distribution industry. The Company believes
such market share data are inherently imprecise, but are generally indicative of
its relative market share. Unless otherwise indicated, information presented on
a pro forma basis gives effect to the Recapitalization and the Recent
Acquisitions (as defined).
The Company
Overview
WESCO is the second largest provider of products and related services in
the U.S. electrical wholesale distribution industry and believes that it is also
the second largest in North America. The Company operates over 325 branches and
five regional distribution centers in 48 states and nine Canadian provinces to
serve virtually the entire U.S. and Canadian market. WESCO provides a broad
product offering consisting of over 210,000 products sourced from over 6,000
suppliers to over 130,000 customers. WESCO complements this broad product
offering with a range of services and procurement solutions, including
integrated supply, whereby it manages all aspects of the customer's supply
processes, and electronic commerce, which enables procurement to be automated
for improved service at lower cost. WESCO's diversified customer base includes a
wide variety of industrial companies, contractors for industrial, commercial and
residential projects, utility companies, and commercial, institutional and
governmental customers. WESCO's national infrastructure, extensive local
geographic coverage and complementary service offerings have allowed WESCO to
specialize in developing combined product and service solutions tailored to meet
the specific needs of its individual customers. WESCO is particularly well
positioned to meet the complex procurement needs of multi-site customers seeking
total supply chain cost reduction through preferred supplier alliances.
Since the Company's divestiture from Westinghouse in 1994 (the
"Divestiture"), management has realigned operations to achieve substantial
growth in sales and profitability. The current management team has: (i)
substantially improved operating margins; (ii) realigned WESCO's branch network
to focus on key customer markets; (iii) significantly expanded WESCO's National
Accounts (as defined) and other marketing programs; (iv) implemented a new
incentive system for branch managers and sales personnel; and (v) actively
pursued industry consolidation opportunities. As a result of management's
actions and growth in the industry generally, sales have increased from $1.6
billion in 1993 to $2.9 billion on a pro forma basis for the year ended December
31, 1997, a compound annual growth rate of 16.6%, and EBITDA has improved from a
loss of $1.4 million in 1993 to $109.5 million on a pro forma basis for the year
ended December 31, 1997. Pursuant to the Recapitalization, management retained
approximately $97.7 million of equity in Holdings and, together with new stock
options expected to be granted in connection with the Recapitalization, will
hold or have the right to acquire over 30% of the common equity of Holdings on a
fully diluted basis. See "The Recapitalization."
The principal executive offices of the Issuers are located at Commerce
Court, Suite 700, Four Station Square, Pittsburgh, Pennsylvania 15219. The
Issuers' telephone number is (412) 454-2200.
1
Industry Overview
The electrical wholesale distribution industry in the U.S. is large,
growing and highly fragmented. Industry sources estimate that total electrical
wholesale distributor sales were $67 billion in 1997, a 9.6% compound annual
growth rate since 1994. In 1996, the latest year for which data is available,
the four largest wholesale distributors, including WESCO, accounted for only 14%
of estimated total industry sales. In that year, no single distributor accounted
for more than 5% of estimated industry sales, and 57% of such sales were
generated by distributors with less than $21 million in annual sales. In the
U.S., electrical distribution is still in the early stages of consolidation,
unlike many other wholesale distribution industries which have undergone
substantial consolidation in the past two decades. Management believes continued
industry consolidation will be driven by customers who increasingly expect
distributors to provide a broader package of products and services as these
customers seek to outsource non-core functions and achieve documented cost
savings in purchasing, inventory and supply chain management.
Competitive Strengths
WESCO believes it is well positioned to both capitalize on the growing
customer demand for value-added services and procurement outsourcing and play a
leading role in the continued consolidation in the electrical products
distribution industry as a result of the following competitive advantages:
Market Leadership. WESCO believes it is the second largest electrical
wholesale distributor in North America, serving virtually the entire U.S. and
Canadian market. Management believes that WESCO is the industry's leading
wholesale supplier of electrical products in North America to several important
and growing markets, including: (i) customers with large, complex plant
maintenance operations requiring a national multi-site service solution for
their electrical distribution product needs; (ii) large contractors for major
industrial and commercial construction projects; (iii) the electric utility
industry; and (iv) manufacturers of factory-built homes, recreational vehicles
and other modular structures. These leadership positions provide WESCO with an
extensive base from which to continue to grow sales.
Established National and Local Distribution Infrastructure. WESCO's North
American distribution network consists of over 325 branches and five regional
distribution centers in 48 states and nine Canadian provinces. This established
network provides WESCO with a number of competitive advantages, including the
ability to: (i) offer multi-site agreements with the broad geographic scope
required by major customers who seek to coordinate their maintenance, repair and
operating ("MRO") supplies purchasing activity across multiple locations
("National Accounts"); (ii) enter into favorable preferred supplier agreements
which provide for improved payment terms, volume rebates, marketing programs and
geographic franchises; (iii) utilize a specialized and technical nationwide
sales force to meet specific customer demands for a broad range of products and
services across multiple geographic markets; and (iv) provide same-day
shipments. Management believes these competitive strengths allow it to more
effectively meet the service needs and expectations of both large national
customers who are increasingly demanding a single source supply capability and
local customers who require high service levels for their electrical product
procurement needs.
Broad Product Offering. WESCO provides its customers with a broad product
selection consisting of over 210,000 electrical, industrial and data
communications products sourced from over 6,000 suppliers. The Company's
products range from basic wire to advanced automation and control products.
Value Added Services. In partnership with its customers, WESCO combines its
product offerings with a wide range of supply management services to create
value for its customers. Examples of such services include: (i) outsourcing of
the entire MRO purchasing process; (ii) implementing inventory optimization
programs; (iii) participating in joint cost savings teams; (iv) assigning
Company employees as on-site support personnel; (v) recommending
energy-efficient product upgrades; (vi) offering safety and product training for
customer employees; and (vii) providing manufacturing process improvements using
automated solutions. This combination of products and value-added services
enhances WESCO's competitive position by allowing it to offer comprehensive and
documented cost-efficient solutions to a customer's specific procurement needs.
2
Diverse Revenue Base. WESCO's diverse revenue base is derived from the sale
of its broad range of over 210,000 electrical, industrial and data
communications products to over 130,000 customers, including: (i) industrial
companies from numerous manufacturing and process industries and original
equipment manufacturers ("OEMs"); (ii) contractors for industrial, commercial
and residential projects; (iii) electrical utility customers; and (iv)
commercial, institutional and governmental customers. No customer accounted for
more than 1% of WESCO's total sales in 1997. WESCO's geographic diversity
encompasses sales in all 50 states in the U.S. and all 10 Canadian provinces.
This diversity of customers and products provides WESCO with a broad base from
which to grow sales and reduces exposure to any particular customer, industry or
regional economic cycle.
Proven and Committed Management Team. WESCO's management team has
successfully repositioned the Company following the Divestiture. The current
management team has: (i) substantially improved operating margins; (ii)
realigned WESCO's branch network to focus on key customer markets; (iii)
significantly expanded WESCO's National Accounts and other marketing programs;
(iv) implemented a new incentive system for branch managers and sales personnel;
and (v) actively pursued industry consolidation opportunities. Since August
1995, WESCO's management has successfully completed 14 acquisitions which
currently account for estimated annualized sales of over $800 million. As a
result of management's actions as well as growth in the industry generally,
sales have increased from $1.6 billion in 1993 to $2.9 billion on a pro forma
basis for the year ended December 31, 1997, a compound annual growth rate of
16.6%, and EBITDA has improved from a loss of $1.4 million in 1993 to $109.5
million on a pro forma basis for the year ended December 31, 1997. Pursuant to
the Recapitalization, approximately 200 managers continued to retain equity in
Holdings representing an aggregate value of approximately $97.7 million. In
addition, certain managers will have the opportunity to invest an aggregate of
up to approximately $15 million in newly issued common stock of Holdings.
Holdings also plans to adopt a new stock option plan in connection with the
Recapitalization. As a result, management will hold or have the right to acquire
over 30% of the common equity of Holdings on a fully diluted basis.
Business Strategy
Increase Large National Programs. WESCO has successfully established
National Accounts relationships with approximately 300 customers and believes it
can continue to expand revenue generated through its National Accounts program
by: (i) increasing the number of products and sites covered by its existing
National Accounts relationships; (ii) expanding MRO agreements to include
capital projects; and (iii) extending the program to new customers. National
Accounts provide WESCO with a recurring base of revenue through strategic
multi-year agreements. In addition, through its Major Projects Group, the
Company plans to intensify its focus on large construction projects, such as new
stadiums, industrial sites, wastewater treatment plants, airport expansions,
healthcare facilities and correctional facilities. The Company intends to secure
new National Accounts and Major Projects contracts through: (i) aggressive
national marketing of WESCO's demonstrated project management capabilities; (ii)
further development of relationships with leading construction and engineering
firms; and (iii) close coordination with National Accounts customers on their
major renovation and new construction projects.
Continue to Improve Operating Profit Margins and Cash Flow. WESCO has
successfully improved its operating profit margins over the past four years,
increasing EBITDA to over $109.5 million on a pro forma basis for the year ended
December 31, 1997 from a loss of $1.4 million in EBITDA in 1993. WESCO believes
a successful business strategy must include the commitment to continuous
improvement in profitability and productivity. The Company is emphasizing the
widespread use of innovative and disciplined approaches to managing its business
processes, employee productivity, and working capital and capital expenditure
efficiency. These continuous improvement initiatives include: (i) improving
product pricing controls to maximize gross margin; (ii) utilizing activity-based
costing to more accurately measure and enhance profitability by customer,
supplier and other categories; (iii) enhancing the coordination of purchasing
and inventory management across its branch network and regional distribution
centers; (iv) improving information systems processing capabilities in order to
realize more efficient branch and headquarters operations; and (v) leveraging
the existing corporate infrastructure by continuing to eliminate redundant
back-office functions of acquired companies.
3
Encourage Branch Level Entrepreneurship. A distributor's reputation is
often determined at the local branch level, where timely supply and customer
service are critical. Accordingly, WESCO grants its branch managers substantial
autonomy and responsibility to best respond to customer needs in local markets.
WESCO's branch managers are responsible for optimizing business activities in
their local markets, including managing the branch sales force, configuring
inventories, selecting potential customers for targeted marketing efforts and
developing local service options. WESCO's compensation system for branch
managers, a significant portion of which is incentive based, strongly encourages
sales and cash flow growth as well as efficient working capital management at
the branch level.
Gain Share in Key Local Markets. WESCO intends to increase its market share
in key geographic markets with a substantial base of potential customers through
a combination of new branch openings, increased sales and marketing efforts and
acquisitions. In addition, WESCO's marketing team, together with local branch
managers, are expanding the Company's program of detailed market analysis and
opportunity identification on a branch-by-branch and product line basis. The
Company has developed a detailed database of potential customers for its
individual markets which it will utilize to implement this strategy.
Furthermore, the Company intends to leverage its existing relationships with
preferred suppliers to increase sales of their products in local markets through
various initiatives, including sales promotions, cooperative marketing efforts,
direct participation by suppliers in National Accounts implementation, dedicated
sales forces and product exclusivity.
Expand Product and Service Offering. WESCO intends to build on its
demonstrated ability to introduce new products and services to meet customer
demands and capitalize on market opportunities. For example, the Company plans
to expand its presence in the fast-growing data communications market. In the
past two years, WESCO has significantly increased its focus on this market,
generating sales of $83 million in 1997, up from $52 million in 1995. By
utilizing a dedicated data communications sales team and leveraging its existing
sales force, the Company intends to expand sales to new and existing customers,
as well as broaden its offering into additional data communications product
lines. In addition, the Company plans to expand its integrated supply programs
with both new and existing accounts. Given the initial success of its integrated
supply initiatives and the rapid growth in the demand for such services
anticipated by the Company, WESCO believes it has a significant opportunity to
develop additional customer relationships by leveraging its comprehensive
service and supply expertise.
Pursue Consolidation Opportunities. WESCO utilizes a disciplined approach
toward acquisitions which includes established targets for cash return on
investment. Since August 1995, WESCO's management has successfully completed 14
acquisitions which currently account for estimated annualized sales of over $800
million. WESCO intends to continue to pursue its consolidation strategy and
believes that the highly fragmented nature of the electrical distribution
industry will provide WESCO with a significant number of acquisition
opportunities. The Company evaluates potential acquisitions based on their
ability to: (i) accelerate expansion into key growth markets; (ii) add support
capabilities for important new customers; (iii) enhance sales of acquired
branches by immediately broadening the product and service mix; (iv) expand
local presence to better serve existing customers; (v) strengthen relationships
with manufacturers; and (vi) provide operating efficiencies by leveraging
WESCO's existing infrastructure.
History
The Company's business, formerly the Westinghouse Electric Supply Company
division (the "Predecessor") of Westinghouse, was established in 1922 for the
purpose of selling and distributing Westinghouse electrical products and
supplies. Since its founding, the Predecessor experienced a long history of
growth until the business reached a peak in 1989 with sales of $1.8 billion.
Beginning in 1990, the Predecessor's results of operations began to deteriorate
due in part to the implementation of a series of new programs that redirected
its business away from many of its core strategies. These developments were
compounded by the declining investment and focus from Westinghouse, which was
undergoing significant strategic changes at the time.
In 1994, the Predecessor's business was largely divested by Westinghouse,
which retained an interest in Holdings (currently representing approximately 16%
of Holdings' fully diluted equity), and was acquired by Clayton, Dubilier &
Rice, a private investment firm (together with its affiliates, "CD&R"),
4
and management. In connection with the Divestiture, a new management team was
organized, led by Mr. Roy W. Haley as chief executive officer. This new
management team was comprised of new members as well as existing Company
personnel. Since the Divestiture, this management team has improved sales,
operating margins and EBITDA.
On March 27, 1998, Holdings, certain members of management, CD&R,
Westinghouse and certain other existing stockholders of Holdings entered into a
Recapitalization Agreement (as amended, the "Recapitalization Agreement") with
Cypress. See "The Recapitalization."
Recent Developments
On January 1, 1998, WESCO acquired the electrical distribution businesses
of Avon Electrical Supplies, Inc., and its affiliates ("Avon Electrical") and
Brown Wholesale Electric Company ("Brown Wholesale"). Avon Electrical, operating
two branch locations, is a leading distributor in the New York metropolitan
area. Brown Wholesale, with two branches in Arizona, is the leader in the
high-growth Phoenix market. Brown Wholesale also had seven other branches which
were closed or sold in California and Hawaii to improve operating efficiency.
Management estimates that these two acquisitions will add approximately $150
million in annualized sales.
On May 8, 1998, WESCO acquired certain assets of, and assumed certain
liabilities of, Reily Electric Supply Inc. ("Reily"), a distributor
headquartered in New Orleans, Louisiana with seven branches in the Gulf Coast
region. The Reily acquisition provides the Company with several strategic
benefits, including: (i) strengthening its market position in the Gulf Coast
region; (ii) complementing an existing National Accounts customer relationship
in the petrochemical industry; and (iii) improving its position in the Houston
market, where Reily's strong market position will complement WESCO's existing
branch operations. Management estimates Reily will add annual sales of
approximately $140 million.
As a result of the acquisitions of Avon Electrical, Brown Wholesale and
Reily, the Company contemplates consolidating and/or closing 5 WESCO branches by
the end of 1998 which the Company expects will result in $3.6 million of annual
cost savings. The Company does not expect to incur any material expenses or
charges in connection therewith.
The foregoing acquisitions of Avon Electrical, Brown Wholesale and Reily,
together with the Company's acquisitions of Diversified Electric Supply Company,
Inc. and Maydwell & Hartzell, Inc. consummated in 1997, are collectively
referred to herein as the "Recent Acquisitions." For additional information
regarding the Company's business strategy and acquisition history, see "Business
- -- Business Strategy" and "Business -- Acquisitions."
The Recapitalization
On June 5, 1998, pursuant to the Recapitalization Agreement: (i) Holdings
repurchased all of the common stock of Holdings (the "Common Stock") held by
CD&R, Westinghouse and all other non-management stockholders of Holdings and
cashed-out all of the stock options held by non-management optionholders and a
portion of the stock options held by certain members of management for an
aggregate consideration of $653.5 million (the "Equity Consideration"); (ii)
Holdings sold shares of Common Stock to an investor group led by Cypress which
includes, among others, Chase Capital Partners and Co-Investment Partners, L.P.
(the "Investor Group") for $318.1 million in the aggregate (the "Cash Equity
Contribution"); (iii) the Investor Group purchased shares of Common Stock from
certain members of management for $1.9 million in the aggregate; and (iv)
management continued to retain the remainder of their shares of Common Stock and
stock options with an implied aggregate value of approximately $97.7 million.
In addition to the proceeds of the Cash Equity Contribution, Holdings and
the Company funded the Equity Consideration, the repayment of approximately
$379.1 million of outstanding indebtedness of the Company and its subsidiaries
and the payment of transaction fees and expenses from: (i) the initial
borrowings of $170.0 million under the new credit facilities (the "Credit
Facilities") entered into by the Company as described under "Description of the
Credit Facilities;" (ii) the proceeds of $250.0 million from a sale of accounts
receivable pursuant to an off-balance sheet accounts receivable facility (the
5
"Receivables Facility") entered into by the Company as described under
"Description of the Receivables Facility;" and (iii) the proceeds of the
Offerings.
The foregoing transactions are collectively referred to herein as the
"Recapitalization." As a result of the Recapitalization, management owns
approximately 11.3% of the outstanding shares of Common Stock (which, together
with existing stock options and new stock options expected to be granted in
connection with the Recapitalization, will represent over 30% of the common
equity of Holdings on a fully diluted basis). In addition, certain managers will
have the opportunity to invest an aggregate of up to approximately $15 million
in newly issued Common Stock. The Investor Group owns the remaining 88.7% of the
outstanding shares of Common Stock, with Cypress owning approximately 58% of the
outstanding shares of Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management."
Holdings expects to treat the Recapitalization as a recapitalization for
financial reporting purposes; accordingly, the historical basis of Holdings'
assets and liabilities will not be affected by the transaction.
The following table sets forth the cash sources and uses of funds of the
Issuers for the Recapitalization on a pro forma basis as of March 31, 1998:
(dollars in millions)
----------------------
Sources:
Credit Facilities:
Revolving Facility (1) ............................ $ --
Delayed Draw Term Facility (1) .................... --
Term Loans ........................................ 170.0
Receivables Facility ............................... 250.0
Senior Subordinated Old Notes ...................... 300.0
Senior Discount Old Notes .......................... 50.5
Cash Equity Contribution ........................... 318.1
---------
Total sources ................................... $ 1,088.6
=========
Uses:
Repayment of existing indebtedness (2) ............. $ 379.1
Equity Consideration ............................... 653.5
Estimated transaction fees and expenses (3)......... 54.8
Cash proceeds to the Company ....................... 1.2
---------
Total uses ...................................... $ 1,088.6
=========
- ---------------------
(1) The Revolving Facility provides for U.S. and Canadian dollar borrowings of
up to U.S. $100.0 million, including $25.0 million for letters of credit. No
actual amounts were drawn on the Revolving Facility on the closing date of
the Offerings. The Delayed Draw Term Facility will provide for future term
loans of up to $100.0 million for permitted acquisitions.
(2) The actual amount of existing indebtedness repaid was approximately $388
million.
(3) Includes Initial Purchasers' discounts and offering discounts on the Senior
Subordinated Old Notes, fees related to the Credit Facilities and the
Receivables Facility, and other fees and expenses incurred in connection
with the Recapitalization.
The Sponsor
As a result of the Recapitalization, Holdings and the Company are
controlled by Cypress. Cypress manages a $1.05 billion private equity fund which
seeks to invest alongside proven and successful management teams to achieve
long-term capital appreciation. Since its founding, Cypress has made investments
in Cinemark USA, Inc., AMTROL Inc., Williams Scotsman, Inc., Genesis ElderCare
Corp. and Frank's Nursery & Crafts, Inc. Prior to founding Cypress, the Cypress
professionals managed the 1989 merchant banking fund (the "1989 Fund") of Lehman
Brothers Inc. Selected investments of the 1989 Fund included R.P. Scherer
Corporation, Infinity Broadcasting Corporation, Lear Corporation and Illinois
Central Corporation.
6
The Senior Subordinated Exchange Offer of the Company
The Senior Subordinated
Exchange Offer..................... The Company is offering to exchange
pursuant to the Senior Subordinated
Exchange Offer up to $300,000,000
aggregate principal amount of its Senior
Subordinated Exchange Notes for a like
aggregate principal amount of its Senior
Subordinated Old Notes. The terms of the
Senior Subordinated Exchange Notes are
identical in all material respects
(including principal amount, interest rate
and maturity) to the terms of the Senior
Subordinated Old Notes for which they may
be exchanged pursuant to the Senior
Subordinated Exchange Offer, except that
the Senior Subordinated Exchange Notes are
freely transferrable by holders thereof
(other than as provided herein), and are
not subject to any covenant regarding
registration under the Securities Act. See
"The Senior Subordinated Exchange Offer."
No Minimum Condition............... The Senior Subordinated Exchange Offer
is not conditioned upon any minimum
aggregate principal amount of Senior
Subordinated Old Notes being tendered for
exchange.
Expiration Date; Withdrawal
of Tenders......................... The Senior Subordinated Exchange Offer
will expire at 5:00 p.m., New York City
time, on , 1998 (the "Senior
Subordinated Expiration Date"), unless the
Senior Subordinated Exchange Offer is
extended, in which case the term "Senior
Subordinated Expiration Date" means the
latest date and time to which the Senior
Subordinated Exchange Offer is extended.
The Company does not currently intend to
extend the Senior Subordinated Expiration
Date. Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time, on
the Senior Subordinated Expiration Date.
See "The Senior Subordinated Exchange
Offer -- Withdrawal Rights."
Exchange Date...................... The date of acceptance for exchange of
the Senior Subordinated Old Notes will be
the fourth business day following the
Senior Subordinated Expiration Date. Conditions to the Senior Subordinated
Exchange Offer..................... The Senior Subordinated Exchange Offer
is subject to certain customary
conditions, which may be waived by the
Company. The Company currently expects
that each of the conditions will be
satisfied and that no waivers will be
necessary. See "The Senior Subordinated
Exchange Offer -- Certain Conditions to
the Senior Subordinated Exchange Offer."
The Company reserves the right to
terminate or amend the Senior Subordinated
Exchange Offer at any time prior to the
Senior Subordinated Expiration Date upon
the occurrence of any such condition.
Procedures for Tendering Senior
Subordinated Old Notes............. Each holder wishing to accept the Senior
Subordinated Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein,
7
and mail or otherwise deliver the Letter
of Transmittal, or such facsimile,
together with the Senior Subordinated Old
Notes and any other required documentation
to the Senior Subordinated Exchange Agent
at the address set forth therein. See "The
Senior Subordinated Exchange Offer --
Procedures for Tendering Senior
Subordinated Old Notes" and "Plan of
Distribution."
Use of Proceeds.................... There will be no proceeds to the Company
from the exchange of Senior Subordinated
Notes pursuant to the Senior Subordinated
Exchange Offer.
Federal Income Tax Consequences.... The exchange of Notes pursuant to the
Senior Subordinated Exchange Offer will
not be a taxable event for federal income
tax purposes. See "Certain United States
Federal Income Tax Consequences."
Special Procedures for
Beneficial Owners.................. Any beneficial owner whose Senior
Subordinated 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 tender on such
beneficial owner's own behalf, such
beneficial owner must, prior to completing
and executing the Letter of Transmittal
and delivering the Senior Subordinated Old
Notes, either make appropriate
arrangements to register ownership of the
Senior Subordinated Old Notes in such
beneficial owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take considerable
time. See "The Senior Subordinated
Exchange Offer -- Procedures for Tendering
Senior Subordinated Old Notes."
Guaranteed Delivery Procedures..... Holders of Senior Subordinated Old Notes
who wish to tender their Senior
Subordinated Old Notes and whose Senior
Subordinated Old Notes are not immediately
available or who cannot deliver their
Senior Subordinated Old Notes, the Letter
of Transmittal or any other documents
required by the Letter of Transmittal to
the Senior Subordinated Exchange Agent
prior to the Expiration Date must tender
their Senior Subordinated Old Notes
according to the guaranteed delivery
procedures set forth in "The Senior
Subordinated Exchange Offer -- Procedures
for Tendering Senior Subordinated Old
Notes."
Acceptance of Senior Subordinated Old
Notes and Delivery of Senior
Subordinated Exchange Notes........ The Company will accept for exchange any
and all Senior Subordinated Old Notes
which are properly tendered in the Senior
Subordinated Exchange Offer prior to 5:00
p.m., New York City time, on the Senior
Subordinated Expiration Date. The Senior
Subordinated Exchange Notes issued
pursuant to the Senior Subordinated
Exchange Offer will be delivered promptly
following the Senior Subordinated
Expiration Date. See "The Senior
Subordinated Exchange Offer --
8
Acceptance of Senior Subordinated Old
Notes for Exchange; Delivery of Senior
Subordinated Exchange Notes."
Effect on Holders of Senior Subordinated
Old Notes.......................... As a result of the making of, and upon
acceptance for exchange of all validly
tendered Senior Subordinated Old Notes
pursuant to the terms of the Senior
Subordinated Exchange Offer, the Company
will have fulfilled a covenant contained
in the Exchange and Registration Rights
Agreement (the "Senior Subordinated
Registration Rights Agreement") dated as
of June 5, 1998 among the Company,
Holdings, Chase Securities Inc. and Lehman
Brothers Inc. (the "Initial Purchasers"),
and, accordingly, there will be no
liquidated damages payable pursuant to the
terms of the Senior Subordinated
Registration Rights Agreement, and the
holders of the Senior Subordinated Old
Notes will have no further registration or
other rights under the Senior Subordinated
Registration Rights Agreement. Holders of
the Senior Subordinated Old Notes who do
not tender their Senior Subordinated Old
Notes in the Senior Subordinated Exchange
Offer will continue to hold such Senior
Subordinated Old Notes and will be
entitled to all the rights and limitations
applicable thereto under the Indenture
dated as of June 5, 1998 (the "Senior
Subordinated Notes Indenture") among the
Company, Holdings and Bank One, N.A., as
Trustee, relating to the Senior
Subordinated Old Notes and the Senior
Subordinated Exchange Notes, except for
any such rights under the Senior
Subordinated Registration Rights Agreement
that by their terms terminate or cease to
have further effectiveness as a result of
the making of, and the acceptance for
exchange of all validly tendered Senior
Subordinated Old Notes pursuant to, the
Senior Subordinated Exchange Offer.
Consequence of Failure
to Exchange........................ Holders of Senior Subordinated Old Notes
who do not exchange their Senior
Subordinated Old Notes for Senior
Subordinated Exchange Notes pursuant to
the Senior Subordinated Exchange Offer
will continue to be subject to the
restrictions on transfer of such Senior
Subordinated Old Notes provided for in the
Senior Subordinated Old Notes and in the
Senior Subordinated Notes Indenture and as
set forth in the legend on the Senior
Subordinated Old Notes. In general, the
Senior Subordinated Old Notes may not be
offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and
applicable state securities laws. The
Company does not currently anticipate that
it will register the Senior Subordinated
Old Notes under the Securities Act. To the
extent that Senior Subordinated Old Notes
are tendered and accepted in the Senior
Subordinated Exchange Offer, the trading
market for untendered Senior Subordinated
Old Notes could be adversely affected.
9
Senior Subordinated
Exchange Agent..................... Bank One, N.A. is serving as exchange
agent (the "Senior Subordinated Exchange
Agent") in connection with the Senior
Subordinated Exchange Offer. See "The
Senior Subordinated Exchange Offer --
Senior Subordinated Exchange Agent."
Senior Subordinated Exchange Notes of the Company
Issuer............................. WESCO Distribution, Inc.
Securities Offered................. $300,000,000 aggregate principal amount
of 9 1/8% Senior Subordinated Notes due
2008, Series B (the "Senior Subordinated
Exchange Notes").
Maturity........................... June 1, 2008.
Interest Payment Dates............. Interest on the Senior Subordinated
Exchange Notes will accrue from June 5,
1998 (the "Senior Subordinated Notes Issue
Date") and be payable in cash semi-
annually in arrears on each June 1 and
December 1, commencing December 1, 1998.
Optional Redemption................ Except as described below, the Senior
Subordinated Exchange Notes will not be
redeemable at the option of the Company
prior to June 1, 2003. Thereafter, the
Senior Subordinated Exchange Notes will be
redeemable at the option of the Company,
in whole or in part, at the redemption
prices set forth herein, together with
accrued and unpaid interest and liquidated
damages, if any, to the date of
redemption. In addition, at any time and
from time to time prior to June 1, 2001,
the Company may, subject to certain
requirements, redeem up to 35% of the
original aggregate principal amount of the
Senior Subordinated Notes (calculated
giving effect to any issuance of
Additional Senior Subordinated Notes (as
defined)) with the net cash proceeds of
one or more Equity Offerings by (i) the
Company or (ii) Holdings to the extent the
net cash proceeds thereof are (a)
contributed to the Company as a capital
contribution to the common equity of the
Company or (b) used to purchase capital
stock of the Company (in either case,
other than Disqualified Stock (as
defined)), at a redemption price equal to
109.125% of the principal amount thereof,
together with accrued and unpaid interest
and liquidated damages, if any, to the
date of redemption; provided that at least
65% of the original aggregate principal
amount of the Senior Subordinated Notes
(calculated giving effect to any issuance
of Additional Senior Subordinated Notes)
remains outstanding immediately after each
such redemption. See "Description of the
Senior Subordinated Exchange Notes --
Optional Redemption."
Change of Control.................. Upon the occurrence of a Change of
Control, (i) the Company will have the
option, at any time on or prior to June 1,
2003, to redeem the Senior Subordinated
Exchange Notes, in whole but not in part,
at a redemption price equal to 100% of the
principal amount thereof, together with
accrued and unpaid interest and liquidated
damages, if any, to the date of redemption
plus the Applicable Premium and (ii) if
the Senior Subordinated Exchange Notes are
not so redeemed or if such Change of
Control occurs after June 1, 2003,
10
each holder of the Senior Subordinated
Exchange Notes will have the right to
require the Company to make an offer to
repurchase such holder's Senior
Subordinated Exchange Notes at a price
equal to 101% of the principal amount
thereof, together with accrued and unpaid
interest and liquidated damages, if any,
to the date of repurchase. There can be no
assurance that sufficient funds will be
available to make any such repurchases.
See "Description of the Senior
Subordinated Exchange Notes -- Change of
Control" and " -- Ranking."
Guarantees......................... The Senior Subordinated Exchange Notes
will be unconditionally guaranteed by
Holdings on a senior subordinated basis.
The Holdings Guarantee will be
subordinated in right of payment to all
existing and future Senior Indebtedness of
Holdings, including the guarantees of
Senior Indebtedness by Holdings under the
Credit Facilities ($227.3 million as of
June 30, 1998), and effectively
subordinated to all indebtedness and other
liabilities (including but not limited to
trade payables) of Holdings' subsidiaries
($807.4 million as of June 30, 1998,
excluding $176.8 million of indebtedness
and guarantees under the Credit
Facilities). Investors should not rely on
the Holdings Guarantee in evaluating an
investment in the Senior Subordinated
Exchange Notes. See "Risk Factors --
Subordination of the Senior Subordinated
Notes and Holdings Guarantee."
Ranking............................ The Senior Subordinated Exchange Notes
will be unsecured, will be subordinated in
right of payment to all existing and
future Senior Indebtedness of the Company
and will be effectively subordinated to
all obligations of the subsidiaries of the
Company. The Senior Subordinated Exchange
Notes will rank pari passu with any
existing and future Senior Subordinated
Indebtedness of the Company and will rank
senior to all Subordinated Obligations of
the Company. The Senior Subordinated Notes
Indenture permits the Company to incur
additional indebtedness, including up to
$400.0 million of Senior Indebtedness
under the Credit Facilities, subject to
certain limitations. As of June 30, 1998,
(i) the outstanding Senior Indebtedness of
the Company was $196.4 million, of which
$176.8 million was Secured Indebtedness
(exclusive of unused commitments under the
Credit Facilities); (ii) the Company had
no outstanding Senior Subordinated
Indebtedness (other than the Senior
Subordinated Notes) and no outstanding
indebtedness that is subordinate or junior
in right of repayment to the Senior
Subordinated Notes; and (iii) the
Company's subsidiaries had no
indebtedness, excluding guarantees of
$176.8 million of indebtedness under the
Credit Facilities (but would have had
trade payables and other liabilities
incurred in the ordinary course of
business). See "Unaudited Pro Forma
Financial Information," "Risk Factors --
Subordination of the Senior Subordinated
Notes and Holdings Guarantee" and
"Description of the Senior Subordinated
Exchange Notes -- Ranking."
11
Certain Covenants.................. The Senior Subordinated Notes Indenture
contains covenants that will, subject to
certain exceptions, limit, among other
things, the ability of the Company and/or
its Restricted Subsidiaries to: (i) pay
dividends or make certain other restricted
payments or investments; (ii) incur
additional indebtedness and issue
disqualified stock and preferred stock;
(iii) create liens on assets; (iv) merge,
consolidate, or sell all or substantially
all of their assets; (v) enter into
certain transactions with affiliates; (vi)
create restrictions on dividends or other
payments by Restricted Subsidiaries to the
Company; and (vii) incur indebtedness
senior to the Senior Subordinated Notes
but junior to Senior Indebtedness. See
"Description of the Senior Subordinated
Exchange Notes."
Absence of a Public Market......... The Senior Subordinated Exchange Notes
are new securities and there is currently
no established market for the Senior
Subordinated Exchange Notes. Accordingly,
there can be no assurance as to the
development or liquidity of any market for
the Senior Subordinated Exchange Notes.
The Initial Purchasers have advised the
Company that they currently intend to make
a market in the Senior Subordinated
Exchange Notes. However, they are not
obligated to do so, and any market making
with respect to the Senior Subordinated
Exchange Notes may be discontinued without
notice. The Company does not intend to
apply for listing of the Senior
Subordinated Exchange Notes on any
national securities exchange or for their
quotation on an automated dealer quotation
system.
The Senior Discount Exchange Offer of Holdings
The Senior Discount
Exchange Offer..................... Holdings is offering to exchange pursuant
to the Senior Discount Exchange Offer up
to $87,000,000 aggregate principal amount
of its Senior Discount Exchange Notes for
a like aggregate principal amount of its
Senior Discount Old Notes. The terms of
its Senior Discount Exchange Notes are
identical in all material respects
(including principal amount, interest rate
and maturity) to the terms of the Senior
Discount Old Notes for which they may be
exchanged pursuant to the Senior Discount
Exchange Offer, except that the Senior
Discount Exchange Notes are freely
transferrable by holders thereof (other
than as provided herein), and are not
subject to any covenant regarding
registration under the Securities Act. See
"The Senior Discount Exchange Offer."
No Minimum Condition............... The Senior Discount Exchange Offer is
not conditioned upon any minimum aggregate
principal amount of Senior Discount Old
Notes being tendered for exchange.
Expiration Date;
Withdrawal of Tenders.............. The Senior Discount Exchange Offer will
expire at 5:00 p.m., New York City time,
on , 1998, unless the Senior
Discount Exchange Offer is extended, in
which case the term "Senior Discount
Expiration Date" means the latest date and
time to which the
12
Senior Discount Exchange Offer is
extended. Holdings does not currently
intend to extend the Senior Discount
Expiration Date. Tenders may be withdrawn
at any time prior to 5:00 p.m., New York
City time, on the Senior Discount
Expiration Date. See "The Senior Discount
Exchange Offer -- Withdrawal Rights."
Exchange Date...................... The date of acceptance for exchange of
the Senior Discount Old Notes will be the
fourth business day following the Senior
Discount Expiration Date.
Conditions to the Senior Discount
Exchange Offer..................... The Senior Discount Exchange Offer is
subject to certain customary conditions,
which may be waived by Holdings. Holdings
currently expects that each of the
conditions will be satisfied and that no
waivers will be necessary. See "The Senior
Discount Exchange Offer -- Certain
Conditions to the Senior Discount Exchange
Offer." Holdings reserves the right to
terminate or amend the Senior Discount
Exchange Offer at any time prior to the
Senior Discount Expiration Date upon the
occurrence of any such condition.
Procedures for Tendering Senior Discount
Old Notes.......................... Each holder wishing to accept the Senior
Discount Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver the
Letter of Transmittal, or such facsimile,
together with the Senior Discount Old
Notes and any other required documentation
to the Senior Discount Exchange Agent at
the address set forth therein. See "The
Senior Discount Exchange Offer --
Procedures for Tendering Senior Discount
Old Notes" and "Plan of Distribution."
Use of Proceeds.................... There will be no proceeds to Holdings
from the exchange of Notes pursuant to the
Senior Discount Exchange Offer.
Federal Income Tax Consequences.... The exchange of Notes pursuant to the
Senior Discount Exchange Offer will not be
a taxable event for federal income tax
purposes. See "Certain United States
Federal Income Tax Consequences."
Special Procedures for
Beneficial Owners.................. Any beneficial owner whose Senior Discount
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 tender on such
beneficial owner's own behalf, such
beneficial owner must, prior to completing
and executing the Letter of Transmittal
and delivering the Senior Discount Old
Notes, either make appropriate
arrangements to register ownership of the
Senior Discount Old Notes in such
beneficial owner's name or obtain a
properly completed bond power from the
registered holder. The transfer of
registered ownership may take considerable
time. See "The Senior Discount Exchange
Offer -- Procedures for Tendering Senior
Discount Old Notes."
13
Guaranteed Delivery Procedures..... Holders of Senior Discount Old Notes who
wish to tender their Senior Discount Old
Notes and whose Senior Discount Old Notes
are not immediately available or who
cannot deliver their Senior Discount Old
Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Senior Discount
Exchange Agent prior to the Expiration
Date must tender their Senior Discount Old
Notes according to the guaranteed delivery
procedures set forth in "The Senior
Discount Exchange Offer -- Procedures for
Tendering Senior Discount Old Notes."
Acceptance of Senior Discount Old Notes
and Delivery of Senior Discount
Exchange Notes..................... Holdings will accept for exchange any
and all Senior Discount Old Notes which
are properly tendered in the Senior
Discount Exchange Offer prior to 5:00
p.m., New York City time, on the Senior
Discount Expiration Date. The Senior
Discount Exchange Notes issued pursuant to
the Senior Discount Exchange Offer will be
delivered promptly following the Senior
Discount Expiration Date. See "The Senior
Discount Exchange Offer -- Acceptance of
Senior Discount Old Notes for Exchange;
Delivery of Senior Discount Exchange
Notes." Effect on Holders of Senior Discount Old
Notes.............................. As a result of the making of, and upon
acceptance for exchange of all validly
tendered Senior Discount Old Notes
pursuant to the terms of this Senior
Discount Exchange Offer, Holdings will
have fulfilled a covenant contained in the
Exchange and Registration Rights Agreement
(the "Senior Discount Registration Rights
Agreement"; together with the Senior
Subordinated Registration Rights
Agreement, the "Registration Rights
Agreements") dated as of June 5, 1998
among Holdings and the Initial Purchasers,
and, accordingly, there will be no
liquidated damages payable pursuant to the
terms of the Senior Discount Registration
Rights Agreement, and the holders of the
Senior Discount Old Notes will have no
further registration or other rights under
the Senior Discount Registration Rights
Agreement. Holders of the Senior Discount
Old Notes who do not tender their Senior
Discount Old Notes in the Senior Discount
Exchange Offer will continue to hold such
Senior Discount Old Notes and will be
entitled to all the rights and limitations
applicable thereto under the Indenture
dated as of June 5, 1998 (the "Senior
Discount Notes Indenture") between
Holdings and Bank One, N.A., as Trustee,
relating to the Senior Discount Old Notes
and the Senior Discount Exchange Notes,
except for any such rights under the
Senior Discount Registration Rights
Agreement that by their terms terminate or
cease to have further effectiveness as a
result of the making of, and the
acceptance for exchange of all validly
tendered Senior Discount Old Notes
pursuant to, the Senior Discount Exchange
Offer.
Consequence of Failure
to Exchange........................ Holders of Senior Discount Old Notes who
do not exchange their Senior Discount Old
Notes for Senior
14
Discount Exchange Notes pursuant to the
Senior Discount Exchange Offer will
continue to be subject to the restrictions
on transfer of such Senior Discount Old
Notes provided for in the Senior Discount
Old Notes and in the Senior Discount Notes
Indenture and as set forth in the legend
on the Senior Discount Old Notes. In
general, the Senior Discount Old Notes may
not be offered or sold, unless registered
under the Securities Act, except pursuant
to an exemption from, or in a transaction
not subject to, the Securities Act and
applicable state securities laws. Holdings
does not currently anticipate that it will
register the Senior Discount Old Notes
under the Securities Act. To the extent
that Senior Discount Old Notes are
tendered and accepted in the Senior
Discount Exchange Offer, the trading
market for untendered Senior Discount Old
Notes could be adversely affected.
Senior Discount Exchange Agent..... Bank One, N.A. is serving as exchange
agent (the "Senior Discount Exchange
Agent") in connection with the Senior
Discount Exchange Offer. See "The Senior
Discount Exchange Offer -- Senior Discount
Exchange Agent."
Senior Discount Exchange Notes of Holdings
Issuer............................. WESCO International, Inc.
Securities Offered................. $87,000,000 aggregate principal amount
at maturity of 11 1/8% Senior Discount
Notes due 2008, Series B (the "Senior
Discount Exchange Notes") having an
Accreted Value at , 1998 equal to
approximately % of the principal amount
of maturity thereof.
Maturity........................... June 1, 2008.
Interest Payment Dates............. Cash interest will not accrue or be
payable on the Senior Discount Exchange
Notes prior to June 1, 2003. Thereafter,
cash interest on the Senior Discount
Exchange Notes will accrue at a rate of
11 1/8% per annum and will be payable
semi-annually in arrears on June 1 and
December 1 of each year, commencing on
December 1, 2003.
Original Issue Discount............ For U.S. federal income tax purposes,
the Senior Discount Exchange Notes will be
treated as having been issued with
"original issue discount" equal to the
difference between the sum of all cash
payments (whether denominated as principal
or interest) to be made on the Senior
Discount Notes and the issue price of the
Senior Discount Notes. Each holder of a
Senior Discount Exchange Note must include
as gross income for U.S. federal income
tax purposes a portion of such original
issue discount for each day during each
taxable year in which a Senior Discount
Exchange Note is held even though no cash
interest payments will be received prior
to December 1, 2003. See "Certain United
States Federal Income Tax Consequences --
Payments of Interest on Senior Discount
Notes."
Mandatory Principal Redemption..... On June 1, 2003, Holdings will be
required to redeem an amount equal to
$354.96 per $1,000 principal amount
15
at maturity of each Senior Discount
Exchange Note then outstanding
($30,881,520 in aggregate principal amount
at maturity of the Senior Discount Notes,
assuming all of the Senior Discount Notes
remain outstanding on such date (the
"Mandatory Principal Redemption Amount"))
on a pro rata basis at a redemption price
of 100% of the principal amount at
maturity of the Senior Discount Exchange
Notes so redeemed. The Mandatory Principal
Redemption Amount represents (i) the
excess of the aggregate Accreted Value of
all Senior Discount Notes outstanding on
June 1, 2003 over the aggregate issue
price thereof less (ii) an amount equal to
one year's simple uncompounded interest on
the aggregate issue price of such Senior
Discount Notes at a rate per annum equal
to the yield to maturity on the Senior
Discount Notes.
Optional Redemption................ Except as described below, the Senior
Discount Exchange Notes will not be
redeemable at the option of Holdings prior
to June 1, 2003. Thereafter, the Senior
Discount Exchange Notes will be redeemable
at the option of Holdings, in whole or in
part, at the redemption prices set forth
herein, together with accrued and unpaid
interest and liquidated damages, if any,
to the date of redemption. In addition, at
any time prior to June 1, 2001, Holdings
may, subject to certain requirements,
redeem, in whole but not in part, the
Senior Discount Notes with the net cash
proceeds of one or more Equity Offerings
at a redemption price equal to 111.125% of
the Accreted Value, together with
liquidated damages, if any, to the date of
redemption. See "Description of the Senior
Discount Exchange Notes -- Optional
Redemption."
Change of Control.................. Upon the occurence of a Change of
Control, (i) Holdings will have the
option, at any time on or prior to June 1,
2003, to redeem the Senior Discount
Exchange Notes, in whole but not in part,
at a redemption price equal to 100% of the
Accreted Value thereof, together with
liquidated damages, if any, to the date of
redemption plus the Applicable Premium and
(ii) if the Senior Discount Exchange Notes
are not so redeemed or if such Change of
Control occurs after June 1, 2003, each
holder of the Senior Discount Exchange
Notes will have the right to require
Holdings to make an offer to repurchase
such holder's Senior Discount Exchange
Notes at a price equal to (a) 101% of the
Accreted Value thereof, together with
liquidated damages, if any, to the date of
redemption if repurchased on or before
June 1, 2003, and (b) 101% of the
principal amount at maturity thereof,
together with accrued and unpaid interest
and liquidated damages, if any, to the
date of repurchase, if repurchased after
June 1, 2003. There can be no assurance
that sufficient funds will be available to
make any such repurchases. See
"Description of the Senior Discount
Exchange Notes -- Change of Control" and "
-- Ranking."
Guarantees......................... None.
16
Ranking............................ The Senior Discount Exchange Notes will
be senior unsecured obligations of
Holdings and will be effectively
subordinated to all obligations of the
subsidiaries of Holdings (including the
Company). The Senior Discount Exchange
Notes will rank pari passu with any
existing and future Senior Indebtedness of
Holdings and will rank senior to all
Subordinated Obligations of Holdings.
Holdings is a holding company with no
operations of its own and whose only asset
is the capital stock of the Company (all
of which will be pledged to secure the
Credit Facilities). As a result of the
holding company structure, the Senior
Discount Exchange Notes will effectively
rank junior in right of payment to all
creditors of the Company and its
subsidiaries, including the lenders under
the Credit Facilities, holders of the
Senior Subordinated Notes and trade
creditors. The Senior Discount Notes
Indenture permits Holdings to incur
additional indebtedness, including up to
$400.0 million of Senior Indebtedness
under the Credit Facilities, subject to
certain limitations. As of June 30, 1998,
(i) Holdings had no outstanding Senior
Indebtedness (other than the Senior
Discount Notes and guarantees under the
Credit Facilities) or Secured Indebtedness
and (ii) Holdings' subsidiaries had total
liabilities of $807.4 million, excluding
$176.8 million of indebtedness and
guarantees under the Credit Facilities.
See "Description of the Senior Discount
Exchange Notes."
Certain Covenants.................. The Senior Discount Notes Indenture
contains covenants that will, subject to
certain exceptions, limit, among other
things, the ability of Holdings and/or its
Restricted Subsidiaries to: (i) pay
dividends or make certain other restricted
payments or investments; (ii) incur
additional indebtedness and issue
disqualified stock and preferred stock;
(iii) create liens on assets; (iv) merge,
consolidate, or sell all or substantially
all of their assets; (v) enter into
certain transactions with affiliates; and
(vi) create restrictions on dividends or
other payments by Restricted Subsidiaries
to Holdings. See "Description of the
Senior Discount Exchange Notes."
Absence of a Public Market......... The Senior Discount Exchange Notes are
new securities and there is currently no
established market for the Senior Discount
Exchange Notes. Accordingly, there can be
no assurance as to the development or
liquidity of any market for the Senior
Discount Exchange Notes. The Initial
Purchasers have advised Holdings that they
currently intend to make a market in the
Senior Discount Exchange Notes. However,
they are not obligated to do so, and any
market making with respect to the Senior
Discount Exchange Notes may be
discontinued without notice. Holdings does
not intend to apply for listing of the
Senior Discount Exchange Notes on any
national securities exchange or for their
quotation on an automated dealer quotation
system.
17
Risk Factors
Prospective investors in the Exchange Notes should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus. See "Risk Factors."
18
Summary Historical and Pro Forma Financial and Other Data
The following table sets forth summary historical consolidated financial
data of Holdings (i) as of and for the years ended December 31, 1995, 1996 and
1997, which have been derived from Holdings' financial statements included
elsewhere herein which have been audited by PricewaterhouseCoopers LLP and (ii)
as of and for the three months ended March 31, 1997 and 1998 (unaudited) which
have been derived from Holdings' unaudited interim consolidated financial
statements and include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the results of operations and financial position for and as of the end of
such periods. Results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year or for any future
period.
The following table also presents certain summary unaudited pro forma
financial and other data of Holdings and the Company as of and for the year
ended December 31, 1997, which have been derived from the Unaudited Pro Forma
Financial Information and the notes thereto included elsewhere in this Offering
Memorandum. The summary unaudited pro forma income statement data and other
financial data give effect to the Recapitalization and the Recent Acquisitions
as if they had occurred as of January 1, 1997. The summary unaudited pro forma
and other financial data are provided for informational purposes only and do not
purport to be indicative of the results that would have actually been obtained
had the Recapitalization and the Recent Acquisitions been completed on the dates
indicated or that may be expected to occur in the future.
Holdings has as its only asset all of the outstanding capital stock of the
Company; accordingly, the historical financial data presented herein are
identical to those of the Company. The summary historical and pro forma
financial and other data should be read in conjunction with, and is qualified in
its entirety by, the historical consolidated financial statements of Holdings
and the notes thereto, "Selected Historical Consolidated Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Unaudited Pro Forma Financial Information," "The
Recapitalization" and "Summary -- Recent Developments" contained elsewhere in
this Prospectus.
19
Summary Historical and Pro Forma Financial and Other Data
Holdings
-----------------------------------------------------------------
(unaudited)
Year Ended Three Months Ended
December 31, March 31,
----------------------------------------- -----------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(dollars in millions)
Income Statement Data:
Sales, net ............................................... $ 1,857.0 $ 2,274.6 $ 2,594.8 $ 576.7 $ 693.4
Gross profit (exclusive of depreciation and
amortization) ........................................... 321.0 405.0 463.9 104.4 126.7
Selling, general and administrative expenses ............. 258.0 326.0 372.5 86.7 103.5
Depreciation and amortization ............................ 7.3 10.8 11.3 2.8 3.0
---------- ---------- --------- ------- --------
Income from operations ................................... 55.7 68.2 80.1 14.9 20.2
Interest expense, net .................................... 15.8 17.4 20.1 4.8 6.2
Other expense(1) ......................................... -- -- -- -- --
---------- ---------- --------- ------- --------
Income before income taxes ............................... 39.9 50.8 60.0 10.1 14.0
Provision for income taxes ............................... 14.8 18.3 23.8 4.0 5.5
---------- ---------- --------- ------- --------
Income before extraordinary charge, net of taxes ......... 25.1 32.5 36.2 6.1 8.5
Extraordinary charge, net of applicable taxes (2) ........ 8.1 -- -- -- --
---------- ---------- --------- ------- --------
Net income ............................................... $ 17.0 $ 32.5 $ 36.2 $ 6.1 $ 8.5
========== ========== ========= ======= ========
Cash Flow Data:
Net cash provided by (used for) operating activities ..... $ 25.7 $ 15.2 $ (11.1) $ (32.5) $ 13.2
Net cash provided by (used for) investing activities ..... ( 12.0) ( 111.0) ( 22.4) ( 10.7) ( 47.6)
Net cash provided by (used for) financing activities ..... ( 9.8) 87.2 41.1 44.0 45.2
Other Financial Data:
EBITDA(3) ................................................ $ 63.0 $ 79.0 $ 91.4 $ 17.7 $ 23.2
Capital expenditures ..................................... 6.5 9.4 12.4 1.4 3.7
Ratio of EBITDA to interest expense (4) ..................
Balance Sheet Data:
Adjusted working capital (5) ............................. $ 222.5 $ 291.6 $ 338.8 $ 315.9 $ 375.4
Total assets ............................................. 581.3 773.5 870.9 802.6 962.0
Total long-term debt (6) ................................. 172.0 260.6 294.3 295.7 350.5
Redeemable common stock (7) .............................. 7.7 8.9 9.0 9.0 11.4
Stockholders' equity ..................................... 116.4 148.7 184.5 154.7 193.1
Pro Forma
(unaudited)
Year Ended
December 31, 1997
----------------------------
Holdings Company
------------- -------------
Income Statement Data:
Sales, net ............................................... $ 2,899.4 $ 2,899.4
Gross profit (exclusive of depreciation and
amortization) ........................................... 526.3 526.3
Selling, general and administrative expenses ............. 416.7 416.7
Depreciation and amortization ............................ 13.6 13.6
----------- -----------
Income from operations ................................... 96.0 96.0
Interest expense, net .................................... 53.7 47.9
Other expense(1) ......................................... 15.4 15.4
----------- -----------
Income before income taxes ............................... 26.9 32.7
Provision for income taxes ............................... 10.8 13.1
----------- -----------
Income before extraordinary charge, net of taxes ......... 16.1 19.6
Extraordinary charge, net of applicable taxes (2) ........ -- --
----------- -----------
Net income ............................................... $ 16.1 $ 19.6
=========== ===========
Cash Flow Data:
Net cash provided by (used for) operating activities ..... Net cash provided by
(used for) investing activities ..... Net cash provided by (used for) financing
activities .....
Other Financial Data:
EBITDA(3) ................................................ $ 109.5 $ 109.5
Capital expenditures .....................................
Ratio of EBITDA to interest expense (4) .................. 2.2 x 2.5 x
Balance Sheet Data:
Adjusted working capital (5) .............................
Total assets .............................................
Total long-term debt (6) .................................
Redeemable common stock (7) ..............................
Stockholders' equity .....................................
- ---------------------
(1) Costs relating to sale of accounts receivable pursuant to the Receivables
Facility.
(2) Represents a charge, net of taxes, relating to the write-off of unamortized
debt issuance costs associated with the early termination of debt.
(3) EBITDA represents income from operations plus depreciation and amortization.
EBITDA is presented because management understands that such information is
considered by certain investors to be an additional basis for evaluating the
Issuers' ability to pay interest and repay debt. EBITDA should not be
considered an alternative to measures of operating performance as determined
in accordance with generally accepted accounting principles or as a measure
of the Issuers' operating results and cash flows or as a measure of the
Issuers' liquidity. Since EBITDA is not calculated identically by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies.
(4) For the purposes of this calculation, interest expense of Holdings includes
cash interest expense of $42.3 million, the accretion of interest expense on
the Senior Discount Notes of $5.8 million and the accretion of interest
expense on assumed debt of $1.8 million. Interest expense of the Company
includes cash interest of $42.3 million and excludes accretion of interest
expense on assumed debt of $1.8 million.
(5) Defined as trade accounts receivable plus inventories less accounts payable.
(6) Excludes $250.0 million of proceeds from the sale of accounts receivable
pursuant to the Receivables Facility.
(7) Represents redeemable common stock as described in Note 9 to the
consolidated financial statements. Under certain conditions, the holders
thereof have the right to require Holdings to repurchase all of the
redeemable shares and the exercisable portion of the options. These
repurchase rights terminate upon consummation of an initial equity public
offering. The redemption value of the shares and exercisable portion of the
options at December 31, 1996 and 1997 and March 31, 1998 was approximately
$24.5 million, $68.6 million and $16.2 million, respectively. See "Certain
Relationships and Related Transactions -- Management Stockholders."
20
RISK FACTORS
Holders of Old Notes should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before deciding
to tender Old Notes in the Exchange Offers. The risk factors set forth below are
generally applicable to the Old Notes as well as the Exchange Notes.
Consequences of Failure to Exchange
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the applicable Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon.
In general, Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. The respective Issuers do not currently intend to
register the Old Notes under the Securities Act. Based on interpretations by the
staff of the Commission, the Issuers believe that Exchange Notes issued pursuant
to the applicable Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by Holders thereof (other than any such
Holder which is an "affiliate" of the Issuers thereof 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 Old
Notes were acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the distribution
of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its
own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Old Notes are tendered and accepted in the applicable Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
will be adversely affected.
Substantial Leverage and Debt Service
Each Issuer is significantly leveraged as a result of the Recapitalization.
See "The Recapitalization" and "Capitalization." As of March 31, 1998, on a pro
forma basis, Holdings and the Company would have had approximately $539.1
million and $488.6 million, respectively, of consolidated long-term indebtedness
and a common stockholders' deficit of approximately $165.5 million and $115.0
million, respectively. See "Capitalization" and "Unaudited Pro Forma Financial
Information." Each Issuer and its respective subsidiaries may incur additional
indebtedness (including certain Senior Indebtedness) in the future, subject to
certain limitations contained in the instruments governing its indebtedness.
Accordingly, each Issuer will have significant debt service obligations.
Each Issuer's debt service obligations will have important consequences to
the holders of the applicable Notes, including the following: (i) a substantial
portion of cash flow from operations will be dedicated to the payment of
principal and interest on its indebtedness, thereby reducing the funds available
to such Issuer for operations, future business opportunities and other purposes
and increasing such Issuer's vulnerability to adverse general economic and
industry conditions; (ii) such Issuer's ability to obtain additional financing
in the future may be limited; (iii) certain of such Issuer's indebtedness
(including, but not limited to, the amounts borrowed under the Credit
Facilities) will be at variable rates of interest, which will make such Issuer
vulnerable to increases in interest rates; (iv) all of the indebtedness incurred
in connection with the Credit Facilities will become due prior to the time the
principal payment on the Notes will become due; (v) such Issuer will be
substantially more leveraged than certain of its competitors, which might place
such Issuer at a competitive disadvantage; (vi) such Issuer may be hindered
in its ability to adjust rapidly to changing market conditions; and (vii) the
Mandatory Principal Reduction Amount with respect to the Senior Discount Notes
will become due and payable on June 1, 2003. The annual debt service requirement
of each of Holdings and the Company is scheduled to be $4.5 million in 1999 and
is expected to increase each year thereafter. See "Description of the Credit
Facilities."
Each Issuer's ability to make scheduled payments of the principal of, or to
pay interest on, or to refinance its indebtedness (including the applicable
Notes) and to make scheduled payments under its
21
operating leases or to fund planned capital expenditures or finance acquisitions
will depend on its future performance, which to a certain extent is subject to
economic, financial, competitive and other factors beyond its control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." There can be no assurance that
the Company's business will continue to generate sufficient cash flow from
operations in the future to service the Issuers' debt, make necessary capital
expenditures or meet other cash needs. If unable to do so, each Issuer may be
required to refinance all or a portion of its existing debt, including the
applicable Notes, to sell assets or to obtain additional financing. There can be
no assurance that any such refinancing or that any such sale of assets or
additional financing would be possible on terms reasonably favorable to the
Issuers.
Restrictive Debt Covenants
The Credit Facilities and the Indentures contain numerous financial and
operating covenants that will limit the discretion of the Issuers' management
with respect to certain business matters. These covenants place significant
restrictions on, among other things, the ability of the Issuers to incur
additional indebtedness, to pay dividends and other distributions, to repay
Subordinated Obligations, to enter into sale and leaseback transactions, to
create liens or other encumbrances, to make certain payments and investments, to
engage in certain transactions with affiliates, to sell or otherwise dispose of
assets and to merge or consolidate with other entities and will otherwise
restrict corporate activities. See "Description of the Credit Facilities,"
"Description of the Senior Subordinated Exchange Notes -- Certain Covenants" and
"Description of the Senior Discount Exchange Notes -- Certain Covenants." The
Credit Facilities also require the Issuers to meet certain financial ratios and
tests. The ability of the Issuers to comply with these and other provisions of
the Credit Facilities and the Indentures may be affected by changes in economic
or business conditions or other events beyond the Issuers' control. A failure to
comply with the obligations contained in the Credit Facilities or the Indentures
could result in an event of default under either the Credit Facilities or the
Indentures which could result in acceleration of the related debt and the
acceleration of debt under other instruments evidencing indebtedness that may
contain cross-acceleration or cross-default provisions. If the indebtedness
under the Credit Facilities were to be accelerated, there can be no assurance
that the assets of the Company would be sufficient to repay in full such
indebtedness and the other indebtedness of the Issuers, including the Notes.
Subordination of the Senior Subordinated Notes and Holdings Guarantee
The Company's obligations under the Senior Subordinated Notes are
subordinate and junior in right of payment to all existing and future Senior
Indebtedness of the Company. As of March 31, 1998, on a pro forma basis, the
aggregate amount of the Company's outstanding Senior Indebtedness would have
been approximately $170.0 million (excluding unused commitments). Although the
Senior Subordinated Notes Indenture contains limitations on the amount of
additional indebtedness which the Company and its subsidiaries may incur, under
certain circumstances the amount of such indebtedness could be substantial and
such indebtedness could be Senior Indebtedness. By reason of such subordination,
in the event of an insolvency, liquidation, or other reorganization of the
Company, the lenders under the Credit Facilities and other creditors who are
holders of Senior Indebtedness of the Company must be paid in full before the
holders of the Senior Subordinated Notes may be paid. Accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the Senior Subordinated Notes. In addition, under certain circumstances, no
payments may be made with respect to the Senior Subordinated Notes if a default
exists with respect to Senior Indebtedness of the Company. See "Description of
the Senior Subordinated Exchange Notes" and "Description of the Credit
Facilities."
In addition, the Senior Subordinated Notes are effectively subordinated to
all liabilities of the Company's subsidiaries, including trade payables and the
guarantees by such subsidiaries of the Company's obligations under the Credit
Facilities. The Senior Subordinated Notes are not guaranteed by any of the
Company's subsidiaries. As of March 31, 1998, on a pro forma basis, the
Company's subsidiaries would have had no indebtedness (excluding guarantees of
the Company's obligations under the Credit Facilities), but would have had trade
payables and other liabilities incurred in the ordinary course
22
of business. The right of the Company to receive assets of any of its
subsidiaries upon liquidation or reorganization of such subsidiary will be
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent the Company itself is recognized as a creditor
of such subsidiary. See "Description of the Senior Subordinated Exchange Notes
- -- Ranking."
The Senior Subordinated Notes are guaranteed by Holdings on a senior
subordinated basis. The Holdings Guarantee is subordinated to all existing and
future Senior Indebtedness of Holdings ($220.5 million on a pro forma basis as
of March 31, 1998), including the guarantees of Senior Indebtedness issued by
Holdings under the Credit Facilities, and effectively subordinated to all
indebtedness and other liabilities (including trade payables) of Holdings'
subsidiaries ($905.0 million on a pro forma basis as of March 31, 1998).
Investors should not rely on the Holdings Guarantee in evaluating an investment
in the Senior Subordinated Notes.
Structural Subordination of the Senior Discount Notes
Holdings is a holding company whose only material asset is the capital
stock of the Company. The Senior Discount Notes are an obligation of Holdings
and the holders of the Senior Discount Notes have no recourse to the Company or
its assets, including any subsidiaries of the Company. The Senior Discount Notes
are not guaranteed by any of Holdings' subsidiaries. It is not anticipated that
Holdings will have any business (other than in connection with its ownership of
the capital stock of the Company and the performance of its obligations with
respect to the Senior Discount Notes and the Credit Facilities) and will depend
on distributions from the Company to meet its debt service obligations,
including, without limitation, interest and principal obligations with respect
to the Senior Discount Notes. Because of the substantial leverage of the
Company, and the dependence of Holdings upon the operating performance of the
Company to generate distributions to Holdings, there can be no assurance that
Holdings will have adequate funds to fulfill its obligations in respect of the
Senior Discount Notes when due. In addition, the Credit Facilities, the Senior
Subordinated Notes Indenture and applicable federal and state law impose
restrictions on the payment of dividends and the making of loans by the Company
to Holdings. As a result of the foregoing, Holdings may be unable to gain access
to the cash flow or assets of the Company in amounts sufficient to pay the
Mandatory Principal Redemption Amount when due on June 1, 2003, cash interest on
the Senior Discount Notes on and after December 1, 2003, the date on which cash
interest thereon first becomes payable, and Accreted Value or principal of the
Senior Discount Notes when due or upon a Change of Control or upon the
occurrence of any other event requiring the repayment of Accreted Value or
principal. See " -- Restrictive Debt Covenants," "Description of the Credit
Facilities" and "Description of Senior Subordinated Exchange Notes -- Certain
Covenants."
Encumbrances on Assets to Secure Credit Facilities
The Issuers' obligations under the Credit Facilities are secured by a first
priority pledge of and security interest in substantially all of the assets of
Holdings and its subsidiaries. If either Issuer becomes insolvent or is
liquidated, or if payment under any of the Credit Facilities or any other
Secured Indebtedness is accelerated, the lenders under the Credit Facilities or
such other Secured Indebtedness will be entitled to exercise the remedies
available to a secured lender under applicable law (in addition to any remedies
that may be available under the instruments pertaining to the Credit Facilities
or such other Secured Indebtedness). Neither the Senior Subordinated Notes nor
the Senior Discount Notes are secured. Accordingly, holders of such Secured
Indebtedness will have a prior claim with respect to the assets securing such
indebtedness. See "Description of the Credit Facilities," "Description of the
Senior Subordinated Exchange Notes" and "Description of the Senior Discount
Exchange Notes."
Change of Control
Upon the occurence of a Change of Control, (i) each Issuer will have the
option, at any time on or prior to June 1, 2003 to redeem such Issuer's Notes,
in whole but not in part, at a redemption price equal to (a) 100% of the
principal amount thereof, together with accrued and unpaid interest and
liquidated damages, if any, to the date of redemption plus the Applicable
Premium in the case of the Senior Subordinated Notes and (b) 100% of the
Accreted Value thereof, together with liquidated damages, if any, to the date of
redemption plus the Applicable Premium in the case of the Senior Discount Notes
23
and (ii) if an Issuer does not redeem its Notes pursuant to clause (i) above, or
such Change in Control occurs after June 1, 2003, each holder of a Note will
have the right to require the Issuer thereof to make an offer to repurchase such
holder's Note (a) at a price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest and liquidated damages, if any, to the
date of repurchase in the case of a Senior Subordinated Note and (b) at a price
equal to (x) 101% of the Accreted Value thereof, together with liquidated
damages, if any, to the date of repurchase if repurchased on or before June 1,
2003, and (y) 101% of the principal amount at maturity thereof, together with
accrued and unpaid interest and liquidated damages, if any, to the date of
repurchase if repurchased after June 1, 2003, in the case of a Senior Discount
Note. The Credit Facilities prohibit the Issuers from repurchasing any Notes,
except in certain circumstances. The Credit Facilities also provide that certain
change of control events with respect to the Issuers constitute a default
thereunder. Any future credit agreements or other agreements relating to Senior
Indebtedness to which either or both the Issuers becomes a party may contain
similar restrictions and provisions. If the purchase of the Notes upon a Change
of Control would violate or constitute a default under any other Indebtedness of
such Issuer, then such Issuer shall, to the extent needed to permit such
purchase of Notes, either (i) repay all such Indebtedness and terminate all
commitments outstanding thereunder or (ii) request the holders of such
Indebtedness to give the requisite consents to permit the purchase of the Notes.
