-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K38mMUIGhuBVbNEJFKIn8pAu6PZp3tprkK0tYOj8CbJQC9GMnNB56QaPyWofZbqj a1RzX/Jn/k2P87+/b7O1YA== 0000912057-96-012610.txt : 19960619 0000912057-96-012610.hdr.sgml : 19960619 ACCESSION NUMBER: 0000912057-96-012610 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19960618 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAYTON SUPERIOR CORP CENTRAL INDEX KEY: 0000854709 STANDARD INDUSTRIAL CLASSIFICATION: STEEL PIPE & TUBES [3317] IRS NUMBER: 310676346 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-02974 FILM NUMBER: 96582695 BUSINESS ADDRESS: STREET 1: 721 RICHARD ST CITY: MIAMISBURG STATE: OH ZIP: 45342 BUSINESS PHONE: 5138660711 MAIL ADDRESS: STREET 1: 721 RICHARD ST CITY: MIAMISBURG STATE: OH ZIP: 45342 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1996 REGISTRATION NO. 333-2974 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ DAYTON SUPERIOR CORPORATION (Exact name of registrant as specified in its charter) OHIO 3315 31-0676346 (State or other jurisdiction (Primary Standard (I.R.S. Employer of incorporation Industrial Classification Identification No.) or organization) Code Number)
721 RICHARD STREET MIAMISBURG, OHIO 45342 (513) 866-0711 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) JOHN A. CICCARELLI PRESIDENT AND CHIEF EXECUTIVE OFFICER DAYTON SUPERIOR CORPORATION 721 RICHARD STREET MIAMISBURG, OHIO 45342 (513) 866-0711 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- WITH COPIES TO: Peter S. Wilson, Esq. Paul H. Wilson, Jr., Esq. Cravath, Swaine & Moore Debevoise & Plimpton 825 Eighth Avenue 875 Third Avenue New York, New York 10019-7475 New York, New York 10022 (212) 474-1767 (212) 909-6584
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ---------------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - ---------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DAYTON SUPERIOR CORPORATION ------------------------ CROSS REFERENCE SHEET BETWEEN ITEMS IN PART I OF FORM S-1 AND THE PROSPECTUS
S-1 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION OR LOCATION - ---------------------------------------------------------------- ----------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.......................................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front and Outside Back Cover Pages; Available Information 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors 4. Use of Proceeds...................................... Summary; Use of Proceeds 5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting 6. Dilution............................................. Dilution 7. Selling Security Holders............................. Principal and Selling Shareholders 8. Plan of Distribution................................. Outside Front Cover Page; Underwriting 9. Description of Securities to Be Registered........... Summary; Capitalization; Description of Capital Shares; Shares Eligible for Future Sale 10. Interests of Named Experts and Counsel............... Not applicable 11. Information with Respect to the Registrant........... Outside Front Cover Page; Summary; Risk Factors; Proceeds of the Offering; Dividend Policy; Capitalization; Dilution; Selected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Relationships and Related Party Transactions; Principal and Selling Shareholders; Description of Capital Shares; Shares Eligible for Future Sale; Financial Statements; Pro Forma Combined Financial Information 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities..................................... Not applicable
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. PROSPECTUS tuvw 3,700,000 SHARES DAYTON SUPERIOR CORPORATION CLASS A COMMON SHARES (WITHOUT PAR VALUE) Of the 3,700,000 Class A Common Shares, without par value (the "Class A Common Shares"), of Dayton Superior Corporation ("Dayton Superior" or the "Company") offered hereby, 1,974,750 Class A Common Shares are being sold by the Company and 1,725,250 Class A Common Shares are being sold by the Selling Shareholders (as defined herein). The Company will not receive any of the proceeds from the sale of the Class A Common Shares by the Selling Shareholders. See "Principal and Selling Shareholders." Prior to this offering (the "Offering"), there has been no public market for the Class A Common Shares. It currently is estimated that the initial public offering price of the Class A Common Shares will be between $12.00 and $15.00. See "Underwriting" for information relating to the factors to be considered in determining the initial public offering price. The Class A Common Shares have been approved for listing on the New York Stock Exchange under the symbol "DSD," subject to official notice of issuance. Upon completion of the Offering and assuming no exercise of the Underwriters' over-allotment option, the Company's outstanding common shares will consist of 4,086,800 Class A Common Shares and 1,522,550 Class B Common Shares, without par value (the "Class B Common Shares" and, together with the Class A Common Shares, the "Common Shares"). The Class A Common Shares will be entitled to one vote per share and the Class B Common Shares will be entitled to ten votes per share. The Common Shares generally will vote together as one class on all matters submitted to a vote of the shareholders, including the election of directors. See "Description of Capital Shares." Upon completion of the Offering and assuming no exercise of the Underwriters' over-allotment option, Ripplewood Holdings L.L.C. ("Ripplewood"), the Company's current majority shareholder, will own all of the outstanding Class B Common Shares, representing 78.8% of the combined voting power of the outstanding Common Shares. As a result, Ripplewood will continue to have the ability to elect all of the Company's directors and will continue to control the Company. See "Principal and Selling Shareholders." SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON SHARES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROCEEDS PRICE TO UNDERWRITING PROCEEDS TO TO SELLING PUBLIC DISCOUNT COMPANY (1) SHAREHOLDERS Per Share.................. $ $ $ $ Total (2).................. $ $ $ $ - ----------------------------------------------------------------------------------------------------------
(1) Before deducting expenses of the Offering payable by the Company estimated at $1,410,000. (2) The Company and Ripplewood have granted to the Underwriters a 30-day option to purchase up to an aggregate of 555,000 additional shares at the Price to Public less the Underwriting Discount solely to cover over-allotments, if any. If the Underwriters exercise such option in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." The Class A Common Shares are offered subject to receipt and acceptance by the Underwriters, to prior sale and to the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Class A Common Shares will be made at the office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through the facilities of The Depository Trust Company, on or about , 1996. SALOMON BROTHERS INC LAZARD FRERES & CO. LLC ROBERT W. BAIRD & CO. INCORPORATED BT SECURITIES CORPORATION The date of this Prospectus is , 1996. DAYTON SUPERIOR -Registered Trademark- Concrete accessories (including concrete paving products) and masonry accessories [GRAPHIC] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DAYTON SUPERIOR MANUFACTURERS WALL-FORMING PRODUCTS, SUCH AS SNAP TIES, COIL TIES, SHE BOLTS AND HE BOLTS, WHICH ARE USED IN THE FABIRCATION OF JOB-BUILT AND PREFABRICATED MODULAR FORMS FOR POURED-IN-PLACE CONCRETE WALLS. 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY AND SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED INFORMATION, FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, AND PRO FORMA FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE STATED, OR UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL INFORMATION IN THIS PROSPECTUS: (I) GIVES EFFECT, IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE OFFERING, TO THE AMENDMENT TO THE COMPANY'S AMENDED ARTICLES OF INCORPORATION TO (A) CONVERT ALL THE CURRENTLY OUTSTANDING, NON-VOTING CLASS B COMMON SHARES (THE "OLD CLASS B COMMON SHARES") OF THE COMPANY INTO CLASS A COMMON SHARES OF THE COMPANY, (B) CHANGE THE COMPANY'S AUTHORIZED SHARE CAPITAL TO CLASS A COMMON SHARES WITH ONE VOTE PER SHARE, CLASS B COMMON SHARES WITH TEN VOTES PER SHARE AND PREFERRED SHARES, WITHOUT PAR VALUE, (C) SPLIT EACH OUTSTANDING CLASS A COMMON SHARE INTO FIFTY CLASS A COMMON SHARES AND (D) CONVERT EACH CLASS A COMMON SHARE HELD BY RIPPLEWOOD INTO ONE CLASS B COMMON SHARE, (II) GIVES EFFECT, IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE OFFERING, TO THE CONVERSION BY RIPPLEWOOD OF 483,300 CLASS B COMMON SHARES INTO AN EQUAL NUMBER OF CLASS A COMMON SHARES OFFERED HEREBY AND (III) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. SEE "DESCRIPTION OF COMMON SHARES." AS USED HEREIN, THE TERM "NORTH AMERICA" REFERS TO THE UNITED STATES AND CANADA AND "ON A PRO FORMA COMBINED BASIS" REFERS TO PRO FORMA COMBINED FINANCIAL INFORMATION BASED ON THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND OF DUR-O-WAL, INC. ("DUR-O-WAL") AND GIVING EFFECT TO THE ACQUISITION OF DUR-O-WAL (THE "DUR-O-WAL ACQUISITION") AS IF IT HAD OCCURRED ON JANUARY 1, 1995. IN PREPARING THE PRO FORMA COMBINED INCOME STATEMENTS, CERTAIN LINE ITEMS HAVE BEEN RECLASSIFIED ON A BASIS CONSISTENT WITH THE ACCOUNTING POLICIES OF THE COMPANY. SEE "PRO FORMA COMBINED FINANCIAL INFORMATION." THE COMPANY GENERAL The Company believes it is the largest North American manufacturer and distributor of specialized metal accessories used in concrete construction and masonry construction on the basis of sales. The Company's products are used primarily in two segments of the construction industry: non-residential building projects such as institutional buildings, retail sites, commercial offices and manufacturing facilities; and infrastructure projects such as highways, bridges, utilities, water and waste treatment facilities and airport runways. On an historical basis, the dollar volume of non-residential building and infrastructure construction in North America has been less cyclical than that of single family residential construction. The Company was founded in 1924 under the name The Dayton Sure-Grip and Shore Company. Following the 1982 acquisition of Superior Concrete Accessories, Inc., the Company evolved from a regional company to a large, geographically diversified firm. Between 1991 and June 1995, the Company completed four small acquisitions and, in October 1995, the Company acquired Dur-O-Wal, which had net sales of $25.7 million in 1995 on a pro forma combined basis, for a cash purchase price of $23.6 million (including acquisition costs). The Company believes that Dur-O-Wal is a leading manufacturer of masonry accessories and the largest manufacturer of masonry wall reinforcement in North America on the basis of sales. On April 29, 1996, the Company purchased certain assets of a privately held concrete paving products manufacturer based in Kankakee, Illinois for a cash purchase price of approximately $5 million (including estimated acquisition costs and subject to post-closing adjustments). The Company believes that its distribution system is the largest in its industry, consisting of a network of 22 Company-operated service/distribution centers in the United States and Canada and over 3,000 customers, including stocking dealers, brokers, rebar fabricators, precast concrete manufacturers and brick and concrete block manufacturers. The Company believes that its ability to deliver quality products to customers quickly using its on-line inventory tracking system gives it a competitive advantage over many of its competitors and encourages customer loyalty. Although the Company believes it is 3 the largest North American manufacturer and distributor of specialized metal accessories used in concrete construction and masonry construction, the industry in which the Company competes is highly competitive in most product categories and geographic regions. The Company competes with a relatively small number of full-line national manufacturers of concrete or masonry accessories and a much larger number of regional manufacturers and manufacturers with limited product lines. See "Business -- Competition." The Company manufactures most of its products at five principal facilities in the United States using, in many cases, high-volume, automated equipment designed and built or custom modified by in-house personnel. The Company sells approximately 12,300 different products in two principal product lines (concrete accessories, which include concrete paving products, and masonry accessories), including products designed to hold steel reinforcing bar ("rebar") in place, support concrete framework, reinforce masonry walls and create attachment points on concrete or masonry surfaces. The Company's product lines, which the Company believes are the broadest in the industry, are marketed under the DAYTON SUPERIOR-Registered Trademark- name in the case of concrete accessories and under the DUR-O-WAL-Registered Trademark- name in the case of masonry accessories. The Company's senior management team, which has been in place since 1989 and averages over 20 years of manufacturing industry experience, is led by John A. Ciccarelli, its President and Chief Executive Officer, who formerly was the President of The Wheelabrator Corporation, a manufacturer of industrial blast cleaning equipment. The Company also benefits from the experience of Matthew O. Diggs, Jr., its non-executive Chairman, particularly with respect to acquisitions and strategic direction. Mr. Diggs is the former President and Chief Executive Officer of Copeland Corporation, a manufacturer of refrigerator compressors, and the former Chairman of The Delfield Company, a manufacturer of food service equipment. BUSINESS STRATEGY Management is seeking to implement the following business strategy, which is designed to build on the Company's manufacturing and distribution strengths and scale advantages to achieve growth both through acquisitions and internally. - PURSUE STRATEGIC ACQUISITIONS. In addition to internal growth, including new product development, the Company intends to continue to grow through acquisitions. The markets in which the Company competes have a large number of relatively small, regional manufacturers and consequently offer consolidation opportunities. The Company seeks acquisitions that complement its existing products or represent product extensions and primarily focuses its acquisition strategy on regional and specialty-product firms. The Company believes it has been able to achieve synergies in its acquisitions through economies of scale in purchasing, manufacturing, marketing and distribution. - LEVERAGE EXTENSIVE DISTRIBUTION SYSTEM AND DEALER NETWORK. The Company's extensive distribution system, broad product lines and continuing commitment to customer service and quality have enabled it to attract and maintain the largest dealer network in its industry. The Company utilizes its distribution system and dealer network as a platform for integrating acquisitions and for selling products manufactured by third parties. Sales of third-party products allow the Company to utilize its distribution system to increase sales without making significant capital investments. The Company estimates that net sales of third party products accounted for approximately $18.5 million of the Company's net sales in 1995 on a pro forma combined basis. - UTILIZE CUSTOMIZED AUTOMATED MANUFACTURING EQUIPMENT. The Company designs and builds or custom modifies much of the high-volume, automated equipment it uses to manufacture metal concrete accessories and concrete paving products. To develop this equipment, it employs a team of experienced manufacturing engineers and tool and die makers. The Company believes that its customized automated manufacturing equipment provides it with several competitive 4 advantages relative to its competitors, including (i) significantly greater productivity, (ii) lower capital equipment costs, (iii) lower scrap rates, (iv) higher product quality, (v) faster product changeover times and (vi) lower inventory levels. - DEVELOP NEW PRODUCTS. The Company has a new product development program built around its marketing, engineering and manufacturing personnel. This program establishes goals for, and tracks the success of, new product development in each project group. The Company estimates that new products introduced in the last five years (three years, in the case of chemical products), including new products introduced by Dur-O-Wal during such period, accounted for approximately $6.5 million of the Company's net sales in 1995 on a pro forma combined basis. - OFFER BROAD PRODUCT LINE. The Company believes it offers the broadest product line in metal accessories for the concrete and masonry construction industry in North America, providing its customers with products designed to meet a wide variety of concrete and masonry construction needs. The Company believes that its customers' ability to order a wide range of products from the Company enhances its sales. RIPPLEWOOD Upon completion of the Offering, Ripplewood will own all the outstanding Class B Common Shares, representing approximately 78.8% of the combined voting power of the outstanding Common Shares (approximately 72.8% if the Underwriters' over-allotment option is exercised in full). See "Principal and Selling Shareholders." Ripplewood is a holding company formed by Timothy C. Collins to invest, directly and through private investment funds for which it acts as general partner, in leveraged build-ups and acquisitions sponsored by senior, industrial operating managers affiliated with Ripplewood. Prior to forming Ripplewood, Mr. Collins was the Senior Managing Director of the New York office of Onex Corporation ("Onex"), an Ontario corporation listed on the Toronto and Montreal Stock Exchanges. An investor group led by a subsidiary of Onex acquired the Company in August 1989. Ripplewood acquired a majority of the then outstanding Common Shares of the Company from such subsidiary in October 1995. 5 THE OFFERING Class A Common Shares Offered By the Company............................ 1,974,750 shares(1) By the Selling Shareholders............... 1,725,250 shares(1) Total................................... 3,700,000 shares(1) Class A Common Shares to be outstanding after the Offering......................... 4,086,800 shares(1)(2)(3) Class B Common Shares to be outstanding after the Offering......................... 1,522,550 shares(2) Total Common Shares to be outstanding after the Offering............................... 5,609,350 shares(1)(3) Estimated Net Proceeds to the Company....... $23.52 million(1) Use of Proceeds by the Company.............. To repay certain senior indebtedness. See "Use of Proceeds." New York Stock Exchange Symbol.............. "DSD"
- ------------------------ (1) Does not include up to 555,000 Class A Common Shares that are subject to the Underwriters' over-allotment option, one-half of which would be newly issued by the Company and one-half of which would be sold by Ripplewood. (2) Each Class B Common Share is convertible at the option of the holder at any time into one Class A Common Share and will convert automatically into one Class A Common Share as a result of certain transfers. See "Description of Capital Shares--Common Shares." If the Underwriters' over-allotment option is exercised, up to 277,500 Class B Common Shares will be converted into Class A Common Shares as a result of the sale thereof by Ripplewood. (3) Does not include up to 272,750 Class A Common Shares that are issuable upon exercise of outstanding stock options (the "Options"), all of which will be exercisable immediately after the Offering. See "Management--Fiscal Year End Option Values." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered by prospective purchasers of the Class A Common Shares offered hereby. 6 SUMMARY FINANCIAL AND PRO FORMA DATA The following table sets forth summary financial data for the fiscal years ended December 31, 1991 through 1995, which data have been derived from the consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants, and which, in the case of the three years ended December 31, 1995, are included elsewhere in this Prospectus. The table also includes data as of and for the three fiscal months ended March 31, 1995 and March 29, 1996, which have been derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus and which, in the opinion of management, reflect all material adjustments of a normal and recurring nature necessary for a fair presentation of such data. The following table also sets forth summary financial data for the fiscal year ended December 31, 1995 on a pro forma combined basis. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto included elsewhere in this Prospectus. Pro forma combined financial statements of the Company and Dur-O-Wal also are presented elsewhere in this Prospectus. See "Pro Forma Combined Financial Information."