Until such time as such Issuer is able to repay all such Indebtedness and
terminate all commitments outstanding thereunder or such time as such requisite
consents are obtained, such Issuer shall not be required to purchase the Notes
upon a Change of Control. In the event of a Change of Control, there can be no
assurance that the Issuers would have sufficient funds or assets to satisfy all
of its obligations under the Credit Facilities and the Notes. The provisions
relating to a Change of Control included in the Indentures may increase the
difficulty of a potential acquiror obtaining control of the Issuers. See
"Description of the Senior Subordinated Exchange Notes -- Change of Control," "
- -- Ranking," "Description of the Senior Discount Exchange Notes -- Change of
Control" and " -- Ranking."
General Economic Conditions
The electrical wholesale distribution industry is affected by changes in
economic conditions, including national, regional and local slowdowns in
construction and industrial activity, which are outside the control of the
Company. The Company's operating results may also be adversely affected by
increases in interest rates that may lead to a decline in economic activity,
particularly in the construction market, while simultaneously resulting in
higher interest payments under the Credit Facilities. In addition, during
periods of economic slowdowns WESCO's credit losses could increase
significantly. There can be no assurance that economic slowdowns, adverse
economic conditions or cyclical trends in certain customer markets will not have
a material adverse effect on the Company's operating results and financial
condition.
Competition
The electrical wholesale distribution industry is highly competitive. WESCO
competes directly with national and regional broad-based distributors, niche
distributors carrying only specialized products, and small, local distributors
with one or a few locations. Another source of competition in the wholesale
channel is buying groups formed by smaller distributors to increase purchasing
power and provide some cooperative marketing capability. Outside the wholesale
channel, manufacturers employ, and may increase the use of, direct sales
representatives. In addition, some manufacturers with sufficient size,
geographic scope and financial and marketing resources may be in a position to
offer customers National Accounts services. Finally, the development of
alternative distribution channels, such as Internet-based catalogs,
do-it-yourself ("DIY") retail outlets or a shift to direct sales and service by
manufacturers, could have a material adverse effect on the wholesale
distribution market and, as a result, the Company's performance.
Some of WESCO's existing competitors have, and new market entrants may
have, greater financial and marketing resources than WESCO. To the extent
existing or future competitors seek to gain or retain market share by reducing
prices, WESCO may be required to lower its prices, thereby adversely affecting
financial results. Existing or future competitors also may seek to compete with
WESCO for
24
acquisitions, which could have the effect of increasing the price and reducing
the number of suitable acquisitions, and may also compete with WESCO for
start-up locations, thereby limiting the number of attractive locations for
expansion. In addition, it is possible that competitive pressures resulting from
the industry trend toward consolidation could affect growth and profit margins.
See "Business -- Competition."
Growth Strategy
A principal component of WESCO's strategy is to continue to expand through
additional acquisitions that complement WESCO's operations in new or existing
markets. Acquisitions by WESCO will involve risks, including the successful
integration and management of acquired operations and personnel. The integration
of acquired businesses may also lead to the loss of key employees of the
acquired companies and diversion of management attention from ongoing business
concerns. There can be no assurance that WESCO will be able to identify and
acquire appropriate businesses on satisfactory terms or that future acquisitions
will not have a material adverse effect on the Company's operating results,
particularly during periods in which the operations of acquired businesses are
being integrated into WESCO's operations. WESCO is also building its
international presence. Significant expansion into international markets could
involve risks relating to operating in foreign countries, including those
relating to currency exchange rates, new and different legal, tax, accounting
and regulatory requirements. See "Summary -- Recent Developments," "Business --
Business Strategy," " -- Acquisitions" and " -- International."
In order to implement its strategy, WESCO is likely to require additional
funding. Future acquisitions could be financed by incurring additional
indebtedness, including increased borrowings under the Credit Facilities.
WESCO's ability to obtain financing may be constrained by, among other things,
its high degree of leverage following the Recapitalization. There can be no
assurance that adequate funding will be available, or if available will be, on
terms satisfactory to WESCO. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Business -- Acquisitions," "Description of the Credit Facilities,"
"Description of the Senior Subordinated Exchange Notes" and "Description of the
Senior Discount Exchange Notes."
Dependence on Key Personnel
WESCO is dependent upon the skills, experience and efforts of its Chief
Executive Officer and other executive officers. Loss of the services of the
Chief Executive Officer or one or more of the other executive officers could
have a material adverse effect on WESCO's business and development. WESCO has no
written employment contracts with any of its executive officers other than its
Chief Executive Officer and its Executive Vice President, Industry Affairs. In
connection with the Recapitalization, WESCO also intends to enter into a
two-year employment agreement with David F. McAnally, its Chief Operating
Officer, Chief Financial Officer and Treasurer. See "Management -- Employment
Agreements."
WESCO's continued growth depends in part on its continuing ability to
attract and retain qualified managers, sales persons and other key employees and
on its executive officers' ability to manage growth successfully. No assurance
can be given that WESCO will be able to attract and retain such employees.
Product Supply
Consistent with industry practice, most of WESCO's agreements with
suppliers (including both distribution agreements and preferred supplier
agreements) are terminable by either party on no more than 60 days notice.
WESCO's ten largest suppliers in 1997 accounted for approximately 45% of WESCO's
purchases for the period. The largest supplier was Eaton Corporation, through
its Cutler-Hammer division, successor to the Distribution and Control Business
Unit of Westinghouse, accounting for approximately 18% of WESCO's purchases. The
loss of, or a substantial decrease in the availability of, products from any of
these suppliers, or the loss of key preferred supplier agreements, could have a
material adverse effect on WESCO's business. In addition, supply interruptions
could arise from shortages of raw materials, labor disputes or weather
conditions affecting products or shipments, or other reasons beyond WESCO's
control. An interruption of operations at any of WESCO's five distribution
centers could have a material adverse effect on the operations of branches
served by the affected distribution
25
center. Furthermore, there can be no assurance that particular products, or
product lines, will be available to WESCO, or available in quantities
sufficient to meet customer demand. Such limited product access could put WESCO
at a competitive disadvantage. See "Business -- Suppliers and Purchasing" and
"Business -- Distribution Network."
Dependence on Information Systems; Year 2000 Issue
The Company believes that its computer systems are an integral part of its
business and growth strategies. WESCO depends on its information systems to
process orders, manage inventory and accounts receivable collections, purchase
products, ship products among its branches on a timely basis, maintain
cost-effective operations and provide superior service to its customers.
Although the Company believes that it has the appropriate disaster recovery
plans in place, there can be no assurance that a serious disruption in the
operation of its information systems will not occur. Any such disruption could
have a material adverse effect on the Company's business and results of
operations. See "Business -- Management Information Systems."
WESCO is in the process of modifying, upgrading or replacing its computer
software applications and systems to accommodate the "Year 2000" changes
required for correct recording of dates for the year 2000 and beyond. WESCO does
not expect that the cost of its Year 2000 compliance program will be material to
its financial condition or results of operations. WESCO believes that it will be
able to achieve compliance by the beginning of 1999, and does not currently
anticipate any material disruption in its operations. WESCO has very limited
information concerning the compliance status of its suppliers and customers. In
the event that WESCO or any of WESCO's significant suppliers do not successfully
achieve Year 2000 compliance, WESCO's business or operations could be adversely
affected.
Environmental Risks
The Company's facilities and operations are subject to federal, state and
local laws and regulations relating to environmental protection ("Environmental
Laws") and human health and safety. Certain of these laws and regulations may
impose strict, joint and several liability on certain persons for the cost of
investigation or remediation of contaminated properties, meaning that a person
(including the Company) could be liable for more than its pro rata share of such
costs regardless of fault. These persons may include present or future owners
and operators of properties, and persons that arranged for the disposal of
hazardous substances. In addition, the disposal of certain products distributed
by WESCO, such as ballasts, fluorescent lighting and batteries, must comply with
Environmental Laws. In connection with its acquisition program, WESCO acquires
new branch locations, including owned and leased real property which may carry
with it certain liabilities under Environmental Laws. It is WESCO's practice to
conduct due diligence investigations in connection with such acquisitions,
including environmental assessments, and, where appropriate, to provide for
contractual indemnities. However, no assurance can be given that the Company
will not become subject to liabilities for environmental matters, including with
respect to conditions at its properties, that such liabilities will not be
material or that, where negotiated, contractual indemnities will be sufficient
to cover such liabilities.
Fraudulent Transfer Considerations
A significant portion of the net proceeds of the Senior Subordinated Old
Notes was paid as a dividend to Holdings and used to repurchase outstanding
Common Stock pursuant to the Recapitalization.
The incurrence of indebtedness by either of the Issuers, such as the Notes,
may be subject to review under federal bankruptcy law or relevant state
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of such Issuer. Under these laws, if, in a bankruptcy
or reorganization case or a lawsuit by or on behalf of unpaid creditors of such
Issuer, a court were to find that, at the time such Issuer incurred
indebtedness, including indebtedness under the applicable Notes, (i) such Issuer
incurred such indebtedness with the intent of hindering, delaying or defrauding
current or future creditors or (ii) (a) such Issuer received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b) such Issuer (1) was insolvent or was rendered insolvent by
reason of any of the transactions, (2) was engaged, or about to engage, in a
business or transaction for which its assets remaining with such Issuer
constituted unreasonably small
26
capital to carry on its business, (3) intended to incur, or believed that it
would incur, debts beyond its ability to pay as such debts matured (as all of
the foregoing terms are defined in or interpreted under the relevant fraudulent
transfer or conveyance statutes) or (4) was a defendant in an action for money
damages, or had a judgment for money damages docketed against it (if, in either
case, after final judgment, the judgment is unsatisfied), then such court could
avoid or subordinate the amounts owing under the applicable Notes to presently
existing and future indebtedness of such Issuer and take other actions
detrimental to the holders of the applicable Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied in any
such proceeding. Generally, however, an Issuer would be considered insolvent if,
at the time it incurred the indebtedness, either: (i) the sum of its debts
(including contingent liabilities) is greater than its assets, at a fair
valuation, or (ii) the present fair saleable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. There can be no assurance as to what standards a court would use to
determine whether such Issuer was solvent at the relevant time, or whether,
whatever standard was used, the applicable Notes would not be avoided or further
subordinated on another of the grounds set forth above. In rendering their
opinions in connection with the initial financing of the Recapitalization,
counsel for the Issuers and counsel for the Initial Purchasers will not express
any opinion as to the applicability of federal or state fraudulent transfer and
conveyance laws.
Each Issuer believes that at the time the indebtedness constituting the
Notes was incurred initially by the Issuers, such Issuer: (i) was (a) neither
insolvent nor rendered insolvent thereby, (b) in possession of sufficient
capital to run its businesses effectively and (c) incurring debts within its
ability to pay as the same mature or become due and (ii) had sufficient assets
to satisfy any probable money judgment against it in any pending action. In
reaching the foregoing conclusions, the Issuers have relied upon their analyses
of internal cash flow projections and estimated values of assets and liabilities
of the Company. There can be no assurance, however, that a court passing on such
questions would reach the same conclusions.
Original Issue Discount Consequences of Senior Discount Notes
The Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity. Although cash interest will not accrue on the
Senior Discount Notes prior to June 1, 2003 and there will be no periodic
payments of cash interest on the Senior Discount Notes prior to December 1,
2003, original issue discount (the difference between the stated redemption
price at maturity and the issue price of the Senior Discount Notes) will accrue
from the issue date of the Senior Discount Notes. Consequently, holders of
Senior Discount Notes generally will be required to include amounts in gross
income for U.S. federal income tax purposes in advance of their receipt of the
cash payments to which the income is attributable. Such amounts in the aggregate
will be equal to the difference between the stated redemption price at maturity
(inclusive of stated interest on the Senior Discount Notes) and the issue price
of the Senior Discount Notes. See "Certain United States Federal Income Tax
Consequences."
In the event a bankruptcy case is commenced by or against Holdings under
the United States Bankruptcy Code, the claim of a holder of Senior Discount
Notes may be limited to an amount equal to the sum of (i) the initial offering
price and (ii) that portion of the original issue discount which is not deemed
to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any
original issue discount that was not amortized as of the date of any such
bankruptcy filing would constitute "unmatured interest." To the extent that the
Bankruptcy Code differs from the Internal Revenue Code in determining the method
of amortization of original issue discount, a holder of Senior Discount Notes
may realize taxable gain or loss on payment of such holder's claim in
bankruptcy.
Control by Cypress Affiliates
Approximately 58% of the issued and outstanding shares of Common Stock is
held by Cypress and its affiliates. Accordingly, Cypress and its affiliates
control Holdings and have the power to elect all
27
of its directors, appoint new management and approve any action requiring the
approval of its stockholders, including adopting amendments to its certificate
of incorporation and approving mergers or sales of substantially all of its
assets. There can be no assurance that the interests of Cypress and its
affiliates will not conflict with the interests of the holders of the Notes. See
"Management," "Security Ownership of Certain Beneficial Ownership and
Management" and "Certain Relationships and Related Transactions."
Lack of Public Market for the Notes; Restrictions on Transferability
The Exchange Notes are being offered to the holders of the Old Notes. The
Old Notes were offered and sold in June 1998 to a small number of institutional
investors in reliance upon an exemption from registration under the Securities
Act and applicable state securities laws. Therefore, although the Old Notes are
eligible for trading in the PORTAL market of the National Association of
Securities Dealers, Inc., the Old Notes may be transferred or resold only in a
transaction registered under or exempt from the Securities Act and applicable
state securities laws.
The Exchange Notes generally will be permitted to be resold or otherwise
transferred by each holder without the requirement of further registration. Each
series of Exchange Notes, however, constitutes a new issue of securities with no
established trading market. The Exchange Offers will not be conditioned upon any
minimum or maximum aggregate principal amount of Notes being tendered for
exchange. The Issuers do not intend to apply for a listing of any series of the
Exchange Notes on a securities exchange or an automated quotation system, and
there can be no assurance as to the liquidity of markets that may develop for
the Exchange Notes, the ability of the holders of the Exchange Notes to sell
their Exchange Notes or the price at which such holders would be able to sell
their Exchange Notes. If markets for the Exchange Notes were to exist, the
Exchange Notes could trade at prices that may be lower than the initial market
values thereof depending on many factors. The liquidity of, and trading market
for, the Exchange Notes may be adversely affected by movements of interest
rates, the performance of the Company and general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading market independent of the financial performance of, and prospects for,
the Company. The Initial Purchasers are not obligated to make a market in any of
the Notes, and any market making with respect to the Notes may be discontinued
at any time without notice. In addition, such market making activity may be
limited during the pendency of the Exchange Offers or the effectiveness of a
shelf registration statement in lieu thereof. See "Transfer Restrictions" and
"Plan of Distribution."
In the case of non-exchanging holders of Old Notes, no assurance can be
given as to the liquidity of any trading market for the Old Notes following the
Exchange Offers.
Forward-Looking Statements
This Prospectus contains certain forward-looking statements regarding the
business of the Issuers. When used in this Offering Memorandum, the words
"anticipates," "plans," "believes," "estimates," "intends," "expects,"
"projects" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such words. Such
statements, including, but not limited to, the Issuers' statements regarding
their business strategy, growth strategy, growth trends in the industry and
various markets, acquisitions, international expansion, productivity and
profitability enhancement, new product and service introductions and liquidity
and capital resources are based on management's beliefs, as well as on
assumptions made by, and information currently available to, management, and
involve various risks and uncertainties, certain of which are beyond the
Issuers' control. The Issuers' actual results could differ materially from those
expressed in any forward-looking statement made by or on behalf of the Issuers.
In light of these risks and uncertainties there can be no assurance that the
forward-looking information will in fact prove to be accurate. Factors that
might cause actual results to differ from such forward-looking statements
include, but are not limited to, those discussed in "Risk Factors." The Issuers
have undertaken no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
28
THE RECAPITALIZATION
On June 5, 1998, pursuant to the Recapitalization Agreement: (i) Holdings
(x) repurchased all of the Common Stock held by CD&R, Westinghouse and all other
non-management stockholders of Holdings for $595.2 million in the aggregate, (y)
cashed-out all of the stock options held by non-management optionholders for
$57.5 million in the aggregate and (z) cashed-out a portion of the stock options
held by certain members of management for $0.9 million in the aggregate (the
aggregate funds necessary to effect such purchase of shares and cash-out of
options is herein referred to as the "Equity Consideration"); (ii) Holdings sold
shares of Common Stock to the Investor Group for $318.1 million in the aggregate
(the "Cash Equity Contribution"); (iii) the Investor Group purchased shares of
Common Stock from certain members of management for $1.9 million in the
aggregate; and (iv) management continued to retain the remainder of their shares
of Common Stock and stock options with an implied aggregate value of
approximately $97.7 million. The Recapitalization valued each share of Common
Stock at $621.08.
In addition to the proceeds of the Cash Equity Contribution, Holdings and
the Company funded the Equity Consideration, the repayment of approximately
$379.1 million of outstanding indebtedness of the Company and its subsidiaries
and the payment of transaction fees and expenses from: (i) the initial
borrowings of $170.0 million under the Credit Facilities; (ii) the proceeds of
$250.0 million from a sale of accounts receivable pursuant to the Receivables
Facility; and (iii) the proceeds of the Old Notes.
The foregoing transactions are collectively referred to herein as the
"Recapitalization." As a result of the Recapitalization, management owns
approximately 11.3% of the outstanding shares of Common Stock (which, together
with existing stock options and new stock options expected to be granted in
connection with the Recapitalization, will represent over 30% of the common
equity of Holdings on a fully diluted basis). The Investor Group owns the
remaining 88.7% of the outstanding shares of Common Stock, with Cypress owning
approximately 58% of the outstanding shares of Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management."
The representations and warranties relating to the Company's business made
by Holdings in the Recapitalization Agreement do not survive the closing of the
Recapitalization. In connection with the Recapitalization, the Investor Group
succeeded to the rights of CD&R and Westinghouse under the Registration and
Participation Agreement (as defined). See "Certain Relationships and Related
Transactions."
Holdings expects to treat the Recapitalization as a recapitalization for
financial reporting purposes; accordingly, the historical basis of Holdings'
assets and liabilities will not be affected by the transaction.
29
The following table sets forth the cash sources and uses of funds of the
Issuers for the Recapitalization on a pro forma basis as of March 31, 1998:
(dollars in millions)
----------------------
Sources:
Credit Facilities
Revolving Facility(1) ............................ $ --
Delayed Draw Term Facility(1) .................... --
Term Loans ....................................... 170.0
Receivables Facility ............................... 250.0
Senior Subordinated Old Notes ...................... 300.0
Senior Discount Old Notes .......................... 50.5
Cash Equity Contribution ........................... 318.1
---------
Total sources ................................... $ 1,088.6
=========
Uses:
Repayment of existing indebtedness(2) .............. $ 379.1
Equity Consideration ............................... 653.5
Estimated transaction fees and expenses(3) ......... 54.8
Cash proceeds to the Company ....................... 1.2
---------
Total uses ...................................... $ 1,088.6
=========
- ---------------------
(1) The Revolving Facility provides for U.S. and Canadian dollar borrowings of
up to U.S. $100.0 million, including $25.0 million for letters of credit. No
actual amounts were drawn on the Revolving Facility on the closing date of
the Offerings. The Delayed Draw Term Facility will provide for future term
loans of up to $100.0 million for permitted acquisitions.
(2) The actual amount of existing indebtedness repaid was approximately $388
million.
(3) Includes Initial Purchasers' discounts and offering discounts on the Senior
Subordinated Old Notes, fees related to the Credit Facilities and the
Receivables Facility, and other fees and expenses incurred in connection
with the Recapitalization.
30
USE OF PROCEEDS
There will be no proceeds to the Issuers from the exchange of Notes
pursuant to the Exchange Offers. The proceeds of the Offerings were used to fund
a portion of the Recapitalization, including the payment of the Equity
Consideration, the repayment of certain outstanding existing indebtedness of the
Company and its subsidiaries and the payment of fees and expenses related to the
Recapitalization. For a further discussion of the sources and uses related to
the Recapitalization, see "The Recapitalization."
CAPITALIZATION
The following table sets forth the capitalization of Holdings and the
Company as of March 31, 1998 on a pro forma basis. This table should be read in
conjunction with "Use of Proceeds," "Unaudited Pro Forma Financial Information,"
"Selected Historical Consolidated Financial and Other Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Holdings' consolidated financial statements and the notes thereto included
elsewhere in this Prospectus.
March 31, 1998
------------------------
Pro Forma Pro Forma
Holdings Company
----------- ----------
(dollars in millions)
Cash and cash equivalents ................ $ 19.6 $ 19.6
======== ========
Total Debt(1):
Existing Indebtedness(2) ............... $ 23.2 $ 23.2
Credit Facilities:
Revolving Facility(3) ................. -- --
Delayed Draw Term Facility(3) ......... -- --
Term Loans ............................ 170.0 170.0
Senior Subordinated Old Notes .......... 300.0 300.0
Senior Discount Old Notes .............. 50.5 --
-------- --------
Total debt ............................ 543.7 493.2
Redeemable Common Stock .................. 11.4 11.4
Stockholders' Equity (Deficit): .......... (165.5) (115.0)
-------- --------
Total capitalization .................. $ 389.6 $ 389.6
======== ========
- ---------------------
(1) Excludes $250.0 million of proceeds from the sale of accounts receivable
through the Receivables Facility entered into in connection with the
Recapitalization. See "Description of the Receivables Facility."
(2) Includes $4.6 million of current indebtedness.
(3) The Revolving Facility provides for U.S. and Canadian borrowings of up to
U.S. $100.0 million, including $25.0 million for letters of credit. No
amounts were drawn on the Revolving Facility on the closing date of the
Offerings. The Delayed Draw Term Facility will provide for future term loans
of up to $100.0 million for permitted acquisitions.
31
UNAUDITED PRO FORMA FINANCIAL INFORMATION The following
unaudited pro forma financial information of Holdings and
the Company has been prepared to give effect to the Recapitalization and the
Recent Acquisitions. Holdings expects to treat the Recapitalization as a
recapitalization for financial reporting purposes; accordingly, the historical
basis of Holdings' assets and liabilities will not be affected by the
transaction. For a discussion of the Recapitalization, see "The
Recapitalization."
The pro forma adjustments presented are based upon available information
and include certain assumptions and adjustments that Holdings believes are
reasonable under the circumstances. These adjustments are directly attributable
to the transactions referenced above and are expected to have a continuing
impact on Holdings' and the Company's business, results of operations and
financial condition. The historical condensed consolidated statement of income
of Holdings and the Company for the three months ended March 31, 1998 and the
historical condensed consolidated balance sheet of Holdings and the Company as
of March 31, 1998 were derived from the unaudited consolidated financial
statements of Holdings included elsewhere herein. The historical condensed
consolidated statement of income of Holdings and the Company for the year ended
December 31, 1997 was derived from the audited consolidated financial statements
of Holdings included elsewhere herein. Holdings has as its only asset all of the
outstanding capital stock of the Company; accordingly, the historical financial
information of Holdings presented herein is identical to those of WESCO. In
addition, Holdings has fully and unconditionally guaranteed the Senior
Subordinated Notes issued by the Company.
The unaudited pro forma condensed consolidated statement of income of
Holdings and the Company for the year ended December 31, 1997 give effect to:
(i) the Recapitalization as if it had occurred on January 1, 1997 and (ii) the
acquisitions of Diversified Electric Supply Company, Inc. ("DESCO"), Maydwell &
Hartzell, Inc. ("M & H"), Avon Electrical, Brown Wholesale and Reily, all of
which occurred during 1997 and 1998, as if they had occurred on January 1, 1997.
The historical financial data for the acquired companies was derived from their
respective unaudited financial statements. The unaudited pro forma condensed
consolidated statement of income of Holdings and the Company for the three
months ended March 31, 1998 gives effect to the Recapitalization and the
acquisition of Reily as if they had occurred on January 1, 1997. The unaudited
pro forma condensed consolidated balance sheet of Holdings and the Company as of
March 31, 1998 give effect to the Recapitalization and the acquisition of Reily
as if they were consummated on March 31, 1998. None of the acquisitions
described above met the individual or aggregate criteria outlined by the
Commission's Significant Subsidiary Test. The Recent Acquisitions were accounted
for using the purchase method of accounting pursuant to which the total purchase
price of the Recent Acquisitions were allocated to the tangible and intangible
assets acquired and liabilities assumed based on their estimated fair values.
The purchase price allocations for Reily and Avon Electrical are preliminary.
Final allocations will be made based upon valuations and other studies that have
not been completed, but are not expected to differ significantly from those
presented herein.
The unaudited pro forma financial information should be read in conjunction
with the historical consolidated financial statements of Holdings and the notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "The Recapitalization" and "The Summary -- Recent
Developments" included elsewhere in this Prospectus.
The unaudited pro forma financial information and related notes are
provided for informational purposes only and do not necessarily reflect: (i) the
results of operations or financial condition of Holdings or the Company that
would have actually resulted had the events referred to above or in the notes to
the unaudited pro forma financial information been consummated as of the dates
indicated and are not intended to project Holdings' or the Company's financial
condition or results of operations for any future period or (ii) the effect of
certain non-recurring income statement charges expected to result from the
Recapitalization, including compensation charges of approximately $11.0 million
associated with one-time bonuses paid to certain members of management,
compensation charges of approximately $6.3 million associated with the cash
settlement relating to certain stock options, compensation charges of
approximately $4.1 million associated with the acceleration of vesting of one
recently hired executive's stock options issued at a discount, estimated
non-capitalized transaction fees and expenses amounting to $25.1 million and a
charge of approximately $0.5 million related to the write-off of existing
deferred financing costs.
32
WESCO INTERNATIONAL, INC.
AND
WESCO DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1998
(dollars in thousands)
WESCO Reily Reily
International,Inc. Historical Pro Forma
Historical* Reclassified(A) Adjustments
-------------------- ----------------- ----------------
ASSETS
Cash and cash
equivalents ........... $ 18,405 $ 315 $ (315)(B)
Trade accounts
receivable and
other accounts
receivable ............ 393,368 22,066
Other accounts
receivable ............ 16,400 -- --
Inventories ............ 317,934 7,959 2,861 (C)
Other current
assets ................ 20,262 195 (195)(B)
-------- ------- ----------
Total current
assets ............... 766,369 30,535 2,351
Property, buildings
and equipment,
net ................... 100,482 3,604 (2,000)(B)
396 (C)
Goodwill, net of
accumulated
amortization .......... 80,031 -- 27,020 (C)
Other assets ........... 15,166 2,546 (2,546)(B)
Total assets .......... $962,048 $36,685 $ 25,221
======== ======= ==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts payable........ $335,943 $12,755 $ --
Accrued payroll
and benefit
costs ................. 15,565 320 --
Restructuring
reserve ............... 5,913 -- --
Other current
liabilities ........... 26,404 9,690 (8,059)(B)
-------- ------- ----------
Total current
liabilities .......... 383,825 22,765 (8,059)
Long term debt ......... 350,544 5,347 41,853 (C)
Other noncurrent
liabilities ........... 6,020 -- --
Deferred income
taxes ................. 17,118 203 (203)(B)
-------- ------- ----------
Total liabilities ..... 757,507 28,315 33,591
Redeemable
common stock .......... 11,416 -- --
Stockholders'
equity ................ 193,125 8,370 (8,370)(B)
-------- ------- ----------
Total liabilities
and
stockholders'
equity ............... $962,048 $36,685 $ 25,221
======== ======= ==========
WESCO WESCO
Recapitalization International, Inc. Distribution, Inc.
Adjustments Pro Forma Adjustments Pro Forma
-------------------- --------------------- ------------------ -------------------
ASSETS
Cash and cash
equivalents ........... $ 1,211(D) $ 19,616 $ -- $ 19,616
Trade accounts
receivable and
other accounts
receivable ............ (253,000)(E) 162,434 -- 162,434
Other accounts
receivable ............ -- 16,400 -- 16,400
Inventories ............ -- 328,754 -- 328,754
Other current
assets ................ -- 20,262 -- 20,262
------------ ----------- ----------- -----------
Total current
assets ............... (251,789) 547,466 -- 547,466
Property, buildings
and equipment,
net ................... -- 102,482 -- 102,482
Goodwill, net of
accumulated
amortization .......... -- 107,051 -- 107,051
Other assets ........... 29,205 (F) 44,371 -- 44,371
Total assets .......... $ (222,584) $ 801,370 -- $ 801,370
============ =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Accounts payable........ $ -- $ 348,698 $ -- $ 348,698
Accrued payroll
and benefit
costs ................. 9,600 (G) 25,485 -- 25,485
Restructuring
reserve ............... -- 5,913 -- 5,913
Other current
liabilities ........... (14,890) (K) 13,145 -- 13,145
------------ ----------- ----------- -----------
Total current
liabilities .......... (5,290) 393,241 -- 393,241
Long term debt ......... 141,378 (H) 539,122 (50,478)(J) 488,644
Other noncurrent
liabilities ........... -- 6,020 -- 6,020
Deferred income
taxes ................. -- 17,118 -- 17,118
------------ ----------- ----------- -----------
Total liabilities ..... 136,088 955,501 (50,478) 905,023
Redeemable
common stock .......... -- 11,416 -- 11,416
Stockholders'
equity ................ (358,672)(I) (165,547) 50,478 (J) (115,069)
------------ ----------- ----------- -----------
Total liabilities
and
stockholders'
equity ............... $ (222,584) $ 801,370 $ -- $ 801,370
============ =========== =========== ===========
* Includes WESCO Distribution, Inc.
See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet.
33
WESCO INTERNATIONAL, INC.
AND
WESCO DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
as of March 31, 1998
(A) Certain reclassifications have been made to the Reily historical financial
statements to conform to the presentation to be used by Holdings upon
completion of the acquisition.
(B) Reflects the elimination of certain assets and liabilities not acquired and
the elimination of historical stockholders' equity in connection with the
Reily acquisition as follows:
Cash ............................................. $ 315
Other current assets ............................. 195
Property, buildings and equipment, net ........... 2,000
Other assets ..................................... 2,546
Other current liabilities ........................ 8,059
Deferred income taxes ............................ 203
Stockholders' equity ............................. 8,370
(C) The acquisition of Reily for approximately $47,200 is to be accounted for as
a purchase business combination. The acquisition resulted in approximately
$41,853 of new indebtedness resulting from $42,600 borrowed under the
Company's credit agreement and $4,600 of seller notes, net of repayment of
existing debt of $5,347 paid at closing. No assumptions were made regarding
restructuring costs or recurring benefits from synergies associated with the
consummation of the acquisition. For the purpose of these pro forma
condensed consolidated financial statements, the purchase price allocation
is as follows:
Purchase price ........................................... $ 47,200
Book value of assets acquired, net of liabilities assumed (16,923)
---------
Increase in basis ........................................ $ 30,277
=========
Allocation of increase in basis:
Increase in inventory value and conversion from LIFO ............. $ 2,861
Increase in value of property and equipment ...................... 396
Increase in goodwill ............................................. 27,020
---------
$ 30,277
=========
(D) Reflects adjustments relating to cash and cash equivalents in connection
with the Recapitalization as follows:
Cash provided by the Senior Subordinated Notes ................ $ 300,000
Cash provided by the Senior Discount Notes .................... 50,478*
Cash provided by the Credit Facilities ........................ 170,000
Cash provided by the sale of certain accounts receivable in
connection with the Receivables Facility less loss on
sale .................................................................. 250,000
Cash Equity Contribution (512,186 shares at $621.08 per
share) ................................................................ 318,108
Cash used to repay existing indebtedness ...................... (379,100)
Cash used for estimated transaction fees and expenses ......... (54,775)
Cash used for Equity Consideration (958,282 shares and
111,996 options) ...................................................... (653,500)
----------
$ 1,211
==========
* The Senior Discount Notes have not been pushed down to the Company in
accordance with Staff Accounting Bulletin Topic 5J.
34
(E) In connection with the Receivables Facility, the Company and certain
subsidiaries will: (i) sell or transfer all of their eligible accounts
receivable to the SPC (as defined), which is wholly-owned by the Company;
(ii) receive $250,000 in cash for the sale of such accounts receivable, and
a note from, and an equity interest in, the SPC; (iii) record an estimated
loss of $3,000 on the sale of such receivables; and (iv) the SPC will retain
a residual interest in the receivables of $162,434.
(F) Reflects capitalized portion of the estimated $54,775 of expenses incurred
in connection with the Recapitalization. An estimated $29,675, representing
deferred issuance costs of the Offerings, the Credit Facilities and the
Receivables Facility, will be capitalized and amortized over the lives of
the respective debt issuances, net of the write-off of existing deferred
financing costs of $470.
(G) Reflects non-recurring adjustments of $9,600 ($5,855 net of tax) relating to
compensation charges in connection with the Recapitalization as follows:
Payment of one-time bonuses, net of
tax benefit of $2,145................................. $3,355
Acceleration of vesting of stock options for
one executive, net of tax benefit of $1,600........... 2,500
------
$5,855
======
(H) Reflects adjustments relating to long-term debt in connection with the
Recapitalization as follows:
Issuance of the Senior Subordinated Notes .............. $ 300,000
Issuance of the Senior Discount Notes .................. 50,478
Borrowings under the Credit Facilities ................. 170,000
Repayment of existing outstanding indebtedness ......... (379,100)
----------
$ 141,378
==========
(I) Reflects adjustments relating to stockholders' equity in connection with the
Recapitalization as follows:
Cash Equity Contribution .................................. $ 318,108
Equity Consideration ...................................... (653,500)
Non-capitalized portion of estimated transaction fees and
expenses, net of tax benefit of $5,190............................. (8,110)
Non-recurring compensation adjustments, net of tax benefit
of $4,290.......................................................... (6,710)
Non-recurring stock option compensation, net of tax benefit
of $4,055.......................................................... (6,345)
Write-off of existing deferred financing costs, net of tax
benefit of $185.................................................... (285)
Loss on sale of certain receivables related to the
Receivables Facility, net of tax benefit of $1,170................. (1,830)
----------
$ (358,672)
==========
(J) Reflects the elimination of the Senior Discount Notes issued by Holdings.
(K) Reflects the tax benefit of non-recurring adjustments for compensation of
$3,745 and transaction expenses of $11,145.
35
WESCO INTERNATIONAL, INC.
AND
WESCO DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 1998
(dollars in thousands)
WESCO Reily
International, Inc. Historical Acquisition
Historical* Reclassified(A) Adjustments(A)
--------------------- ----------------- ------------------
Sales, net ............. $693,448 $32,977 $ (1,706)(B)
Cost of goods sold
(exclusive of
depreciation and
amortization) ......... 566,754 27,134 (1,936)(B)
-------- ------- ---------
Gross profit .......... 126,694 5,843 230
Selling, general and
administrative
expenses .............. 103,564 4,899 (225)(C)
(482)(B)
Depreciation and
amortization .......... 2,956 86 227 (D)
(36)(B)
---------
Income from
operations ........... 20,174 858 746
Interest expense,
net ................... 6,202 320 644 (E)
Other expense .......... -- -- --
-------- ------- ---------
Income before
income taxes ......... 13,972 538 102
Provision for income
taxes ................. 5,449 213 40 (F)
-------- ------- ---------
Income from
continuing
operations before
non-recurring
charges directly
attributable to the
Recapitalization
and the Recent
Acquisitions .......... $ 8,523 $ 325 $ 62
======== ======= =========
WESCO WESCO
Recapitalization International, Inc. Distribution, Inc.
Adjustments Pro Forma Adjustments Pro Forma
------------------ --------------------- ----------------- -------------------
Sales, net ............. $ -- $724,719 $ -- $724,719
Cost of goods sold
(exclusive of
depreciation and
amortization) ......... -- 591,952 -- 591,952
---------- -------- ---------- --------
Gross profit .......... 132,767 -- 132,767
Selling, general and
administrative
expenses .............. (100)(G) 107,656 -- 107,656
Depreciation and
amortization .......... -- 3,233 -- 3,233
Income from
operations ........... 100 21,878 -- 21,878
Interest expense,
net ................... 6,243(H) 13,409 (1,443)(J) 11,966
Other expense .......... 3,859 (I) 3,859 -- 3,859
---------- -------- ---------- --------
Income before
income taxes ......... (10,002) 4,610 (1,443) 6,053
Provision for income
taxes ................. (3,901)(F) 1,801 562 (F) 2,363
---------- -------- ---------- --------
Income from
continuing
operations before
non-recurring
charges directly
attributable to the
Recapitalization
and the Recent
Acquisitions .......... $ (6,101) $ 2,809 $ 881 $ 3,690
========== ======== ========== ========
For the Year Ended December 31, 1997
(dollars in thousands)
WESCO
International, Inc. Acquisition
Historical* Adjustments(A)
--------------------- ------------------
Sales, net ....................... $2,594,819 $ 304,576(K)
Cost of goods sold (exclusive
of depreciation and
amortization) ................... 2,130,900 242,238 (K)
---------- ----------
Gross profit .................... 463,919 62,338
Selling, general and adminis-
trative expenses ................ 372,532 44,583 (K)
Depreciation and amortization .... 11,331 2,239 (K)
---------- ----------
Income from operations .......... 80,056 15,516
Interest expense, net ............ 20,109 9,034 (K)
Other expense .................... -- --
---------- ----------
Income before income taxes....... 59,947 6,482
Provision for income taxes ....... 23,710 2,528 (F)
---------- ----------
Income from continuing
operations before
non-recurring charges
directly attributable to the
Recapitalization and the
Recent Acquisitions ............. $ 36,237 $ 3,954
========== ==========
WESCO WESCO
Recapitalization International, Inc. Distribution, Inc.
Adjustments Pro Forma Adjustments Pro Forma
------------------ --------------------- ----------------- -------------------
Sales, net ....................... $ -- $2,899,395 $ -- $2,899,395
Cost of goods sold (exclusive
of depreciation and
amortization) ................... -- 2,373,138 -- 2,373,138
----------- ---------- ---------- ----------
Gross profit .................... -- 526,257 -- 526,257
Selling, general and adminis-
trative expenses ................ (400)(G) 416,715 -- 416,715
Depreciation and amortization .... -- 13,570 -- 13,570
----------- ---------- ---------- ----------
Income from operations .......... 400 95,972 -- 95,972
Interest expense, net ............ 24,548 (H) 53,691 (5,772)(J) 47,919
Other expense .................... 15,438 (I) 15,438 -- 15,438
----------- ---------- ---------- ----------
Income before income taxes....... (39,586) 26,843 5,772 32,615
Provision for income taxes ....... (15,439)(F) 10,799 2,251 (F) 13,050
----------- ---------- ---------- ----------
Income from continuing
operations before
non-recurring charges
directly attributable to the
Recapitalization and the
Recent Acquisitions ............. $ (24,147) $ 16,044 $ 3,521 $ 19,565
=========== ========== ========== ==========
* Includes WESCO Distribution, Inc.
See Notes to Unaudited Pro Forma Condensed Consolidated Income Statements.
36
WESCO INTERNATIONAL, INC.
AND
WESCO DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(A) Certain reclassifications have been made to the acquired company's
historical financial statements to conform to the presentation used by
Holdings upon completion of the relevant Recent Acquisitions. (B) Reflects
adjustments for the sales and related operating costs related to the closure
of certain branches that were acquired in connection with the acquisition of
Brown Wholesale. The financial results of the closed branches have been
eliminated as they will not be part of continuing
operations. (C) Reflects the elimination of non-recurring compensation based
on employment agreements with certain members of management at Reily
entered into in connection with the closing of the acquisition. (D) Reflects the
amortization of goodwill on the Reily acquisition over an assumed period of
25 years amounting to $270, net of depreciation and amortization related to
Reily buildings and leasehold improvements not purchased amounting to $43.
(E) Reflects incremental interest expense related to $47,200 in borrowings for
the Reily acquisition at an assumed current rate of 8.175%. Assuming a
0.125% change in the interest rates, interest expense on these borrowings
would change by $15 for three months ended March 31, 1998.
(F) Reflects the income tax effects of the pro forma adjustments at an assumed
rate of 39%.
(G) Reflects the elimination of non-recurring advisory, management consulting
and monitoring fees paid to CD&R during the periods presented which amounted
to $400 per annum.
(H) Reflects the incremental interest expense relating to the Offerings and the
Credit Facilities assuming interest rates of 9.125% for the Senior
Subordinated Notes, 11.125% for the Senior Discount Notes, 8.05% for the
Tranche A Term Loan and 8.3% for the Tranche B Term Loan, as well as the
incremental amortization expense resulting from the capitalization of
estimated transaction fees and expenses of $29,675 related to the Offerings
and the Credit Facilities. The amortization of debt issuance costs were $957
for the three months ended March 31, 1998 and $3,829 for the year ended
December 31, 1997. Assuming a 0.125% change in the interest rates, interest
expense on the Credit Facilities would change by $53 for the three months
ended March 31, 1998 and $213 for the year ended December 31, 1997.
(I) Reflects the costs related to the sale of certain accounts receivable in
connection with the Receivables Facility at an assumed discount rate of
6.175%.
(J) Reflects the elimination of interest expense related to the issuance of the
Senior Discount Notes at an assumed interest rate of 11.125%.
37
(K) Reflects the acquisitions of DESCO (acquired March 31, 1997), M & H
(acquired April 30, 1997), Avon Electrical (acquired January 1, 1998), Brown
Wholesale (acquired January 1, 1998) and Reily (acquired May 8, 1998) as if
the transactions had been consummated on January 1, 1997. The Recent
Acquisitions have been accounted for as purchase business combinations. No
assumptions were made regarding restructuring costs or recurring benefits
from synergies associated with the consummation of the acquisitions. For the
purpose of these unaudited pro forma condensed consolidated financial
statements, the aggregate purchase price of the Recent Acquisitions was
approximately $120,600, resulting in goodwill of $47,641. None of the
acquisitions described above met the individual or aggregate criteria
outlined by the Commission's Significant Subsidiary test.
Brown Wholesale's fiscal year end is September 30, 1997. For the purposes of
these unaudited pro forma financial statements, Brown Wholesale's first
quarter ended December 31, 1997 and 1996 have been added and deducted without
adjustment to arrive at the year ended December 31, 1997. The historical
financial results for DESCO and M & H are for periods prior to the
acquisition date. The historical financial results for Avon Electrical, Brown
Wholesale and Reily are for the year ended December 31, 1997.
Avon
DESCO M & H Electrical
Historical Historical Historical
Year Ended December 31, 1997 ------------ ------------ ------------
Sales, net ............................. $6,231 $13,581 $84,500
Cost of goods sold (exclusive of
depreciation and amortization) ........ 5,139 12,104 61,328
------ ------- -------
Gross profit ........................ 1,092 1,477 23,172
Selling, general and adminis-
trative expenses ...................... 842 1,377 17,074
Depreciation and amortization .......... 58 -- 94
Income from operations .............. 192 100 6,004
Interest expense, net .................. (12) 90 1,226
Income before income taxes .......... 204 10 4,778
Provision for income taxes ............. 80 4 1,863
------ ------- -------
Net income ............................. $ 124 $ 6 $ 2,915
====== ======= =======
Brown Acquisitions
Wholesale Reily Pro Forma Acquisition
Historical Historical Adjustments Adjustments
Year Ended December 31, 1997 ------------ ------------ --------------------- ------------
Sales, net ............................. $87,917 $136,232 $ (23,885) (i) $304,576
Cost of goods sold (exclusive of
depreciation and amortization) ........ 70,250 111,882 (18,465) (i) 242,238
------- -------- ---------- --------
Gross profit ........................ 17,667 24,350 (5,420) 62,338
Selling, general and adminis-
trative expenses ...................... 16,432 20,067 (3,433) (ii) 44,583
(7,776) (i)
Depreciation and amortization .......... 393 358 1,559 (iii) 2,239
(223) (i)
----------
Income from operations .............. 842 3,925 4,453 15,516
Interest expense, net .................. 9 740 6,979 (iv) 9,034
2 (i)
----------
Income before income taxes .......... 833 3,185 (2,528) 6,482
Provision for income taxes ............. 325 1,242 (986) (v) 2,528
------- -------- ---------- --------
Net income ............................. $ 508 $ 1,943 $ (1,542) $ 3,954
======= ======== ========== ========
(i) Reflects adjustments for the sales and related operating costs related to
the closure of certain branches that were acquired in connection with the
acquisition of Brown Wholesale. The financial results of the closed
branches have been eliminated as they will not be part of continuing
operations.
(ii) Reflects the elimination of non-recurring compensation based on
employment agreements entered into in connection with the closing of the
relevant acquisitions with certain members of acquired company management
amounting to $5,000 for the year ended December 31, 1997, net of
compensation adjustment increases related to one of the acquisitions,
amounting to $1,567 for the year ended December 31, 1997.
(iii)Represents the amortization of goodwill over an assumed period of 25
years amounting to $1,732 for the year ended December 31, 1997, net of
depreciation and amortization related to Reily buildings and leasehold
improvements not purchased amounting to $173.
(iv) Represents incremental interest expense related to $118,900 in aggregate
borrowings for the Recent Acquisitions at rates ranging from 8.0% to
9.0%.
(v) Reflects the income tax effects of the pro forma adjustments at an assumed
rate of 39%.
For purposes of calculating the ratio of earnings to fixed charges, "earnings"
represents income from operations before income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest expense, amortization of
deferred financing cost and the component of rental expense that management
believes is representative of the interest component of rental expense. The pro
forma ratio of earnings to fixed charges for Holdings was 1.3x for the three
months ended March 31, 1998 and 1.4x for the year ended December 31, 1997.
38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth (i) selected historical consolidated
financial data of the Predecessor as of and for the year ended December 31, 1993
and as of and for the two months ended February 28, 1994, (ii) selected
historical consolidated financial data of Holdings as of and for the ten months
ended December 31, 1994 and as of and for the years ended December 31, 1995,
1996 and 1997, which have been derived from audited financial statements and
(iii) selected historical consolidated financial data of Holdings as of and for
the three months ended March 31, 1997 and 1998 (unaudited). The selected
historical consolidated financial data of the Predecessor have been derived from
the Predecessor's financial statements, which have been audited by the
Predecessor's accountants. The Commission, in Staff Accounting Bulletin Number
55 (SAB 55), requires that historical financial statements of a subsidiary,
division or lesser business component of another entity include certain expenses
incurred by the parent on its behalf. These expenses include officer and
employee salaries; rent; depreciation; advertising; accounting and legal
services; other selling, general and administrative expenses; and other such
expenses. The financial statements of the Predecessor include such adjustments,
estimates or allocations as the management of Westinghouse believed necessary to
reflect these expenses. Because of such items, certain aspects of the
consolidated results of operations for periods prior to the period beginning
February 28, 1994 are not comparable with those for subsequent periods.
The selected historical consolidated financial data of Holdings as of and
for the years ended December 31, 1995, 1996 and 1997 have been derived from
Holdings' consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP. The selected historical consolidated financial data
of Holdings' as of and for the three months ended March 31, 1997 and 1998
(unaudited) have been derived from unaudited interim consolidated financial
statements of Holdings and include, in the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the results of operations and financial position for and as of
the end of such periods. Results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year or for
any future period. Holdings has as its only asset all of the outstanding capital
stock of the Company; accordingly, the historical financial data presented
herein are identical to those of the Company. The selected financial data should
be read in conjunction with, and is qualified in its entirety by, the historical
consolidated financial statements of Holdings and the accompanying notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
39
Selected Historical Consolidated Financial Data
(dollars in millions)
The Predecessor
-----------------------------
Two
Year Months
Ended Ended
December 31, February 28,
1993 1994
-------------- --------------
Income Statement Data:
Sales, net ..................................... $ 1,570.8 $ 237.3
Gross profit (exclusive of depreciation
and amortization) ............................. 238.1 32.5
Selling, general
and administrative
expenses ...................................... 241.2 34.9
Depreciation and amortization .................. 7.9 1.2
--------- -------
Income (loss) from operations .................. ( 11.0) ( 3.6)
Other income and expense, net .................. 1.7 --
Interest expense, net (1) ...................... 14.2 2.4
--------- -------
Income (loss) before income taxes .............. ( 23.5) ( 6.0)
Provision (benefit) for income taxes (2) ( 9.7) ( 1.9)
--------- -------
Income (loss) before cumulative effect
and extraordinary charge, net of
taxes ......................................... ( 13.8) ( 4.1)
Cumulative effect of change in
accounting, net of taxes (3) .................. 1.6 --
Extraordinary charge, net of applicable
taxes (4) ..................................... -- --
--------- -------
Net income (loss) .............................. $ (15.4) $ (4.1)
========= ========
Cash Flow Data:
Net cash provided by (used for)
operating activities .......................... $ 13.2 $ (11.5)
Net cash provided by (used for)
investing activities .......................... ( 3.9) 0.1
Net cash provided by (used for)
financing activities .......................... ( 9.4) 11.9
Other Financial Data:
EBITDA (5) ..................................... ( 1.4) ( 2.4)
Capital expenditures ........................... 4.0 0.5
Ratio of earnings to fixed charges (6) ......... -- --
Balance Sheet Data:
Adjusted working capital (7) ................... $ 224.8 $ 228.7
Total assets ................................... 521.0 504.5
Total long-term debt ........................... -- --
Redeemable common stock(8) ..................... -- --
Stockholders' equity ........................... -- --
Holdings
-------------------------------------------------------------------------------
Ten (unaudited)
Months Year Ended Three Months
Ended December 31 Ended March 31,
December 31, ----------------------------------------- -----------------------
1994 1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- ----------- -----------
Income Statement Data:
Sales, net ..................................... $ 1,398.5 $ 1,857.0 $ 2,274.6 $ 2,594.8 $ 576.7 $ 693.4
Gross profit (exclusive of depreciation
and amortization) ............................. 230.0 321.0 405.0 463.9 104.4 126.7
Selling, general
and administrative
expenses ...................................... 197.7 258.0 326.0 372.5 86.7 103.5
Depreciation and amortization .................. 7.5 7.3 10.8 11.3 2.8 3.0
--------- --------- --------- --------- ------- -------
Income (loss) from operations .................. 24.8 55.7 68.2 80.1 14.9 20.2
Other income and expense, net .................. -- -- -- -- -- --
Interest expense, net (1) ...................... 17.6 15.8 17.4 20.1 4.8 6.2
--------- --------- --------- --------- ------- -------
Income (loss) before income taxes .............. 7.2 39.9 50.8 60.0 10.1 14.0
Provision (benefit) for income taxes (2) 3.6 14.8 18.3 23.8 4.0 5.5
--------- --------- --------- --------- ------- -------
Income (loss) before cumulative effect
and extraordinary charge, net of
taxes ......................................... 3.6 25.1 32.5 36.2 6.1 8.5
Cumulative effect of change in
accounting, net of taxes (3) .................. -- -- -- -- -- --
Extraordinary charge, net of applicable
taxes (4) ..................................... -- 8.1 -- -- -- --
--------- --------- --------- --------- ------- -------
Net income (loss) .............................. $ 3.6 $ 17.0 $ 32.5 $ 36.2 $ 6.1 $ 8.5
========= ========= ========= ========= ======= =======
Cash Flow Data:
Net cash provided by (used for)
operating activities .......................... $ 63.7 $ 25.7 $ 15.2 $ (11.1) $ (32.5) $ 13.2
Net cash provided by (used for)
investing activities .......................... ( 256.6) ( 12.0) ( 111.0) ( 22.4) ( 10.7) ( 47.6)
Net cash provided by (used for)
financing activities .......................... 197.5 ( 9.8) 87.2 41.1 44.0 45.2
Other Financial Data:
EBITDA (5) ..................................... 32.3 63.0 79.0 91.4 17.7 23.2
Capital expenditures ........................... 1.7 6.5 9.4 12.4 1.4 3.7
Ratio of earnings to fixed charges (6) ......... 1.3 x 2.9 x 3.1 x 3.1 x 2.7 x 2.8 x
Balance Sheet Data:
Adjusted working capital (7) ................... $ 196.5 $ 222.5 $ 291.6 $ 338.8 $ 315.9 $ 375.4
Total assets ................................... 533.7 581.3 773.5 870.9 802.6 962.0
Total long-term debt ........................... 180.6 172.0 260.6 294.3 295.7 350.5
Redeemable common stock(8) ..................... 5.5 7.7 8.9 9.0 9.0 11.4
Stockholders' equity ........................... 99.5 116.4 148.7 184.5 154.7 193.1
40
(1) The Predecessor received a charge from Westinghouse in the form of interest
expense for the portion of Westinghouse investment that, for internal
reporting purposes, represented debt. For the year ended December 31, 1993
and the two months ended February 28, 1994, approximately 40% of the average
Westinghouse investment was considered to be debt for internal reporting
purposes. The effective annual interest rates for all periods was
approximately 10%. This method of reporting interest expense for internal
reporting purposes is not necessarily indicative of interest expense that
would have been incurred had the Predecessor operated as a separate
stand-alone entity.
(2) The Predecessor's results of domestic operations were included in the
consolidated U.S. federal income tax return of Westinghouse. The
Predecessor's results of operations in Puerto Rico and certain operations in
Canada were also included with other operations of Westinghouse in the tax
returns in those jurisdictions. For operations that did not pay their own
income tax, Westinghouse internally allocated income tax expense at the
statutory rate after adjustment for state income taxes and several other
items. The income tax expense and other tax-related information in the
Predecessor's consolidated financial statements were calculated as if the
Predecessor had not been eligible to be included in the consolidated tax
returns of Westinghouse
(i.e., on a "stand-alone" basis). The calculation of tax provisions and
deferred taxes necessarily required certain assumptions, allocations and
estimates that the Predecessor's management believed were reasonable to
accurately reflect the tax reporting for the Predecessor as if a stand-alone
taxpayer.
(3) Represents a charge, net of deferred taxes, for the cumulative effect of a
change in accounting for postemployment benefits at January 1, 1993.
(4) Represents a charge, net of taxes, relating to the write-off of unamortized
debt issuance and other costs associated with the early termination of debt.
(5) EBITDA represents income from operations plus depreciation and amortization.
EBITDA is presented because management understands that such information is
considered by certain investors to be an additional basis for evaluating the
Issuers' ability to pay interest and repay debt. EBITDA should not be
considered an alternative to measures of operating performance as determined
in accordance with generally accepted accounting principles or as a measure
of the Issuers' operating results and cash flows or as a measure of the
Issuers' liquidity. Since EBITDA is not calculated identically by all
companies, the presentation herein may not be comparable to other similarly
titled measures of other companies.
(6) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represents income before income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest expense,
amortization of deferred financing cost and the component of rental expense
that management believes is representative of the interest component of
rental expense. For the year ended December 31, 1993 and for the two months
ended February 28, 1994, earnings were insufficient to cover fixed charges
in the amount of $23.5 million and $6.0 million, respectively.
(7) Defined as trade accounts receivable plus inventories less accounts payable.
(8) Represents redeemable common stock as described in Note 9 to the
consolidated financial statements. Under certain conditions, the holders
thereof have the right to require Holdings to repurchase all of the
redeemable shares and the exercisable portion of the options. These
repurchase rights terminate upon consummation of an initial equity public
offering. The redemption value of the shares and exercisable portion of the
options at December 31, 1996 and 1997 and March 31, 1998 was approximately
$24.5 million, $68.6 million and $86.2 million, respectively. See "Certain
Relationships and Related Transactions -- Management Stockholders."
41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
WESCO believes it is the second largest electrical wholesale distributor in
North America, with over 325 branches located in 48 states and nine Canadian
provinces. The Company sells over 210,000 products, sourced from over 6,000
suppliers, to more than 130,000 customers. WESCO complements its product
offerings with a range of services and procurement solutions. Growth in revenue
is dependent upon several factors, including industry trends, general economic
conditions and the ability of the Company to grow market share and consummate
acquisitions. From 1993 to 1997 the Company's sales rose from $1.6 billion to
$2.6 billion, a 13.4% compound annual rate. This strong rate of growth has been
achieved in part through the Company's acquisition program, which accounted for
approximately half of this sales increase. The remaining sales increase was due
to new sales initiatives established by the Company's management team, including
a focus on National Accounts, Major Projects, increasing market share, and
expanding the Company's product offerings, as well as strong industry growth
generally.
The Company's sales can be categorized as stock sales, direct shipments or
special orders. Stock sales are filled directly from branch inventory and over
the past three years represented 40% to 50% of total sales. Direct ship orders
are shipped to the customer by the manufacturer since generally they involve
large orders or products that are too bulky to be easily handled and over the
past three years represented 35% to 45% of total sales. Special orders are for
products that are not ordinarily stocked in branch inventories and are ordered
from the manufacturer pursuant to a customer's request. Special orders represent
the remainder of total sales. Gross profit margins on stock and special order
sales are approximately 50% higher than those on direct ship sales. Although
direct ship gross margins are lower, operating profits are comparable since the
selling and inventory handling costs associated with direct shipments are lower.
The Company pays its sales force commissions based on a standard percent of
billing margin dollars. Since stock and special order sales are typically at
higher gross profit margins than direct ship sales, the commissions paid are
also higher as a percent of sales.
Since the Divesture, the Company has experienced a significant improvement
in its income from operations, which has more than doubled from 1.3% of sales in
1994 to 3.1% of sales in 1997. This margin improvement has resulted primarily
from: (i) better leveraging of the Company's existing infrastructure due to
growth in sales; (ii) focusing on higher margin products and services such as
National Accounts; and (iii) acquisitions of companies with average operating
margins in excess of that for WESCO's existing business.
At March 31, 1998, the Company's adjusted working capital was $375.4
million, composed of $393.4 million in accounts receivable and $317.9 million in
inventory, offset by $335.9 million in accounts payable. The Company is
implementing a number of initiatives designed to improve its working capital
performance, primarily in the area of inventory management. Such initiatives
include: (i) coordinating purchasing and inventory investment activities among
groups of branches or "districts;" (ii) upgrading the automated stock
replenishment programs used to supply branches from the distribution centers;
(iii) negotiating improved inventory return and consignment arrangements with
important suppliers; (iv) increasing the use of preferred suppliers; and (v)
shortening and stabilizing lead times between order and delivery from suppliers.
The Company has historically financed its acquisitions, new branch
openings, working capital needs and capital expenditures through internally
generated cash flow and borrowings under its credit facilities. During the
initial phase of an acquisition or new branch opening, the Company typically
incurs expenses related to installing or converting information systems,
training employees and other initial operating activities. In some acquisitions,
the Company may incur expenses in connection with the closure of any of its own
redundant branches. Historically, the costs associated with opening new
branches, and closing branches in connection with certain acquisitions, have not
been material. The Company has accounted for its acquisitions under the purchase
method of accounting.
42
Results of Operations
The following table sets forth the percentage relationship to net sales of
certain items in the Company's Statement of Income for the periods presented:
Three Months Ended March
Year Ended December 31, 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
Sales, net ........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit (exclusive of depreciation and
amortization) ...................................... 17.3 17.8 17.9 18.1 18.3
Selling, general and administrative expenses ......... 13.9 14.3 14.3 15.0 14.9
Depreciation and amortization ........................ 0.4 0.5 0.5 0.5 0.5
----- ----- ----- ----- -----
Income from operations ............................... 3.0 3.0 3.1 2.6 2.9
Interest expense ..................................... 0.9 0.8 0.8 0.8 0.9
----- ----- ----- ----- -----
Income before income taxes ........................... 2.1 2.2 2.3 1.8 2.0
Income taxes ......................................... 0.8 0.8 0.9 0.7 0.8
----- ----- ----- ----- -----
Income before extraordinary charge ................... 1.3 1.4 1.4 1.1 1.2
Extraordinary charge, net of taxes ................... 0.4 -- -- -- --
----- ----- ----- ----- -----
Net income ........................................... 0.9% 1.4% 1.4% 1.1% 1.2%
===== ===== ===== ===== =====
Three Months Ended March 31, 1998
Compared to Three Months Ended March 31, 1997
Net Sales. Sales for the three months ended March 31, 1998 were $693.4
million, compared with $576.7 million for the three months ended March 31, 1997.
This represented an increase of $116.7 million, or 20.2%. Sales of comparable
branches (those open throughout both periods) rose 9.4% with branches in the
U.S. and Canada increasing 9.5% and 8.9%, respectively. The remainder of the
sales increase was primarily attributable to sales from companies acquired since
March 1997. Stock sales, direct shipments and special order sales all
experienced similar increases, rising 19.6%, 22.8% and 15.1% respectively. In
the U.S., sales to utility customers continued to grow at a higher rate than
those to other customers.
Gross Profit (exclusive of depreciation and amortization). Gross profit for
the three months ended March 31, 1998 was $126.7 million, compared with $104.4
million for the comparable period in 1997. The increase of $22.3 million, or
21.4%, was due to the increased sales discussed above as well as an increase in
the gross profit margin as a percentage of sales, which increased to 18.3% in
the first quarter of 1998 from 18.1% in the first quarter of 1997. The increase
in the gross margin was primarily attributable to a number of product pricing
initiatives and training programs designed to improve gross profit as well as
certain newly acquired companies whose gross profit margins were higher than
that of the Company.
Selling General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased $16.8 million, or 19.4%, to $103.5
million in the first quarter of 1998 from $86.7 million in the first quarter of
1997. Approximately two-thirds of this increase was associated with an increase
in certain expenses that are variable in nature and increase when sales
increase. These expenses included sales commissions, transportation and
supplies. The remainder of the increase was primarily due to expenses associated
with companies acquired since March 1997. As a percent of sales, SG&A expenses
decreased to 14.9% in the first quarter of 1998 from 15.0% in the first quarter
of 1997.
Interest Expense. Interest expense increased $1.4 million in the first
quarter of 1998 to $6.2 million, from $4.8 million in the first quarter of 1997.
This increase is primarily due to the increased level of borrowings outstanding
as a result of increased debt levels associated with the acquisition of four
companies since March 1997.
Income Taxes and Net Income. The effective tax rate was 39.0% in the first
quarter of 1998 compared to 39.7% for the first quarter of 1997. Net income in
the first quarter of 1998 increased to $8.5 million from $6.1 million in the
first quarter of 1997. This increase was due to the higher sales and gross
profit, partially offset by the increase in SG&A discussed above.
43
1997 Compared to 1996
Net Sales. Sales for the year ended December 31, 1997 were $2,594.8
million, compared with $2,274.6 million for the year ended December 31, 1996.
This represented an increase of $320.2 million, or 14.1%. Sales of comparable
branches rose 7.0%, with branches in the U.S. and Canada increasing 7.1% and
5.9%, respectively, in each case without giving effect to a one-time
international construction project described below. Within the U.S., the
branches with a high volume of sales to utility customers experienced a somewhat
higher level of comparable branch sales. In addition to growth in sales of
comparable branches, the remaining sales increase resulted primarily from the
nine companies acquired since the beginning of 1996. Sales of product from stock
rose 21%, as compared to the prior period, increasing the mix of stock sales
three percentage points to 48% of total sales. This was a result of several
ongoing initiatives designed to increase stock sales, such as the continued
emphasis on growing National Accounts sales, and, to a lesser extent, the impact
of acquired company sales, which have tended to have a higher mix of stock
sales. Direct ship sales rose 4% over the prior period. This sales increase was
below that experienced by the Company in other areas and was primarily due to
the slower growth in the non-residential construction market for commercial and
industrial projects, which constitutes the majority of direct ship sales.
Gross Profit (exclusive of depreciation and amortization). Gross profit for
the year ended December 31, 1997 was $463.9 million, compared with $405.0
million for 1996. The increase of $58.9 million, or 14.5%, was primarily due to
the higher sales volume in 1997 from both acquisitions and comparable branch
operations. Gross profit as a percentage of sales increased to 17.9% in 1997
from 17.8% in 1996. In 1996, approximately $9.3 million of gross profit was
recorded in connection with a one-time international construction project with a
gross profit margin that was higher than the Company's usual margins on large
construction projects due to service requirements and risk considerations
associated with the order. Without this international order, the Company's gross
profit margin would have been 17.6% in 1996, compared to 17.9% for 1997. The
increase in the gross profit margin was primarily due to the increase in the mix
of higher margin stock sales, including sales associated with acquired
companies.
Selling, General and Administrative Expenses. SG&A expenses for the year
ended December 31, 1997 were $372.5 million, compared with $326.0 million in
1996. This increase of $46.5 million, or 14.3%, was primarily due to expenses
associated with the companies acquired in 1997 and 1996. SG&A expenses as a
percentage of sales remained unchanged at 14.3%. Acquisitions with higher SG&A
expense rates were offset by cost containment in the Company's core business, as
well as cost reductions in the acquired companies.
Interest Expense. Interest expense increased by $2.7 million primarily due
to the higher levels of borrowings outstanding associated with the acquisitions
made since the beginning of 1996, partially offset by lower interest rates
during 1997.
Income Taxes and Net Income. The effective tax rate was 39.6% for the year
ended December 31, 1997 compared to 36.1% for the same period in 1996. The
increase in the effective tax rate was primarily due to the reduction of a
valuation allowance for deferred tax assets in 1995 and 1996, which had the
effect of reducing the income tax rate during those periods. The Company began
its operations as a stand-alone entity in early 1994 with no history of
generating taxable income. Accordingly, a valuation allowance was established
for the net deferred tax assets that were generated during 1994. In 1995 and
1996, as the Company subsequently demonstrated an ability to utilize such
deferred tax assets, the valuation allowance was reduced and had the effect of
reducing the effective tax rate for both 1995 and 1996. Since the valuation
allowance was reduced to zero during 1996, there was no similar effect on the
1997 tax rate. Net income in 1997 increased $3.7 million, or 11.4%, to $36.2
million from $32.5 million in 1996, primarily as a result of the increase in
gross profit, partially offset by the increase in operating expenses and a
higher effective tax rate.
1996 Compared to 1995
Net Sales. Sales for the year ended December 31, 1996 were $2,274.6
million, an increase of $417.6 million, or 22.5%, from $1,857.0 million for the
year ended December 31, 1995. Approximately 74% of the sales increase was
attributable to the seven acquisitions made during 1996 as well as the
44
full-year effect of the two acquisitions made in the second half of 1995. The
balance of the sales increase was due to the continued growth in the base of the
existing business, with no significant differences in the growth rates of the
various markets. Comparable branch sales increased 3.8% during the period, with
branches in the U.S. increasing at a 5.1% rate and Canada declining at a 3.0%
rate, in each case without giving effect to a one-time international
construction project discussed above, reflecting a decline in the Canadian
market overall, particularly for the construction project business.
Gross Profit (exclusive of depreciation and amortization). Gross profit for
1996 of $405.0 million increased 26.2%, or $84.0 million, over the $321.0
million recorded in 1995. The increase in gross profit was primarily due to the
increase in sales discussed above. As a percent of sales, gross profit increased
to 17.8% in 1996 from 17.3% in 1995. The one-time international construction
project discussed above increased the gross profit margin by 0.2%. Without this
project, the Company's gross profit margin would have been 17.6% in 1996. The
remainder of this increase in the gross profit margin was attributable to the
higher mix of stock sales in the acquired companies, which sales typically have
higher gross margins.
Selling, General and Administrative Expenses. SG&A expenses increased $68.0
million, or 26.4%, to $326.0 million in 1996 from $258.0 million in 1995. This
increase was primarily due to the expenses associated with the acquisitions
discussed above. As a percent of sales, SG&A expenses increased to 14.3% in 1996
from 13.9%. This increase was primarily due to the higher expense rate of the
acquired companies, typically associated with their higher stock sales mix.
Interest Expense. Interest expense increased $1.6 million in 1996 to $17.4
million from $15.8 million in 1995 primarily due to the increased level of
borrowings outstanding as a result of the nine companies acquired in 1995 and
1996, partially offset by lower interest rates during 1996.
Income Taxes and Income Before Extraordinary Charge. The effective tax rate
was 36.1% for 1996, compared to 37.0% for 1995. Income before extraordinary
charge increased $7.4 million, or 29.5%, to $32.5 million in 1996 from $25.1
million in 1995. This increase was due to the higher sales and gross profit
partially offset by the higher selling, general and administrative expenses
discussed above.
Extraordinary Charge. During 1996, the Company refinanced its revolving
credit facilities and, as a result, wrote off $8.1 million, representing
unamortized debt issuance costs net of applicable taxes.
Liquidity and Capital Resources
Historical. The Company's liquidity needs arise from seasonal working
capital requirements, capital expenditures, interest and principal payment
obligations and acquisitions. The Company has historically met its liquidity and
capital investment needs with internally generated funds and borrowings under
its existing credit facilities.
For the year ended December 31, 1997, cash used for operating activities
was $11.1 million compared to cash provided by operating activities of $15.2
million for the year ended December 31, 1996. The cash used for operating
activities was primarily due to the $54.6 million increase in certain components
of net working capital offset by the $36.2 million in net income. The $32.6
million increase in receivables was primarily due to the increased level of
sales. The $31.7 million increase in inventories was due, in part, to the
increased sales and to the increase in the mix of stock sales. In addition, the
Company increased its inventory investment in its five regional distribution
centers by $13.8 million during 1997, primarily in connection with the addition
of certain supplier lines historically purchased directly by the branches. This
initial increase will be offset as the Company reduces its existing investment
in those supplier lines at the branch locations.
Net cash used in investing activities was $22.4 million for the year ended
December 31, 1997, compared to $111.0 million for the year ended December 31,
1996. The primary reason for the cash used in investing activities for the
periods presented was acquisitions. The Company used $13.9 million and $103.9
million for acquisitions in the periods ended December 31, 1997 and 1996,
respectively. The decrease was due to a reduction in the size and number of
acquisitions completed in 1997 versus 1996.
45
The Company's capital expenditures, excluding acquisitions, for the year
ended December 31, 1997 were $12.4 million as compared to $9.4 million for the
year ended December 31, 1996. Such capital expenditures were primarily for
branch and distribution center facility improvements, forklifts and delivery
vehicles and computer equipment and software. The increase in such expenditures
reflects the necessary investments in fixed assets to position the Company for
its growth plans.
Cash provided by financing activities decreased $46.1 million to $41.1
million for the year ended December 31, 1997 compared to $87.2 million for the
year ended December 31, 1996. The decrease was due to borrowings as a result of
fewer completed acquisitions.
For the three months ended March 31, 1998 cash provided by operating
activities was $13.2 million compared to cash used for operating activities of
$32.5 million for the three months ended March 31, 1997. The primary reason for
the difference was attributable to a $6.3 million decrease in inventories,
excluding the effect of acquisitions, in the first quarter of 1998 compared to a
$24.9 million increase in inventories in the first quarter of 1997. The decrease
in inventories was attributable to several inventory programs initiated by the
Company in the second half of 1997. The increase in the first quarter of 1997
was due primarily to the addition of certain suppliers lines historically
purchased directly by the branches. The remainder of the difference in cash
provided by operations was due to a change in the timing of federal and state
income tax payments.
Net cash used in investing activities was $47.6 million for the three
months ended March 31, 1998 compared to $10.7 million for the three months ended
March 31, 1997. The primary reason for cash used in investing activities during
the periods presented was acquisitions. The Company used $44.0 million and $9.6
million for acquisitions in the periods ended March 31, 1998 and 1997,
respectively. The increase was due to an increase in the size and number of
acquisitions completed in 1998 versus 1997.
The Company's capital expenditures, excluding acquisitions, for the three
months ended March 31, 1998 were $3.7 million as compared to $1.4 million for
the three months ended March 31, 1997. Such capital expenditures were primarily
for branch and distribution center facility improvements, forklifts and delivery
vehicles and computer equipment and software. The increase in such expenditures
reflects the necessary investments in fixed assets to position the Company for
its growth plans. Capital expenditures for fiscal 1998 are expected to total
approximately $15 million.
Cash provided by financing activities increased $1.2 million to $45.2
million for the three months ended March 31, 1998 compared to $44.0 million for
the three months ended March 31, 1997. The increase was due to borrowings as a
result of more completed acquisitions and the issuance of common stock.
Following the Recapitalization. As a result of the Recapitalization,
Holdings and the Company have significant amounts of debt, with the interest
payments on the Notes and interest and principal repayments under the Credit
Facilities representing significant obligations of Holdings and the Company. The
Senior Subordinated Notes require semi-annual interest payments and the Credit
Facilities require quarterly payments of principal and interest commencing
approximately six months after the closing date (the "Closing Date") of the
Recapitalization. Prior to June 1, 2003, Holdings' interest expense on the
Senior Discount Notes will consist solely of non-cash accretions of principal.
On June 1, 2003, Holdings will be required to pay the Mandatory Principal
Redemption Amount. After June 1, 2003, the Senior Discount Notes will require
semi-annual interest payments. The Company's remaining liquidity needs relate to
working capital needs, capital expenditures and potential acquisitions.
The Company intends to fund its working capital, capital expenditures and
debt service requirements through cash flows generated from operations,
borrowings under the Credit Facilities and amounts available under the
Receivables Facility. The Credit Facilities consist of a $100 million Revolving
Facility and $270 million of Term Facilities, consisting of $80 million of
Tranche A Term Loans, $90 million of Tranche B Term Loans and a $100 million
Delayed Draw Term Facility. All amounts under the Revolving Facility were
available immediately following the Recapitalization and $25 million of the
Revolving Facility are available for the purpose of financing permitted
acquisitions. The Delayed Draw Term Facility provides for up to $100 million of
term loan borrowings for two years following the Closing Date
46
solely to fund permitted acquisitions. The Revolving Facility will mature six
years after the Closing Date. The Delayed Draw Term Facility will mature seven
years after the Closing Date. The Tranche A Term Loan will mature six years
after the Closing Date, with quarterly amortization payments during the term of
such loan. The Tranche B Term Loan will mature eight years after the Closing
Date, with nominal quarterly amortization prior to the maturity of the Tranche A
Term Loans and with the remaining amounts amortizing on a quarterly basis
thereafter. The Credit Facilities are secured by substantially all the assets of
Holdings and its subsidiaries. In addition to the Credit Facilities, upon the
Recapitalization the Company entered into the Receivables Facility, which is
also available to finance working capital needs. The Receivables Facility
provides for $300 million of financing through the sale of accounts receivable
to a wholly owned, bankruptcy remote, special purpose subsidiary, although based
on the current composition of the Company's receivables, on the Closing Date
only approximately $250 million were available under the Receivables Facility.
Although the Receivables Facility is available for six years, the Company
currently intends to replace the Receivables Facility through a securitization
of the receivables in the capital markets or another securitization transaction.
However, no assurance can be made that such transaction will be completed or, if
completed, whether such transaction may have materially different terms from the
Receivables Facility. See "Description of the Credit Facilities" and
"Description of the Receivables Facility."
Management believes that cash generated from operations, together with
amounts under the Credit Facilities and the Receivables Facility, will be
sufficient to meet the Company's working capital, capital expenditure and other
cash needs, including financing for acquisitions, in the foreseeable future.
There can be no assurance however, that this will be the case. Holdings and
Company may consider other options available to them in connection with future
liquidity needs, including the issuance of additional debt and equity
securities.
Year 2000
The Company is in the process of modifying, upgrading or replacing its
computer software applications and systems to accommodate the "Year 2000"
changes required for correct recording of dates in the year 2000 and beyond. The
Company does not expect that the cost of its Year 2000 compliance program will
be material to its financial condition or results of operations. The Company
believes that it will be able to achieve compliance by the beginning of 1999,
and does not currently anticipate any material disruption in its operations. The
Company has very limited information concerning the compliance status of its
suppliers. In the event that the Company or any of the Company's significant
suppliers do not successfully achieve Year 2000 compliance, the Company's
business or operations could be adversely affected.
Inflation
The rate of inflation, as measured by changes in the consumer price index,
did not have a material effect on the sales or operating results of the Company
during the periods presented. However, inflation in the future could affect the
Company's operating costs. Price changes from suppliers have historically been
consistent with inflation and have had little impact on the Company's
profitability.
Seasonality
The Company's operating results are affected by certain seasonal factors.
Sales are typically at their lowest during the first quarter due to a reduced
level of construction activity during the winter months. Sales increase during
the warmer months beginning in March and continuing through November. Sales drop
again slightly in December as the weather cools and also as a result of reduced
level of activity during the holiday season. As a result, the Company reports
sales and earnings in the first quarter that are generally lower than that of
the remaining quarters.
The following table presents unaudited quarterly operating results for each
of the Company's last nine quarters as well as the percentage of the Company's
sales represented by each item. This information has been prepared by Holdings
on a basis consistent with Holdings' audited financial statements and includes
all adjustments (consisting only of normal recurring adjustments) that
management considers necessary for a fair presentation of the data. These
quarterly results are not necessarily
47
indicative of future results of operations. This information should be read in
conjunction with Holdings' consolidated financial statements and notes thereto
included elsewhere in this Prospectus.
Quarter Ended
-----------------------------------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------------------- ----------------------- ----------------------- -----------------------
(Dollars in millions)
1996:
Sales, net ..................... $ 477.1 100.0% $ 584.6 100.0% $ 606.6 100.0% $ 606.3 100.0%
Gross profit* .................. 89.3 18.7 102.4 17.5 104.0 17.1 109.3 18.0
Income from operations ......... 15.2 3.2 16.9 2.9 16.6 2.7 19.5 3.2
Net income ..................... 7.4 1.6 7.7 1.3 7.7 1.3 9.7 1.6
1997:
Sales, net ..................... $ 576.7 100.0% $ 659.4 100.0% $ 680.0 100.0% $ 678.7 100.0%
Gross profit* .................. 104.4 18.1 114.7 17.4 120.9 17.8 123.9 18.3
Income from operations ......... 14.9 2.6 20.8 3.2 23.4 3.4 21.0 3.1
Net income ..................... 6.1 1.1 9.5 1.4 11.0 1.6 9.6 1.4
1998:
Sales, net ..................... $ 693.4 100.0%
Gross profit* .................. 126.7 18.3
Income from operations ......... 20.2 2.9
Net income ..................... 8.5 1.2
- ---------------------
* Exclusive of depreciation and amortization.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The provisions of SFAS No.
130 have been adopted in the three month period ended March 31, 1998 and all
years presented have been adjusted to reflect the adoption. In Holdings' case,
comprehensive income includes net income and unrealized gains and losses from
currency translation.
The FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and related disclosures about products and services,
geographic areas and major customers. The SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Additionally, the Accounting Standards
Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," which
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. The SOP is effective for fiscal years beginning after
December 15, 1998. Management is currently evaluating the impact of these
standards on the financial statements.
48
BUSINESS
Overview
WESCO is the second largest provider of products and related services in
the U.S. electrical wholesale distribution industry and believes that it is also
the second largest in North America. The Company operates over 325 branches and
five regional distribution centers in 48 states and nine Canadian provinces to
serve virtually the entire U.S. and Canadian market. WESCO provides a broad
product offering consisting of over 210,000 products sourced from over 6,000
suppliers to over 130,000 customers. WESCO complements this broad product
offering with a range of services and procurement solutions, including
integrated supply, whereby it manages all aspects of the customer's supply
processes, and electronic commerce, which enables procurement to be automated
for improved service at lower cost. WESCO's diversified customer base includes a
wide variety of industrial companies, contractors for industrial, commercial and
residential projects, utility companies, and commercial, institutional and
governmental customers. WESCO's national infrastructure, extensive local
geographic coverage and complementary service offerings have allowed WESCO to
specialize in developing combined product and service solutions tailored to meet
the specific needs of its individual customers. WESCO is particularly well
positioned to meet the complex procurement needs of multi-site customers seeking
total supply chain cost reduction through preferred supplier alliances.
Since the Company's divestiture from Westinghouse in 1994 (the
"Divestiture"), management has realigned operations to achieve substantial
growth in sales and profitability. The current management team has: (i)
substantially improved operating margins; (ii) realigned WESCO's branch network
to focus on key customer markets; (iii) significantly expanded WESCO's National
Accounts (as defined) and other marketing programs; (iv) implemented a new
incentive system for branch managers and sales personnel; and (v) actively
pursued industry consolidation opportunities. As a result of management's
actions and growth in the industry generally, sales have increased from $1.6
billion in 1993 to $2.9 billion on a pro forma basis for the year ended December
31, 1997, a compound annual growth rate of 16.6%, and EBITDA has improved from a
loss of $1.4 million in 1993 to $109.5 million on a pro forma basis for the year
ended December 31, 1997. Pursuant to the Recapitalization, management retained
approximately $97.7 million of equity in Holdings and, together with new stock
options expected to be granted in connection with the Recapitalization, will
hold or have the right to acquire over 30% of the common equity of Holdings on a
fully diluted basis. See "The Recapitalization."
Industry Overview
The electrical wholesale distribution industry serves customers in the
industrial, commercial, construction and utility markets. Electrical wholesalers
provide logistical and technical services for customers by bundling together a
wide range of products typically required for the construction and maintenance
of electrical supply networks, including wire, lighting, distribution and
control equipment and a wide variety of electrical supplies. The wholesale
channel enables customers to efficiently access a broad range of products and
has the capacity to deliver value-added services. Customers are increasingly
demanding that distributors provide a broader and more complex package of
services as customers seek to outsource non-core functions and achieve
documented cost savings in purchasing, inventory and supply chain management. As
a result of these customer demands, electrical wholesalers have approximately
doubled their share of total electrical products sold in the United States from
1972 to 1997, and sales by electrical wholesalers now represent approximately
60% of the U.S. electrical market.
The electrical wholesale distribution industry in the U.S. is large,
growing and highly fragmented. Industry sources estimate that total electrical
wholesale distributor sales were $67 billion in 1997, a 9.6% compound annual
growth rate since 1994. In 1996, the latest year for which data is available,
the four largest wholesale distributors, including WESCO, accounted for only 14%
of estimated total industry sales. In that year, no single distributor accounted
for more than 5% of estimated industry sales, and 57% of such sales were
generated by distributors with less than $21 million in annual sales.
49
Competitive Strengths
WESCO believes it is well positioned to both capitalize on the growing
customer demand for value-added services and procurement outsourcing and play a
leading role in the continued consolidation in the electrical products
distribution industry as a result of the following competitive advantages:
Market Leadership. WESCO believes it is the second largest electrical
wholesale distributor in North America, serving virtually the entire U.S. and
Canadian market. Management believes that WESCO is the industry's leading
wholesale supplier of electrical products in North America to several important
and growing markets, including: (i) customers with large, complex plant
maintenance operations requiring a national multi-site service solution for
their electrical distribution product needs; (ii) large contractors for major
industrial and commercial construction projects; (iii) the electric utility
industry; and (iv) manufacturers of factory-built homes, recreational vehicles
and other modular structures. These leadership positions provide WESCO with an
extensive base from which to continue to grow sales.
Established National and Local Distribution Infrastructure. WESCO's North
American distribution network consists of over 325 branches and five regional
distribution centers in 48 states and nine Canadian provinces. This established
network provides WESCO with a number of competitive advantages, including the
ability to: (i) offer multi-site agreements with the broad geographic scope
required by major customers who seek to coordinate their maintenance, repair and
operating ("MRO") supplies purchasing activity across multiple locations
("National Accounts"); (ii) enter into favorable preferred supplier agreements
which provide for improved payment terms, volume rebates, marketing programs and
geographic franchises; (iii) utilize a specialized and technical nationwide
sales force to meet specific customer demands for a broad range of products and
services across multiple geographic markets; and (iv) provide same-day
shipments. Management believes these competitive strengths allow it to more
effectively meet the service needs and expectations of both large national
customers who are increasingly demanding a single source supply capability and
local customers who require high service levels for their electrical product
procurement needs.
Broad Product Offering. WESCO provides its customers with a broad product
selection consisting of over 210,000 electrical, industrial and data
communications products sourced from over 6,000 suppliers. The Company's
products range from basic wire to advanced automation and control products.
Value Added Services. In partnership with its customers, WESCO combines its
product offerings with a wide range of supply management services to create
value for its customers. Examples of such services include: (i) outsourcing of
the entire MRO purchasing process; (ii) implementing inventory optimization
programs; (iii) participating in joint cost savings teams; (iv) assigning
Company employees as on-site support personnel; (v) recommending
energy-efficient product upgrades; (vi) offering safety and product training for
customer employees; and (vii) providing manufacturing process improvements using
automated solutions. This combination of products and value-added services
enhances WESCO's competitive position by allowing it to offer comprehensive and
documented cost-efficient solutions to a customer's specific procurement needs.
Diverse Revenue Base. WESCO's diverse revenue base is derived from the sale
of its broad range of over 210,000 electrical, industrial and data
communications products to over 130,000 customers, including: (i) industrial
companies from numerous manufacturing and process industries and original
equipment manufacturers ("OEMs"); (ii) contractors for industrial, commercial
and residential projects; (iii) electrical utility customers; and (iv)
commercial, institutional and governmental customers. No customer accounted for
more than 1% of WESCO's total sales in 1997. WESCO's geographic diversity
encompasses sales in all 50 states in the U.S. and all 10 Canadian provinces.
This diversity of customers and products provides WESCO with a broad base from
which to grow sales and reduces exposure to any particular customer, industry or
regional economic cycle.
Proven and Committed Management Team. WESCO's management team has
successfully repositioned the Company following the Divestiture. The current
management team has: (i) substantially improved operating margins; (ii)
realigned WESCO's branch network to focus on key customer markets; (iii)
significantly expanded WESCO's National Accounts and other marketing programs;
(iv) implemented a new incentive system for branch managers and sales personnel;
and (v) actively pursued
50
industry consolidation opportunities. Since August 1995, WESCO's management has
successfully completed 14 acquisitions which currently account for estimated
annualized sales of over $800 million. As a result of management's actions as
well as growth in the industry generally, sales have increased from $1.6 billion
in 1993 to $2.9 billion on a pro forma basis for the year ended December 31,
1997, a compound annual growth rate of 16.6%, and EBITDA has improved from a
loss of $1.4 million in 1993 to $109.5 million on a pro forma basis for the year
ended December 31, 1997. Pursuant to the Recapitalization, approximately 200
managers continued to retain equity in Holdings representing an aggregate value
of approximately $97.7 million. In addition, certain managers will have the
opportunity to invest an aggregate of up to approximately $15 million in newly
issued common stock of Holdings. Holdings also plans to adopt a new stock option
plan in connection with the Recapitalization. As a result, management will hold
or have the right to acquire over 30% of the common equity of Holdings on a
fully diluted basis.
Business Strategy
Increase Large National Programs. WESCO has successfully established
National Accounts relationships with approximately 300 customers and believes it
can continue to expand revenue generated through its National Accounts program
by: (i) increasing the number of products and sites covered by its existing
National Accounts relationships; (ii) expanding MRO agreements to include
capital projects; and (iii) extending the program to new customers. National
Accounts provide WESCO with a recurring base of revenue through strategic
multi-year agreements. In addition, through its Major Projects Group, the
Company plans to intensify its focus on large construction projects, such as new
stadiums, industrial sites, wastewater treatment plants, airport expansions,
healthcare facilities and correctional facilities. The Company intends to secure
new National Accounts and Major Projects contracts through: (i) aggressive
national marketing of WESCO's demonstrated project management capabilities; (ii)
further development of relationships with leading construction and engineering
firms; and (iii) close coordination with National Accounts customers on their
major renovation and new construction projects.
Continue to Improve Operating Profit Margins and Cash Flow. WESCO has
successfully improved its operating profit margins over the past four years,
increasing EBITDA to over $109.5 million on a pro forma basis for the year ended
December 31, 1997 from a loss in EBITDA of $1.4 million in 1993. WESCO believes
a successful business strategy must include the commitment to continuous
improvement in profitability and productivity. The Company is emphasizing the
widespread use of innovative and disciplined approaches to managing its business
processes, employee productivity, and working capital and capital expenditure
efficiency. These continuous improvement initiatives include: (i) improving
product pricing controls to maximize gross margin; (ii) utilizing activity-based
costing to more accurately measure and enhance profitability by customer,
supplier and other categories; (iii) enhancing the coordination of purchasing
and inventory management across its branch network and regional distribution
centers; (iv) improving information systems processing capabilities in order to
realize more efficient branch and headquarters operations; and (v) leveraging
the existing corporate infrastructure by continuing to eliminate redundant
back-office functions of acquired companies.
Encourage Branch Level Entrepreneurship. A distributor's reputation is
often determined at the local branch level, where timely supply and customer
service are critical. Accordingly, WESCO grants its branch managers substantial
autonomy and responsibility to best respond to customer needs in local markets.
WESCO's branch managers are responsible for optimizing business activities in
their local markets, including managing the branch sales force, configuring
inventories, selecting potential customers for targeted marketing efforts and
developing local service options. WESCO's compensation system for branch
managers, a significant portion of which is incentive based, strongly encourages
sales and cash flow growth as well as efficient working capital management at
the branch level.
Gain Share in Key Local Markets. WESCO intends to increase its market share
in key geographic markets with a substantial base of potential customers through
a combination of new branch openings, increased sales and marketing efforts and
acquisitions. In addition, WESCO's marketing team, together with local branch
managers, are expanding the Company's program of detailed market analysis and
opportunity identification on a branch-by-branch and product line basis. The
Company has developed a detailed database of potential customers for its
individual markets which it will utilize to implement this
51
strategy. Furthermore, the Company intends to leverage its existing
relationships with preferred suppliers to increase sales of their products in
local markets through various initiatives, including sales promotions,
cooperative marketing efforts, direct participation by suppliers in National
Accounts implementation, dedicated sales forces and product exclusivity.
Expand Product and Service Offering. WESCO intends to build on its
demonstrated ability to introduce new products and services to meet customer
demands and capitalize on market opportunities. For example, the Company plans
to expand its presence in the fast-growing data communications market. In the
past two years, WESCO has significantly increased its focus on this market,
generating sales of $83 million in 1997, up from $52 million in 1995. By
utilizing a dedicated data communications sales team and leveraging its existing
sales force, the Company intends to expand sales to new and existing customers,
as well as broaden its offering into additional data communications product
lines. In addition, the Company plans to expand its integrated supply programs
with both new and existing accounts. Given the initial success of its integrated
supply initiatives and the rapid growth in the demand for such services
anticipated by the Company, WESCO believes it has a significant opportunity to
develop additional customer relationships by leveraging its comprehensive
service and supply expertise.
Pursue Consolidation Opportunities. WESCO utilizes a disciplined approach
toward acquisitions which includes established targets for cash return on
investment. Since August 1995, WESCO's management has successfully completed 14
acquisitions which currently account for estimated annualized sales of over $800
million. WESCO intends to continue to pursue its consolidation strategy and
believes that the highly fragmented nature of the electrical distribution
industry will provide WESCO with a significant number of acquisition
opportunities. The Company evaluates potential acquisitions based on their
ability to: (i) accelerate expansion into key growth markets; (ii) add support
capabilities for important new customers; (iii) enhance sales of acquired
branches by immediately broadening the product and service mix; (iv) expand
local presence to better serve existing customers; (v) strengthen relationships
with manufacturers; and (vi) provide operating efficiencies by leveraging
WESCO's existing infrastructure.
52
Acquisitions
In mid-1995 WESCO launched its program to make acquisitions that complement
its existing business. See " -- Business Strategy." Since August 1995, WESCO has
completed 14 acquisitions which currently account for estimated annualized sales
of over $800 million. In order to improve operating efficiencies, management has
closed or consolidated 25 of the acquired branches due to overlapping locations.
The Company paid cash consideration of approximately $6.2, $103.9, $13.9 and
$87.6 million for acquisitions in 1995, 1996, 1997 and 1998 (through May 12,
1998), respectively. See Notes 14 and 15 to the consolidated financial
statements of Holdings included elsewhere in this Offering Memorandum. These
acquisitions and the key rationale for each are summarized below.
Number
of Annual
Year Company Headquarters Branches Sales(1) Key Rationale
- ------ ----------------------- ------------------ ---------- ------------ -------------------------------------------
(millions)
1995 Fife Electric Company Detroit, MI 1 $ 42 Capitalized on strong relationships with
auto manufacturers and obtained a
Square D distributorship.
Manufactured Monroe, NC 1 5 Expanded product offering for
Housing Supply Manufactured Structures customers.
1996 Murco, Inc. Monroe, LA 3 14 Leveraged systems integration capabilities
with paper manufacturing and wastewater
treatment customers.
Standard Electric Bangor, ME 9 25 Improved coverage of pulp and paper
Company, Inc. National Accounts.
EESCO, Inc. Chicago, IL 36 288 Increased Midwest industrial presence and
obtained a major Allen-Bradley distribu-
torship.
Hamby-Young Power Aurora, OH 2 22 Introduced product and design capabilities
Supply Products, Inc. for electrical substation facilities.
Nevada Electric Las Vegas, NV 1 5 Expanded into growing Las Vegas market.
Supply
Power Supply, Inc. Houston, TX 5 20 Enhanced utility market share in Texas.
Ace Electric Supply Jacksonville, FL 11 44 Obtained an additional Allen-Bradley
Company distributorship in the Southeast.
1997 Diversified Electric Little Rock, AR 2 28 Further consolidated utility leadership in
Supply Company, Inc. the Southeast.
Maydwell & Hartzell, Brisbane, CA 7 24 Built utility leadership in the West.
Inc.
1998 Avon Electrical Hauppauge, NY 2 80 Expanded presence in metropolitan New
Supplies, Inc. York.
Brown Wholesale Sun Valley, CA 9 70 Expanded industrial/construction market
Electric Company share in the Southwest.
Reily Electric New Orleans, LA 7 140 Enhanced existing National Accounts
Supply, Inc. customer relationship.
-- ----
Total 96 $807
== ====
- ---------------------
(1) Represents WESCO's estimate of annual sales at the time of acquisition,
based on WESCO's review of internal and/or audited statements of the
acquired business.
The largest acquisition completed to date was EESCO, Inc. ("EESCO"), the
eighth largest electrical wholesale distributor in the U.S. at the time it was
acquired by WESCO in April 1996. As a result of the EESCO acquisition, WESCO
increased coverage in the key Chicago and Minneapolis markets, developed
important new supplier relationships (Allen-Bradley and General Electric),
increased scale and realized cost savings through the consolidation of branches
and the reduction of selling, general and administrative expenses. WESCO has
substantially increased the sales and profitability of EESCO by: (i) increasing
investment capital for new and existing EESCO branches; (ii) expanding EESCO's
53
technical support group; and (iii) including EESCO branches in National Accounts
programs and preferred supplier agreements. Since its acquisition, EESCO's
annual net sales have increased to $341 million in 1997 from $288 million in
1995.
On January 1, 1998, WESCO acquired the electrical distribution businesses
of Avon Electrical and Brown Wholesale. Avon Electrical, operating two branch
locations, is a leading distributor in the New York metropolitan area. Brown
Wholesale, with two branches in Arizona, is the leader in the high-growth
Phoenix market. Brown Wholesale also had seven branches which were closed or
sold in California and Hawaii to improve operating efficiency. These
acquisitions will add approximately $150 million in annualized sales.
On May 8, 1998, WESCO acquired the assets of, and assumed certain
liabilities of, Reily, a distributor headquartered in New Orleans, Louisiana
with seven branches in the Gulf Coast region. The Reily acquisition provides the
Company with several strategic benefits, including: (i) strengthening its market
position in the Gulf Coast region; (ii) complementing an existing National
Accounts customer relationship in the petrochemical industry; and (iii)
improving its position in the Houston market, where Reily's strong market
position will complement WESCO's existing branch operations.
As a result of the acquisitions of Avon Electrical, Brown Wholesale and
Reily, the Company contemplates consolidating and/or closing 5 WESCO branches by
the end of 1998 which the Company expects will result in $3.6 million of annual
cost savings. The Company does not expect to incur any material expenses or
charges in connection therewith.
Products and Services
WESCO's network of branches and distribution centers contains approximately
210,000 product stock keeping units ("SKUs"), and the average branch maintains
in its warehouse stock approximately 4,000 to 8,000 SKUs, tailored to meet the
needs of the customers in its markets. WESCO's major product categories, and the
representative products and the percentage of 1997 sales for each such category,
are set forth below:
Product Category Representative Products Percent of 1997 Sales
- -------------------------------- ------------------------------------------------------ ----------------------
Supplies Fuses, terminals, connectors, boxes fittings, tools, 25
lugs, tapes and other miscellaneous supplies
Distribution Equipment Circuit breakers, transformers, switchboards, 23
panelboards and busway
Wire and Conduit Wire, cable, steel and PVC conduit 22
Lighting Lamps (light bulbs), fixtures and ballasts 19
Control, Automation and Motors Motor control centers, drives, programmable logic 8
controllers, pushbuttons and operator interfaces
Data Communications Premise wiring, patch panels, terminals, 3
connectors, hubs and routers
In conjunction with product sales, WESCO offers customers a range of
services and procurement solutions that draws on its product and supply
management expertise and systems capabilities. These services include National
Accounts programs, integrated supply programs and electronic commerce.
National Accounts Programs. The typical National Accounts customer is a
Fortune 500 industrial company, a large utility or other major customer, in each
case with multiple locations. Recently, through rigorous selection processes,
these customers have been seeking to substantially reduce their electrical
supply base -- in some cases from several hundred suppliers to just one -- with
expectations for documented cost reductions, high levels of service and
consistent product and pricing across all locations. WESCO's national platform,
strong branch network and product breadth give it the capacity to offer
multi-site agreements with the scope required by National Accounts.
WESCO's National Accounts programs provide customers with total supply
chain cost reductions by coordinating purchasing activity for MRO supplies
across multiple locations. WESCO is able to demonstrate documented savings of
over 10% within the first year of program launch. Comprehensive roll-out plans
establish jointly-managed implementation teams at the local and national level
to prioritize
54
activities, track progress against objectives, and identify key performance
measures. WESCO is increasingly involving its preferred suppliers early in the
implementation process, where they can contribute expertise and product
knowledge to accelerate program implementation and the achievement of savings.
Integrated Supply Programs. WESCO's integrated supply programs offer
customers a variety of services to support their objectives for improved supply
chain management. WESCO integrates its personnel, product and distribution
expertise, electronic technologies and service capabilities with the customer's
own internal resources to meet particular service requirements. Each integrated
supply program is uniquely configured to deliver a significant reduction in the
number of MRO suppliers, reduce total procurement costs, improve operating
controls and lower administrative expenses. Although integrated supply programs
currently account for a small portion of revenue, management believes that
customers will increasingly seek to utilize WESCO as an "integrator,"
responsible for selecting and managing the supply of a wide range of MRO and OEM
products.
Electronic Commerce. WESCO enhances its ability to service customers
accurately and efficiently by incorporating technologies such as EDI, electronic
mail, electronic cataloging (such as CD-ROM and Internet ordering), direct order
entry and barcoded bin labelling to streamline inventory replenishment. WESCO
also employs technological and logistical innovations in its internal operating
processes to improve customer service, including paperless warehousing,
cross-docking, barcoding and automatic stock replenishment. Although
constituting a small percentage of WESCO's total number of transactions, WESCO
typically completes in excess of 65,000 EDI transactions per month.
Suppliers and Purchasing
WESCO's supplier relationships are strategically important to WESCO,
providing access to a wide range of products, technical training and sales and
marketing support. Suppliers often take an active role in marketing products to
the customer by deploying their own sales force and/or independent
manufacturers' representatives to work together with WESCO's sales organization.
WESCO's growth, size, geographic scope and marketing initiatives with large,
high profile customers make it an attractive partner for suppliers by allowing
them to expand customer access to their product offerings, improve their market
position and introduce new products. As a result, WESCO has been able to
negotiate broad access to most product lines, including preferred supplier
agreements with regard to volume discounts, payment terms, marketing support and
logistics.
WESCO purchases products from a diverse group of over 6,000 suppliers. In
1997, the ten largest suppliers accounted for approximately 45% of the Company's
purchases, and the top 200 suppliers accounted for approximately 85% of
purchases. The largest of these was Eaton Corporation, through its Cutler-Hammer
division, successor to the Distribution and Control Business Unit of
Westinghouse, accounting for approximately 18% of total purchases. No other
supplier accounted for more than 6%. WESCO's ten largest suppliers in 1997 and
their principal products are as follows:
Supplier Products
- --------------------- -----------------------------------
Cutler-Hammer Distribution and control equipment
Allen-Bradley Control and automation equipment
Asea Brown Boveri Transformers
Philips Lighting Lamps
Southwire Company Wire and cable
Cooper Lighting Lighting fixtures
Thomas & Betts Electrical supplies
Lithonia Lighting Lighting fixtures
Crouse Hinds Fittings
General Electric Lamps and distribution equipment
WESCO has preferred supplier agreements with approximately 150 of its
suppliers, and purchases approximately 60% of its stock inventories from
suppliers pursuant to these agreements. Consistent
55
with industry practice, most of WESCO's agreements with suppliers, including
both distribution agreements and preferred supplier agreements, are terminable
by either party on no more than 60 days notice. See "Risk Factors -- Product
Supply."
In order to capitalize on its buying power as a national network, WESCO has
increasingly centralized buying by supplying a larger proportion of branch stock
sales through its five regional distribution centers. To preserve local
flexibility in tailoring their inventories to meet local customer requirements,
branches are often offered the option of purchasing a choice of competing lines
from the distribution centers. In limited cases where a product ordered by a
customer is not otherwise available, a branch may purchase such product from a
competitor to resell to the customer.
Certain suppliers to the electrical wholesale market supply their products
pursuant to exclusive geographic arrangements whereby the distributor is granted
the exclusive ability to sell the supplier's products in a geographic market and
may be restricted from offering competing products. Although relatively few
suppliers have such exclusive geographic distributorship arrangements, some
involve much sought after product lines. The most notable of these is the highly
regarded Allen-Bradley distributorship. In 1996, as a result of two
acquisitions, the Company significantly increased the number of branches
offering the Allen-Bradley product.
WESCO has a product management group which manages key supplier
relationships, including negotiating preferred supplier agreements, managing
cooperative marketing funds, organizing product training, developing joint
marketing plans with suppliers and evaluating supplier performance.
Markets and Customers
WESCO has a large base of approximately 130,000 customers diversified
across its principal markets. With no customer accounting for more than 1% of
1997 sales, WESCO is not dependent on any single customer. WESCO's broad
customer base includes: (i) industrial companies from numerous manufacturing and
process industries, and OEMs, including manufacturers of factory-built homes and
other modular structures; (ii) contractors for industrial, commercial and
residential projects; (iii) investor-owned utilities, municipal power
authorities and rural electric cooperatives; and (iv) commercial, institutional
and governmental ("CIG") customers.
Industrial Customers. Sales to industrial customers, which include MRO and
OEM sales, accounted for approximately 40% of WESCO's sales in 1997 and
approximately 25% of the electric wholesale market in 1996.
Electrical MRO products are needed to maintain and upgrade the electrical
network at all industrial sites. Expenditures are greatest in the heavy process
industries, such as pulp and paper and petrochemical. Typically, electrical MRO
is the first or second ranked product category by purchase value for total MRO
requirements for an industrial site. Other MRO product categories include, among
other things, lubricants; pipe, valves and fittings; fasteners; and power
transmission products. MRO activity has been difficult for industrial users to
manage, as it is characterized by a fragmented supply base, a high volume of low
dollar transactions, poor usage and cost information and relatively high
inventory levels. For example, it is not unusual for a customer to inventory as
many as 10,000 MRO SKUs. Furthermore, customers are sensitive to supply
reliability, since a lack of critical spares could cause an entire manufacturing
process to shut down.
WESCO is responding aggressively to the needs of this market, particularly
for the high-use customers in heavy process industries. To more efficiently
manage the MRO process on behalf of its customers, WESCO offers a range of
supply management services, including: (i) outsourcing of the entire MRO
purchasing process; (ii) implementing inventory optimization programs; (iii)
participating in joint cost savings teams; (iv) assigning Company employees as
on-site support personnel; (v) recommending energy-efficient product upgrades;
(vi) offering safety and product training for customer employees; and (vii)
providing manufacturing process improvements using automated solutions. WESCO's
most distinctive service is its National Accounts program, with the ability to
offer multi-site agreements to large industrial customers to ensure local supply
with nationwide consistency in product and pricing.
56
OEM customers incorporate electrical assemblies and components into their
own products and typically require a reliable, high-volume supply of a narrow
range of electrical items. The wholesale channel generally serves the smaller
and medium-sized OEMs, while the larger OEMs typically purchase directly from
manufacturers. Customers in this segment are particularly service and price
sensitive due to the volume and the critical nature of the product used. OEMs
also expect value-added services such as design and technical support,
just-in-time supply and electronic commerce. While prices tend to be lower in
this market due to higher volume, long-term relationships are typical, which
leads to an efficient supply process and stable, recurring revenues.
WESCO serves the OEM market by: (i) providing experienced,
technically-oriented sales specialists who assist in product specification and
selection, prototype development and supplier coordination; (ii) offering supply
management services similar to those provided to industrial MRO customers; (iii)
securing access to product lines that are commonly specified by OEMs; (iv)
working with suppliers on product applications; and (v) offering specialized
packaging or kitting services that bring efficiencies to the customer's
manufacturing process.
Management believes that WESCO is the leading electrical wholesaler in the
manufactured structures market (factory built homes, recreational vehicles and
other modular structures), a particular type of OEM. For the past several years
WESCO has been expanding its service to these customers by offering integrated
supply solutions including a wide range of non-electrical products such as
structural components, air conditioning units, plumbing fixtures, cabinets and
kitchen ventilation equipment.
Electrical Contractors. Sales to electrical contractors accounted for
approximately 38% of WESCO's sales in 1997 and approximately 40% of the
electrical wholesale market in 1996. These customers range from large
contractors for major industrial and commercial projects, the customer types
which WESCO principally serves, to small residential contractors which represent
a small portion of WESCO's sales. Electrical products purchased by contractors
typically account for approximately 40% to 50% of the total installed cost, and
therefore accurate cost estimates and competitive material costs are critical to
a contractor's success in obtaining profitable projects. Contractors choose
wholesale suppliers on the basis of price, availability and various support
services such as design assistance, bill of material development, credit
policies and inventory management.
WESCO is one of the industry leaders in serving the complex needs of large
commercial and industrial contractors, and has established a Major Projects
Group to focus some of its most experienced personnel on serving the needs of
the top 50 U.S. electrical contractors on a multi-regional basis. WESCO also
offers a wide range of services to meet the needs of contractors, including
blanket purchase agreements, on-line ordering, CD-ROM catalogs, on-site
trailers, lighting and distribution equipment lay-outs and access to low voltage
products, particularly data communications products. WESCO has also worked to
strengthen its relationships with independent manufacturers' representatives who
provide additional sales coverage, technical assistance and training on behalf
of manufacturers.
Utilities. Sales to utilities accounted for approximately 14% of WESCO's
sales in 1997 and approximately 4% of the electrical wholesale market in 1996.
The Company believes that its estimated 13% market share positions it as the
leading electrical wholesaler to this market, which includes large
investor-owned utilities, smaller rural electric cooperatives and municipal
power authorities. WESCO provides its utility customers with an extensive range
of supplies to meet their MRO and capital projects needs. Integrated supply
arrangements are also important in this market as cost pressures and
deregulation cause utility customers to streamline procurement practices. WESCO
has been selected for supply management agreements with ComEd, PECO Energy and
Wisconsin Electric Power Company.
Traditionally, investor-owned utilities have purchased products directly
from manufacturers, while smaller rural electric cooperatives and municipal
power authorities have been supplied by electrical wholesalers, including WESCO.
Both large and small utility customers require relatively high dollar volumes of
specialized product to maintain their electrical networks. Access to these
specialized utility products is limited by geographic distributorship agreements
granted by manufacturers. These products are, therefore, not generally available
to all electrical wholesalers at the pricing required by utility customers.
Recent trends in the utility industry favor utility-oriented electrical
wholesalers, such as WESCO. The most important trend is the deregulation of
utility power generation, which has forced large utilities
57
to seek better asset utilization and cost savings in all aspects of their
operations, including purchasing and supply management. Investor-owned
utilities, in focusing on their core business, have moved to outsource certain
supply functions to wholesalers in order to reduce costs and enhance cash flow.
Commercial, Institutional and Governmental Customers. Sales to CIG
customers accounted for approximately 7% of WESCO's sales in 1997 and
approximately 21% of the electrical wholesale market in 1996. This is a
fragmented market which includes schools, hospitals, property management firms,
retailers (for their own use) and government agencies of all types. These
customers often have complex infrastructure construction requirements, but their
MRO requirements are typically less complex than large industrial or utility
customers. WESCO's locally oriented and entrepreneurial branch operations are
well positioned to serve both construction and MRO needs of these customers.
WESCO's Major Products Group often assists in new construction and the National
Accounts group supports the MRO needs of multi-site financial institutions,
department stores and amusement parks. National retail or service chains tend to
favor distributors such as WESCO who can meet their recurring needs at dozens or
hundreds of store or office locations.
Other Electrical Customers. Sales to other electrical customers accounted
for less than 1% of WESCO's sales in 1997 and approximately 10% of the
electrical wholesale market in 1996. These customers include the general public,
retailers (for resale), farmers and other wholesalers.
Data Communications Customers. WESCO provides its customers with a wide
range of data communications products including (i) components of facilities and
premise wiring for data networks and (ii) electronic devices and processors that
transmit and manage the data flowing through a network. WESCO's customers in
this market include Bell Atlantic, IBM, Kodak and LTV Steel. Because of the
convergence of voice, data, and video applications, this growing market consists
of a wide range of new products and manufacturers that are not included in the
market size estimates for the electrical industry. The premise wiring component
of the data communications market is estimated by industry sources to grow to
approximately $4 billion in total sales by the year 2001 from an estimated $3
billion in 1997. The Company's sales to this market increased from $52 million
in 1995 to $83 million in 1997, and the Company believes that such sales will
continue to grow at a greater rate than most of its other product categories.
The Company's sales to this market in the first quarter of 1998 were 22% higher
than that of the comparable period in 1997.
Distribution Network
Branch Network. WESCO operates a system of over 325 branches, of which
approximately 275 are located in the U.S., approximately 50 are located in
Canada and the remainder are located in Puerto Rico, Mexico and Guam. Over the
last two years WESCO has opened approximately 15 branches per year, principally
to service National Accounts customers. In addition to consolidations in
connection with acquisitions, the Company occasionally closes or consolidates
existing branch locations to improve operating efficiency.
The size of individual branches within WESCO's nationwide network varies
broadly. In 1997, WESCO's branches had annual sales as high as $66 million, with
an average of approximately $8 million. A representative branch employs 10 to 15
people and typically stocks a product mix of 4,000 to 8,000 SKUs, tailored to
its local customer base. Customers can typically place orders at the branches
through facsimile, telephone, mail, EDI, on-line order entry or counter
appearances.
WESCO grants its branch managers substantial autonomy in directing the
branch sales force, configuring inventories, selecting markets served and
developing local service options. Branches operate as separate profit and loss
centers. A key aspect of WESCO's growth strategy is to encourage higher levels
of productivity by creating appropriate economic incentives for branch managers
through a mix of bonuses and stock options tied to the branch's growth and
profit improvement. Since the Divestiture and the implementation of this
incentive system, WESCO's average compensation for branch managers has increased
by approximately 60%. See "Management -- Stock Option Plan for Branch
Employees."
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Distribution Centers. To support its branch network, WESCO has a system of
five regional distribution centers ("DCs") which supply approximately 40% of
stock purchases. The DCs add value to customers through: (i) shorter lead times
for product supply; (ii) better product selection and availability; (iii) same
day shipments; and (iv) central order handling and fulfillment for certain
multi-site customers. In addition to creating value for customers, the DCs
improve WESCO's supply chain management through: (i) automatic replenishment of
branch stock; (ii) on-line ordering for branches; (iii) redeployment of
slow-moving branch stock; (iv) automation of branch purchasing administration;
(v) bulk purchasing to achieve order discounts; and (vi) advanced distribution
techniques such as paperless picking, flow racking, barcoding, weight
verification, electronic freight management and cross-docking. Suppliers also
benefit from the DCs due to larger order sizes and lower transportation costs.
DCs ship to branches every day, for same-day orders or orders previously
generated through WESCO's computerized automated stock replenishment system.
Transportation and Logistics. WESCO offers its customers a variety of
delivery methods, including: (i) direct shipment from the manufacturer, which is
employed for many large orders and engineered products; (ii) branch shipment,
which is used for the large majority of stock and special order sales; (iii)
branch pick-up, which is used by some customers, particularly contractors, for
their day-to-day business; and (iv) shipment from a DC on an exception or
emergency basis, since DCs are primarily used to replenish branch stock.
Substantially all branch shipments to customers are made by contract carriers or
by Company or third party delivery vehicles, with minimal use of overnight
parcel services.
Typically, manufacturers pay freight charges for inbound shipments to DCs,
branches or customers. In some instances, prepaid freight terms are contingent
upon WESCO meeting certain minimum order requirements. For some suppliers and
where it results in lower overall transportation costs, WESCO has negotiated
pick-up allowances in lieu of prepaid freight.
Sales Organization
General Sales Force. WESCO's general sales force is based at the local
branches, and comprises approximately 2,000 Company employees, split equally
between outside sales representatives and inside sales personnel. Outside sales
representatives, who have an average of more than eight years of experience at
WESCO, are paid under a compensation structure which is heavily weighted towards
commissions. They are responsible for making direct customer calls, performing
on-site technical support, generating new customer relations and developing
existing territories. The inside sales force supports the outside sales force
and is a key point of contact for responding to routine customer inquiries such
as price and availability requests and for entering and tracking orders.
National Accounts. WESCO has what management believes to be the largest
National Accounts sales force in the industry, led by an experienced group of
sales executives who negotiate and administer contracts, coordinate branch
participation and identify sales and service opportunities. National Accounts
managers' efforts are aligned by targeted customer industries, including
automotive, pulp and paper, petrochemical, steel, mining and food processing.
Data Communications. Data communications products are supported by a
dedicated sales force of approximately 70 inside and outside representatives who
focus primarily on the premise wiring systems market. This team is supported by
additional resources in the purchasing, inventory management, product training,
product management and regional sales areas. WESCO also operates a training
facility where customers and the general sales force can receive
industry-recognized certification in data communications product installation.
Major Projects. In 1995, WESCO established a group of highly experienced
sales managers to target, on a national basis, the market for large construction
projects with electrical material valued in excess of $1 million. WESCO's
approach distinguishes it from almost all of its competitors, who typically
handle even the largest construction projects on a local basis. Through the
Major Projects Group, WESCO can meet the needs of contractors for complex
construction projects such as new stadiums, industrial sites, wastewater
treatment plants, airport expansions, healthcare facilities and correctional
facilities.
59
Industrial Automation Specialists. According to industry estimates, sales
of automation and control products are growing faster than the overall industry
average as technology advances and industrial firms of all types seek more
productive processes. The Company's EESCO Division, with its highly regarded
Allen-Bradley distributorship, specializes in automation and control products.
The Company's general sales staff is highly trained in assisting customers with
process control applications, and a separate staff of 58 technical support and
automation specialists provides sales assistance for analysis, design,
specification and implementation. In addition, other WESCO branches which
primarily serve industrial MRO and OEM customers draw on a dedicated staff of
technically trained industrial automation specialists, who are strategically
located in selected high-potential market areas and provide support and
assistance to multiple branches. Overall, a total of approximately 90 automation
and control specialists are currently employed throughout WESCO.
Canada
To serve the Canadian market, WESCO operates a network of approximately 50
branches in nine provinces. Branch operations are supported by two distribution
centers located near Montreal and Vancouver. With sales of approximately US$280
million, Canada represented 11% of total WESCO sales in 1997. The Canadian
market for electrical wholesale is considerably smaller than the U.S. market,
with roughly US$2.4 billion in total sales in 1997 according to industry
sources. The Canadian market is also far more concentrated than the U.S. market,
based on estimated market data, with Westburne (33% share), Guillevin, owned by
Consolidated Electrical Distributors (12% share), WESCO's Canadian branches (11%
share) and Sonepar (8% share) collectively representing approximately 64% of the
market in 1997, compared to approximately 14% for the top four U.S. wholesalers.
WESCO's Canadian operations have a strong reputation for serving the needs
of medium and large contractors, which in 1997 represented 61% of WESCO's
Canadian sales. More recently, WESCO has been successful in growing sales with
industrial customers, through marketing of control products and the development
and expansion of instrumentation product sales. National Accounts programs are
also being successfully applied to this market, building on WESCO's U.S.
experience with industrial customers. Data communications product sales have
grown rapidly in Canada from a negligible amount in 1993 to approximately 8% of
WESCO's total Canadian sales in 1997.
International
WESCO is continuing to build its international presence outside of the U.S.
and Canada, principally by following its National Accounts customers and key
suppliers into their high-growth markets, thereby limiting start-up risk and
enhancing profit. Other opportunities to grow international sales include
expanding and improving the quality of the network of the Company's independent
export sales representatives outside of North America, increasing the number of
North American-based export sales offices and building closer relationships with
global engineering, procurement and construction firms. With sales of
approximately US$64 million, international sales (excluding Canada) represented
2% of total WESCO sales in 1997. WESCO channels its international sales
principally through 13 sales offices, six of which are located within North
America as export offices and seven of which are in international locations, and
through sales representatives in 22 foreign countries. WESCO is in the process
of opening an administrative office in the United Kingdom to support its sales
efforts in Europe, Africa and the former Soviet Union.
WESCO recently opened two branches in the Mexico City area, where WESCO was
awarded the highly regarded Allen-Bradley distributorship for the Federal
District and three surrounding states. WESCO estimates that the Mexico City
market area represents 40% of total purchases in the $1.5 to $2.0 billion
Mexican market. Up to three additional branches may be opened in the states
surrounding Mexico City in the next three years.
A sales contact database of the foreign locations of WESCO's National
Accounts customers is under development. It is estimated that over 1,000 plant
sites outside of North America will eventually be covered by a direct sales and
telemarketing program.
60
Management Information Systems
WESCO's corporate information system, WESCOM, provides low-cost, highly
functional processing of a full range of WESCO's business operations, such as
customer service, inventory and logistics management, accounting and
administrative support. The system has been upgraded with decision support,
executive information system analysis and retrieval capabilities to provide
detailed income statement and balance sheet variance and trend reporting at the
branch level. The system also provides activity based costing capabilities for
analyzing profitability by customer, supplier, sales representative and shipment
type. Sales and margin trends and variances can be analyzed by branch, customer,
product category, supplier, or account representative.
The WESCOM system is fully distributed within WESCO, and every branch
(other than EESCO and certain newly acquired branches) utilizes its computer
system to support local business activities, on a real time basis, from sales
quotation to delivery of products to customers. Telecommunication links through
a central system in Pittsburgh give each branch access to information on
inventory status in WESCO's distribution centers as well as other branches and
an increasing number of on-line suppliers. EESCO operates its own system which
is linked to the Company's central system. The Company intends to integrate
EESCO into the WESCOM system over the next 12 to 18 months which is expected to
reduce costs associated with operating dual systems.
WESCO conducts a portion of its business through EDI transactions,
typically completing in excess of 65,000 EDI transactions per month with its
trading partners. WESCO's electronic commerce strategy calls for tighter
linkages to both customers and suppliers through greater use of technological
advances, including Internet and CD-ROM catalogs, barcoding, enhanced EDI,
electronic funds transfer and other innovative improvements.
Competition
WESCO competes directly with national, regional and local distributors.
National competitors who offer a broad base of products include Graybar Electric
Company, Inc., Consolidated Electrical Distributors and General Electric Supply
Company. Regional competitors include Rexel, Inc., Crescent Electric Supply
Company, Cameron & Barkley Company, Platt Electric Supply Inc., Sonepar and
Westburne Inc. Certain other competitors, such as W.W. Grainger Inc., which
focuses primarily on industrial supplies distribution, overlap with electrical
wholesale distributors in some product lines. Distinct from these full-line
distributors are niche distributors that carry only certain products such as
wire, lighting products, or data communications equipment.
Competition among electrical wholesale distributors is primarily focused on
the local service area, and is generally based on product line breadth, product
availability and price. WESCO believes that it has certain competitive
advantages over many of its local competitors, which are not able to carry the
range of products stocked by WESCO or achieve purchasing economies of scale.
However, some of WESCO's competitors are larger and have access to greater
financial and marketing resources than WESCO. Another source of competition is
buying groups formed by smaller distributors to increase purchasing power and
provide some cooperative marketing capability. The two largest of these are
Affiliated Distributors, representing an estimated $5 billion of electrical
wholesale distribution sales in 1996, and IMARK, representing an estimated $3
billion of sales in 1996, based on industry sources. While increased buying
power may improve the competitive position of buying groups locally, WESCO does
not believe these groups have been able to compete effectively with WESCO for
National Accounts customers due to the difficulty in coordinating a diverse
ownership group.
Outside of the wholesale distribution channel, manufacturers employ, and
may increase the use of, direct sales and/or independent manufacturers
representatives. Some manufacturers with sufficient size, geographic scope and
financial and marketing resources may be in a position to offer customers
National Accounts services. Consumer channels such as hardware stores, DIY
retail outlets (such as Home Depot), mass merchants and grocery stores also
compete for certain customers. Some retail chains, with nationwide purchasing
advantages, can in certain product categories offer prices comparable to those
of the wholesale distributors, although with a much narrower product offering
overall. These channels attract smaller residential contractors who work on
projects generally requiring basic
61
electrical supplies. Such contractors represent a small portion of WESCO's
sales. The Company's customers typically require a broader range of products and
services than those provided by these retail channels.
Employees
As of March 31, 1998, WESCO had approximately 4,900 employees worldwide, of
which approximately 4,200 were located in the U.S. and approximately 700 in
Canada and WESCO's other foreign locations. Less than 5% of WESCO's employees
are represented by unions. WESCO believes its labor relations to be generally
good.
Properties
WESCO operates a system of over 325 branches, of which approximately 275
are located in the U.S., approximately 50 are located in Canada and the
remainder are located in Puerto Rico, Mexico and Guam. Approximately 30% of
branches are owned facilities, and the remainder are leased.
Set forth below is a table summarizing the Company's DC facilities:
Location Square Feet Regions Served Leased/Owned
- ------------------------- ------------- ---------------------------- -----------------
Warrendale, PA .......... 252,700 Eastern U.S. Owned and Leased
Sparks, NV .............. 195,800 Western U.S. Leased
Byhalia, MS ............. 148,000 Southeastern U.S. Owned
Dorval, QE .............. 97,000 Eastern and Central Canada Leased
Burnaby, BC ............. 34,300 Western Canada Owned
WESCO also leases its 60,400 square foot headquarters in Pittsburgh,
Pennsylvania. WESCO does not regard the real property associated with any single
branch location as material to its operations. WESCO believes its facilities are
in good operating condition.
Intellectual Property
WESCO's trade and service mark, composed of the words "WESCO the extra
effort people(R)," together with the running man design, is registered in the
United States Patent and Trademark Office, the Canadian Trademark Office and the
Mexican Instituto de la Propriedad Industrial. WESCO considers this mark to be
material to its businesses.
Environmental Matters
WESCO believes that it is in compliance in all material respects with
applicable Environmental Laws. There are no significant capital expenditures for
environmental control matters either estimated in the current year or expected
in the near future. In connection with the Divestiture, Westinghouse agreed to
indemnify the Company for certain liabilities under Environmental Laws resulting
from conditions at the Predecessor's branch locations and other real property at
the time of the Divestiture. By the terms of this indemnity, the Company is not
entitled to indemnification for claims made under the indemnity after February
27, 1996. Based on its due diligence investigation, including environmental
assessments, Holdings made a claim under this indemnity in the amount of
approximately $1.5 million, which Westinghouse is disputing.
See "Risk Factors -- Environmental Risks."
Legal Proceedings
WESCO is party to routine litigation incidental to WESCO's business. WESCO
does not believe that any legal proceedings to which it is a party or to which
any of its property is subject will have a material adverse effect on WESCO's
financial position or results of operations.
62
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of Holdings and WESCO and their
respective ages and positions are set forth below.
Name Age Position
- ------------------------------- ----- ---------------------------------------------------
Roy W. Haley .................. 51 Chairman, President and Chief Executive Officer
David F. McAnally ............. 42 Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Treasurer
Stanley C. Weiss .............. 69 Executive Vice President, Industry Affairs
Steven A. Burleson ............ 39 Vice President and Corporate Controller
John R. Burke ................. 50 Vice President, Operations
William M. Goodwin ............ 52 Vice President, Operations
James H. Mehta ................ 42 Vice President, Business Development
James V. Piraino .............. 38 Vice President, Marketing
Patrick M. Swed ............... 55 Vice President, Operations
Donald H. Thimjon ............. 54 Vice President, Operations
Robert E. Vanderhoff .......... 43 Vice President, Operations
Jeffrey B. Kramp .............. 38 Corporate Secretary and General Counsel
James L. Singleton ............ 42 Director
James A. Stern ................ 47 Director
Anthony D. Tutrone ............ 33 Director
Messrs. Haley, Kramp, Singleton, Stern and Tutrone hold the same positions
with both Holdings and WESCO.
Messrs. Weiss, Burleson, Burke, Goodwin, Mehta, Piraino, Swed, Thimjon and
Vanderhoff hold these positions with WESCO only.
Mr. McAnally is Treasurer of Holdings and WESCO, and Executive Vice
President, Chief Operating Officer and Chief Financial Officer of WESCO only.
Set forth below is biographical information for the executive officers and
directors of Holdings and WESCO listed above.
Roy W. Haley became Chairman of the Board upon the Recapitalization. Mr.
Haley has been President and Chief Executive Officer and a Director of Holdings
and WESCO since February 1994. Prior to joining the Company, from 1988 to 1993,
Mr. Haley was an executive at American General Corporation, a diversified
financial services company, where he served as Chief Operating Officer and as
President and Director. Between 1989 and 1991, Mr. Haley was President and
Chief Executive Officer of American General Finance, Inc., a consumer finance
company. Previously Mr. Haley was a partner with Arthur Andersen & Co., working
as a management consultant principally for manufacturing and distribution
clients. Mr. Haley is also a director of United Stationers, Inc.
David F. McAnally has been Executive Vice President, Chief Operating
Officer and Chief Financial Officer of WESCO and Treasurer of Holdings and WESCO
since December 1997. Prior to joining WESCO, from 1996 to November 1997, Mr.
McAnally was Senior Vice President, Chief Financial Officer of Rykoff-Sexton,
Inc., a foodservice distribution company. Between 1992 and 1996, Mr. McAnally
was Senior Vice President and Chief Financial Officer of U.S. Foodservice, Inc.,
also a foodservice distribution company.
Stanley C. Weiss has been Executive Vice President, Industry Affairs since
April 1996. From 1956 to April 1996, Mr. Weiss held a number of senior executive
positions at EESCO, most recently Chairman of the Board and Chief Executive
Officer.
Steven A. Burleson joined WESCO in January 1995 as Corporate Controller
and became Vice President and Corporate Controller in 1997. From 1990 to 1995,
Mr. Burleson was Vice President and Treasurer of The Bon-Ton Stores, Inc. in
York, Pennsylvania.
63
John R. Burke has been Vice President, General Manager of WESCO's EESCO
Division since April 1996. Prior to joining WESCO, Mr. Burke was a Vice
President of EESCO, an electrical distributor acquired by the Company in April
1996. Prior to joining EESCO in 1986, Mr. Burke occupied various positions with
General Electric Corporation, where he began his career in 1973.
William M. Goodwin has been Vice President, International Group of WESCO
since March 1984. Since 1977, Mr. Goodwin has served as a branch, district and
region manager for WESCO in various locations and also served as Managing
Director of WESCOSA, a former Westinghouse manufacturing and distribution
business in Saudi Arabia.
James H. Mehta has been Vice President, Business Development of WESCO since
November 1995. Prior to joining WESCO, from 1993 to 1995 Mr. Mehta was a
principal with Schroder Ventures, a private equity investment firm based in
London, England. From 1991 to 1993 he was managing private family investments.
From 1988 to 1990 Mr. Mehta was Vice President, Corporate Development with the
Uniroyal Goodrich Tire Company, and from 1990 to 1991 he was a consultant to
CD&R.
James V. Piraino has been Vice President, Marketing since joining WESCO in
August 1996. From 1995 to 1996, Mr. Piraino was a Vice President of
AlliedSignal Corp. From 1989 to 1995, Mr. Piraino occupied marketing and sales
management positions with W.W. Grainger, Inc. Prior to joining W.W. Grainger,
Inc., Mr. Piraino worked in product and sales management with General Electric
Corporation, where he began his career in 1981.
Patrick M. Swed has been Vice President, Industrial Group of WESCO since
March 1994. Prior to joining WESCO, Mr. Swed had been Vice President of Branch
Operations for the Predecessor from 1991 to 1994. Mr. Swed joined Westinghouse
as a sales engineer in 1966 and first moved to the Predecessor in 1978 as a
division marketing manager.
Donald H. Thimjon has been Vice President, Utility Group of WESCO since
March 1994. Prior to joining WESCO, Mr. Thimjon served as Vice President,
Utility Group for the Predecessor from 1991 to 1994 and as Regional Manager from
1980 to 1991.
Robert E. Vanderhoff has been Vice President, Manufactured Structures Group
since March 1994. Prior to joining WESCO, Mr. Vanderhoff had been Vice President
of the Predecessor since April 1993. Prior to 1993, Mr. Vanderhoff acted as
District Manager from 1990 to 1993, Branch Manager from March to June 1990 and
Account Executive from 1986 to 1990 of the Predecessor.
Jeffrey B. Kramp has been Corporate Secretary and General Counsel of
Holdings and WESCO since March 1994. From 1987 to February 1994 Mr. Kramp served
as Assistant General Counsel at Westinghouse, with WESCO as his primary legal
responsibility during this time period.
James L. Singleton became a Director of Holdings and WESCO upon the
Recapitalization. Mr. Singleton has been a Vice Chairman of Cypress since its
formation in April 1994. Prior to joining Cypress and since 1992, he was a
Managing Director in the Merchant Banking Group at Lehman Brothers Inc. Mr.
Singleton is also a director of Able Body Corporation, Cinemark USA, Inc.,
Genesis ElderCare Corp., L.P. Thebault Company and Williams Scotsman, Inc.
James A. Stern became a Director of Holdings and WESCO upon the
Recapitalization. Mr. Stern has been Chairman of Cypress since its formation in
April 1994. Prior to joining Cypress, Mr. Stern spent his entire career with
Lehman Brothers Inc., most recently as head of the Merchant Banking Group.
During his twenty years with Lehman Brothers, he also served as head of
Lehman's High Yield and Primary Capital Markets Groups, and was co-head of
Investment Banking. In addition, Mr. Stern was a member of Lehman's Operating
Committee. Mr. Stern is also a director of AMTROL Inc., Cinemark USA, Inc.,
Frank's Nursery & Crafts, Inc., Lear Corporation, Noel Group, Inc., R.P.
Scherer Corporation, Genesis ElderCare Corp. and a trustee of Tufts University.
Anthony D. Tutrone became a Director of Holdings and WESCO upon the
Recapitalization. Mr. Tutrone has been a Principal of Cypress since its
formation in April 1994. Prior to joining Cypress and since 1992, he was a
member of the Merchant Banking Group of Lehman Brothers Inc. Mr. Tutrone is
also a director of AMTROL Inc.