THREE FISCAL MONTHS YEAR ENDED DECEMBER 31, ENDED ------------------------------------------------------------------------------ ----------- PRO FORMA MARCH 31, 1991 1992 1993 1994 1995 1995 (1) 1995 ---------- ---------- ------------- ------------- ----------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) OPERATING DATA: Net sales.......................... $68,532 $71,462 $75,154 $82,341 $92,802 $113,695 $17,977 Gross profit....................... 19,925 18,408 19,727 24,330 28,812 33,718 5,422 Income from operations............. 4,126 1,286 3,856 6,303 8,623 10,372 758 Interest expense, net.............. 8,541 8,727 10,118 6,017 (2) 4,231 6,264 909 Provision (benefit) for income taxes (3)......................... (1,006) (826) (89 ) 95 690 683 -- Income (loss) before extraordinary item.............................. (3,409) (6,615) (6,173 ) (682 ) 3,705 3,404 (151) Extraordinary item, net of tax..... -- -- -- 31,354 (2) -- -- -- Net income (loss).................. $(3,409) $(6,615) $(6,173 ) $30,672 $3,705 $3,404 $(151) ---------- ---------- ------------- ------------- ----------- ----------- ----------- ---------- ---------- ------------- ------------- ----------- ----------- ----------- Net income (loss) available to common shareholders............... $(3,409) $(6,615) $(6,173 ) $30,175 $71 $(230 ) $(363) ---------- ---------- ------------- ------------- ----------- ----------- ----------- ---------- ---------- ------------- ------------- ----------- ----------- ----------- Income (loss) per share available to common shareholders before extraordinary item................ $(35.87) $(69.60) $(64.95 ) $(0.58 ) $0.02 $(0.08 ) $(0.12) Net income (loss) per common and common equivalent share (4)....... (35.87) (69.60) (64.95 ) 14.92 0.02 (0.08 ) (0.12) Weighted average common and common equivalent shares outstanding (4)............................... 95,039 95,039 95,039 2,021,918 3,560,808 3,036,236 2,956,789 AS ADJUSTED FOR THE OFFERING: (5) Net income......................... $5,290 $5,210 Net income per common and common equivalent share before dividends, accretion and redemption of redeemable preferred shares (4)... 0.96 0.94 Net income per common and common equivalent share (4).............. 0.30 0.28 Weighted average common and common equivalent shares outstanding (4)............................... 5,535,558 5,535,558 MARCH 29, 1996 ----------- OPERATING DATA: Net sales.......................... $23,615 Gross profit....................... 7,469 Income from operations............. 1,434 Interest expense, net.............. 1,585 Provision (benefit) for income taxes (3)......................... 242 Income (loss) before extraordinary item.............................. (401 ) Extraordinary item, net of tax..... -- Net income (loss).................. $(401 ) ----------- ----------- Net income (loss) available to common shareholders............... $(401 ) ----------- ----------- Income (loss) per share available to common shareholders before extraordinary item................ $(0.12 ) Net income (loss) per common and common equivalent share (4)....... (0.12 ) Weighted average common and common equivalent shares outstanding (4)............................... 3,333,389 AS ADJUSTED FOR THE OFFERING: (5) Net income......................... $50 Net income per common and common equivalent share before dividends, accretion and redemption of redeemable preferred shares (4)... 0.01 Net income per common and common equivalent share (4).............. 0.01 Weighted average common and common equivalent shares outstanding (4)............................... 5,832,711
AT MARCH 29, 1996 --------------------------- ACTUAL AS ADJUSTED (5) --------- ---------------- (IN THOUSANDS) BALANCE SHEET DATA: Total assets...................................................................................... $ 107,052 $ 106,307 Long-term debt (including current portion)........................................................ 56,809 37,790 Shareholders' equity.............................................................................. 27,084 48,305
(see footnotes on the following pages) 7
THREE FISCAL MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------------------- ----------- PRO FORMA MARCH 31, 1991 1992 1993 1994 1995 1995 (1) 1995 --------- --------- ------------ ------------ ----------- ----------- ----------- (IN THOUSANDS) OTHER OPERATING DATA: EBITDA (6)............................ $8,622 $5,211 $7,073 $9,802 $12,891 $15,925 $1,686 Cash flow from operating activities... (736) 882 2,503 (7,576 ) 8,226 8,786 (2,133) Cash flow from investing activities... (456) 578 (1,617 ) (2,075 ) (26,321 ) (3,129 ) (503) Cash flow from financing activities... 500 2,992 -- 3,912 18,256 (5,180 ) 2,170 Capital expenditures.................. 447 695 1,647 2,082 2,730 3,166 505 Management fees(7).................... 250 250 250 250 250 250 63 MARCH 29, 1996 ----------- OTHER OPERATING DATA: EBITDA (6)............................ $2,748 Cash flow from operating activities... (3,652 ) Cash flow from investing activities... (665 ) Cash flow from financing activities... 3,777 Capital expenditures.................. 667 Management fees(7).................... 84
- ---------------------------------- (1) Gives effect to (i) the Dur-O-Wal Acquisition and (ii) the issuance of $15 million of senior debt and the initial borrowing of $8.6 million under the Credit Facility (as defined herein) in connection with the Dur-O-Wal Acquisition as if each had occurred on January 1, 1995. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Acquisition of Dur-O-Wal." The unaudited pro forma combined financial data does not give effect to any other transactions and does not purport to represent the actual results of operations or financial condition of the Company had the Dur-O-Wal Acquisition occurred on the date assumed or the results that can be expected for the Company in the future. See "Pro Forma Combined Financial Information." (2) In May 1994, the Company reached an agreement with its lenders to restructure its debt (the "1994 Restructuring"), resulting in an extraordinary gain of $31.4 million net of income tax effect of $0.1 million. This also resulted in decreased interest expense for 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1994 Restructuring" and Note 3 to the Company's consolidated financial statements. (3) In 1991, 1992 and 1993, an income tax benefit was recorded to the extent the Company was able to carryback losses to obtain federal or state income tax refunds. In 1994, the provision for income taxes related to alternative minimum taxes. In 1995, the provision for income taxes was reduced to reflect the utilization of net operating losses from 1992 and 1993. The provision for income taxes in the first quarter of 1996 reflects non-deductible goodwill amortization and a net operating loss in Canada on which no tax carryback is available. (4) Net income (loss) per common and common equivalent share before dividends, accretion and redemption of preferred shares and net income (loss) per common and common equivalent share are based on the weighted average common and dilutive common equivalent shares outstanding during the period. Common share equivalents include the number of shares issuable upon the exercise of outstanding Options, and warrants to purchase 346,600 Class A Common Shares (the "Warrants"), less the shares that could be purchased with the proceeds from the exercise of the Options and Warrants, based on an assumed initial public offering price of $13.50 per share. For the purposes of calculating net income (loss) per common and common equivalent share, common equivalent shares issued more than 12 months prior to the Offering are excluded in periods with a net loss available to common shareholders. Common equivalent shares issued less than 12 months prior to the Offering are included for all periods presented. All outstanding Warrants will be exercised prior to the consummation of the Offering and all Class A Common Shares received upon exercise of the Warrants will be sold by the Selling Shareholders in the Offering. (5) Adjusted to reflect (i) the sale of 1,974,750 Class A Common Shares by the Company in the Offering at an assumed initial public offering price of $13.50 per Class A Common Share after deducting the estimated underwriting discount and expenses of the Offering and a fee payable to Ripplewood for additional services provided in connection with the Offering and (ii) application of the net proceeds from the Offering of approximately $23.52 million, in addition to a $20.43 million draw on the Amended Credit Facility (as defined herein), to retire $40 million of senior debt, pay accrued interest thereon at March 29, 1996 of $1.54 million (accrued interest thereon will be approximately $ million at , 1996, the expected date of the consummation of the Offering) and fund a $2.4 million prepayment premium in connection therewith. See "Use of Proceeds." Such adjustments would reduce 1995, pro forma 1995 and March 29, 1996 interest expense by $2.6 million, $2.9 million and $0.7 million, respectively, and increase the 1995, pro forma 1995 and March 29, 1996 provision for income tax by $1.0 million, $1.1 million and $0.3 million, respectively. The adjustments also reflect a $2.3 million net loss on the retirement of senior debt ($2.4 million prepayment premium, $0.7 million write-off of financing costs and $0.6 million write-off of debt discount, net of income tax benefit of $1.4 million). 8 (6) EBITDA represents earnings before interest expense, other expense or income, income taxes, depreciation and amortization. Other expense of $873,000 in 1994 represents non-recurring costs associated with an acquisition that was not completed. The accrued interest component of cash flow from operating activities was $2.1 million, $7.6 million and $(10.9 million) in 1992, 1993 and 1994, respectively. Management considers EBITDA to be a useful measure of operating performance because, together with net income and cash flows, EBITDA provides investors with an additional basis to evaluate the Company's ability to pay interest, repay debt and make capital expenditures. In addition, EBITDA is a component in the interest rate and covenant structure of the Amended Credit Facility. See "Description of Certain Indebtedness." To evaluate EBITDA and the trends it depicts, the components of EBITDA, such as net sales, cost of sales and selling, general and administrative expenses, should be considered. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Excluded from EBITDA are interest, other expense or income, income taxes, depreciation and amortization, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA has not been presented as an alternative to operating income as determined in accordance with generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as determined in accordance with generally accepted accounting principles as a measure of liquidity or ability to meet all cash needs. Not all companies define EBITDA consistently; caution must be used in comparing this measurement to EBITDA of other companies. See the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. The following reconciles net income (loss) to EBITDA:
THREE FISCAL MONTHS YEAR ENDED DECEMBER 31, ENDED -------------------------------------------------------------------------- ----------- PRO FORMA MARCH 31, 1991 1992 1993 1994 1995 1995 1995 --------- --------- ------------ ------------ ----------- ----------- ----------- (IN THOUSANDS) Net income (loss)....................... $(3,409) $(6,615) $(6,173 ) $30,672 $3,705 $3,404 $(151) Extraordinary item, net of tax.......... -- -- -- (31,354 ) -- -- -- Provision (benefit) for income taxes.... (1,006) (826) (89 ) 95 690 683 -- Interest expense, net................... 8,541 8,727 10,118 6,017 4,231 6,264 909 Other (income) expense.................. -- -- -- 873 (3 ) 21 -- --------- --------- ------------ ------------ ----------- ----------- ----------- Income from operations.................. 4,126 1,286 3,856 6,303 8,623 10,372 758 Depreciation............................ 1,956 1,947 1,914 2,194 2,777 3,723 579 Amortization of intangibles and goodwill............................... 2,540 1,978 1,303 1,305 1,491 1,830 349 --------- --------- ------------ ------------ ----------- ----------- ----------- EBITDA.................................. $8,622 $5,211 $7,073 $9,802 $12,891 $15,925 $1,686 --------- --------- ------------ ------------ ----------- ----------- ----------- --------- --------- ------------ ------------ ----------- ----------- ----------- MARCH 29, 1996 ----------- Net income (loss)....................... $(401 ) Extraordinary item, net of tax.......... -- Provision (benefit) for income taxes.... 242 Interest expense, net................... 1,585 Other (income) expense.................. 8 ----------- Income from operations.................. 1,434 Depreciation............................ 908 Amortization of intangibles and goodwill............................... 406 ----------- EBITDA.................................. $2,748 ----------- -----------
(7) Management fees are paid to the controlling and another shareholder of the Company and are included in selling, general and administrative expenses. Following the Offering, the Company will no longer be charged such management fees. See "Certain Relationships and Related Party Transactions." 9 RISK FACTORS A PROSPECTIVE PURCHASER SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION IN THIS PROSPECTUS BEFORE DECIDING WHETHER TO PURCHASE THE CLASS A COMMON SHARES OFFERED HEREBY AND, IN PARTICULAR, THE FOLLOWING FACTORS. CYCLICAL NATURE OF THE CONSTRUCTION INDUSTRY The Company's sales and earnings are strongly influenced by the level of North American non-residential building and infrastructure construction activity. Construction activity is cyclical and is affected by the strength of the general economy and by other factors beyond the Company's control, including governmental expenditures and changes in the banking and tax laws. Although non-residential building construction and infrastructure construction historically have been less cyclical than residential construction, non-residential building construction experienced a severe decline in 1990 and 1991. In 1992, in part as a result of the effect of that decline on the Company's sales and earnings and the Company's highly leveraged capital structure following its acquisition in 1989 by an investor group led by a subsidiary of Onex, the Company defaulted on certain financial covenants in its senior debt and was unable to make required principal and interest payments. The Company's debt was restructured in May 1994. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1994 Restructuring." Although the Company will be less leveraged immediately following the Offering than it was in 1993, a decline in non-residential building or infrastructure construction activity in the future likely would result in a decline in the Company's sales and earnings which could be materially adverse. RECENT LOSSES AND SEASONALITY In 1991, 1992 and 1993, the Company incurred net losses of $3.4 million, $6.6 million and $6.2 million, respectively. In 1994, the Company had net income of $30.7 million but a loss before extraordinary item (related to the forgiveness of debt) of $682,000. In 1995, the Company had net income of $3.7 million ($3.4 million on a pro forma combined basis). See "Management's Discussion and Analysis of Financial Condition and Results of Operations." There can be no assurance that the Company will be profitable in 1996 or in future years or that it will not have to seek additional funds through borrowings, sales of equity or otherwise to pursue its business objectives. The construction industry is seasonal in most of North America, with demand for the Company's products being higher in the spring and summer than in winter and late fall. This seasonality typically adversely affects the Company's net sales and net income in the first and last quarters of the year. In the first quarter of 1995 and 1996, the Company had net losses of $151,000 ($245,000 on a pro forma combined basis) and $401,000, respectively. CHALLENGE OF GROWTH THROUGH ACQUISITIONS The Company intends to continue to pursue its strategy of growth through acquisitions. There can be no assurance, however, that future acquisitions will be consummated or that any newly acquired business will be successfully integrated into the Company's operations. The Company may issue additional Class A Common Shares (which could result in dilution to the purchasers of the Class A Common Shares offered hereby) or may incur substantial additional indebtedness, or a combination thereof, to fund future acquisitions. There can be no assurance that the Company will be able to obtain any such additional financing. In addition, on June 17, 1996, the Company entered into an agreement with Bank One, Dayton, NA and Bank of America Illinois (collectively, the "Banks") which amended its credit facility (the "Credit Facility" and, as so amended, the "Amended Credit Facility"), conditional upon the consummation of the Offering. The terms of the Amended Credit Facility prohibit the Company from merging or consolidating with, or acquiring the stock of, another corporation or incurring additional indebtedness (subject to certain exceptions) without the consent of the Banks. There can be no assurance that the Company will be able to obtain the consent of the Banks to any such merger, consolidation or acquisition or to the incurrence of additional debt. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Certain Indebtedness." 10 In addition, the Company's ability to manage growth successfully will require the Company to continue to improve its operational, management and financial systems and controls. Certain of the Company's key employees have not had experience in managing companies larger than the Company. If the Company's management is unable to manage growth effectively, the Company's business, results of operations and financial condition could be materially and adversely affected. See "Business-- Management." COMPETITION The industry in which the Company operates is highly competitive in most product categories and geographic regions. The Company believes that competition is largely based on price, quality, breadth of product lines, distribution capabilities (including quick delivery times) and customer service. The Company competes for business with a relatively small number of full-line national manufacturers and a much larger number of regional manufacturers and manufacturers with limited product lines. In certain circumstances, due primarily to factors such as freight rates, quick delivery times and customer preference for local suppliers, certain manufacturers and suppliers may have a competitive advantage over the Company in a given region. See "Business--Competition." CONTROL OF THE COMPANY BY RIPPLEWOOD; OTHER ANTI-TAKEOVER PROVISIONS Holders of the Company's Class A Common Shares are entitled to one vote per share and holders of the Class B Common Shares are entitled to ten votes per share. Upon completion of the Offering, Ripplewood will own all of the outstanding Class B Common Shares, representing 78.8% of the combined voting power of the outstanding Common Shares. In addition, under the Company's Amended and Restated Shareholder Agreement (the "Shareholder Agreement"), Ripplewood will generally control the voting of an additional 2.3% of the outstanding Common Shares (assuming exercise of all of the outstanding Options) which, with Ripplewood's Class B Common Shares, collectively would represent 81.1% of the combined voting power of the Common Shares. Consequently, Ripplewood will be able, without the approval of the Company's other shareholders, to (i) elect all of the Company's directors, (ii) amend the Company's amended articles of incorporation with respect to most matters or effect a merger, sale of assets or other major corporate transaction, (iii) defeat any non-negotiated takeover attempt, (iv) convert its Class B Common Shares into Class A Common Shares and sell such shares without participation in such sale by the Company's other shareholders and (v) otherwise control the outcome of virtually all matters submitted for a shareholder vote. See "Description of Capital Shares." Control by Ripplewood may discourage certain types of transactions involving an actual or potential change of control of the Company, including transactions in which the holders of Class A Common Shares might receive a premium over prevailing market prices for their shares. Timothy C. Collins, Matthew O. Diggs, Jr. and Matthew M. Guerreiro, each of whom is a director of the Company, are Senior Managing Director and Chief Executive Officer, non-executive Chairman of the Board and a principal, respectively, of Ripplewood. In addition, certain provisions of the Company's amended articles of incorporation and certain provisions of the Ohio General Corporation Law (the "OGCL") may have the effect of discouraging non-negotiated takeover attempts of the Company. These provisions include so-called "blank check" preferred shares and the Ohio Merger Moratorium Act. See "Description of Capital Shares." The Board of Directors, without shareholder approval, can issue "blank check" preferred shares with conversion, voting and other rights that could adversely affect the rights of the holders of Class A Common Shares. The Ohio Merger Moratorium Act is intended to delay a person who acquires voting shares of an Ohio corporation without the approval of the Board of Directors from engaging in any merger, asset sale or other transaction resulting in a financial benefit to such person. DEPENDENCE ON KEY PERSONNEL The Company's affairs are managed by a small number of key management and operating personnel, the loss of any one of whom could have an adverse impact on the Company. See "Business-- Management." 11 ENVIRONMENTAL COMPLIANCE The Company is subject to regulation under various federal, state and local laws and regulations relating to the environment. These laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of the Company's business, and these permits are subject to renewal, modification and, in certain circumstances, revocation. The Company believes it is in substantial compliance with such laws and permitting requirements. The Company also is subject to regulation under various federal, state and local laws and regulations which allow regulatory authorities to compel (or seek reimbursement for) cleanup of environmental contamination at its own sites and at facilities where its waste is or has been disposed. The Company expects to incur on-going capital and operating costs to maintain compliance with applicable environmental laws that the Company does not expect to be, in the aggregate, material to its financial condition, results of operations or liquidity. The Company cannot predict the environmental laws or regulations that may be enacted in the future or how existing or future laws or regulations will be administered or interpreted. Compliance with more stringent laws or regulations, as well as more vigorous enforcement policies of the regulatory agencies or stricter interpretation of existing laws or regulations, may require additional expenditures by the Company, some or all of which may be material. See "Business-- Environmental Compliance." NO PRIOR MARKET FOR CLASS A COMMON SHARES; POSSIBLE VOLATILITY OF PRICE Prior to the Offering, there has been no public market for the Class A Common Shares. Although the Class A Common Shares have been approved for listing on the New York Stock Exchange, subject to official notice of issuance, there can be no assurance that an active trading market will develop or be sustained. The initial public offering price will be determined by negotiations among the Company, Ripplewood and representatives of the Underwriters and may not be indicative of the price at which the Class A Common Shares will trade after completion of the Offering. See "Underwriting." There can be no assurance that the prices at which the Class A Common Shares will sell in the public market after the Offering will not be lower than the price at which they are sold by the Underwriters. In addition, factors such as variations in the Company's actual and anticipated operating results, announcements by the Company or others and developments affecting the Company could cause the market price of the Class A Common Shares to fluctuate significantly. Broad market fluctuations and general economic and political conditions also may adversely affect the market price of the Class A Common Shares, regardless of the Company's performance. NO ANTICIPATED CASH DIVIDENDS The Company does not intend to pay any cash dividends on the Common Shares in the near term. See "Dividend Policy." In addition, the Company is not permitted to pay cash dividends to holders of the Common Shares under the terms of the Company's Amended Credit Facility and may in the future enter into loan or other agreements or issue debt securities or preferred shares that restrict the payment of cash dividends on the Common Shares. See "Description of Certain Indebtedness." SHARES ELIGIBLE FOR FUTURE SALE Future sales of substantial numbers of Class A Common Shares (including shares issued upon the exercise of Options), or the perception that such sales could occur, could adversely affect prevailing market prices for the Class A Common Shares. If such sales reduce the market price of the Class A Common Shares, the Company's ability to raise additional capital in the equity markets could be adversely affected. Upon completion of the Offering (assuming the Underwriters' over-allotment option is not exercised), 1,522,550 Class A Common Shares into which the Class B Common Shares held by Ripplewood may be converted, 386,800 Class A Common Shares held by the Company's management and other shareholders and 272,750 Class A Common Shares issuable upon exercise of Options held by management will continue to be "restricted shares" as defined in Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"). Such shares may not be resold unless registered under the Securities Act or sold pursuant to an exemption from such registration, including, among others, the exemption 12 provided by Rule 144 under the Securities Act. After the Offering, Ripplewood and the other parties to the Shareholder Agreement will have certain incidental registration rights with respect to any Class A Common Shares owned by them, and Ripplewood will have two demand registration rights with respect to Common Shares owned by it. See "Principal and Selling Shareholders--Shareholder Agreement" and "Shares Eligible for Future Sale." The Company, Ripplewood and certain of the Company's other shareholders, to the extent that such shareholders are not selling shares in the Offering, have agreed, subject to certain exceptions, not to sell, offer to sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, or announce the offering of any Class A Common Shares or securities convertible into or exercisable or exchangeable for Class A Common Shares, other than the Class A Common Shares offered hereby, for a period of 360 days after the date of this Prospectus without the consent of the representatives of the Underwriters; provided, however, that the Company may issue: (i) options pursuant to any employee stock option plan in effect on the date of this Prospectus, (ii) Class A Common Shares upon the conversion or exercise of securities or options outstanding on the date of this Prospectus (or issued upon the conversion or exercise thereof) and (iii) commencing 90 days after the date of this Prospectus, Class A Common Shares or securities convertible into or exercisable or exchangeable for Class A Common Shares in mergers, acquisitions or business combinations. See "Underwriting" and "Shares Eligible for Future Sale." DILUTION Investors in the Offering will experience immediate dilution in the amount of $14.97 per share in the net tangible book value of their Class A Common Shares from the initial public offering price. See "Dilution." 13 USE OF PROCEEDS The net proceeds to the Company from the sale by the Company of 1,974,750 of the Class A Common Shares offered in the Offering, at an assumed initial public offering price of $13.50 per share, are estimated to be approximately $23,516,000 ($27,038,000 if the Underwriters' over-allotment option is exercised in full), after deducting the estimated underwriting discount and expenses of the Offering payable by the Company. The Company intends to use such net proceeds to prepay its 11.75% Senior Notes due 2002 (the "Senior Notes due 2002"), which mature on December 31, 2002, and its 11.75% Senior Notes due 2003 (the "Senior Notes due 2003" and, together with the Senior Notes due 2002, the "Senior Notes"), which mature on December 31, 2003. The Company will pay accrued interest of approximately $ at , 1996, the expected date of the consummation of the Offering, ($1,542,000 at March 29, 1996) and a prepayment premium of $2,400,000 to the holders of the Senior Notes in connection with such prepayment. The Company intends to fund the remaining amount needed to prepay the Senior Notes and to pay such accrued interest and prepayment premium with borrowings of approximately $ at , 1996, the expected date of the consummation of the Offering, ($20,426,000 based on accrued interest at March 29, 1996) under the Amended Credit Facility. See "Description of Certain Indebtedness." As of the date of this Prospectus, the outstanding principal amount of the Senior Notes was $40,000,000, of which the outstanding principal amount of the Senior Notes due 2002 was $25,000,000 and the outstanding principal amount of the Senior Notes due 2003 was $15,000,000. Mandatory annual prepayments in the amount of $6,250,000 on the Senior Notes due 2002 and $3,750,000 on the Senior Notes due 2003 must be made, if not previously paid, commencing in 1999 and 2000, respectively. The Senior Notes bear interest at the rate of 11.75% per annum. The Senior Notes due 2002 were issued in connection with the 1994 Restructuring. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1994 Restructuring." The Senior Notes due 2003 were issued in October 1995 to finance, in part, the acquisition of Dur-O-Wal. The Company will not receive any proceeds from the sale of Class A Common Shares in the Offering by the Selling Shareholders. DIVIDEND POLICY The Company currently intends to retain its future earnings, if any, to fund the development and growth of its business and, therefore, does not anticipate declaring and paying cash dividends on the Common Shares in the near term. The decision whether to apply legally available funds to the payment of dividends on the Common Shares will be made by the Board of Directors of the Company from time to time in the exercise of its business judgment, taking into account, among other things, the Company's results of operations and financial condition, any then existing or proposed commitments for the use by the Company of available funds and the Company's obligations with respect to any then outstanding class or series of its preferred shares. The Company is restricted by the terms of the Amended Credit Facility from paying cash dividends on the Common Shares and may in the future enter into loan or other agreements or issue debt securities or preferred shares that restrict the payment of cash dividends on the Common Shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Certain Indebtedness." 14 CAPITALIZATION The following table sets forth the capitalization of the Company at March 29, 1996, and as adjusted to give effect to the Offering and the application of the estimated $23,516,000 of net proceeds to the Company therefrom as described in "Use of Proceeds." This table should be read in conjunction with the Company's consolidated financial statements and the notes thereto included elsewhere in this Prospectus.
AT MARCH 29, 1996 --------------------------- AS ADJUSTED FOR THE ACTUAL OFFERING(1) ------------- ------------ (IN THOUSANDS) Long-term debt (including current portion): Borrowings under Credit Facility................ $ 17,070(2) $ 37,496(3) 11.75% Senior Notes due 2002.................... 25,000 -- Debt discount................................... (555) -- 11.75% Senior Notes due 2003.................... 15,000 -- Other long-term debt............................ 294 294 ------------- ------------ Total long-term debt (4)...................... $ 56,809 $ 37,790 ------------- ------------ Shareholders' equity (5): Preferred Shares, without par value: 5,000,000 shares authorized, no shares issued............ -- -- Class A Common Shares, without par value: 20,000,000 shares authorized, 2,804,500 shares issued; 20,483,300 shares authorized, 4,086,800 shares issued, as adjusted (6)................. $17,483 $32,736 Old Class B Common Shares, without par value: 15,000,000 shares authorized, 485,500 shares issued......................................... 1,942 -- Class B Common Shares, without par value: 1,522,550 shares authorized, 1,522,550 shares issued, as adjusted............................ -- 10,123 Cumulative foreign currency translation adjustment..................................... (139 ) (139 ) Excess pension liability........................ (50 ) (50 ) Retained earnings (7)........................... 7,929 5,635 Treasury shares, Class A Common, 2,000 shares; no shares as adjusted.......................... (81 ) -- ------------- ------------ Total shareholders' equity.................... 27,084 48,305 ------------- ------------ Total capitalization.............................. $ 83,893 $ 86,095 ------------- ------------ ------------- ------------
- ------------------------------ (1) Adjusted to reflect the Offering and, immediately prior to the consummation of the Offering, (i) the conversion of the 1,969,550 Class A Common Shares held by Ripplewood as of March 29, 1996 and the 36,000 Class A Common Shares acquired by Ripplewood from a subsidiary of Onex on April 4, 1996 into 2,005,850 Class B Common Shares, and the subsequent conversion by Ripplewood of 483,300 of its Class B Common Shares into an equal number of Class A Common Shares offered hereby, (ii) the conversion of 485,500 Old Class B Common Shares into Class A Common Shares and (iii) the retirement of 2,000 Class A Common Shares held in treasury. (2) At March 29, 1996, unutilized availability under the Credit Facility aggregated $7.6 million. (3) Includes amounts borrowed to repay accrued interest on the Senior Notes of $1.5 million at March 29,1996. On , 1996, the expected date of the consummation of the Offering, the Company estimates accrued interest on the Senior Notes will be $ million. (4) Includes current portion of long-term debt of $0.03 million. (5) Immediately prior to consummation of the Offering, the Company will amend its amended articles of incorporation to effect certain changes to its capital shares. See "Description of Capital Shares." (6) The number of issued and outstanding shares does not include 272,750 Class A Common Shares issuable upon exercise of outstanding Options, all of which will become exercisable upon completion of the Offering. (7) Adjusted to reflect a charge to earnings for the prepayment premium of $2.4 million, the write-off of financing costs, which are included in intangible assets, of $0.7 million and the write-off of the debt discount of $0.6 million, net of the income tax benefit of $1.4 million related to the repayment of the Senior Notes. 15 DILUTION At March 29, 1996, the net tangible book value (deficit) of the Company was $(30,192,000) or $(9.18) per Common Share. After giving effect to the Offering (assuming an initial public offering price of $13.50 per share), the receipt of the net proceeds to the Company therefrom (after deducting the estimated underwriting discount and expenses of the Offering payable by the Company and the fee payable to Ripplewood for additional services provided in connection with the Offering) and the write-off of financing costs of $745,000 associated with the repayment of the Senior Notes, the pro forma net tangible book value (deficit) of the Company as of March 29, 1996 would have been $(8,225,000) or $(1.47) per Common Share. This represents an immediate increase in net tangible book value of $7.71 per Common Share to existing shareholders and an immediate dilution in net tangible book value of $14.97 per Common Share to purchasers of Class A Common Shares in the Offering at the assumed initial public offering price. The following table illustrates the per Common Share dilution to new investors purchasing Class A Common Shares in the Offering: Assumed public offering price per Common Share (1).......................... $ 13.50 Net tangible book value (deficit) per Common Share as of March 29, 1996 before the Offering (2).................................................. $ (9.18) Increase per Common Share attributable to the Offering.................... 7.71 Pro forma net tangible book value (deficit) per Common Share after the Offering (2)............................................................. (1.47) --------- Dilution per Common Share to new investors................................ $ 14.97 --------- ---------
- ------------------------------ (1) Before deducting the estimated underwriting discount and expenses of the Offering payable by the Company and the fee payable to Ripplewood for additional services provided in connection with the Offering. (2) Net tangible book value (deficit) per Common Share is equal to total tangible assets of the Company less total liabilities divided by the number of Common Shares outstanding with respect to the $(9.18) value and divided by the number of pro forma Common Shares outstanding with respect to the $(1.47) value. The following table summarizes as of March 29, 1996 the number of Common Shares purchased from the Company, the total consideration paid to the Company and the average price per Common Share paid to the Company with respect to the Common Shares held by existing shareholders of the Company and by purchasers of Common Shares in the Offering (before deducting the estimated underwriting discount and expenses of the Offering payable by the Company and the fee payable to Ripplewood for additional services provided in connection with the Offering) at an assumed initial public offering price of $13.50 per share:
SHARES PURCHASED TOTAL CONSIDERATION ------------------------ --------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ----------- -------------- ----------- --------------- Existing shareholders (1)......................... 3,288,000 62.5% $ 319,344,000 42.0% $5.88 New investors..................................... 1,974,750 37.5 26,659,125 58.0 13.50 ----------- ----------- -------------- ----------- Total........................................... 5,262,750 100.0% $ 46,003,125 100.0% $8.74 ----------- ----------- -------------- ----------- ----------- ----------- -------------- -----------
- ------------------------ (1) Does not include 346,600 Class A Common Shares purchasable by existing shareholders at a price of $0.000002 per share upon exercise of outstanding warrants (the "Warrants"). All the Warrants will be exercised immediately prior to the consummation of the Offering. The following table summarizes as of March 29, 1996, after giving effect to the Offering (including the exercise of the Warrants), the number of Common Shares purchased from the Company, the total consideration paid to the Company and the average price per Common Share paid to the Company with respect to the Common Shares held by existing shareholders of the Company and by purchasers of Common Shares in the Offering (before deducting the estimated underwriting discount and expenses of the Offering payable by the Company and the fee payable to Ripplewood for additional services provided in connection with the Offering) at an assumed initial public offering price of $13.50 per share:
SHARES PURCHASED TOTAL CONSIDERATION ------------------------ --------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ----------- -------------- ----------- --------------- Existing shareholders............................. 3,634,600 64.8% $ 19,344,000 42.0% $5.32 New investors..................................... 1,974,750 35.2 26,659,125 58.0 13.50 ----------- ----------- -------------- ----------- Total........................................... 5,609,350 100.0% $ 46,003,125 100.0% $8.20 ----------- ----------- -------------- ----------- ----------- ----------- -------------- -----------
Sales by the Selling Shareholders in the Offering, including sales of the Class A Common Shares purchased upon exercise of the Warrants, will reduce the number of Common Shares held by the existing shareholders to 1,909,350, or 34%, of the Common Shares outstanding (26.5%, if the Underwriters' over-allotment option is exercised in full), and will increase the number of Common Shares held by purchasers in the Offering to 3,700,000, or 66%, of the Common Shares outstanding upon completion of the Offering (73.5%, if the Underwriters' over-allotment option is exercised in full). See "Principal and Selling Shareholders." The foregoing computations assume no exercise of any of the outstanding Options. See "Principal and Selling Shareholders." As of March 29, 1996, there were Options outstanding to purchase 272,750 Class A Common Shares at a weighted average price of $2.44 per share, all of which will be immediately exercisable after consummation of the Offering. To the extent additional outstanding Options are exercised, there will be further dilution to new investors. See "Description of Capital Shares." 16 SELECTED FINANCIAL DATA The following table sets forth summary financial data for the fiscal years ended December 31, 1991 through 1995, which data have been derived from consolidated financial statements of the Company, which have been audited by Arthur Andersen LLP, independent public accountants, and which, in the case of the three years ended December 31, 1995, are included elsewhere in this Prospectus. The table also includes data as of and for the three fiscal months ended March 31, 1995, and March 29, 1996, which have been derived from the unaudited consolidated financial statements of the Company included elsewhere in this Prospectus and which, in the opinion of management, reflect all material adjustments of a normal and recurring nature necessary for a fair presentation of such data. The following data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and the notes thereto included elsewhere in this Prospectus. Pro forma combined financial statements of the Company and Dur-O-Wal also are presented elsewhere in this Prospectus. See "Pro Forma Combined Financial Information."
THREE FISCAL MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ -------------------------------------------------------- MARCH 31, MARCH 29, 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- ------------ --------- ----------- ----------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) OPERATING DATA: Net sales................................... $ 68,532 $71,462 $ 75,154 $82,341 $92,802 $17,977 $23,615 Cost of sales............................... 48,607 53,054 55,427 58,011 63,990 12,555 16,146 --------- --------- --------- ------------ --------- ----------- ----------- Gross profit................................ 19,925 18,408 19,727 24,330 28,812 5,422 7,469 Selling, general and administrative expenses, excluding amortization of goodwill and intangibles................... 13,259 15,144(1) 14,568 16,722 18,698 4,315 5,629 Amortization of goodwill and intangibles.... 2,540 1,978 1,303 1,305 1,491 349 406 --------- --------- --------- ------------ --------- ----------- ----------- Income from operations...................... 4,126 1,286 3,856 6,303 8,623 758 1,434 Interest expense, net....................... 8,541 8,727 10,118 6,017(2) 4,231 909 1,585 Other expense (income), net................. -- -- -- 873 (3) -- 8 Provision (benefit) for income taxes (3).... (1,006) (826) (89) 95 690 -- 242 --------- --------- --------- ------------ --------- ----------- ----------- Income (loss) before extraordinary item..... (3,409) (6,615) (6,173) (682) 3,705 (151 ) (401 ) Extraordinary item, net of tax.............. -- -- -- 31,354(2) -- -- -- --------- --------- --------- ------------ --------- ----------- ----------- Net income (loss)........................... $(3,409) $(6,615) $(6,173) $30,672 $3,705 $(151 ) $(401 ) --------- --------- --------- ------------ --------- ----------- ----------- --------- --------- --------- ------------ --------- ----------- ----------- Net income (loss) available to common shareholders............................... $(3,409) $(6,615) $(6,173) $30,175 $71 $(363 ) $(401 ) --------- --------- --------- ------------ --------- ----------- ----------- --------- --------- --------- ------------ --------- ----------- ----------- Income (loss) per share available to common shareholders before extraordinary item and before dividends, accretion and redemption of redeemable preferred shares............. $(35.87) $(69.60) $(64.95) $(0.34) $1.04 $(0.05 ) $(0.12 ) Income (loss) per share available to common shareholders before extraordinary item..... (35.87) (69.60) (64.95) (0.58) 0.02 (0.12 ) (0.12 ) Net income (loss) per common and common equivalent share before dividends, accretion and redemption of redeemable preferred shares (4)....................... (35.87) (69.60) (64.95) 15.17 1.04 (0.05 ) (0.12 ) Net income (loss) per common and common equivalent share (4)....................... (35.87) (69.60) (64.95) 14.92 0.02 (0.12 ) (0.12 ) Weighted average common and common equivalent shares outstanding (4).......... 95,039 95,039 95,039 2,021,918 3,560,808 2,956,789 3,333,389
AS OF AS OF DECEMBER 31, ------------------------ ----------------------------------------------------- MARCH 31, MARCH 29, 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- ----------- ----------- (IN THOUSANDS) BALANCE SHEET: Total assets................................... $ 76,696 $75,114 $75,818 $72,371 $103,860 $75,396 $107,052 Long-term debt (including current portion)..... 60,262 64,225 64,483 24,448 53,012 26,635 56,809 Shareholders' equity........................... 4,496 (2,224) (8,848) 27,674 27,485 27,313 27,084
(see footnotes on the following page) 17
THREE FISCAL MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ ----------------------------------------------------- MARCH 31, MARCH 29, 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- ----------- ----------- (IN THOUSANDS) OTHER OPERATING DATA: EBITDA (5)................................. $8,622 $5,211 $7,073 $9,802 $12,891 $1,686 $2,748 Cash flow from operating activities........ (736) 882 2,503 (7,576) 8,226 (2,133 ) (3,652 ) Cash flow from investing activities........ (456) 578 (1,617) (2,075) (26,321) (503 ) (665 ) Cash flow from financing activities........ 500 2,992 -- 3,912 18,256 2,170 3,777 Capital expenditures....................... 447 695 1,647 2,082 2,730 505 667 Management fees (6)........................ 250 250 250 250 250 63 84
- ------------------------------ (1) Includes charges of $1.4 million to bad debt expense. (2) In December 1992, the Company defaulted on certain financial covenants in its senior debt and was unable to make payments of principal and interest as they came due. From December 1992 to May 1994, the Company accrued additional penalty interest on its senior debt. In May 1994, the Company reached an agreement with its lenders to restructure its debt, resulting in an extraordinary gain of $31.4 million net of income tax effect of $0.1 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--1994 Restructuring" and Note 3 to the consolidated financial statements of the Company. (3) In 1991, 1992 and 1993, an income tax benefit was recorded to the extent the Company was able to carryback losses to obtain federal or state income tax refunds. In 1994, the provision for income taxes related to alternative minimum taxes. In 1995, the provision for income taxes was reduced to reflect the utilization of net operating losses from 1992 and 1993. The provision for income taxes in the first quarter of 1996 reflects non-deductible goodwill amortization and a net operating loss in Canada on which no tax carryback is available. (4) Net income (loss) per common and common equivalent share before dividends, accretion and redemption of preferred shares and net income (loss) per common and common equivalent share are based on the weighted average common and dilutive common equivalent shares outstanding during the period. For the purposes of calculating net income (loss) per common and common equivalent share, common equivalent shares issued more than 12 months prior to the Offering are excluded in periods with a net loss available to common shareholders. Common equivalent shares issued less than 12 months prior to the Offering are included for all periods presented. Common share equivalents include the number of shares issuable upon the exercise of the outstanding Options and Warrants less shares that could be purchased with the proceeds from the exercise of the Options and Warrants, based on the assumed initial public offering price of $13.50 per share. (5) EBITDA represents earnings before interest expense, other expense or income, income taxes, depreciation and amortization. Other expense of $873,000 in 1994 represents non-recurring costs associated with an acquisition that was not completed. The accrued interest component of cash flow from operating activities was $2.1 million, $7.6 million and $(10.9) million in 1992, 1993, and 1994, respectively. Management considers EBITDA to be a useful measure of operating performance because, together with net income and cash flows, EBITDA provides investors with an additional basis to evaluate the Company's ability to pay interest, repay debt and make capital expenditures. In addition, EBITDA is a component in the interest rate and covenant structure of the Amended Credit Facility. See "Description of Certain Indebtedness." To evaluate EBITDA and the trends it depicts, the components of EBITDA, such as net sales, cost of sales and selling, general and administrative expenses, should be considered. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Excluded from EBITDA are interest, other expense or income, income taxes, depreciation and amortization, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA has not been presented as an alternative to operating income as determined in accordance with generally accepted accounting principles as an indicator of operating performance or to cash flows from operating, investing or financing activities as determined in accordance with generally accepted accounting principles as a measure of liquidity or ability to meet all cash needs. Not all companies define EBITDA consistently; caution must be used in comparing this measurement to EBITDA of other companies. See the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Prospectus. The following reconciles net income (loss) to EBITDA:
THREE FISCAL MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ ----------------------------------------------------- MARCH 31, MARCH 29, 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- ----------- ----------- (IN THOUSANDS) Net income (loss)...................... $(3,409) $(6,615) $(6,173) $ 30,672 $3,705 $(151 ) $(401 ) Extraordinary item, net of tax......... -- -- -- (31,354) -- -- -- Provision (benefit) for income taxes... (1,006) (826) (89) 95 690 -- 242 Interest expense, net.................. 8,541 8,727 10,118 6,017 4,231 909 1,585 Other (income) expense................. -- -- -- 873 (3) -- 8 --------- --------- --------- --------- --------- ----------- ----------- Income from operations................. 4,126 1,286 3,856 6,303 8,623 758 1,434 Depreciation........................... 1,956 1,947 1,914 2,194 2,777 579 908 Amortization of goodwill and intangibles........................... 2,540 1,978 1,303 1,305 1,491 349 406 --------- --------- --------- --------- --------- ----------- ----------- EBITDA................................. $8,622 $5,211 $7,073 $9,802 $ 12,891 $ 1,686 $ 2,748 --------- --------- --------- --------- --------- ----------- ----------- --------- --------- --------- --------- --------- ----------- -----------
(6) Management fees are paid to the controlling and another shareholder of the Company. Such fees are included in selling, general and administrative expenses. Following the Offering, the Company will no longer be charged such management fees. See "Certain Relationships and Related Party Transactions." 18 PRO FORMA COMBINED FINANCIAL INFORMATION The unaudited pro forma combined financial information is based upon the historical consolidated financial statements of the Company and Dur-O-Wal adjusted to give effect to the Dur-O-Wal Acquisition. The pro forma combined statement of operations gives effect to the Dur-O-Wal Acquisition, including the related incurrence of debt, as if it had occurred on January 1, 1995. The unaudited pro forma combined financial information does not give effect to any other transactions and does not purport to represent the Company's results of operations had the Dur-O-Wal Acquisition, in fact, occurred on such date, or the results that can be expected for the Company in the future. The pro forma combined financial information should be read in conjunction with the Company's and Dur-O-Wal's historical consolidated financial statements and the notes thereto included elsewhere in this Prospectus. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
PRO FORMA DUR-O-WAL FOR THE ADJUSTMENTS PERIOD JANUARY 1, RELATED TO THE THE COMPANY, 1995 THROUGH DUR-O-WAL PRO FORMA AS REPORTED(1) OCTOBER 15, 1995 ACQUISITION COMBINED ---------------- ----------------- ---------------- ----------- Net sales.................................... $92,802 $ 20,893 $ -- $113,695 Cost of sales................................ 63,990 15,318 669 (2) 79,977 ---------------- -------- ------- ----------- Gross profit............................... 28,812 5,575 (669 ) 33,718 Selling, general and administrative expenses, excluding amortization of goodwill and intangibles................................. 18,698 3,370 (569 (3) 21,516 17 (2) Amortization of goodwill and intangibles..... 1,491 181 158 (4) 1,830 ---------------- -------- ------- ----------- Income from operations....................... 8,623 2,024 (275 ) 10,372 Other expenses: Interest expense, net...................... 4,231 449 2,033 (5) 6,264 (449 (6) Other, net................................. (3 ) 24 -- 21 ---------------- -------- ------- ----------- Income before income taxes................... 4,395 1,551 (1,859 ) 4,087 Provision (benefit) for income taxes......... 690 674 (681 (7) 683 ---------------- -------- ------- ----------- Net income................................... 3,705 877 (1,178 ) 3,404 Dividends on Redeemable Preferred Shares..... (470 ) -- -- (470 ) Accretion on Redeemable Preferred Shares..... (192 ) -- -- (192 ) Redemption of Redeemable Preferred Shares in excess of book value........................ (2,972 ) -- -- (2,972 ) ---------------- -------- ------- ----------- Net income (loss) available to common shareholders................................ $71 $877 $ (1,178 ) $(230 ) ---------------- -------- ------- ----------- ---------------- -------- ------- ----------- Net income (loss) per common and common equivalent share............................ $0.02 $(0.08 ) ---------------- ----------- ---------------- ----------- Weighted average common and common equivalent shares outstanding(8)....................... 3,560,808 3,036,236 ---------------- ----------- ---------------- -----------