64
Composition of Board and Committees
The Board of Directors of both Holdings and WESCO (the "Board") has three
standing committees: an Executive Committee, an Audit Committee and a
Compensation Committee.
The Executive Committee consists of Messrs. Singleton, Haley and Stern,
with Mr. Singleton serving as Chairman. It is responsible for overseeing the
management of the affairs and business of Holdings and WESCO and has been
delegated authority to exercise the powers of the Board during intervals between
Board meetings.
The Audit Committee consists of Messrs. Singleton and Tutrone, with Mr.
Singleton serving as Chairman. It is responsible for recommending the firm to be
appointed as independent accountants to audit the Company's financial statements
and to perform services related to the audit; reviewing the scope and results of
the audit with the independent accountants; reviewing with the management and
the independent accountants the Company's year-end operating results;
considering the adequacy of the internal accounting and control procedures of
the Company; reviewing the non-audit services to be performed by the independent
accountants, if any, and considering the effect of such performance on the
accountants' independence.
The Compensation Committee consists of Messrs. Singleton, Tutrone and
Stern, with Mr. Stern serving as Chairman. It is responsible for the review,
recommendation and approval of compensation arrangements for directors and
executive officers, for the approval of such arrangements for other senior level
employees, and for the administration of certain benefit and compensation plans
and arrangements of the Company.
Cypress intends to appoint one or more additional directors who are not
affiliated with Holdings.
Executive Compensation
The information set forth below describes the components of the total
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company, based on 1997 salary and bonuses
(the "Named Executives"). The principal components of such individuals' current
cash compensation are the annual base salary and bonus included in the Summary
Compensation Table. Also described below is other compensation such individuals
can receive under Holdings' stock and option programs.
SUMMARY COMPENSATION TABLE
Annual Compensation
----------------------------------
Name and Principal Position Year Salary Bonus All Other Compensation(1)
- ---------------------------------- ------ ----------- ----------- --------------------------
Roy W. Haley,
President & CEO ................. 1997 $466,667 $425,000 $ 52,300
Stanley C. Weiss
Executive Vice President,
Industry Affairs ................ 1997 300,000 150,000 62,010(2)
James H. Mehta,
Vice President,
Business Development ............ 1997 258,339 115,000 13,325
Patrick M. Swed,
Vice President,
Industrial/Construction ......... 1997 200,000 130,000 33,000
James V. Piraino,
Vice President,
Marketing ....................... 1997 165,000 110,000 14,463
- ---------------------
(1) (A) Includes contributions by the Company under the WESCO Distribution,
Inc. Retirement Savings Plan in the amounts of $9,550, $13,700, $7,675,
$15,950, and $7,543 for Messrs. Haley, Weiss, Mehta, Swed and Piraino,
respectively.
(B) Includes contributions by the Company under the WESCO Distribution, Inc.
Deferred Compensation Plan in the amounts of $42,750, $31,900, $5,650,
$17,050 and $6,920 for Messrs. Haley, Weiss, Mehta, Swed and Piraino,
respectively.
(2) Includes life insurance premiums in the amount of $16,410.
65
Employment Agreements
In connection with WESCO's acquisition of EESCO, WESCO entered into an
employment agreement with Mr. Weiss (the "Weiss Agreement"), pursuant to which
WESCO agreed to employ Mr. Weiss during the period commencing on the date of the
acquisition and ending on December 31, 1998, subject to WESCO's right to
terminate Mr. Weiss' employment prior to such date for "cause" (as defined in
the Weiss Agreement) without any continuing liability. During the employment
term under the Weiss Agreement, Mr. Weiss is entitled to an annual base salary
of $300,000 and, provided WESCO attains annual performance objectives
established from year to year by WESCO, an annual incentive bonus equal to a
percentage of his annual base salary, not to exceed 75%. In the event of the
termination of Mr. Weiss' employment with WESCO by Mr. Weiss for "good reason"
(as defined in the Weiss Agreement), Mr. Weiss will continue to receive payments
of his annual base salary for the remainder of the employment term. The Weiss
Agreement also contains customary covenants regarding nondisclosure of
confidential information and non-competition and non-solicitation restrictions.
In connection with the Recapitalization, WESCO has entered into an
employment agreement with Mr. Haley (the "Haley Agreement") providing for a
rolling employment term of three years. Pursuant to the Haley Agreement, Mr.
Haley is entitled to an annual base salary of $500,000 and an annual incentive
bonus equal to a percentage of his annual base salary ranging from 0% to 200%.
The actual amount of Mr. Haley's annual incentive bonus will be determined based
upon the financial performance of WESCO as compared to the annual performance
objectives established by Holdings for the relevant fiscal year. Under the
proposed terms of the Haley Agreement, if Mr. Haley's employment with Holdings
and WESCO is terminated by Holdings and WESCO without "cause" (as defined in the
Haley Agreement), by Mr. Haley for "good reason" (as so defined) or as a result
of Mr. Haley's death or disability (any such termination, a "Qualifying
Termination"), Mr. Haley (or, in the event of his death, Mr. Haley's spouse) is
entitled to continued payments of his average annual base salary and his average
annual incentive bonus (reduced by any disability payments, if applicable) for
the three-year period, or in the case of a termination due to Mr. Haley's death
or disability, the two-year period, following such termination, and continued
welfare benefit coverage for the two-year period following such termination. In
addition, in the event of any such Qualifying Termination, all outstanding
options held by Mr. Haley will become fully vested. The Haley Agreement further
provides that, in the event of the termination of Mr. Haley's employment by
Holdings and WESCO without cause or by Mr. Haley for good reason, in either such
case, within the two-year period following a "change in control" of Holdings or
WESCO (as defined in such agreement) (such termination, a "Qualifying CIC
Termination"), in addition to the termination benefits described above, Mr.
Haley is entitled to receive continued welfare benefit coverage and payments in
lieu of additional contributions to WESCO's Retirement Savings Plan and Deferred
Compensation Plan for the three year period following such Qualifying CIC
Termination. WESCO has agreed to provide Mr. Haley with an excise tax gross up
with respect to any excise taxes Mr. Haley may be obligated to pay pursuant to
Section 4999 of the United States Internal Revenue Code of 1986, as amended, on
any excess parachute payments. In addition, following a change in control, Mr.
Haley is entitled to a minimum annual bonus equal to 50% of his base salary and
the definition of "good reason" is modified to include certain additional
events. The Haley Agreement also contains customary covenants regarding
nondisclosure of confidential information and non-competition and
non-solicitation restrictions.
Holdings and WESCO also intend to enter in an employment agreement with
David McAnally (the "McAnally Agreement"), the Executive Vice President, Chief
Operating Officer and Chief Financial Officer of WESCO and Treasurer of each of
Holdings and WESCO, providing for an employment term of two years, subject to
automatic renewal at the end of each year for an additional year. Pursuant to
the proposed terms of the McAnally Agreement, Mr. McAnally will be entitled to
an annual base salary of $300,000 and, depending upon the extent, if any, to
which WESCO achieves the performance objectives established for an applicable
fiscal year, an annual incentive bonus ranging from 0 to 100% of his annual base
salary; provided that Mr. McAnally is entitled to a minimum annual bonus for
1998 of $150,000. The proposed terms of the McAnally Agreement provide that in
the event of a Qualifying Termination of Mr. McAnally's employment, Mr. McAnally
(or, in the event of his death, his spouse) will be entitled to continued
payments of his average annual base salary and average annual incentive bonus
66
(reduced by any disability payments, if applicable) and to continued welfare
benefit coverage, in each such case, for a period ending on the later of (1) the
date of the expiration of the then current employment term and (2) the first
anniversary of the date of such Qualifying Termination, provided that if such
Qualifying Termination occurs prior to the second anniversary of Mr. McAnally's
commencement of employment with WESCO, such payments and benefit coverage will
be provided for a period of one year following such termination. In addition, in
the event of a Qualifying Termination of Mr. McAnally's employment following the
second anniversary of the commencement of his employment, 50% of any outstanding
options granted to Mr. McAnally will become vested. It is expected that the
McAnally Agreement will contain provisions similar to the provisions of the
Haley Agreement concerning a "change in control" of Holdings or WESCO, except
that in the event of a Qualifying CIC Termination, Mr. McAnally will be entitled
to continued payments of his average annual base salary and average bonus and
continued welfare benefit coverage for up to two years following such
termination and Mr. McAnally will be entitled to receive a cash-out payment in
respect of his options if (i) he does not resign from employment without "good
reason" (as defined in the McAnally Agreement), or (ii) he is terminated without
"cause" (as defined in the McAnally Agreement) by a successor, prior to the
first anniversary of the change in control. The McAnally Agreement also contains
customary covenants regarding nondisclosure of confidential information and
non-competition and non-solicitation restrictions.
New Stock Option Plan
In connection with the Recapitalization, Holdings will establish a new
stock option plan that will provide certain members of management options to
purchase shares of Common Stock at an exercise price per share determined by the
Board to represent the estimated fair market value per share on the date of the
grant. It is anticipated that a majority of such stock options will be granted
in connection with the closing of the Recapitalization. Approximately one-half
of the new stock options will vest ratably over four years. The remainder of the
new stock options will vest based upon meeting certain performance targets.
Stock Option Plan for Branch Employees
Under Holdings' Stock Option Plan for Branch Employees (the "Branch Option
Plan"), the Compensation Committee, which is responsible for administering the
Branch Option Plan, may grant to branch managers and other key employees of the
Company employed at a branch or contributing significantly to growth and
profitability of a branch (the "Branch Participants") options to purchase shares
of Common Stock (the "Branch Options"). The outstanding Branch Options have an
exercise price per share determined by the Board to represent the estimated fair
market value per share on the date of grant. None of the Named Executives
currently participate in the Branch Option Plan. Under the terms of the
Recapitalization Agreement, the Compensation Committee has adopted a resolution
causing 100% of all Branch Options to be rolled over and remain outstanding
without any acceleration of the vesting schedule.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information for each Named Executive with
regard to the aggregate stock options held at December 31, 1997. No stock
options were granted to, or exercised by, any of the Named Executives during
1997.
Number of Securities Value of Unexercised
Unexercised In-the-Money Options
Options at FY-End (#) at FY-End ($)(1)
Name (Exercisable/Unexercisable) (Exercisable/Unexercisable)
- -------------------------- ----------------------------- ----------------------------
Roy W. Haley ............. 13,368\8,912 $8,302,597\$5,535,065
Stanley C. Weiss ......... --\-- --\--
James H. Mehta ........... 3,428\5,142 2,129,062\3,193,593
Patrick M. Swed .......... 3,426\2,284 2,127,820\1,418,547
James V. Piraino ......... 286\1,144 177,629\710,516
- ---------------------
(1) Based on a price per share of common stock of $621.08. The price reflects
the estimated fair market value as of December 31, 1997.
67
The foregoing options were issued under Holdings' existing stock option
plan. In connection with the Recapitalization, the Board caused all unvested
options (including those held by the Named Executives) under such plan to vest
(and become exercisable) upon the closing of the Recapitalization.
Retention Bonus Payment
Holdings paid an aggregate amount of approximately $11 million to a group
of approximately 45 managers (including the Named Executives) upon the closing
of the Recapitalization. With respect to each such manager, such payment was
equal to approximately one to two times base salary. Immediately prior to the
closing of the Recapitalization, CD&R made an equity contribution to Holdings
equal to one-half of such aggregate amount.
Compensation Committee Interlocks and Insider Participation
During 1997, a former outside director and three former directors
affiliated with CD&R served on the Compensation Committee.
Holdings paid an affiliate of CD&R fees of $400,000 for advisory,
management consulting and monitoring services rendered during 1997. Holdings has
agreed to indemnify certain former members of the Board affiliated with CD&R and
such CD&R affiliate against liabilities incurred under securities laws or with
respect to their previous services for Holdings.
68
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Amended and Restated Registration and Participation Agreement
In connection with the Recapitalization, the Investor Group, CD&R,
Westinghouse and Holdings entered into an Amended and Restated Registration and
Participation Agreement (the "Registration and Participation Agreement"), which
amended and restated the previous agreement among CD&R, Westinghouse and
Holdings, to reflect, among other things, the succession of the Investor Group
to CD&R's and Westinghouse's rights and obligations thereunder. Pursuant to the
Registration and Participation Agreement, the Investor Group and the Management
Stockholders (as defined) have the right, under certain circumstances and
subject to certain conditions, to request that Holdings register under the
Securities Act shares of Common Stock held by them. Subject to certain
conditions and exceptions, the Investor Group and the Management Stockholders
also have the right to require that shares of Common Stock held by them be
included in any registration under the Securities Act commenced by Holdings. The
Registration and Participation Agreement provides that Holdings will pay all
expenses in connection with the first three registrations requested by the
Investor Group and the Management Stockholders. The Registration and
Participation Agreement also provides that Holdings will indemnify the Investors
and the Management Stockholders and their affiliates for certain liabilities
they may incur under the securities laws.
The Registration and Participation Agreement also contains certain
restrictions which prohibit the sale of Common Stock by Cypress unless Cypress
provides each holder of Common Stock entitled to the benefits of the
Registration and Participation Agreement (including the other members of the
Investor Group and the Management Stockholders) with a 30-day prior notice
pursuant to which such holders may agree to participate in such sale on a pro
rata basis with Cypress. The Registration and Participation Agreement provides
that, if Cypress sells all of its shares of Common Stock to a third party,
Cypress may require such other holders of Common Stock to sell all of their
shares to such third party pursuant to such sale at the same price and on the
same terms as Cypress. In addition, the Registration and Participation Agreement
provides that if prior to any equity public offering by Holdings, Holdings
issues additional shares of Common Stock to Cypress (subject to certain
exceptions), Holdings will offer to all holders of registrable securities that
are "accredited investors" the right to purchase a pro rata share of such
newly-issued shares (based on such holder's equity interest in Holdings) at the
same price and on the same terms as Cypress.
In addition, the Registration and Participation Agreement provides that so
long as Cypress owns any securities of Holdings, Cypress shall have the right to
designate one director to the board of directors of each of Holdings, the
Company and WESCO Distribution-Canada, Inc.
Management Stockholders
Each member of management who holds Common Stock (a "Management
Stockholder") is a party to a stock subscription agreement with Holdings which
provides that such Management Stockholder is entitled to certain benefits of,
and bound by certain obligations in, the Registration and Participation
Agreement, including certain registration rights thereunder. Such stock
subscription agreements also provide the Management Stockholder with the right
to require Holdings to purchase all such Management Stockholder's shares of
Common Stock at the then fair market value based upon certain events. Pursuant
to the stock option agreements governing each Management Stockholder's stock
options, such Management Stockholder also has the right to require Holdings to
purchase all of such Management Stockholder's options at the then fair market
value of the Common Stock minus the exercise price upon such events. Such rights
terminate upon an initial equity public offering of Holdings. In addition, such
stock subscription agreements and stock option agreements provide that such
rights are subject to, and limited by, any restrictions on Holdings' ability to
redeem or repurchase its equity contained in the Credit Facilities, the
Indentures or other debt instruments.
A portion of the purchase price paid for the Common Stock purchased by
certain Management Stockholders has been financed by full-recourse bank loans
guaranteed by the Company. Since February 28, 1994, Messrs. Burke, Burleson,
Goodwin, Haley, Kramp, Mehta, Piraino, Swed, Thimjon and
69
Vanderhoff have had outstanding loans guaranteed by the Company in the amount of
$167,262, $68,800, $161,200, $1,377,956, $68,800, $587,959, $167,262, $343,200,
$155,000 and $34,400, respectively.
Payment of Certain Fees and Expenses
In connection with the Recapitalization, Cypress received a transaction fee
of approximately $9.5 million from Holdings and will be reimbursed for all
out-of-pocket expenses. Holdings has also agreed to indemnify Cypress to the
fullest extent allowable under applicable Delaware law and against any suits,
claims, damages or expenses which may be made against or incurred by Cypress
under applicable securities laws, including in connection with the Offerings.
Payments to CD&R and Westinghouse Pursuant to the Recapitalization
Approximately $517.5 and $62.1 million of the Equity Consideration paid in
connection with the Recapitalization was paid to CD&R and Westinghouse,
respectively, to purchase their shares of Common Stock. In addition,
approximately $52.1 million of the Equity Consideration was paid to cash-out an
option held by Westinghouse to purchase 100,000 shares of Common Stock at an
exercise price of $100 per share. Westinghouse also held approximately $66.6
million of the formerly existing indebtedness of WESCO which was repaid in
connection with the Recapitalization.
Certain Relationships With Chase
Chase Securities Inc. ("CSI"), one of the Initial Purchasers, is an
affiliate of The Chase Manhattan Bank ("Chase") which is the agent bank and a
lender to the Company under the Credit Facilities and is the funding agent,
liquidity bank and trustee under the Receivables Facility. Chase was also a
lender to the Company under an existing revolving credit facility and received
its proportionate share of the repayment by the Company of amounts outstanding
under such facility pursuant to the Recapitalization. Chase Capital Partners, an
affiliate of CSI and Chase, is a member of the Investor Group and owns
approximately 13.9% of the outstanding Common Stock as a result of the
Recapitalization. In addition, CSI, Chase and their affiliates perform various
investment banking and commercial banking services on a regular basis for
Cypress, CD&R and their respective affiliates.
70
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding capital stock of the Company is owned by Holdings.
The following table sets forth certain information as to the beneficial
ownership of Common Stock by (i) owners of more than 5% of the outstanding
shares of Common Stock, (ii) each executive officer and director of Holdings and
the Company and (iii) all such executive officers and directors, as a group.
Except as indicated in the footnotes to this table, Holdings believes that the
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
Shares of Percentage
Name Common Stock Owned
- ---------------------------------------------------------------------- -------------- -----------
Cypress Merchant Banking Partners L.P.(1)
c/o The Cypress Group L.L.C.
65 East 55th Street
New York, New York 10022 ........................................... 321,470 55.4%
Cypress Offshore Partners L.P.(1)
Bank of Bermuda (Cayman) Limited
P.O. Box 513 G.T.
Third Floor
British America Tower
George Town, Grand Cayman
Cayman Islands, B.W.I. ............................................. 16,650 2.9%
Chase Equity Associates, L.P.(2)
c/o Chase Capital Partners, L.P.
380 Madison Avenue, 12th Floor
New York, New York 10017 ........................................... 80,504 13.9%
Co-Investment Partners, L.P.
c/o CIP Partners, LLC
660 Madison Avenue
New York, New York 10021 ........................................... 80,505 13.9%
Roy W. Haley ......................................................... 16,720 2.9%
David F. McAnally .................................................... 1,932 *
Stanley C. Weiss ..................................................... -- --
Steven A. Burleson ................................................... 860 *
John R. Burke ........................................................ 804 *
William M. Goodwin ................................................... 2,140 *
James H. Mehta ....................................................... 6,430 1.1%
James V. Piraino ..................................................... 1,070 *
Patrick M. Swed ...................................................... 4,290 *
Donald H. Thimjon .................................................... 2,140 *
Robert E. Vanderhoff ................................................. 430 *
Jeffrey B. Kramp ..................................................... 860 *
James L. Singleton(1) ................................................ -- --
James A. Stern(1) .................................................... -- --
Anthony D. Tutrone ................................................... -- --
All executive officers and directors as a group (15 persons) ......... 37,676 6.5%
- ---------------------
* Represents holdings of less than 1%.
(1) Cypress Merchant Banking Partners L.P. and Cypress Offshore Partners L.P.
are affiliates of Cypress. Messrs. Singleton and Stern are members of
Cypress and may be deemed to share beneficial ownership of the shares of
Common Stock shown as beneficially owned by such Cypress funds. Such
individuals disclaim beneficial ownership of such shares.
(2) These shares constitute shares of non-voting class B common stock.
71
DESCRIPTION OF THE CREDIT FACILITIES
The following is a summary of the material terms of the Credit Agreement
entered into among the Company, WESCO Distribution-Canada, Inc. ("WESCO
Canada"), Holdings, certain financial institutions to be party thereto, Chase,
as U.S. administrative agent, syndication agent and U.S. collateral agent, The
Chase Manhattan Bank of Canada, as Canadian administrative agent and Canadian
collateral agent ("Chase Canada"), and Lehman Commercial Paper Inc. ("Lehman
Commercial Paper"), as documentation agent. The following summary is qualified
in its entirety by reference to the Credit Agreement, which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
The Facilities
Structure. The Credit Agreement provides for (a) three Term Loan Facilities
in an aggregate principal amount of up to $270.0 million (the "Term
Facilities"), consisting of (i) a Tranche A Term Loan Facility (the "Tranche A
Term Facility") providing for term loans ("Tranche A Term Loans") to the Company
in an aggregate principal amount of up to $80.0 million, (ii) a Tranche B Term
Loan Facility (the "Tranche B Term Facility") providing for term loans to the
Company in an aggregate principal amount of up to $90.0 million and (iii) a
Delayed Draw Term Loan Facility (the "Delayed Draw Term Facility") providing for
term loans to the Company in an aggregate principal amount of up to $100.0
million and (b) a Revolving Credit Facility providing for (i) U.S. dollar
revolving loans in an aggregate principal amount outstanding at any time not to
exceed U.S. $50.0 million and (ii) U.S. dollar and/or Canadian dollar revolving
loans in an aggregate principal amount outstanding at any time not to exceed
U.S. $50.0 million (the "Revolving Facility" and, together with the Term
Facilities, the "Credit Facilities"). An aggregate principal amount not to
exceed $25.0 million is available under the Revolving Facility for acquisitions
permitted under the Credit Agreement.
Availability. The full amount of the Tranche A Term Facility and the
Tranche B Term Facility was required to be drawn on the Closing Date and amounts
repaid or prepaid will not be able to be reborrowed. The Delayed Draw Term
Facility is available for two years after the Closing Date solely for
acquisitions permitted under the Credit Agreement and amounts repaid or prepaid
will not be able to be reborrowed. Amounts under the Revolving Facility are
available on a revolving basis.
Interest
Borrowings under the Term Facilities and borrowings in U.S. dollars under
the Revolving Facility bear interest at a rate per annum equal (at the Company's
option) to: (a) an adjusted London inter-bank offered rate ("LIBOR") plus a
borrowing margin based on the Company's financial performance or (b) a rate
equal to the highest of Chase's published prime rate, a certificate of deposit
rate plus 1% and the Federal Funds effective rate plus 0.5% ("ABR") plus, in
each case a borrowing margin based on the Company's financial performance. The
borrowing margins applicable to the Tranche A Term Loans and U.S. dollar
borrowings under the Revolving Facility will initially be 2.25% for LIBOR loans
and 1.25% for ABR loans. The borrowing margins applicable to the Tranche B Term
Loans and the Delayed Draw Term Facility will initially be 2.50% for LIBOR loans
and 1.50% for ABR loans. Borrowings in Canadian dollars under the Revolving
Facility bear interest at a rate per annum equal (at the Company's option) to:
(a) the higher of Chase Canada's published prime rate and the Canadian Dollar
Offered Rate plus 1% (the "Canadian Prime Rate") plus, in each case, a borrowing
margin based on the Company's financial performance or (b) the Canadian banker's
acceptance rate (the "B/A Rate"), plus a borrowing margin based on the Company's
financial performance. The borrowing margins applicable to any Canadian dollar
borrowing under the Revolving Facility will initially be 2.25% for B/A Rate
loans and 1.25% for Canadian Prime Rate loans. Amounts outstanding under the
Credit Facilities not paid when due will bear interest at a default rate equal
to 2% above the rates otherwise applicable to the loans under the Credit
Agreement.
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Fees
The Company has agreed to pay certain fees with respect to the Credit
Agreement, including (i) fees on the unused commitments of the lenders equal to
0.5% on the undrawn portion of the commitments in respect of the Revolving
Facility and the Delayed Draw Term Facility (subject to a reduction based on the
Company's financial performance); (ii) letter of credit fees on the aggregate
face amount of outstanding letters of credit equal to the then applicable
borrowing margin for LIBOR loans under the Revolving Facility and a negotiated
per annum issuing bank fee for the letter of credit issuing bank; (iii) annual
administration fees; and (iv) agent, arrangement and other similar fees.
Security; Guarantees
The obligations of the Company under the Credit Facilities are irrevocably
guaranteed, jointly and severally, by Holdings and by each existing and
subsequently acquired or organized domestic subsidiary and, to the extent no
adverse tax consequences would result, foreign subsidiary of Holdings other than
the Company and the Receivables Subsidiary (the "U.S. Guarantors"). In addition,
the obligations of the Company under the Credit Facilities and the related
guarantees are secured by substantially all of the assets of Holdings, the
Company and each other existing and subsequently acquired or organized domestic
subsidiary and, to the extent no adverse tax consequences would result, foreign
subsidiary of Holdings other than the Receivables Subsidiary (collectively, the
"U.S. Collateral"), including but not limited to (i) a first priority pledge of
all the capital stock of the Company and of each existing and subsequently
acquired or organized domestic subsidiary and, subject to the foregoing
limitation, foreign subsidiary of Holdings and (ii) a perfected first priority
security interest in, and mortgage on, substantially all tangible and intangible
assets of the Company and the U.S. Guarantors (including, but not limited to,
accounts receivable, documents, inventory, equipment, intellectual property,
investment property, general intangibles, real property, cash and cash accounts
and proceeds of the foregoing), in each case subject to certain exceptions.
The obligations of WESCO Canada under the Revolving Facility are
irrevocably guaranteed, jointly and severally, by the Company, Holdings and by
each existing and subsequently acquired or organized subsidiary of WESCO Canada
and any other subsidiary of Holdings organized under the laws of Canada and the
U.S. Guarantors. In addition, the obligations of WESCO Canada under the
Revolving Facility and the related guarantees are secured by (i) the U.S.
Collateral and (ii) substantially all of the assets of WESCO Canada and each
existing and subsequently acquired or organized subsidiary of WESCO Canada and
any other subsidiary of Holdings organized under the laws of Canada including
but not limited to (A) a first priority pledge of all the capital stock of WESCO
Canada and each existing and subsequently acquired or organized subsidiary of
WESCO Canada and any other subsidiary of Holdings organized under the laws of
Canada and (B) a perfected first-priority security interest in, and mortgage on,
substantially all tangible and intangible assets of WESCO Canada and each
existing and subsequently acquired or organized subsidiary of WESCO Canada and
any other subsidiary of Holdings organized under the laws of Canada (including,
but not limited to, accounts receivable, documents, inventory, equipment,
intellectual property, investment property, general intangibles, real property,
intercompany notes, cash and proceeds of the foregoing), in each case subject to
certain exceptions.
Commitment Reductions and Repayments
The Revolving Facility will mature six years after the Closing Date. The
Tranche A Term Loan will mature six years after the Closing Date with quarterly
amortization payments during the term of such loan in an annual aggregate
principal amount as follows: 1999, $4.0 million; 2000, $8.0 million; 2001, $12.0
million; 2002, $16.0 million; 2003, $20.0 million; and 2004, $20.0 million. The
Tranche B Term Loan will mature eight years after the Closing Date, with
quarterly amortization payments during the term of such loan in an annual
aggregate principal amount as follows: 1999 through 2004, $500,000; 2005, $34.2
million; and 2006, $52.3 million. The Delayed Draw Term Facility will mature
seven years after the Closing Date, with quarterly amortization payments during
the term of such facility in an annual aggregate principal amount as follows:
2002, $25.0 million; 2003, $25.0 million; 2004, $25.0 million; and 2005, $25.0
million (assuming the Company borrows the full amount available under the
Delayed Draw Term Facility); provided that on the last day of each fiscal
quarter of the Company that loans are
73
outstanding under the Delayed Draw Term Facility, the Company is required to
repay 1/4 of 1% of the aggregate principal amount of such loans, with any such
repayment being applied against the amortization schedule set forth above.
In addition, the Credit Facilities will be subject to mandatory prepayment
and reductions in an amount equal to (a) 100% of the net cash proceeds of
certain equity issuances by Holdings, the Company, WESCO Canada or any of their
respective subsidiaries, (b) 100% of the net cash proceeds of certain debt
issuances of Holdings, the Company, WESCO Canada or any of their respective
subsidiaries, (c) 75% of the Company's excess cash flow (subject to a reduction
to 50% if the Company's long-term senior unsecured debt receives an investment
grade rating from Standard and Poor's Rating Service or Moody's Investors
Service, Inc.) and (d) 100% of the net cash proceeds of certain asset sales or
other dispositions of property by Holdings, the Company or any of their
respective subsidiaries, in each case subject to certain exceptions.
Affirmative, Negative and Financial Covenants
The Credit Agreement contains a number of covenants that, among other
things, restrict the ability of Holdings, the Company, WESCO Canada and their
respective subsidiaries to dispose of assets, incur additional indebtedness,
incur or guarantee obligations, repay other indebtedness or amend other debt
instruments, pay dividends, create liens on assets, make investments, loans or
advances, make acquisitions, engage in mergers or consolidations, change the
business conducted by the Company, WESCO Canada and their respective
subsidiaries, make capital expenditures, or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities. In addition, the
Credit Agreement requires Holdings to comply with specified financial ratios and
tests, including a maximum leverage ratio, a minimum working capital test and a
minimum interest coverage ratio. The Credit Agreement also contains provisions
that prohibit any modifications of the Indentures in any manner adverse to the
lenders under the Credit Agreement and that limit the Issuers' ability to
refinance or otherwise prepay the Notes without the consent of such lenders.
Events of Default
The Credit Agreement contains customary events of default, including
non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties in any material respect, cross default to
certain other indebtedness, bankruptcy, ERISA events, material judgments and
liabilities, actual or asserted invalidity of any material security interest and
change of control.
74
DESCRIPTION OF THE RECEIVABLES FACILITY
The following is a summary of the material terms of the Receivables
Facility entered into among the Company, WESCO Canada, WESCO Receivables Corp.,
a newly formed special purpose subsidiary of the Company (the "SPC"), Chase as
liquidity bank (the "Liquidity Bank") and funding agent for a multi-seller
asset-backed commerical paper issuer (the "CP Issuer"). The following summary is
qualified in its entirety by reference to the Receivables Sale Agreements and
the Pooling Agreement (each as defined below), which has been filed as exhibits
to the Registration Statement of which this Prospectus is a part.
The Receivables Facility
The Company has established the SPC as a wholly-owned, special purpose,
bankruptcy-remote subsidiary. The SPC purchases the receivables (the
"Receivables") generated by the Company, WESCO Canada and certain other
subsidiaries (the "Receivables Sellers") pursuant to two receivables sale
agreements (collectively, the "Receivables Sale Agreements"). The Receivables
Sale Agreements contain customary terms for similar transactions, including
representations and warranties of the Receivables Sellers as to the Receivables
and certain corporate matters, affirmative and negative covenants and purchase
termination events, and will be limited recourse to the Receivables Sellers for
breach of representations, warranties and covenants.
The SPC has entered into a pooling agreement, as supplemented (the "Pooling
Agreement") with Chase as trustee (the "Trustee") pursuant to which the SPC
transfers to a trust (the "Trust") all the Receivables, and the CP Issuer, or in
certain circumstances, the Liquidity Bank (together with the CP Issuer, the
"Purchasers") provides financing to the SPC (which in turn uses such financing
to pay a portion of the purchase price of the Receivables purchased from the
Receivables Sellers) through the purchase of an undivided percentage ownership
interest in the Trust ("Transferred Interests"). If the CP Issuer no longer
wishes to, or is unable to, provide financing, which may occur at any time, the
Liquidity Bank is committed to thereafter be the Purchaser. The Receivables
Facility will be supported by a commitment of the Liquidity Bank, subject to the
terms and conditions of the Pooling Agreement, to purchase Transferred Interests
for a period of approximately six years (the "Revolving Period") on a revolving
basis in an amount not to exceed $300 million at any time outstanding. The
availability of the Receivables Facility is subject to the Trust holding
Receivables meeting certain eligibility requirements equal to the amount of the
outstanding Transferred Interests and required reserves. On the Closing Date
only approximately $250 million was funded under the Receivables Facility.
The Trust, on behalf of the Purchasers, has a first priority perfected
ownership or security interest in the Receivables, the rights of the SPC under
the Receivables Sale Agreements and cash collections and other proceeds received
in respect of the Receivables.
Pursuant to a servicing agreement entered into by the Receivables Sellers,
the SPC and the Trust, the Receivables Sellers have agreed to service the
Receivables for the Trust; provided, that, upon the occurrence of certain
events, the servicing agreement may be terminated by the Trustee.
Interest
The effective financing rate under the Receivables Facility will be the
weighted average of the interest rates on all outstanding commercial paper
issued by the CP Issuer to fund its purchase of the Transferred Interests,
except if the Liquidity Bank is the Purchaser, the effective financing rate will
be either (i) adjusted LIBOR plus a margin of up to 2.25% per annum or (ii) ABR
plus a margin of up to 1.25% per annum, at the option of the SPC, plus in each
case the fees described below.
Fees
The SPC has agreed to pay certain fees with respect to the Receivables
Facility, including a commitment fee to the Liquidity Bank, calculated on the
excess of the average aggregate purchase commitment for any monthly period over
the average aggregate Transferred Interests funded by the Liquidity Banks for
such period, a program fee and agent, arrangement and other similar fees.
75
Facility Reductions
After the end of the Revolving Period, all collections in respect of
Receivables purchased by the SPC from the Receivables Sellers will be used to
reduce the Transferred Interests of the Purchasers in the Receivables.
Additionally, at any time, the SPC at its option may reduce the purchase
commitment upon notice to the Purchasers or terminate the purchases of
Transferred Interests by the Purchasers.
Early Termination Events
The Pooling Agreement contains certain early amortization events which will
cause the termination of, or permit the Purchasers to terminate, the Revolving
Period and effectively reduce the amount of financing available under the
Receivables Facility to zero. Early amortization events include nonpayment of
amounts when due, violation of covenants, inaccuracy of representations and
warranties in any material respect, cross-acceleration and certain
cross-defaults to certain other indebtedness of the Company (including the
Credit Facilities), failure to comply with specified Receivables performance
tests, purchase termination events under the Receivables Sale Agreements,
bankruptcy, material judgments, imposition of PBGC liens and actual or asserted
invalidity of the Purchasers' ownership interest in the Receivables. Purchase
termination events under the Receivables Sale Agreements relating to the
Receivables Sellers include nonpayment of amounts when due, violation of
covenants, inaccuracy of representations and warranties in any material respect,
bankruptcy, ERISA events, imposition of PBGC liens and actual or asserted
invalidity of the Company's ownership interest in the Receivables.
Replacement Facility
Although the Company has received a six-year commitment, the Company
currently intends to replace the Receivables Facility through a securitization
of the Receivables in the capital markets or another securitization transaction.
However, no assurance can be made that such transaction will be completed or, if
completed, whether such transaction may have materially different terms from the
Receivables Facility.
76
THE SENIOR SUBORDINATED EXCHANGE OFFER OF THE COMPANY
General
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the applicable Letter of Transmittal (which
together constitute the Senior Subordinated Exchange Offer), (i) to exchange an
aggregate of up to $300,000,000 principal amount of its Senior Subordinated
Exchange Notes for an equal principal amount of its issued and outstanding
Senior Subordinated Old Notes properly tendered on or prior to the Senior
Subordinated Expiration Date and not withdrawn as permitted pursuant to the
procedures described below. This Prospectus and the Letter of Transmittal
related to the Senior Subordinated Notes together constitute the Senior
Subordinated Exchange Offer. The Senior Subordinated Exchange Notes will be
unconditionally guaranteed by Holdings (the "Holdings Guarantee") on a senior
subordinated basis. Throughout this Prospectus, references to the "Letter of
Transmittal" refer to the form of Letter of Transmittal that is applicable to
the Senior Subordinated Notes or the Senior Discount Notes, as the context
requires, whether so expressed or not. The Senior Subordinated Exchange Offer is
being made with respect to all of the Senior Subordinated Old Notes.
As of the date of this Prospectus, $300,000,000 aggregate principal amount
of Senior Subordinated Old Notes is outstanding. This Prospectus and the
applicable Letter of Transmittal are first being sent on or about , 1998, to all
holders of Senior Subordinated Old Notes known to the Company. The Company's
obligation to accept Senior Subordinated Old Notes for exchange pursuant to the
Senior Subordinated Exchange Offer is subject to certain conditions set forth
under "Certain Conditions to the Senior Subordinated Exchange Offer" below. The
Company currently expects that each of the conditions will be satisfied and that
no waivers will be necessary.
Purpose of the Senior Subordinated Exchange Offer
The Senior Subordinated Old Notes were issued on June 5, 1998 in
transactions exempt from the registration requirements of the Securities Act.
Accordingly, the Senior Subordinated Old Notes may not be reoffered, resold, or
otherwise transferred unless so registered or unless an applicable exemption
from the registration and prospectus delivery requirements of the Securities Act
is available.
In connection with the issuance and sale of the Senior Subordinated Old
Notes, the Company and Holdings entered into the Senior Subordinated
Registration Rights Agreement, which requires the Company to file with the
Commission a registration statement relating to the Senior Subordinated Exchange
Offer not later than 90 days after the date of issuance of the Senior
Subordinated Old Notes and to use its best efforts to cause the registration
statement relating to the Senior Subordinated Exchange Offer to become effective
under the Securities Act not later than 200 days after the date of issuance of
the Senior Subordinated Old Notes. In addition, the Senior Subordinated
Registration Rights Agreement provides for certain remedies if the Senior
Subordinated Exchange Offer is not consummated or a shelf registration statement
with respect to Senior Subordinated Old Notes is not made effective within the
time periods specified therein. See "Senior Subordinated Exchange Offer; Senior
Subordinated Registration Rights."
The Senior Subordinated Exchange Offer is being made by the Company to
satisfy its obligations with respect to the Senior Subordinated Registration
Rights Agreement. The term "holder," with respect to the Senior Subordinated
Exchange Offer, means any person in whose name Senior Subordinated Old Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Senior Subordinated Old Notes are held of record by The Depository Trust Company
or its nominee. Other than pursuant to the Senior Subordinated Registration
Rights Agreement, the Company and Holdings are not required to file any
registration statement to register any outstanding Senior Subordinated Old
Notes. Holders of Senior Subordinated Old Notes who do not tender their Senior
Subordinated Old Notes or whose Senior Subordinated Old Notes are tendered but
not accepted would have to rely on exceptions to the registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Senior Subordinated Old Notes.
The Company is making the Senior Subordinated Exchange Offer in reliance on
the position of the Staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other
77
transactions. However, the Company has not sought its own interpretive letter
and there can be no assurance that the Staff would make a similar determination
with respect to the Senior Subordinated Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
Staff, the Company believes that the Senior Subordinated Exchange Notes issued
pursuant to the Senior Subordinated Exchange Offer in exchange for Senior
Subordinated Old Notes may be offered for resale, resold and otherwise
transferred by a Holder (other than any Holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Senior Subordinated
Exchange Notes are acquired in the ordinary course of such Holder's business and
that such Holder is not participating, and has no arrangement or understanding
with any person to participate, in a distribution (within the meaning of the
Securities Act) of such Senior Subordinated Exchange Notes. See " -- Resale of
Senior Subordinated Exchange Notes." Each broker-dealer that receives Senior
Subordinated Exchange Notes for its own account in exchange for Senior
Subordinated Old Notes, where such Senior Subordinated Old Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Senior Subordinated Exchange Notes. See "Plan of
Distribution."
Terms of the Exchange
The Company hereby offers, subject to the conditions set forth herein and
in the applicable Letter of Transmittal accompanying this Prospectus, to
exchange $1,000 principal amount of Senior Subordinated Exchange Notes for each
$1,000 principal amount of its issued and outstanding Senior Subordinated Old
Notes properly tendered on or prior to the Senior Subordinated Expiration Date
and not withdrawn as permitted pursuant to the procedures described below. The
terms of the Senior Subordinated Exchange Notes are identical in all material
respects to the terms of the Senior Subordinated Old Notes for which they may be
exchanged pursuant to the Senior Subordinated Exchange Offer, except that the
Senior Subordinated Exchange Notes will generally be freely transferable by
holders thereof and will not be subject to any covenant regarding registration.
The Senior Subordinated Exchange Notes will evidence the same indebtedness as
the Senior Subordinated Old Notes and will be entitled to the benefits of the
Senior Subordinated Indenture. See "Description of Senior Subordinated Exchange
Notes."
The Senior Subordinated Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Senior Subordinated Old Notes being tendered for
exchange.
The Company has not requested, and does not intend to request, an
interpretation by the Staff of the Commission with respect to whether the Senior
Subordinated Exchange Notes issued pursuant to the Senior Subordinated Exchange
Offer in exchange for the Senior Subordinated Old Notes may be offered for sale,
resold or otherwise transferred by any holder without compliance with the
registration and prospectus delivery provisions of the Securities Act. Instead,
based on an interpretation by the Staff of the Commission set forth in a series
of no-action letters issued to third parties, the Company believes that Senior
Subordinated Exchange Notes issued pursuant to the Senior Subordinated Exchange
Offer in exchange for Senior Subordinated Old Notes may be offered for sale,
resold and otherwise transferred by any holder of such Senior Subordinated
Exchange Notes (other than any such holder that is a broker-dealer or 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 Senior Subordinated 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 Senior Subordinated Exchange Notes and neither such holder nor any other
such person is engaging in or intends to engage in a distribution of such Senior
Subordinated Exchange Notes. Since the Commission has not considered the Senior
Subordinated Exchange Offer in the context of a no-action letter, there can be
no assurance that the Staff of the Commission would make a similar determination
with respect to the Senior Subordinated Exchange Offer. Any holder who is an
affiliate of the Company or who tenders in the Senior Subordinated Exchange
Offer for the purpose of participating in a distribution of the Senior
Subordinated Exchange Notes cannot rely on such interpretation by the Staff of
the Commission and must comply with the registration and prospectus delivery
78
requirements of the Securities Act in connection with any resale transaction.
Each holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of Senior Subordinated
Exchange Notes. Each broker-dealer that receives Senior Subordinated Exchange
Notes for its own account in exchange for Senior Subordinated Old Notes, where
such Senior Subordinated Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Senior
Subordinated Exchange Notes. A broker-dealer may not participate in the Senior
Subordinated Exchange Offer with respect to Senior Subordinated Old Notes
acquired other than as a result of market-making activities or other trading
activities. See "Plan of Distribution."
Interest on the Senior Subordinated Exchange Notes will accrue from the
last Interest Payment Date on which interest was paid on the Senior Subordinated
Old Notes so surrendered or, if no interest has been paid on such Notes, from
June 5, 1998.
Tendering holders of the Senior Subordinated Old Notes 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 the Senior
Subordinated Old Notes pursuant to the Senior Subordinated Exchange Offer.
Expiration Date; Extension; Termination; Amendment
The Senior Subordinated Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1998 (the "Senior Subordinated Expiration Date"), unless the
Senior Subordinated Exchange Offer is extended, in which case the term "Senior
Subordinated Expiration Date" means the latest date and time to which the Senior
Subordinated Exchange Offer is extended. The Senior Subordinated Expiration Date
will be at least 20 business days after the commencement of the Senior
Subordinated Exchange Offer in accordance with Rule 14e-1(a) under the Exchange
Act. The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Senior Subordinated Exchange Offer
is open, and thereby delay acceptance for exchange of any Senior Subordinated
Old Notes by giving oral or written notice to the Senior Subordinated Exchange
Agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the Senior Subordinated Expiration Date
previously in effect. During any such extension, all Senior Subordinated Old
Notes previously tendered will remain subject to the Senior Subordinated
Exchange Offer unless properly withdrawn. The Company does not anticipate
extending the Senior Subordinated Expiration Date.
The Company expressly reserves the right to (i) terminate or amend the
Senior Subordinated Exchange Offer and not to accept for exchange any Senior
Subordinated Old Notes not theretofore accepted for exchange upon the occurrence
of any of the events specified below under "Certain Conditions to the Senior
Subordinated Exchange Offer" which have not been waived by the Company and (ii)
amend the terms of the Senior Subordinated Exchange Offer in any manner which,
in its good faith judgment, is advantageous to the holders of the Senior
Subordinated Old Notes, whether before or after any tender of Senior
Subordinated Old Notes. If any such termination or amendment occurs, the Company
will notify the Senior Subordinated Exchange Agent and will either issue a press
release or give oral or written notice to the holders of the Senior Subordinated
Old Notes as promptly as practicable.
For purposes of the Senior Subordinated Exchange Offer, a "business day"
means any day other than Saturday, Sunday or a date on which banking
institutions are required or authorized by New York State law to be closed, and
consists of the time period from 12:01 a.m. through 12:00 midnight, New York
City time. Unless the Company terminates the Senior Subordinated Exchange Offer
prior to 5:00 p.m., New York City time, on the Senior Subordinated Expiration
Date, the Company will exchange the Senior Subordinated Exchange Notes for
Senior Subordinated Old Notes on the Senior Subordinated Exchange Date.
Procedures for Tendering Senior Subordinated Old Notes
The tender to the Company of Senior Subordinated Old Notes by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the
79
tendering holder and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the applicable Letter of Transmittal.
A holder of Senior Subordinated Old Notes may tender the same by (i)
properly completing and signing the applicable Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to a Letter of Transmittal
shall be deemed to include a facsimile thereof) and delivering the same,
together with the certificate or certificates representing the Senior
Subordinated Old Notes being tendered and any required signature guarantees and
any other documents required by the Letter of Transmittal, to the Senior
Subordinated Exchange Agent at its address set forth below on or prior to the
Senior Subordinated Expiration Date (or complying with the procedure for
book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
The method of delivery of Senior Subordinated Old Notes, Letters of
Transmittal and all other required documents is at the election and risk of the
holders. If such delivery is by mail, it is recommended that registered mail
properly insured, with return receipt requested, be used. In all cases,
sufficient time should be allowed to insure timely delivery. No Senior
Subordinated Old Notes or Letters of Transmittal should be sent to the Company.
If tendered Senior Subordinated Old Notes are registered in the name of the
signer of the Letter of Transmittal and the Senior Subordinated Exchange Notes
to be issued in exchange therefor are to be issued (and any untendered Senior
Subordinated Old Notes are to be reissued) in the name of the registered holder
(which term, for the purposes described herein, shall include any participant in
The Depository Trust Company (also referred to as a "book-entry transfer
facility") whose name appears on a security listing as the owner of Senior
Subordinated Old Notes), the signature of such signer need not be guaranteed. In
any other case, the tendered Senior Subordinated Old Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder, and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. In addition, if the Senior Subordinated Exchange Notes and/or
Senior Subordinated Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for such
Senior Subordinated Old Notes, the signature on the Letter of Transmittal must
be guaranteed by an Eligible Institution.
The Senior Subordinated Exchange Agent will make a request within two
business days after the date of receipt of this Prospectus to establish accounts
with respect to the Senior Subordinated Old Notes at the book-entry transfer
facility for the purpose of facilitating the Senior Subordinated 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 Senior Subordinated Old Notes by causing such book-entry transfer
facility to transfer such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account with respect to the Senior Subordinated
Old Notes in accordance with the book-entry transfer facility's procedures for
such transfer. Although delivery of Senior Subordinated Old Notes may be
effected through book-entry transfer into the Senior Subordinated Exchange
Agent's account at the book-entry transfer facility, a Letter of Transmittal
with any required signature guarantee and all other required documents must in
each case be transmitted to and received or confirmed by the Senior Subordinated
Exchange Agent at its address set forth below on or prior to the Senior
Subordinated Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
If a holder desires to accept the Senior Subordinated Exchange Offer and
time will not permit the Letter of Transmittal or Senior Subordinated Old Notes
to reach the Senior Subordinated Exchange Agent before the Senior Subordinated
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Senior Subordinated Exchange
Agent has received at its address set forth below on or prior to the Senior
Subordinated Expiration Date, a letter, telegram or facsimile transmission
(receipt confirmed by telephone and an original delivered by guaranteed
overnight courier) from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Senior Subordinated Old
Notes are registered and, if possible,
80
the certificate numbers of the Senior Subordinated Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Senior Subordinated Expiration Date, the Senior
Subordinated Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility), will
be delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Senior Subordinated Old Notes being tendered by the above-described method are
deposited with the Senior Subordinated Exchange Agent within the time period set
forth above (accompanied or preceded by a properly completed Letter of
Transmittal and any other required documents), the Company may, at its option,
reject the tender. Copies of the forms of notice of guaranteed delivery ("Notice
of Guaranteed Delivery") relating to the Senior Subordinated Notes which may be
used by Eligible Institutions for the purposes described in this paragraph are
available from the Senior Subordinated Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Subordinated Old Notes (or a confirmation of
book-entry transfer of such Senior Subordinated Old Notes into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility) is
received by the Senior Subordinated Exchange Agent, or (ii) the applicable
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) from an Eligible Institution is received by
the Senior Subordinated Exchange Agent. Issuances of Senior Subordinated
Exchange Notes in exchange for Senior Subordinated Old Notes tendered pursuant
to a Notice of Guaranteed Delivery or letter, telegram or facsimile transmission
to similar effect (as provided above) by an Eligible Institution will be made
only against deposit of the applicable Letter of Transmittal (and any other
required documents) and the tendered Senior Subordinated Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Senior Subordinated Old Notes tendered for exchange
will be determined by the Company in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any particular Senior Subordinated Old Notes not properly
tendered or not to accept any particular Senior Subordinated Old Notes which
acceptance might, in the judgment of the Company or its counsel, be unlawful.
The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Senior Subordinated Exchange Offer as to any
particular Senior Subordinated Old Notes either before or after the Senior
Subordinated Expiration Date (including the right to waive the ineligibility of
any holder who seeks to tender Senior Subordinated Old Notes in the Senior
Subordinated Exchange Offer). The interpretation of the terms and conditions of
the Senior Subordinated Exchange Offer (including the Letter of Transmittal and
the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Senior Subordinated Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Senior Subordinated Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Senior Subordinated Old Notes for exchange, nor shall any of them
incur any liability for failure to give such notification.
If a Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Senior Subordinated Old Notes, such Senior
Subordinated Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders appear on the Senior Subordinated Old Notes.
If a Letter of Transmittal or any Senior Subordinated Old Notes or powers
of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of its
authority to so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the Senior Subordinated Exchange Notes acquired pursuant to the Senior
Subordinated Exchange Offer are being
81
acquired in the ordinary course of business of the person receiving such Senior
Subordinated Exchange Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such Senior Subordinated
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, or
if it is an affiliate it will comply with the registration and prospectus
requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives Senior Subordinated Exchange Notes for its
own account in exchange for Senior Subordinated Old Notes where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such Senior
Subordinated Exchange Notes. See "Plan of Distribution."
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Senior Subordinated Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Senior Subordinated Old Notes to the Company and
irrevocably constitutes and appoints the Senior Subordinated Exchange Agent as
the Transferor's agent and attorney-in-fact to cause the Senior Subordinated Old
Notes to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, assign and
transfer the Senior Subordinated Old Notes and to acquire Senior Subordinated
Exchange Notes issuable upon the exchange of such tendered Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Senior Subordinated Old Notes, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The Transferor also warrants that it will, upon request, execute
and deliver any additional documents deemed by the Senior Subordinated Exchange
Agent or the Company to be necessary or desirable to complete the exchange,
assignment and transfer of tendered Senior Subordinated Old Notes or transfer
ownership of such Senior Subordinated Old Notes on the account books maintained
by a book-entry transfer facility. The Transferor further agrees that acceptance
of any tendered Senior Subordinated Old Notes by the Company and the issuance of
Senior Subordinated Exchange Notes in exchange therefor shall constitute
performance in full by the Company of certain of its obligations under the
Senior Subordinated Registration Rights Agreement. All authority conferred by
the Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act and that it is acquiring
the Senior Subordinated Exchange Notes offered hereby in the ordinary course of
such Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such Senior Subordinated Exchange
Notes. Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of Senior
Subordinated Exchange Notes. Each Transferor which is a broker-dealer receiving
Senior Subordinated Exchange Notes for its own account must acknowledge that it
will deliver a prospectus in connection with any resale of such Senior
Subordinated Exchange Notes. By so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Senior Subordinated Exchange Notes received in exchange for
Senior Subordinated Old Notes where such Senior Subordinated Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Company will, for a period of 180 days after the Senior
Subordinated Expiration Date, make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale.
82
Withdrawal Rights
Tenders of Senior Subordinated Old Notes may be withdrawn at any time prior
to the Senior Subordinated Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Senior Subordinated Exchange Agent at the address set forth
herein prior to the Senior Subordinated Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Senior
Subordinated Old Notes to be withdrawn (the "Depositor"), (ii) identify the
Senior Subordinated Old Notes to be withdrawn (including the certificate number
or numbers and principal amount of such Senior Subordinated Old Notes), (iii)
specify the principal amount of Senior Subordinated Old Notes to be withdrawn,
(iv) include a statement that such holder is withdrawing his election to have
such Senior Subordinated Old Notes exchanged, (v) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
Senior Subordinated Old Notes were tendered or as otherwise described above
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Senior Subordinated Trustee under the Senior
Subordinated Indenture register the transfer of such Senior Subordinated Old
Notes into the name of the person withdrawing the tender and (vi) specify the
name in which any such Senior Subordinated Old Notes are to be registered, if
different from that of the Depositor. The Senior Subordinated Exchange Agent
will return the properly withdrawn Senior Subordinated Old Notes promptly
following receipt of notice of withdrawal.
If Senior Subordinated Old Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the book-entry transfer facility to be
credited with the withdrawn Senior Subordinated Old Notes or otherwise comply
with the book-entry transfer facility procedure. All questions as to the
validity of notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
Any Senior Subordinated Old Notes so withdrawn will be deemed not to have
been validly tendered for exchange for purposes of the Senior Subordinated
Exchange Offer. Any Senior Subordinated Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Senior
Subordinated Old Notes tendered by book-entry transfer into the Senior
Subordinated Exchange Agent's account at the book-entry transfer facility
pursuant to the book-entry transfer procedures described above, such Senior
Subordinated Old Notes will be credited to an account with such book-entry
transfer facility specified by the holder) as soon as practicable after
withdrawal, rejection of tender or termination of the Senior Subordinated
Exchange Offer. Properly withdrawn Senior Subordinated Old Notes may be
retendered by following one of the procedures described under " -- Procedures
for Tendering Senior Subordinated Old Notes" above at any time on or prior to
the Senior Subordinated Expiration Date.
Acceptance of Senior Subordinated Old Notes for Exchange; Delivery of Senior
Subordinated Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Senior
Subordinated Exchange Offer, the Company will accept, promptly on the Senior
Subordinated Exchange Date, all Senior Subordinated Old Notes properly tendered
and will issue the Senior Subordinated Exchange Notes promptly after such
acceptance. See " -- Certain Conditions to the Senior Subordinated Exchange
Offer" below. For purposes of the Senior Subordinated Exchange Offer, the
Company shall be deemed to have accepted properly tendered Senior Subordinated
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Senior Subordinated Exchange Agent.
For each Senior Subordinated Old Note accepted for exchange, the holder of
such Senior Subordinated Old Note will receive a Senior Subordinated Exchange
Note having a principal amount equal to that of the surrendered Senior
Subordinated Old Note.
In all cases, issuance of Senior Subordinated Exchange Notes for Senior
Subordinated Old Notes that are accepted for exchange pursuant to the Senior
Subordinated Exchange Offer will be made only
83
after timely receipt by the Senior Subordinated Exchange Agent of certificates
for such Senior Subordinated Old Notes or a timely book-entry confirmation of
such Senior Subordinated Old Notes into the Senior Subordinated Exchange Agent's
account at the book-entry transfer facility, a properly completed and duly
executed Letter of Transmittal and all other required documents. If any tendered
Senior Subordinated Old Notes are not accepted for any reason set forth in the
terms and conditions of the Senior Subordinated Exchange Offer or if Senior
Subordinated Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Senior Subordinated
Old Notes will be returned without expense to the tendering holder thereof (or,
in the case of Senior Subordinated Old Notes tendered by book-entry transfer
into the Senior Subordinated Exchange Agent's account at the book-entry transfer
facility pursuant to the book-entry transfer procedures described above, such
non-exchanged Senior Subordinated Old Notes will be credited to an account
maintained with such book-entry transfer facility specified by the holder) as
promptly as practicable after the expiration of the Senior Subordinated Exchange
Offer.
Certain Conditions to the Senior Subordinated Exchange Offer
Notwithstanding any other provision of the Senior Subordinated Exchange
Offer, or any extension of the Senior Subordinated Exchange Offer, the Company
shall not be required to accept for exchange, or to issue Senior Subordinated
Exchange Notes in exchange for, any Senior Subordinated Old Notes and may
terminate or amend the Senior Subordinated Exchange Offer (by oral or written
notice to the Senior Subordinated Exchange Agent or by a timely press release)
if at any time before the acceptance of such Senior Subordinated Old Notes for
exchange or the exchange of the Senior Subordinated Exchange Notes for such
Senior Subordinated Old Notes, any of the following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Senior Subordinated
Exchange Offer which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Senior Subordinated
Exchange Offer or have a material adverse effect on the contemplated benefits
of the Senior Subordinated Exchange Offer to the Company; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that, in the sole judgment of the Company, is or may
be adverse to the Company, or the Company shall have become aware of facts
that have or may have adverse significance with respect to the value of the
Senior Subordinated Old Notes or the Senior Subordinated Exchange Notes or
that may, in the sole judgment of the Company, materially impair the
contemplated benefits of the Senior Subordinated Exchange Offer to the
Company; or
(c) any law, rule or regulation or applicable interpretations of the
Staff of the Commission is issued or promulgated which, in the good faith
determination of the Company, does not permit the Company to effect the
Senior Subordinated Exchange Offer; or
(d) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deem necessary for the consummation of the
Senior Subordinated Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law, statute, rule or
regulation) which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Senior Subordinated
Exchange Offer or have a material adverse effect on the contemplated benefits
of the Senior Subordinated Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation by the Staff
of the Commission which permits the Senior Subordinated Exchange Notes issued
pursuant to the Senior Subordinated Exchange Offer in exchange for Senior
Subordinated Old Notes to be offered for resale, resold and otherwise
transferred by holders 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
84
registration and prospectus delivery provisions of the Securities Act
provided that such Senior Subordinated Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such Senior
Subordinated Exchange Notes; or
(g) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) any limitation by any governmental agency or authority
which may adversely affect the ability of the Company to complete the
transactions contemplated by the Senior Subordinated Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks by Federal or state authorities in the United States (whether or not
mandatory), (iv) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (v) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting, the
extension of credit by banks or other lending institutions in the United
States, or (vi) in the case of any of the foregoing existing at the time of
the commencement of the Senior Subordinated Exchange Offer, a material
acceleration or worsening thereof.
The Company expressly reserves the right to terminate the Senior
Subordinated Exchange Offer and not accept for exchange any of the Senior
Subordinated Old Notes upon the occurrence of any of the foregoing conditions
(which represent all of the material conditions to the acceptance by the Company
of the Senior Subordinated Old Notes which are properly tendered). In addition,
the Company may amend the Senior Subordinated Exchange Offer at any time prior
to the Senior Subordinated Expiration Date if any of the conditions set forth
above occurs. Moreover, regardless of whether any of such conditions has
occurred, the Company may amend the Senior Subordinated Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the
Senior Subordinated Old Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If the Company waives or amends the foregoing
conditions, it will, if required by law, extend the Subordinated Exchange Offer
for a minimum of five business days from the date that the Company first gives
notice, by public announcement or otherwise, of such waiver or amendment, if the
Senior Subordinated Exchange Offer would otherwise expire within such five
business-day period. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Senior
Subordinated Old Notes tendered, and no Senior Subordinated Exchange Notes will
be issued in exchange for any such Senior Subordinated Old Notes, if at such
time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Senior Subordinated Indenture under the Trust Indenture Act
of 1939, as amended. In any such event, the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Senior Subordinated Exchange Offer is not conditioned upon any minimum
principal amount of Senior Subordinated Old Notes being tendered for exchange.
Senior Subordinated Exchange Agent
Bank One, N.A. has been appointed as the Senior Subordinated Exchange Agent
for the Senior Subordinated Exchange Offer. All executed Letters of Transmittal
related to the Senior Subordinated Exchange Offer should be directed to the
Senior Subordinated Exchange Agent at one of the addresses set forth in the
Letter of Transmittal.
85
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal related to the Senior
Subordinated Notes and requests for Notices of Guaranteed Delivery related to
the Senior Subordinated Notes should be directed to the Senior Subordinated
Exchange Agent at the address and telephone number set forth in the Letter of
Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH
ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Senior Subordinated Exchange Offer and will not make any payments to broker,
dealers or others soliciting acceptances of the Senior Subordinated Exchange
Offer. The Company, however, will pay the Senior Subordinated Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith. The Company will also
pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
and other related documents to the beneficial owners of the Senior Subordinated
Old Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Senior
Subordinated Exchange Offer will be paid by the Company and are estimated in the
aggregate to be approximately $ , including fees and expenses of the Senior
Subordinated Exchange Agent or the Senior Subordinated Trustee, registration
fees, and accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Senior Subordinated Exchange Offer other
than those contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Senior Subordinated Exchange Offer is not being
made to (nor will tenders be accepted from or on behalf of) holders of Senior
Subordinated Old Notes in any jurisdiction in which the making of the Senior
Subordinated Exchange Offer or the acceptance thereof would not be in compliance
with the laws of such jurisdiction. However, the Company may, at its discretion,
take such action as it may deem necessary to make the Senior Subordinated
Exchange Offer in any such jurisdiction and extend the Senior Subordinated
Exchange Offer to holders of Senior Subordinated Old Notes in such jurisdiction.
In any jurisdiction in which the securities or "blue sky" laws require the
Senior Subordinated Exchange Offer to be made by a licensed broker or dealer,
the Senior Subordinated Exchange Offer is being made on behalf of the Company by
one or more registered brokers or dealers which are licensed under the laws of
such jurisdiction.
Transfer Taxes
The Company will pay all transfer taxes, if any, to the exchange of Senior
Subordinated Old Notes pursuant to the Senior Subordinated Exchange Offer. If,
however, certificates representing Senior Subordinated Exchange Notes or Senior
Subordinated Old Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Senior Subordinated Old Notes tendered,
or if tendered Senior Subordinated Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a transfer
tax is imposed for any reason other than the exchange of Senior Subordinated Old
Notes pursuant to the Senior Subordinated Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
86
Consequences of Failure to Exchange
Holders of Senior Subordinated Old Notes who do not exchange their Senior
Subordinated Old Notes for Senior Subordinated Exchange Notes pursuant to the
Senior Subordinated Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Subordinated Old Notes as set forth in
the legend thereon. Senior Subordinated Old Notes not exchanged pursuant to the
Senior Subordinated Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Senior Subordinated Old Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Senior Subordinated Old Notes
under the Securities Act.
Participation in the Senior Subordinated Exchange Offer is voluntary, and
holders of Senior Subordinated Old Notes should carefully consider whether to
participate. Holders of Senior Subordinated Old Notes are urged to consult their
financial and tax advisors in making their own decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Subordinated Old Notes pursuant to the terms of, the
Senior Subordinated Exchange Offer, the Company will have fulfilled a covenant
contained in the Senior Subordinated Registration Rights Agreement. Holders of
Senior Subordinated Old Notes who do not tender their Senior Subordinated Old
Notes in the Senior Subordinated Exchange Offer will continue to hold such
Senior Subordinated Old Notes and will be entitled to all the rights and
limitations applicable thereto under the Senior Subordinated Indenture, except
for any such rights under the Senior Subordinated Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of the Senior Subordinated Exchange Offer. All untendered Senior
Subordinated Old Notes will continue to be subject to the restrictions on
transfer set forth in the Senior Subordinated Indenture. To the extent that
Senior Subordinated Old Notes are tendered and accepted in the Senior
Subordinated Exchange Offer, the trading market for untendered Senior
Subordinated Old Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Senior Subordinated Indenture, untendered Senior Subordinated Old Notes in
open-market or privately-negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Senior
Subordinated Old Notes which are not tendered in the Senior Subordinated
Exchange Offer.
Resale of Senior Subordinated Exchange Notes
The Company is making the Senior Subordinated Exchange Offer in reliance on
the position of the Staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, the Company
has not sought its own interpretive letter and there can be no assurance that
the Staff would make a similar determination with respect to the Senior
Subordinated Exchange Offer as it has in such interpretive letters to third
parties. Based on these interpretations by the Staff, the Company believes that
the Senior Subordinated Exchange Notes issued pursuant to the Senior
Subordinated Exchange Offer in exchange for Senior Subordinated Old Notes may be
offered for resale, resold and otherwise transferred by a Holder (other than any
Holder who is a broker-dealer or an "affiliate" of the Company within the
meaning of Rule 405 of the Securities Act) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Senior Subordinated Exchange Notes are acquired in the
ordinary course of such Holder's business and that such Holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such Senior Subordinated Exchange Notes. However, any holder who is an
"affiliate" of the Company who has an arrangement or understanding with respect
to the distribution of the Senior Subordinated Exchange Notes to be acquired
pursuant to the Senior Subordinated Exchange Offer, or any broker-dealer who
purchased Senior Subordinated Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act (i) could
not rely on the applicable interpretations of the Staff and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act. A broker-dealer who holds Senior Subordinated Old Notes that were acquired
for its own account as a
87
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Senior Subordinated Exchange Notes. Each such
broker-dealer that receives Senior Subordinated Exchange Notes for its own
account in exchange for Senior Subordinated Old Notes, where such Senior
Subordinated Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
Letter of Transmittal that it will deliver a prospectus in connection with any
resale of such Senior Subordinated Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Senior Subordinated Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. The Company has agreed, pursuant to the Senior Subordinated Registration
Rights Agreement and subject to certain specified limitations therein, to
register or qualify the Senior Subordinated Exchange Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as any holder of the
Senior Subordinated Exchange Notes reasonably requests. Such registration or
qualification may require the imposition of restrictions or conditions
(including suitability requirements for offerees or purchasers) in connection
with the offer or sale of any Senior Subordinated Exchange Notes.