- ------------------------------ (1) Includes the results of Dur-O-Wal for the period October 16 to December 31, 1995. (2) To record depreciation on higher building values of $0.7 million over 15 years and higher machinery and equipment values of $4.1 million over 5 years. (3) To remove expenses incurred by Dur-O-Wal related to the sale of Dur-O-Wal to the Company, comprised of $317,000 for a terminated compensation plan, $202,000 for management fees to Dur-O-Wal's former controlling shareholder and $50,000 for professional fees. (4) To record additional goodwill amortization over 40 years on goodwill of $17,167,000 in excess of Dur-O-Wal historical goodwill amortization of $229,000 per year. (see footnotes on the following page) 19 (5) To record increase in interest expense, including amortization of financing costs, on the Senior Notes of $15.0 million at 11.75% and draws on the Credit Facility of $8.6 million at 8.75%, the rate in effect at the time of the draws related to the Dur-O-Wal Acquisition. (6) To remove Dur-O-Wal interest expense for debt of $2.6 million retired on October 16, 1995. (7) To record income tax effect of previous entries at the incremental rate rather than the effective rate. (8) Net income (loss) per common and common equivalent share is based on the weighted average common and dilutive common equivalent shares outstanding during the period. For the purposes of calculating net income (loss) per common and common equivalent share, common equivalent shares issued more than 12 months prior to the Offering are excluded in periods with a net loss available to common shareholders. Common equivalent shares issued less than 12 months prior to the Offering are included for all periods presented. Common share equivalents include the number of shares issuable upon the exercise of the outstanding Options and Warrants less shares that could be purchased with the proceeds from the exercise of the Options and Warrants, based on the assumed initial public offering price of $13.50 per share. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO AND THE UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. INDUSTRY The Company operates in a cyclical and seasonal industry and changes in demand for construction services have a material impact upon the Company's sales and profitability. The non-residential building and multi-family residential segments of the construction industry suffered a sharp decline from 1990 through 1991 due to the combined impact of a cyclical recession and other factors. This sharp decline had a material adverse impact upon demand for the Company's products and the Company's results of operations. Beginning in 1993, demand began to recover, although growth in spending in the non-residential building and multi-family residential segments of the construction industry was slower than that historically experienced during the early phases of an economic recovery. The recovery continued in 1994 and 1995, and the dollar volume of new contract awards for the non-residential building, infrastructure and multi-family residential segments of the construction industry (collectively, "Heavy Construction") grew by 11.6% in 1994 and 7.4% in 1995. In light of these conditions, the information presented below under "Business--The Industry" is important for understanding the discussion of historical financial results presented below. ACQUISITION OF DUR-O-WAL On October 16, 1995, the Company acquired Dur-O-Wal, a leading manufacturer of masonry accessories with a principal manufacturing facility in Aurora, Illinois and six other service/distribution facilities in North America (two of which have subsequently been consolidated into Company facilities). Dur-O-Wal's net sales, which were $24.7 million in 1994 (as reclassified by the Company) and $25.7 million in 1995 on a pro forma combined basis, are made principally to masonry block manufacturers and wholesalers of masonry materials throughout North America. The cash purchase price of $23.6 million, including acquisition costs, was financed by borrowings of $8.6 million under the Credit Facility and the issuance of $15 million of Senior Notes due 2003. The acquisition of Dur-O-Wal was accounted for as a purchase, and the results of Dur-O-Wal have been included in the accompanying consolidated financial statements of the Company since the date of acquisition. The cost of the acquisition was allocated to the assets acquired and liabilities assumed based on their fair market values, including goodwill of $17,167,000, which is being amortized over 40 years and will create annual amortization of $429,000. In determining the amortization period of 40 years, the Company considered the basic construction use of the Dur-O-Wal products and the minor changes in technology which have occurred in the past in the masonry industry. Further, the Dur-O-Wal tradename has been in use for marketing masonry products for over 50 years. The carrying value of goodwill is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of undiscounted future expected cash flows from the use and ultimate disposition of the asset. 1994 RESTRUCTURING Following the acquisition of the Company by an investor group led by a subsidiary of Onex in 1989, the Company had a highly leveraged capital structure. In December 1992, in part as a result of that leverage and the impact of the severe downturn in the Heavy Construction industry between 1990 and 1991, the Company defaulted on certain financial covenants in the agreement relating to its senior debt and was unable to make payments of principal and interest as they came due. In May 1994, the Company completed the 1994 Restructuring in which it exchanged common shares, preferred shares and cash for all its outstanding debt. As part of the 1994 Restructuring, the Company's senior revolving line of credit note of $7 million in principal amount, senior promissory notes of $35 million in aggregate principal amount and senior subordinated promissory notes of $20 million in aggregate principal amount were exchanged for $22.8 million in cash, 863,400 Old Class B Common Shares (valued at 21 $1.7 million based on the price per share paid for the Class A Common Shares issued to the existing holders of Class A Common Shares described in the next paragraph), 50,000 12% preferred shares (valued at their aggregate redemption value of $5 million) and 50,000 zero coupon preferred shares (with an aggregate redemption value of $5 million but valued at their market value of $1.7 million). In addition, junior subordinated notes in aggregate principal amount of $2.7 million payable to former shareholders were repaid for $520,000 in cash. Accrued interest of $14.6 million on all outstanding debt was repaid. The Company funded the cash portion of the 1994 Restructuring through the issuance of additional Class A Common Shares to the existing holders of Class A Common Shares for $4 million, the issuance of the Senior Notes due 2002 (which included the Warrants) for $25 million, the establishment of a $20 million revolving credit facility under which it borrowed $6 million and cash on hand of $3 million. As a result of the 1994 Restructuring, the Company's debt was reduced by $33.8 million and the Company recognized an extraordinary gain of $31.4 million (net of income tax effect of $0.1 million). RESULTS OF OPERATIONS The following table summarizes the Company's results of operations as a percentage of net sales for the years 1993 through 1995 and the three fiscal months ended March 31, 1995 and March 29, 1996:
YEAR ENDED DECEMBER 31, --------------------------------------------------- THREE FISCAL MONTHS ENDED HISTORICAL PRO FORMA(1) ------------- ---------------------------------- --------------- MARCH 31, 1993 1994 1995 1995 1995 ---------- ---------- ---------- --------------- ------------- Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales...................................... 73.8 70.5 69.0 70.3 69.8 ----- ----- ----- ----- ----- Gross profit....................................... 26.2 29.5 31.0 29.7 30.2 Selling, general and administrative expenses....... 19.4 20.3 20.1 18.9 24.0 Amortization of goodwill and intangibles........... 1.7 1.5 1.6 1.7 2.0 ----- ----- ----- ----- ----- Income from operations............................. 5.1 7.7 9.3 9.1 4.2 Interest expense, net.............................. 13.4 7.3 4.6 5.5 5.0 Other, net(2)...................................... -- 1.1 -- -- -- ----- ----- ----- ----- ----- Income (loss) before income taxes and extraordinary item.............................................. (8.3) (0.7) 4.7 3.6 (0.8) Provision (benefit) for income taxes............... (0.1) 0.1 0.7 0.6 -- ----- ----- ----- ----- ----- Income (loss) before extraordinary item............ (8.2) (0.8) 4.0 3.0 (0.8) Extraordinary item, net of tax..................... -- 38.1(3) -- -- ----- ----- ----- ----- ----- Net income (loss).................................. (8.2)% 37.3% 4.0% 3.0% (0.8)% ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- MARCH 29, 1996 ------------- Net sales.......................................... 100.0% Cost of sales...................................... 68.4 ----- Gross profit....................................... 31.6 Selling, general and administrative expenses....... 23.8 Amortization of goodwill and intangibles........... 1.7 ----- Income from operations............................. 6.1 Interest expense, net.............................. 6.8 Other, net(2)...................................... -- ----- Income (loss) before income taxes and extraordinary item.............................................. (0.7) Provision (benefit) for income taxes............... 1.0 ----- Income (loss) before extraordinary item............ (1.7) Extraordinary item, net of tax..................... ----- Net income (loss).................................. (1.7)% ----- -----
- ------------------------------ (1) The unaudited pro forma results of operations as a percentage of net sales are derived from the unaudited pro forma combined financial information included elsewhere in this Prospectus. The unaudited pro forma combined financial information gives effect to the Dur-O-Wal Acquisition, including the related incurrence of debt, as if it had occurred on January 1, 1995 and reflects the purchase method of accounting, after giving effect to pro forma adjustments. The unaudited pro forma combined financial information does not give effect to any other transaction and does not purport to represent the Company's results of operations had such transaction, in fact, occurred on that date, or the results that can be expected in the future. See "Pro Forma Combined Financial Information." (2) Represents costs associated with an acquisition which was not completed. (3) The 1994 Restructuring resulted in an extraordinary gain of $31.4 million net of income tax effect of $0.1 million. See "1994 Restructuring" and Note 3 to the Company's consolidated financial statements. COMPARISON OF THREE FISCAL MONTHS ENDED MARCH 29, 1996 AND MARCH 31, 1995 Net sales increased $5.6 million, or 31.1%, from $18.0 million in the first quarter of 1995 to $23.6 million in the first quarter of 1996. On a pro forma combined basis, the Company's net sales declined by $0.4 million, or 1.7%, from $24.0 million in the first quarter of 1995. Operating results during the first quarter of 1996 were adversely affected by the severe winter weather experienced in the eastern portion of the United States, which delayed many construction projects. 22 Net sales by product category as reported in the Company's consolidated financial statements and on a pro forma combined basis were as follows:
PRO FORMA FOR THE DUR- O-WAL HISTORICAL ACQUISITION ---------------------------------------------- ---------------------- THREE FISCAL MONTHS THREE FISCAL MONTHS THREE FISCAL MONTHS ENDED ENDED ENDED MARCH 31, 1995 MARCH 29, 1996 MARCH 31, 1995 ---------------------- ---------------------- ---------------------- AMOUNT % AMOUNT % AMOUNT % ----------- --------- ----------- --------- ----------- --------- (IN MILLIONS, EXCEPT PERCENTAGES) Concrete accessories (including concrete paving products)................. $ 18.0 100.0% $ 18.6 78.8% $ 18.0 75.0% Masonry accessories........ -- -- 5.0 21.2 6.0 25.0 ----- --------- ----- --------- ----- --------- $ 18.0 100.0% $ 23.6 100.0% $ 24.0 100.0% ----- --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- ---------
Net sales of concrete accessories increased by $0.6 million, or 3.3%, to $18.6 million in the first quarter of 1996 due to fair market demand in spite of the adverse weather. On a pro forma combined basis, net sales of masonry accessories declined by $1.0 million, or 16.7%, to $5.0 million in the first quarter of 1996 due to severe winter weather which adversely affected the sales of hot-dipped galvanized masonry accessories used in exterior building walls. In addition, a competitor entered the market for hot-dipped masonry accessories late in 1995 which also adversely affected sales of this product in the first quarter of 1996. Gross profit increased $2.1 million, or 38.9%, from $5.4 million in the first quarter of 1995 to $7.5 million in the first quarter of 1996. This increase was largely due to the acquisition of Dur-O-Wal in October 1995, but higher gross margins were also realized on the Company's sales due to improved selling prices, favorable material cost variances and, to a lesser extent, a shift in sales mix toward higher margin products. In the first quarter of 1996, gross margins were 31.6% of net sales versus 30.2% of net sales in the first quarter of 1995. On a pro forma combined basis, gross margin increased from 28.8% of net sales in the first quarter of 1995 to 31.6% of net sales due to the factors mentioned above. Selling, general and administrative ("SG&A") expenses, excluding amortization of goodwill and intangibles, increased by $1.3 million, or 30.5%, from $4.3 million in the first quarter of 1995 to $5.6 million in the first quarter of 1996. Dur-O-Wal accounted for $0.9 million of the increase, with the remainder due to new product literature and advertising expenses, the opening of an additional service center in Westfield, MA, and the one-time costs associated with the consolidation of two service/ distribution centers in Toronto. On a pro forma combined basis, SG&A expenses, excluding amortization of goodwill and intangibles, in the first quarter of 1995 were $5.1 million. Net interest expense increased by $0.7 million from $0.9 million in the first quarter of 1995 to $1.6 million in the first quarter of 1996, due to higher debt resulting from the acquisition of Dur-O-Wal and the redemption of $10.0 million of the Company's preferred shares completed during October 1995. The Company did not have any provision for income taxes in the first quarter of 1995 as U.S. net operating losses were being utilized. The provision for income taxes in the first quarter of 1996 reflects non-deductible goodwill amortization and a net operating loss in Canada on which no tax carryback is available. Net loss increased from $0.2 million in the first quarter of 1995 to $0.4 million in the first quarter of 1996 due to the factors described above. COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1995 The recovery of the Heavy Construction industry continued during 1995, with the total value of construction projects started during the year (excluding single family homes) increasing by an estimated 7.4%, as reported by McGraw-Hill Dodge. Net sales increased $10.5 million, or 12.8%, from $82.3 million 23 in 1994 to $92.8 million in 1995, including Dur-O-Wal's net sales of $4.8 million from October 16, 1995, the date of its acquisition. After adjusting for the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994, net sales would have been $107.0 million in 1994. In 1995, pro forma combined net sales were $113.7 million, representing an increase of $6.7 million, or 6.3%. Net sales by product category as reported in the Company's consolidated financial statements and on a pro forma combined basis were as follows:
HISTORICAL PRO FORMA FOR THE DUR-O-WAL ACQUISITION ---------------------------------------------- ------------------------------------------ 1994 1995 1994(1) 1995 ---------------------- ---------------------- -------------------- -------------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % ----------- --------- ----------- --------- --------- --------- --------- --------- (IN MILLIONS, EXCEPT PERCENTAGES) Concrete accessories (including concrete paving products).................. $ 82.3 100.0% $ 88.0 94.8% $82.3 76.9% $88.0 77.4% Masonry accessories......... -- -- 4.8 5.2 24.7 23.1 25.7 22.6 ----- --------- ----- --------- --------- --------- --------- --------- $ 82.3 100.0% $ 92.8 100.0% $ 107.0 100.0% $ 113.7 100.0% ----- --------- ----- --------- --------- --------- --------- --------- ----- --------- ----- --------- --------- --------- --------- ---------
(1) Gives effect to the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994. Net sales of concrete accessories increased by $5.7 million, or 6.9%, to $88.0 million in 1995 principally due to strong market demand, and, to a lesser extent, internally developed new products as well as the introduction of the new line of formliner products added with the acquisition of C&B Construction Supplies, Inc. on June 1, 1995. After adjusting for the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994, net sales of masonry accessories would have been $24.7 million in 1994 compared to pro forma combined net sales of masonry accessories of $25.7 million in 1995. The increase of $1.0 million, or 4.0%, from 1994 to 1995 was largely due to increased volume of hot-dipped products and, to a lesser extent, new product introductions. Gross profit increased $4.5 million from $24.3 million, or 29.5% of net sales, in 1994 to $28.8 million, or 31.0% of net sales, in 1995, primarily due to improved pricing and reduced manufacturing costs. Price improvements reflect the results of a three-year program (initiated in 1993) to pass on raw material cost increases and to better reflect the value of the Company's services, such as quick delivery, and its high product quality. The price improvements allowed the Company to reach the pricing levels that existed prior to the recession of 1990-1991 for some products. Continued emphasis on cost containment, favorable product mix shifts to higher margin products and lower transportation costs also contributed to the gross margin improvement. Dur-O-Wal contributed $0.9 million to gross profit in 1995 during the two and one-half months following its acquisition. After adjusting for the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994, gross profit would have been $30.4 million, or 28.4% of net sales, in 1994 compared to pro forma combined gross profit of $33.7 million, or 29.7% of net sales, in 1995. However, on a pro forma combined basis, gross margin of 29.7% of net sales in 1995 was less than the Company's actual gross margin of 31.0% of net sales as masonry accessories generally have a lower gross margin than concrete accessories. SG&A expenses, excluding amortization of goodwill and intangibles, increased $2.0 million from $16.7 million, or 20.3% of net sales, in 1994, to $18.7 million, or 20.1% of net sales, in 1995. The addition of a new service/distribution center in Westfield, Massachusetts and costs associated with new product sales efforts and management information systems installation were the primary sources of increased SG&A expenses. The addition of Dur-O-Wal added $0.7 million to SG&A expenses, excluding amortization of goodwill and intangibles, in 1995 from the date of its acquisition. After adjusting for the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994, SG&A expenses, excluding amortization of goodwill and intangibles, would have been $20.6 million in 1994. In 1995, pro forma combined SG&A expenses, excluding amortization of goodwill and intangibles, were $21.5 million. However, SG&A expenses, 24 excluding amortization of goodwill and intangibles, decreased as a percentage of net sales from 19.2% in 1994, after adjusting for the Dur-O-Wal Acquisition as if it had occurred on January 1, 1994, to 18.9% in 1995 on a pro forma combined basis. Net interest expense decreased from $6.0 million in 1994 to $4.2 million in 1995, primarily as a result of the 1994 Restructuring, which reduced outstanding debt by $33.8 million. In October 1995, the Company increased its borrowings by $23.6 million to acquire Dur-O-Wal, which resulted in an additional $0.5 million of interest expense from the date of the acquisition. On a pro forma combined basis, net interest expense for 1995 was $6.3 million. During October 1995, the Company repurchased from The Prudential Insurance Company of America and Pruco Life Insurance Company (collectively, "Prudential") all the then outstanding redeemable preferred shares at their $10.0 million aggregate redemption value and all the then outstanding Old Class B Common Shares for a total of $3.5 million (or $4.00 per share) plus a payment of $1.9 million ($1.0 million of which is payable in quarterly installments during 1996) to extinguish certain rights of Prudential under the predecessor to the Shareholder Agreement (the "Old Shareholder Agreement"). Both such redeemable preferred shares and such Old Class B Common Shares had been issued to Prudential in the 1994 Restructuring and were repurchased, in part, to facilitate the Dur-O-Wal Acquisition. Under the Old Shareholder Agreement, the consent of Prudential would have been required to complete the Dur-O-Wal Acquisition. The repurchase of such redeemable preferred shares was financed through borrowings of $10 million under the Credit Facility, which resulted in an additional $0.2 million of interest expense in 1995. In connection with such repurchase and the Dur-O-Wal Acquisition, during October 1995, the Company also sold Class A Common Shares and Old Class B Common Shares at $4.00 per share to its existing shareholders, the holders of its Senior Notes, certain members of management and new investors for net proceeds of $4.9 million. Other expense, net, of $0.9 million in 1994 represents costs associated with an acquisition that was not completed. Income tax expense was $0.7 million, or 15.7% of income before taxes, in 1995, reflecting the favorable impact of utilization of the majority of the Company's net operating loss carryforwards to reduce the effective tax rate. On a pro forma combined basis, the effective tax rate of 17.3% of income before taxes exceeded the Company's historical effective tax rate of 15.7% in 1995 due to the additional non-deductible goodwill amortization arising from the Dur-O-Wal Acquisition. Income before extraordinary item increased by $4.4 million from a loss of $0.7 million in 1994 to income of $3.7 million in 1995 due to the factors described above. Net income decreased by $27.0 million in 1995 compared to 1994 due to the absence of the extraordinary gain of $31.4 million related to the forgiveness of debt recorded as a result of the 1994 Restructuring. COMPARISON OF YEARS ENDED DECEMBER 31, 1993 AND 1994 Net sales increased $7.1 million, or 9.4%, from $75.2 million in 1993 to $82.3 million in 1994 as a result of a moderate recovery in Heavy Construction activity and, to a lesser extent, added sales from new products. For the first four months of 1994, net sales were depressed due to unusually adverse weather conditions throughout the United States. Blizzards, ice storms and floods largely shut down construction in some regions. The last eight months of the year were exceptionally strong with record sales achieved by the Company in six of these eight months. The combination of a strong overall market with a slow weather-suppressed start for the year resulted in sales increases late in the year. According to McGraw-Hill Dodge, the total value of construction projects started in 1994 (excluding single family homes) increased by 11.6% from the 1993 level. Gross profit increased by $4.6 million from $19.7 million, or 26.2% of net sales, in 1993 to $24.3 million, or 29.5% of net sales, in 1994, largely due to general price increases in improving economic markets, stable raw material prices and a favorable shift in product mix. Cost reduction and productivity programs in manufacturing also contributed slightly to the gross margin improvement. 25 SG&A expenses, excluding amortization of goodwill and intangibles, increased $2.1 million from $14.6 million, or 19.4% of net sales, in 1993 to $16.7 million, or 20.3% of net sales, in 1994. Of the increase, $1.0 million is attributable to wages and other direct employee expenses, as the Company invested in customer contact and sales service personnel and the formula-based incentive compensation plan grew with improved performance. Depreciation expense accounted for $0.2 million of the increase in such SG&A expenses due to an investment in a new management information system. In addition, the Company incurred $0.3 million in start up costs associated with the system installation. Promotional and travel expenses increased $0.3 million, as the Company updated catalogs, introduced a new Spanish-language catalog for sales in Mexico and expanded promotional activities. Net interest expense decreased from $10.1 million, or 13.4% of net sales, in 1993 to $6.0 million, or 7.3% of net sales, in 1994 as a result of the 1994 Restructuring. Net income increased to $30.7 million in 1994 compared to a net loss of $6.2 million in 1993 largely due to the extraordinary gain of $31.4 million related to the forgiveness of debt recorded as a result of the 1994 Restructuring. The loss before extraordinary item decreased by $5.5 million from $6.2 million in 1993 to $0.7 million in 1994 due to the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company's capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, the Company's primary sources of financing have been cash from operations, borrowings under its revolving line of credit and, in 1994 and 1995, the issuance of long-term debt and equity. Net cash provided by operating activities was $8.2 million for 1995. Operating cash flow consisted of net income of $3.7 million, non-cash charges of $4.3 million for depreciation and amortization and other changes in net working capital of $0.2 million. Net cash used in operating activities was $3.6 million for the first quarter of 1996. Uses of operating cash flow included a $0.4 million net loss, seasonal increases in receivables and inventory of $1.5 and $2.7 million, respectively, and a decrease in accrued liabilities of $1.9 million. The decrease in accrued liabilities reflects the payment of annual incentive compensation, estimated income tax payments and a $0.5 million payment to Prudential. Sources of operating cash flow in the first quarter of 1996 included $1.3 million from non-cash charges for depreciation and amortization and $1.8 million from seasonal growth in accounts payable. At March 29, 1996, working capital was $14.3 million compared to $11.4 million at March 31, 1995. Of the increase, $1.1 million is attributable to the acquisition of Dur-O-Wal while $1.8 million is a result of deferred tax benefits recognized in the latter part of 1995. The ratio of current assets to current liabilities was 1.8 to 1 at March 29, 1996 and 1.9 to 1 at March 31, 1995. On June 17, 1996, the Company entered into the Amended Credit Facility with the Banks conditional upon consummation of the Offering. The Amended Credit Facility will provide for (i) term loans to the Company and Dur-O-Wal (together, the "Term Loan") and (ii) revolving credit facilities for the Company and Dur-O-Wal (together, the "Revolving Credit Facility"). The Revolving Credit Facility will terminate in four years, with interest options based on (a) Bank One, Dayton, NA's prime rate or (b) LIBOR plus an amount between 1.00% and 2.75% (LIBOR plus 1.75% immediately following consummation of the Offering) depending on the level of EBITDA and certain other financial ratios. A commitment fee of between 0.125% and 0.50% per annum (0.25% per annum immediately following consummation of the Offering) will be payable on the average unused amount depending on the level of EBITDA and certain other financial ratios. Amounts available under the Revolving Credit Facility will be equal to the lesser of (i) $37 million or (ii) the sum of (x) 85% of eligible accounts receivable, (y) 60% of eligible inventories and (z) an amount of up to $12 million upon closing of the Offering, decreasing in steps to zero on October 1, 1997. At March 29, 1996, if the Revolving Credit Facility had been in place, $29.7 million would have been available thereunder, of which $17.1 million of borrowings would have been outstanding. The principal amount of the Term Loan will be the lesser of $13 million or 70% of the value of the Company's fixed assets, based on an appraisal of certain assets and the net book value of 26 other assets. The Banks have agreed that, pending receipt of appraisals, which currently are being conducted, the principal amount of the Term Loan will be $13 million. If, based on the appraisals, 70% of the value of the Company's fixed assets is less than $13 million, the Company will be required to repay to the Banks the amount of the difference between such value and $13 million. If the appraised value of the Company's fixed assets is equal to the depreciated book value of such assets at March 29, 1996, the amount of the Term Loan, as adjusted for the appraisals, will be $12.2 million. The Company believes that it will have sufficient availability under the Revolving Credit Facility to fund any required repayment of the Term Loan at the time the appraisals are received. The Term Loan will be due in full four years from its date of issuance with mandatory quarterly principal payments of $812,500 (subject to adjustment if the amount of the Term Loan is reduced as a result of the appraisals of the Company's fixed assets) plus interest. The Term Loan will permit the Company to choose from various interest rate options. The Amended Credit Facility contains restrictive covenants which, among other things, will require the Company to maintain certain specified financial ratios and will limit the Company's ability to incur debt, make acquisitions and capital expenditures and pay dividends. See "Description of Certain Indebtedness." The Company intends to draw down approximately $ million at , 1996, the expected date of the consummation of the Offering, ($20.43 million based on accrued interest at March 29, 1996) on this facility which, with the proceeds of the Offering, will be used to retire $40 million of outstanding Senior Notes, pay accrued interest thereon of $ million at , 1996, the expected date of the consummation of the Offering, ($1.54 million at March 29, 1996) and fund a prepayment premium of $2.4 million in connection therewith. Borrowing levels vary during the course of a year based upon the Company's seasonal working capital needs. The Company's sales are highly seasonal due to the impact of weather on the Heavy Construction industry. Beginning at the end of the first quarter, the Company's sales typically increase sharply, reaching a peak around the end of the second quarter or beginning of the third quarter. The Company's accounts receivable normally increase from the beginning of the year to the end of the third quarter. Accounts receivable are highest in the months of June through September and averaged $15.0 million during such months in 1994 and $15.7 million during such months in 1995. Accounts receivable are lowest in the months of January and February and averaged $9.9 million during such months in 1995 and $12.1 million during such months in 1996. Inventory generally begins to buildup during the middle of the first quarter and remains at a high level until the fourth quarter. In 1994, the average inventory was $10.3 million and in 1995 it was $11.6 million. The average inventory turnover ratio for 1994 was 5.0 and in 1995 was 4.8. This results in a seasonal need for working capital. During the fourth quarter, sales and working capital typically experience a seasonal decline. The maximum borrowings outstanding under the Credit Facility during 1995 were $18.4 million on October 16, 1995 immediately following the Dur-O-Wal Acquisition and the repurchase of the redeemable preferred shares and certain of the Old Class B Common Shares. Absent these two transactions, seasonal peak borrowings under the Credit Facility during 1995 would have been $3.2 million at April 14, and July 13, 1995. Outstanding borrowings dropped to $13.3 million at December 31, 1995 as seasonal working capital needs declined and rose to $17.1 million at March 29, 1996 as seasonal working capital needs increased. At March 29, 1996, the Company had $39.7 million of long-term debt outstanding, net of debt discount and excluding the Credit Facility, with a weighted average interest rate of 12.08% and final maturities from 1999 through 2005. The Company made $2.7 million in capital expenditures during 1995. The largest expenditure was a $1.0 million acquisition of equipment and the associated construction of a new facility to house an epoxy coating line in Parsons, Kansas. Other significant investments in 1995 included a construction nail stake machine, an automated resistance welder for the concrete paving products line, equipment for a new mechanical rebar connector product, additional computers and software. The Company made $0.7 million in capital expenditures in the first quarter of 1996 and has planned additional capital expenditures during the remainder of 1996 of approximately $1.2 million with up to an additional $0.6 million in capital expenditures associated with the paving acquisition completed on April 29, 1996. Major projects include a new truss machine for Dur-O-Wal's Aurora, Illinois plant, 27 improved air handling and water cooling in Miamisburg, Ohio, a major upgrade of the chemical laboratory and new liquid chemical production equipment for the Oregon, Illinois facility and an additional automated side frame machine for the concrete paving products line in Parsons, Kansas. The Company believes that its liquidity, capital resources and cash flows from operations are sufficient to fund planned capital expenditures, working capital requirements and debt service in the absence of additional acquisitions. The Company intends to fund future acquisitions with cash, securities or a combination of cash and securities. To the extent the Company uses cash for all or a part of any such acquisition, it expects to raise such cash primarily from cash generated from operations, borrowings under the Amended Credit Facility or, if feasible and attractive, issuances of long-term debt or additional Class A Common Shares. However, under the terms of the Amended Credit Facility the Company is prohibited from incurring additional debt (subject to certain exceptions) and from merging or consolidating with, or acquiring the stock of, any corporation without the consent of the Banks. In addition, the amount available under the Amended Credit Facility may not be sufficient to finance both acquisitions and working capital requirements. EFFECTS OF INFLATION Inflation generally affects the Company by increasing interest expense and by increasing the cost of labor, equipment and raw materials, primarily steel. The Company does not believe that inflation has had a material effect on the Company's business over the past three years. In the past, the Company has been able to pass along to its customers all or a portion of the effects of steel price increases by increasing selling prices or imposing cost surcharges. There can be no assurance that the Company will able to continue to pass on the cost of such increases in the future. RECENTLY ISSUED ACCOUNTING STANDARDS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of," which addresses the identification and measurement of asset impairments and requires recognition of impairment losses on long-lived assets when book values exceed expected future cash flows. The Company was required to adopt the provisions of SFAS No. 121 in the first quarter of 1996. The application of this standard did not have a material impact on the Company's financial position or results of operations. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which establishes new accounting and disclosure requirements for stock-based employee compensation plans. The Company will adopt this standard in 1996 by continuing to follow the accounting prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and presenting the required pro forma disclosures. The application of this standard did not have a material impact on the Company's financial position or results of operations. 28 BUSINESS GENERAL The Company believes it is the largest North American manufacturer and distributor of specialized metal accessories used in concrete construction and masonry construction on the basis of sales. The Company's products are used primarily in two segments of the construction industry: non-residential building projects such as institutional buildings, retail sites, commercial offices and manufacturing facilities; and infrastructure projects such as highways, bridges, utilities, water and waste treatment facilities and airport runways. On an historical basis, the dollar volume of non-residential building and infrastructure construction in North America has been less cyclical than that of single family residential construction. The Company was founded in 1924 under the name The Dayton Sure-Grip and Shore Company. Following the 1982 acquisition of Superior Concrete Accessories, Inc., the Company evolved from a regional company to a large, geographically diversified firm. Between 1991 and June 1995, the Company completed four small acquisitions and, in October 1995, the Company acquired Dur-O-Wal, which had net sales of $25.7 million in 1995 on a pro forma combined basis, for a cash purchase price of $23.6 million (including acquisition costs). The Company believes that Dur-O-Wal is a leading manufacturer of masonry accessories and the largest manufacturer of masonry wall reinforcement in North America on the basis of sales. On April 29, 1996, the Company purchased certain assets of a privately-held concrete paving products manufacturer based in Kankakee, Illinois for a cash purchase price of approximately $5 million (including estimated acquisition costs and subject to post-closing adjustments). The Company intends to combine the acquired business (the principal products of which are welded dowel assemblies and epoxy-coated steel bar stock) with its existing concrete paving products business. The Company believes that, in addition to offering consolidation savings, this acquisition will enable it to enter certain new markets and to better serve existing customers in the Midwest. The Company believes that its distribution system is the largest in its industry, consisting of a network of 22 Company-operated service/distribution centers in the United States and Canada and over 3,000 customers, including stocking dealers, brokers, rebar fabricators, precast concrete manufacturers and brick and concrete block manufacturers. The Company believes that its ability to deliver quality products to customers quickly using its on-line inventory tracking system gives it a competitive advantage over many of its competitors and encourages customer loyalty. Although the Company believes it is the largest North American manufacturer and distributor of specialized metal accessories used in concrete construction and masonry construction, the industry in which the Company competes is highly competitive in most product categories and geographic regions. The Company competes with a relatively small number of full-line national manufacturers of concrete or masonry accessories and a much larger number of regional manufacturers with limited product lines. See "Business--Competition." The Company manufactures most of its products at four principal facilities in the United States using, in many cases, high-volume, automated equipment designed and built or custom modified by in-house personnel. The Company sells approximately 12,300 different products in two principal product lines (concrete accessories, which include concrete paving products, and masonry accessories), including products designed to hold rebar in place, support concrete framework, reinforce masonry walls and create attachment points on concrete or masonry surfaces. The Company's product lines, which the Company believes are the broadest in the industry, are marketed under the DAYTON SUPERIOR-REGISTERED TRADEMARK- name in the case of concrete accessories and under the DUR-O-WAL-REGISTERED TRADEMARK- name in the case of masonry accessories. The Company's senior management team, which has been in place since 1989 and averages over 20 years of manufacturing industry experience, is led by John A. Ciccarelli, its President and Chief Executive Officer, who formerly was the President of The Wheelabrator Corporation, a manufacturer of industrial blast cleaning equipment. The Company also benefits from the experience of Matthew O. Diggs, Jr., its non-executive Chairman, particularly with respect to acquisitions and strategic direction. 29 Mr. Diggs is the former President and Chief Executive Officer of Copeland Corporation, a manufacturer of refrigerator compressors, and the former Chairman of The Delfield Company, a manufacturer of food service equipment. The Company was incorporated in 1959. The Company's principal executive offices are located at 721 Richard Street, Miamisburg, Ohio 45342, and its telephone number is (513) 866-0711. BUSINESS STRATEGY Management is seeking to implement the following business strategy, which is designed to build on the Company's manufacturing and distribution strengths and scale advantages to achieve growth both through acquisitions and internally. - PURSUE STRATEGIC ACQUISITIONS. In addition to internal growth, including new product development, the Company intends to continue to grow through acquisitions. The markets in which the Company competes have a large number of relatively small, regional manufacturers and consequently offer consolidation opportunities. The Company seeks acquisitions that complement its existing products or represent product extensions and primarily focuses its acquisition strategy on regional and specialty-product firms. The Company believes it has been able to achieve synergies in its acquisitions through economies of scale in purchasing, manufacturing, marketing and distribution. - LEVERAGE EXTENSIVE DISTRIBUTION SYSTEM AND DEALER NETWORK. The Company's extensive distribution system, broad product lines and continuing commitment to customer service and quality have enabled it to attract and maintain the largest dealer network in its industry. The Company utilizes its distribution system and dealer network as a platform for integrating acquisitions and for selling products manufactured by third parties. Sales of third-party products allow the Company to utilize its distribution system to increase sales without making significant capital investments. The Company estimates that net sales of third party products accounted for approximately $18.5 million of the Company's net sales in 1995 on a pro forma combined basis. - UTILIZE CUSTOMIZED AUTOMATED MANUFACTURING EQUIPMENT. The Company designs and builds or custom modifies much of the high-volume, automated equipment it uses to manufacture metal concrete accessories and concrete paving products. To develop this equipment, it employs a team of experienced manufacturing engineers and tool and die makers. The Company believes that its customized automated manufacturing equipment provides it with several competitive advantages relative to its competitors, including (i) significantly greater productivity, (ii) lower capital equipment costs, (iii) lower scrap rates, (iv) higher product quality, (v) faster product changeover times and (vi) lower inventory levels. - DEVELOP NEW PRODUCTS. The Company has a new product development program built around its marketing, engineering and manufacturing personnel. This program establishes goals for, and tracks the success of, new product development in each project group. The Company estimates that new products introduced in the last five years (three years, in the case of chemical products), including new products introduced by Dur-O-Wal during such period, accounted for approximately $6.5 million of the Company's net sales in 1995 on a pro forma combined basis. - OFFER BROAD PRODUCT LINE. The Company believes it offers the broadest product line in metal accessories for the concrete and masonry construction industry in North America, providing its customers with products designed to meet a wide variety of concrete and masonry construction needs. The Company believes that its customers' ability to order a wide range of products from the Company enhances its sales. THE INDUSTRY The Company's products are used primarily in two segments of the construction industry: non-residential building projects, such as institutional buildings, retail sites, commercial offices and manufacturing facilities; and infrastructure projects, such as highways, bridges, utilities, water and waste treatment facilities and airport runways. The Company's products are also used in multi-family residential 30 construction such as apartments, condominiums and multi-family homes. Because the Company's products are sold primarily through its distribution system and dealer network rather than directly to end-users, the Company cannot determine precisely the percentages of its sales made to individual segments of the construction industry. However, certain of the Company's products can only be used or are predominantly used only in particular segments of the Heavy Construction industry. In addition the Company conducted an informal survey of its customers in 1992 with respect to the end-use of selected product lines and updated the survey in 1994. Based on the survey, an analysis of the potential uses for its products, discussions with customers and management's knowledge of the construction industry, the Company estimates that (i) less than 1% of its net sales are made to the single family residential construction segment, (ii) less than 10% of its net sales are made to the multi-family residential construction segment, (iii) approximately 35% of its net sales are made to the infrastructure segment and (iv) the majority of its net sales are made to the non-residential building construction segment. The Company believes that approximately 90% of its net sales are made to the non-residential building and infrastructure segments of the construction industry which made up approximately 55% of the United States construction industry in 1994 (with the remainder consisting of single family residential construction (40%) and multi-family residential construction (5%)). Historically, based upon the dollar volume of contracts awarded for new construction starts, infrastructure, non-residential building and multi-family residential construction, taken together, have been less cyclical than single family residential construction. The chart below shows the annual percentage change in the total dollar value of construction contracts started during the years 1968 to 1995 for single family residential construction and for all other types of construction, excluding single family residential construction. DOLLAR VOLUME OF CONTRACTS AWARDED Annual Percentage Change EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CHANGE FROM PREVIOUS YEAR HEAVY CONSTRUCTION SINGLE FAMILY RESIDENTIAL 68 14% 9% 69 16% -4% 70 2% -4% 71 10% 41% 72 8% 29% 73 13% 0% 74 -3% -17% 75 -4% 9% 76 12% 43% 77 22% 40% 78 11% 19% 79 15% -8% 80 -5% -23% 81 8% -8% 82 0% -2% 83 10% 65% 84 12% 7% 85 13% 3% 86 0% 20% 87 4% 4% 88 -1% 6% 89 5% 1% 90 -8% -11% 91 -9% -1% 92 2% 22% 93 5% 12% 94 12% 6% 95E 7% -8% 96P 2% 7%
- ------------------------ Source: McGraw-Hill Dodge Management believes that the 1980s were an unusually active period for real estate development. Debt financing was readily available, due in part to the expansion of savings and loan associations into this area. Equity capital was abundant, due in part to pre-1986 tax laws that allowed investors to offset ordinary income with tax losses from real estate investments. Real estate values expanded rapidly, reflecting general increases in price levels during the 1970s and 1980s as well as growth in household formation due to the maturation of the "Baby Boom" generation. The construction industry suffered a sharp decline in 1990 and 1991 with overall demand for Heavy Construction declining by 16.4% during the 1990-91 recession (as defined by the National Bureau of 31 Economic Research), compared with an average decline of 1.8% in the five recessions (as defined by the National Bureau of Economic Research) experienced during the 25 years prior to that period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of the impact of this sharp decline on the Company. The decline in 1990-91 was due to the combined impact of a cyclical recession with other factors, including the impact of the 1986 Tax Reform Act, passage of the Financial Institutions Reform Recovery and Enforcement Act of 1989 ("FIRREA") and a slow-down in the decade-long period of what many regarded as speculative overbuilding. The changes in the tax laws in 1986 and changes in regulatory standards for oversight of financial institutions in 1989 brought about by FIRREA reduced the availability of capital for investment in commercial developments and, combined with a normal, cyclical downturn in the economy, had the effect of severely reducing the level of construction activity at the end of the 1980s. NON-RESIDENTIAL BUILDING CONSTRUCTION. Non-residential building construction includes projects such as institutional buildings, retail sites, commercial offices and manufacturing facilities. The Company estimates that its sales to this segment of the industry account for more than half of its net sales. The graph below contains data for non-residential building construction and its two segments, commercial and manufacturing construction and institutional construction. NON-RESIDENTIAL BUILDING CONSTRUCTION DOLLAR VOLUME OF CONTRACTS AWARDED (in billions of dollars) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NON-RESIDENTIAL COMMERCIAL & INDUSTRIAL INSTITUTIONAL 67 $10.40 11.6 68 $12.00 12.3 69 $14.70 13.5 70 $13.60 13.2 71 $13.50 14.7 72 $16.20 13.2 73 $19.80 14.4 74 $18.50 16.2 75 $16.70 15.9 76 $15.60 15.7 77 $20.30 16.6 78 $31.50 15.9 79 $34.70 18.8 80 $36.90 20 81 $44.50 21 82 $41.80 22.8 83 $43.70 24.2 84 $56.20 25.9 85 $62.80 29.5 86 $59.70 31.9 87 $62.30 36.5 88 $61.10 36.8 89 $66.30 39.8 90 $53.20 42.2 91 $41.00 45.3 92 $41.70 45.4 93 $43.20 45.5 94 $51.50 49.5 95 $57.60 51.7
- ------------------------ Source: McGraw-Hill Dodge (1) Compounded annual growth rate for the period from 1967 through projected 1995 32 Certain sectors within this segment of the construction industry generally have experienced more stable historical growth, while other sectors have been affected more by cyclical trends. The less cyclical portion, representing institutional projects (such as government buildings, schools and hospitals), shares certain similarities with infrastructure construction as its funding sources are somewhat independent of the general economy. Funding for construction of schools and hospitals typically comes from bond issues or real estate taxes. The more cyclical portion of this segment includes the construction of commercial offices, commercial retail sites and industrial buildings. Commercial office construction was very active in the mid-1980's due, in part, to strong tax inducements and the wide availability of debt and equity capital to finance commercial development projects. Changes in the tax laws in 1986 and changes in regulatory standards for oversight of financial institutions in 1989 dramatically reduced the availability of capital for investment in commercial developments, and construction decreased accordingly. INFRASTRUCTURE CONSTRUCTION. This segment is comprised of construction of highways, bridges, utilities, water and waste treatment facilities and airport runways. The Company estimates that its sales to this segment of the industry account for approximately 35% of the Company's net sales. The graph below illustrates the historical trends in this segment of the construction industry. INFRASTRUCTURE CONSTRUCTION DOLLAR VOLUME OF CONTRACTS AWARDED (in billions of dollars) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
INFRASTRUCTURE 1967 12.9 1968 13.8 1969 15.7 1970 17.9 1971 18.2 1972 18.7 1973 21.6 1974 25 1975 28.4 1976 35.8 1977 43.2 1978 40 1979 45.5 1980 34.5 1981 35.4 1982 37.5 1983 37.8 1984 36.9 1985 41.4 1986 42.1 1987 46.1 1988 48.1 1989 49 1990 49.7 1991 50.2 1992 54.6 1993 58.9 1994 61.4 1995 Prelim 63.8
- ------------------------ Source: McGraw-Hill Dodge (1) Compound annual growth rate for the period from 1967 through projected 1995. Compared to other segments of the construction industry, infrastructure construction is less dependent on general economic conditions, as funding for infrastructure projects often comes from federal, state and local taxes, user taxes, gasoline taxes and bond issues. In certain instances, infrastructure spending has increased notwithstanding a soft economy, as local and federal governments attempted to offset recessionary trends. There can be no assurance that such increases will be repeated in future recessionary times. Infrastructure construction remained relatively constant during the 1980s, reflecting continued construction of the Federal Highway System as well as implementation of federal water quality standards and continuing airport expansion. The Intermodal Surface Transportation Efficiency Act of 1991 ("ISTEA") authorized up to $155 billion of federal funding for transportation projects for 1992 through 1997. MULTI-FAMILY RESIDENTIAL CONSTRUCTION. This segment of the construction industry consists of apartment, condominium and multi-family home construction. The Company estimates that its sales to this 33 segment of the industry account for less than 10% of its net sales. After reaching a peak in 1985, multi-family residential construction declined dramatically, declining by more than two thirds by 1992. Since 1992, spending has increased modestly, but remains below the levels achieved during much of the 1980s. MULTI-FAMILY RESIDENTIAL CONSTRUCTION DOLLAR VOLUME OF CONTRACTS AWARDED (in billions of dollars) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
MULTI-FAMILY 67 $4.80 68 $7.00 69 $8.30 70 $8.40 71 $12.20 72 $15.60 73 $15.70 74 $9.20 75 $5.30 76 $7.20 77 $10.80 78 $13.60 79 $17.30 80 $18.80 81 $18.00 82 $17.40 83 $26.30 84 $28.90 85 $33.10 86 $32.10 87 $27.50 88 $24.00 89 $22.80 90 $17.50 91 $12.40 92 $10.00 93 $11.40 94 $15.00 95 $17.40
- ------------------------ Source: McGraw-Hill Dodge (1) Compound annual growth rate for the period from 1967 through projected 1995. ACQUISITIONS In addition to internal growth, including new product development, the Company intends to continue to grow through acquisitions. The markets in which the Company competes are generally fragmented with a large number of relatively small, privately held regional manufacturers. The Company believes these markets offer a number of consolidation opportunities and is focusing its acquisition strategy primarily on regional and specialty product firms. The Company seeks acquisitions that complement or extend its existing product lines, offer compatibility in customers or in manufacturing processes, add strong manufacturing or product technology or provide access to new market segments or proprietary products. Since 1990, the Company has completed four small asset acquisitions, as well as the acquisition of Dur-O-Wal in 1995 which the Company believes established it as a leading manufacturer of masonry accessories and the largest manufacturer of masonry wall reinforcement in North America on the basis of sales. In addition, on April 29, 1996, the Company purchased certain assets of a privately held concrete paving products manufacturer based in Kankakee, Illinois for a cash purchase price of approximately $5 million (including estimated acquisition costs and subject to post-closing adjustments). The Company intends to combine the acquired business (the principal products of which are welded dowel assemblies and epoxy-coated steel bar stock) with its existing concrete paving products business. The Company believes that, in addition to offering consolidation savings, this acquisition will enable it to enter certain new markets and to better serve existing customers in the Midwest. The table below 34 indicates the principal strategic benefits that the Company believes it has achieved or will achieve with respect to each acquisition. The Company used cash from operations and borrowings on its line of credit to make the acquisitions listed in the table below.
YEAR ACQUISITION CASH PURCHASE PRICE BUSINESS STRATEGIC BENEFITS - --------- ------------------ ------------------- ------------------------------- ------------------------------- 1996 Paving products $5 million(1) - Regional manufacturer of - Increases presence in the manufacturer concrete paving products Midwest paving market; permits consolidation of manufacturing facilities. 1995 Dur-O-Wal $23.6 million(2) - Leading manufacturer of - Established the Company as a masonry accessories leader in the masonry accessories market; increased raw material purchasing power; permitted consolidation of distribution facilities. 1995 C&B Construction $150,000 - Regional manufacturer of - Introduced a new line of Supplies, Inc. textured and profiled liners concrete formliners for sale for concrete forms through the Company's distribution system. 1994 Alpha Rebar $67,000 - Regional manufacturer of - Increased presence in the Company, Inc. paving products paving market in Texas and the surrounding region; permitted consolidation of manufacturing facilities. 1992 Jois Plastics $75,000 - Regional manufacturer of - Introduced a new line of plastic bar supports plastic bar supports for sale through the Company's distribution system. 1991 UBS $200,000 - Regional manufacturer of - Increased presence in the metal bar supports Northeast region; permitted consolidation of manufacturing facilities.