THE SENIOR DISCOUNT EXCHANGE OFFER OF HOLDINGS
General
Holdings hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the applicable Letter of Transmittal (which
together constitute the Senior Discount Exchange Offer), to exchange up to
$87,000,000 aggregate principal amount at maturity of its Senior Discount
Exchange Notes for a like aggregate principal amount at maturity of its Senior
Discount Old Notes properly tendered on or prior to the Senior Discount
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. Throughout this Prospectus, references to the "Letter of
Transmittal" refer to the form of Letter of Transmittal that is applicable to
the Senior Discount Notes or the Senior Subordinated Notes, as the context
requires, whether so expressed or not. The Senior Discount Exchange Offer is
being made with respect to all of the Senior Discount Old Notes.
As of the date of this Prospectus, $87,000,000 aggregate principal amount
at maturity of Senior Discount Old Notes is outstanding. This Prospectus and the
applicable Letter of Transmittal are first being sent on or about
, 1998, to all holders of Senior Discount Old Notes known to Holdings.
Holdings' obligation to accept Senior Discount Old Notes for exchange pursuant
to the Senior Discount Exchange Offer is subject to certain conditions set forth
under "Certain Conditions to the Senior Discount Exchange Offer" below. Holdings
currently expect that each of the conditions will be satisfied and that no
waivers will be necessary.
Purpose of the Senior Discount Exchange Offer
The Senior Discount Old Notes were issued on June 5, 1998 in a transaction
exempt from the registration requirements of the Securities Act. Accordingly,
the Senior Discount Old Notes may not be reoffered, resold, or otherwise
transferred unless so registered or unless an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act is
available.
In connection with the issuance and sale of the Senior Discount Old Notes,
Holdings entered into the Senior Discount Registration Rights Agreement, which
requires Holdings to file with the Commission a registration statement relating
to the Senior Discount Exchange Offer not later than 90 days after the date of
issuance of the Senior Discount Old Notes, and to use its best efforts to cause
the registration statement relating to the Senior Discount Exchange Offer to
become effective under the Securities Act not later than 200 days after the date
of issuance of the Senior Discount Old Notes. In addition, the Senior Discount
Registration Rights Agreement provides for certain remedies if the Senior
Discount Exchange Offer is not consummated or a shelf registration statement
with respect to Senior Discount Old Notes is not made effective within the time
periods specified therein. See "Senior Discount Exchange Offer; Senior Discount
Registration Rights."
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The Senior Discount Exchange Offer is being made by Holdings to satisfy its
obligations with respect to the Senior Discount Registration Rights Agreement.
The term "holder," with respect to the Senior Discount Exchange Offer, means any
person in whose name Senior Discount Old Notes are registered on the books of
Holdings or any other person who has obtained a properly completed bond power
from the registered holder, or any person whose Senior Discount Old Notes are
held of record by The Depository Trust Company or its nominee. Other than
pursuant to the Senior Discount Registration Rights Agreement, Holdings is not
required to file any registration statement to register any outstanding Senior
Discount Old Notes. Holders of Senior Discount Old Notes who do not tender their
Senior Discount Old Notes or whose Senior Discount Old Notes are tendered but
not accepted would have to rely on exceptions to the registration requirements
under the securities laws, including the Securities Act, if they wish to sell
their Senior Discount Old Notes.
Holdings is making the Senior Discount Exchange Offer in reliance on the
position of the Staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, Holdings has
not sought its own interpretive letter and there can be no assurance that the
Staff would make a similar determination with respect to the Senior Discount
Exchange Offer as it has in such interpretive letters to third parties. Based on
these interpretations by the Staff, Holdings believes that the Senior Discount
Exchange Notes issued pursuant to the Senior Discount Exchange Offer in exchange
for Senior Discount Old Notes may be offered for resale, resold and otherwise
transferred by a Holder (other than any Holder who is a broker-dealer or an
"affiliate" of Holdings within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Senior Discount Exchange
Notes are acquired in the ordinary course of such Holder's business and that
such Holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such Senior Discount Exchange Notes. See " -- Resale of
Senior Discount Exchange Notes." Each broker-dealer that receives Senior
Discount Exchange Notes for its own account in exchange for Senior Discount Old
Notes, where such Senior Discount Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Senior Discount Exchange Notes. See "Plan of Distribution."
Terms of the Exchange
Holdings hereby offers to exchange, subject to the conditions set forth
herein and in the applicable Letter of Transmittal accompanying this Prospectus,
$1,000 in principal amount at maturity of Senior Discount Exchange Notes for
each $1,000 principal amount at maturity of the Senior Discount Old Notes,
properly tendered on or prior to the Senior Discount Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The terms of
the Senior Discount Exchange Notes are identical in all material respects to the
terms of the Senior Discount Old Notes for which they may be exchanged pursuant
to the Senior Discount Exchange Offer, except that the Senior Discount Exchange
Notes will generally be freely transferable by holders thereof and will not be
subject to any covenant regarding registration. The Senior Discount Exchange
Notes will evidence the same indebtedness as the Senior Discount Old Notes and
will be entitled to the benefits of the Senior Discount Indenture. See
"Description of Senior Discount Exchange Notes."
The Senior Discount Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Senior Discount Old Notes being tendered for
exchange.
Holdings has not requested, and does not intend to request, an
interpretation by the Staff of the Commission with respect to whether the Senior
Discount Exchange Notes issued pursuant to the Senior Discount Exchange Offer in
exchange for the Senior Discount Old Notes may be offered for sale, resold or
otherwise transferred by any holder without compliance with the registration and
prospectus delivery provisions of the Securities Act. Instead, based on an
interpretation by the Staff of the Commission set forth in a series of no-action
letters issued to third parties, Holdings believes that Senior Discount Exchange
Notes issued pursuant to the Senior Discount Exchange Offer in exchange for
Senior Discount Old Notes may be offered for sale, resold and otherwise
transferred by any holder of such Senior
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Discount Exchange Notes (other than any such holder that is a broker-dealer or
is an "affiliate" of Holdings 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 Senior Discount 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 Senior Discount Exchange Notes and neither such holder nor
any other such person is engaging in or intends to engage in a distribution of
such Senior Discount Exchange Notes. Since the Commission has not considered the
Senior Discount Exchange Offer in the context of a no-action letter, there can
be no assurance that the Staff of the Commission would make a similar
determination with respect to the Senior Discount Exchange Offer. Any holder who
is an affiliate of Holdings or who tenders in the Senior Discount Exchange Offer
for the purpose of participating in a distribution of the Senior Discount
Exchange Notes cannot rely on such interpretation by the Staff of the Commission
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of Senior Discount Exchange Notes. Each
broker-dealer that receives Senior Discount Exchange Notes for its own account
in exchange for Senior Discount Old Notes, where such Senior Discount Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Senior Discount Exchange Notes. A
broker-dealer may not participate in the Senior Discount Exchange Offer with
respect to Senior Discount Old Notes acquired other than as a result of
market-making activities or other trading activities. See "Plan of
Distribution."
Cash interest on the Senior Discount Exchange Notes will not accrue until
June 1, 2003. Thereafter, interest on the Senior Discount Exchange Notes will
accrue from June 1, 2003 at the rate of 11 1/8% per annum on the principal
amount at maturity of the Senior Discount Exchange Notes, and will be payable
semiannually in arrears on June 1 and December 1 of each year, commencing
December 1, 2003.
Tendering holders of the Senior Discount Old Notes 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 the Senior
Discount Old Notes pursuant to the Senior Discount Exchange Offer.
Senior Discount Expiration Date; Extension; Termination; Amendment
The Senior Discount Exchange Offer will expire at 5:00 p.m., New York City
time, on , 1998, unless Holdings, in its sole discretion, has extended the
period of time for which the Senior Discount Exchange Offer is open (such date,
as it may be extended, is referred to herein as the "Senior Discount Expiration
Date" and, together with the Senior Subordinated Expiration Dates, the
"Expiration Dates.") . The Senior Discount Expiration Date will be at least 20
business days after the commencement of the Senior Discount Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. Holdings expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Senior Discount Exchange Offer is open, and thereby delay
acceptance for exchange of any Senior Discount Old Notes, by giving oral or
written notice to the Senior Discount Exchange Agent and by timely public
announcement no later than 9:00 a.m. New York City time, on the next business
day after the previously scheduled Senior Discount Expiration Date. During any
such extension, all Senior Discount Old Notes previously tendered will remain
subject to the Senior Discount Exchange Offer unless properly withdrawn.
Holdings does not anticipate extending the Senior Discount Expiration Date.
Holdings expressly reserves the right to (i) terminate or amend the Senior
Discount Exchange Offer and not to accept for exchange any Senior Discount Old
Notes not theretofore accepted for exchange upon the occurrence of any of the
events specified below under "Certain Conditions to the Senior Discount Exchange
Offer" which have not been waived by Holdings and (ii) amend the terms of the
Senior Discount Exchange Offer in any manner which, in its good faith judgment,
is advantageous to the holders of the Senior Discount Old Notes, whether before
or after any tender of the Senior Discount Old Notes. If any such termination or
amendment occurs, Holdings will notify the Senior Discount Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Senior Discount Old Notes as promptly as practicable.
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For purposes of the Senior Discount Exchange Offer, a "business day" means
any day other than Saturday, Sunday or a date on which banking institutions are
required or authorized by New York State law to be closed, and consists of the
time period from 12:01 a.m. through 12:00 midnight, New York City time. Unless
Holdings terminates the Senior Discount Exchange Offer prior to 5:00 p.m., New
York City time, on the Senior Discount Expiration Date, Holdings will exchange
the Senior Discount Exchange Notes for the Senior Discount Old Notes on the
Senior Discount Exchange Date.
Procedures for Tendering Senior Discount Old Notes
The tender to Holdings of Senior Discount Old Notes by a holder thereof as
set forth below and the acceptance thereof by Holdings will constitute a binding
agreement between the tendering holder and Holdings upon the terms and subject
to the conditions set forth in this Prospectus and in the applicable Letter of
Transmittal.
A holder of Senior Discount Old Notes may tender the same by (i) properly
completing and signing the applicable Letter of Transmittal or a facsimile
thereof (all references in this Prospectus to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificate or certificates representing the Senior Discount Old Notes being
tendered and any required signature guarantees and any other documents required
by the applicable Letter of Transmittal, to the Senior Discount Exchange Agent
at its address set forth below on or prior to the Senior Discount Expiration
Date (or complying with the procedure for book-entry transfer described below)
or (ii) complying with the guaranteed delivery procedures described below.
The method of delivery of Senior Discount Old Notes, Letters of Transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, it is recommended that registered mail properly
insured, with return receipt requested, be used. In all cases, sufficient time
should be allowed to insure timely delivery. No Senior Discount Old Notes or
Letters of Transmittal should be sent to Holdings.
If tendered Senior Discount Old Notes are registered in the name of the
signer of the Letter of Transmittal and the Senior Discount Exchange Notes to be
issued in exchange therefor are to be issued (and any untendered Senior Discount
Old Notes are to be reissued) in the name of the registered holder (which term,
for the purposes described herein, shall include any participant in The
Depository Trust Company (also referred to as a "book-entry transfer facility")
whose name appears on a security listing as the owner of Senior Discount Old
Notes), the signature of such signer need not be guaranteed. In any other case,
the tendered Senior Discount Old Notes must be endorsed or accompanied by
written instruments of transfer in form satisfactory to Holdings and duly
executed by the registered holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a bank, broker, dealer, credit
union, savings association, clearing agency or other institution (each an
"Eligible Institution") that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. In
addition, if the Senior Discount Exchange Notes and/or Senior Discount Old Notes
not exchanged are to be delivered to an address other than that of the
registered holder appearing on the note register for the Senior Discount Old
Notes, the signature on the Letter of Transmittal must be guaranteed by an
Eligible Institution.
The Senior Discount Exchange Agent will make a request within two business
days after the date of receipt of this Prospectus to establish accounts with
respect to the Senior Discount Old Notes at the book-entry transfer facility for
the purpose of facilitating the Senior Discount 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 Senior
Discount Old Notes by causing such book-entry transfer facility to transfer such
Senior Discount Old Notes into the Senior Discount Exchange Agent's account with
respect to the Senior Discount Old Notes in accordance with the book-entry
transfer facility's procedures for such transfer. Although delivery of Senior
Discount Old Notes may be effected through book-entry transfer into the Senior
Discount Exchange Agent's account at the book-entry transfer facility, an
appropriate Letter of Transmittal with any required signature guarantee and all
other required documents must in each case be transmitted to and received or
confirmed by the Senior Discount Exchange Agent at its address set forth below
on or prior to the Senior Discount Expiration Date,
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or, if the guaranteed delivery procedures described below are complied with,
within the time period provided under such procedures.
If a holder desires to accept the Senior Discount Exchange Offer and time
will not permit the Letter of Transmittal or Senior Discount Old Notes to reach
the Senior Discount Exchange Agent before the Senior Discount Expiration Date or
the procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if the Senior Discount Exchange Agent has received at its
address set forth below on or prior to the Senior Discount Expiration Date, a
letter, telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Senior Discount Old Notes are registered and, if possible,
the certificate numbers of the Senior Discount Old Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Senior Discount Expiration Date, the Senior Discount Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Senior Discount Old Notes into the Senior Discount Exchange Agent's account
at the book-entry transfer facility), will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Discount Old Notes
being tendered by the above-described method are deposited with the Senior
Discount Exchange Agent within the time period set forth above (accompanied or
preceded by a properly completed Letter of Transmittal and any other required
documents), Holdings may, at its option, reject the tender. Copies of the notice
of guaranteed delivery ("Notice of Guaranteed Delivery") which may be used by
Eligible Institutions for the purposes described in this paragraph are available
from the Senior Discount Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Discount Old Notes (or a confirmation of book-entry
transfer of such Senior Discount Old Notes into the Senior Discount Exchange
Agent's account at the book-entry transfer facility) is received by the Senior
Discount Exchange Agent, or (ii) a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) from an
Eligible Institution is received by the Senior Discount Exchange Agent.
Issuances of Senior Discount Exchange Notes in exchange for Senior Discount Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the applicable Letter of
Transmittal (and any other required documents) and the tendered Senior Discount
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Senior Discount Old Notes tendered for exchange will
be determined by Holdings in its sole discretion, which determination shall be
final and binding. Holdings reserves the absolute right to reject any and all
tenders of any particular Senior Discount Old Notes not properly tendered or not
to accept any particular Senior Discount Old Notes which acceptance might, in
the judgment of Holdings or its counsel, be unlawful. Holdings also reserves the
absolute right to waive any defects or irregularities or conditions of the
Senior Discount Exchange Offer as to any particular Senior Discount Old Notes
either before or after the Senior Discount Expiration Date (including the right
to waive the ineligibility of any holder who seeks to tender Senior Discount Old
Notes in the Senior Discount Exchange Offer). The interpretation of the terms
and conditions of the Senior Discount Exchange Offer (including the applicable
Letter of Transmittal and the instructions thereto) by Holdings shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Senior Discount Old Notes for exchange must be cured
within such reasonable period of time as Holdings shall determine. Neither
Holdings, the Senior Discount Exchange Agent nor any other person shall be under
any duty to give notification of any defect or irregularity with respect to any
tender of Senior Discount Old Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Senior Discount Old Notes, such Senior
Discount Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders appear on the Senior Discount Old Notes.
92
If the Letter of Transmittal or any Senior Discount Old Notes or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by Holdings, proper evidence satisfactory to Holdings of its
authority to so act must be submitted.
By tendering, each holder will represent to Holdings that, among other
things, the Senior Discount Exchange Notes acquired pursuant to the Senior
Discount Exchange Offer are being acquired in the ordinary course of business of
the person receiving such Senior Discount Exchange Notes, whether or not such
person is the holder, that neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such Senior Discount 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 Holdings, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives Senior Discount Exchange Notes for its own
account in exchange for Senior Discount Old Notes where such Senior Discount Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities must acknowledge that it will deliver a
prospectus in connection with any resale of such Senior Discount Exchange Notes.
See "Plan of Distribution."
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Senior Discount Exchange Offer.
The party tendering Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Senior Discount Old Notes to Holdings and irrevocably
constitutes and appoints the Senior Discount Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Senior Discount Old Notes to be
assigned, transferred and exchanged. The Transferor represents and warrants that
it has full power and authority to tender, exchange, assign and transfer the
Senior Discount Old Notes and to acquire Senior Discount Exchange Notes issuable
upon the exchange of such tendered Notes, and that, when the same are accepted
for exchange, Holdings will acquire good and unencumbered title to the tendered
Senior Discount Old Notes, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Senior Discount Exchange Agent or Holdings to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Senior Discount Old Notes or transfer ownership of such Senior Discount
Old Notes on the account books maintained by a book-entry transfer facility. The
Transferor further agrees that acceptance of any tendered Senior Discount Old
Notes by Holdings and the issuance of Senior Discount Exchange Notes in exchange
therefor shall constitute performance in full by Holdings of certain of its
obligations under the Senior Discount Registration Rights Agreement. All
authority conferred by the Transferor will survive the death or incapacity of
the Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
The Transferor certifies that it is not an "affiliate" of Holdings within
the meaning of Rule 405 under the Securities Act and that it is acquiring the
Senior Discount Exchange Notes offered hereby in the ordinary course of such
Transferor's business and that such Transferor has no arrangement with any
person to participate in the distribution of such Senior Discount Exchange
Notes. Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of Senior Discount
Exchange Notes. Each Transferor which is a broker-dealer receiving Senior
Discount Exchange Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such Senior Discount
Exchange Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Senior Discount Exchange Notes received in exchange for Senior
Discount Old Notes where such Senior Discount Old Notes were
93
acquired by such broker-dealer as a result of market-making activities or other
trading activities. Holdings will, for a period of 180 days after the Senior
Discount Expiration Date, make copies of this Prospectus available to any
broker-dealer for use in connection with any such resale.
Withdrawal Rights
Tenders of Senior Discount Old Notes may be withdrawn at any time prior to
the Senior Discount Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Senior Discount Exchange Agent at the address set forth
herein prior to the Senior Discount Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having tendered the Senior
Discount Old Notes to be withdrawn (the "Depositor"), (ii) identify the Senior
Discount Old Notes to be withdrawn (including the certificate number or numbers
and principal amount of such Senior Discount Old Notes), (iii) specify the
principal amount of Senior Discount Old Notes to be withdrawn, (iv) include a
statement that such holder is withdrawing his election to have such Senior
Discount Old Notes exchanged, (v) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal by which such Senior
Discount Old Notes were tendered or as otherwise described above (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee under the Senior Discount Indenture register the
transfer of such Senior Discount Old Notes into the name of the person
withdrawing the tender and (vi) specify the name in which any such Senior
Discount Old Notes are to be registered, if different from that of the
Depositor. The Senior Discount Exchange Agent will return the properly withdrawn
Senior Discount Old Notes promptly following receipt of notice of withdrawal.
If Senior Discount Old Notes have been tendered pursuant to the procedure
for book-entry transfer, any notice of withdrawal must specify the name and
number of the account at the book-entry transfer facility to be credited with
the withdrawn Senior Discount Old Notes or otherwise comply with the book-entry
transfer facility procedure. All questions as to the validity of notices of
withdrawals, including time of receipt, will be determined by Holdings and such
determination will be final and binding on all parties.
Any Senior Discount Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Senior Discount Exchange
Offer. Any Senior Discount Old Notes which have been tendered for exchange but
which are not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Senior Discount Old Notes
tendered by book-entry transfer into the Senior Discount Exchange Agent's
account at the book-entry transfer facility pursuant to the book-entry transfer
procedures described above, such Senior Discount Old Notes will be credited to
an account with such book-entry transfer facility specified by the holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Senior Discount Exchange Offer. Properly withdrawn Senior Discount Old Notes may
be retendered by following one of the procedures described under " -- Procedures
for Tendering Senior Discount Old Notes" above at any time on or prior to the
Senior Discount Expiration Date.
Acceptance of Senior Discount Old Notes for Exchange; Delivery of Senior
Discount Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Senior Discount
Exchange Offer, Holdings will accept, promptly on the Senior Discount Exchange
Date, all Senior Discount Old Notes properly tendered and will issue the Senior
Discount Exchange Notes promptly after such acceptance. See " -- Certain
Conditions to the Senior Discount Exchange Offer" below. For purposes of the
Senior Discount Exchange Offer, Holdings shall be deemed to have accepted
properly tendered Senior Discount Old Notes for exchange when, as and if
Holdings has given oral or written notice thereof to the Senior Discount
Exchange Agent.
94
For each Senior Discount Old Note accepted for exchange, the holder of such
Senior Discount Old Note will receive a Senior Discount Exchange Note having a
principal amount equal to that of the surrendered Senior Discount Old Note.
In all cases, issuance of Senior Discount Exchange Notes for Senior
Discount Old Notes that are accepted for exchange pursuant to the Senior
Discount Exchange Offer will be made only after timely receipt by the Senior
Discount Exchange Agent of certificates for such Senior Discount Old Notes or a
timely book-entry confirmation of such Senior Discount Old Notes into the Senior
Discount Exchange Agent's account at the book-entry transfer facility, a
properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Senior Discount Old Notes are not accepted
for any reason set forth in the terms and conditions of the Senior Discount
Exchange Offer or if Senior Discount Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Senior Discount Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Senior Discount Old Notes tendered
by book-entry transfer into the Senior Discount Exchange Agent's account at the
book-entry transfer facility pursuant to the book-entry transfer procedures
described above, such non-exchanged Senior Discount Old Notes will be credited
to an account maintained with such book-entry transfer facility specified by the
holder) as promptly as practicable after the expiration of the Senior Discount
Exchange Offer.
Certain Conditions to the Senior Discount Exchange Offer
Notwithstanding any other provision of the Senior Discount Exchange Offer,
or any extension of the Senior Discount Exchange Offer, Holdings shall not be
required to accept for exchange, or to issue Senior Discount Exchange Notes in
exchange for, any Senior Discount Old Notes and may terminate or amend the
Senior Discount Exchange Offer (by oral or written notice to the Senior Discount
Exchange Agent or by a timely press release) if at any time before the
acceptance of such Senior Discount Old Notes for exchange or the exchange of the
Senior Discount Exchange Notes for such Senior Discount Old Notes, any of the
following conditions exist:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Senior Discount
Exchange Offer which, in the sole judgment of Holdings, might materially
impair the ability of Holdings to proceed with the Senior Discount Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Senior Discount Exchange Offer to Holdings; or
(b) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of Holdings that, in the sole judgment of Holdings, is or may be
adverse to Holdings, or Holdings shall have become aware of facts that have
or may have adverse significance with respect to the value of the Senior
Discount Old Notes or the Senior Discount Exchange Notes or that may, in the
sole judgment of Holdings, materially impair the contemplated benefits of the
Senior Discount Exchange Offer to Holdings; or
(c) any law, rule or regulation or applicable interpretations of the
Staff of the Commission is issued or promulgated which, in the good faith
determination of Holdings, does not permit Holdings to effect the Senior
Discount Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
Holdings, in its sole discretion, deem necessary for the consummation of the
Senior Discount Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation (or an amendment to any existing law, statute, rule or
regulation) which, in the sole judgment of Holdings, might materially impair
the ability of Holdings to proceed with the Senior Discount Exchange Offer or
have a material adverse effect on the contemplated benefits of the Senior
Discount Exchange Offer to Holdings; or
(f) there shall occur a change in the current interpretation by the Staff
of the Commission which permits the Senior Discount Exchange Notes issued
pursuant to the Senior Discount Exchange
95
Offer in exchange for Senior Discount Old Notes to be offered for resale,
resold and otherwise transferred by holders thereof (other than any such
holder that is an "affiliate" of Holdings 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
Senior Discount Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Senior Discount Exchange Notes; or
(g) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) any limitation by any governmental agency or authority
which may adversely affect the ability of Holdings to complete the
transactions contemplated by the Senior Discount Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in respect
of banks by Federal or state authorities in the United States (whether or not
mandatory), (iv) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (v) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting, the
extension of credit by banks or other lending institutions in the United
States, or (vi) in the case of any of the foregoing existing at the time of
the commencement of the Senior Discount Exchange Offer, a material
acceleration or worsening thereof.
Holdings expressly reserves the right to terminate the Senior Discount
Exchange Offer and not accept for exchange any Senior Discount Old Notes upon
the occurrence of any of the foregoing conditions (which represent all of the
material conditions to the acceptance by Holdings of properly tendered Senior
Discount Old Notes). In addition, Holdings may amend the Senior Discount
Exchange Offer at any time prior to the Senior Discount Expiration Date if any
of the conditions set forth above occurs. Moreover, regardless of whether any of
such conditions has occurred, Holdings may amend the Senior Discount Exchange
Offer in any manner which, in its good faith judgment, is advantageous to
holders of the Senior Discount Old Notes.
The foregoing conditions are for the sole benefit of Holdings and may be
asserted by Holdings regardless of the circumstances giving rise to any such
condition or may be waived by Holdings in whole or in part at any time and from
time to time in its sole discretion. The failure by Holdings at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If Holdings waives or amends the foregoing
conditions, it will, if required by law, extend the Senior Discount Exchange
Offer for a minimum of five business days from the date that Holdings first
gives notice, by public announcement or otherwise, of such waiver or amendment,
if the Senior Discount Exchange Offer would otherwise expire within such five
business-day period. Any determination by Holdings concerning the events
described above will be final and binding upon all parties.
In addition, Holdings will not accept for exchange any Senior Discount Old
Notes tendered, and no Senior Discount Exchange Notes will be issued in exchange
for any such Senior Discount Old Notes, if at such time any stop order shall be
threatened or in effect with respect to the Registration Statement of which this
Prospectus constitutes a part or the qualification of the Senior Discount
Indenture under the Trust Indenture Act of 1939, as amended. In any such event,
Holdings is required to use every reasonable effort to obtain the withdrawal of
any stop order at the earliest possible time.
The Senior Discount Exchange Offer is not conditioned upon any minimum
principal amount of Senior Discount Old Notes being tendered for exchange.
Senior Discount Exchange Agent
Bank One, N.A. has been appointed as the Senior Discount Exchange Agent
for the Senior Discount Exchange Offer. All executed Letters of Transmittal
should be directed to the Senior Discount Exchange Agent at one of the
addresses set forth in the Letter of Transmittal:
96
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Senior Discount Exchange Agent at
the address and telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH
ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.
Solicitation of Tenders; Fees and Expenses
Holdings has not retained any dealer-manager in connection with the Senior
Discount Exchange Offer and will not make any payments to brokers, dealers or
others soliciting acceptances of the Senior Discount Exchange Offer. Holdings,
however, will pay the Senior Discount Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. Holdings will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this and other related documents to the
beneficial owners of the Senior Discount Old Notes and in handling or forwarding
tenders for their customers.
The estimated cash expenses to be incurred in connection with the Senior
Discount Exchange Offer will be paid by Holdings and are estimated in the
aggregate to be approximately $ , including fees and expenses of the Senior
Discount Exchange Agent and the Senior Discount Trustee, registration fees, and
accounting, legal, printing and related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Senior Discount Exchange Offer other than
those contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by Holdings.
Neither the delivery of this Prospectus nor any exchange made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of Holdings since the respective dates as of which information is
given herein. The Senior Discount Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Senior Discount Old Notes
in any jurisdiction in which the making of the Senior Discount Exchange Offer or
the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, Holdings may, at its discretion, take such action as it
may deem necessary to make the Senior Discount Exchange Offer in any such
jurisdiction and extend the Senior Discount Exchange Offer to holders of Senior
Discount Old Notes in such jurisdiction. In any jurisdiction in which the
securities or "blue sky" laws require the Senior Discount Exchange Offer to be
made by a licensed broker or dealer, the Senior Discount Exchange Offer is being
made on behalf of Holdings by one or more registered brokers or dealers which
are licensed under the laws of such jurisdiction.
Transfer Taxes
Holdings will pay all transfer taxes, if any, applicable to the exchange of
Senior Discount Old Notes pursuant to the Senior Discount Exchange Offer. If,
however, certificates representing Senior Discount Exchange Notes or Senior
Discount Old Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of the Senior Discount Old Notes tendered, or if
tendered Senior Discount Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Senior Discount Old Notes
pursuant to the Senior Discount Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
Consequences of Failure to Exchange
Holders of Senior Discount Old Notes who do not exchange their Senior
Discount Old Notes for Senior Discount Exchange Notes pursuant to the Senior
Discount Exchange Offer will continue to be
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subject to the restrictions on transfer of such Senior Discount Old Notes as set
forth in the legend thereon. Senior Discount Old Notes not exchanged pursuant to
the Senior Discount Exchange Offer will continue to remain outstanding in
accordance with their terms. In general, the Senior Discount Old Notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holdings does not currently anticipate that
they will register the Senior Discount Old Notes under the Securities Act.
Participation in the Senior Discount Exchange Offer is voluntary, and
holders of Senior Discount Old Notes should carefully consider whether to
participate. Holders of Senior Discount Old Notes are urged to consult their
financial and tax advisors in making their own decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Discount Old Notes pursuant to the terms of, the Senior
Discount Exchange Offer, Holdings will have fulfilled a covenant contained in
the Senior Discount Registration Rights Agreement. Holders of Senior Discount
Old Notes who do not tender their Senior Discount Old Notes in the Senior
Discount Exchange Offer will continue to hold such Senior Discount Old Notes and
will be entitled to all the rights and limitations applicable thereto under the
Senior Discount Indenture, except for any such rights under the Senior Discount
Registration Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this Senior Discount Exchange
Offer. All untendered Senior Discount Old Notes will continue to be subject to
the restrictions on transfer set forth in the Senior Discount Indenture. To the
extent that Senior Discount Old Notes are tendered and accepted in the Senior
Discount Exchange Offer, the trading market for untendered Senior Discount Old
Notes could be adversely affected.
Holdings may in the future seek to acquire, subject to the terms of the
Senior Discount Indenture, untendered Senior Discount Old Notes in open-market
or privately-negotiated transactions, through subsequent exchange offers or
otherwise. Holdings has no present plan to acquire any Senior Discount Old Notes
which are not tendered in the Senior Discount Exchange Offer.
Resale of Senior Discount Exchange Notes
Holdings is making the Senior Discount Exchange Offer in reliance on the
position of the Staff of the Commission as set forth in certain interpretive
letters addressed to third parties in other transactions. However, Holdings has
not sought its own interpretive letter and there can be no assurance that the
Staff would make a similar determination with respect to the Senior Discount
Exchange Offer as it has in such interpretive letters to third parties. Based on
these interpretations by the Staff, Holdings believes that the Senior Discount
Exchange Notes issued pursuant to the Senior Discount Exchange Offer in exchange
for Senior Discount Old Notes may be offered for resale, resold and otherwise
transferred by a Holder (other than any Holder who is a broker-dealer or an
"affiliate" of Holdings within the meaning of Rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Senior Discount Exchange
Notes are acquired in the ordinary course of such Holder's business and that
such Holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such Senior Discount Exchange Notes. However, any holder who
is an "affiliate" of Holdings or who has an arrangement or understanding with
respect to the distribution of the Senior Discount Exchange Notes to be acquired
pursuant to the Senior Discount Exchange Offer, or any broker-dealer who
purchased Senior Discount Old Notes from Holdings to resell pursuant to Rule
144A or any other available exemption under the Securities Act (i) could not
rely on the applicable interpretations of the Staff and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Senior Discount Old Notes that were acquired for its own
account as a result of market-making or other trading activities may be deemed
to be an "underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of Senior Discount Exchange Notes. Each such
broker-dealer that receives Senior Discount Exchange Notes for its own account
in exchange for Senior Discount Old Notes, where such Senior Discount Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge
98
in the Letter of Transmittal that it will deliver a prospectus in connection
with any resale of such Senior Discount Exchange Notes. See "Plan of
Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Senior Discount Exchange Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
an exemption from registration or qualification is available and is complied
with. Holdings has agreed, pursuant to the Senior Discount Registration Rights
Agreement and subject to certain specified limitations therein, to register or
qualify the Senior Discount Exchange Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Senior
Discount Exchange Notes reasonably requests. Such registration or qualification
may require the imposition of restrictions or conditions (including suitability
requirements for offerees or purchasers) in connection with the offer or sale of
any Senior Discount Exchange Notes.
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DESCRIPTION OF THE SENIOR SUBORDINATED EXCHANGE NOTES OF THE COMPANY
General
The Senior Subordinated Old Notes were issued, and the Senior Subordinated
Exchange Notes will be issued, under an Indenture, dated as of June 5, 1998 (the
"Senior Subordinated Notes Indenture"), among the Company, Holdings, as
guarantor, and Bank One, N.A., as Trustee (the "Senior Subordinated Notes
Trustee"), which has been filed as an exhibit to the Registration Statment of
which this Prospectus is part. The following is a summary of all material
provisions of the Senior Subordinated Notes Indenture and the Senior
Subordinated Notes. Capitalized terms used herein and not otherwise defined have
the meanings set forth in the section "Certain Definitions". For purposes of
this "Description of the Senior Subordinated Exchange Notes", the term Company
refers only to WESCO Distribution, Inc. and not to any of its Subsidiaries.
On June 5, 1998, the Company issued $300 million aggregate principal amount
of Senior Subordinated Old Notes under the Senior Subordinated Notes Indenture.
The terms of the Senior Subordinated Exchange Notes are identical in all
material repsects to the Senior Subordinated Old Notes, except for certain
transfer restrictions and registration and other rights relating to the exchange
of the Senior Subordinated Old Notes for Senior Subordinated Exchange Notes. The
Trustee will authenticate and deliver Senior Subordinated Exchange Notes for
original issue only in exchange for a like principal amount of Senior
Subordinated Old Notes. Any Senior Subordinated Old Notes that remain
outstanding after the consummation of the Senior Subordinated Exchange Offer,
together with the Senior Subordinated Exchange Notes, will be treated as a
single class of securities under the Senior Subordinated Notes Indenture.
Accordingly, all references herein to specified percentages in aggregate
principal amount of the outstanding Senior Subordinated Notes shall be deemed to
mean, at any time after the Senior Subordinated Exchange Offer is consummated,
such percentage in aggregate principal amount of the Senior Subordinated Old
Notes and Senior Subordinated Exchange Notes then outstanding.
The Senior Subordinated Notes Indenture provides for the issuance of up to
$200 million aggregate principal amount of additional Senior Subordinated Notes
having identical terms and conditions to the Senior Subordinated Exchange Notes
offered hereby (the "Additional Senior Subordinated Notes"), subject to
compliance with the covenants contained in the Senior Subordinated Notes
Indenture. Any Additional Senior Subordinated Notes will be part of the same
issue as the Senior Subordinated Exchange Notes offered hereby and will vote on
all matters with the Senior Subordinated Exchange Notes offered hereby.
Principal of, premium, if any, and interest on the Senior Subordinated
Notes will be payable, and the Senior Subordinated Notes may be exchanged or
transferred, at the office or agency of the Company in the Borough of Manhattan,
The City of New York (which initially shall be the corporate trust office of the
Senior Subordinated Notes Trustee in New York, New York), except that, at the
option of the Company, payment of interest may be made by check mailed to the
registered holders of the Senior Subordinated Notes at their registered
addresses.
The Senior Subordinated Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 and any integral multiple of $1,000.
No service charge will be made for any registration of transfer or exchange of
Senior Subordinated Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Terms of the Senior Subordinated Notes
The Senior Subordinated Notes will be unsecured senior subordinated
obligations of the Company and will mature on June 1, 2008. Each Senior
Subordinated Note will bear interest at a rate per annum shown on the front
cover of this Prospectus from June 5, 1998, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Senior
Subordinated Noteholders of record at the close of business on the May 15 or
November 15 immediately preceding the interest payment date on June 1 and
December 1 of each year, commencing December 1, 1998.
100
Optional Redemption
Except as set forth in the following two paragraphs, the Senior
Subordinated Notes will not be redeemable at the option of the Company prior to
June 1, 2003. Thereafter, the Senior Subordinated Notes will be redeemable at
the option of the Company, in whole or in part, on not less than 30 nor more
than 60 days' prior notice, at the following redemption prices (expressed as
percentages of principal amount), plus accrued and unpaid interest and
liquidated damages (if any) to the redemption date (subject to the right of
holders of record on the relevant record date to receive interest due on the
relevant interest payment date), if redeemed during the 12-month period
commencing on June 1 of the years set forth below:
Redemption
Year Price
- --------------------------------------- -------------
2003 ................................ 104.563%
2004 ................................ 103.042%
2005 ................................ 101.521%
2006 and thereafter ................. 100.000%
In addition, at any time and from time to time prior to June 1, 2001, the
Company may redeem up to a maximum of 35% of the original aggregate principal
amount of the Senior Subordinated Notes (calculated giving effect to any
issuance of Additional Senior Subordinated Notes) with the Net Cash Proceeds of
one or more Equity Offerings by (i) the Company or (ii) Holdings to the extent
the Net Cash Proceeds thereof are (a) contributed to the Company as a capital
contribution to the common equity of the Company or (b) used to purchase Capital
Stock of the Company (in either case, other than Disqualified Stock), at a
redemption price equal to 109.125% of the principal amount thereof, plus accrued
and unpaid interest and liquidated damages 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); provided, however,
that after giving effect to any such redemption, at least 65% of the original
aggregate principal amount of the Senior Subordinated Notes (calculated giving
effect to any issuance of Additional Senior Subordinated Notes) remains
outstanding. Any such redemption shall be made within 120 days of such Equity
Offering upon not less than 30 nor more than 60 days' notice mailed to each
holder of Senior Subordinated Notes being redeemed and otherwise in accordance
with the procedures set forth in the Senior Subordinated Notes Indenture.
At any time prior to June 1, 2003, the Senior Subordinated Notes may be
redeemed, in whole but not in part, at the option of the Company at any time
within 180 days after a Change of Control, at a redemption price equal to the
sum of (i) the principal amount thereof plus (ii) accrued and unpaid interest
and liquidated damages, if any, to the redemption date (subject to the right of
Senior Subordinated Noteholders of record on the relevant record date to receive
interest due on the relevant interest payment date that is on or prior to the
date of redemption) plus (iii) the Applicable Premium.
Selection
In the case of any partial redemption, selection of the Senior Subordinated
Notes for redemption will be made by the Senior Subordinated Notes Trustee on a
pro rata basis, by lot or by such other method as the Senior Subordinated Notes
Trustee in its sole discretion shall deem to be fair and appropriate, although
no Senior Subordinated Note of $1,000 in original principal amount or less will
be redeemed in part. If any Senior Subordinated Note is to be redeemed in part
only, the notice of redemption relating to such Senior Subordinated Note shall
state the portion of the principal amount thereof to be redeemed. A new Senior
Subordinated Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Senior Subordinated Noteholder thereof upon
cancelation of the original Senior Subordinated Note.
Ranking
The indebtedness evidenced by the Senior Subordinated Notes will be
unsecured Senior Subordinated Indebtedness of the Company, will be subordinated
in right of payment, as set forth in the Senior Subordinated Notes Indenture, to
all existing and future Senior Indebtedness of the Company, will rank pari passu
in right of payment with all existing and future Senior Subordinated
Indebtedness of the
101
Company and will be senior in right of payment to all existing and future
Subordinated Obligations of the Company. The Senior Subordinated Notes will also
be effectively subordinated to any Secured Indebtedness of the Company and its
Subsidiaries to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described under "Defeasance" below is
not subordinated to any Senior Indebtedness or subject to the restrictions
described herein.
Certain of the operations of the Company are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries, including trade
creditors, and claims of preferred stockholders (if any) of such Subsidiaries
generally will have priority with respect to the assets and earnings of such
Subsidiaries over the claims of creditors of the Company, including the Senior
Subordinated Noteholders. The Senior Subordinated Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and preferred
stockholders (if any) of Subsidiaries of the Company. As of June 30, 1998, the
Company's Subsidiaries had no Indebtedness, excluding Guarantees of $176.8
million of Indebtedness under the Credit Facilities (but had trade payables and
other liabilities Incurred in the ordinary course of business). Although the
Senior Subordinated Notes Indenture limits the Incurrence of Indebtedness by and
the issuance of preferred stock of certain of the Company's Subsidiaries, such
limitation is subject to a number of significant qualifications.
As of June 30, 1998, (i) the outstanding Senior Indebtedness of the Company
was $196.4 million, of which $176.8 million was Secured Indebtedness (exclusive
of unused commitments under the Credit Facilities), and (ii) the Company had no
outstanding Senior Subordinated Indebtedness (other than the Senior Subordinated
Notes) and no outstanding Indebtedness that is subordinate or junior in right of
repayment to the Senior Subordinated Notes. Although the Senior Subordinated
Notes Indenture contains limitations on the amount of additional Indebtedness
which the Company may Incur, under certain circumstances the amount of such
Indebtedness could be substantial and, in any case, such Indebtedness may be
Senior Indebtedness. See "Certain Covenants -- Limitation on Indebtedness".
"Senior Indebtedness" of the Company means the principal of, premium (if
any) and accrued and unpaid interest on (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization of the Company,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings), and fees and other amounts owing in respect of, Bank Indebtedness
and all other Indebtedness of the Company, whether outstanding on the Closing
Date or thereafter Incurred, unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that such
obligations are not superior in right of payment to the Senior Subordinated
Notes; provided, however, that Senior Indebtedness shall not include (i) any
obligation of the Company to any Subsidiary, (ii) any liability for Federal,
state, local or other taxes owed or owing by the Company, (iii) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness or obligation of the Company (and any
accrued and unpaid interest in respect thereof) that by its terms is subordinate
or junior in any respect to any other Indebtedness or obligation of the Company,
including any Senior Subordinated Indebtedness of the Company and any
Subordinated Obligations of the Company, (v) any payment obligations with
respect to any Capital Stock or (vi) any Indebtedness Incurred in violation of
this Senior Subordinated Notes Indenture. "Senior Indebtedness" of Holdings has
a correlative meaning.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Senior Subordinated Notes in accordance with the provisions of the
Senior Subordinated Notes Indenture. The Senior Subordinated Notes will in all
respects rank pari passu with all other Senior Subordinated Indebtedness of the
Company. The Company has agreed in the Senior Subordinated Notes Indenture that
it will not Incur, directly or indirectly, any Indebtedness which is subordinate
or junior in ranking in any respect to Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinate or junior to Secured Indebtedness merely because it
is unsecured.
The Company may not pay principal of, premium (if any) or interest on the
Senior Subordinated Notes, or any liquidated damages payable pursuant to the
provisions set forth in the Senior Subordinated
102
Notes and the Senior Subordinated Notes Exchange and Registration Rights
Agreement, or make any deposit pursuant to the provisions described under
"Defeasance" below, and may not otherwise repurchase, redeem or otherwise retire
any Senior Subordinated Notes (collectively, "pay the Senior Subordinated
Notes") if (i) any Designated Senior Indebtedness is not paid in cash or cash
equivalents when due or (ii) any other default on Designated Senior Indebtedness
occurs and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, (x) the default has been cured
or waived and any such acceleration has been rescinded or (y) such Designated
Senior Indebtedness has been paid in full in cash or cash equivalents. However,
the Company may pay the Senior Subordinated Notes without regard to the
foregoing if the Company and the Senior Subordinated Notes Trustee receive
written notice approving such payment from the Representative of the Designated
Senior Indebtedness with respect to which either of the events set forth in
clause (i) or (ii) of the immediately preceding sentence has occurred and is
continuing. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness pursuant to which the maturity thereof may
be accelerated immediately without further notice (except such notice as may be
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Senior Subordinated Notes for a period (a
"Payment Blockage Period") commencing upon the receipt by the Senior
Subordinated Notes Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of such Designated
Senior Indebtedness specifying an election to effect a Payment Blockage Period
and ending 179 days thereafter (or earlier if such Payment Blockage Period is
terminated (i) by written notice to the Senior Subordinated Notes Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full in cash or cash equivalents of such Designated Senior
Indebtedness or (iii) because the default giving rise to such Blockage Notice is
no longer continuing). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the provisions contained in the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness or the Representative of such holders have accelerated the maturity
of such Designated Senior Indebtedness, the Company may resume payments on the
Senior Subordinated Notes after the end of such Payment Blockage Period. Not
more than one Blockage Notice may be given in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness of the Company will be entitled to receive payment in full in cash
or cash equivalents of such Senior Indebtedness before the Senior Subordinated
Noteholders are entitled to receive any payment of principal of, interest,
premium (if any) or liquidated damages on the Senior Subordinated Notes and
until such Senior Indebtedness is paid in full in cash or cash equivalents, any
payment or distribution to which Senior Subordinated Noteholders would be
entitled but for the subordination provisions of the Senior Subordinated Notes
Indenture will be made to holders of such Senior Indebtedness as their interests
may appear. If a distribution is made to Senior Subordinated Noteholders that
due to the subordination provisions of the Senior Subordinated Notes Indenture
should not have been made to them, such Senior Subordinated Noteholders are
required to hold it in trust for the holders of Senior Indebtedness of the
Company and pay it over to them as their interests may appear.
103
If payment of the Senior Subordinated Notes is accelerated because of an
Event of Default, the Company or the Senior Subordinated Notes Trustee shall
promptly notify the holders of the Designated Senior Indebtedness (or their
Representative) of the acceleration. If any Designated Senior Indebtedness is
outstanding, the Company may not pay the Senior Subordinated Notes until five
Business Days after such holders or the Representative of the Designated Senior
Indebtedness receive notice of such acceleration and, thereafter, may pay the
Senior Subordinated Notes only if the subordination provisions of the Senior
Subordinated Notes Indenture otherwise permit payment at that time.
By reason of such subordination provisions contained in the Senior
Subordinated Notes Indenture, in the event of insolvency, creditors of the
Company who are holders of Senior Indebtedness of the Company may recover more,
ratably, than the Senior Subordinated Noteholders, and creditors of the Company
who are not holders of Senior Indebtedness of the Company or of Senior
Subordinated Indebtedness of the Company (including the Senior Subordinated
Notes) may recover less, ratably, than holders of Senior Indebtedness of the
Company and may recover more, ratably, than the holders of Senior Subordinated
Indebtedness of the Company.
Holdings Guarantee
Holdings, as primary obligor and not merely as surety, has irrevocably and
unconditionally Guaranteed on an unsecured senior subordinated basis the
performance and full and punctual payment when due, whether at Stated Maturity,
by acceleration or otherwise, of all obligations of the Company under the Senior
Subordinated Notes Indenture and the Senior Subordinated Notes, whether for
payment of principal of or interest on or liquidated damages in respect of the
Senior Subordinated Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by Holdings being herein called the "Guaranteed
Obligations"). Holdings has agreed to pay, in addition to the amount stated
above, any and all costs and expenses (including reasonable counsel fees and
expenses) incurred by the Senior Subordinated Notes Trustee or the Senior
Subordinated Noteholders in enforcing any rights under the Holdings Guarantee.
The Holdings Guarantee will be limited in amount to an amount not to exceed the
maximum amount that can be Guaranteed by Holdings without rendering the Holdings
Guarantee, as it relates to Holdings, voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
The obligations of Holdings under its Holdings Guarantee are senior
subordinated obligations. As such, the rights of Senior Subordinated Noteholders
to receive payment by Holdings pursuant to its Holdings Guarantee will be
subordinated in right of payment to the rights of holders of Senior Indebtedness
of Holdings. Investors should not rely on the Holdings Guarantee in evaluating
an investment in the Senior Subordinated Notes. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Senior Subordinated Notes apply equally to Holdings and the obligations of
Holdings under its Holdings Guarantee.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), unless all Senior Subordinated Notes have been called for redemption
pursuant to the provisions described above under " -- Optional Redemption," each
Senior Subordinated Noteholder will have the right to require the Company to
repurchase all or any part of such Senior Subordinated Noteholder's Senior
Subordinated Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest and liquidated damages, if any,
to the date of repurchase (subject to the right of Senior Subordinated
Noteholders of record on the relevant record date to receive interest due on the
relevant interest payment date):
(i) prior to the earlier to occur of (A) the first public offering of
common stock of Holdings or (B) the first public offering of common stock of
the Company, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Company or Holdings, whether as a result of issuance of
securities of Holdings or the Company, any merger, consolidation, liquidation
or dissolution of Holdings or the Company, any direct or indirect transfer
104
of securities by any Permitted Holder or otherwise (for purposes of this
clause (i) and clause (ii) below, the Permitted Holders shall be deemed to
beneficially own any Voting Stock of an entity (the "specified entity") held
by any other entity (the "parent entity") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity);
(ii) on or after any such public offering referred to in clause (i), (A)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of the Company or Holdings and (B) the Permitted Holders "beneficially own"
(as defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the total voting power of the Voting Stock of the
Company or Holdings than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of the Company or Holdings, as
the case may be (for the purposes of this clause (ii), such other person
shall be deemed to beneficially own any Voting Stock of a specified
corporation held by a parent corporation, if such other person is the
beneficial owner (as defined in this clause (ii)), directly or indirectly,
more than 35% of the voting power of the Voting Stock of such parent
corporation and the Permitted Holders "beneficially own" (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent corporation
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the board of directors of
such parent corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the Company or
Holdings, as the case may be (together with any new directors whose election
by such board of directors of the Company or Holdings, as the case may be, or
whose nomination for election by the shareholders of the Company or Holdings,
as the case may be, was approved by a vote of 66 2/3% of the directors of the
Company or Holdings, as the case may be, 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 or Holdings, as the case
may be, then in office; or
(iv) the merger or consolidation of the Company or Holdings with or into
another Person or the merger of another Person with or into the Company or
Holdings, or the sale of all or substantially all the assets of the Company
or Holdings to another Person (other than a Person that is controlled by the
Permitted Holders), and, in the case of any such merger or consolidation, the
securities of the Company or Holdings that are outstanding immediately prior
to such transaction and which represent 100% of the aggregate voting power of
the Voting Stock of the Company or Holdings are changed into or exchanged for
cash, securities or property, unless pursuant to such transaction such
securities are changed into or exchanged for, in addition to any other
consideration, securities of the surviving Person that represent immediately
after such transaction, at least a majority of the aggregate voting power of
the Voting Stock of the surviving Person; provided, however, that any sale of
accounts receivable in connection with a Qualified Receivables Transaction
shall not constitute a Change of Control.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Senior Subordinated Noteholder with a copy to the Senior
Subordinated Notes Trustee (the "Change of Control Offer") stating: (1) that
a Change of Control has occurred and that such Senior Subordinated Noteholder
has the right to require the Company to purchase such Senior Subordinated
Noteholder's Senior Subordinated Notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, to the date of repurchase (subject to the right
of Senior Subordinated Noteholders of record on the relevant record date to
receive interest on the relevant interest payment date); (2) the
circumstances and
105
relevant facts regarding such Change of Control; (3) the repurchase date
(which shall be no earlier than 30 days nor later than 60 days from the date
such notice is mailed); and (4) the instructions determined by the Company,
consistent with this covenant, that a Senior Subordinated Noteholder must
follow in order to have its Senior Subordinated Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Senior Subordinated Notes Indenture applicable to a Change of
Control Offer made by the Company and purchases all Senior Subordinated Notes
validly tendered and not withdrawn under such Change of Control Offer.
The phrase "all or substantially all," as used with respect to a sale of
assets in the definition in the Senior Subordinated Notes Indenture of
"Change of Control," varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under New York law
(the law governing such Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances, there may be a degree of uncertainty
in ascertaining whether a particular transaction would involve a disposition
of "all or substantially all" of the assets of a Person and therefore it may
be unclear whether a Change of Control has occurred.
The Company will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act (including Rules 13e-4 and 14e-1
thereunder) and any other securities laws or regulations in connection with
the repurchase of Senior Subordinated Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict
with provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations
between the Company and the Initial Purchasers. Management has no present
intention to engage in a transaction involving a Change of Control, although
it is possible that the Company would decide to do so in the future. Subject
to the limitations discussed below, the Company could, in the future, enter
into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Senior Subordinated Notes Indenture, but that could increase the amount of
Indebtedness outstanding at such time or otherwise affect the Company's
capital structure or credit ratings. Restrictions on the ability of the
Company to incur additional Indebtedness are contained in the covenants
described under "Certain Covenants -- Limitation on Indebtedness" and
"Limitation on Liens". Such restrictions can only be waived with the consent
of the holders of a majority in principal amount of the Senior Subordinated
Notes then outstanding. Except for the limitations contained in such
covenants, however, the Senior Subordinated Notes Indenture will not contain
any covenants or provisions that may afford holders of the Senior
Subordinated Notes protection in the event of a highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change
of Control would constitute a default under the Credit Agreement. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior
Indebtedness to be repurchased upon a Change of Control. Prior to the mailing
of the notice referred to above, but in any event within 30 days following
the date on which the Company becomes aware that a Change of Control has
occurred, if the purchase of the Senior Subordinated Notes would violate or
constitute a default under any other Indebtedness of the Company, then the
Company shall, to the extent needed to permit such purchase of Senior
Subordinated Notes, either (i) repay all such Indebtedness and terminate all
commitments outstanding thereunder or (ii) request the holders of such
Indebtedness to give the requisite consents to permit the purchase of the
Senior Subordinated Notes as provided above. Until such time as the Company
is able to repay all such Indebtedness and terminate all commitments
outstanding thereunder or such time as such requisite consents are obtained,
the Company shall not be required to make the Change of Control Offer or
purchase the Senior Subordinated Notes pursuant to the provisions described
above. Finally, the Company's ability to pay cash to the Senior Subordinated
Noteholders upon a repurchase may be limited by the Company's then existing
financial resources. There can be no
106
assurance that sufficient funds will be available when necessary to make any
required repurchases. See " -- Ranking." The provisions under the Senior
Subordinated Notes Indenture relative to the Company's obligation to make an
offer to repurchase the Senior Subordinated Notes as a result of a Change of
Control, if the Company is permitted by the terms of the Credit Agreement and
any other Indebtedness to make such offer and repurchase, may only be waived
or modified with the written consent of the holders of a majority in
principal amount of the Senior Subordinated Notes.
Certain Covenants
The Senior Subordinated Notes Indenture contains covenants including, among
others, the following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company may Incur Indebtedness if on the date of
such Incurrence and after giving effect thereto the Consolidated Coverage Ratio
would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Credit Agreement or any other
Credit Facility in an aggregate principal amount at any time outstanding not
to exceed $400 million;
(ii) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by the
Company or any Wholly Owned Subsidiary; provided, however, that (i) any
subsequent issuance or transfer of any Capital Stock or any other event that
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to the
Company or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof and (ii)
if the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Senior Subordinated Notes;
(iii) Indebtedness (A) represented by the Senior Subordinated Notes (not
including any Additional Senior Subordinated Notes), (B) outstanding on the
Closing Date (other than the Indebtedness described in clauses (i) and (ii)
above), (C) consisting of Refinancing Indebtedness Incurred in respect of any
Indebtedness described in this clause (iii) (including Indebtedness
Refinancing Refinancing Indebtedness) or the foregoing paragraph (a) and (D)
consisting of Guarantees of any Indebtedness permitted under clauses (i) and
(ii) of this paragraph (b);
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
the Company (other than Indebtedness Incurred as consideration in, or to
provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Subsidiary of or was otherwise
acquired by the Company); provided, however, if the aggregate amount of all
such Indebtedness of all such Restricted Subsidiaries would exceed $20
million, that on the date that such Restricted Subsidiary is acquired by the
Company, the Company would have been able to Incur $1.00 of additional
Indebtedness pursuant to the foregoing paragraph (a) after giving effect to
the Incurrence of such Indebtedness pursuant to this clause (iv) and (B)
Refinancing Indebtedness Incurred by a Restricted Subsidiary in respect of
Indebtedness Incurred by such Restricted Subsidiary pursuant to this clause
(iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by the
Company and the Restricted Subsidiaries in the ordinary course of their
business, and (B) under Hedging Obligations consisting of Interest Rate
Agreements directly related (as determined in good faith by the Company) to
Indebtedness permitted to be Incurred by the Company and its Restricted
Subsidiaries pursuant to the Senior Subordinated Notes Indenture and Currency
Agreements Incurred in the ordinary course of business;
107
(vi) Indebtedness Incurred by the Company or any Restricted Subsidiary
(including Capitalized Lease Obligations) financing the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of the Person owning such
assets), in each case Incurred no more than 180 days after such purchase,
lease or improvement of such property and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, that at the time of the
Incurrence of such Indebtedness and after giving effect thereto, the
aggregate principal amount of all Indebtedness incurred pursuant to this
clause (vi) and then outstanding shall not exceed the greater of $25.0
million and 5% of Adjusted Consolidated Assets;
(vii) Indebtedness Incurred by the Company in connection with the
acquisition of a Related Business and any Refinancing Indebtedness in respect
of such Indebtedness; provided, however, that the aggregate amount of
Indebtedness Incurred and outstanding pursuant to this clause (vii) shall not
exceed $50.0 million at any one time;
(viii) Attributable Debt Incurred by the Company in respect of
Sale/Leaseback Transactions; provided, however, that the aggregate amount of
Attributable Debt Incurred and outstanding pursuant to this clause (viii)
shall not exceed $75.0 million at any one time;
(ix) Indebtedness arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, purchase price adjustment or
similar obligations, in each case, Incurred or assumed in connection with the
disposition of any business, assets or a Subsidiary, other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or a Subsidiary for the purpose of financing such
acquisition; provided, however, that the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(x) any Guarantee by the Company of Indebtedness or other obligations of
any of its Restricted Subsidiaries so long as the Incurrence of such
Indebtedness Incurred by such Restricted Subsidiary is permitted under the
terms of the Senior Subordinated Notes Indenture;
(xi) Indebtedness arising from Guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers Incurred in the ordinary
course of business;
(xii) Indebtedness Incurred by a Receivables Entity in a Qualified
Receivables Transaction that is not recourse to the Company or any other
Restricted Subsidiary of the Company (except for Standard Securitization
Undertakings); and
(xiii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this paragraph
(b)) in an aggregate principal amount on the date of Incurrence that, when
added to all other Indebtedness Incurred pursuant to this clause (xiii) and
then outstanding, shall not exceed $50.0 million.
(c) The Company may not Incur any Indebtedness if such Indebtedness is
subordinate or junior in ranking in any respect to any Senior Indebtedness
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness permitted by this covenant need not
be permitted solely by reference to one provision permitting such Indebtedness
but may be permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness and (ii) in the
event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in this covenant, the Company, in its sole discretion,
shall classify or reclassify such Indebtedness and only be required to include
the amount of such Indebtedness in one of such clauses.
108
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
the Company) or similar payment to the direct or indirect holders of its Capital
Stock except dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and except dividends or distributions payable to
the Company or another Restricted Subsidiary (and, if such Restricted Subsidiary
has equity holders other than the Company or other Restricted Subsidiaries, to
its other equity holders on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of Holdings, the Company or any
Restricted Subsidiary held by Persons other than the Company or another
Restricted Subsidiary, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) make any Investment (other than a Permitted Investment) in any Person
(any such dividend, distribution, purchase, redemption, repurchase, defeasance,
other acquisition, retirement or Investment being herein referred to as a
"Restricted Payment") if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default will have occurred and be
continuing (or would result therefrom); (2) the Company could not Incur at least
$1.00 of additional Indebtedness under paragraph (a) of the covenant described
under "Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments (the amount so expended, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination will be conclusive and evidenced by a resolution of the
Board of Directors) declared or made subsequent to the Closing Date would exceed
the sum of: (A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal quarter
immediately following the fiscal quarter during which the Closing Date occurs to
the end of the most recent fiscal quarter for which internal financial
statements are available prior to the date of such Restricted Payment (or, in
case such Consolidated Net Income will be a deficit, minus 100% of such
deficit); (B) the aggregate Net Cash Proceeds or fair market value of assets or
property received by the Company as a contribution to its equity capital or from
the issue or sale of its Capital Stock (in each case other than Disqualified
Stock and Excluded Contributions) subsequent to the Closing Date (other than an
issuance or sale to (x) a Subsidiary of the Company or (y) an employee stock
ownership plan or other trust established by the Company or any of its
Subsidiaries); (C) the amount by which Indebtedness or Disqualified Stock of the
Company or its Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Closing Date of any Indebtedness or Disqualified Stock of the
Company or its Restricted Subsidiaries issued after the Closing Date for Capital
Stock (other than Disqualified Stock) of the Company (less the amount of any
cash or the fair market value of other property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange); and (D) the amount
equal to the net reduction in Investments in any Person (other than a Restricted
Subsidiary) resulting from (i) payments of dividends, repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from such Person, (ii) the sale or liquidation for
cash of such Investment or (iii) the redesignation of Unrestricted Subsidiaries
as Restricted Subsidiaries (valued in each case as provided in the definition of
"Investment") not to exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary, which amount was included in the
calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or other trust established by
the Company or any of its Subsidiaries); provided, however, that (A) such
Restricted Payment will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale applied in the
manner set forth in this clause (i) will be excluded from the calculation of
amounts under clause
109
(3)(B) of paragraph (a) above; (ii) any purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value of Subordinated
Obligations of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of the Company that is permitted
to be Incurred pursuant to paragraph (b) of the covenant described under
"Limitation on Indebtedness"; provided, however, that such purchase, repurchase,
redemption, defeasance or other acquisition or retirement for value will be
excluded in the calculation of the amount of Restricted Payments; (iii) any
purchase or redemption of Subordinated Obligations from Net Available Cash to
the extent permitted by the covenant described under "Limitation on Sales of
Assets and Subsidiary Stock"; provided, however, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this covenant; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments; (v) any Restricted Payment
made for the repurchase, redemption or other acquisition or retirement for value
of any Capital Stock of Holdings, the Company or any of their respective
Subsidiaries held by any employee, former employee, director or former director
of Holdings, the Company or any of their respective Subsidiaries (and any
permitted transferees thereof) pursuant to any equity subscription agreement,
stock option agreement or plan or other similar agreement; provided, however,
that the aggregate amount of such Restricted Payments shall not exceed $5.0
million in any calendar year and $20.0 million in the aggregate; provided
further, however, that such Restricted Payments shall be included in the
calculation of the amount of Restricted Payments; (vi) payment of dividends,
other distributions or other amounts by the Company for the purposes set forth
in clauses (A) through (E) below; provided, however, that such dividend,
distribution or amount shall be excluded in the calculation of the amount of
Restricted Payments: (A) to Holdings in amounts equal to the amounts required
for Holdings to pay franchise taxes and other fees required to maintain its
corporate existence and provide for other operating costs of up to $2.0 million
per calendar year; (B) to Holdings in amounts equal to amounts required for
Holdings to pay Federal, state and local income taxes that are then actually due
and owing by Holdings to the extent such items relate to the Company and its
Subsidiares; (C) to Holdings to permit Holdings to pay financial advisory,
financing, underwriting or placement fees to Cypress and its Affiliates; (D) to
Holdings to permit Holdings to pay any employment, noncompetition, compensation
or confidentiality arrangements entered into with its employees in the ordinary
course of business to the extent such employees are primarily engaged in
activities which relate to the Company and its Subsidiaries; and (E) to Holdings
to permit Holdings to pay customary fees and indemnities to directors and
officers of Holdings to the extent such directors and officers are primarily
engaged in activities which relate to the Company and its Subsidiaries; (vii)
following the initial Equity Offering by the Company or Holdings, any payment of
dividends or common stock buybacks by the Company in an aggregate amount in any
year not to exceed 6% of the aggregate Net Cash Proceeds actually received by
the Company in connection with such initial Equity Offering and any subsequent
Equity Offering by the Company or Holdings; provided, however, that no Default
or Event of Default shall have occurred and be continuing immediately before or
after any such payment; provided further, however, that such dividends or common
stock buybacks shall be included in the calculation of the amount of Restricted
Payments; (viii) any repurchase of Capital Stock deemed to occur upon exercise
of stock options if such Capital Stock represents a portion of the exercise
price of such option; provided, however, that such repurchase shall be included
in the calculation of the amount of Restricted Payments; (ix) the payment of any
dividend or the making of any distribution to Holdings in amounts sufficient to
permit Holdings (A) to pay interest when due on the Senior Discount Notes and
(B) to make any mandatory redemptions, repurchases or principal or accreted
value payments in respect of the Senior Discount Notes; provided, however, that
such payments, dividends and distributions shall be excluded in the calculation
of the amount of Restricted Payments; (x) the declaration and payment of
dividends to holders of any class or series of Disqualified Stock of the Company
issued in accordance with the covenant described under " -- Limitation on
Indebtedness" to the extent such dividends are included in the definition of
Consolidated Interest Expense; provided, however, that such dividends shall be
included in the calculation of the amount of Restricted Payments; (xi)
Investments made with Excluded Contributions; provided, however, that such
Investments shall be excluded in the calculation of the amount of Restricted
Payments; (xii) any Restricted Payment made to fund the Recapitalization
(including fees and expenses); provided, however, that such Restricted Payment
shall be excluded in the calculation of the amount of Restricted Payments; or
(xiii) other Restricted Payments
110
in an aggregate amount not to exceed $10.0 million; provided, however, that such
payments shall be included in the calculation of the amount of Restricted
Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company will not, and will not permit any Restricted Subsidiary to, create
or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligations owed to the Company, (ii) make any loans or
advances to the Company or (iii) transfer any of its property or assets to the
Company, except: (1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Closing Date; (2) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by the Company
(other than Indebtedness Incurred as consideration in, in contemplation of, or
to provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to which
such Restricted Subsidiary became a Restricted Subsidiary or was otherwise
acquired by the Company) and outstanding on such date; (3) any encumbrance or
restriction pursuant to an agreement effecting a Refinancing of Indebtedness
Incurred pursuant to an agreement referred to in clause (1) or (2) of this
covenant or this clause (3) or contained in any amendment to an agreement
referred to in clause (1) or (2) of this covenant or this clause (3); provided,
however, that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment are no less favorable to the Senior
Subordinated Noteholders than the encumbrances and restrictions contained in
such predecessor agreements; (4) in the case of clause (iii), any encumbrance or
restriction (A) that restricts in a customary manner the subletting, assignment
or transfer of any property or asset that is subject to a lease, license or
similar contract, (B) contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such encumbrance or
restriction restricts the transfer of the property subject to such security
agreements or mortgages or (C) in connection with purchase money obligations for
property acquired in the ordinary course of business; (5) with respect to a
Restricted Subsidiary, any restriction imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of such sale or
disposition; (6) any encumbrance or restriction of a Receivables Entity effected
in connection with a Qualified Receivables Transaction; provided, however, that
such restrictions apply only to such Receivables Entity; and (7) any encumbrance
or restriction existing pursuant to other Indebtedness permitted to be Incurred
subsequent to the Senior Subordinated Notes Issue Date pursuant to the
provisions of the covenant described under " -- Limitations on Indebtedness";
provided, however, that any such encumbrance or restrictions are ordinary and
customary with respect to the type of Indebtedness being Incurred (under the
relevant circumstances).