- ------------------------------ (1) Includes estimated acquisition costs and subject to post-closing adjustments. (2) Includes acquisition costs. PRODUCTS Although almost all of the Company's products are used in concrete or masonry construction, the function and nature of the products differ widely. The Company currently offers more than 12,300 different items and believes its brand names DAYTON SUPERIOR-Registered Trademark- and DUR-O-WAL-Registered Trademark- are widely recognized in the construction industry. The Company continually attempts to increase the number of products it offers by using two product development teams to introduce new products and refine existing products. Between 1990 and 1995, the Company estimates that net sales of new products developed within the prior five years (three years in the case of chemical products) increased from approximately $3.5 million to approximately $5.5 million including new products introduced by Dur-O-Wal during such period (approximately $6.5 million on a pro forma combined basis). 35 The Company's 1995 net sales of its two principal product lines, on a pro forma combined basis, were as follows: PRO FORMA COMBINED 1995 NET SALES BY PRODUCT LINE EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
(100% = $113.7 MILLION) Masonary Accessories 22.6% Concrete Accessories (including 77.4% concrete paving products)
CONCRETE ACCESSORIES (INCLUDING CONCRETE PAVING PRODUCTS). The Company's concrete accessories products are comprised primarily of wall-forming products, concrete paving products, bridge deck products, bar supports, precast and prestressed concrete construction products, tilt-up construction products and chemicals used in concrete construction. Sales of concrete accessories accounted for approximately $88.0 million, or 77.4%, of the net sales of the Company in 1995 on a pro forma combined basis. The Company estimates that wall-forming products and concrete paving products each accounted for approximately one fifth of its concrete accessories sales on a pro forma combined basis in 1995. Wall-forming products, such as snap ties, coil ties, she bolts and he bolts, are used in the fabrication of job-built and prefabricated modular forms for poured-in-place concrete walls. The products, which generally are not reusable, are made of wire or plastic (or a combination of both materials) and generally are manufactured by the Company on customized high-speed automatic equipment. The Company's concrete paving products consist primarily of welded dowel assemblies and dowel baskets used to transfer dynamic loads between two adjacent slabs of concrete roadway. Concrete paving products are used in the construction and rehabilitation of roads, highways and airport runways to extend the life of the pavement. The Company manufactures welded dowel assembles primarily using automated and semi-automatic equipment. Bridge deck products (used to support the formwork of bridges) include hangers and sidewalk overhang brackets (used to support the formwork used by contractors in the construction and rehabilitation of bridges), coil nuts and bolts, haunch carriers, screen supports and cast wing nuts. Bar supports are non-structural metal or plastic accessories used to position rebar within a horizontal slab or form to be filled with concrete. Bar supports often are plastic or epoxy coated, galvanized or equipped with plastic tips to prevent creating a conduit for corrosion of the embedded rebar. The Company sells more than 100 basic types of bar supports in a wide variety of standard and custom sizes and finishes. Precast and prestressed concrete construction products, such as anchors, inserts, holddowns and pushdowns, are used in the manufacture of precast concrete panels and prestressed concrete beams and structural members. Precast concrete panels and prestressed concrete beams are fabricated away from the construction site and transported to the site for erection. Precast concrete panels are used in the construction of prisons, freeway sound barrier walls, external building facades and other similar 36 applications. Prestressed concrete beams use multiple strands of steel cable under tension embedded in a concrete beam to provide rigidity and bearing strength, and often are used in the construction of bridges, parking garages and other applications where long, unsupported spans are required. The Company offers a complete line of inserts, lifting hardware and adjustable beams used in the tilt-up method of construction, in which the concrete floor slab is used as part of a form for casting the walls of a building. After the cast walls have hardened on the floor slab, a crane is used to "tilt up" the walls, which then are braced in place until they are secured to the rest of the structure. Tilt-up construction generally is considered to be a faster method of constructing low-rise buildings than conventional poured-in-place concrete construction. The Company also manufactures or distributes chemicals used in concrete construction, including form coatings, bond breakers, curing agents, liquid hardeners, sealers, water repellents, bonding agents, epoxy grouts, floor hardeners, patching cements, self-leveling floor under-layments and coatings. In 1995, the Company manufactured approximately 80% of the chemical products it sold (with the remainder being purchased from third-party manufacturers under private label programs). The Company believes that it is currently a minor competitor in the approximately $1 billion North American market for concrete construction chemicals. MASONRY ACCESSORIES. The Company's masonry accessories product line consists primarily of masonry wall reinforcement ("MWR") products, masonry anchors and other accessories used in masonry construction and restoration. These products are manufactured and sold primarily by the Company's Dur-O-Wal subsidiary. Sales of masonry accessories accounted for approximately $25.7 million, or 22.6%, of the net sales of the Company in 1995 on a pro forma combined basis. The Company believes that it is the largest manufacturer of MWR products in North America on the basis of sales. MWR products are wire products that are placed between courses of masonry and covered with mortar to add tensile and structural strength to masonry walls in order to control shrinkage and cracking, to provide the principal horizontal reinforcement in engineered masonry walls, to bond masonry wythes (single thicknesses of brick) in composite and cavity walls, to reinforce stack bond masonry and to bond intersecting walls. The products improve the performance and longevity of masonry walls by providing crack control, greater elasticity, higher ductility to withstand seismic shocks and better resistance to rain penetration. The Company is one of only two manufacturers of MWR products with the in-house ability to produce hot-dipped zinc galvanized finishes. "Hot-dip" galvanizing occurs after products are fabricated and requires skilled personnel and special systems to prevent the products from adhering to one another. Hot-dipped galvanized finishes are considered to provide superior protection against corrosion compared to mill-galvanized finishes, which are added by the manufacturer of the wire from which MWR products are fabricated. As a result, products with hot-dipped galvanized finishes generally are sold at a premium compared to mill-galvanized products and at greater profit margins. In recent years, model building codes in a number of the regions of the country in which masonry construction is used have been amended to require use of hot-dipped galvanized MWR products. The Company also manufactures MWR products with mill-galvanized finishes. The Company sells other masonry accessories such as wall ties, which connect masonry to masonry; masonry anchors, which connect masonry to the building structure; stone anchors, which attach building stone (generally ornamental) to the structural frame of a building; restoration products, which are anchors and ties used in the restoration of existing masonry construction and for seismic retrofitting of existing brick veneer surfaces; and moisture control products, such as flashing and vents, which control the flow of moisture in cavity walls. DISTRIBUTION The Company distributes its products through a system of 22 service/distribution centers located in the continental United States and in two Canadian provinces. Of these centers, 15 are dedicated principally to the distribution of concrete accessories, five are dedicated principally to the distribution of 37 masonry accessories and two carry both concrete and masonry accessories. Most of the Company's products are shipped to the service/distribution centers from the Company's four principal manufacturing plants; however, a majority of the centers also are able to produce smaller batches of some products on an as-needed basis and to fill rush orders. In late 1995 and early 1996, the Company consolidated two Dur-O-Wal service/distribution centers in Toronto, Ontario and Birmingham, Alabama into the Company's existing centers in Toronto and Birmingham. The Company believes that its extensive distribution system is a key element in providing customer service and timely delivery. The Company has an on-line inventory tracking system which enables the Company's customer service representatives to identify, reserve and ship inventory quickly from any Company location in response to telephone orders. The system provides the Company with a competitive advantage since its service representatives are able to answer customer questions about availability and shipping dates while still on the telephone, rather than calling back with the information. The Company primarily uses third-party common carriers to ship its products. In 1995, the Company spent over $9 million on a pro forma combined basis with third-party common carriers. A study commissioned by the Company and completed in January 1996 indicated that annual savings in the Company's freight expenses of approximately $0.5 million may be achieved through the consolidation of the carrier base, institution of a zone billing structure for freight and handling, and the establishment of a corporate freight management function. The Company is in the process of implementing these recommendations. There can be no assurance that such savings can be achieved or that the level of potential savings projected is correct. In addition, the Company utilizes its distribution system to sell products which are manufactured by third parties. These products usually are sold under the Company's name, and often are produced for it on an exclusive basis. Sales of third-party products allow the Company to utilize its distribution network to increase sales without making significant capital investments. The Company estimates that net sales of third-party products were approximately $18.5 million in 1995 on a pro forma combined basis. CUSTOMERS The Company has over 3,000 customers, consisting principally of stocking dealers, brokers, rebar fabricators, precast and prestressed concrete manufacturers and brick and concrete block manufacturers. The Company believes that over 95% of its customers purchase its products for resale, including those that incorporate the Company's products into products manufactured by the customer. The Company's customer base is geographically diverse, with no customer accounting for more than 5% of net sales in 1995 on a pro forma combined basis and with the largest ten customers accounting for less than 16% of net sales in 1995 on a pro forma combined basis. The Company's sales are not concentrated in any particular geographic region. Customers who purchase the Company's products for resale generally do not sell the Company's products exclusively. The Company has instituted a certified dealer program for dealers who handle its tilt-up construction products. This program was established to educate dealers in the proper use of the Company's tilt-up products and to assist them in providing engineering assistance to customers. Certified dealers are not permitted to carry other manufacturers' tilt-up products, which the Company believes are incompatible with those sold by the Company and, for that reason, could be unsafe if used with the Company's products. The Company currently has 51 certified dealers of tilt-up construction products, each of which has an exclusive territory in which it is the only dealer certified by the Company. SALES AND MARKETING The Company employs approximately 100 sales and marketing personnel, of whom approximately one-third are salesmen and two-thirds are customer service representatives. Sales and marketing personnel are located in all of the Company's service/distribution centers. The Company believes that it is one of the few manufacturers in the concrete and masonry accessories industry whose sales representatives routinely call on architects and engineers to promote new products and techniques, in 38 recognition of the influence that these professionals can have in the selection of the Company's products for their projects. Company representatives also are active in many concrete and masonry construction industry technical and trade groups. The Company produces product catalogs and promotional materials that illustrate certain construction techniques in which the Company's products can be used to solve typical construction problems. These materials are often used by contractors as reference sources at construction sites. The Company also promotes its products through seminars and other customer education efforts. MANUFACTURING The Company estimates that sales of products manufactured by the Company accounted for approximately 83% of its net sales in 1995 on a pro forma combined basis. Most products are manufactured at five principal facilities in the United States, although a majority of the Company's 22 service/ distribution facilities can produce smaller lots of some products. The Company's production volumes enable it to design and build or custom modify much of the equipment it uses to manufacture metal concrete accessories and concrete paving products, using a team of experienced manufacturing engineers and tool and die makers. By developing its own automatic high-speed manufacturing equipment, the Company believes that it generally has achieved significantly greater productivity, lower capital equipment costs, lower scrap rates, higher product quality, faster product changeover times and lower inventory levels than most of its competitors. In addition, Dur-O-Wal's ability to "hot-dip" galvanize products at its Aurora, Illinois manufacturing facility provides it with an advantage over most competitors manufacturing MWR products, who lack this internal capability. The Company generally operates its manufacturing facilities two shifts per day, five days per week (six days per week during peak months), with the number of employees increasing or decreasing as necessary to satisfy demand. RAW MATERIALS The Company's principal raw materials are steel wire rod, metal stampings and flat steel, cement and cementitious ingredients, liquid chemicals, zinc and injection-molded plastic parts. The Company currently purchases products from over 100 vendors and is not dependent on any single vendor or small group of vendors for any material portion of its purchases. The costs of raw materials average approximately 70% of the Company's cost of goods sold. Steel accounts for more than a third of the Company's total cost of goods sold. In non-recessionary periods, the Company has been able to pass along raw material cost increases to its customers. For example, in 1994, the Company put in place cost surcharges to pass along higher steel costs to its customers. COMPETITION Although the Company believes it is the largest North American manufacturer and distributor of specialized metal accessories used in concrete construction and masonry construction, the industry in which the Company competes is highly competitive in most product categories and geographic regions. The Company competes with a relatively small number of full-line national manufacturers of concrete or masonry accessories and a much larger number of regional manufacturers and manufacturers with limited product lines. The Company believes that competition is largely based on, among other things, price, quality, breadth of product lines, distribution capabilities (including quick delivery times) and customer service. In certain circumstances, due primarily to factors such as freight rates, quick delivery times and customer preference for local suppliers, certain manufacturers and suppliers may have a competitive advantage over the Company in a given region. The Company believes that its size provides it with certain advantages of scale in both distribution and production relative to its competitors. PATENTS AND TRADEMARKS The Company sells most products under the registered trade names DAYTON SUPERIOR-Registered Trademark- and DUR-O-WAL-Registered Trademark-, which the Company believes are widely recognized in the construction industry and, therefore, important to its business. Although certain of the Company's products (and components thereof) are protected by patents, the Company does not believe these patents are material to its business. 39 FACILITIES The Company's corporate headquarters are located at its principal manufacturing plant in Miamisburg, Ohio. The Company's principal facilities are located throughout North America, as follows:
SIZE (SQ. LOCATION USE LEASED/OWNED FT.) - --------------------------- -------------------------------- --------------- ------------ Miamisburg, Ohio........... Manufacturing, Owned 126,000 Service/Distribution and Corporate Headquarters Kankakee, Illinois......... Manufacturing and Service/ Leased 107,990 Distribution Aurora, Illinois........... Manufacturing and Service/ Owned 104,000 Distribution Parsons, Kansas............ Manufacturing and Service/ Owned 98,250 Distribution Parker, Arizona............ Manufacturing and Service/ Leased 60,000 Distribution Birmingham, Alabama........ Service/Distribution Leased 55,000 Seattle, Washington........ Service/Distribution Leased 42,825 Santa Fe Springs, Service/Distribution Leased 40,000 California................ Toronto, Ontario........... Service/Distribution Leased 40,000 Oregon, Illinois........... Service/Distribution Owned 39,000 Folcroft, Pennsylvania..... Service/Distribution Owned 32,000 Baltimore, Maryland........ Service/Distribution Owned 30,000 Houston, Texas............. Service/Distribution Leased 28,474 Dallas, Texas(1)........... Service/Distribution Owned 22,000 Orlando, Florida........... Service/Distribution Leased 20,000 Westfield, Massachusetts... Service/Distribution Leased 20,000 Denver, Colorado(1)........ Service/Distribution Leased 20,000 Denver, Colorado(1)........ Service/Distribution Leased 19,800 Hialeah Gardens, Florida... Service/Distribution Leased 19,300 Rushsylvania, Ohio......... Manufacturing Owned 12,000 Montreal, Quebec........... Service/Distribution Leased 11,000 Dallas, Texas(1)........... Service/Distribution Leased 10,000 Mesa, Arizona.............. Service/Distribution Leased 10,000 Arlington Heights, Dur-O-Wal Headquarters Leased 5,000 Illinois..................
(1) The Company intends to consolidate its facilities in these cities when the leases expire. The Company believes that its facilities provide adequate manufacturing and distribution capacity for its needs. The Company also believes that all of the leases were entered into on market terms. EMPLOYEES The Company employs approximately 238 salaried and 600 hourly personnel, of whom approximately 300 of the hourly personnel and five of the salaried personnel are represented by labor unions. Employees at the Company's Miamisburg, Ohio; Parsons, Kansas and Aurora, Illinois manufacturing facilities and its service/distribution centers in Baltimore, Maryland and Santa Fe Springs, California are covered by collective bargaining agreements. In 1995, the Company renewed the collective bargaining agreement covering the Miamisburg facility for six years and reopened the collective bargaining agreement covering the Parsons facility (with two years remaining), extending that agreement for an additional three years so that it now expires in 2000. The collective bargaining agreement covering the Aurora, Illinois facility expires in 1998 and the agreement covering the Baltimore, Maryland facility expires in 2001. The collective bargaining agreement that covers five salaried employees at the Company's Santa Fe Springs facility expires in 1996. Twelve hourly employees in Santa Fe Springs are covered by a separate agreement which expires in 1997. The Company believes that it has satisfactory employee and labor relations. 40 ENVIRONMENTAL COMPLIANCE The Company is subject to regulation under various and changing federal, state and local laws and regulations relating to the environment and to employee safety and health. These environmental laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of the Company's business (particularly air emission permits), and these permits are subject to renewal, modification and, in certain circumstances, revocation. The Company believes that it is in substantial compliance with such laws and permitting requirements. The Company is also subject to regulation under various and changing federal, state and local laws and regulations which allow regulatory authorities to compel (or seek reimbursement for) cleanup of environmental contamination at its own sites and at facilities where its waste is or has been disposed. The Company expects to incur on-going capital and operating costs to maintain compliance with currently applicable environmental laws and regulations. The Company does not expect such costs, in the aggregate, to be material to its financial condition, results of operations or liquidity. LEGAL PROCEEDINGS The Company does not believe that there are any pending legal proceedings to which the Company or any of its subsidiaries is a party which, if adversely determined, would have a material adverse effect on the Company. 41 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The table below sets forth the names, ages as of the date of this Prospectus and titles of the executive officers and directors of the Company.
NAME AGE POSITION - ------------------------- --------- ----------------------------------------------------- John A. Ciccarelli 56 President, Chief Executive Officer and Director Richard L. Braswell 53 Vice President, Finance and Treasurer John R. Paine, Jr. 53 Vice President, Sales and Marketing Michael C. Deis 45 Vice President, Eastern Division James C. Stewart 48 Vice President, Western Division Mark K. Kaler 38 Vice President, Engineering James W. Fennessy 52 Vice President and General Manager, Dayton Superior Canada Ltd. Mario Catani 62 President of Dur-O-Wal Matthew O. Diggs, Jr. 63 Director and non-executive Chairman of the Board Timothy C. Collins 39 Director Matthew M. Guerreiro 39 Director Robert B. Holmes 64 Director
John A. Ciccarelli has been President of the Company since 1989 and has been Chief Executive Officer and a Director of the Company since 1994. Richard L. Braswell has been Vice President, Finance and Treasurer of the Company since 1989. John R. Paine, Jr. has been Vice President, Sales and Marketing of the Company since 1984. Michael C. Deis has been Vice President, Eastern Division of the Company since 1987. James C. Stewart has been Vice President, Western Division of the Company since 1984. Mark K. Kaler has been Vice President, Engineering of the Company since 1990. James W. Fennessy has been a Vice President of the Company and General Manager, Dayton Superior Canada, Ltd. since 1988. Mario Catani has been President of Dur-O-Wal since 1984. Dur-O-Wal was acquired by the Company in October 1995. Timothy C. Collins has been a director of the Company since 1991 and was Chairman of the Board from June 1994 until December 1995. Mr. Collins is Senior Managing Director and Chief Executive Officer of Ripplewood, a private investment firm formed by him in October 1995. From February 1990 to October 1995, Mr. Collins was a Senior Managing Director of the New York office of Onex. Mr. Collins also is a director of Scotsman Industries, Inc. Matthew O. Diggs, Jr. has been a director of the Company since October 1995 and non-executive Chairman of the Board since December 1995. Mr. Diggs has been Chief Executive Officer of The Diggs Group, a private investment firm, since 1990. Mr. Diggs has been the non-executive Chairman of Ripplewood since its inception in October 1995. From 1991 to 1994, Mr. Diggs was the Chairman of The Delfield Company, a manufacturer of food service equipment. From 1987 to 1990, Mr. Diggs was Vice Chairman of Copeland Corporation, a refrigerator compressor manufacturer, having served as President and Chief Executive Officer from 1975 to 1987. Mr. Diggs also is a director of Scotsman Industries, Inc. 42 Matthew M. Guerreiro has been a director of the Company since February 1994. Mr. Guerreiro has been a principal of Ripplewood since Ripplewood was formed in October 1995. From August 1992 to October 1995, Mr. Guerreiro was a principal in the New York office of Onex and from April 1989 to March 1992 he was a Vice President of Mergers and Acquisitions with Salomon Brothers Inc. Robert B. Holmes has been a director of the Company since March 1996. Mr. Holmes is a director of Mitsubishi International Corporation, an advisory director of Ripplewood and a principal of the Lens Fund, a private investment company. From 1986 to 1990, Mr. Holmes was a Managing Director of the New York office of Onex. Prior to that, Mr. Holmes was president of three financial service companies and a General Partner of the predecessor to Lazard Freres & Co. LLC. After the Offering is consummated, the Company intends to increase the number of directors to nine and to appoint four additional directors to fill the vacancies so created. The Company has not yet identified any person to fill any of the vacancies. All directors of the Company serve terms of one year or until the election of their successor. Officers serve at the pleasure of the Board of Directors. There are three committees of the Board of Directors: the Executive Committee (comprised of Messrs. Ciccarelli, Collins and Diggs), the Audit Committee (comprised of Messrs. Collins, Diggs and Holmes) and the Compensation and Benefits Committee (comprised of Messrs. Collins, Diggs and Guerreiro). DIRECTORS' COMPENSATION Following the Offering, each director who is not an employee of the Company or Ripplewood will receive an annual retainer of $20,000 payable in Class A Common Shares. Directors who also are employees of the Company or Ripplewood receive no additional remuneration for serving as directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS During 1995, the Compensation and Benefits Committee of the Board of Directors was comprised of Thomas M. Begel and Ewout Heersink, who are former directors of the Company, and Timothy C. Collins. During 1993-1995, Mr. Collins and Mr. Heersink were Senior Managing Director of the New York office and Chief Financial Officer, respectively, of Onex, the former controlling shareholder of the Company. The Company paid a subsidiary of Onex a fee of $93,800, $225,000 and $195,000 in 1993, 1994 and 1995, respectively. In addition, in October 1995 the Company paid a subsidiary of Onex a fee of $400,000 for financial advisory services in connection with the Dur-O-Wal Acquisition and related financial transactions. Mr. Collins is Senior Managing Director and Chief Executive Officer of Ripplewood, the present controlling shareholder of the Company. Since October 1995, the Company has paid Ripplewood an annual management fee of $225,000, payable on a monthly basis. Following the Offering, the Company will no longer pay such management fee to Ripplewood. The Company will pay a fee of $600,000 to Ripplewood for additional services provided in connection with the Offering and related transactions. In addition, the Company reimburses Ripplewood for the allocable costs of certain insurance policies which cover both the Company and Ripplewood. Approximately $175,000 of such costs were allocated to the Company for the period October 13, 1995 to October 13, 1996. The Company paid Mr. Begel a management fee of $156,200 in 1993 and $25,000 in each of 1994 and 1995. Mr. Begel resigned from the Board of Directors in March 1996 and received 1996 management fees of $6,250 prior to his resignation. Mr. Begel is no longer entitled to a management fee. 43 EXECUTIVE COMPENSATION The following table sets forth, for the year ended December 31, 1995, the compensation paid to the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company whose total annual salary and bonus for the year exceeded $100,000, in all capacities in which they served: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION -------------------------------- AWARDS ----------- PAYOUTS ANNUAL COMPENSATION (1) SHARES ------------------- ------------------------ UNDERLYING LONG TERM INCENTIVE ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (2) PLAN PAYOUTS COMPENSATION (3) - -------------------------------------- --------- ----------- ----------- ----------- ------------------- ------------------ John A. Ciccarelli President and Chief Executive Officer 1995 $ 175,529 $ 105,000 40,000 -- $ 3,000 Richard L. Braswell Vice President, Finance and Treasurer 1995 93,923 43,000 4,000 -- 2,754 James C. Stewart Vice President, Western Division 1995 93,923 43,000 3,000 -- 2,578 John R. Paine, Jr. Vice President, Sales and Marketing 1995 93,923 40,000 3,000 -- 2,558 Michael C. Deis Vice President, Eastern Division 1995 87,362 45,000 3,000 -- 2,407
- ------------------------------ (1) Mario Catani, the President of Dur-O-Wal, has been employed by the Company since the acquisition of Dur-O-Wal by the Company in October 1995. Dur-O-Wal paid Mr. Catani a salary of $127,000 and a bonus of $34,000 during 1995. During 1996, Dur-O-Wal will pay Mr. Catani a salary of $132,000 and a bonus which has yet to be determined but which will be based upon performance against predetermined objectives. (2) Options to purchase Class A Common Shares were granted under the Company's 1995 Stock Option Plan at an exercise price of $4.00 per share, the fair market value at the time of grant. The Options have a term of ten years and generally vest three years after grant; however, all of the Options will become immediately exercisable upon consummation of the Offering. (3) Employer matching contributions under the Company's Savings (401(k)) Plan. 44 OPTION GRANTS IN 1995 The following table sets forth information on the Options granted to the named executive officers in 1995 and the potential realizable value of each grant: OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE NUMBER OF AT ASSUMED ANNUAL RATES OF SHARES % OF TOTAL STOCK PRICE APPRECIATION UNDERLYING OPTIONS GRANTED FOR OPTION TERM (3) OPTIONS TO EMPLOYEES IN EXERCISE -------------------------- NAME GRANTED (1) FISCAL YEAR PRICE (2) EXPIRATION DATE 5% 10% - ----------------------------- ----------- ----------------- ------------- -------------------- ----------- ------------- John A. Ciccarelli........... 40,000 62.0% $ 4.00 October 17, 2005 $ 719,603 $ 1,240,621 Richard L. Braswell.......... 4,000 6.2 4.00 October 17, 2005 71,960 124,062 James C. Stewart............. 3,000 4.7 4.00 October 17, 2005 53,970 93,047 John R. Paine, Jr. .......... 3,000 4.7 4.00 October 17, 2005 53,970 93,047 Michael C. Deis.............. 3,000 4.7 4.00 October 17, 2005 53,970 93,047
- ------------------------ (1) All Options granted in 1995 were granted under the Company's 1995 Stock Option Plan. By their terms all Options will become immediately exercisable upon consummation of the Offering. Amounts are adjusted to reflect the Recapitalization and the Option Adjustment. See "Description of Capital Shares." (2) The exercise price of $4.00 per share is based on the fair market value of the Class A Common Shares at the time of grant. (3) The 5% and 10% assumed annual compound rates of stock price appreciation from the assumed initial public offering price of $13.50 per share are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of future Common Share prices. FISCAL YEAR-END OPTION VALUES The following table sets forth information with respect to the number and value of the unexercised Options held by the named executive officers at December 31, 1995. No Options were exercised by the named executive officers in 1995. FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1995 DECEMBER 31, 1995 (1) ----------------------------- ---------------------------- NAME EXERCISABLE/UNEXERCISABLE (2) EXERCISABLE/UNEXERCISABLE (2) - ---------------------------------- ----------------------------- ---------------------------- John A. Ciccarelli................ 0/144,000 $0/1,579,869 Richard L. Braswell............... 0/12,350 0/134,336 James C. Stewart.................. 0/18,600 0/208,480 John R. Paine, Jr. ............... 0/16,900 0/188,867 Michael C. Deis................... 0/18,600 0/208,480
- ------------------------ (1) Calculated on the basis of the fair market value of the underlying securities based upon the assumed initial public offering price of $13.50 per share. (2) All unexercised Options will become immediately exercisable upon consummation of the Offering. PENSION PLAN The Company's Employees Retirement Plan provides retirement benefits based upon an individual participant's years of service and final average annual compensation. Final average annual compensation is the average annual compensation (but not in excess of $150,000, which is the maximum amount of compensation on which benefits can accrue under the law in effect in 1995) for the highest five consecutive years of earnings during the last ten years of credited service. The compensation covered by the Employees Retirement Plan includes wages plus any normal incentive award or bonus, but does not include certain special discretionary bonuses. Benefits under the Employees Retirement Plan are limited to the extent required by provisions of the Internal Revenue Code of 1986, as amended, and the Employee Retirement Income Security Act of 1974, as amended. The following table sets forth the 45 estimated annual retirement benefits under the Employees Retirement Plan payable on a straight-life annuity basis to participants in the specified compensation and years-of-service categories, assuming continued active service until normal retirement age and that the Employees Retirement Plan is in effect at such time. Benefits are not subject to deduction for social security or other offset amounts. Each of the named executive officers has six years of credited service under the Employees Retirement Plan. PENSION PLAN TABLE
YEARS OF SERVICE ---------------------------------------------------------------- REMUNERATION 10 15 20 25 30 35 - ----------------------------------------------------- --------- --------- --------- --------- --------- --------- $125,000............................................. $ 16,397 $ 24,595 $ 32,794 $ 40,992 $ 49,191 $ 57,389 150,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 175,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 200,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 225,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 250,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 300,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639 400,000............................................. 19,897 29,845 39,794 49,742 59,691 69,639
INCENTIVE BONUS PROGRAM The Company's Incentive Bonus Program provides for the payment of bonuses from an annual bonus pool to salaried employees, including all named executive officers of the Company, selected by the President of the Company for participation. The Compensation and Benefits Committee of the Board of Directors determines the incentive bonus of the President of the Company. The amount of the annual pool is determined based upon the degree to which the Company achieves certain targeted levels of sales growth, operating cash flow and earnings before interest and taxes (with the last factor being the most significant). Each participating employee's bonus award is a percentage of the participant's base salary, determined on the basis of (i) the participant's level of participation in the program, as specified by the President of the Company, (ii) the amount of the pool for the year and (iii), in the case of those participants (other than executive officers) for whom an individual performance goal is specified, the degree to which the participant attains the specified performance goal. Up to 30% of the bonus of a participant who is not an executive officer may be based on the attainment of individual performance goals. STOCK PLANS 1995 MANAGEMENT STOCK PURCHASE PLAN. The Board of Directors adopted the 1995 Management Stock Purchase Plan in October 1995 to provide key management employees selected by the Board of Directors with the opportunity to purchase up to a specified maximum number of Class A Common Shares. Nineteen senior managers (including each of the named executive officers of the Company) purchased an aggregate of 187,050 Class A Common Shares under the plan at a price of $4.00 per share. No additional shares are available for sale under the plan. 1994 AND 1995 STOCK OPTION PLANS. The Company has granted Options to purchase an aggregate of 208,250 Class A Common Shares to 19 employees (including each of the named executive officers of the Company) pursuant to the Company's 1994 Stock Option Plan (the "1994 Plan") and has granted Options to purchase an aggregate of 64,500 Class A Common Shares to such employees pursuant to the Company's 1995 Stock Option Plan (the "1995 Plan"). The Options granted under the 1994 Plan and the 1995 Plan are not generally exercisable until three years after the date of grant; however, all of the Options granted under both plans will become exercisable upon consummation of the Offering in accordance with the terms of the 1994 Plan and the 1995 Plan. The term of each Option is ten years and the exercise price is $1.96 per share (in the case of the 1994 Plan) and $4.00 per share (in the case of the 1995 Plan). No further Options may be granted under either the 1994 Plan or the 1995 Plan. 1996 STOCK OPTION PLAN. The 1996 Stock Option Plan (the "1996 Plan") permits the Compensation and Benefits Committee of the Company's Board of Directors (the "Committee") to grant options to 46 purchase Class A Common Shares to officers and other key employees of the Company, including the named executive officers of the Company, on terms and conditions approved by the Committee, subject to the limitations set forth in the 1996 Plan. As of May 10, 1996, there were eight executive officers and eleven other key employees who would be eligible to receive options under the 1996 Plan. The number of eligible participants may vary from year to year. No options have been granted under the 1996 Plan. The maximum number of Class A Common Shares that may be issued upon the exercise of the options granted under the 1996 Plan is 100,000, subject to adjustment in the event of a change in the outstanding Common Shares by reason of a share dividend, recapitalization, merger, consolidation, split-up, combination or exchange of shares, or similar event. Class A Common Shares subject to options which expire or terminate unexercised are again available for issuance upon the exercise of options under the 1996 Plan. The Class A Common Shares that may be issued under the 1996 Plan may be authorized but unissued shares or treasury shares. At the time an option is granted, the Committee will determine (i) the exercise price of the option, which may not be less than the average of the high and low sale price of a Class A Common Share on the date the option is granted, (ii) the period, if any, over which the option will vest and (iii) the maximum term of the option, which may not exceed 10 years from the date of grant. Unless otherwise provided by the Committee, Class A Common Shares issued upon the exercise of options will be subject to the Shareholder Agreement. Generally, an option may be exercised only if the holder has been continuously employed by the Company since the option was granted; however, at the time an option is granted, the Committee may specify a period (not to exceed the remaining term of the option) within which the option may be exercised after the holder's employment with the Company terminates. If the Committee does not otherwise determine at or after an option is granted (i) the option will terminate at the time the holder's employment is terminated, if the holder's employment is terminated for cause and (ii) if the holder's employment terminates for any other reason, the option will remain exercisable, to the extent it was exercisable at the time of termination (after giving effect to any acceleration described below) until the earlier of the end of the option term or 90 days (one year, if the termination is as a result of the holder's death, disability or retirement) after the date of termination. If the holder of an option dies during a period following termination of employment during which the option continues to be exercisable, the option will remain exercisable until the earlier of one year from the date of death or the end of the option term. Unless the Committee otherwise determines at the time an option is granted, an option which otherwise is not exercisable will become exercisable immediately upon the death or disability of the holder, the retirement of the holder from the Company at age 65 or older or the occurrence of a change of control of the Company, as defined in the 1996 Plan. The exercise price of an option must be paid in full at the time the option is exercised in cash or, in the discretion of the Committee, by delivering Class A Common Shares already owned by the holder of the option with a market value equal to the exercise price, by the Company retaining from the Class A Common Shares to be issued upon the exercise of the option shares having a market value equal to the exercise price or by any combination of cash, already-owned shares and/or retained shares. With the approval of the Committee, the holder of an option also may pay any withholding taxes due upon exercise of the option with already-owned shares, retained shares or a combination thereof. The 1996 Plan will be administered by the Committee, which may make all determinations necessary or desirable under the Plan. With the consent of the holder of an option, the Committee at any time may authorize the payment to the holder in cancellation of the option of an amount equal to the difference between the fair market value of the Class A Common Shares which may be acquired upon exercise of the option and the exercise price. The 1996 Plan will terminate on the tenth anniversary of its effective date. The Board of Directors may terminate the 1996 Plan at any time and may amend the 1996 Plan from time to time; however, any amendment must be approved by the shareholders if necessary to comply with Rule 16b-3 adopted 47 under the Securities Exchange Act of 1934 or any other applicable law, regulation or stock exchange rule. No amendment or termination of the 1996 Plan may adversely affect any outstanding option without the consent of the holder of the option. Options granted under the 1996 Plan may be incentive stock options intended to qualify for the favorable federal tax treatment accorded under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options, as designated by the Committee at the time the option is granted. No incentive stock option can be granted to an officer or key employee who possesses at the time of grant more than 10% of the combined voting power of the Company, unless the exercise price of the option is at least 110% of the fair market value of the Company's Class A Common Shares on the date of grant and the option is not exercisable after five years from the date of grant. The aggregate fair market value of Class A Common Shares with respect to which incentive stock options are exercisable for the first time by an individual in any calendar year cannot exceed $100,000 or such other maximum amount permitted by the Code. In general, no federal income tax is imposed on the holder at the time an incentive stock option is granted or exercised, except to the extent that alternative minimum tax results from the exercise of the option. The Company is not entitled to a tax deduction in connection with the grant or exercise of an incentive stock option. If the Class A Common Shares acquired upon exercise of an incentive stock option are held for more than two years after grant of the option and one year after exercise of the option, then any amount realized upon the disposition of such shares in excess of the holder's tax basis will be taxed as long-term capital gain in the year of disposition and the Company will not be entitled to a tax deduction. If the Class A Common Shares acquired upon exercise of an incentive stock option are disposed of before the above-described holding periods are satisfied, the disposition will be a disqualifying disposition resulting in recognition of ordinary income to the holder at the time of disposition in an amount equal to the lesser of (i) the excess of the fair market value of the shares at the time of exercise over the exercise price paid with respect to the shares, or (ii) the excess of the amount received, if any, on the disposition of the shares over the exercise price. If the amount realized on a disqualifying disposition exceeds the fair market value of the shares at the time the option was exercised, then, in addition to recognizing ordinary income, the holder also will recognize long- or short-term capital gain to the extent of the excess of the amount received over the fair market value of the Class A Common Shares at the time the option was exercised. A disqualifying disposition will entitle the Company to a tax deduction equal to the amount of ordinary income recognized by the holder. No federal income tax is imposed at the time a nonstatutory option is granted. With certain exceptions for payment of the exercise price with already-owned shares, upon exercise of a nonstatutory option, the holder realizes ordinary income for federal income tax purposes to the extent that the fair market value of the Class A Common Shares acquired exceeds the exercise price of the related option on the date of exercise. In addition, the Company is entitled to a deduction for federal income tax purposes at the same time and to the same extent that ordinary income is realized by the holder, provided that the Company satisfies the applicable withholding requirements. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS Since October 1995, the Company has paid Ripplewood, the present controlling shareholder of the Company, a management fee of $225,000 per year, payable on a monthly basis. The Company will pay Ripplewood a fee of $600,000 at the time the Offering is completed for additional services provided in connection with the Offering and related transactions. The fee paid by the Company to Ripplewood in connection with the Offering and related transactions may not be on as favorable terms to the Company as could have been obtained from a non-affiliate. The Company has also agreed to indemnify Ripplewood against losses arising from Ripplewood's performance of management and financial advisory services on behalf of the Company. After consummation of the Offering, the Company will no longer pay a management fee to Ripplewood. In addition, the Company reimburses Ripplewood for the allocable 48 costs of certain insurance policies purchased by Ripplewood which cover both the Company and Ripplewood. Approximately $175,000 of such costs were allocated to the Company for the period October 13, 1995 to October 13, 1996. In addition, the Company, Ripplewood and the other current shareholders of the Company are parties to the Shareholder Agreement which contains, among other things, provisions with respect to voting, transfer of shares and registration rights. See "Principal and Selling Shareholders--Shareholders Agreement." Timothy C. Collins, Matthew O. Diggs, Jr. and Matthew M. Guerreiro, directors of the Company, are the Senior Managing Director and Chief Executive Officer, Chairman of the Board and a principal, respectively, of Ripplewood. From August 1989 to March 18, 1996, Thomas M. Begel was a director of the Company. The Company paid Mr. Begel a management fee of $156,200 in 1993 and $25,000 in each of 1994 and 1995. Mr. Begel resigned from the Board of Directors in March 1996 and received 1996 management fees of $6,250 prior to his resignation. Mr. Begel is no longer entitled to a management fee. From February 1990 to October 1995, Mr. Collins was a Senior Managing Director of the New York office of Onex, the former controlling shareholder of the Company. The Company paid a subsidiary of Onex a management fee of $93,800, $225,000 and $195,000 in 1993, 1994 and 1995, respectively. In addition, in October 1995 the Company paid a subsidiary of Onex a fee of $400,000 for financial advisory services in connection with the Dur-O-Wal Acquisition and related financing transactions. The Company may enter into transactions with its affiliates in the future. However, the Company intends to enter into such transactions only at prices and on terms it believes are no less favorable to the Company than transactions with independent third parties. In addition, the Company's debt instruments generally prohibit the Company from entering into any such affiliate transaction on other than arm's-length terms. 49 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Shares as of May 10, 1996 and as adjusted to reflect the sale of Class A Common Shares offered hereby (assuming no exercise of the Underwriters' over-allotment option) by: (i) each person who is known by the Company to own beneficially more than 5% of the outstanding Class A Common Shares; (ii) each director of the Company; (iii) the Chief Executive Officer of the Company; (iv) the Company's four highest paid executive officers (exclusive of the Chief Executive Officer); (v) each of the Selling Shareholders; and (vi) all directors and executive officers of the Company as a group. Except as otherwise noted, to the Company's knowledge, the persons named in the table below have sole voting and investment power with respect to all Common Shares shown as beneficially owned by them. Except as otherwise described in this Prospectus, no Selling Shareholder has held any office or has had any other position or other material relationship with the Company in the last three years.
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED AFTER THE OFFERING (1) PRIOR TO THE OFFERING (1) ------------------------- --------------------------- NUMBER OF NUMBER OF NUMBER OF NUMBER OF PERCENT OF CLASS A COMMON CLASS A CLASS B (2) COMMON TOTAL COMMON SHARES BEING COMMON COMMON NAME SHARES SHARES OFFERED SHARES SHARES - ----------------------------------------------------------- ----------- -------------- -------------- ----------- ------------ Ripplewood Holdings L.L.C. (3)(4).......................... 2,825,250 72.3% 483,300 534,550 1,522,550 John Hancock Mutual Life Insurance Company (5)............. 499,300 12.8% 499,300 -- -- The Paul Revere Life Insurance Company (6)................. 332,800 8.5% 164,800 -- -- John A. Ciccarelli (7)(8).................................. 181,500 4.6% -- 181,500 -- Timothy C. Collins (3)(9).................................. 2,825,250 72.3% -- 534,550 1,522,550 Matthew O. Diggs, Jr. (10)................................. 125,000 3.2% -- 125,000 -- Matthew M. Guerreiro....................................... -- -- -- -- -- Robert B. Holmes........................................... -- -- -- -- -- James C. Stewart (7)(11)(12)............................... 24,950 * -- 24,950 -- Richard L. Braswell (7)(12)(13)............................ 15,800 * -- 15,800 -- John R. Paine, Jr. (7)(12)(14)............................. 21,900 * -- 21,900 -- Michael C. Deis (7)(11)(12)................................ 24,950 * -- 24,950 -- Thomas M. Begel (7)(15).................................... 178,800 4.6% 178,800 -- -- Michel David-Weill (7)(16)................................. 12,900 * 12,900 -- -- David B. Dillard (7)(16)................................... 30,717 * 30,717 -- -- Steven Rattner (7)(16)..................................... 6,786 * 3,536 3,250 -- Dod A. Fraser (7).......................................... 9,000 * 9,000 -- -- Jonathan H. Kagan (7)(16).................................. 10,377 * 10,377 -- -- Saundra L. Gulley (7)...................................... 5,450 * 5,450 -- -- David McMillan, Jr. (7)(17)................................ 5,470 * 5,470 -- -- Society of the New York Hospital Fund, Inc.(7)............. 20,000 * 20,000 -- -- Pierpont Morgan Library(7)................................. 2,850 * 2,850 -- -- Educational Broadcasting Corporation (Thirteen-WNET)(7).... 5,750 * 5,750 -- -- Stanley S. Shuman.......................................... 125,000 3.2% 125,000 -- -- Textron Collective Investment Trust (18)................... 332,800 8.5% 168,000 -- -- All directors and executive officers as a group (19)....... 2,950,250 75.5% -- 659,550 1,522,550 PERCENT OF TOTAL COMMON NAME SHARES - ----------------------------------------------------------- ------------- Ripplewood Holdings L.L.C. (3)(4).......................... 35.0% John Hancock Mutual Life Insurance Company (5)............. -- The Paul Revere Life Insurance Company (6)................. -- John A. Ciccarelli (7)(8).................................. 3.1% Timothy C. Collins (3)(9).................................. 35.0% Matthew O. Diggs, Jr. (10)................................. 2.1% Matthew M. Guerreiro....................................... -- Robert B. Holmes........................................... -- James C. Stewart (7)(11)(12)............................... * Richard L. Braswell (7)(12)(13)............................ * John R. Paine, Jr. (7)(12)(14)............................. * Michael C. Deis (7)(11)(12)................................ * Thomas M. Begel (7)(15).................................... -- Michel David-Weill (7)(16)................................. -- David B. Dillard (7)(16)................................... -- Steven Rattner (7)(16)..................................... * Dod A. Fraser (7).......................................... -- Jonathan H. Kagan (7)(16).................................. -- Saundra L. Gulley (7)...................................... -- David McMillan, Jr. (7)(17)................................ -- Society of the New York Hospital Fund, Inc.(7)............. -- Pierpont Morgan Library(7)................................. -- Educational Broadcasting Corporation (Thirteen-WNET)(7).... -- Stanley S. Shuman.......................................... -- Textron Collective Investment Trust (18)................... -- All directors and executive officers as a group (19)....... 37.1%
- ------------------------------ * Signifies less than 1%. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes sole or shared voting or investment power with respect to the shares. Includes the number of Common Shares subject to outstanding Options and Warrants exercisable within 60 days. (2) Each of the Company's Class B Common Shares is convertible, at the option of the holder, into one Class A Common Share at any time. (3) The address of Ripplewood is 712 Fifth Avenue, New York, NY 10019. (4) Includes, prior to the Offering, 546,650 Class A Common Shares and, after the Offering, 261,800 Class A Common Shares held by parties to the Shareholder Agreement other than Matthew O. Diggs, Jr., Stanley S. Shuman and the holders of the Senior Notes. Pursuant to the Shareholder Agreement, such shares must be voted in the same manner as the Class B Common Shares held by Ripplewood and as to which the holders have granted Ripplewood irrevocable proxies. Also includes 272,750 Class A Common Shares which may be acquired upon the exercise of Options, which shares will be subject to the Shareholder Agreement upon issuance. 50 (5) Includes 180,250 Class A Common Shares which may be acquired upon the exercise of Warrants. Also includes 38,850 Class A Common Shares held by, and 27,750 Class A Common Shares which may be acquired upon the exercise of Warrants held by, John Hancock Life Insurance Company of America. The address of John Hancock Mutual Life Insurance Company and John Hancock Life Insurance Company of America is John Hancock Place, 200 Clarendon Street, Boston, MA 02117. John Hancock Mutual Life Insurance Company and certain of its affiliates own 60% of each class of the Senior Notes. (6) Includes 83,150 Class A Common Shares which may be acquired upon the exercise of Warrants. Also includes 2,600 Class A Common Shares held by, and 13,850 Class A Common Shares which may be acquired upon the exercise of Warrants held by, The Paul Revere Protective Life Insurance Company, and 7,900 Class A Common Shares held by, and 41,600 Class A Common Shares which may be acquired upon the exercise of Warrants held by, The Paul Revere Variable Annuity Insurance Company. Also includes 168,000 Class A Common Shares held by Textron Collective Investment Trust, an affiliate of The Paul Revere Life Insurance Company. The Paul Revere Life Insurance Company and certain of its affiliates own 40% of each class of the Senior Notes. The address of The Paul Revere Life Insurance Company, The Paul Revere Protective Life Insurance Company and The Paul Revere Variable Annuity Insurance Company is The Paul Revere Investment Management Corporation, 18 Chestnut Street, Worcester, Massachusetts 01608. (7) Shares are subject to the voting provisions of the Shareholder Agreement, which requires that they be voted in the same manner as the Class B Common Shares held by Ripplewood, and as to which Ripplewood has been granted irrevocable proxies. (8) Includes 144,000 Class A Common Shares which may be acquired upon the exercise of Options. Mr. Ciccarelli's address is 721 Richard Street, Miamisburg, Ohio 45342. (9) Timothy C. Collins is the Senior Managing Director and Chief Executive Officer of Ripplewood, and the only Common Shares beneficially owned by him are the Class B Common Shares held of record by Ripplewood and the Class A Common Shares as to which Ripplewood has been granted irrevocable proxies under the Shareholder Agreement. (10) The named person is a director of Ripplewood. His shareholdings in the Company do not include Common Shares beneficially owned by Ripplewood. (11) Includes 18,600 Class A Common Shares which may be acquired upon the exercise of Options. (12) The named person is an employee of the Company whose address is 721 Richard Street, Miamisburg, Ohio 45342. (13) Includes 12,350 Class A Common Shares which may be acquired upon the exercise of Options. (14) Includes 16,900 Class A Common Shares which may be acquired upon the exercise of Options. (15) Mr. Begel was the Chairman of the Board of the Company from 1989 until June 1994, and thereafter continued as a director of the Company until March 1996. Mr. Begel's address is TMB Industries, Inc., 980 North Michigan Avenue, Suite 1000, Chicago, Illinois 60611. (16) Selling Shareholder is a Managing Director of Lazard Freres & Co. LLC, one of the Underwriters. (17) Selling Shareholder is a Senior Vice President of Lazard Freres & Co. LLC, one of the Underwriters. (18) Also includes 26,200 Class A Common Shares and 138,600 Class A Common Shares which may be acquired upon the exercise of Warrants held by The Paul Revere Life Insurance Company and certain of its affiliates. The Paul Revere Life Insurance Company is an affiliate of Textron Collective Investment Trust. The address of Textron Collective Investment Trust is The Paul Revere Investment Management Corporation, 18 Chestnut Street, Worcester, Massachusetts 01608. (19) Includes 237,950 Class A Common Shares which may be acquired upon the exercise of Options by certain executive officers. Includes, prior to the Offering, 2,005,850 Common Shares and, after the Offering, 1,522,550 Common Shares held of record by Ripplewood and beneficially owned by Timothy C. Collins. Includes, prior to the Offering, 237,400 Class A Common Shares and 34,800 Class A Common Shares which may be acquired upon the exercise of Options and, after the Offering, 131,350 Class A Common Shares and 34,800 Class A Common Shares which may be acquired upon the exercise of Options beneficially owned by Timothy C. Collins (and not otherwise included in the beneficial share ownership of any other director or executive officer) due to his control of the voting of the Class A Common Shares as to which Ripplewood has been granted irrevocable proxies under the Shareholder Agreement. RIPPLEWOOD Upon completion of the Offering, Ripplewood will own all the outstanding Class B Common Shares, representing approximately 78.8% of the combined voting power of the outstanding Common Shares (approximately 72.8% if the Underwriters' over-allotment option is exercised in full). Ripplewood is a holding company founded by Timothy C. Collins to invest, directly and through private investment funds for which it acts as general partner, in leveraged build-ups and acquisitions sponsored by senior, industrial operating managers affiliated with Ripplewood. Prior to forming Ripplewood, Mr. Collins was the Senior Managing Director of the New York office of Onex, an Ontario corporation listed on the Toronto and 51 Montreal Stock Exchanges. An investor group led by a subsidiary of Onex acquired the Company in August 1989. Ripplewood acquired 50.4% of the Common Shares of the Company from such subsidiary in October 1995 and an additional 0.9% on April 4, 1996. SHAREHOLDER AGREEMENT The Company and all shareholders who acquired Common Shares (or Options or Warrants) prior to the Offering, including the Selling Shareholders, are parties to the Shareholder Agreement which contains provisions with respect to the voting, transfer and registration of the Common Shares held by the parties. The parties to the Shareholder Agreement who will remain as shareholders of the Company following the Offering have agreed to enter into an Amended and Restated Shareholder Agreement (as so amended and restated, the "Amended Shareholder Agreement"), effective immediately after the Offering is consummated. Upon completion of the Offering, the parties to the Amended Shareholder Agreement will hold all the Class B Common Shares and approximately 9.5% of the outstanding Class A Common Shares. Under the Amended Shareholder Agreement, so long as Ripplewood continues to hold at least 622,525 Common Shares (subject to adjustment in certain events), all of the parties to the Amended Shareholder Agreement will be required to vote as Ripplewood directs to fix the number of directors of the Company, to elect directors designated by Ripplewood and to remove directors specified by Ripplewood, and all of the parties to the Amended Shareholder Agreement (other than Matthew O. Diggs) will be required to vote all Common Shares held by them in the same manner as Ripplewood votes the Common Shares held by it and to grant the person who is the Senior Managing Director and Chief Executive Officer of Ripplewood (currently Timothy C. Collins) an irrevocable proxy to vote the Common Shares held by them, except with respect to (i) matters that would both adversely affect the rights of the Common Shares held by such parties and would treat such parties differently than other holders of Common Shares, and (ii) matters as to which a separate class vote of the party is required by law. Under the Amended Shareholder Agreement, Ripplewood will have the right to require, on not more than two occasions (or more if the Common Shares Ripplewood proposes to sell are cut back by more than 75%), the Company, at its expense, to register under the Securities Act all or a portion of the Common Shares held by Ripplewood. The Amended Shareholder Agreement will permit the parties to the agreement to require the Company, subject to certain marketing and other limitations, to register their Common Shares, at the Company's expense, whenever the Company registers any of its securities under the Securities Act, whether for its own account or otherwise. The Amended Shareholder Agreement will also require each party to give the Company and Ripplewood certain notices with respect to proposed sales and transfers of their Common Shares and, under certain circumstances, to offer to Ripplewood the right to purchase Common Shares which the party otherwise proposes to sell or transfer. The Amended Shareholder Agreement also provides that if Ripplewood sells 40% or more of the Common Shares then owned by it in one or more related transactions, other than in a registered offering or other sale to the public, each other party to the Amended Shareholder Agreement (i) will be entitled to participate in the sale on a pro rata basis, if the party so elects, and (ii) will be required to participate in the sale on a pro rata basis (unless the sale is to an affiliate of Ripplewood), if Ripplewood so requires. 