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless (i) the Company or such Restricted Subsidiary receives
consideration (including by way of relief from, or by any other Person assuming
sole responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value (as determined
in good faith by the Company) of the shares and assets subject to such Asset
Disposition, (ii) at least 75% of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash equivalents
(provided that the amount of (w) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet or in the notes thereto)
of the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Senior Subordinated Notes) that are assumed by
the transferee of any such assets without recourse to the Company or any of the
Restricted Subsidiaries, (x) any notes or other obligations received by the
Company or such Restricted Subsidiary from such transferee that are converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received) within 180 days following the closing of such Asset Disposition, (y)
any Designated Noncash Consideration received by the Company or any of its
Restricted Subsidiaries in such Asset Disposition having an aggregate fair
market value, taken together with all other Designated Noncash Consideration
received pursuant to this clause (y) that is at that time outstanding, not to
exceed 5% of Adjusted Consolidated Assets at the time of the receipt of such
Designated Noncash Consideration (with the fair market value of each item of
Designated Noncash Consideration being measured at the
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time received and without giving effect to subsequent changes in value) and (z)
any assets received in exchange for assets related to a Related Business of
comparable market value in the good faith determination of the Board of
Directors shall be deemed to be cash for purposes of this provision) and (iii)
an amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Company (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent the Company elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Senior Indebtedness of the
Company or Indebtedness (other than any Disqualified Stock and other than any
Preferred Stock) of a Wholly Owned Subsidiary (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company) within 365 days
after the later of the date of such Asset Disposition or the receipt of such Net
Available Cash; (B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A), to the extent the Company or
such Restricted Subsidiary elects, to reinvest in Additional Assets (including
by means of an Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by the Company or another Restricted Subsidiary)
within 365 days from the later of such Asset Disposition or the receipt of such
Net Available Cash; and (C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to make
an Offer (as defined below) to purchase Senior Subordinated Notes pursuant to
and subject to the conditions set forth in section (b) of this covenant;
provided, however, that if the Company elects (or is required by the terms of
any other Senior Subordinated Indebtedness), such Offer may be made ratably to
purchase the Senior Subordinated Notes and other Senior Subordinated
Indebtedness of the Company; provided, however, that in connection with any
prepayment, repayment or purchase of Indebtedness pursuant to clause (A) or (C)
above, the Company or such Restricted Subsidiary will retire such Indebtedness
and will cause the related loan commitment (if any) to be permanently reduced in
an amount equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and the
Restricted Subsidiaries will not be required to apply any Net Available Cash in
accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $20.0 million.
(b) In the event of an Asset Disposition that requires the purchase of
Senior Subordinated Notes (and other Senior Subordinated Indebtedness) pursuant
to clause (a)(iii)(C) of this covenant, the Company will be required to purchase
Senior Subordinated Notes (and other Senior Subordinated Indebtedness) tendered
pursuant to an offer by the Company for the Senior Subordinated Notes (and other
Senior Subordinated Indebtedness) (the "Offer") at a purchase price of 100% of
their principal amount plus accrued and unpaid interest and liquidated damages,
if any, to the date of purchase in accordance with the procedures (including
prorating in the event of oversubscription), set forth in the Senior
Subordinated Notes Indenture. If the aggregate purchase price of Senior
Subordinated Notes (and other Senior Subordinated Indebtedness) tendered
pursuant to the Offer is less than the Net Available Cash allotted to the
purchase of the Senior Subordinated Notes (and other Senior Subordinated
Indebtedness), the Company may apply the remaining Net Available Cash for any
purpose permitted by the terms of the Senior Subordinated Notes Indenture. The
Company will not be required to make an Offer for Senior Subordinated Notes (and
other Senior Subordinated Indebtedness) pursuant to this covenant if the Net
Available Cash available therefor (after application of the proceeds as provided
in clauses (A) and (B) of this covenant section (a)(iii)) is less than $10.0
million for any particular Asset Disposition (which lesser amount will be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Senior Subordinated Notes
pursuant to this covenant. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Company will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under this covenant by virtue thereof.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
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amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction") involving aggregate consideration in excess of $5.0
million, unless (i) such Affiliate Transaction is on terms that are not
materially less favorable to the Company or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person and (ii) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $10.0 million, the Company
delivers to the Senior Subordinated Notes Trustee a resolution adopted by the
majority of the Board of Directors, approving such Affiliate Transaction and set
forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
"Limitation on Restricted Payments", (ii) any issuance of securities, or other
payments, Guarantees, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of the Company pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with past practices of the
Company, but in any event not to exceed $5.0 million in the aggregate
outstanding at any one time, (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the Company
or its Subsidiaries, (vi) any transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries, (vii) any transaction effected as
part of a Qualified Receivables Transaction, (viii) any payment by the Company
to Holdings to permit Holdings to pay any Federal, state, local or other taxes
that are then actually due and owing by Holdings, (ix) indemnification
agreements with, and the payment of fees and indemnities to, directors, officers
and employees of the Company and its Restricted Subsidiaries, in each case, in
the ordinary course of business, (x) any employment, compensation,
noncompetition or confidentiality agreement entered into by the Company and its
Restricted Subsidiaries with its employees in the ordinary course of business,
(xi) the payment by the Company of fees, expenses and other amounts to Cypress
and its Affiliates in connection with the Recapitalization, (xii) payments by
the Company or any of its Restricted Subsidiaries to Cypress and its Affiliates
made pursuant to any financial advisory, financing, underwriting or placement
agreement, or in respect of other investment banking activities, in each case,
as determined by the Board of Directors in good faith, (xiii) any issuance of
Capital Stock of the Company (other than Disqualified Stock), (xiv) any
agreement as in effect as of the date of the Senior Subordinated Notes Indenture
or any amendment or replacement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Senior Subordinated
Noteholders of the Senior Subordinated Notes in any material respect than the
original agreement as in effect on the date of the Senior Subordinated Notes
Indenture and (xv) transactions in which the Company or any of its Restricted
Subsidiaries, as the case may be, delivers to the Senior Subordinated Notes
Trustee a letter from an Independent Financial Advisor stating that such
transaction is fair to the Company or such Restricted Subsidiary from a
financial point of view or meets the requirements of clause (a) of the preceding
paragraph.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except: (i) to the Company or a Wholly Owned
Subsidiary or to any director of a Restricted Subsidiary to the extent required
as director's qualifying shares; (ii) if, immediately after giving effect to
such issuance, sale or other disposition, neither the Company nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under the covenant described under "Limitation on Restricted
Payments" if made on the date of such issuance, sale or other disposition. The
provisions of this covenant will not prohibit any transaction effected as part
of a Qualified Receivables Transaction. The proceeds of any sale of such Capital
Stock permitted hereby will be treated as Net Available Cash from an Asset
Disposition and must be
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applied in accordance with the terms of the covenant described under "Limitation
on Sales of Assets and Subsidiary Stock".
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever that secures Senior Subordinated Indebtedness or
Subordinated Obligations on any of its property or assets (including Capital
Stock of a Restricted Subsidiary), whether owned at the Closing Date or
thereafter acquired, other than Permitted Liens, without effectively providing
that the Senior Subordinated Notes shall be secured equally and ratably with (or
on a senior basis to in the case of Subordinated Obligations) the obligations so
secured for so long as such obligations are so secured.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall file with the SEC and provide the Senior Subordinated Notes Trustee and
any Senior Subordinated Noteholder or prospective Senior Subordinated Noteholder
(upon the request of such Senior Subordinated Noteholder or prospective Senior
Subordinated Noteholder) with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections.
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not the Company) will expressly assume, by an indenture supplemental hereto,
executed and delivered to the Senior Subordinated Notes Trustee, in form
satisfactory to the Senior Subordinated Notes Trustee, all the obligations of
the Company under the Senior Subordinated Notes and the Senior Subordinated
Notes Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction, (A) the Successor Company
would be able to Incur an additional $1.00 of Indebtedness under paragraph (a)
of the covenant described under "Certain Covenants -- Limitation on
Indebtedness" or (B) the Consolidated Coverage Ratio for the Successor Company
and its Restricted Subsidiaries would be greater than such ratio for the Company
and its Restricted Subsidiaries immediately prior to such transaction; (iv)
immediately after giving effect to such transaction, the Successor Company will
have Consolidated Net Worth in an amount which is not less than the Consolidated
Net Worth of the Company immediately prior to such transaction; and (v) the
Company will have delivered to the Senior Subordinated Notes Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Senior Subordinated Notes Indenture. Notwithstanding clause
(iii) above, a Wholly Owned Subsidiary may be consolidated with or merged into
the Company and the Company may consolidate with or merge with or into (A)
another Person, if such Person is a single purpose corporation that has not
conducted any business or Incurred any Indebtedness or other liabilities and
such transaction is being consummated solely to change the state of
incorporation of the Company and (B) Holdings; provided, however, that, in the
case of clause (B), (x) Holdings shall not have owned any assets other than the
Capital Stock of the Company (and other immaterial assets incidental to its
ownership of such Capital Stock) or conducted any business other than owning the
Capital Stock of the Company, (y) Holdings shall not have any Indebtedness or
other liabilities (other than ordinary course liabilities incidental to its
ownership of the Capital Stock of the Company) and (z) immediately after giving
effect to such consolidation or merger, the Successor Company shall have a pro
forma Consolidated Coverage Ratio that is not less than the Consolidated
Coverage Ratio of the Company immediately prior to such consolidation or merger.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Senior Subordinated
Notes Indenture, but the predecessor Company
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in the case of a conveyance, transfer or lease of all or substantially all its
assets will not be released from the obligation to pay the principal of and
interest on the Senior Subordinated Notes.
Defaults
An Event of Default is defined in the Senior Subordinated Notes Indenture
as (i) a default in any payment of interest on any Senior Subordinated Note when
due and payable, whether or not prohibited by the provisions described under
"Ranking", continued for 30 days, (ii) a default in the payment of principal of
any Senior Subordinated Note when due and payable at its Stated Maturity, upon
required redemption or repurchase, upon declaration or otherwise, whether or not
such payment is prohibited by the provisions described under "Ranking", (iii)
the failure by the Company to comply with its obligations under the covenant
described under "Merger and Consolidation", (iv) the failure by the Company to
comply for 30 days after notice with any of its obligations under the covenants
described under "Change of Control" or "Certain Covenants" (in each case, other
than a failure to purchase Senior Subordinated Notes), (v) the failure by the
Company to comply for 60 days after notice with its other agreements contained
in the Senior Subordinated Notes or the Senior Subordinated Notes Indenture,
(vi) the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$25 million or its foreign currency equivalent (the "cross acceleration
provision") and such failure continues for 10 days after receipt of the notice
specified in the Senior Subordinated Notes Indenture, (vii) certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary (the "bankruptcy provisions") or (viii) the rendering of any judgment
or decree for the payment of money in excess of $25 million or its foreign
currency equivalent against the Company or a Significant Subsidiary if (A) an
enforcement proceeding thereon is commenced by any creditor or (B) such judgment
or decree remains outstanding for a period of 60 days following such judgment
and is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv), (v), (vi) or (viii) will not
constitute an Event of Default until the Senior Subordinated Notes Trustee or
the Senior Subordinated Noteholders of at least 25% in principal amount of the
outstanding Senior Subordinated Notes notify the Company of the default and the
Company does not cure such default within the time specified in clauses (iv),
(v), (vi) or (viii) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Senior Subordinated Notes Trustee or the Senior Subordinated
Noteholders of at least 25% in principal amount of the outstanding Senior
Subordinated Notes by notice to the Company may declare the principal of and
accrued but unpaid interest on all the Senior Subordinated Notes to be due and
payable. Upon such a declaration, such principal and interest will be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs, the principal of
and interest on all the Senior Subordinated Notes will become immediately due
and payable without any declaration or other act on the part of the Senior
Subordinated Notes Trustee or any Senior Subordinated Noteholders. Under certain
circumstances, the Senior Subordinated Noteholders of a majority in principal
amount of the outstanding Senior Subordinated Notes may rescind any such
acceleration with respect to the Senior Subordinated Notes and its consequences.
Subject to the provisions of the Senior Subordinated Notes Indenture
relating to the duties of the Senior Subordinated Notes Trustee, in case an
Event of Default occurs and is continuing, the Senior Subordinated Notes Trustee
will be under no obligation to exercise any of the rights or powers under the
Senior Subordinated Notes Indenture at the request or direction of any of the
Senior Subordinated Noteholders unless such Senior Subordinated Noteholders have
offered to the Senior Subordinated Notes Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce
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the right to receive payment of principal, premium (if any) or interest when
due, no Senior Subordinated Noteholder may pursue any remedy with respect to the
Senior Subordinated Notes Indenture or the Senior Subordinated Notes unless (i)
such Senior Subordinated Noteholder has previously given the Senior Subordinated
Notes Trustee notice that an Event of Default is continuing, (ii) Senior
Subordinated Noteholders of at least 25% in principal amount of the outstanding
Senior Subordinated Notes have requested the Senior Subordinated Notes Trustee
in writing to pursue the remedy, (iii) such Senior Subordinated Noteholders have
offered the Senior Subordinated Notes Trustee reasonable security or indemnity
against any loss, liability or expense, (iv) the Senior Subordinated Notes
Trustee has not complied with such request within 60 days after the receipt of
the request and the offer of security or indemnity and (v) the Senior
Subordinated Noteholders of a majority in principal amount of the outstanding
Senior Subordinated Notes have not given the Senior Subordinated Notes Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Senior Subordinated Noteholders of a majority in
principal amount of the outstanding Senior Subordinated Notes are given the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Senior Subordinated Notes Trustee or of exercising any
trust or power conferred on the Senior Subordinated Notes Trustee. The Senior
Subordinated Notes Trustee, however, may refuse to follow any direction that
conflicts with law or the Senior Subordinated Notes Indenture or that the Senior
Subordinated Notes Trustee determines is unduly prejudicial to the rights of any
other Senior Subordinated Noteholder or that would involve the Senior
Subordinated Notes Trustee in personal liability. Prior to taking any action
under the Senior Subordinated Notes Indenture, the Senior Subordinated Notes
Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
The Senior Subordinated Notes Indenture provides that if a Default occurs
and is continuing and is known to the Senior Subordinated Notes Trustee, the
Senior Subordinated Notes Trustee must mail to each Senior Subordinated
Noteholder notice of the Default within the earlier of 90 days after it occurs
or 30 days after it is known to a Trust Officer or written notice of it is
received by the Senior Subordinated Notes Trustee. Except in the case of a
Default in the payment of principal of, premium (if any) or interest on any
Senior Subordinated Note (including payments pursuant to the redemption
provisions of such Senior Subordinated Note), the Senior Subordinated Notes
Trustee may withhold notice if and so long as a committee of its Trust Officers
in good faith determines that withholding notice is in the interests of the
Senior Subordinated Noteholders. In addition, the Company is required to deliver
to the Senior Subordinated Notes Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. The Company also is required to
deliver to the Senior Subordinated Notes Trustee, within 30 days after the
occurrence thereof, written notice of any event which would constitute certain
Events of Default, their status and what action the Company is taking or
proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Senior Subordinated Notes Indenture or
the Senior Subordinated Notes may be amended with the written consent of the
Senior Subordinated Noteholders of a majority in principal amount of the Senior
Subordinated Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the Senior Subordinated Noteholders
of a majority in principal amount of the Senior Subordinated Notes then
outstanding. However, without the consent of each Senior Subordinated Noteholder
of an outstanding Senior Subordinated Note affected, no amendment may, among
other things, (i) reduce the amount of Senior Subordinated Notes whose Senior
Subordinated Noteholders must consent to an amendment, (ii) reduce the rate of
or extend the time for payment of interest or any liquidated damages on any
Senior Subordinated Note, (iii) reduce the principal of or extend the Stated
Maturity of any Senior Subordinated Note, (iv) reduce the premium payable upon
the redemption of any Senior Subordinated Note or change the time at which any
Senior Subordinated Note may be redeemed as described under "Optional
Redemption", (v) make any Senior Subordinated Note payable in money other than
that stated in the Senior Subordinated Note, (vi) make any change to the
subordination provisions of the Senior Subordinated Notes Indenture that
adversely affects the rights of any Senior Subordinated Noteholder, (vii) impair
the right of any Senior Subordinated Noteholder to receive payment of principal
of and interest or any liquidated damages on such
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Senior Subordinated Noteholder's Senior Subordinated Notes on or after the due
dates therefor or to institute suit for the enforcement of any payment on or
with respect to such Senior Subordinated Noteholder's Senior Subordinated Notes
or (viii) make any change in the amendment provisions which require each Senior
Subordinated Noteholder's consent or in the waiver provisions.
Without the consent of any Senior Subordinated Noteholder, the Company,
Holdings and the Senior Subordinated Notes Trustee may amend the Senior
Subordinated Notes 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 Senior Subordinated Notes Indenture, to
provide for uncertificated Senior Subordinated Notes in addition to or in place
of certificated Senior Subordinated Notes (provided that the uncertificated
Senior Subordinated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Senior
Subordinated Notes are described in Section 163(f)(2)(B) of the Code), to make
any change in the subordination provisions of the Senior Subordinated Notes
Indenture that would limit or terminate the benefits available to any holder of
Senior Indebtedness of the Company (or any representative thereof) under such
subordination provisions, to add additional Guarantees with respect to the
Senior Subordinated Notes, to secure the Senior Subordinated Notes, to add to
the covenants of the Company for the benefit of the Senior Subordinated
Noteholders or to surrender any right or power conferred upon the Company, to
make any change that does not adversely affect the rights of any Senior
Subordinated Noteholder, subject to the provisions of the Senior Subordinated
Notes Indenture, to provide for the issuance of the Senior Subordinated Exchange
Notes or Additional Senior Subordinated Notes or to comply with any requirement
of the SEC in connection with the qualification of the Senior Subordinated Notes
Indenture under the TIA. However, no amendment may be made to the subordination
provisions of the Senior Subordinated Notes Indenture that adversely affects the
rights of any holder of Senior Indebtedness of the Company 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 Senior Subordinated Noteholders is not necessary under
the Senior Subordinated Notes Indenture to approve the particular form of any
proposed amendment. It is sufficient if such consent approves the substance of
the proposed amendment.
After an amendment under the Senior Subordinated Notes Indenture becomes
effective, the Company is required to mail to Senior Subordinated Noteholders a
notice briefly describing such amendment. However, the failure to give such
notice to all Senior Subordinated Noteholders, or any defect therein, will not
impair or affect the validity of the amendment.
Transfer and Exchange
A Senior Subordinated Noteholder may transfer or exchange Senior
Subordinated Notes in accordance with the Senior Subordinated Notes Indenture.
Upon any transfer or exchange, the registrar and the Senior Subordinated Notes
Trustee may require a Senior Subordinated Noteholder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Senior Subordinated Noteholder to pay any taxes required by law or
permitted by the Senior Subordinated Notes Indenture. The Company is not
required to transfer or exchange any Senior Subordinated Note selected for
redemption or to transfer or exchange any Senior Subordinated Note for a period
of 15 days prior to a selection of Senior Subordinated Notes to be redeemed. The
Senior Subordinated Notes will be issued in registered form and the registered
holder of a Senior Subordinated Note will be treated as the owner of such Senior
Subordinated Note for all purposes.
Defeasance
The Company at any time may terminate all its obligations under the Senior
Subordinated Notes and the Senior Subordinated Notes Indenture ("legal
defeasance"), except for certain obligations, including those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Senior Subordinated Notes, to replace mutilated, destroyed, lost or stolen
Senior Subordinated Notes
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and to maintain a registrar and paying agent in respect of the Senior
Subordinated Notes. The Company at any time may terminate its obligations under
the covenants described under "Certain Covenants", the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "Defaults" and
the limitations contained in clauses (iii) and (iv) under the first paragraph of
"Merger and Consolidation" ("covenant defeasance"). In the event that the
Company exercises its legal defeasance option or its covenant defeasance option,
Holdings will be released from all of its obligations with respect to its
Holdings Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Senior Subordinated Notes may not be
accelerated because of an Event of Default with respect thereto. If the Company
exercises its covenant defeasance option, payment of the Senior Subordinated
Notes may not be accelerated because of an Event of Default specified in clause
(iv), (vi), (vii) (with respect only to Significant Subsidiaries) or (viii)(with
respect only to Significant Subsidiaries) under "Defaults" or because of the
failure of the Company to comply with clause (iii) or (iv) under the first
paragraph of "Merger and Consolidation."
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Senior Subordinated Notes
Trustee money or U.S. Government Obligations for the payment of principal,
premium (if any) and interest on the Senior Subordinated Notes to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Senior Subordinated Notes Trustee of an Opinion of
Counsel to the effect that holders of the Senior Subordinated Notes will not
recognize income, gain or loss for Federal income tax purposes as a result of
such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
Concerning the Senior Subordinated Notes Trustee
Bank One, N.A. is the Senior Subordinated Notes Trustee under the Senior
Subordinated Notes Indenture and has been appointed by the Company as Registrar
and Paying Agent with regard to the Senior Subordinated Notes.
Governing Law
The Senior Subordinated Notes Indenture provides that it and the Senior
Subordinated Notes will be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
Certain Definitions
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Adjusted Consolidated Assets" means at any time the total amount of assets
of the Company and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), after deducting therefrom all
current liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items), all as set forth on the Consolidated balance sheet of the
Company and its Restricted Subsidiaries as of the end of the most recent fiscal
quarter for which financial statements are available prior to the date of
determination.
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"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Senior Subordinated Note at
any redemption date, the greater of (i) 1.0% of the principal amount of such
Senior Subordinated Note and (ii) the excess of (A) the present value at such
time of (1) the redemption price of such Senior Subordinated Note at June 1,
2003 (such redemption price being set forth in the table set forth under " --
Optional Redemption") plus (2) all required interest payments due on such Senior
Subordinated Note through June 1, 2003 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the then-outstanding principal amount of such Senior Subordinated Note.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside the ordinary
course of business of the Company or such Restricted Subsidiary (other than, in
the case of (i), (ii) and (iii) above, (A) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary, (B) for purposes of the provisions described under
"Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition subject to the covenant described under "Certain Covenants --
Limitation on Restricted Payments", (C) a disposition of assets with a fair
market value of less than $1,000,000, (D) a sale of accounts receivables and
related assets of the type specified in the definition of "Qualified Receivables
Transaction" to a Receivables Entity in a Qualified Receivables Transaction, (E)
a transfer of accounts receivables and related assets of the type specified in
the definition of "Qualified Receivables Transaction" (or a fractional undivided
interest therein) by a Receivables Entity in a Qualified Receivables
Transaction, (F) the disposition of all or substantially all of the assets of
the Company in a manner permitted pursuant to the provisions described above
under "Merger and Consolidation" or any disposition that constitutes a Change of
Control pursuant to the Senior Subordinated Notes Indenture, (G) any exchange of
like property pursuant to Section 1031 of the Internal Revenue Code of 1986, as
amended, for use in a Related Business, and (H) any sale of Capital Stock in, or
Indebtedness or other securities of, an Unrestricted Subsidiary).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Subordinated Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
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"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Senior Subordinated Notes Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available prior to the date of such determination to (ii) Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (A) if the
Company or any Restricted Subsidiary has Incurred any Indebtedness since the
beginning of such period that remains outstanding on such date of determination
or if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of such
period (except that, in making such computation, the amount of Indebtedness
under any revolving credit facility outstanding on the date of such calculation
shall be computed based on (1) the average daily balance of such Indebtedness
(and any Indebtedness under a revolving credit facility replaced by such
Indebtedness) during such four fiscal quarters or such shorter period when such
facility and any replaced facility was outstanding or (2) if such facility was
created after the end of such four fiscal quarters, the average daily balance of
such Indebtedness (and any Indebtedness under a revolving credit facility
replaced by such Indebtedness) during the period from the date of creation of
such facility to the date of the calculation), (B) if the Company or any
Restricted Subsidiary has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of such period or if any Indebtedness is to
be repaid, repurchased, defeased or otherwise discharged (in each case other
than Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the date
of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted Subsidiary has
not earned the interest income actually earned during such period in respect of
cash or Temporary Cash Investments used to repay, repurchase, defease or
otherwise discharge such Indebtedness, (C) if since the beginning of such period
the Company or any Restricted Subsidiary shall have made any Asset Disposition,
the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
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such sale), (D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (C) or (D) above if made by the
Company or a Restricted Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of the Company, and such pro forma calculations
shall include (A)(x) the savings in cost of goods sold that would have resulted
from using the Company's actual costs for comparable goods and services during
the comparable period and (y) other savings in cost of goods sold or
eliminations of selling, general and administrative expenses as determined by a
responsible financial or accounting Officer of the Company in good faith in
connection with the Company's consideration of such acquisition and consistent
with the Company's experience in acquisitions of similar assets, less (B) the
incremental expenses that would be included in cost of goods sold and selling,
general and administrative expenses that would have been incurred by the Company
in the operation of such acquired assets during such period. If any Indebtedness
bears a floating rate of interest and is being given pro forma effect, the
interest expense on such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term as at the date
of determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense (net of interest income) of the Company and its Consolidated Restricted
Subsidiaries, plus, to the extent Incurred by the Company and its Restricted
Subsidiaries in such period but not included in such interest expense, (i)
interest expense attributable to Capitalized Lease Obligations and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and
charges attributable to letters of credit and bankers' acceptance financing,
(vi) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by the Company or any Restricted Subsidiary,
(vii) net costs associated with Hedging Obligations (including amortization of
fees), (viii) dividends in respect of all Preferred Stock of the Company and any
of the Restricted Subsidiaries of the Company (other than pay in kind dividends
and accretions to liquidation value) to the extent held by Persons other than
the Company or a Wholly Owned Subsidiary, (ix) interest Incurred in connection
with investments in discontinued operations and (x) the cash contributions to
any employee stock ownership plan or similar trust to the extent such
contributions are used by such plan or trust to pay interest or fees to any
Person (other than the Company) in connection with Indebtedness Incurred by such
plan or trust, less, to the extent included in such total interest expense, the
amortization during such period of capitalized financing costs. Notwithstanding
anything to the contrary contained herein, interest expense, commissions,
discounts, yield and other fees and charges Incurred in connection with any
Qualified Receivables Transaction pursuant to which the Company or any
Subsidiary may sell, convey or otherwise transfer or grant a security interest
in any accounts receivable or related assets of the type specified in the
definition of "Qualified Receivables Transaction" shall not be included in
Consolidated Interest Expense; provided that any interest expense, commissions,
discounts, yield and other fees and charges Incurred in connection with any
receivables financing or securitization that does not constitute a Qualified
Receivables Transaction shall be included in Consolidated Interest Expense.
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"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income of any Person (other than the Company) if such Person is not a Restricted
Subsidiary, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount of
cash actually distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income (or
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, except that (A) subject to the limitations contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash which could have been distributed by such Restricted
Subsidiary during such period to the Company or another Restricted Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or other
distribution made to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other
disposition of any asset of the Company or its Consolidated Subsidiaries
(including pursuant to any Sale/Leaseback Transaction) that is not sold or
otherwise disposed of in the ordinary course of business and any gain (or loss)
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) any extraordinary gain or loss; (vi) the cumulative effect of a change in
accounting principles; and (vii) any expenses or charges paid to third parties
related to any Equity Offering, Permitted Investment, acquisition,
recapitalization or Indebtedness permitted to be Incurred by the Senior
Subordinated Notes Indenture (whether or not successful) (including such fees,
expenses, or charges related to the Recapitalization). Notwithstanding the
foregoing, for the purpose of the covenant described under "Certain Covenants --
Limitation on Restricted Payments" only, there shall be excluded from
Consolidated Net Income any dividends, repayments of loans or advances or other
transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of the
Company for which internal financial statements are available, as (i) the par or
stated value of all outstanding Capital Stock of the Company plus (ii) paid-in
capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement to be dated as of the Closing
Date, as amended, waived or otherwise modified from time to time, among
Holdings, the Company, WESCO Distribution -- Canada, Inc., certain financial
institutions to be party thereto, The Chase Manhattan Bank, as U.S.
administrative agent, syndication agent and U.S. collateral agent, The Chase
Manhattan Bank of Canada, as Canadian administrative agent and Canadian
collateral agent, and Lehman Commercial Paper Inc., as documentation agent.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities, or commercial paper facilities with banks or other institutional
lenders or indentures providing for revolving credit loans,
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term loans, receivables financing (including through the sale of receivables to
such lenders or to special purpose entities formed to borrow from such lenders
against receivables), letters of credit or other long-term Indebtedness, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by the Company or any of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of cash or cash equivalents received in
connection with a subsequent sale of such Designated Noncash Consideration.
"Designated Senior Indebtedness" of the Company means (i) the Bank
Indebtedness and (ii) any other Senior Indebtedness of the Company that, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed to
lend up to at least $25.0 million and is specifically designated by the Company
in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" for purposes of the Senior Subordinated Notes
Indenture. "Designated Senior Indebtedness" of Holdings has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the 91st day following the
Stated Maturity of the Senior Subordinated Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions of the
covenants described under "Change of Control" and "Certain Covenants --
Limitation on Sale of Assets and Subsidiary Stock."
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of the Company and its Consolidated Restricted
Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation expense of
the Company and its Consolidated Restricted Subsidiaries, (iv) amortization
expense of the Company and its Consolidated Restricted Subsidiaries (excluding
amortization expense attributable to a prepaid cash item that was paid in a
prior period), (v) all other non-cash charges of the Company and its
Consolidated Restricted Subsidiaries (excluding any such non-cash charge to the
extent it represents an accrual of or reserve for cash expenditures in any
future period) in each case for such period and (vi) income attributable to
discontinued operations. Notwithstanding the foregoing, the provision for taxes
based on the income or profits of, and the depreciation and amortization and
non-cash charges of, a Restricted Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Restricted Subsidiary was included in
calculating Consolidated Net Income and only if a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
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"Equity Offering" means a private sale or public offering of Capital Stock
(other than Disqualified Stock) of the Company or Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Contribution" means the Net Cash Proceeds received by the Company
from (a) contributions to its common equity capital and (b) the sale (other than
to a Subsidiary or to any Company or Subsidiary management equity plan or stock
option plan or any other management or employee benefit plan or agreement) of
Capital Stock (other than Disqualified Stock) of the Company, in each case
designated as Excluded Contributions pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of the Company on the date such capital contributions are made or the date such
Capital Stock is sold.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in the Senior Subordinated Notes Indenture
shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holdings Guarantee" means the Guarantee of the obligations with respect to
the Senior Subordinated Notes issued by Holdings pursuant to the terms of the
Senior Subordinated Notes Indenture. Such Holdings Guarantee will have
subordination provisions equivalent to those contained in the Senior
Subordinated Notes Indenture and will be substantially in the form prescribed in
the Senior Subordinated Notes Indenture.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii), (iv) and (v) hereof) to the extent
such letters of credit are not drawn upon or, if and
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to the extent drawn upon, such drawing is reimbursed no later than the 30th day
following payment on the letter of credit so long as such letter of credit is
entered into in the ordinary course of business ); (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services
(except Trade Payables), which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services; (v) all Capitalized Lease
Obligations and all Attributable Debt of such Person; (vi) the amount of all
obligations of such Person with respect to the redemption, repayment or other
repurchase of any Disqualified Stock or, with respect to any Subsidiary of such
Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vii) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and (ix) all obligations of the type referred to in
clauses (i) through (viii) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date; provided, however, that the amount outstanding at any time of any
Indebtedness Incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP. Any "Qualified Receivables Transaction", whether or not such transfer
constitutes a sale for the purposes of GAAP, shall not constitute Indebtedness
hereunder; provided that any receivables financing or securitization that does
not constitute a Qualified Receivables Transaction and does not qualify as a
sale under GAAP shall constitute Indebtedness hereunder.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is, in the
good faith determination of the Company, qualified to perform the task for which
it has been engaged.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under "Certain Covenants --
Limitation on Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time that
such Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the
Company shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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"Net Available Cash" from an Asset Disposition means cash payments received
(including (a) any cash payments received upon the sale or other disposition of
any Designated Noncash Consideration received in any Asset Disposition, (b) any
cash proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise and (c) any cash proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of (i) all legal, title and recording tax expenses, commissions and other fees
and expenses incurred (including, without limitation, all broker's and finder's
fees and expenses, all investment banking fees and expenses, employee severance
and termination costs, and trade payable and similar liabilities solely related
to the assets sold or otherwise disposed of and required to be paid by the
seller as a result thereof), and all Federal, state, provincial, foreign and
local taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition, (ii) all relocation expenses incurred as
a result thereof, (iii) all payments made on any Indebtedness which is secured
by any assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, (iv) all distributions and other payments required to be
made to minority interest holders in Subsidiaries or joint ventures as a result
of such Asset Disposition and (v) appropriate amounts to be provided by the
seller as a reserve, in accordance with GAAP, against any liabilities associated
with the property or other assets disposed of in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Senior Subordinated Notes Trustee. The counsel may be an
employee of or counsel to the Company or the Senior Subordinated Notes Trustee.
"Permitted Holders" means: (i) The Cypress Group L.L.C., Cypress Merchant
Banking Partners L.P., Cypress Offshore Partners L.P., Chase Equity Associates,
L.P., Co-Investment Partners, L.P. and any Person who on the Senior Subordinated
Notes Issue Date is an Affiliate of any of the foregoing; (ii) any Person who is
a member of the senior management of the Company or Holdings and a stockholder
of Holdings on the Senior Subordinated Notes Issue Date; and (iii) any Person
acting in the capacity of an underwriter in connection with a public or private
offering of the Company's or Holdings' Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, a Restricted Subsidiary or a Person that will,
upon the making of such Investment, become a Restricted Subsidiary; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary; (iii) Temporary Cash
Investments; (iv) receivables owing to the Company or any Restricted Subsidiary
if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees
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made in the ordinary course of business consistent with past practices of the
Company or such Restricted Subsidiary and not exceeding $5.0 million in the
aggregate outstanding at any one time; (vii) stock, obligations or securities
received in settlement of debts created in the ordinary course of business and
owing to the Company or any Restricted Subsidiary or in satisfaction of
judgments; (viii) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition that was
made pursuant to and in compliance with the covenant described under "Certain
Covenants -- Limitation on Sale of Assets and Subsidiary Stock"; (ix)
Investments made in connection with any Asset Disposition or other sale, lease,
transfer or other disposition permitted under the Senior Subordinated Notes
Indenture; (x) a Receivables Entity or any Investment by a Receivables Entity in
any other Person in connection with a Qualified Receivables Transaction,
including Investments of funds held in accounts permitted or required by the
arrangements governing such Qualified Receivables Transaction or any related
Indebtedness; provided that any Investment in a Receivables Entity is in the
form of a Purchase Money Note, contribution of additional receivables or an
equity interest; (xi) Investments in a Related Business having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (xi) that are at that time outstanding (and not including any Investments
outstanding on the Closing Date), not to exceed 5% of Adjusted Consolidated
Assets at the time of such Investments (with the fair market value of each
Investment being measured at the time made and without giving effect to
subsequent changes in value); and (xii) additional Investments in an aggregate
amount which, together with all other Investments made pursuant to this clause
that are then outstanding, does not exceed $10.0 million.
"Permitted Liens" means (a) Liens of the Company and its Restricted
Subsidiaries securing Indebtedness of the Company or any of its Restricted
Subsidiaries Incurred under the Credit Agreement or other Credit Facilities to
the extent permitted to be Incurred under clause (b)(i) and (xiii) of the
description of the "Limitation on Indebtedness" covenant; (b) Liens in favor of
the Company or its Wholly Owned Restricted Subsidiaries; (c) Liens on property
of a Person existing at the time such Person becomes a Restricted Subsidiary of
the Company or is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not Incurred in
connection with, or in contemplation of, such merger or consolidation and such
Liens do not extend to or cover any property other than such property,
improvements thereon and any proceeds therefrom; (d) Liens of the Company
securing Indebtedness of the Company Incurred under clause (b)(v) of the
description of the "Limitation on Indebtedness" covenant; (e) Liens of the
Company and its Restricted Subsidiaries securing Indebtedness of the Company or
any of its Restricted Subsidiaries (including under a Sale/ Leaseback
Transaction) permitted to be Incurred under clause (b)(vi), (vii) and (viii) of
the description of the "Limitation on Indebtedness" covenant so long as the
Capital Stock, property (real or personal) or equipment to which such Lien
attaches solely consists of the Capital Stock, property or equipment which is
the subject of such acquisition, purchase, lease, improvement, Sale/Leaseback
Transaction and additions and improvements thereto (and the proceeds therefrom);
(f) Liens on property existing at the time of acquisition thereof by the Company
or any Restricted Subsidiary of the Company; provided that such Liens were not
Incurred in connection with, or in contemplation of, such acquisition and such
Liens do not extend to or cover any property other than such property, additions
and improvements thereon and any proceeds therefrom; (g) Liens Incurred or
deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety or appeal bonds, government contracts, performance and
return of money bonds or other obligations of a like nature Incurred in the
ordinary course of business; (h) Liens existing on the Senior Subordinated Notes
Issue Date and any additional Liens created under the terms of the agreements
relating to such Liens existing on the Senior Subordinated Notes Issue Date; (i)
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;
provided that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (j) Liens Incurred in the
ordinary course of business of the Company or any Restricted Subsidiary with
respect to obligations that do not exceed $20.0 million in the aggregate at any
one time outstanding and that (1) are not Incurred in connection with or in
contemplation of the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (2) do not in
the aggregate materially detract from the value of the property or materially
impair the
127
use thereof in the operation of the business by the Company or such Restricted
Subsidiary; (k) statutory Liens of landlords and warehousemen's, carrier's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
(including contractual landlords' liens) arising in the ordinary course of
business of the Company and its Restricted Subsidiaries; (l) Liens Incurred or
deposits made in the ordinary course of business of the Company and its
Restricted Subsidiaries in connection with workers' compensation, unemployment
insurance and other types of social security; (m) easements, rights of way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Restricted Subsidiaries; (n) Liens securing reimbursement
obligations with respect to letters of credit permitted under the covenant
entitled "Limitation on Indebtedness" which encumber only cash and marketable
securities and documents and other property relating to such letters of credit
and the products and proceeds thereof; (o) judgment and attachment Liens not
giving rise to an Event of Default; (p) any interest or title of a lessor in the
property subject to any Capitalized Lease Obligation permitted under the
covenant entitled "Limitation on Indebtedness"; (q) Liens on accounts receivable
and related assets of the type specified in the definition of "Qualified
Receivables Transaction" Incurred in connection with a Qualified Receivables
Transaction; (r) Liens securing Refinancing Indebtedness to the extent such
Liens do not extend to or cover any property of the Company not previously
subjected to Liens relating to the Indebtedness being refinanced; or (s) Liens
on pledges of the capital stock of any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a Senior Subordinated Note means the principal of the Senior
Subordinated Note plus the premium, if any, payable on the Senior Subordinated
Note which is due or overdue or is to become due at the relevant time.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Receivables Transaction
to a Receivables Entity, which note (a) shall be repaid from cash available to
the Receivables Entity, other than (i) amounts required to be established as
reserves pursuant to agreements, (ii) amounts paid to investors in respect of
interest, (iii) principal and other amounts owing to such investors and amounts
owing to such investors, (iv) amounts required to pay expenses in connection
with such Qualified Receivables Transaction and (v) amounts paid in connection
with the purchase of newly generated receivables and (b) may be subordinated to
the payments described in (a).
"Qualified Receivables Transaction" means any financing by the Company or
any of its Subsidiaries of accounts receivable in any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which (a) the Company or any of its Subsidiaries sells, conveys or
otherwise transfers to a Receivables Entity and (b) a Receivables Entity sells,
conveys or otherwise transfers to any other Person or grants a security interest
to any Person in, any accounts receivable (whether now existing or arising in
the future) of the Company or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all Guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable; provided that (i) the Board of Directors shall
have determined in good faith that such Qualified Receivables Transaction is
economically fair and reasonable to the Company and the Receivables Entity and
(ii) all sales of accounts receivable and related assets to the Receivables
Entity are made at fair market value (as determined in good faith by the
Company). The grant of a security
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interest in any accounts receivable of the Company or any of its Restricted
Subsidiaries to secure Bank Indebtedness shall not be deemed a Qualified
Receivables Transaction.
"Receivables Entity" means any Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) (i) which engages in no activities other
than in connection with the financing of accounts receivable, all proceeds
thereof and all rights (contractual or other), collateral and other assets
relating thereto, and any business or activities incidental or related to such
business, (ii) which is designated by the Board of Directors (as provided below)
as a Receivables Entity and (iii) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (A) is Guaranteed by the Company
or any other Subsidiary of the Company (excluding Guarantees of obligations
(other than the principal of, and interest on, Indebtedness) pursuant to
Standard Securitization Undertakings), (B) is recourse to or obligates the
Company or any other Subsidiary of the Company in any way other than pursuant to
Standard Securitization Undertakings or (C) subjects any property or asset of
the Company or any other Subsidiary of the Company, directly or indirectly,
contingently or otherwise, to the satisfaction thereof, other than pursuant to
Standard Securitization Undertakings. Any such designation by the Board of
Directors shall be evidenced to the Senior Subordinated Notes Trustee by filing
with the Senior Subordinated Notes Trustee a certified copy of the resolution of
the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of the Company or any Restricted
Subsidiary existing on the date of the Senior Subordinated Notes Indenture or
Incurred in compliance with the Senior Subordinated Notes Indenture (including
Indebtedness of the Company that Refinances Refinancing Indebtedness); provided,
however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced, (ii) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being Refinanced (plus any
accrued interest and premium thereon and reasonable expenses Incurred in
connection therewith); provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Restricted Subsidiary that Refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any businesses of the Company and the Restricted
Subsidiaries on the Closing Date and any business related, ancillary or
complementary thereto.
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such Person, other than
leases between the Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
129
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of Holdings has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the Senior
Subordinated Notes and any other Indebtedness of the Company that specifically
provides that such Indebtedness is to rank pari passu with the Senior
Subordinated Notes in right of payment and is not subordinated by its terms in
right of payment to any Indebtedness or other obligation of the Company which is
not Senior Indebtedness. "Senior Subordinated Indebtedness" of Holdings has a
correlative meaning.
"Senior Subordinated Noteholder" means the Person in whose name a Senior
Subordinated Note is registered on the registrar's books.
"Senior Subordinated Notes Issue Date" means the closing date for the sale
and original issuance of the Senior Subordinated Notes under the Senior
Subordinated Notes Indenture.
"Senior Subordinated Notes Trustee" means the party named as such in the
Senior Subordinated Notes Indenture until a successor replaces it and,
thereafter, means the successor.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, but shall in no event include a
Receivables Entity.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which the Company has determined in good faith to be customary in an
accounts receivable transaction including, without limitation, those relating to
the servicing of the assets of a Receivables Entity.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Senior Subordinated Notes pursuant to a
written agreement. "Subordinated Obligation" of Holdings has a correlative
meaning.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $100,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any money
market fund sponsored by a registered broker-dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a
financial institution meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America
130
with a rating at the time as of which any investment therein is made of "P-1"
(or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and (v) investments in securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by S&P
or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of the Senior Subordinated Notes
Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the Senior Subordinated Notes following a Change of
Control (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the period from
the redemption date to June 1, 2003; provided, however, that if the period from
the redemption date to June 1, 2003 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the redemption date to June 1, 2003 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Senior Subordinated Notes Trustee assigned
by the Senior Subordinated Notes Trustee to administer its corporate trust
matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Company or any other Subsidiary of the Company that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total Consolidated assets
of $1,000 or less or (B) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant entitled
"Certain Covenants -- Limitation on Restricted Payments". The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided, however, that immediately after giving effect to such designation (x)
the Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "Certain Covenants -- Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
of a Subsidiary as a Restricted Subsidiary or Unrestricted Subsidiary by the
Board of Directors shall be evidenced to the Senior Subordinated Notes Trustee
by promptly filing with the Senior Subordinated Notes Trustee a copy of the
resolution of the Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
131
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying shares) is owned by
the Company or another Wholly Owned Subsidiary.
132
DESCRIPTION OF THE SENIOR DISCOUNT EXCHANGE NOTES OF HOLDINGS
General
The Senior Discount Old Notes were issued, and the Senior Discount Exchange
Notes will be issued, under an Indenture, dated as of June 5, 1998 (the "Senior
Discount Notes Indenture"; together with the Senior Subordinated Notes
Indenture, the "Indentures"), between Holdings and Bank One, N.A. as Trustee
(the "Senior Discount Notes Trustee"), which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following is a
summary of all material provisions of the Senior Discount Notes Indenture and
the Senior Discount Notes. Capitalized terms used herein and not otherwise
defined have the meanings set forth in the section "Certain Definitions". For
purposes of this "Description of the Senior Discount Exchange Notes", the term
Company refers only to WESCO Distribution, Inc. and not to any of its
Subsidiaries.
On June 5, 1998, Holdings issued $87 million aggregate principal amount at
maturity of Senior Discount Old Notes under the Senior Discount Notes Indenture.
The terms of the Senior Discount Exchange Notes are identical in all material
respects to the Senior Discount Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Senior Discount Old Notes for Senior Discount Exchange Notes. The Senior
Discount Trustee will authenticate and deliver Senior Discount Exchange Notes
for original issue only in exchange for a like principal amount of Senior
Discount Old Notes. Any Senior Discount Old Notes that remain outstanding after
the consummation of the Senior Discount Exchange Offer, together with the Senior
Discount Exchange Notes, will be treated as a single class of securities under
the Senior Discount Notes Indenture. Accordingly, all references herein to
specified percentages in aggregate principal amount of the outstanding Senior
Discount Notes shall be deemed to mean, at any time after the Senior Discount
Exchange Offer is consummated, such percentage in aggregate principal amount of
the Old Notes and Senior Discount Exchange Notes then outstanding.
Principal of, premium, if any, and interest on the Senior Discount Notes
will be payable, and the Senior Discount Notes may be exchanged or transferred,
at the office or agency of Holdings in the Borough of Manhattan, The City of New
York (which initially shall be the corporate trust office of the Senior Discount
Notes Trustee in New York, New York), except that, at the option of Holdings,
payment of interest may be made by check mailed to the registered holders of the
Senior Discount Notes at their registered addresses.
The Senior Discount Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 (in principal amount at maturity)
and any integral multiple of $1,000. No service charge will be made for any
registration of transfer or exchange of Senior Discount Notes, but Holdings may
require payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Terms of the Senior Discount Notes
The Senior Discount Notes will be unsecured senior obligations of Holdings
and will mature on June 1, 2008. The Senior Discount Old Notes were issued at a
discount to their aggregate principal amount at maturity so as to generate gross
proceeds to Holdings of $50,478,270. Based on the issue price thereof, the yield
to maturity of the Senior Discount Notes is 11.175% (computed on a semi-annual
bond equivalent basis), calculated from the original date of issuance. Cash
interest will not accrue or be payable on the Senior Discount Notes prior to
June 1, 2003. Thereafter, cash interest on the Senior Discount Notes will accrue
at the rate of 11 1/8% per annum and will be payable semiannually to Senior
Discount Noteholders of record at the close of business on the May 15 or
November 15 immediately preceding the interest payment date on June 1 and
December 1 of each year, commencing December 1, 2003.
Mandatory Principal Redemption
On June 1, 2003, Holdings will be required to redeem an amount equal to
$354.96 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($30,881,520 in aggregate principal amount at maturity of the
Senior Discount Notes, assuming all of the Senior Discount Notes
133
remain outstanding on such date (the "Mandatory Principal Redemption Amount"))
on a pro rata basis at a redemption price of 100% of the principal amount at
maturity of the Senior Discount Notes so redeemed. The Mandatory Principal
Redemption Amount represents (i) the excess of the aggregate Accreted Value of
all Senior Discount Notes outstanding on June 1, 2003 over the aggregate issue
price thereof less (ii) an amount equal to one year's simple uncompounded
interest on the aggregate issue price of such Senior Discount Notes at a rate
per annum equal to the yield to maturity on the Senior Discount Notes.
Optional Redemption
Except as set forth in the following two paragraphs, the Senior Discount
Notes will not be redeemable at the option of Holdings prior to June 1, 2003.
Thereafter, the Senior Discount Notes will be redeemable at the option of
Holdings, in whole or in part, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest and liquidated damages (if
any) to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period commencing on June 1 of the years
set forth below:
Redemption
Year Price
- ---------------------------------------- -------------
2003 ................................. 105.563%
2004 ................................. 103.708%
2005 ................................. 101.854%
2006 and thereafter .................. 100.000%
In addition, at any time prior to June 1, 2001, Holdings may redeem, in
whole but not in part, the Senior Discount Notes with the Net Cash Proceeds of
one or more Equity Offerings by Holdings, at a redemption price equal to
111.125% of the Accreted Value at the date of redemption plus liquidated
damages, if any, thereon to the date of redemption. Any such redemption shall be
made within 120 days of such Equity Offering upon not less than 30 nor more than
60 days' notice mailed to each holder of Senior Discount Notes and otherwise in
accordance with the procedures set forth in the Senior Discount Notes Indenture.
At any time prior to June 1, 2003, the Senior Discount Notes may be
redeemed, in whole but not in part, at the option of Holdings at any time within
180 days after a Change of Control, at a redemption price equal to the sum of
(i) 100% of the Accreted Value thereof together with liquidated damages, if any,
to the redemption date, plus (ii) the Applicable Premium.
Selection
In the case of any partial redemption, selection of the Senior Discount
Notes for redemption will be made by the Senior Discount Notes Trustee on a pro
rata basis, by lot or by such other method as the Senior Discount Notes Trustee
in its sole discretion shall deem to be fair and appropriate, although no Senior
Discount Note of $1,000 in principal amount at maturity or less will be redeemed
in part. If any Senior Discount Note is to be redeemed in part only, the notice
of redemption relating to such Senior Discount Note shall state the portion of
the principal amount at maturity thereof to be redeemed. A new Senior Discount
Note in principal amount at maturity equal to the unredeemed portion thereof
will be issued in the name of the Senior Discount Noteholder thereof upon
cancelation of the original Senior Discount Note. Notwithstanding the foregoing,
in the case of the Mandatory Principal Redemption, each Senior Discount Note
shall be partially redeemed on a pro rata basis; provided that, if such
redemption would result in an outstanding Senior Discount Note in a denomination
(i) of less than $1,000 principal amount at maturity or (ii) other than an
integral multiple of $1,000 principal amount at maturity, such Senior Discount
Note will be redeemed (a) in whole, in the case of clause (i), or (b) by an
additional amount so that such Senior Discount Note will be in a denomination of
an integral multiple of $1,000 principal amount at maturity, in the case of
clause (ii).
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Ranking
The indebtedness evidenced by the Senior Discount Notes will be unsecured
Senior Indebtedness of Holdings, will rank pari passu in right of payment with
all existing and future Senior Indebtedness of Holdings and will be senior in
right of payment to all existing and future Subordinated Obligations of
Holdings. The Senior Discount Notes will also be effectively subordinated to any
Secured Indebtedness of Holdings and its Subsidiaries to the extent of the value
of the assets securing such Indebtedness.
All of the operations of Holdings are conducted through its Subsidiaries.
Claims of creditors of such Subsidiaries, including trade creditors, and claims
of preferred stockholders (if any) of such Subsidiaries generally will have
priority with respect to the assets and earnings of such Subsidiaries over the
claims of creditors of Holdings, including the Senior Discount Noteholders. The
Senior Discount Notes, therefore, will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders (if any) of Subsidiaries
of Holdings. As of June 30, 1998, Holdings' Subsidiaries had total liabilities
of $807.4 million, excluding $176.8 million of Indebtedness and Guarantees under
the Credit Facilities. Although the Senior Discount Notes Indenture limits the
Incurrence of Indebtedness by and the issuance of preferred stock of certain of
Holdings' Subsidiaries, such limitation is subject to a number of significant
qualifications.
As of June 30, 1998, Holdings had no outstanding Senior Indebtedness (other
than the Senior Discount Notes and Guarantees under the Credit Facilities) or
Secured Indebtedness. Although the Senior Discount Notes Indenture contains
limitations on the amount of additional Indebtedness that Holdings may Incur,
under certain circumstances the amount of such Indebtedness could be substantial
and, in any case, such Indebtedness may be Senior Indebtedness. See " -- Certain
Covenants -- Limitation on Indebtedness."
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), unless all Senior Discount Notes have been called for redemption
pursuant to the provisions described above under " -- Optional Redemption," each
Senior Discount Noteholder will have the right to require Holdings to repurchase
all or any part of such Senior Discount Noteholder's Senior Discount Notes at a
purchase price in cash equal to (a) 101% of the Accreted Value thereof at the
date of repurchase plus liquidated damages thereon, if any, to the date of
repurchase, if repurchased on or prior to June 1, 2003 and (b) 101% of the
principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Senior
Discount Noteholders of record on the relevant record date to receive interest
due on the relevant interest payment date), if repurchased after June 1, 2003:
(i) prior to the first public offering of common stock of Holdings, the
Permitted Holders cease to be the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
Holdings, whether as a result of issuance of securities of Holdings, any
merger, consolidation, liquidation or dissolution of Holdings, any direct or
indirect transfer of securities by any Permitted Holder or otherwise (for
purposes of this clause (i) and clause (ii) below, the Permitted Holders
shall be deemed to beneficially own any Voting Stock of an entity (the
"specified entity") held by any other entity (the "parent entity") so long as
the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) on or after any such public offering referred to in clause (i), (A)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than one or more Permitted Holders, is or becomes the
beneficial owner (as defined in clause (i) above, except that for purposes of
this clause (ii) such person shall be deemed to have "beneficial ownership"
of all shares that any such person has the right to acquire, whether such
right is exercisable immediately or only after the passage of time), directly
or indirectly, of more than 35% of the total voting power of the Voting Stock
of Holdings and (B) the Permitted Holders "beneficially own" (as defined in
clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of Holdings than
such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors
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of Holdings (for the purposes of this clause (ii), such other person shall be
deemed to beneficially own any Voting Stock of a specified corporation held
by a parent corporation, if such other person is the beneficial owner (as
defined in this clause (ii)), directly or indirectly, more than 35% of the
voting power of the Voting Stock of such parent corporation and the Permitted
Holders "beneficially own" (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of the
Voting Stock of such parent corporation and do not have the right or ability
by voting power, contract or otherwise to elect or designate for election a
majority of the board of directors of such parent corporation);
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of Holdings
(together with any new directors whose election by the Board of Directors of
Holdings or whose nomination for election by the shareholders of Holdings was
approved by a vote of 66-2/3% of the directors of Holdings 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 Holdings then in
office; or
(iv) the merger or consolidation of Holdings with or into another Person
or the merger of another Person with or into Holdings, or the sale of all or
substantially all the assets of Holdings to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of Holdings that are outstanding
immediately prior to such transaction and which represent 100% of the
aggregate voting power of the Voting Stock of Holdings are changed into or
exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving Person that represent
immediately after such transaction, at least a majority of the aggregate
voting power of the Voting Stock of the surviving Person; provided, however,
that any sale of accounts receivable in connection with a Qualified
Receivables Transaction shall not constitute a Change of Control.
Within 30 days following any Change of Control, Holdings shall mail a
notice to each Senior Discount Noteholder with a copy to the Senior Discount
Notes Trustee (the "Change of Control Offer") stating: (1) that a Change of
Control has occurred and that such Senior Discount Noteholder has the right to
require Holdings to purchase such Senior Discount Noteholder's Senior Discount
Notes at a purchase price in cash equal to (a) 101% of the Accreted Value
thereof at the date of redemption plus liquidated damages thereon, if any, to
the date of redemption, if redeemed on or prior to June 1, 2003 and (b) 101% of
the principal amount thereof, plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Senior
Discount Noteholders of record on the relevant record date to receive interest
on the relevant interest payment date) if purchased after June 1, 2003; (2) the
circumstances and relevant facts regarding such Change of Control; (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by
Holdings, consistent with this covenant, that a Senior Discount Noteholder must
follow in order to have its Senior Discount Notes purchased.
Holdings will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Senior Discount Notes Indenture applicable to a Change of Control Offer
made by Holdings and purchases all Senior Discount Notes validly tendered and
not withdrawn under such Change of Control Offer.
The phrase "all or substantially all," as used with respect to a sale of
assets in the definition in the Senior Discount Notes Indenture of "Change of
Control," varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (the law
governing such Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances, there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of a Person and therefore it may be
unclear whether a Change of Control has occurred.
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Holdings will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act (including Rules 13e-4 and 14e-1 thereunder)
and any other securities laws or regulations in connection with the repurchase
of Senior Discount Notes pursuant to this covenant. To the extent that the
provisions of any securities laws or regulations conflict with provisions of
this covenant, Holdings will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
Holdings and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that Holdings would decide to do so in the future. Subject to the limitations
discussed below, Holdings could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control under the Senior Discount Notes Indenture, but
that could increase the amount of Indebtedness outstanding at such time or
otherwise affect Holdings' capital structure or credit ratings. Restrictions on
the ability of Holdings to incur additional Indebtedness are contained in the
covenants described under "Certain Covenants -- Limitation on Indebtedness" and
"Limitation on Liens". Such restrictions can only be waived with the consent of
the holders of a majority in principal amount of the Senior Discount Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Senior Discount Notes Indenture will not contain any covenants or provisions
that may afford holders of the Senior Discount Notes protection in the event of
a highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of Holdings may contain prohibitions of certain events which would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Prior to the mailing of the notice
referred to above, but in any event within 30 days following the date on which
Holdings becomes aware that a Change of Control has occurred, if the purchase of
the Senior Discount Notes would violate or constitute a default under any other
Indebtedness of Holdings, then Holdings shall, to the extent needed to permit
such purchase of Senior Discount Notes, either (i) repay all such Indebtedness
and terminate all commitments outstanding thereunder or (ii) request the holders
of such Indebtedness to give the requisite consents to permit the purchase of
the Senior Discount Notes as provided above. Until such time as Holdings is able
to repay all such Indebtedness and terminate all commitments outstanding
thereunder or such time as such requisite consents are obtained, Holdings shall
not be required to make the Change of Control Offer or purchase the Senior
Discount Notes pursuant to the provisions described above. Finally, Holdings'
ability to pay cash to the Senior Discount Noteholders upon a repurchase may be
limited by Holdings' then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
required repurchases. See " -- Ranking". The provisions under the Senior
Discount Notes Indenture relative to Holdings' obligation to make an offer to
repurchase the Senior Discount Notes as a result of a Change of Control, if
Holdings is permitted by the terms of the Credit Agreement and any other
Indebtedness to make such offer and repurchase, may only be waived or modified
with the written consent of the holders of a majority in principal amount of the
Senior Discount Notes.
Certain Covenants
The Senior Discount Notes Indenture contains covenants including, among
others, the following:
Limitation on Indebtedness. (a) Holdings will not, and will not permit any
Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that Holdings and the Company may Incur Indebtedness if on
the date of such Incurrence and after giving effect thereto the Consolidated
Coverage Ratio would be greater than 2.00:1.00.
(b) Notwithstanding the foregoing paragraph (a), Holdings and its
Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to the Credit Agreement or any other
Credit Facility in an aggregate principal amount at any time outstanding not
to exceed $400 million;
137
(ii) Indebtedness of Holdings owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
Holdings or any Wholly Owned Subsidiary; provided, however, that (i) any
subsequent issuance or transfer of any Capital Stock or any other event that
results in any such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary or any subsequent transfer of any such Indebtedness (except to
Holdings or a Wholly Owned Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof and (ii)
if Holdings is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Senior Discount Notes;
(iii) Indebtedness (A) represented by the Senior Discount Notes and the
Senior Subordinated Notes (not including any Additional Senior Subordinated
Notes), (B) outstanding on the Closing Date (other than the Indebtedness
described in clauses (i) and (ii) above), (C) consisting of Refinancing
Indebtedness Incurred in respect of any Indebtedness described in this clause
(iii) (including Indebtedness Refinancing Refinancing Indebtedness) or the
foregoing paragraph (a) and (D) consisting of Guarantees of (x) any
Indebtedness permitted under clauses (i) and (ii) of this paragraph (b) and
(y) the Senior Subordinated Notes;
(iv) (A) Indebtedness of a Restricted Subsidiary Incurred and outstanding
on or prior to the date on which such Restricted Subsidiary was acquired by
Holdings (other than Indebtedness Incurred as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Subsidiary of or was otherwise acquired by
Holdings); provided, however, if the aggregate amount of all such
Indebtedness of all such Restricted Subsidiaries would exceed $20 million,
that on the date that such Restricted Subsidiary is acquired by Holdings,
Holdings would have been able to Incur $1.00 of additional Indebtedness
pursuant to the foregoing paragraph (a) after giving effect to the Incurrence
of such Indebtedness pursuant to this clause (iv) and (B) Refinancing
Indebtedness Incurred by a Restricted Subsidiary in respect of Indebtedness
Incurred by such Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness (A) in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds provided by
Holdings and the Restricted Subsidiaries in the ordinary course of their
business, and (B) under Hedging Obligations consisting of Interest Rate
Agreements directly related (as determined in good faith by Holdings) to
Indebtedness permitted to be Incurred by Holdings and its Restricted
Subsidiaries pursuant to the Senior Discount Notes Indenture and Currency
Agreements Incurred in the ordinary course of business;
(vi) Indebtedness Incurred by Holdings or any Restricted Subsidiary
(including Capitalized Lease Obligations) financing the purchase, lease or
improvement of property (real or personal) or equipment (whether through the
direct purchase of assets or the Capital Stock of the Person owning such
assets), in each case Incurred no more than 180 days after such purchase,
lease or improvement of such property and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, that at the time of the
Incurrence of such Indebtedness and after giving effect thereto, the
aggregate principal amount of all Indebtedness incurred pursuant to this
clause (vi) and then outstanding shall not exceed the greater of $25.0
million and 5% of Adjusted Consolidated Assets;
(vii) Indebtedness Incurred by Holdings or the Company in connection with
the acquisition of a Related Business and any Refinancing Indebtedness in
respect of such Indebtedness; provided, however, that the aggregate amount of
Indebtedness Incurred and outstanding pursuant to this clause (vii) shall not
exceed $50.0 million at any one time;
(viii) Attributable Debt Incurred by Holdings or the Company in respect
of Sale/Leaseback Transactions; provided, however, that the aggregate amount
of Attributable Debt Incurred and outstanding pursuant to this clause (viii)
shall not exceed $75.0 million at any one time;
(ix) Indebtedness arising from agreements of Holdings or a Restricted
Subsidiary providing for indemnification, purchase price adjustment or
similar obligations, in each case, Incurred or assumed
138
in connection with the disposition of any business, assets or a Subsidiary,
other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by Holdings and its Restricted Subsidiaries
in connection with such disposition;
(x) any Guarantee by Holdings of Indebtedness or other obligations of any
of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness
Incurred by such Restricted Subsidiary is permitted under the terms of the
Senior Discount Notes Indenture;
(xi) Indebtedness arising from Guarantees to suppliers, lessors,
licensees, contractors, franchisees or customers Incurred in the ordinary
course of business;
(xii) Indebtedness Incurred by a Receivables Entity in a Qualified
Receivables Transaction that is not recourse to Holdings or any other
Restricted Subsidiary of Holdings (except for Standard Securitization
Undertakings); and
(xiii) Indebtedness (other than Indebtedness permitted to be Incurred
pursuant to the foregoing paragraph (a) or any other clause of this paragraph
(b)) in an aggregate principal amount on the date of Incurrence that, when
added to all other Indebtedness Incurred pursuant to this clause (xiii) and
then outstanding, shall not exceed $50.0 million.
(c) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that Holdings or any Restricted Subsidiary may Incur
pursuant to this covenant shall not be deemed to be exceeded solely as a result
of fluctuations in the exchange rates of currencies. For purposes of determining
the outstanding principal amount of any particular Indebtedness Incurred
pursuant to this covenant, (i) Indebtedness permitted by this covenant need not
be permitted solely by reference to one provision permitting such Indebtedness
but may be permitted in part by one such provision and in part by one or more
other provisions of this covenant permitting such Indebtedness and (ii) in the
event that Indebtedness meets the criteria of more than one of the types of
Indebtedness described in this covenant, Holdings, in its sole discretion, shall
classify or reclassify such Indebtedness and only be required to include the
amount of such Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) Holdings will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay
any dividend or make any distribution on or in respect of its Capital Stock
(including any payment in connection with any merger or consolidation involving
Holdings) or similar payment to the direct or indirect holders of its Capital
Stock except dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and except dividends or distributions payable to
Holdings or another Restricted Subsidiary (and, if such Restricted Subsidiary
has equity holders other than Holdings or other Restricted Subsidiaries, to its
other equity holders on a pro rata basis), (ii) purchase, redeem, retire or
otherwise acquire for value any Capital Stock of Holdings or any Restricted
Subsidiary held by Persons other than Holdings or another Restricted Subsidiary,
(iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment any Subordinated Obligations (other than the purchase, repurchase
or other acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) make any
Investment (other than a Permitted Investment) in any Person (any such dividend,
distribution, purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted Payment") if
at the time Holdings or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default will have occurred and be continuing (or would result
therefrom); (2) Holdings could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under " -- Limitation
on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all
other Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination will be
conclusive and evidenced by a resolution of the Board of Directors) declared or
made subsequent to the Closing Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter immediately following the
fiscal quarter during which the Closing Date occurs to the end of the
139
most recent fiscal quarter for which internal financial statements are available
prior to the date of such Restricted Payment (or, in case such Consolidated Net
Income will be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds or fair market value of assets or property received by Holdings as
a contribution to its equity capital or from the issue or sale of its Capital
Stock (in each case other than Disqualified Stock and Excluded Contributions)
subsequent to the Closing Date (other than an issuance or sale to (x) a
Subsidiary of Holdings or (y) an employee stock ownership plan or other trust
established by Holdings or any of its Subsidiaries); (C) the amount by which
Indebtedness or Disqualified Stock of Holdings or its Restricted Subsidiaries is
reduced on Holdings' balance sheet upon the conversion or exchange (other than
by a Subsidiary of Holdings) subsequent to the Closing Date of any Indebtedness
or Disqualified Stock of Holdings or its Restricted Subsidiaries issued after
the Closing Date for Capital Stock (other than Disqualified Stock) of Holdings
(less the amount of any cash or the fair market value of other property
distributed by Holdings or any Restricted Subsidiary upon such conversion or
exchange); and (D) the amount equal to the net reduction in Investments in any
Person (other than a Restricted Subsidiary) resulting from (i) payments of
dividends, repayments of the principal of loans or advances or other transfers
of assets to Holdings or any Restricted Subsidiary from such Person, (ii) the
sale or liquidation for cash of such Investment or (iii) the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by Holdings
or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was
included in the calculation of the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any Restricted Payment made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of Holdings (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of Holdings or an employee stock ownership plan or other trust established by
Holdings or any of its Subsidiaries); provided, however, that (A) such
Restricted Payment will be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale applied in the
manner set forth in this clause (i) will be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
of Subordinated Obligations of Holdings made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of Holdings that
is permitted to be Incurred pursuant to paragraph (b) of the covenant described
under " -- Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
will be excluded in the calculation of the amount of Restricted Payments; (iii)
any purchase or redemption of Subordinated Obligations from Net Available Cash
to the extent permitted by the covenant described under " -- Limitation on Sales
of Assets and Subsidiary Stock"; provided, however, that such purchase or
redemption will be excluded in the calculation of the amount of Restricted
Payments; (iv) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied with
this covenant; provided, however, that such dividend will be included in the
calculation of the amount of Restricted Payments; (v) any Restricted Payment
made for the repurchase, redemption or other acquisition or retirement for value
of any Capital Stock of Holdings or any Restricted Subsidiary held by any
employee, former employee, director or former director of Holdings or any of its
Subsidiaries (and any permitted transferees thereof) pursuant to any equity
subscription agreement, stock option agreement or plan or other similar
agreement; provided, however, that the aggregate amount of such Restricted
Payments shall not exceed $5.0 million in any calendar year and $20.0 million in
the aggregate; provided further, however, that such Restricted Payments shall be
included in the calculation of the amount of Restricted Payments; (vi) following
the initial Equity Offering by Holdings, any payment of dividends or common
stock buybacks by Holdings in an aggregate amount in any year not to exceed 6%
of the aggregate Net Cash Proceeds actually received by Holdings in connection
with such initial Equity Offering and any subsequent Equity Offering by
Holdings; provided, however, that no Default or Event of Default shall have
occurred and be continuing immediately before or after any such payment;
provided further, however, that such dividends or common stock buybacks shall be
included in the calculation of the amount of Restricted Payments; (vii) any
repurchase of Capital Stock deemed to occur upon exercise of stock options if
such Capital Stock represents a portion of the exercise price of such option;
provided, however, that such repurchase shall be
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included in the calculation of the amount of Restricted Payments; (viii) the
declaration and payment of dividends to holders of any class or series of
Disqualified Stock of Holdings issued in accordance with the covenant described
under " -- Limitation on Indebtedness" to the extent such dividends are included
in the definition of Consolidated Interest Expense; provided, however, that such
dividends shall be included in the calculation of the amount of Restricted
Payments; (ix) Investments made with Excluded Contributions; provided, however,
that such Investments shall be excluded in the calculation of the amount of
Restricted Payments; (x) any Restricted Payment made to fund the
Recapitalization (including fees and expenses); provided, however, that such
Restricted Payment shall be excluded in the calculation of the amount of
Restricted Payments; or (xi) other Restricted Payments in an aggregate amount
not to exceed $10.0 million; provided, however, that such payments shall be
included in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
Holdings will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (i)
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness or other obligations owed to Holdings, (ii) make any loans or
advances to Holdings or (iii) transfer any of its property or assets to
Holdings, except: (1) any encumbrance or restriction pursuant to an agreement in
effect at or entered into on the Closing Date; (2) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or prior
to the date on which such Restricted Subsidiary was acquired by Holdings (other
than Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to consummate
the transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired
by Holdings) and outstanding on such date; (3) any encumbrance or restriction
pursuant to an agreement effecting a Refinancing of Indebtedness Incurred
pursuant to an agreement referred to in clause (1) or (2) of this covenant or
this clause (3) or contained in any amendment to an agreement referred to in
clause (1) or (2) of this covenant or this clause (3); provided, however, that
the encumbrances and restrictions contained in any such Refinancing agreement or
amendment are no less favorable to the Senior Discount Noteholders than the
encumbrances and restrictions contained in such predecessor agreements; (4) in
the case of clause (iii), any encumbrance or restriction (A) that restricts in a
customary manner the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract, (B) contained in
security agreements or mortgages securing Indebtedness of a Restricted
Subsidiary to the extent such encumbrance or restriction restricts the transfer
of the property subject to such security agreements or mortgages or (C) in
connection with purchase money obligations for property acquired in the ordinary
course of business; (5) with respect to a Restricted Subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or disposition of all
or substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; (6) any encumbrance or
restriction of a Receivables Entity effected in connection with a Qualified
Receivables Transaction; provided, however, that such restrictions apply only to
such Receivables Entity; and (7) any encumbrance or restriction existing
pursuant to other Indebtedness permitted to be Incurred subsequent to the Senior
Discount Notes Issue Date pursuant to the provisions of the covenant described
under " -- Limitations on Indebtedness"; provided, however, that any such
encumbrance or restrictions are ordinary and customary with respect to the type
of Indebtedness being Incurred (under the relevant circumstances).
Limitation on Sales of Assets and Subsidiary Stock. (a) Holdings will not,
and will not permit any Restricted Subsidiary to, make any Asset Disposition
unless (i) Holdings or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time of
such Asset Disposition at least equal to the fair market value (as determined in
good faith by Holdings) of the shares and assets subject to such Asset
Disposition, (ii) at least 75% of the consideration thereof received by Holdings
or such Restricted Subsidiary is in the form of cash or cash equivalents
(provided that the amount of (w) any liabilities (as shown on Holdings' or such
Restricted Subsidiary's most recent balance sheet or in the notes thereto) of
Holdings or any Restricted Subsidiary (other than liabilities that are by their
terms subordinated to the Senior Discount Notes) that are assumed by the
transferee of any such assets without recourse to
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Holdings or any of the Restricted Subsidiaries, (x) any notes or other
obligations received by Holdings or such Restricted Subsidiary from such
transferee that are converted by Holdings or such Restricted Subsidiary into
cash (to the extent of the cash received) within 180 days following the closing
of such Asset Disposition, (y) any Designated Noncash Consideration received by
Holdings or any of its Restricted Subsidiaries in such Asset Disposition having
an aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this clause (y) that is at that time
outstanding, not to exceed 5% of Adjusted Consolidated Assets at the time of the
receipt of such Designated Noncash Consideration (with the fair market value of
each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value) and (z) any
assets received in exchange for assets related to a Related Business of
comparable market value in the good faith determination of the Board of
Directors shall be deemed to be cash for purposes of this provision) and (iii)
an amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by Holdings (or such Restricted Subsidiary, as the case may be) (A)
first, to the extent Holdings elects (or is required by the terms of any
Indebtedness), to prepay, repay, redeem or purchase Indebtedness (other than any
Disqualified Stock and other than any Preferred Stock) of a Wholly Owned
Subsidiary (in each case other than Indebtedness owed to Holdings or an
Affiliate of Holdings) within 365 days after the later of the date of such Asset
Disposition or the receipt of such Net Available Cash; (B) second, to the extent
of the balance of Net Available Cash after application in accordance with clause
(A), to the extent Holdings or such Restricted Subsidiary elects, to reinvest in
Additional Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by Holdings or another
Restricted Subsidiary) within 365 days from the later of such Asset Disposition
or the receipt of such Net Available Cash; and (C) third, to the extent of the
balance of such Net Available Cash after application in accordance with clauses
(A) and (B), to make an Offer (as defined below) to purchase Senior Discount
Notes pursuant to and subject to the conditions set forth in section (b) of this
covenant; provided, however, that if Holdings elects (or is required by the
terms of any other Senior Indebtedness), such Offer may be made ratably to
purchase the Senior Discount Notes and other Senior Indebtedness of Holdings;
provided, however, that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (C) above, Holdings or such Restricted
Subsidiary will retire such Indebtedness and will cause the related loan
commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this covenant, Holdings and the Restricted Subsidiaries will not
be required to apply any Net Available Cash in accordance with this covenant
except to the extent that the aggregate Net Available Cash from all Asset
Dispositions that is not applied in accordance with this covenant exceeds $20.0
million.
(b) In the event of an Asset Disposition that requires the purchase of
Senior Discount Notes (and other Senior Indebtedness) pursuant to clause
(a)(iii)(C) of this covenant, Holdings will be required to purchase Senior
Discount Notes (and other Senior Indebtedness) tendered pursuant to an offer by
Holdings for the Senior Discount Notes (and other Senior Indebtedness) (the
"Offer") at a purchase price of (a) 100% of the Accreted Value thereof at the
date of redemption plus liquidated damages thereon, if any, to the date of
redemption, if redeemed on or prior to June 1, 2003 and (b) 100% of the
principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any, to the date of purchase, if purchased after June 1, 2003, in
each case in accordance with the procedures (including prorating in the event of
oversubscription), set forth in the Senior Discount Notes Indenture. If the
aggregate purchase price of Senior Discount Notes (and other Senior
Indebtedness) tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Senior Discount Notes (and other Senior
Indebtedness), Holdings may apply the remaining Net Available Cash for any
purpose permitted by the terms of the Senior Discount Notes Indenture. Holdings
will not be required to make an Offer for Senior Discount Notes (and other
Senior Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor (after application of the proceeds as provided in clauses
(a)(iii)(A) and (B) of this covenant) is less than $10.0 million for any
particular Asset Disposition (which lesser amount will be carried forward for
purposes of determining whether an Offer is required with respect to the Net
Available Cash from any subsequent Asset Disposition).
(c) Holdings will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Senior
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Discount Notes pursuant to this covenant. To the extent that the provisions of
any securities laws or regulations conflict with provisions of this covenant,
Holdings will comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under this covenant by
virtue thereof.
Limitations on Transactions with Affiliates. (a) Holdings will not, and
will not cause or permit any of its Restricted Subsidiaries to, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any transaction, contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction") involving aggregate consideration in excess of $5.0
million, unless (i) such Affiliate Transaction is on terms that are not
materially less favorable to Holdings or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by Holdings or
such Restricted Subsidiary with an unrelated Person and (ii) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, Holdings delivers to the
Senior Discount Notes Trustee a resolution adopted by the majority of the Board
of Directors, approving such Affiliate Transaction and set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above.
(b) The provisions of the foregoing paragraph (a) will not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described under
" -- Limitation on Restricted Payments", (ii) any issuance of securities, or
other payments, Guarantees, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by the Board of Directors, (iii) the grant of stock
options or similar rights to employees and directors of Holdings pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees in
the ordinary course of business in accordance with past practices of Holdings,
but in any event not to exceed $5.0 million in the aggregate outstanding at any
one time, (v) the payment of reasonable fees to directors of Holdings and its
Restricted Subsidiaries who are not employees of Holdings or its Subsidiaries,
(vi) any transaction between Holdings and a Restricted Subsidiary or between
Restricted Subsidiaries, (vii) any transaction effected as part of a Qualified
Receivables Transaction, (viii) indemnification agreements with, and the payment
of fees and indemnities to, directors, officers and employees of Holdings and
its Restricted Subsidiaries, in each case, in the ordinary course of business,
(ix) any employment, compensation, noncompetition or confidentiality agreement
entered into by Holdings and its Restricted Subsidiaries with its employees in
the ordinary course of business, (x) the payment by Holdings of fees, expenses
and other amounts to Cypress and its Affiliates in connection with the
Recapitalization, (xi) payments by Holdings or any of its Restricted
Subsidiaries to Cypress and its Affiliates made pursuant to any financial
advisory, financing, underwriting or placement agreement, or in respect of other
investment banking activities, in each case, as determined by the Board of
Directors in good faith, (xii) any issuance of Capital Stock of Holdings (other
than Disqualified Stock), (xiii) any agreement as in effect as of the date of
the Senior Discount Notes Indenture or any amendment or replacement thereto so
long as any such amendment or replacement agreement is not more disadvantageous
to the Senior Discount Noteholders of the Senior Discount Notes in any material
respect than the original agreement as in effect on the date of the Senior
Discount Notes Indenture and (xiv) transactions in which Holdings or any of its
Restricted Subsidiaries, as the case may be, delivers to the Senior Discount
Notes Trustee a letter from an Independent Financial Advisor stating that such
transaction is fair to Holdings or such Restricted Subsidiary from a financial
point of view or meets the requirements of clause (a) of the preceding
paragraph.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. Holdings will not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except: (i) to Holdings or a Wholly Owned Subsidiary
or to any director of a Restricted Subsidiary to the extent required as
director's qualifying shares; (ii) if, immediately after giving effect to such
issuance, sale or other disposition, neither Holdings nor any of its
Subsidiaries own any Capital Stock of such Restricted Subsidiary or (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary and any Investment
in such Person remaining after giving effect thereto would have been permitted
to be made under the
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covenant described under " -- Limitation on Restricted Payments" if made on the
date of such issuance, sale or other disposition. The provisions of this
covenant will not prohibit any transaction effected as part of a Qualified
Receivables Transaction. The proceeds of any sale of such Capital Stock
permitted hereby will be treated as Net Available Cash from an Asset Disposition
and must be applied in accordance with the terms of the covenant described under
" -- Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. Holdings will not, directly or indirectly, Incur or
permit to exist any Lien that secures Indebtedness of Holdings of any nature
whatsoever on any of its property or assets (including Capital Stock of a
Restricted Subsidiary), whether owned at the Closing Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Senior Discount Notes shall be secured equally and ratably with (or on a senior
basis to in the case of Subordinated Obligations) the obligations so secured for
so long as such obligations are so secured.
SEC Reports. Notwithstanding that Holdings may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, Holdings
shall file with the SEC and provide the Senior Discount Notes Trustee and any
Senior Discount Noteholder or prospective Senior Discount Noteholder (upon the
request of such Senior Discount Noteholder or prospective Senior Discount
Noteholder) with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections.
Merger and Consolidation
Holdings will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor Company") will
be a corporation organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor Company
(if not Holdings) will expressly assume, by an indenture supplemental hereto,
executed and delivered to the Senior Discount Notes Trustee, in form
satisfactory to the Senior Discount Notes Trustee, all the obligations of
Holdings under the Senior Discount Notes and the Senior Discount Notes
Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default will have occurred and be continuing; (iii)
immediately after giving effect to such transaction, (A) the Successor Company
would be able to Incur an additional $1.00 of Indebtedness under paragraph (a)
of the covenant described under " -- Certain Covenants -- Limitation on
Indebtedness" or (B) the Consolidated Coverage Ratio for the Successor Company
and its Restricted Subsidiaries would be greater than such ratio for Holdings
and its Restricted Subsidiaries immediately prior to such transaction; (iv)
immediately after giving effect to such transaction, the Successor Company will
have Consolidated Net Worth in an amount which is not less than the Consolidated
Net Worth of Holdings immediately prior to such transaction; and (v) Holdings
will have delivered to the Senior Discount Notes Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and such supplemental indenture (if any) comply with the
Senior Discount Notes Indenture. Notwithstanding clause (iii) above, a Wholly
Owned Subsidiary may be consolidated with or merged into Holdings and Holdings
may consolidate with or merge with or into another Person, if such Person is a
single purpose corporation that has not conducted any business or Incurred any
Indebtedness or other liabilities and such transaction is being consummated
solely to change the state of incorporation of Holdings.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, Holdings under the Senior Discount Notes
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease of all or substantially all its assets will not be released from the
obligation to pay the principal of and interest on the Senior Discount Notes.
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Defaults
An Event of Default is defined in the Senior Discount Notes Indenture as
(i) a default in any payment of interest on any Senior Discount Note when due
and payable, continued for 30 days, (ii) a default in the payment of Accreted
Value or principal of any Senior Discount Note when due and payable at its
Stated Maturity, upon required redemption or repurchase, upon declaration or
otherwise, (iii) the failure by Holdings to comply with its obligations under
the covenant described under " -- Merger and Consolidation", (iv) the failure by
Holdings to comply for 30 days after notice with any of its obligations under
the covenants described under " -- Change of Control" or " -- Certain Covenants"
(in each case, other than a failure to purchase Senior Discount Notes), (v) the
failure by Holdings to comply for 60 days after notice with its other agreements
contained in the Senior Discount Notes or the Senior Discount Notes Indenture,
(vi) the failure by Holdings or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default if the total amount of such Indebtedness unpaid or accelerated exceeds
$25 million or its foreign currency equivalent (the "cross acceleration
provision") and such failure continues for 10 days after receipt of the notice
specified in the Senior Discount Notes Indenture, (vii) certain events of
bankruptcy, insolvency or reorganization of Holdings or a Significant Subsidiary
(the "bankruptcy provisions"), or (viii) the rendering of any judgment or decree
for the payment of money in excess of $25 million or its foreign currency
equivalent against Holdings or a Significant Subsidiary if (A) an enforcement
proceeding thereon is commenced by any creditor or (B) such judgment or decree
remains outstanding for a period of 60 days following such judgment and is not
discharged, waived or stayed within 10 days after notice (the "judgment default
provision").
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (iv), (v), (vi) or (viii) will not
constitute an Event of Default until the Senior Discount Notes Trustee or the
Senior Discount Noteholders of at least 25% in principal amount at maturity of
the outstanding Senior Discount Notes notify Holdings of the default and
Holdings does not cure such default within the time specified in clauses (iv),
(v), (vi) or (viii) hereof after receipt of such notice.
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of Holdings) occurs and is
continuing, the Senior Discount Notes Trustee or the Senior Discount Noteholders
of at least 25% in principal amount at maturity of the outstanding Senior
Discount Notes by notice to Holdings may declare (a) the Accreted Value of all
the Senior Discount Notes, if on or prior to June 1, 2003 or (b) the principal
of and accrued but unpaid interest on all the Senior Discount Notes, if after
June 1, 2003, to be due and payable. Upon such a declaration, such amounts will
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of Holdings occurs, (a) the
Accreted Value of all the Senior Discount Notes, if on or prior to June 1, 2003
or (b) the principal of and interest on all the Senior Discount Notes, if after
June 1, 2003, will become immediately due and payable without any declaration or
other act on the part of the Senior Discount Notes Trustee or any Senior
Discount Noteholders. Under certain circumstances, the Senior Discount
Noteholders of a majority in principal amount at maturity of the outstanding
Senior Discount Notes may rescind any such acceleration with respect to the
Senior Discount Notes and its consequences.
Subject to the provisions of the Senior Discount Notes Indenture relating
to the duties of the Senior Discount Notes Trustee, in case an Event of Default
occurs and is continuing, the Senior Discount Notes Trustee will be under no
obligation to exercise any of the rights or powers under the Senior Discount
Notes Indenture at the request or direction of any of the Senior Discount
Noteholders unless such Senior Discount Noteholders have offered to the Senior
Discount Notes Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of Accreted
Value, principal, premium (if any) or interest when due, no Senior Discount
Noteholder may pursue any remedy with respect to the Senior Discount Notes
Indenture or the Senior Discount Notes unless (i) such Senior Discount
Noteholder has previously given the Senior Discount Notes Trustee
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notice that an Event of Default is continuing, (ii) Senior Discount Noteholders
of at least 25% in principal amount at maturity of the outstanding Senior
Discount Notes have requested the Senior Discount Notes Trustee in writing to
pursue the remedy, (iii) such Senior Discount Noteholders have offered the
Senior Discount Notes Trustee reasonable security or indemnity against any loss,
liability or expense, (iv) the Senior Discount Notes Trustee has not complied
with such request within 60 days after the receipt of the request and the offer
of security or indemnity and (v) the Senior Discount Noteholders of a majority
in principal amount at maturity of the outstanding Senior Discount Notes have
not given the Senior Discount Notes Trustee a direction inconsistent with such
request within such 60-day period. Subject to certain restrictions, the Senior
Discount Noteholders of a majority in principal amount at maturity of the
outstanding Senior Discount Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Senior
Discount Notes Trustee or of exercising any trust or power conferred on the
Senior Discount Notes Trustee. The Senior Discount Notes Trustee, however, may
refuse to follow any direction that conflicts with law or the Senior Discount
Notes Indenture or that the Senior Discount Notes Trustee determines is unduly
prejudicial to the rights of any other Senior Discount Noteholder or that would
involve the Senior Discount Notes Trustee in personal liability. Prior to taking
any action under the Senior Discount Notes Indenture, the Senior Discount Notes
Trustee will be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.
The Senior Discount Notes Indenture provides that if a Default occurs and
is continuing and is known to the Senior Discount Notes Trustee, the Senior
Discount Notes Trustee must mail to each Senior Discount Noteholder notice of
the Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Senior
Discount Notes Trustee. Except in the case of a Default in the payment of
Accreted Value of, principal of, premium (if any) or interest on any Senior
Discount Note (including payments pursuant to the redemption provisions of such
Senior Discount Note), the Senior Discount Notes Trustee may withhold notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding notice is in the interests of the Senior Discount Noteholders. In
addition, Holdings is required to deliver to the Senior Discount Notes Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. Holdings also is required to deliver to the Senior Discount Notes
Trustee, within 30 days after the occurrence thereof, written notice of any
event which would constitute certain Events of Default, their status and what
action Holdings is taking or proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Senior Discount Notes Indenture or the
Senior Discount Notes may be amended with the written consent of the Senior
Discount Noteholders of a majority in principal amount at maturity of the Senior
Discount Notes then outstanding and any past default or compliance with any
provisions may be waived with the consent of the Senior Discount Noteholders of
a majority in principal amount at maturity of the Senior Discount Notes then
outstanding. However, without the consent of each Senior Discount Noteholder of
an outstanding Senior Discount Note affected, no amendment may, among other
things, (i) reduce the amount of Senior Discount Notes whose Senior Discount
Noteholders must consent to an amendment, (ii) reduce the rate of or extend the
time for payment of interest or any liquidated damages on any Senior Discount
Note, (iii) reduce the Accreted Value or principal of or extend the Stated
Maturity of any Senior Discount Note, (iv) reduce the premium payable upon the
redemption of any Senior Discount Note or change the time at which any Senior
Discount Note may be redeemed as described under " -- Optional Redemption", (v)
make any Senior Discount Note payable in money other than that stated in the
Senior Discount Note, (vi) impair the right of any Senior Discount Noteholder to
receive payment of principal of and interest or any liquidated damages on such
Senior Discount Noteholder's Senior Discount Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Senior Discount Noteholder's Senior Discount Notes or (vii) make
any change in the amendment provisions which require each Senior Discount
Noteholder's consent or in the waiver provisions.
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Without the consent of any Senior Discount Noteholder, Holdings and the
Senior Discount Notes Trustee may amend the Senior Discount Notes Indenture to
cure any ambiguity, omission, defect or inconsistency, to provide for the
assumption by a successor corporation of the obligations of Holdings under the
Senior Discount Notes Indenture, to provide for uncertificated Senior Discount
Notes in addition to or in place of certificated Senior Discount Notes (provided
that the uncertificated Senior Discount Notes are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Senior Discount Notes are described in Section 163(f)(2)(B) of
the Code), to add Guarantees with respect to the Senior Discount Notes, to
secure the Senior Discount Notes, to add to the covenants of Holdings for the
benefit of the Senior Discount Noteholders or to surrender any right or power
conferred upon Holdings, to make any change that does not adversely affect the
rights of any Senior Discount Noteholder, subject to the provisions of the
Senior Discount Notes Indenture, to provide for the issuance of the Senior
Discount Exchange Notes or to comply with any requirement of the SEC in
connection with the qualification of the Senior Discount Notes Indenture under
the TIA.
The consent of the Senior Discount Noteholders is not necessary under the
Senior Discount Notes Indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the substance of the
proposed amendment.
After an amendment under the Senior Discount Notes Indenture becomes
effective, Holdings is required to mail to Senior Discount Noteholders a notice
briefly describing such amendment. However, the failure to give such notice to
all Senior Discount Noteholders, or any defect therein, will not impair or
affect the validity of the amendment.
Transfer and Exchange
A Senior Discount Noteholder may transfer or exchange Senior Discount Notes
in accordance with the Senior Discount Notes Indenture. Upon any transfer or
exchange, the registrar and the Senior Discount Notes Trustee may require a
Senior Discount Noteholder, among other things, to furnish appropriate
endorsements and transfer documents and Holdings may require a Senior Discount
Noteholder to pay any taxes required by law or permitted by the Senior Discount
Notes Indenture. Holdings is not required to transfer or exchange any Senior
Discount Note selected for redemption or to transfer or exchange any Senior
Discount Note for a period of 15 days prior to a selection of Senior Discount
Notes to be redeemed. The Senior Discount Notes will be issued in registered
form and the registered holder of a Senior Discount Note will be treated as the
owner of such Senior Discount Note for all purposes.
Defeasance
Holdings at any time may terminate all its obligations under the Senior
Discount Notes and the Senior Discount Notes Indenture ("legal defeasance"),
except for certain obligations, including those respecting the defeasance trust
and obligations to register the transfer or exchange of the Senior Discount
Notes, to replace mutilated, destroyed, lost or stolen Senior Discount Notes and
to maintain a registrar and paying agent in respect of the Senior Discount
Notes. Holdings at any time may terminate its obligations under the covenants
described under " -- Certain Covenants", the operation of the cross acceleration
provision, the bankruptcy provisions with respect to Significant Subsidiaries
and the judgment default provision described under " -- Defaults" and the
limitations contained in clauses (iii) and (iv) under " -- Merger and
Consolidation" ("covenant defeasance").
Holdings may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option. If Holdings exercises its legal
defeasance option, payment of the Senior Discount Notes may not be accelerated
because of an Event of Default with respect thereto. If Holdings exercises its
covenant defeasance option, payment of the Senior Discount Notes may not be
accelerated because of an Event of Default specified in clause (iv), (vi), (vii)
(with respect only to Significant Subsidiaries) or (viii) (with respect only to
Significant Subsidiaries) under " -- Defaults" or because of the failure of
Holdings to comply with clause (iii) or (iv) under " -- Merger and
Consolidation".
In order to exercise either defeasance option, Holdings must irrevocably
deposit in trust (the "defeasance trust") with the Senior Discount Notes Trustee
money or U.S. Government Obligations for the
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payment of principal, premium (if any) and interest on the Senior Discount Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Senior Discount Notes Trustee of an
Opinion of Counsel to the effect that holders of the Senior Discount Notes will
not recognize income, gain or loss for Federal income tax purposes as a result
of such deposit and defeasance and will be subject to Federal income tax on the
same amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
Concerning the Senior Discount Notes Trustee
Bank One, N.A. is the Senior Discount Notes Trustee under the Senior
Discount Notes Indenture and has been appointed by Holdings as Registrar and
Paying Agent with regard to the Senior Discount Notes.
Governing Law
The Senior Discount Notes Indenture provides that it and the Senior
Discount Notes will be governed by, and construed in accordance with, the laws
of the State of New York without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
Certain Definitions
"Accreted Value" as of any date (the "Specified Date") means, with respect
to each $1,000 principal amount at maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a
"Semi-Annual Accretion Date"), the amount set forth oppose such date below:
Semi-Annual Accretion Date Accreted Value
- ---------------------------------- ---------------
Issue Date ................ $ 580.21
December 1, 1998 .......... $ 611.89
June 1, 1999 .............. $ 646.07
December 1, 1999 .......... $ 682.17
June 1, 2000 .............. $ 720.29
December 1, 2000 .......... $ 760.54
June 1, 2001 .............. $ 803.03
December 1, 2001 .......... $ 847.90
June 1, 2002 .............. $ 895.28
December 1, 2002 .......... $ 945.30
June 1, 2003 .............. $ 998.12
(ii) if the Specified Date occurs between two Semi-Annual Accretion Dates,
the sum of (a) the Accreted Value for the Semi-Annual Accretion Date immediately
preceding the Specified Date and (b) an amount equal to the product of (x) the
Accreted Value for the immediately following Semi-Annual Accretion Date less the
Accreted Value for the immediately preceding Semi-Annual Accretion Date and (y)
a fraction, the numerator of which is the number of days actually elapsed from
the immediately preceding Semi-Annual Accretion Date to the Specified Date and
the denominator of which is 180, and
(iii) if the Specified Date is after June 1, 2003, $998.12.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by Holdings or a Restricted
Subsidiary in a Related Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by Holdings or another Restricted Subsidiary; or (iii) Capital Stock
constituting a minority interest in any Person that at such time is a Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary described in
clauses (ii) or (iii) above is primarily engaged in a Related Business.
"Adjusted Consolidated Assets" means at any time the total amount of assets
of Holdings and its Restricted Subsidiaries (less applicable depreciation,
amortization and other valuation reserves), after
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deducting therefrom all current liabilities of Holdings and its Restricted
Subsidiaries (excluding intercompany items), all as set forth on the
Consolidated balance sheet of Holdings and its Restricted Subsidiaries as of the
end of the most recent fiscal quarter for which financial statements are
available prior to the date of determination.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Premium" means, with respect to a Senior Discount Note at any
redemption date, the greater of (i) 1.0% of the Accreted Value of such Senior
Discount Note and (ii) the excess of (A) the present value at such time of the
redemption price of such Senior Discount Note at June 1, 2003 (such redemption
price being set forth in the table set forth under " -- Optional Redemption")
computed using a discount rate equal to the Treasury Rate plus 50 basis points,
over (B) the Accreted Value of such Senior Discount Note.
"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by Holdings or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than Holdings or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of Holdings or any Restricted Subsidiary or (iii) any other
assets of Holdings or any Restricted Subsidiary outside the ordinary course of
business of Holdings or such Restricted Subsidiary (other than, in the case of
(i), (ii) and (iii) above, (A) a disposition by a Restricted Subsidiary to
Holdings or by Holdings or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(B) for purposes of the provisions described under " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock" only, a disposition subject
to the covenant described under " -- Certain Covenants -- Limitation on
Restricted Payments", (C) a disposition of assets with a fair market value of
less than $1,000,000, (D) a sale of accounts receivables and related assets of
the type specified in the definition of "Qualified Receivables Transaction" to a
Receivables Entity in a Qualified Receivables Transaction, (E) a transfer of
accounts receivables and related assets of the type specified in the definition
of "Qualified Receivables Transaction" (or a fractional undivided interest
therein) by a Receivables Entity in a Qualified Receivables Transaction, (F) the
disposition of all or substantially all of the assets of Holdings in a manner
permitted pursuant to the provisions described above under "Merger and
Consolidation" or any disposition that constitutes a Change of Control pursuant
to the Senior Discount Notes Indenture, (G) any exchange of like property
pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended, for
use in a Related Business, and (H) any sale of Capital Stock in, or Indebtedness
or other securities of, an Unrestricted Subsidiary).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Senior Discount Notes after June 1, 2003, compounded annually) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale/Leaseback Transaction (including any
period for which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
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bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of Holdings or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Senior Discount Notes Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which internal financial statements are
available prior to the date of such determination to (ii) Consolidated Interest
Expense for such four fiscal quarters; provided, however, that (A) if Holdings
or any Restricted Subsidiary has Incurred any Indebtedness since the beginning
of such period that remains outstanding on such date of determination or if the
transaction giving rise to the need to calculate the Consolidated Coverage Ratio
is an Incurrence of Indebtedness, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased, defeased
or otherwise discharged with the proceeds of such new Indebtedness as if such
discharge had occurred on the first day of such period (except that, in making
such computation, the amount of Indebtedness under any revolving credit facility
outstanding on the date of such calculation shall be computed based on (1) the
average daily balance of such Indebtedness (and any Indebtedness under a
revolving credit facility replaced by such Indebtedness) during such four fiscal
quarters or such shorter period when such facility and any replaced facility was
outstanding or (2) if such facility was created after the end of such four
fiscal quarters, the average daily balance of such Indebtedness (and any
Indebtedness under a revolving credit facility replaced by such Indebtedness)
during the period from the date of creation of such facility to the date of the
calculation), (B) if Holdings or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid, repurchased,
defeased or otherwise discharged (in each case other than Indebtedness Incurred
under any revolving credit facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the transaction
giving rise to the need to calculate the Consolidated Coverage Ratio, EBITDA and
Consolidated Interest Expense for such period shall be calculated on a pro forma
basis as if such discharge had occurred on the first day of such period and as
if Holdings or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge such
Indebtedness, (C) if since the beginning of such period Holdings or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset Disposition for
such period or increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for such period
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and Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of Holdings or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to Holdings and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent Holdings and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (D) if since the beginning of such period Holdings 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 with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (E) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into Holdings or any
Restricted Subsidiary since the beginning of such period) shall have made any
Asset Disposition or any Investment or acquisition of assets that would have
required an adjustment pursuant to clause (C) or (D) above if made by Holdings
or a Restricted Subsidiary during such period, EBITDA and Consolidated Interest
Expense for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of assets
occurred on the first day of such period. For purposes of this definition,
whenever pro forma effect is to be given to an acquisition of assets, the amount
of income or earnings relating thereto and the amount of Consolidated Interest
Expense associated with any Indebtedness Incurred in connection therewith, the
pro forma calculations shall be determined in good faith by a responsible
financial or accounting Officer of Holdings and such pro forma calculations
shall include (A) (x) the savings in cost of goods sold that would have resulted
from using Holdings' actual costs for comparable goods and services during the
comparable period and (y) other savings in cost of goods sold or eliminations of
selling, general and administrative expenses as determined by a responsible
financial or accounting Officer of Holdings in good faith in connection with
Holdings' consideration of such acquisition and consistent with Holdings'
experience in acquisitions of similar assets, less (B) the incremental expenses
that would be included in cost of goods sold and selling, general and
administrative expenses that would have been incurred by Holdings in the
operation of such acquired assets during such period. If any Indebtedness bears
a floating rate of interest and is being given pro forma effect, the interest
expense on such Indebtedness shall be calculated as if the rate in effect on the
date of determination had been the applicable rate for the entire period (taking
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term as at the date of determination in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense (net of interest income) of Holdings and its Consolidated Restricted
Subsidiaries, plus, to the extent Incurred by Holdings and its Restricted
Subsidiaries in such period but not included in such interest expense, (i)
interest expense attributable to Capitalized Lease Obligations and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction, (ii) amortization of debt discount, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and
charges attributable to letters of credit and bankers' acceptance financing,
(vi) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by Holdings or any Restricted Subsidiary, (vii)
net costs associated with Hedging Obligations (including amortization of fees),
(viii) dividends in respect of all Preferred Stock of Holdings and any of the
Restricted Subsidiaries of Holdings (other than pay in kind dividends and
accretions to liquidation value) to the extent held by Persons other than
Holdings or a Wholly Owned Subsidiary, (ix) interest Incurred in connection with
investments in discontinued operations and (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
Holdings) in connection with Indebtedness Incurred by such plan or trust, less,
to the extent included in such total interest expense, the amortization during
such period of capitalized
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financing costs. Notwithstanding anything to the contrary contained herein,
interest expense, commissions, discounts, yield and other fees and charges
Incurred in connection with any Qualified Receivables Transaction pursuant to
which Holdings or any Subsidiary may sell, convey or otherwise transfer or grant
a security interest in any accounts receivable or related assets of the type
specified in the definition of "Qualified Receivables Transaction" shall not be
included in Consolidated Interest Expense; provided that any interest expense,
commissions, discounts, yield and other fees and charges Incurred in connection
with any receivables financing or securitization that does not constitute a
Qualified Receivables Transaction shall be included in Consolidated Interest
Expense.
"Consolidated Net Income" means, for any period, the net income of Holdings
and its Consolidated Subsidiaries for such period; provided, however, that there
shall not be included in such Consolidated Net Income: (i) any net income of any
Person (other than Holdings) if such Person is not a Restricted Subsidiary,
except that (A) subject to the limitations contained in clause (iv) below,
Holdings' equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to Holdings or a
Restricted Subsidiary as a dividend or other distribution (subject, in the case
of a dividend or other distribution made to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) Holdings' equity in a net
loss of any such Person for such period shall be included in determining such
Consolidated Net Income; (ii) any net income (or loss) of any person acquired by
Holdings or a Subsidiary in a pooling of interests transaction for any period
prior to the date of such acquisition; (iii) any net income (or 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
Holdings, except that (A) subject to the limitations contained in clause (iv)
below, Holdings' equity in the net income of any such Restricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash which could have been distributed by such Restricted
Subsidiary during such period to Holdings or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution made to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) Holdings' equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (or loss) realized upon the sale or other disposition
of any asset of Holdings or its Consolidated Subsidiaries (including pursuant to
any Sale/Leaseback Transaction) that is not sold or otherwise disposed of in the
ordinary course of business and any gain (or loss) realized upon the sale or
other disposition of any Capital Stock of any Person; (v) any extraordinary gain
or loss; (vi) the cumulative effect of a change in accounting principles; and
(vii) any expenses or charges paid to third parties related to any Equity
Offering, Permitted Investment, acquisition, recapitalization or Indebtedness
permitted to be Incurred by the Senior Discount Notes Indenture (whether or not
successful) (including such fees, expenses, or charges related to the
Recapitalization). Notwithstanding the foregoing, for the purpose of the
covenant described under " -- Certain Covenants -- Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to Holdings or a Restricted Subsidiary to the extent
such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of Holdings and its Restricted Subsidiaries, determined on a
Consolidated basis, as of the end of the most recent fiscal quarter of Holdings
for which internal financial statements are available, as (i) the par or stated
value of all outstanding Capital Stock of Holdings plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of Holdings in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of Holdings or any Restricted Subsidiary in an Unrestricted Subsidiary will be
accounted for as an investment. The term "Consolidated" has a correlative
meaning.
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"Credit Agreement" means the credit agreement to be dated as of the Closing
Date, as amended, waived or otherwise modified from time to time, among
Holdings, the Company, WESCO Distribution-Canada, Inc., certain financial
institutions to be party thereto, The Chase Manhattan Bank, as U.S.
administrative agent, syndication agent and U.S. collateral agent, The Chase
Manhattan Bank of Canada, as Canadian administrative agent and Canadian
collateral agent, and Lehman Commercial Paper Inc., as documentation agent.
"Credit Facilities" means, with respect to Holdings or the Company, one or
more debt facilities, or commercial paper facilities with banks or other
institutional lenders or indentures providing for revolving credit loans, term
loans, receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against receivables), letters of credit or other long-term Indebtedness, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Noncash Consideration" means the fair market value of noncash
consideration received by Holdings or any of its Restricted Subsidiaries in
connection with an Asset Disposition that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, less the amount of cash or cash equivalents received in
connection with a subsequent sale of such Designated Noncash Consideration.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable or exercisable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the 91st day following the
Stated Maturity of the Senior Discount Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase or
redeem such Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the first anniversary of the Stated Maturity of the
Securities shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions of the
covenants described under " -- Change of Control" and " -- Certain Covenants --
Limitation on Sale of Assets and Subsidiary Stock."
"EBITDA" for any period means the Consolidated Net Income for such period,
plus the following to the extent deducted in calculating such Consolidated Net
Income: (i) income tax expense of Holdings and its Consolidated Restricted
Subsidiaries, (ii) Consolidated Interest Expense, (iii) depreciation expense of
Holdings and its Consolidated Restricted Subsidiaries, (iv) amortization expense
of Holdings and its Consolidated Restricted Subsidiaries (excluding amortization
expense attributable to a prepaid cash item that was paid in a prior period),
(v) all other non-cash charges of Holdings and its Consolidated Restricted
Subsidiaries (excluding any such non-cash charge to the extent it represents an
accrual of or reserve for cash expenditures in any future period) in each case
for such period and (vi) income attributable to discontinued operations.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and non-cash charges of, a
Restricted Subsidiary of Holdings shall be added to Consolidated Net Income to
compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date of
determination to be dividended to Holdings by such Restricted Subsidiary without
prior approval (that has not been obtained), pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees, orders, statutes,
rules and governmental regulations applicable to such Restricted Subsidiary or
its stockholders.
153
"Equity Offering" means a private sale or public offering of Capital Stock
(other than Disqualified Stock) of Holdings.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Contribution" means the Net Cash Proceeds received by Holdings
from (a) contributions to its common equity capital and (b) the sale (other than
to a Subsidiary or to any Holdings or Subsidiary management equity plan or stock
option plan or any other management or employee benefit plan or agreement) of
Capital Stock (other than Disqualified Stock) of Holdings, in each case
designated as Excluded Contributions pursuant to an Officers' Certificate
executed by the principal executive officer and the principal financial officer
of Holdings on the date such capital contributions are made or the date such
Capital Stock is sold.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial statements)
in periodic reports required to be filed pursuant to Section 13 of the Exchange
Act, including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC. All ratios and
computations based on GAAP contained in the Senior Discount Notes Indenture
shall be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning. The accretion of principal of a
non-interest bearing or other discount security shall not be deemed the
Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of indebtedness of such Person for borrowed money; (ii) the principal
of and premium (if any) in respect of obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (iii) all obligations of
such Person in respect of letters of credit or other similar instruments
(including reimbursement obligations with respect thereto) (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i), (ii), (iv) and (v) hereof) to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the 30th day following payment on the
letter of credit so long as such letter of credit is entered into in the
ordinary course of business ); (iv) all obligations of such Person to pay the
deferred and unpaid purchase price of property or services (except Trade
Payables), which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services; (v) all
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Capitalized Lease Obligations and all Attributable Debt of such Person; (vi) the
amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to any
Subsidiary of such Person, any Preferred Stock (but excluding, in each case, any
accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided, however, that the amount of Indebtedness of such Person shall
be the lesser of (A) the fair market value of such asset at such date of
determination and (B) the amount of such Indebtedness of such other Persons;
(viii) to the extent not otherwise included in this definition, Hedging
Obligations of such Person; and (ix) all obligations of the type referred to in
clauses (i) through (viii) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability, upon the occurrence of the
contingency giving rise to the obligation, of any contingent obligations at such
date provided, however, that the amount outstanding at any time of any
Indebtedness Incurred with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP. Any "Qualified Receivables Transaction", whether or not such transfer
constitutes a sale for the purposes of GAAP, shall not constitute Indebtedness
hereunder; provided that any receivables financing or securitization that does
not constitute a Qualified Receivables Transaction and does not qualify as a
sale under GAAP shall constitute Indebtedness hereunder.
"Independent Financial Advisor" means an accounting, appraisal, investment
banking firm or consultant of nationally recognized standing that is, in the
good faith determination of Holdings, qualified to perform the task for which it
has been engaged.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary" and the covenant described under " -- Certain
Covenants -- Limitation on Restricted Payments", (i) "Investment" shall include
the portion (proportionate to Holdings' equity interest in such Subsidiary) of
the fair market value of the net assets of any Subsidiary of Holdings at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Holdings shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to
(x) Holdings' "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to Holdings' equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments received
(including (a) any cash payments received upon the sale or other disposition of
any Designated Noncash Consideration received in any Asset Disposition, (b) any
cash proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise and (c) any cash proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but
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excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to the properties
or assets that are the subject of such Asset Disposition or received in any
other non-cash form) therefrom, in each case net of (i) all legal, title and
recording tax expenses, commissions and other fees and expenses incurred
(including, without limitation, all broker's and finder's fees and expenses, all
investment banking fees and expenses, employee severance and termination costs,
and trade payable and similar liabilities solely related to the assets sold or
otherwise disposed of and required to be paid by the seller as a result
thereof), and all Federal, state, provincial, foreign and local taxes required
to be paid or accrued as a liability under GAAP, as a consequence of such Asset
Disposition, (ii) all relocation expenses incurred as a result thereof, (iii)
all payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a necessary consent to such Asset Disposition, or
by applicable law be repaid out of the proceeds from such Asset Disposition,
(iv) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition and (v) appropriate amounts to be provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Disposition and retained by
Holdings or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of Holdings.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Senior Discount Notes Trustee. The counsel may be an employee
of or counsel to Holdings or the Senior Discount Notes Trustee.
"Permitted Holders" means: (i) The Cypress Group L.L.C., Cypress Merchant
Banking Partners L.P., Cypress Offshore Partners L.P., Chase Equity Associates,
L.P., Co-Investment Partners, L.P. and any Person who on the Senior Discount
Notes Issue Date is an Affiliate of any of the foregoing; (ii) any Person who is
a member of the senior management of Holdings and a stockholder of Holdings on
the Senior Discount Notes Issue Date; and (iii) any Person acting in the
capacity of an underwriter in connection with a public or private offering of
Holdings' Capital Stock.
"Permitted Investment" means an Investment by Holdings or any Restricted
Subsidiary in (i) Holdings, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; (ii) another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, Holdings or a Restricted Subsidiary; (iii) Temporary Cash
Investments; (iv) receivables owing to Holdings or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however, that
such trade terms may include such concessionary trade terms as Holdings or any
such Restricted Subsidiary deems reasonable under the circumstances; (v)
payroll, travel and similar advances to cover matters that are expected at the
time of such advances ultimately to be treated as expenses for accounting
purposes and that are made in the ordinary course of business; (vi) loans or
advances to employees made in the ordinary course of business consistent with
past practices of Holdings or such Restricted Subsidiary and not exceeding $5.0
million in the aggregate outstanding at any one time; (vii) stock, obligations
or securities received in settlement of debts created in the ordinary course of
business and owing to Holdings or any Restricted Subsidiary or in satisfaction
of judgments; (viii) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition that was
made pursuant to and in compliance with the covenant described under " --
Certain Covenants -- Limitation on Sale of
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Assets and Subsidiary Stock"; (ix) Investments made in connection with any Asset
Disposition or other sale, lease, transfer or other disposition permitted under
the Senior Discount Notes Indenture; (x) a Receivables Entity or any Investment
by a Receivables Entity in any other Person in connection with a Qualified
Receivables Transaction, including Investments of funds held in accounts
permitted or required by the arrangements governing such Qualified Receivables
Transaction or any related Indebtedness; provided that any Investment in a
Receivables Entity is in the form of a Purchase Money Note, contribution of
additional receivables or an equity interest; (xi) Investments in a Related
Business having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (xi) that are at that time outstanding
(and not including any Investments outstanding on the Closing Date), not to
exceed 5% of Adjusted Consolidated Assets at the time of such Investments (with
the fair market value of each Investment being measured at the time made and
without giving effect to subsequent changes in value); and (xii) additional
Investments in an aggregate amount which, together with all other Investments
made pursuant to this clause that are then outstanding, does not exceed $10.0
million.
"Permitted Liens" means (a) Liens of Holdings securing Indebtedness of
Holdings or any of its Restricted Subsidiaries Incurred under the Credit
Agreement or other Credit Facilities to the extent permitted to be Incurred
under clause (b)(i) and (xiii) of the description of the "Limitation on
Indebtedness" covenant; (b) Liens in favor of Holdings; (c) Liens of Holdings
securing Indebtedness of Holdings Incurred under clause (b)(v) of the
description of the "Limitation on Indebtedness" covenant; (d) Liens of Holdings
securing Indebtedness of Holdings (including under a Sale/Leaseback Transaction)
permitted to be Incurred under clause (b)(vi), (vii) and (viii) of the
description of the "Limitation on Indebtedness" covenant so long as the Capital
Stock, property (real or personal) or equipment to which such Lien attaches
solely consists of the Capital Stock, property or equipment which is the subject
of such acquisition, purchase, lease, improvement, Sale/Leaseback Transaction
and additions and improvements thereto (and the proceeds therefrom); (e) Liens
on property existing at the time of acquisition thereof by Holdings; provided
that such Liens were not Incurred in connection with, or in contemplation of,
such acquisition and such Liens do not extend to or cover any property other
than such property, additions and improvements thereon and any proceeds
therefrom; (f) Liens Incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety or appeal bonds, government
contracts, performance and return of money bonds or other obligations of a like
nature Incurred in the ordinary course of business; (g) Liens existing on the
Senior Discount Notes Issue Date and any additional Liens created under the
terms of the agreements relating to such Liens existing on the Senior Discount
Notes Issue Date; (h) 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; provided that any reserve or other appropriate
provision as shall be required in conformity with GAAP shall have been made
therefor; (i) Liens Incurred in the ordinary course of business of Holdings with
respect to obligations that do not exceed $20.0 million in the aggregate at any
one time outstanding and that (1) are not Incurred in connection with or in
contemplation of the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (2) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of the business by Holdings; (j)
statutory Liens of landlords and warehousemens', carriers', mechanics',
suppliers', materialmen's, repairmen's or other like Liens (including
contractual landlords' liens) arising in the ordinary course of business of
Holdings; (k) Liens Incurred or deposits made in the ordinary course of business
of Holdings in connection with workers' compensation, unemployment insurance and
other types of social security; (l) easements, rights of way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of
Holdings; (m) Liens securing reimbursement obligations with respect to letters
of credit permitted under the covenant entitled "Limitation on Indebtedness"
which encumber only cash and marketable securities and documents and other
property relating to such letters of credit and the products and proceeds
thereof; (n) judgment and attachment Liens not giving rise to an Event of
Default; (o) any interest or title of a lessor in the property subject to any
Capitalized Lease Obligation permitted under the covenant entitled "Limitation
on Indebtedness"; (p) Liens on accounts receivable and related assets of the
type specified in the definition of "Qualified Receivables Transaction" Incurred
in connection with a Qualified Receivables Transaction; (q) Liens securing
Refinancing Indebtedness to the extent
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such Liens do not extend to or cover any property of Holdings not previously
subjected to Liens relating to the Indebtedness being refinanced; or (r) Liens
on pledges of the capital stock of any Unrestricted Subsidiary securing any
Indebtedness of such Unrestricted Subsidiary.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"principal" of a Senior Discount Note means the principal of the Senior
Discount Note plus the premium, if any, payable on the Senior Discount Note
which is due or overdue or is to become due at the relevant time.
"Purchase Money Note" means a promissory note of a Receivables Entity
evidencing a line of credit, which may be irrevocable, from Holdings or any
Subsidiary of Holdings in connection with a Qualified Receivables Transaction to
a Receivables Entity, which note (a) shall be repaid from cash available to the
Receivables Entity, other than (i) amounts required to be established as
reserves pursuant to agreements, (ii) amounts paid to investors in respect of
interest, (iii) principal and other amounts owing to such investors and amounts
owing to such investors, (iv) amounts required to pay expenses in connection
with such Qualified Receivables Transaction and (v) amounts paid in connection
with the purchase of newly generated receivables and (b) may be subordinated to
the payments described in (a).
"Qualified Receivables Transaction" means any financing by Holdings or any
of its Subsidiaries of accounts receivable in any transaction or series of
transactions that may be entered into by Holdings or any of its Subsidiaries
pursuant to which (a) Holdings or any of its Subsidiaries sells, conveys or
otherwise transfers to a Receivables Entity and (b) a Receivables Entity sells,
conveys or otherwise transfers to any other Person or grants a security interest
to any Person in, any accounts receivable (whether now existing or arising in
the future) of Holdings or any of its Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all Guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable; provided that (i) the Board of Directors shall
have determined in good faith that such Qualified Receivables Transaction is
economically fair and reasonable to Holdings and the Receivables Entity and (ii)
all sales of accounts receivable and related assests to the Receivables Entity
are made at fair market value (as determined in good faith by Holdings). The
grant of a security interest in any accounts receivable of Holdings or any of
its Restricted Subsidiaries to secure Bank Indebtedness shall not be deemed a
Qualified Receivables Transaction.
"Receivables Entity" means any Wholly Owned Subsidiary of Holdings (or
another Person in which Holdings or any Subsidiary of Holdings makes an
Investment and to which Holdings or any Subsidiary of Holdings transfers
accounts receivable and related assets) (i) which engages in no activities other
than in connection with the financing of accounts receivable, all proceeds
thereof and all rights (contractual or other), collateral and other assets
relating thereto, and any business or activities incidental or related to such
business, (ii) which is designated by the Board of Directors (as provided below)
as a Receivables Entity and (iii) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (A) is Guaranteed by Holdings or
any other Subsidiary of Holdings (excluding Guarantees of obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (B) is recourse to or obligates Holdings or any
other Subsidiary of Holdings in any way other than pursuant to Standard
Securitization Undertakings or (C) subjects any property or asset of Holdings or
any other Subsidiary of Holdings, directly or indirectly, contingently or
otherwise, to the satisfaction thereof, other than pursuant to Standard
Securitization Undertakings. Any such designation by the Board of Directors
shall be evidenced to the Senior Discount Notes Trustee by
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filing with the Senior Discount Notes Trustee a certified copy of the resolution
of the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to refund,
refinance, replace, renew, repay or extend (including pursuant to any defeasance
or discharge mechanism) any Indebtedness of Holdings or any Restricted
Subsidiary existing on the date of the Senior Discount Notes Indenture or
Incurred in compliance with the Senior Discount Notes Indenture (including
Indebtedness of Holdings that Refinances Refinancing Indebtedness); provided,
however, that (i) the Refinancing Indebtedness has a Stated Maturity no earlier
than the Stated Maturity of the Indebtedness being Refinanced, (ii) the
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being refinanced and (iii) such Refinancing Indebtedness is
Incurred in an aggregate principal amount (or if issued with original issue
discount, an aggregate issue price) that is equal to or less than the aggregate
principal amount (or if issued with original issue discount, the aggregate
accreted value) then outstanding of the Indebtedness being Refinanced (plus any
accrued interest and premium thereon and reasonable expenses Incurred in
connection therewith); provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Restricted Subsidiary that Refinances
Indebtedness of Holdings or (y) Indebtedness of Holdings or a Restricted
Subsidiary that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any businesses of Holdings and the Restricted
Subsidiaries on the Closing Date and any business related, ancillary or
complementary thereto.
"Restricted Subsidiary" means any Subsidiary of Holdings other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by Holdings or a Restricted Subsidiary whereby
Holdings or a Restricted Subsidiary transfers such property to a Person and
Holdings or such Restricted Subsidiary leases it from such Person, other than
leases between Holdings and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of Holdings secured by a
Lien.
"Senior Discount Noteholder" means the Person in whose name a Senior
Discount Note is registered on the registrar's books.
"Senior Discount Notes Issue Date" means the closing date for the sale and
original issuance of the Senior Discount Notes under the Senior Discount Notes
Indenture.
"Senior Discount Notes Trustee" means the party named as such in the Senior
Discount Notes Indenture until a successor replaces it and, thereafter, means
the successor.
"Senior Indebtedness" of Holdings means the principal of, premium (if any)
and accrued and unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization of Holdings,
regardless of whether or not a claim for post-filing interest is allowed in such
proceedings) on, and fees and other amounts owning in respect of, the Senior
Discount Notes and all other Indebtedness of Holdings, whether outstanding on
the Closing Date or thereafter Incurred, unless in the instrument creating or
evidencing the same or pursuant to which the same is outstanding it is provided
that such obligations are subordinated in right of payment to the Senior
Discount Notes; provided, however, that Senior Indebtedness shall not include
(i) any obligation of Holdings to any Subsidiary, (ii) any liability for
Federal, state, local or other taxes owed or owing by Holdings, (iii) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including Guarantees thereof or instruments evidencing such
liabilities), (iv) any Indebtedness or obligation of Holdings (and any accrued
and unpaid interest in respect thereof) that by its terms is subordinate or
junior in any respect
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to any other Indebtedness or obligation of Holdings, including any Subordinated
Obligations, (v) any payment obligations with respect to any Capital Stock, or
(vi) any Indebtedness Incurred in violation of the Senior Discount Notes
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of Holdings within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC, but shall in no event include a
Receivables Entity.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by Holdings or any Subsidiary of Holdings
which Holdings has determined in good faith to be customary in an accounts
receivable transaction including, without limitation, those relating to the
servicing of the assets of a Receivables Entity.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of Holdings (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Senior Discount Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by the
United States of America having capital, surplus and undivided profits
aggregating in excess of $100,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) or any money
market fund sponsored by a registered broker-dealer or mutual fund distributor,
(iii) repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a
financial institution meeting the qualifications described in clause (ii) above,
(iv) investments in commercial paper, maturing not more than one year after the
date of acquisition, issued by a corporation (other than an Affiliate of
Holdings) organized and in existence under the laws of the United States of
America or any foreign country recognized by the United States of America with a
rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. ("S&P"), and (v) investments in securities with maturities of
one year or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by S&P
or "A" by Moody's Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.ss.ss. 77aaa-77bbbb)
as in effect on the date of the Senior Discount Notes Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
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"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled by, and
published in, the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two Business Days prior to the date
fixed for redemption of the Senior Discount Notes following a Change of Control
(or, if such Statistical Release is no longer published, any publicly available
source of similar market data)) most nearly equal to the period from the
redemption date to June 1, 2003; provided, however, that if the period from the
redemption date to June 1, 2003 is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given, the
Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the redemption date to June 1, 2003 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Senior Discount Notes Trustee assigned by
the Senior Discount Notes Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means (i) any Subsidiary of Holdings that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
Holdings (including any newly acquired or newly formed Subsidiary of Holdings)
to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, Holdings or any other Subsidiary of Holdings that is
not a Subsidiary of the Subsidiary to be so designated; provided, however, that
either (A) the Subsidiary to be so designated has total Consolidated assets of
$1,000 or less or (B) if such Subsidiary has Consolidated assets greater than
$1,000, then such designation would be permitted under the covenant entitled "
- -- Certain Covenants -- Limitation on Restricted Payments". The Board of
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) Holdings could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under " -- Certain Covenants --
Limitation on Indebtedness" and (y) no Default shall have occurred and be
continuing. Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Senior Discount Notes Trustee by promptly filing with the Senior Discount Notes
Trustee a copy of the resolution of the Board of Directors giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of Holdings all the
Capital Stock of which (other than directors' qualifying shares) is owned by
Holdings or another Wholly Owned Subsidiary.
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REGISTRATION RIGHTS AGREEMENTS OF HOLDINGS AND THE COMPANY
Each Issuer entered into a separate Registration Rights Agreement with the
Initial Purchasers concurrently with the issuances of the Old Notes. Pursuant to
the Registration Rights Agreements, each of the Issuers has agreed to (i) file
with the Commission on or prior to 90 days after the date of issuance of the
applicable Notes (the "Issue Date") a registration statement on an appropriate
form under the Securities Act (the "Exchange Offer Registration Statement"),
relating to the Exchange Offers and (ii) use its reasonable best efforts to
cause its Exchange Offer Registration Statement to be declared effective under
the Securities Act within 200 days after the Issue Date. As soon as practicable
after the effectiveness of such Exchange Offer Registration Statement, such
Issuer will offer to the holders of applicable Transfer Restricted Securities
(as defined below) who are not prohibited by any law or policy of the Commission
from participating in the applicable Exchange Offer the opportunity to exchange
their Transfer Restricted Securities for the Exchange Notes. Each of the Issuers
has agreed to keep its Exchange Offer open for not less than 20 business days
(or longer, if required by applicable law) after the date on which notice of the
applicable Exchange Offer is mailed to the holders of its Notes.
If (i) because of any change in law or applicable interpretations thereof
by the staff of the Commission, either Issuer is not permitted to effect the
applicable Exchange Offer as contemplated hereby, (ii) any Notes validly
tendered pursuant to the applicable Exchange Offer are not exchanged for
Exchange Notes within 230 days after the applicable Issue Date, (iii) any
Initial Purchaser so requests with respect to Notes not eligible to be exchanged
for applicable Exchange Notes in the applicable Exchange Offer, (iv) any
applicable law or interpretations do not permit any holder of Notes to
participate in the applicable Exchange Offer, (v) any holder of Notes that
participates in an applicable Exchange Offer does not receive freely
transferable Exchange Notes in exchange for tendered Notes, or (vi) either of
the Issuers so elects, then such Issuer will file with the Commission a shelf
registration statement (a "Shelf Registration Statement") to cover resales of
Transfer Restricted Securities by such holders who satisfy certain conditions
relating to the provision of information in connection with such Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Note until (i) the date on which such Note has been
exchanged for a freely transferable Exchange Note in the applicable Exchange
Offer; (ii) the date on which such Note has been effectively registered under
the Securities Act and disposed of in accordance with a Shelf Registration
Statement; or (iii) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act or is salable pursuant to Rule
144(k) under the Securities Act.
Each Issuer will use its reasonable best efforts to have the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement (each
a "Registration Statement") declared effective by the Commission as promptly as
practicable after the filing thereof. Unless the Exchange Offers would not be
permitted by a policy of the Commission, the Issuers will commence the Exchange
Offers and will use their reasonable best efforts to consummate the Exchange
Offers as promptly as practicable, but in any event prior to 230 days after the
Issue Date. If applicable, the Issuers will use their reasonable best efforts to
keep the Shelf Registration Statements effective for a period of two years after
the Issue Date.
If (i) the Registration Statement is not filed with the Commission on or
prior to 90 days after the Issue Date (or, in the case of a Shelf Registration
Statement required to be filed in response to a change in law or applicable
interpretations of the Commission's staff, if later, within 45 days after
publication of the change in law or interpretations, but in no event before 90
days after the Issue Date); (ii) the Exchange Offer Registration Statement or
the Shelf Registration Statement, as the case may be, is not declared effective
within 200 days after the Issue Date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 90 days after
publication of the change in law or interpretation, but in no event before 200
days after the Issue Date); (iii) the applicable Exchange Offer is not
consummated on or prior to 230 days after the Issue Date (other than in the
event the applicable Issuer files a Shelf Registration Statement); or (iv) the
Shelf Registration Statement is filed and declared effective within 200 days
after the Issue Date (or in the case of a Shelf Registration Statement required
to be filed in response to a change in law or the applicable interpretations of
the Commission's staff, if later, within 90 days after publication of the change
in law or interpretation, but in no event before 200 days after
162
the Issue Date) but shall thereafter cease to be effective (at any time that the
applicable Issuer is obligated to maintain the effectiveness thereof) without
being succeeded within 90 days by an additional Registration Statement filed and
declared effective (each such event referred to in clauses (i) through (iv), a
"Registration Default"), the applicable Issuer will be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities, during the
period of one or more such Registration Defaults, in an amount equal to $0.192
per week per $1,000 principal amount (or Accreted Value in the case of Senior
Discount Notes) of the Notes constituting Transfer Restricted Securities held by
such holder until the applicable Registration Statement is filed, the Exchange
Offer Registration Statement is declared effective and the applicable Exchange
Offer is consummated or the Shelf Registration Statement is declared effective
or again becomes effective, as the case may be. All accrued liquidated damages
shall be paid to holders in the same manner as interest payments on the Notes on
semi-annual payment dates which correspond to interest payment dates for the
Notes (or, in the case of Senior Discount Notes, on the scheduled Semi-Annual
Accretion Date on or prior to June 1, 2003). Following the cure of all
Registration Defaults, the accrual of liquidated damages will cease.
Notwithstanding the foregoing, any Issuer may issue a notice that the Shelf
Registration Statement is unusable pending the announcement of a material
development or event and may issue any notice suspending use of the Shelf
Registration Statement required under applicable securities laws to be issued
and, in the event that the aggregate number of days in any consecutive
twelve-month period for which all such notices are issued and effective exceeds
45 days in the aggregate, then the applicable Issuer will be obligated to pay
liquidated damages to each holder of Transfer Restricted Securities in an amount
equal to $0.192 per week per $1,000 principal amount (or Accreted Value in the
case of Transfer Restricted Securities of Holdings) of Transfer Restricted
Securities held by such holder. Upon the applicable Issuer declaring that the
Shelf Registration Statement is usable after the period of time described in the
preceding sentence the accrual of liquidated damages shall cease; provided,
however, that if after any such cessation of the accrual of liquidated damages
the Shelf Registration Statement again ceases to be usable beyond the period
permitted above, liquidated damages will again accrue pursuant to the foregoing
provisions.
The Registration Rights Agreements also provide that the Issuers (i) shall
make available for a period of 180 days after the consummation of the Exchange
Offers a prospectus meeting the requirements of the Securities Act to any
broker-dealer for use in connection with any resale of any such Exchange Notes
and (ii) shall pay all expenses incident to the Exchange Offers (including the
expense of one counsel to the holders of the Notes) and will jointly and
severally indemnify certain holders of the Notes (including any broker-dealer)
against certain liabilities, including liabilities under the Securities Act. A
broker-dealer which delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the applicable
Registration Rights Agreement (including certain indemnification rights and
obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes
in an Exchange Offer will be required to make certain representations, including
representations that (i) any Exchange Notes to be received by it will be
acquired in the ordinary course of its business; (ii) it has no arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes; and (iii) it is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of the applicable Issuer, or if it is an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of the
Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as a result
of market-making activities or other trading activities (an "Exchanging
Dealer"), it will be required to acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes.
Holders of the Notes will be required to make certain representations to
the applicable Issuer (as described above) in order to participate in the
applicable Exchange Offer and will be required to deliver information to be used
in connection with a Shelf Registration Statement in order to have their Notes
163
included in such Shelf Registration Statement and benefit from the provisions
regarding liquidated damages set forth in the preceding paragraphs. A holder who
sells Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the applicable Registration Rights Agreement
which are applicable to such a holder (including certain indemnification
obligations).
For so long as the Notes are outstanding, the Issuers will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Registration Rights Agreements is a
summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the Registration Rights Agreements, which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
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BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Senior Subordinated Exchange Notes and
the Senior Discount Exchange Notes will be issued in fully registered form. The
Senior Subordinated Exchange Notes and the Senior Discount Exchange Notes will
each initially be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (each a "Global
Exchange Note") and will be deposited with the applicable Trustee as custodian
for The Depository Trust Company, New York, New York ("DTC") and registered in
the name of a nominee of DTC.
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
the Issuers nor any of the Initial Purchasers takes any responsibility for these
operations or procedures, and investors are urged to contact the relevant system
or its participants directly to discuss these matters.
DTC has advised the Issuers that it is (i) a limited purpose trust company
organized under the laws of the State of New York; (ii) a "banking organization"
within the meaning of the New York Banking Law; (iii) a member of the Federal
Reserve System; (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended; and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants (collectively, the "Participants") and facilitates the clearance
and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Indirect access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Investors who are not
Participants may beneficially own securities held by or on behalf of DTC only
through Participants or Indirect Participants.
The Issuers expect that pursuant to procedures established by DTC (i) upon
deposit of each Global Exchange Note, DTC will credit the accounts of
Participants designated by the Initial Purchasers with an interest in the Global
Exchange Note and (ii) ownership of the Exchange Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by DTC (with respect to the interests of Participants) and the records of
Participants and the Indirect Participants (with respect to the interests of
persons other than Participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Exchange Notes represented
by a Global Exchange Note to such persons may be limited. In addition, because
DTC can act only on behalf of its Participants, who in turn act on behalf of
persons who hold interests through Participants, the ability of a person having
an interest in Exchange Notes represented by a Global Exchange Note to pledge or
transfer such interest to persons or entities that do not participate in DTC's
system, or to otherwise take actions in respect of such interest, may be
affected by the lack of a physical definitive security in respect of such
interest.
So long as DTC or its nominee is the registered owner of a Global Exchange
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the Exchange Notes represented by the Global Exchange Note for all
purposes under the applicable Indenture. Except as provided below, owners of
beneficial interests in a Global Exchange Note will not be entitled to have
Exchange Notes represented by such Global Exchange Note registered in their
names, will not receive or be entitled to receive physical delivery of
Certificated Exchange Notes, and will not be considered the owners or holders
thereof under the applicable Indenture for any purpose, including with respect
to the giving of any direction, instruction or approval to the Trustee
thereunder. Accordingly, each holder owning a beneficial interest in a Global
Exchange Note must rely on the procedures of DTC and, if such holder is not a
Participant or an Indirect Participant, on the procedures of the Participant
through which such holder owns its interest, to exercise any rights of a holder
of Notes under the applicable Indenture
165
or such Global Exchange Note. The Issuers understand that under existing
industry practice, in the event that either of the Issuers requests any action
of holders of Exchange Notes, or a holder that is an owner of a beneficial
interest in a Global Exchange Note desires to take any action that DTC, as the
holder of such Global Exchange Note, is entitled to take, DTC would authorize
the Participants to take such action and the Participants would authorize
holders owning through such Participants to take such action or would otherwise
act upon the instruction of such holders. Neither the Issuers nor the Trustees
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of Exchange Notes by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to such Exchange Notes.
Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any Exchange Notes represented by a Global
Exchange Note registered in the name of DTC or its nominee on the applicable
record date will be payable by the applicable Trustee to or at the direction of
DTC or its nominee in its capacity as the registered holder of the Global
Exchange Note representing such Exchange Notes under the applicable Indenture.
Under the terms of the Indentures, the Issuers and the Trustees may treat the
persons in whose names the Exchange Notes, including the Global Exchange Notes,
are registered as the owners thereof for the purpose of receiving payment
thereon and for any and all other purposes whatsoever. Accordingly, neither the
Issuers nor the Trustees has or will have any responsibility or liability for
the payment of such amounts to owners of beneficial interests in a Global
Exchange Note (including principal, premium, if any, liquidated damages, if any,
and interest). Payments by the Participants and the Indirect Participants to the
owners of beneficial interests in a Global Exchange Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of the Participants or the Indirect Participants and DTC.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Exchange Notes, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance with
the rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel, as the case may be, will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant Global Exchange Notes in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Exchange Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel participant, during the securities settlement
processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of DTC. Cash received in Euroclear or
Cedel as a result of sales of interest in a Global Exchange Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Exchange Notes among
participants in DTC, Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Issuers nor the Trustees will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
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Certificated Notes
If (i) either Issuer notifies the applicable Trustee in writing that DTC is
no longer willing or able to act as a depositary or DTC ceases to be registered
as a clearing agency under the Exchange Act and a successor depositary is not
appointed within 90 days of such notice or cessation; (ii) either Issuer, at its
option, notifies the applicable Trustee in writing that it elects to cause the
issuance of the applicable Exchange Notes in definitive form under the
applicable Indenture; or (iii) upon the occurrence of certain other events as
provided in the Indentures, then, upon surrender by DTC of such Global Exchange
Note, Certificated Notes will be issued to each person that DTC identifies as
the beneficial owner of the Exchange Notes represented by such Global Exchange
Note. Upon any such issuance, the applicable Trustee is required to register
such Certificated Notes in the name of such person or persons (or the nominee of
any thereof) and cause the same to be delivered thereto.
Neither the Issuers nor the Trustees shall be liable for any delay by DTC
or any Participant or Indirect Participant in identifying the beneficial owners
of the related Exchange Notes and each such person may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the Exchange Notes to be issued).
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CERTAIN UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of Notes and the
exchange of Old Notes for Exchange Notes pursuant to the Exchange Offers as of
the date hereof. Unless otherwise indicated, this summary relates only to
holders who hold such Notes as capital assets, and does not cover special
situations, such as those of dealers in securities or currencies, financial
institutions, tax-exempt entities, life insurance companies, persons holding
Notes as a part of a hedging, conversion or constructive sale transaction or a
straddle or holders of Notes whose "functional currency" is not the U.S. dollar.
Furthermore, the discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income
tax consequences different from those discussed below. Persons considering the
purchase, ownership or disposition of Notes or the exchange of Old Notes for
Exchange Notes should consult their own tax advisors concerning the United
States federal income tax consequences in light of their particular situations
as well as any consequences arising under the laws of any other taxing
jurisdiction.
As used herein, a "U.S. Holder" of a Note means a holder that is (i) a
citizen or resident of the U.S., (ii) a corporation or partnership created or
organized in or under the laws of the U.S. or any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source or (iv) a trust which is subject to the
supervision of a court within the United States and the control of a United
States person as described in section 7701(a)(30) of the Code. A "Non-U.S.
Holder" is a holder that is not a U.S. Holder.
Payments of Interest on Senior Subordinated Notes
Interest on a Senior Subordinated Note will generally be taxable to a U.S.
Holder as ordinary income at the time it is paid or accrued in accordance with
the U.S. Holder's method of accounting for tax purposes.
Payments of Interest on Senior Discount Notes
The Senior Discount Notes were issued at a substantial discount from their
principal amount at maturity. Therefore, the Senior Discount Notes were issued
with original issue discount ("OID") and U.S. Holders of the Senior Discount
Notes will be subject to special tax accounting rules. The amount of OID equals
the difference between (i) the sum of all amounts payable on the Senior Discount
Notes (including interest payable on such Senior Discount Notes) and (ii) the
"issue price" of the Senior Discount Notes. The "issue price" of the Senior
Discount Notes was the first price at which a substantial amount of the Senior
Discount Notes were sold (excluding sales to bond houses, brokers or similar
persons acting in the capacity of underwriter, placement agent or wholesaler).
A U.S. Holder of a Senior Discount Note must include such OID in income on
an economic accrual basis (using the constant-yield-to-maturity method of
accrual described in section 1272(a) of the Code) and in advance of the receipt
of the cash to which such OID is attributable, regardless of such holder's
method of accounting. Under that method, a U.S. Holder generally will have to
include in income increasingly greater amounts of OID in successive accrual
periods. A U.S. Holder of a Senior Discount Note generally will not be required
to include separately in income interest actually received on the Senior
Discount Note. Amounts received pursuant to the Mandatory Principal Redemption
will be treated as payments of interest to the extent of the OID that has
accrued at the time of such redemption.
Market Discount
If a U.S. Holder purchases a Senior Subordinated Note for an amount that is
less than its stated redemption price at maturity or a Senior Discount Note for
an amount that is less than its adjusted issue price, the amount of the
difference will be treated as "market discount" for United States federal income
tax purposes unless such difference is less than a specified de minimis amount.
The "adjusted issue
168
price" of a Senior Discount Note at the beginning of any accrual period is equal
to its issue price increased by the accrued OID for each prior accrual period
(determined without regard to the amortization of any acquisition or bond
premium, as described below) and reduced by any payments made on such Senior
Discount Note on or before the first day of the accrual period. Under the market
discount rules, a U.S. Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the market discount which has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. In addition, the U.S. Holder may be
required to defer, until the maturity of the Note or its earlier disposition in
a taxable transaction, the deduction of all or a portion of the interest expense
on any indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the U.S.
Holder elects to accrue on a constant interest method. A U.S. Holder of a Note
may elect to include market discount in income currently as it accrues (on
either a ratable or constant interest method), in which case the rule described
above regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
Acquisition Premium; Amortizable Bond Premium
A U.S. Holder that purchases a Senior Discount Note for an amount that is
greater than its adjusted issue price but equal to or less than the sum of all
amounts payable on the Senior Discount Note after the purchase date will be
considered to have purchased such Senior Discount Note at an "acquisition
premium." Under the acquisition premium rules, the amount of OID which such U.S.
Holder must include in its gross income with respect to such Note for any
taxable year will be reduced by the portion of such acquisition premium properly
allocable to such year.
A U.S. Holder that purchases a Note for an amount in excess of the sum of
all amounts payable on the Note after the purchase date other than interest on a
Senior Subordinated Note will be considered to have purchased the Note at a
"premium" and will not be required to include any OID in income. A U.S. Holder
generally may elect to amortize the premium over the remaining term of the Note
on a constant yield method as an offset to interest when includible in income
under the U.S. Holder's regular accounting method. Bond premium on a Note held
by a U.S. Holder that does not make such an election will decrease the gain or
increase the loss otherwise recognized on disposition of the Note. The election
to amortize premium on a constant yield method once made applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Sale, Exchange and Retirement of Notes
Upon the sale, exchange, retirement or other disposition of a Note, a U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized upon the sale, exchange, retirement or other disposition (less any
accrued interest on a Senior Subordinated Note, which will be taxable as such)
and the U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted
tax basis in a Note will, in general, be the U.S. Holder's cost therefor,
increased, in the case of the Senior Discount Notes, by OID and reduced by any
cash payments on the Note (other than payments of interest on a Senior
Subordinated Note). Capital gains of individuals derived in respect of capital
assets held for more than one year are eligible for reduced rates of taxation
which may vary depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
Exchange of Notes
The exchange of Senior Subordinated Old Notes and Senior Discount Old Notes
for Senior Subordinated Exchange Notes and Senior Discount Exchange Notes,
respectively, pursuant to the Exchange Offers should not constitute a taxable
event to holders. Consequently, no gain or loss should be recognized by a holder
upon receipt of such a Senior Subordinated Exchange Note or Senior Discount
Exchange Note, the holding period of such Senior Subordinated Exchange Note or
Senior Discount
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Exchange Note should include the holding period of the Senior Subordinated Old
Note or the Senior Discount Old Note exchanged therefor and the basis of such
Senior Subordinated Exchange Note or Senior Discount Exchange Note should be the
same as the basis of the Senior Subordinated Old Note or Senior Discount Old
Note immediately before the exchange.
Non-U.S. Holders
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no withholding of United States federal income tax will be required
with respect to the payment by the Company or any paying agent of principal
or interest (which for purposes of this discussion includes OID) on a Note
owned by a Non-U.S. Holder, provided (i) that the beneficial owner does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) the
beneficial owner is not a controlled foreign corporation that is related to
the Company through stock ownership, (iii) the beneficial owner is not a bank
whose receipt of interest on a Note is described in section 881(c)(3)(A) of
the Code and (iv) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c) of
the Code and the regulations thereunder;
(b) no withholding of United States federal income tax will be required
with respect to any gain or income realized by a Non-U.S. Holder upon the
sale, exchange, retirement or other disposition of a Note; and
(c) a Note beneficially owned by an individual who at the time of death
is a Non-U.S. Holder will not be subject to United States federal estate tax
as a result of such individual's death, provided that such individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the company entitled to vote within the
meaning of section 871(h)(3) of the Code and provided that the interest
payments with respect to such Note would not have been, if received at the
time of such individual's death, effectively connected with the conduct of a
United States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a U.S. person. Currently, these requirements will be met if (1) the
beneficial owner provides his name and address, and certifies, under penalties
of perjury, that he is not a U.S. person (which certification may be made on an
Internal Revenue Service ("IRS") Form W-8 (or successor form)) or (2) a
financial institution holding the Note on behalf of the beneficial owner
certifies, under penalties of perjury, that such statement has been received by
it and furnishes a paying agent with a copy thereof. Under recently finalized
Treasury regulations (the "Final Regulations"), the statement requirement
referred to in (a)(iv) above may also be satisfied with other documentary
evidence for interest paid after December 31, 1999 with respect to an offshore
account or through certain foreign intermediaries.
If a Non-U.S. Holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of interest (including OID)
made to such Non-U.S. Holder will be subject to a 30% withholding tax unless the
beneficial owner of the Note provides the Company or its paying agent, as the
case may be, with a properly executed (1) IRS Form 1001 (or successor form)
claiming an exemption from (or a reduction in) withholding under the benefit of
an applicable tax treaty or (2) IRS Form 4224 (or successor form) stating that
interest paid on the Note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States. Under the Final Regulations, Non-U.S. Holders will
generally be required to provide IRS Form W-8 in lieu of IRS Form 1001 and IRS
Form 4224, although alternative documentation may be applicable in certain
situations. Moreover, under the Final Regulations, the benefit of an applicable
tax treaty may, in certain circumstances, and subject to significant limitations
under the Code, be claimed by the foreign partners of a foreign partnership that
holds the Notes. Foreign partners are urged to consult their own tax advisors to
determine whether they are eligible to claim such benefits.
170
If a Non-U.S. Holder is engaged in a trade or business in the U.S. and
interest (including OID) on the Note is effectively connected with the conduct
of such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed above, will be subject to United States federal income
tax on such interest (including OID) on a net income basis in the same manner as
if it were a U.S. Holder. In addition, if such holder is a foreign corporation,
it may be subject to a branch profits tax equal to 30% (or lower applicable
treaty rate) of its effectively connected earnings and profits for the taxable
year, subject to adjustments. For this purpose, interest (including OID) on a
Note will be included in such foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note generally will not be subject to United States federal
income tax unless (i) such gain or income is effectively connected with a trade
or business in the U.S. of the Non-U.S. Holder, or (ii) in the case of a
Non-U.S. Holder who is an individual, such individual is present in the U.S. for
183 days or more in the taxable year of such sale, exchange, retirement or other
disposition, and certain other conditions are met.
Special rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations", "passive foreign investment companies" and "foreign
personal holding companies", that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the U.S.
federal, state, local and other tax consequences that may be relevant to them.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal, interest, OID and premium on a Note and to certain
payments of proceeds from the sale of a Note made to U.S. Holders other than
certain exempt recipients (such as corporations). A 31% backup withholding tax
will apply to such payments if the U.S. Holder fails to provide a taxpayer
identification number or certification of exempt status or fails to report in
full dividend and interest income.
In general, no information reporting or backup withholding will be required
with respect to payments made by the Company or any paying agent to Non-U.S.
Holders if a statement described in (a)(iv) under "Non-U.S. Holders" has been
received (and the payor does not have actual knowledge that the beneficial owner
is a U.S. person). Backup withholding and information reporting may apply to the
proceeds of the sale of a Note within the U.S. or conducted through certain U.S.
related financial intermediaries unless the statement described in (a)(iv) under
"Non-U.S. Holders" has been received (and the payor does not have actual
knowledge that the beneficial owner is a U.S. person) or the holder otherwise
establishes an exemption.
171
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to any of the Exchange Offers must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. A broker-dealer may not
participate in the Exchange Offer with respect to Old Notes acquired other than
as a result of market-making activities or other trading activities. To the
extent any such broker-dealer participates in the Exchange Offer and so notifies
the applicable Issuers, or causes such Issuers to be so notified in writing, the
Issuers have agreed that for a period of 180 days after the date of this
Prospectus, they will make this Prospectus, as amended or supplemented,
available to such broker-dealer for use in connection with any such resale, and
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the applicable Letter of Transmittal. In addition, until , 1998 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to any of the Exchange Offers 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 prevailing market prices at the time
of resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such Exchange
Notes. Any broker-dealer that resells Exchange Notes that were received by it
for its own account pursuant to any of the Exchange Offers 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. Each Letter of Transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incident to each of the
Exchange Offers (other than commissions and concessions of any broker-dealers),
subject to certain prescribed limitations, and will indemnify the holders of the
Old Notes against certain liabilities, including certain liabilities that may
arise under the Securities Act.
By its acceptance of any Exchange Offer, any broker-dealer that receives
Exchange Notes pursuant to such Exchange Offer hereby agrees to notify the
applicable Issuers prior to using the Prospectus in connection with the sale or
transfer of Exchange Notes, and acknowledges and agrees that, upon receipt of
notice from the applicable Issuers of the happening of any event which makes any
statement in the Prospectus untrue in any material respect or which requires the
making of any changes in the Prospectus in order to make the statements therein
not misleading or which may impose upon the Issuers disclosure obligations that
may have a material adverse effect on the Issuers (which notice the Issuers
agree to deliver promptly to such broker-dealer), such broker-dealer will
suspend use of the Prospectus until the Issuers have notified such broker-dealer
that delivery of the Prospectus may resume and have furnished copies of any
amendment or supplement to the Prospectus to such broker-dealer.
172
LEGAL MATTERS
Certain legal matters with respect to the Exchange Offers will be passed
upon for the Issuers by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated balance sheets of Holdings as of December 31, 1996 and
1997 and the consolidated statements of income, stockholders' equity and cash
flows of Holdings for each of the three years in the period ended December 31,
1997 included in this Prospectus have been included herein in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
173
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants .................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and March 31, 1998
(unaudited) ........................................................................ F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997
and for the three month periods ended March 31, 1997 and 1998 (unaudited) .......... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and for the three month period ended March 31, 1998 (unaudited)
...... F-5 Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1996 and
1997 and for the three month periods ended March 31, 1997 and 1998 (unaudited) ..... F-6
Notes to Consolidated Financial Statements ........................................... F-7
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
WESCO International, Inc.
We have audited the accompanying consolidated balance sheets of WESCO
International, Inc. (formerly CDW Holding Corporation) and subsidiaries as of
December 31, 1996 and 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WESCO International, Inc. and subsidiaries as of December 31, 1996 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ PRICEWATERHOUSECOOPERS LLP
600 Grant Street
Pittsburgh, Pennsylvania
February 6, 1998, except for Note 17, as to which the date is May 8, 1998.
F-2
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
December 31, March 31,
------------------------- ------------
1996 1997 1998
----------- ----------- ------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents ......................................... -- $ 7,620 $ 18,405
Trade accounts receivable, net of allowance for doubtful
accounts of $10,075, $10,814 and $10,937 in 1996, 1997
and 1998, respectively ........................................... $311,896 351,170 393,368
Other accounts receivable ......................................... 19,040 17,261 16,400
Inventories ....................................................... 263,107 299,406 317,934
Income tax receivable ............................................. -- 3,405 --
Prepaid expenses and other current assets ......................... 1,998 3,699 3,430
Deferred income taxes (Note 7) .................................... 12,731 14,277 16,832
-------- -------- --------
Total current assets ............................................. 608,772 696,838 766,369
Property, buildings and equipment, net (Note 4) ..................... 93,951 95,082 100,482
Trademarks, net of accumulated amortization of $453, $586 and
$652 in 1996, 1997 and 1998, respectively ......................... 3,541 3,408 3,342
Goodwill, net of accumulated amortization of $1,887, $4,522
and $5,267 in 1996, 1997 and 1998, respectively (Note 15) ......... 62,553 65,923 80,031
Other assets (Note 5) ............................................... 4,670 9,609 11,824
-------- -------- --------
Total assets ..................................................... $773,487 $870,860 $962,048
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................. $283,434 $311,796 $335,943
Accrued payroll and benefit costs ................................. 25,597 27,694 15,565
Restructuring reserve ............................................. 4,541 3,982 5,913
Income taxes payable .............................................. 4,972 -- 2,725
Other current liabilities (Note 6) ................................ 17,160 17,063 23,679
-------- -------- --------
Total current liabilities ........................................ 335,704 360,535 383,825
Long-term debt (Notes 8 and 17) ..................................... 260,635 294,275 350,544
Other noncurrent liabilities ........................................ 6,311 5,875 6,020
Deferred income taxes (Note 7) ...................................... 13,161 16,662 17,118
-------- -------- --------
Total liabilities ................................................ 615,811 677,347 757,507
Commitments and contingencies (Note 13)
Redeemable Class A common stock, $.01 par value, 88,082, 89,306, and 93,230
shares issued and outstanding in 1996, 1997 and 1998, respectively (redemption
value of $24,517, $68,597 and $86,154 in 1996, 1997 and 1998, respectively)
(Note 9) .......................................................... 8,930 8,978 11,416
Stockholders' equity (Note 9):
Class A common stock, $.01 par value, 2,000,000 authorized, 933,280 shares
issued and outstanding in 1996, 1997 and
1998 ............................................................. 9 9 9
Class B nonvoting convertible common stock, $.01 par value,
2,000,000 shares authorized ...................................... -- -- --
Additional capital ................................................ 93,319 93,319 93,319
Retained earnings ................................................. 53,129 89,366 97,889
Common stock to be issued under option ............................ 2,500 2,500 2,500
Accumulated other comprehensive income ............................ (211) (659) (592)
-------- -------- --------
Total stockholders' equity ....................................... 148,746 184,535 193,125
-------- -------- --------
Total liabilities and stockholders' equity ....................... $773,487 $870,860 $962,048
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
For the three month period
For the year ended ended March 31,
--------------------------------------------- -------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ----------- -----------
(unaudited)
Sales, net ........................... $1,857,042 $2,274,622 $2,594,819 $576,776 $693,448
Cost of goods sold (exclusive of
depreciation and amortization) ..... 1,535,998 1,869,565 2,130,900 472,436 566,754
---------- ---------- ---------- -------- --------
Gross profit ....................... 321,044 405,057 463,919 104,340 126,694
Selling, general and adminis-
trative expenses ................... 257,972 326,003 372,532 86,679 103,564
Depreciation and amortization ........ 7,339 10,846 11,331 2,771 2,956
---------- ---------- ---------- -------- --------
Income from operations ............. 55,733 68,208 80,056 14,890 20,174
Interest expense, net ................ 15,813 17,382 20,109 4,798 6,202
---------- ---------- ---------- -------- --------
Income before income taxes
and extraordinary charge .......... 39,920 50,826 59,947 10,092 13,972
Provision for income taxes
(Note 7) ........................... 14,790 18,364 23,710 4,007 5,449
---------- ---------- ---------- -------- --------
Income before extraordinary
charge ............................ 25,130 32,462 36,237 6,085 8,523
Extraordinary charge, net of
applicable taxes (Note 8) .......... 8,068 -- -- -- --
---------- ---------- ---------- -------- --------
Net income ........................... $ 17,062 $ 32,462 $ 36,237 $ 6,085 $ 8,523
========== ========== ========== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except share data)
Common Accumulated
Stock to Other
Comprehensive Additional Retained be Issued Comprehensive
Income Shares Amount Capital Earnings Under Option Income
--------------- --------- -------- ------------ ---------- -------------- --------------
Balances at December 31,
1994 ........................ 933,280 $ 9 $93,319 $ 3,605 $2,500 $ 42
Net income ................. $17,062 -- -- -- 17,062 -- --
Translation adjustment ..... (168) -- -- -- -- -- (168)
-------
Comprehensive income........ $16,894
=======
Balances at December 31,
1995 ....................... 933,280 9 93,319 20,667 2,500 (126)
Net income ................. $32,462 -- -- -- 32,462 -- --
Translation adjustment ..... (85) -- -- -- -- -- (85)
-------
Comprehensive income........ $32,377
=======
Balances at December 31,
1996 ....................... 933,280 9 93,319 53,129 2,500 (211)
Net income ................. $36,237 -- -- -- 36,237 -- --
Translation adjustment ..... (448) -- -- -- -- -- (448)
-------
Comprehensive income........ $35,789
=======
Balances at December 31,
1997 ....................... 933,280 9 93,319 89,366 2,500 (659)
Net income (unaudited)...... $ 8,523 -- -- -- 8,523 -- --
Translation adjustment
(unaudited) ............... 67 -- -- -- -- -- 67
-------
Comprehensive income
(unaudited) ............... $ 8,590
=======
Balances at March 31,
1998 (unaudited) ........... 933,280 $ 9 $93,319 $97,889 $2,500 $ (592)
======= === ======= ======= ====== ======
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the three month period
For the year ended ended March 31,
------------------------------------------ ------------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ---------------
Cash flows from operating activities:
Net income ............................ $ 17,062 $ 32,462 $ 36,237 $ 6,085 $ 8,523
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization ......... 7,339 10,846 11,331 2,771 2,956
Amortization of debt issuance
costs and interest rate caps ......... 1,213 531 418 111 121
Extraordinary charge, net of
applicable taxes ..................... 8,068 -- -- -- --
Charge in lieu of and deferred
income taxes ......................... 14,222 (78) 2,837 (10) (2,099)
Changes in assets and liabilities,
excluding the effects of
acquisitions:
Trade and other receivables .......... (26,844) (21,058) (32,641) 7,518 (4,181)
Inventories .......................... (26,874) (24,389) (31,671) (24,882) 6,302
Prepaid and other current assets 254 5,930 (1,120) (1,108) 467
Other assets ......................... (1,202) 700 (3,652) (559) (2)
Accounts payable ..................... 27,118 20,323 9,690 (6,962) 3,581
Accrued payroll and benefit
costs ............................... 6,287 (1,942) 1,594 (12,339) (12,129)
Restructuring reserve ................ (2,909) (1,636) (1,499) (637) (540)
Other current and noncurrent
liabilities ......................... 1,995 (6,472) (2,646) (2,501) 10,171
-------- -------- -------- -------- -----------
Net cash (used for) provided
by operating activities ........... 25,729 15,217 (11,122) (32,513) 13,170
-------- -------- -------- -------- -----------
Cash flows from investing activities:
Capital expenditures .................. (6,456) (9,411) (12,446) (1,402) (3,651)
Proceeds from the sale of
property, buildings and
equipment ............................ 668 2,338 3,996 379 --
Acquisitions, net of cash acquired
(Note 14) ............................ (6,181) (103,918) (13,914) (9,647) (43,951)
-------- -------- -------- -------- -----------
Net cash used for investing
activities ........................ (11,969) (110,991) (22,364) (10,670) (47,602)
-------- -------- -------- -------- -----------
Cash flows from financing activities:
Proceeds from long-term debt .......... 878,930 544,907 426,594 157,478 225,906
Repayments of long-term debt .......... (893,038) (459,730) (389,613) (113,362) (182,186)
Outstanding checks in excess of
cash available ....................... 2,292 1,489 4,249 -- --
Debt issuance costs ................... (218) (682) (172) (164) (204)
Issuance and repurchase of
common stock and exercise of
stock options, net ................... 2,224 1,200 48 -- 1,701
-------- -------- -------- -------- -----------
Net cash provided by (used
for) financing activities ......... (9,810) 87,184 41,106 43,952 45,217
-------- -------- -------- -------- -----------
Net change in cash and cash
equivalents ........................... 3,950 (8,590) 7,620 769 10,785
Cash and cash equivalents at the
beginning of the period ............... 4,640 8,590 -- -- 7,620
-------- -------- -------- -------- -----------
Cash and cash equivalents at the
end of the period ..................... $ 8,590 $ -- $ 7,620 $ 769 $ 18,405
======== ======== ======== ======== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
1. ORGANIZATION:
On February 28, 1994, WESCO International, Inc. (formerly CDW Holding
Corporation) (Holdings) and its subsidiaries (collectively, WESCO) completed the
acquisition of substantially all of the assets and certain liabilities of
Westinghouse Electric Supply Company from Westinghouse Electric Corporation
(Westinghouse). Holdings has as its only asset all of the outstanding common
stock of WESCO Distribution, Inc. (the Company) and its subsidiaries;
accordingly, the financial statements presented herein are identical to those of
the Company. The Company was formed by the Clayton & Dubilier Private Equity
Fund IV Limited Partnership, managed by Clayton, Dubilier & Rice, Inc. for the
purpose of the acquisition. All of the Company's commercial activities, which
commenced February 28, 1994, are carried out by the Company. The Company,
headquartered in Pittsburgh, Pennsylvania, is a full-line distributor of
electrical supplies and equipment and currently operates branch locations in the
United States, Canada, Mexico, Puerto Rico and Guam.
The acquisition was accounted for as a purchase and, accordingly, the
assets and liabilities acquired have been recorded at their estimated fair value
at the date of acquisition, less the excess of the fair value of the assets and
liabilities acquired over the purchase price. This excess was allocated to the
noncurrent assets of WESCO.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
Principles of Consolidation:
The consolidated financial statements include the accounts of WESCO and
all of its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These may affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements. They may also affect the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from these estimates upon subsequent resolution of some matters.
Revenue Recognition:
Revenues are recognized at the time of product shipment.
Cash Equivalents:
Cash equivalents are defined as highly liquid investments with original
maturities of 90 days or less when purchased.
Inventories:
Inventories primarily consist of merchandise purchased for resale and are
stated at the lower of cost or market. Cost is determined principally under the
average cost method.
Property, Buildings and Equipment:
Property, buildings and equipment are recorded at cost. Depreciation
expense is determined over the estimated useful lives of the assets using the
straight-line method. Leasehold improvements are amortized over either their
respective lease terms or their estimated lives, whichever is shorter.
F-7
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: -- Continued
Expenditures for new facilities and improvements that extend the useful
life of an asset are capitalized. Ordinary repairs and maintenance are expensed
as incurred. When property is retired or otherwise disposed of, the cost and the
related accumulated depreciation are removed from the accounts and any related
gains or losses are recorded.
Intangibles:
Goodwill and other intangibles arising from acquisitions are being
amortized on a straight-line basis over periods not exceeding 25 years. WESCO
regularly reviews the individual components of the balance by evaluating the
estimated future undiscounted cash flows to determine the recoverability of the
assets and recognizes, on a current basis, any decrease in value.
Trademarks acquired are recorded at cost and are amortized on a
straight-line basis over periods not exceeding 25 years.
Income Taxes:
Deferred income taxes result primarily from temporary differences between
financial and tax reporting. A valuation allowance is provided when a portion or
all of a deferred tax asset may not be realized.
For interim periods, income taxes are provided for based on management's
best estimate of the effective tax rate expected to be applicable for the full
calendar year.
Foreign Currency Translation:
The local currency is the functional currency for WESCO's operations
outside the United States. Assets and liabilities of these operations are
translated to U.S. dollars at the exchange rate in effect at each period-end.
Income statement accounts are translated at the average exchange rate prevailing
during the period. Translation adjustments arising from the use of differing
exchange rates from period to period are included as a component of
stockholders' equity. Gains and losses from foreign currency transactions are
included in net income for the period.
Environmental Expenditures:
WESCO has facilities and operations which distribute certain products that
must comply with environmental regulations and laws. Expenditures for current
operations are expensed or capitalized, as appropriate. Expenditures relating to
existing conditions caused by past operations, and which do not contribute to
future revenue, are expensed. Liabilities are recorded when remedial efforts are
probable and the costs can be reasonably estimated.
Interim Consolidated Financial Statements (unaudited):
The unaudited consolidated balance sheet and statement of stockholders'
equity as of March 31, 1998 and the unaudited consolidated statements of income
and cash flows for the three month periods ended March 31, 1997 and 1998, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary for the
fair presentation of the results of the interim periods. All adjustments
reflected in the consolidated financial statements are of a normal recurring
nature. The data disclosed in the notes to the consolidated financial statements
for these periods are also unaudited. Results for the three month periods ended
March 31, 1997 and 1998 are not necessarily indicative of the results to be
expected for the full year.
Reclassifications:
Certain prior year amounts have been reclassified in order to conform with
the current presentations.
F-8
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES: -- Continued
New Accounting Pronouncements:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying
comprehensive income and its components. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The provisions of SFAS No.
130 have been adopted in the three month period ended March 31, 1998 and all
years presented have been adjusted to reflect the adoption. In WESCO's case,
comprehensive income includes net income and unrealized gains and losses from
currency translation.
Additionally, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. Management is currently evaluating the impact
of this standard on the financial statements.
3. CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT SUPPLIERS:
WESCO distributes its products and extends credit to a large number of
customers in the industrial, construction, utility and manufactured structures
market. In addition, one supplier accounted for approximately 20%, 18%, and 18%
of WESCO's purchases for the years ended December 31, 1995, 1996 and 1997,
respectively.
4. PROPERTY, BUILDINGS AND EQUIPMENT:
December 31,
---------------------------
1996 1997
------------ ------------
Land .................................................... $ 18,543 $ 17,875
Buildings and leasehold improvements .................... 59,174 61,629
Furniture, fixtures and equipment ....................... 27,412 30,083
--------- ---------
105,129 109,587
Less: accumulated depreciation and amortization ......... (14,266) (20,721)
--------- ---------
90,863 88,866
Construction in progress ................................ 3,088 6,216
--------- ---------
$ 93,951 $ 95,082
========= =========
5. OTHER ASSETS:
December 31,
-------------------------
1996 1997
----------- -----------
Debt issuance costs .................... $ 1,098 $ 1,270
Software costs ......................... 5,162 6,846
Favorable lease commitments ............ 1,054 1,054
Other .................................. 879 1,916
-------- --------
8,193 11,086
Less: accumulated amortization ......... (6,036) (7,355)
-------- --------
2,157 3,731
Restricted cash ........................ 2,513 5,878
-------- --------
$ 4,670 $ 9,609
======== ========
F-9
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
5. OTHER ASSETS: -- Continued
Debt issuance costs are being amortized on a straight-line basis, which
does not differ significantly from the effective interest rate method, over the
term of the related debt (see Note 8).
Restricted cash represents proceeds received from the sale of properties
which collateralize the First Mortgage Notes. Such proceeds are restricted for
either repayment of the First Mortgage Notes or acquisition of additional
properties which would be issued as collateral under the First Mortgage Notes
(see Note 8).
6. OTHER CURRENT LIABILITIES:
December 31,
----------------------
1996 1997
--------- ----------
Accrued taxes other than income ......... $ 9,782 $10,696
Accrued interest ........................ 1,912 1,508
Notes payable ........................... 1,597 891
Other current liabilities ............... 3,869 3,968
------- -------
$17,160 $17,063
======= =======
The notes payable relate to a portion of the purchase price for certain
acquisitions.
7. INCOME TAXES:
At the acquisition date, February 28, 1994, WESCO had approximately $45,000
of future tax deductions ($18,000 of tax benefits) which resulted in the
creation of certain deferred tax assets. A valuation allowance was recorded for
the full amount of the assets reflected on the opening balance sheet since the
realization of these future benefits was not considered likely at that time.
However, at December 31, 1996, all of these deductions had been recognized. The
recognition of these benefits resulted in a reduction in noncurrent intangible
assets, principally trademarks.
The charge in lieu of taxes recognized in 1995 and 1996 represents the
amount of tax expense that would have been recognized had the benefits described
above been recorded at the time of the acquisition.
The provision for income taxes is as follows:
1995 1996 1997
----------- ---------- ----------
Current:
U.S. federal ................................................. $ 468 $ 15,360 $16,689
State ........................................................ 100 2,872 3,067
Foreign ...................................................... -- 210 1,117
Deferred:
U.S. federal ................................................. 7,218 (1,588) 2,727
State ........................................................ 1,314 (267) (183)
Foreign ...................................................... 740 523 293
Charge in lieu of taxes ...................................... 4,950 1,254 --
-------- -------- -------
Provision for income taxes before extraordinary charge ......... 14,790 18,364 23,710
Tax benefit of extraordinary charge ............................ (5,244) -- --
-------- -------- -------
$ 9,546 $ 18,364 $23,710
======== ======== =======
F-10
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
7. INCOME TAXES: -- Continued
The components of income before income taxes and extraordinary charge by
jurisdiction are as follows:
1995 1996 1997
---------- ---------- ----------
United States .......... $35,815 $49,072 $57,083
Canada ................. 4,105 1,754 2,864
------- ------- -------
$39,920 $50,826 $59,947
======= ======= =======
A reconciliation between the federal statutory income tax rate and the
effective rate is as follows:
1995 1996 1997
---------- ---------- ----------
Federal income taxes at the statutory rate ..................... 34.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit .......... 5.2 4.2 3.3
Nondeductible expenses ......................................... 1.8 2.5 2.6
Tax on income of foreign subsidiary ............................ 1.0 (0.1) 0.3
Net adjustment to valuation allowance .......................... (5.0) (5.8) --
Other .......................................................... -- 0.3 (1.6)
---- ---- ----
37.0% 36.1% 39.6%
==== ==== ====
In 1995 and 1996, WESCO determined that it was more likely than not that it
would realize the benefits of certain deferred tax assets originating subsequent
to the acquisition. As a result, WESCO recognized benefits of approximately
$1,980 and $2,928 in 1995 and 1996, respectively, associated with the
realization of the post acquisition deferred tax assets through the reversal of
the associated valuation allowance.
The deferred taxes are as follows:
1996 1997
----------- -----------
Accounts receivable ........................ $ 3,327 $ 4,236
Inventory .................................. 4,412 4,819
Restructuring reserve ...................... 90 484
Other ...................................... 4,902 4,738
--------- ---------
12,731 14,277
--------- ---------
Intangibles ................................ (320) (3,766)
Property, buildings and equipment .......... (4,429) (4,079)
Other ...................................... (8,412) (8,817)
--------- ---------
(13,161) (16,662)
--------- ---------
$ (430) $ (2,385)
========= =========
8. LONG-TERM DEBT:
December 31,
-------------------------
1996 1997
----------- -----------
United States debt agreements:
Revolving Credit Loans (A) ................................................ $177,400 $205,900
Zero Coupon First Mortgage Note, due February 2001, net of unamortized debt
discount of $21,046 in 1996 and $16,601 in 1997 (B) ...................... 54,473 58,918
Other ..................................................................... 700 2,839
Canadian debt agreements (U.S. dollar equivalents):
Revolving Credit Loans (A) ................................................ 21,900 20,245
8% First Mortgage Note, due February 2001 (C) ............................. 6,162 6,373
-------- --------
$260,635 $294,275
======== ========
F-11
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
8. LONG-TERM DEBT: -- Continued
- ---------------------
(A) WESCO has entered into credit agreements with various banks providing for an
aggregate of $360,000 ($300,000 at December 31, 1996) of revolving credit
facilities, expiring February 2000. The agreements provide for floating
rates, based on either Prime or LIBOR in the United States and Prime or
Bankers' Acceptance rates in Canada plus a fixed margin. The interest rates
for 1996 for the revolving credit loans ranged from 6.3% to 8.3% in the
United States and was 3.2% in Canada. The interest rates for 1997 for the
revolving credit loans ranged from 6.1% to 8.5% in the United States and was
4.4% to 5.3% in Canada. The weighted average interest rate was 6.7% and 6.0%
for the years ended December 31, 1996 and 1997, respectively (see Note 17).
In 1995, WESCO terminated the existing credit agreements and refinanced the
outstanding indebtedness. In connection with this refinancing, the Company
recorded an extraordinary charge of $13,312 ($8,068 after-tax) relating to
the write-off of unamortized debt issuance and other costs associated with
the early termination of the debt.
(B) WESCO issued a Zero Coupon First Mortgage Note to Westinghouse for the
purchase of the real estate acquired in the United States. This note has a
yield to maturity of 8% and a maturity value of $75,519.
(C) WESCO issued a First Mortgage Note to Westinghouse for the purchase of the
real estate acquired in Canada. All interest and principal will be due
February 2001.
WESCO has two interest rate cap agreements with individual notional amounts
of $80,000 that expire in March 1998 and August 1999. The aggregate cost of the
interest rate caps of $278 is being amortized to interest expense over the
period of the agreements on a straight-line basis. The agreements effectively
provide a ceiling for interest at rates ranging from 6.8% to 7.0%. The market
value of the interest rate caps is estimated to be $42 at December 31, 1997.
The agreements contain various restrictive covenants that, among other
things, impose (i) limitations on the incurrence of additional indebtedness or
guaranties; (ii) limitations on the issuance of additional stock of
subsidiaries; (iii) limitations on liens or negative pledges; (iv) limitations
on investments, loans, acquisitions or advances; (v) limitations on dividends;
(vi) limitations on the sale, lease or other disposal of assets; (vii)
limitations on transactions among affiliates which are not arms-length; (viii)
limitations on entering into new lines of business; and (ix) limitations on
capital expenditures. In addition, the agreements require WESCO to meet certain
financial tests based on net worth, a funded indebtedness to consolidated EBITDA
ratio and fixed charge coverage.
WESCO is permitted to pay dividends under certain limited circumstances. At
December 31, 1997, no retained earnings were available to pay dividends.
WESCO had outstanding letters of credit in the amount $3,250 at December
31, 1996 and 1997. These letters of credit are used as collateral for
performance and bid bonds. The value of these letters of credit approximates
contract value.
The value of assets collateralized under the aforementioned debt agreements
was approximately $651,348 and $719,533 at December 31, 1996 and 1997,
respectively.
The fair value of WESCO's long-term debt is estimated to be approximately
$255,620 and $290,035 at December 31, 1996 and 1997, respectively, based on
current market interest rates and discounted cash flows.
Future principal payments of long-term debt in excess of one year as of
December 31, 1997 are as follows:
1999 .................. $228,230
2000 .................. 385
2001 .................. 65,594
2002 .................. 66
F-12
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
9. CAPITAL STOCK:
Common Stock:
There are 2,000,000 shares each of Class A and Class B common stock
authorized at a par value of $.01 per share. The Class B common stock is
identical to the Class A common stock, except for voting and conversion rights.
The holders of Class B common stock have no voting rights. With certain
exceptions, Class B common stock may be converted, at the option of the holder,
into the same number of shares of Class A common stock. No Class B common stock
was outstanding at December 31, 1996 and 1997.
At December 31, 1997, shares of common stock reserved for future issuance
were as follows:
Number of Shares
-----------------
Stock purchase plan ............................. 24,986
Stock option plan ............................... 81,114
Stock option plan for branch employees .......... 24,900
Redeemable Class A Common Stock:
Certain employees and key management of WESCO who hold Class A common stock
and options may require Holdings to repurchase, under certain conditions, death,
disability or termination without cause during the term of employment, all of
the shares and the exercisable portion of the options held. This repurchase
right terminates upon the consummation of an initial equity public offering of
Holdings' Class A common stock. In connection with the redemption features
described above, WESCO has classified outside of permanent equity an amount
representing the initial fair value of the redeemable shares. These shares and
exercisable options have not been marked to market since the events of
redemption are considered remote.
10. STOCK INCENTIVE PLANS:
Stock Purchase Plan:
Under WESCO's stock purchase plan, certain employees of WESCO may be
granted an opportunity to purchase Holdings' Class A common stock. The maximum
number of shares available for purchase may not exceed 55,000. The purchase
price per share is determined by the Board of Directors of WESCO to represent
fair market value, as defined by the Stock Subscription Agreement. Should the
purchase price of the stock be less than the fair market value of the stock at
the grant date, such excess will be recorded as compensation expense in the
consolidated statement of income. The plan will continue in effect until either
the earlier of June 15, 1999, or the date on which all shares of common stock to
be offered have been issued. At December 31, 1996 and 1997, a total of 30,504
and 31,304 shares, respectively, have been purchased under the plan. During
1995, 14,624 shares were purchased for a weighted-average share price, of $103
under the plan. During 1996, 2,610 shares were purchased for a weighted-average
share price of $169 under the plan. During 1997, 800 shares were purchased for a
weighted-average share price of $251 under the plan. In conjunction with the
purchase of shares pursuant to the plan, WESCO has granted options to purchase
shares of common stock equal to approximately one and one-third of the number of
shares purchased. See the stock option plan described below for further
information.
Other Stock Purchases:
In addition to the stock purchase plan, certain key management employees of
WESCO, nonemployee directors and other investors were granted an opportunity to
purchase Holdings' Class A common stock. The purchase price per share was
determined by the Board of Directors to represent the fair market value, as
defined by the Stock Subscription Agreement, at the date of grant. At each of
December 31,
F-13
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
10. STOCK INCENTIVE PLANS: -- Continued
1996 and 1997, 54,150 shares had been purchased. During 1995, 8,140 shares were
purchased at a weighted-average share price of $111 under these additional
offerings. During 1996, 2,140 shares were purchased at a share price of $195
under an additional offering.
Stock Option Plan:
Participation in Holdings' stock option plan is limited to officers and key
employees of WESCO. The maximum number of Class A common stock options (and the
maximum shares of common stock subject to options) granted under the plan may
not exceed 181,000. The exercise price per share is determined by the Board of
Directors of Holdings, but will not be less than the estimated fair market
value, as defined by the Stock Option Agreements, on the grant date. Options
granted to a participant will vest and will become exercisable over five years,
except in the event of a change in control. Each option terminates on the tenth
anniversary of its grant date unless terminated sooner under certain conditions.
Stock Option Plan for Branch Employees:
Holdings also has a stock option plan whose participation is limited to
branch managers and other key branch personnel. The Compensation Committee of
the Board of Directors of Holdings may grant such employees up to 50,000
options. Provisions for exercise price, vesting and termination of these options
are substantially the same as the stock option plan described above.
The transactions for shares under options are as follows:
1995 1996 1997
--------- --------- ----------
Outstanding, beginning of year
Number .................................. 68,860 95,970 98,842
Weighted-average exercise price ......... $ 100 $ 102 $ 107
Granted
Number .................................. 27,110 6,300 26,140
Weighted-average exercise price ......... $ 106 $ 181 $ 198
Exercised
Number .................................. -- 3,428 1,714
Weighted-average exercise price ......... -- $ 100 $ 100
Canceled
Number .................................. -- -- 3,424
Weighted-average exercise price ......... -- -- $ 102
Outstanding, end of year
Number .................................. 95,970 98,842 119,844
Weighted-average exercise price ......... $ 102 $ 107 $ 127
Exercisable, end of year
Number .................................. 10,226 18,796 33,848
Weighted-average exercise price ......... $ 100 $ 101 $ 103
The following summarizes certain stock options information at December 31,
1997:
Options outstanding:
Range of Weighted-average Weighted-average
exercise price Number remaining life exercise price
- ---------------- --------- ------------------ -----------------
$ 100--$251 119,844 7.3 $127
F-14
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
10. STOCK INCENTIVE PLANS: -- Continued
Options exercisable:
Range of Weighted-average
exercise price Number exercise price
- ------------------ -------- -----------------
$ 100--$195 33,848 $103
The Westinghouse option, discussed in Note 12, has not been included in the
above data.
The stock option plans require Holdings to repurchase the exercisable
portion of the options held by an employee if the employee dies, is disabled or
terminated without cause during the term of employment. This repurchase right
terminates upon consummation of an initial equity public offering of Holdings'
Class A common stock. Since the triggering event requiring the repurchase is
considered remote, WESCO accounts for the option plans as fixed plans and
accordingly no compensation expense has been recorded.
In connection with the implementation of SFAS No. 123, "Accounting for
Stock-Based Compensation," WESCO has elected to continue to account for
stock-based compensation arrangements under the provisions of Accounting
Principles Board (APB) Opinion No. 25, which resulted in no compensation costs
being recorded.
If compensation costs had been determined based on the fair value at the
grant dates according to SFAS No. 123, WESCO's net income and earnings per
share, would have been as follows:
1995 1996 1997
---------- ---------- ----------
Net income:
As reported ......... $17,062 $32,462 $36,237
Pro forma ........... 16,960 32,399 35,711
The weighted-average fair value of options granted was $6.23, $16.70 and
$33.56 per share for the years ended 1995, 1996 and 1997, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Sholes based pricing model with the following assumptions:
1995 1996 1997
----------- ----------- -----------
Risk-free interest rate .......... 6.4% 6.5% 6.5%
Option term ...................... 7 years 7 years 7 years
11. EMPLOYEE BENEFITS:
A majority of WESCO's employees are covered by defined contribution
retirement savings plans for their service rendered subsequent to the
acquisition date. Westinghouse retains certain retiree pension and health
benefits for service rendered prior to formation. U.S. employee contributions of
not more than 6% of eligible compensation are matched 50% by WESCO. WESCO's
contributions for Canadian employees range from 1% -- 6% of eligible
compensation based on years of service.
In addition, employer contributions may be made at the discretion of the
Board of Directors and can be based on WESCO's current year performance.
Employees are credited for service with Westinghouse in determining the vesting
of WESCO's contributions. For the years ended December 31, 1995, 1996 and 1997,
WESCO contributed $7,096, $9,256 and $12,453, respectively, which was charged to
expense.
12. RELATED PARTIES:
Pursuant to an agreement, Clayton, Dubilier & Rice, Inc. provides
financial advisory and management consulting services to WESCO for an annual
fee of approximately $400.
F-15
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
12. RELATED PARTIES: -- Continued
WESCO purchases products and services from and sells products to
Westinghouse. A summary of these purchases and sales is as follows:
1995 1996 1997
---------- ---------- ----------
Purchases from Westinghouse .......... $27,481 $19,115 $15,498
Sales to Westinghouse ................ 27,311 21,192 21,666
The amount due from Westinghouse at December 31, 1996 and 1997, net of
amounts owed, was approximately $4,664 and $2,623, respectively.
In connection with the acquisition, Holdings granted Westinghouse an option
to purchase 100,000 shares of Class A common stock at a price of $100 per share.
The option is exercisable until it terminates on February 28, 1999. Holdings has
a right of first refusal if Westinghouse decides to sell its option to a third
party prior to its termination. The fair value of this option, which was
recorded at the acquisition, was $2,500 and is included in the consolidated
balance sheets as Common Stock to Be Issued Under Option.
13. COMMITMENTS AND CONTINGENCIES:
Future minimum rental payments required under operating leases, primarily
for real property that have noncancelable lease terms in excess of one year as
of December 31, 1997, are as follows:
1998 ........................ $17,692
1999 ........................ 14,831
2000 ........................ 12,838
2001 ........................ 10,602
2002 ........................ 6,175
Thereafter .................. 8,593
Rental expense for the years ended December 31, 1995, 1996 and 1997, was
$16,326, $22,032 and $26,371, respectively.
WESCO has litigation arising from time to time in the normal course of
business. In management's opinion, any present litigation WESCO is aware of will
not materially affect WESCO's consolidated financial position, results of
operations or cash flows.
Westinghouse agreed to indemnify WESCO for certain environmental
liabilities that existed at the time of the acquisition. WESCO has made a claim
under this indemnity amounting to $1.5 million. The ultimate resolution of this
environmental compliance issue is not expected to materially impact WESCO's
consolidated financial position, results of operations or cash flows.
WESCO has guaranteed $5,636 in loans to certain stockholders at December
31, 1997.
F-16
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
14. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow information is as follows:
1995 1996 1997
---------- ------------ ----------
Cash paid during the year for:
Interest .............................. $ 12,433 $ 11,600 $ 15,377
Income taxes .......................... 1,062 13,756 27,523
Details of acquisitions:
Fair value of assets acquired ......... 18,455 170,583 21,498
Value of liabilities assumed .......... (6,242) (54,884) (5,334)
Restructuring reserve ................. -- (5,102) --
Notes issued to seller ................ (5,900) (2,950) (2,250)
-------- --------- --------
Cash paid for acquisitions .............. 6,313 107,647 13,914
Less: cash acquired ..................... 132 3,729 --
-------- --------- --------
$ 6,181 $ 103,918 $ 13,914
======== ========= ========
15. ACQUISITIONS:
During the three years ended December 31, 1997, WESCO acquired eleven
distributors with branches located across the United States for an aggregate
purchase price of $12,423 and $158,802 and $19,248, respectively. The largest
acquisition, in April 1996, was EESCO, Inc. with headquarters in Chicago,
Illinois. These acquisitions resulted in goodwill of approximately $6,146,
$59,766 and $5,913 for the years ending 1995, 1996 and 1997, respectively.
The acquisitions have been accounted for under the purchase method of
accounting for business combinations. The results of operations of these
companies are included in the consolidated financial statements from the
acquisition dates forward. Pro forma results of these acquisitions, assuming
they had been made at the beginning of each year presented, would not be
materially different from the results reported.
In December 1997, WESCO entered into definitive agreements to acquire two
distribution businesses for approximately $59,500 financed principally through
$45,000 in borrowings under WESCO's credit agreement and $14,500 of
uncollateralized notes. Up to $5,000 of such notes may be converted to shares of
Class A common stock at an initial equity public offering price at the election
of the holder, which election is required to be made prior to an initial equity
public offering. Both acquisitions closed in January 1998. These acquisitions
have been accounted for under the purchase method of accounting for business
combinations.
16. GEOGRAPHIC INFORMATION:
WESCO is engaged principally in one line of business -- distribution of
electrical supplies -- which represents more than 90% of consolidated sales. The
following table presents information about WESCO by geographic area. There were
no material amounts of sales or transfers among geographic areas and no material
amounts of United States export sales:
F-17
WESCO INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
16. GEOGRAPHIC INFORMATION: -- Continued
United States Canada Total
--------------- ----------- -------------
As of and for the year ended December 31, 1995
Sales, net ................................... $1,598,618 $258,424 $1,857,042
Income from operations ....................... 47,910 7,823 55,733
Identifiable assets .......................... 500,905 80,431 581,336
As of and for the year ended December 31, 1996
Sales, net ................................... 2,014,107 260,515 2,274,622
Income from operations ....................... 63,562 4,646 68,208
Identifiable assets .......................... 688,791 84,696 773,487
As of and for the year ended December 31, 1997
Sales, net ................................... 2,313,862 280,957 2,594,819
Income from operations ....................... 74,774 5,282 80,056
Identifiable assets .......................... 781,692 89,168 870,860
17. SUBSEQUENT EVENTS:
On May 8, 1998, WESCO acquired a distribution business for approximately
$47,200 financed principally through borrowings under WESCO's credit agreement
and seller notes.
On February 13, 1998, WESCO amended the revolving credit agreements (see
Note 8). The amendment allows WESCO to borrow up to a maximum of $445,000
through February 2001, releases all previously required collateral and amends
certain restrictive covenants. The loans continue to adjust for floating rates,
based on either Prime or LIBOR in the United States and Prime or Bankers'
Acceptance rates in Canada plus a fixed margin.
F-18
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 any implication that there has
been no change in the affairs of the Issuers 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 ............................... i
Summary ............................................. 1
Summary Historical and Pro Forma Financial
and Other Data.................................... 19
Risk Factors ........................................ 21
The Recapitalization ................................ 29
Use of Proceeds ..................................... 31
Capitalization ...................................... 31
Unaudited Pro Forma Financial Information ........... 32
Selected Historical Consolidated Financial
Data ............................................. 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ....................................... 42
Business ............................................ 49
Management .......................................... 63
Certain Relationships and Related
Transactions ..................................... 69
Security Ownership of Certain Beneficial
Owners and Management ............................ 71
Description of the Credit Facilities ................ 72
Description of the Receivables Facility ............. 75
The Senior Subordinated Exchange Offer of
the Company ...................................... 77
The Senior Discount Exchange Offer of
Holdings ......................................... 88
Description of the Senior Subordinated
Exchange Notes of the Company .................... 100
Description of the Senior Discount Exchange
Notes of Holdings ................................ 133
Registration Rights Agreements of Holdings
and the Company .................................. 162
Book-Entry; Delivery and Form ....................... 165
Certain United States Federal Income Tax
Consequences ..................................... 168
Plan of Distribution ................................ 172
Legal Matters ....................................... 173
Experts ............................................. 173
Index to Consolidated Financial Statements .......... F-1
Prospectus
WESCO Distribution, Inc.
Offer to Exchange up to $300,000,000 of its 9 1/8% Senior
Subordinated Notes Due 2008, Series B, which have been
registered under
the Securities Act,
for any and all of its Outstanding
9 1/8% Senior Subordinated Notes Due 2008,
Series A
WESCO International, Inc.
Offer to Exchange $87,000,000 of its
11 1/8% Senior Discount Notes
Due 2008, Series B, which have been
registered under the Securities Act, for
$87,000,000 of its
Outstanding 11 1/8% Senior Discount Notes
Due 2008, Series A
, 1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law (the "Delaware
Law"), a corporation may indemnify its directors, officers, employees and agents
and its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacity with another enterprise, against
expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware General
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the right of the corporation,
where such person has been adjudged liable to the corporation, unless, and only
to the extent that a court determines that such person fairly and reasonably is
entitled to indemnity for costs the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Certificate of Incorporation and By-Laws of each Issuer provide for
mandatory indemnification of directors and officers on generally the same terms
as permitted by the Delaware General Corporation Law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
See the Exhibit Index included immediately preceding the exhibits to this
registration Statement.
(b) Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts.
All other schedules have been omitted because they are not applicable or
not required or the required information is included in the financial statements
or notes thereto.
In connection with our audits of the consolidated financial statements of
WESCO International, Inc. (formerly CDW Holding Corporation) and subsidiaries as
of December 31, 1996 and 1997 and for each of the three years in the period
ended December 31, 1997, which financial statements are included in the
Registration Statement, we have also audited the financial statement schedule
listed in Item 20 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ Coopers & Lynbrand LLC
600 Grant Street
Pittsburgh, Pennsylvania February 6, 1998, except for Note 17, as to which
the date is May 8, 1998
Item 22. Undertakings.
The undersigned Registrants hereby undertake:
(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-1
(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 thereto, which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed to be underwriters, in addition to the information
called for by the other Items of the applicable form.
The Registrants undertake that every prospectus: (i) that is filed pursuant
to the immediately preceding undertaking or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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 foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of a Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake 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.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania, on July 30,
1998.
WESCO INTERNATIONAL, INC.
By: *
Name: Roy W. Haley
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of WESCO International, Inc., do
hereby constitute and appoint David F. McAnally, Steven A. Burleson and Anthony
D. Tutrone, or either of them, our true and lawful attorneys and agents, to do
any and all acts and things in our name and on our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or
either of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933 and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall 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 on July 30, 1998 by the following persons
in the capacities indicated, with respect to WESCO International, Inc.:
Signature Title
- ------------------------------------------ ----------------------------------------
/s/ * Chairman, President and Chief
-------------------------------------
Roy W. Haley Executive Officer (Principal Executive
Officer)
/s/ * Treasurer (Principal Financial Officer)
-------------------------------------
David F. McAnally
/s/ STEVEN A. BURLESON Vice President and Corporate
-------------------------------------
Steven A. Burleson Controller (Principal Accounting
Officer)
/s/ * Director
-------------------------------------
James L. Singleton
/s/ * Director
-------------------------------------
James A. Stern
/s/ * Director
-------------------------------------
Anthony D. Tutrone
*/s/ STEVEN A. BURLESON
-------------------------------------
Steven A. Burleson
as Attorney-in-Fact
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Pittsburgh, Pennsylvania, on July 30,
1998.
WESCO INTERNATIONAL, INC.
By: *
Name: Roy W. Haley
Title: President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of WESCO Distribution, Inc., do
hereby constitute and appoint David F. McAnally, Steven A. Burleson and Anthony
D. Tutrone, or either of them, our true and lawful attorneys and agents, to do
any and all acts and things in our name and on our behalf in our capacities as
directors and officers and to execute any and all instruments for us and in our
names in the capacities indicated below, which said attorneys and agents, or
either of them, may deem necessary or advisable to enable said corporation to
comply with the Securities Act of 1933 and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but without limitation, power
and authority to sign for us or any of us in our names in the capacities
indicated below, any and all amendments (including post-effective amendments)
hereto and we do hereby ratify and confirm all that said attorneys and agents,
or either of them, shall 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 on the July 30, 1998 by the following
persons in the capacities indicated, with respect to WESCO Distribution, Inc.:
Signature Title
- ------------------------------------------ ---------------------------------------
/s/ * Chairman, President and Chief
-------------------------------------
Roy W. Haley Executive Officer (Principal Executive
Officer)
/s/ * Executive Vice President, Chief
-------------------------------------
David F. McAnally Operating Officer, Chief Financial
Officer and Treasurer (Principal
Financial Officer)
/s/ STEVEN A. BURLESON Vice President and Corporate
-------------------------------------
Steven A. Burleson Controller (Principal Accounting
Officer)
/s/ * Director
-------------------------------------
James L. Singleton
/s/ * Director
-------------------------------------
James A. Stern
/s/ * Director
-------------------------------------
Anthony D. Tutrone
*/s/ STEVEN A. BURLESON
-------------------------------------
Steven A. Burleson
as Attorney-in-Fact
II-4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
EXHIBITS
FILED WITH
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
WESCO INTERNATIONAL, INC.
(Exact name of issuer as specified in its charter)
WESCO DISTRIBUTION, INC.
(Exact name of issuer as specified in its charter)
Volume I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT INDEX
(a) Exhibits:
Exhibit No. Description of Exhibit
- ------------- ----------------------------------------------------------------------------
2.1+ Recapitalization Agreement dated as of March 27, 1998 among Thor
Acquisitions L.L.C., WESCO International, Inc. (formerly known
as CDW Holding Corporation, "Holdings") and certain
securityholders of Holdings.
2.2 + Purchase Agreement dated May 29, 1998 among Holdings, WESCO
Distribution, Inc. (the "Company"), Chase Securities Inc. and Lehman
Brothers Inc. (the "Initial Purchasers").
3.1 + Certificate of Incorporation of Holdings.
3.2 + By-Laws of Holdings.
3.3 + Certificate of Incorporation of the Company.
3.4 + By-Laws of the Company.
4.1 + Indenture dated as of June 5, 1998 among the Company, Holdings and Bank
One, N.A.
4.2 + Form of 9 1/8% Senior Subordinated Note Due 2008, Series A (included in
Exhibit 4.1).
4.3 + Form of 9 1/8% Senior Subordinated Note Due 2008, Series B (included in
Exhibit 4.1).
4.4 + Exchange and Registration Rights Agreement dated as of June 5, 1998
among the Company, Holdings and the Initial Purchasers.
4.5 + Indenture dated as of June 5, 1998 between Holdings and Bank One, N.A.
4.6 + Form of 11 1/8% Senior Discount Note Due 2008, Series A (included in
Exhibit 4.5).
4.7 + Form of 11 1/8% Senior Discount Note Due 2008, Series B (included in
Exhibit 4.5).
4.8 + Exchange and Registration Rights Agreement dated as of June 5, 1998
among Holdings and the Initial Purchasers.
5.1 * Opinion of Simpson Thacher & Bartlett relating to the Notes. 10.1 + CDW
Holding Corporation Stock Purchase Plan.
10.2 + Form of Stock Subscription Agreement.
10.3 + CDW Holding Corporation Stock Option Plan.
10.4 + Form of Stock Option Agreement.
10.5 + CDW Holding Corporation Stock Option Plan for Branch Employees.
10.6 * Form of Branch Stock Option Agreement.
10.7 + [Intentionally deleted.]
10.8 + Non-Competition Agreement, dated as of February 28, 1996,
between Westinghouse Electric Corporation, Holdings and the
Company.
10.9 + Employment Agreement between the Company and Stanley C. Weiss.
10.10+ Lease dated May 24, 1995 as amended by Amendment One dated June,
1995 and by Amendment Two dated December 24, 1995 by and between
the Company as Tenant and Opal Investors, L.P. and Mural GEM
Investors as Landlord.
10.11+ Lease dated April 1, 1992 as renewed by Letter of Notice of
Intent to Renew dated December 13, 1996 by and between the
Company successor in interest to Westinghouse Electric Supply
Company, a former division of Westinghouse Electric Corporation
as Tenant and Utah State Retirement
Fund as Landlord.
10.12+ Lease dated September 4, 1997 by and between the Company as Tenant
and The Buncher Company as Landlord.
10.13+ Lease dated March, 1995 by and between WESCO Distribution-Canada, Inc.
("WESCO Canada") as Tenant and Atlantic Construction, Inc. as Landlord.
10.14+ Credit Agreement dated as of June 5, 1998 among Holdings, the
Company, WESCO Canada, The Chase Manhattan Bank, The Chase
Manhattan Bank of Canada and Lehman Commercial Paper, Inc.
Exhibit No. Description of Exhibit
- ------------- ----------------------------------------------------------------------------
10.15+ U.S. Receivables Sales Agreement dated June 5, 1998 among the
Company, WESCO Receivables Corp. (the "SPC"), The Chase
Manhattan Bank and other sellers named therein.
10.16+ Canadian Receivables Sales Agreement dated June 5, 1998 among
the Company, WESCO Canada, the SPC, The Chase Manhattan Bank of
Canada and other sellers named therein.
10.17+ WESCO Receivables Master Trust Pooling Agreement dated June 5,
1998 among the Company, WESCO Canada, the SPC, and The Chase
Manhattan Bank.
10.18+ WESCO Receivables Master Trust Pooling Agreement Series 1998-1
Supplement dated June 5, 1998.
10.19+ Amended and Restated Registration and Participation Agreement
dated June 5, 1998 among Holdings and certain securityholders of
Holdings named therein.
10.20+ Employment Agreement between the company and Roy W. Haley.
12+ Computation of Ratios of Earnings to Fixed Charges.
21.1 Subsidiaries of Holdings and the Company.
23.1 * Consent of Simpson Thacher & Bartlett (included in its opinion filed as
Exhibit 5.1 hereto).
23.2 [intentionally deleted]
23.3 Consent of PricewaterhouseCoopers LLP, Independent Auditors.
24+ Powers of Attorney - Pages II- through II hereof.
25.1+ Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of Bank One, N.A., as Trustee.
27 Financial Data Schedule.
99.1 Form of Senior Subordinated Letter of Transmittal.
99.2 Form of Senior Subordinated Notice of Guaranteed Delivery.
99.3 Form of Senior Discount Letter of Transmittal.
99.4 Form of Senior Discount Notice of Guaranteed Delivery.
- ---------------------
* To be filed by amendment.
+ Previously filed
(b) Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts.+
All other schedules have been omitted because they are not applicable or
not required or the required information is included in the financial statements
or notes thereto.