52 DESCRIPTION OF CAPITAL SHARES Immediately prior to consummation of the Offering, the Company will amend its amended articles of incorporation (as so amended, the "Amended Articles of Incorporation") to (i) convert all its currently outstanding Old Class B Common Shares into Class A Common Shares, (ii) change its authorized share capital to Class A Common Shares with one vote per share, Class B Common Shares with ten votes per share and preferred shares, without par value (the "Preferred Shares"), (iii) split each outstanding Class A Common Share into fifty Class A Common Shares and (iv) convert each Class A Common Share held by Ripplewood into one Class B Common Share (collectively, the "Recapitalization"). In addition, in order to cause the Options to be exercisable for Class A Common Shares on a basis consistent with the Company's capitalization after the Recapitalization, the Compensation and Benefits Committee of the Board of Directors will adjust all of the outstanding Options so that each Option is exercisable for fifty times the number of Class A Common Shares for which it had been exercisable immediately prior to the Recapitalization at an exercise price per share equal to one-fiftieth of the exercise price immediately prior to the Recapitalization (the "Option Adjustment"). The following summary description of the capital shares of the Company is qualified in its entirety by reference to the form of Amended Articles of Incorporation of the Company and the Code of Regulations of the Company, a copy of each of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Upon completion of the Offering, the authorized capital shares of the Company will consist of 20,483,300 Class A Common Shares, 1,522,550 Class B Common Shares and 5,000,000 Preferred Shares and there will be: (i) 4,086,800 Class A Common Shares issued and outstanding, (ii) 1,522,550 Class B Common Shares issued and outstanding, all of which will be held by Ripplewood, (iii) 272,750 Class A Common Shares issuable upon the exercise of the outstanding Options (all of which will become exercisable immediately upon completion of the Offering) and (iv) no Preferred Shares issued or outstanding. All outstanding Common Shares are, and all Common Shares to be outstanding upon completion of the Offering will be, fully paid and nonassessable. COMMON SHARES The Amended Articles of Incorporation provide for two classes of common shares: Class A Common Shares and Class B Common Shares. The two classes are identical except for disparity in voting power and convertibility. See "Risk Factors--Control of the Company by Ripplewood; Other Anti-Takeover Provisions." Each Class A Common Share entitles the holder of record to one vote and each Class B Common Share entitles the holder of record to ten votes at each annual or special meeting of shareholders, in the case of any written consent of shareholders and for all other purposes. The holders of Class A Common Shares and Class B Common Shares will vote as a single class on all matters submitted to a vote of the shareholders, except as otherwise provided by law. The holders of Common Shares do not have cumulative voting or preemptive rights. Upon completion of the Offering, Ripplewood will own all of the outstanding Class B Common Shares, representing 78.8% of the combined voting power of the outstanding Common Shares. As a result, Ripplewood will continue to have the ability to elect all of the directors of the Company and will continue to control the Company. See "Risk Factors--Control of the Company by Ripplewood; Other Anti-Takeover Provisions." The Class B Common Shares are not being offered hereby. Class B Common Shares convert into Class A Common Shares on a share-for-share basis: (i) at any time at the option of the holder, (ii) immediately upon the transfer of Class B Common Shares to any holder other than certain successors of Ripplewood or persons employed by or affiliated with Ripplewood or such successors as long as such persons remain so employed or affiliated or (iii) immediately if Ripplewood or certain of its successors cease to hold at least 622,525 Class B Common Shares (subject to proportionate adjustment in the events of any subdivision or combinations 53 of the outstanding Common Shares). Upon conversion of Class B Common Shares into Class A Common Shares, the Class B Common Shares so converted will be retired and will become authorized but unissued Class A Common Shares. The holders of Common Shares will be entitled to receive like dividends and other distributions as may be declared thereon by the Board of Directors of the Company out of assets or funds of the Company legally available therefor, subject to the rights of the holders of any series of Preferred Shares and any other provision of the Amended Articles of Incorporation. The Amended Articles of Incorporation provide that if Class A Common Shares are paid on Class A Common Shares and Class B Common Shares are paid on Class B Common Shares, in an equal amount per share of Class A Common Shares and Class B Common Shares, respectively, such payment will be deemed to be a like dividend or other distribution. The Company is restricted by the terms of the Amended Credit Facility from paying cash dividends on its capital shares and may in the future enter into loan or other agreements or issue debt securities or preferred stock that restrict the payment of cash dividends on the Common Shares. See "Dividend Policy" and "Description of Certain Indebtedness." The Company does not anticipate declaring and paying cash dividends on the Common Shares at any time in the near term. The decision as to whether to apply legally available funds to the payment of dividends on the Common Shares will be made by the Board of Directors of the Company from time to time in the exercise of its business judgment, taking into account, among other things, the Company's results of operations and financial condition, any then existing or proposed commitments for the use by the Company of available funds and the Company's obligations with respect to any then outstanding class or series of Preferred Shares. In the case of any split, subdivision, combination or reclassification of Class A Common Shares or Class B Common Shares, the other class of Common Shares also will be split, subdivided, combined or reclassified so that the number of Class A Common Shares and Class B Common Shares outstanding immediately following such split, subdivision, combination or reclassification will bear the same relationship to each other as that which existed immediately prior to such action. In the event of any liquidation, dissolution or winding up of the Company, the holders of Common Shares will be entitled to receive the assets and funds of the Company available for distribution after payments to creditors and to the holders of any Preferred Shares of the Company that may at the time be outstanding, in proportion to the number of shares held by them, respectively, without regard to class. In the event of any merger, consolidation, purchase or acquisition of property or securities, or other reorganization in which any consideration is to be received by the holders of Common Shares, the holders of each class of Common Shares will receive the same consideration on a per share basis, except that, if such consideration consists in any part of voting securities (or of options or warrants to purchase, or of securities convertible into or exchangeable for, voting securities), the holders of Class B Common Shares may receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the holders of Class A Common Shares (or options or warrants to purchase, or securities convertible into or exchangeable for, voting securities with ten times the number of votes per share as those voting securities issuable upon exercise of the options or warrants, or into which the convertible or exchangeable securities may be converted or exchanged, received by the holders of Class A Common Shares). Prior to the date of this Prospectus, there has been no established public trading market for the Common Shares. The Class A Common Shares have been approved for listing on the New York Stock Exchange under the symbol "DSD," subject to official notice of issuance. See "Risk Factors--No Prior Market for Class A Common Shares; Possible Volatility of Price." American Stock Transfer & Trust Company will be the Registrar and Transfer Agent for the Class A Common Shares. 54 PREFERRED SHARES There are no Preferred Shares outstanding. The Board of Directors has the authority, without further action by the shareholders, to issue the Preferred Shares in one or more series and to fix the rights, designations, preferences, privileges, qualifications, and restrictions thereof, including dividend rights, conversion rights, terms and rights of redemption, liquidation preferences, and sinking fund terms (any or all of which may be greater than the rights of the Common Shares). The Board of Directors also has the authority, without further action by the shareholders, to amend the Amended Articles of Incorporation to fix the voting rights of the entire class of Preferred Shares. The Board of Directors, without shareholder approval, can issue Preferred Shares with conversion, voting and other rights which could adversely affect the rights of the holders of Class A Common Shares. CERTAIN CHARTER PROVISIONS The Amended Articles of Incorporation provide for indemnification of the officers and directors of the Company to the full extent provided in the OGCL. The Amended Articles of Incorporation also include certain provisions of the OGCL that limit the liability of a director of the Company for damages for any action the director takes or fails to take as a director unless it is proved by clear and convincing evidence in a court of competent jurisdiction that the action or failure to act was undertaken with deliberate intent to cause injury to the Company or with reckless disregard for the best interests of the Company. Neither the OGCL nor this provision of the Amended Articles of Incorporation will exonerate a director from liability under the federal securities laws nor will either have any effect on any non-monetary remedies that may be available to the Company or its shareholders. CERTAIN OHIO LEGISLATION Ohio's Merger Moratorium Act prohibits an Ohio corporation from engaging in specified transactions such as a merger, certain asset sales, certain issuances of shares, a liquidation or the like with a beneficial owner of 10% or more of the outstanding voting power of the corporation during the three-year period following the date the person became the owner of the 10% interest, unless, prior to the date the person became the owner of the 10% interest, the specified transaction or the acquisition of shares was approved by the directors of the corporation. After the three-year period, such transactions may be entered into if approved by the holders of at least two-thirds of the voting power of the corporation (including by the holders of at least a majority of the shares held by persons other than an interested person, as defined in the statute) or if the consideration to be paid in the transaction is at least equal to certain specified amounts. Such provision will not be applicable to Ripplewood, the Company's current controlling shareholder. 55 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering (assuming the Underwriters' over-allotment option is not exercised), the 1,522,550 Class B Common Shares held by Ripplewood, 386,800 Class A Common Shares held by the Company's management and other shareholders and 272,750 Class A Common Shares issuable upon exercise of the Options held by the Company's management will continue to be "restricted shares" as defined in Rule 144 under the Securities Act. Such shares may not be resold in the absence of registration under the Securities Act except pursuant to exemptions from such registration including, among others, the exemption provided by Rule 144 under the Securities Act. After the Offering, Ripplewood, management and the other remaining parties to the Amended Shareholder Agreement will have certain incidental registration rights with respect to all of the Common Shares owned by them or that may be acquired by them, and Ripplewood will have two demand registration rights with respect to the Common Shares owned or acquired by it. See "Principal and Selling Shareholders--Shareholder Agreement." In general, pursuant to Rule 144 under the Securities Act, a person (or person whose shares must be aggregated) who has beneficially owned restricted shares for at least two years, including a person who may be deemed an "affiliate" of the Company, is entitled to sell within any three-month period that number of shares that does not exceed the greater of one percent of the then outstanding Class A Common Shares or the reported average weekly trading volume of the then outstanding Class A Common Shares for the four weeks preceding each such sale. Sales under Rule 144 also are subject to certain manner of sale restrictions and notice requirements, and to the availability of current public information about the Company. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through the usage of one or more intermediaries, controls, or is controlled by, or is under common control with, such issuer. Rule 701 under the Securities Act permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of, or consultant to, the Company who purchased his or her shares, prior to the Offering, pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. In both cases, a holder of Rule 701 shares is required to wait until 90 days after the date the Registration Statement (as hereinafter defined) becomes effective before selling such shares. The Company, Ripplewood and certain of the Company's other shareholders, to the extent that such shareholders are not selling Class A Common Shares in the Offering, have agreed, subject to certain exceptions, not to sell, offer to sell, contract to sell, grant any option to purchase, or otherwise dispose of, directly or indirectly, or announce the offering of any Class A Common Shares or securities convertible into or exercisable or exchangeable for Class A Common Shares other than the Class A Common Shares offered hereby for a period of 360 days after the date of this Prospectus, without the prior written consent of the Representatives of the Underwriters; provided, however, that the Company may issue: (i) options pursuant to any employee stock option plan, stock ownership plan or dividend reinvestment plan in effect on the date of this Prospectus, (ii) Class A Common Shares upon the conversion or exercise of securities or Options outstanding on the date of this Prospectus (or issued upon the conversion or exercise thereof) and (iii) commencing 90 days after the date of this Prospectus, Class A Common Shares or securities convertible, exercisable or exchangeable for Class A Common Shares in mergers, acquisitions or business combinations. See "Underwriting." No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Class A Common Shares prevailing from time to time. Sales of substantial numbers of Class A Common Shares (including shares issued upon the exercise of Options), or the perception that such sales could occur, could adversely affect the prevailing market price for the Class A Common Shares. If such sales reduce the market price of the Class A Common Shares, the Company's ability to raise additional capital in the equity markets could be adversely affected. 56 DESCRIPTION OF CERTAIN INDEBTEDNESS The summary contained herein of certain provisions of the indebtedness of the Company does not purport to be complete and is qualified in its entirety by reference to the provisions of the Amended Credit Facility, which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part and to which reference is hereby made. The Company and the Banks have entered into the Amended Credit Facility, conditional upon consummation of the Offering. The Company will pay a commitment fee of $170,000 to the Banks in connection therewith. The Amended Credit Facility provides for (i) the Term Loan and (ii) the Revolving Credit Facility. Amounts available under the Revolving Credit Facility will be equal to the lesser of (i) $37 million or (ii) the sum of (x) 85% of eligible accounts receivable, (y) 60% of eligible inventories and (z) an amount equal to $12 million upon closing of the Offering, decreasing in steps to zero on October 1, 1997. At March 29, 1996, if the Revolving Credit Facility had been in place, $29.7 million would have been available thereunder, of which $17.1 million of borrowings would have been outstanding. The Revolving Credit Facility, which terminates in four years, provides for interest options based on (a) Bank One, Dayton, NA's prime rate or (b) LIBOR plus an amount between 1.00% and 2.75% (LIBOR plus 1.75% immediately following consummation of the Offering) depending on the ratio of EBITDA to interest expense and the ratio of total liabilities to EBITDA. A commitment fee of between 0.125% and 0.50% per annum (0.25% per annum immediately following consummation of the Offering) will be payable on the average unused amount depending on the level of EBITDA and certain other financial ratios. The principal amount of the Term Loan will be the lesser of $13 million or 70% of the value of the Company's fixed assets, based on an appraisal of certain assets and the net book value of other assets. The Banks have agreed that, pending receipt of appraisals, which currently are being conducted, the principal amount of the Term Loan will be $13 million. If, based on the appraisals, 70% of the value of the Company's fixed assets is less than $13 million, the Company will be required to repay to the Banks the amount of the difference between such value and $13 million. If the appraised value of the Company's fixed assets is equal to the depreciated book value of such assets at March 29, 1996, the amount of the Term Loan, as adjusted for the appraisals, will be $12.2 million. The Term Loan will be due in full four years from its date of issuance with mandatory quarterly principal payments of $812,500 (subject to adjustment if the amount of the Term Loan is reduced as a result of the appraisals of the Company's fixed assets) plus interest. The Company may choose from various interest rate options with respect to the Term Loan. The Amended Credit Facility requires the Company to satisfy certain financial performance criteria (including maintaining a specified ratio of EBITDA to current obligations, a specified ratio of total liabilities to EBITDA, a specified net worth and a specified tangible net worth) and provides for certain customary events of default. The Amended Credit Facility also contains covenants and provisions restricting, among other things, the ability of the Company to: (i) incur additional indebtedness, (ii) incur liens on its property, (iii) merge or consolidate with or acquire another person or engage in other fundamental changes, (iv) engage in certain sales of assets, (v) make capital expenditures and (vi) pay dividends or make distributions or prepay, purchase or redeem indebtedness other than indebtedness under the Amended Credit Facility. 57 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Company and the Selling Shareholders have severally agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Salomon Brothers Inc, Lazard Freres & Co. LLC, Robert W. Baird & Co. Incorporated and BT Securities Corporation are acting as representatives (the "Representatives"), has severally agreed to purchase from the Company and the Selling Shareholders, the number of shares set forth opposite its name below:
UNDERWRITER NUMBER OF SHARES - -------------------------------------------------------------------------- ------------------ Salomon Brothers Inc...................................................... Lazard Freres & Co. LLC................................................... Robert W. Baird & Co. Incorporated........................................ BT Securities Corporation................................................. ---------- Total................................................................. 3,700,000 ---------- ----------
In the Underwriting Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all 3,700,000 of the Class A Common Shares offered hereby, if any such Class A Common Shares are purchased. In the event of a default by any Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company and the Selling Shareholders have been advised by the Representatives that the several Underwriters propose initially to offer such Class A Common Shares at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to other dealers. After the initial offering, the public offering price and such concessions may be changed. The Company and Ripplewood have granted to the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to an aggregate of 555,000 additional Class A Common Shares at the public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over-allotments in the sale of the Class A Common Shares that the Underwriters have agreed to purchase. To the extent that the Underwriters exercise such option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase a number of option shares proportionate to such Underwriter's initial commitment. Certain Managing Directors and one employee of Lazard Freres & Co. LLC, one of the Representatives, will be Selling Shareholders in the Offering and are expected to sell an aggregate of 1.70% of the Class A Common Shares offered hereby, assuming that the Underwriters' over-allotment option is not exercised. See "Principal and Selling Shareholders." Consequently, in accordance with subsection (c)(7)(C) of Section 44 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., the price at which the Class A Common Shares will be distributed to the public must be established at a price no higher than that recommended by a qualified independent underwriter. Salomon Brothers Inc, one of the Representatives, has agreed to act as qualified independent underwriter, to participate in the preparation of the registration statement and this Prospectus and to exercise the usual standards of due diligence in respect thereto. Salomon Brothers Inc will receive compensation from the Underwriters in the amount of $10,000 for acting as a qualified independent underwriter. 58 The Representatives have advised the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company, Ripplewood and certain of the Company's other shareholders, to the extent that such shareholders are not selling Class A Common Shares in the Offering, have agreed, subject to certain exceptions, not to sell, offer to sell, contract to sell, grant any option to purchase or otherwise dispose of, directly or indirectly, or announce the offering of any Class A Common Shares or any securities convertible into or exercisable or exchangeable for Class A Common Shares other than the Class A Common Shares offered hereby for a period of 360 days after the date of this Prospectus, without the prior written consent of the Representatives; provided, however, that the Company may issue: (i) options pursuant to any employee stock option plan, stock ownership plan or dividend reinvestment plan in effect on the date of this Prospectus, (ii) Class A Common Shares upon the conversion or exercise of securities or Options outstanding on the date of this Prospectus (or issued upon the conversion or exercise thereof) and (iii) commencing 90 days after the date of this Prospectus, Class A Common Shares or securities convertible, exercisable or exchangeable for Class A Common Shares in mergers, acquisitions or business combinations. The Underwriting Agreement provides that the Company and the Selling Shareholders will indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or contribute to payments the Underwriters may be required to make in respect thereof. The Underwriters have agreed to reimburse the Company for certain expenses incurred by the Company in connection with the Offering. Prior to the Offering, there has been no public market for the Class A Common Shares. The initial public offering price for the Class A Common Shares will be determined by negotiation among the Company, Ripplewood and the Representatives. Among the factors to be considered in determining the initial public offering price will be the earnings and certain other financial and operating information of the Company in recent periods, the future prospects of the Company and its industry in general, the general condition of the securities market at the time of the Offering and the market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. There can, however, be no assurance that the prices at which the Class A Common Shares will sell in the public market after the Offering will not be lower than the price at which they are sold by the Underwriters. The Company will pay Ripplewood a fee of $600,000 at the time the Offering is completed for additional services provided in connection with the Offering and related transactions. The Class A Common Shares have been approved for listing on the New York Stock Exchange under the symbol "DSD," subject to official notice of issuance. LEGAL MATTERS The validity of the Class A Common Shares offered hereby will be passed upon for the Company and the Selling Shareholders by Thompson Hine & Flory P.L.L., Dayton, Ohio. Certain legal matters relating to the Offering will be passed upon for the Company by Cravath, Swaine & Moore, New York, New York. Certain legal matters relating to the Offering will be passed upon for the Underwriters by Debevoise & Plimpton, New York, New York. Debevoise & Plimpton will rely, as to matters of Ohio law, on the opinion of Thompson Hine & Flory P.L.L. From time to time Debevoise & Plimpton has represented certain affiliates of the Company (such as Ripplewood, Timothy C. Collins and Matthew O. Diggs, Jr.), including in connection with Ripplewood's acquisition of the Company, and expects to continue to do so in the future. 59 EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving such reports. The consolidated statements of operations and cash flows of Dur-O-Wal for the year ended December 31, 1994 included in this Prospectus have been audited by Altschuler, Melvoin and Glasser LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving such report. The consolidated statements of operations and cash flows of Dur-O-Wal for the years ended December 31, 1992 and 1993 included in this Prospectus have been audited by Coopers & Lybrand L.L.P., independent accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of such firm as experts in accounting and auditing. The Company has agreed to indemnify Altschuler, Melvoin and Glasser LLP for costs and expenses that Altschuler, Melvoin and Glasser LLP might incur in successfully defending itself in litigation resulting from the inclusion of its report in the registration statement of which this Prospectus forms a part. Such indemnification, however, will be null and void should Altschuler, Melvoin and Glasser LLP be found by a court to be liable for professional malpractice. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act for the registration of the Class A Common Shares offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are contained in exhibits and schedules to the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Class A Common Shares offered hereby, reference is made to the Registration Statement, including the exhibits thereto, and financial statements and notes filed as a part thereof. Statements made in this Prospectus concerning the contents of any contract or other document are not necessarily complete. With respect to each such contract or other document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Registration Statement and the exhibits and schedules thereto filed by the Company with the Commission may be inspected at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. As a result of the Offering, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). So long as the Company is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the reports and other information required thereby to the Commission. The Company intends to furnish holders of the Class A Common Shares with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. The Company also intends to furnish such other reports as it may determine or as may be required by law. 60 INDEX TO FINANCIAL STATEMENTS
PAGE --------- Dayton Superior Corporation and Subsidiaries: Report of Independent Public Accountants................................................................. F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995............................................. F-3 Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995............... F-4 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and 1995..... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995............... F-6 Notes to Consolidated Financial Statements............................................................... F-7 Consolidated Balance Sheet as of December 31, 1995 and March 29, 1996 (unaudited)........................ F-20 Consolidated Statements of Operations for the three fiscal months ended March 31, 1995 and March 29, 1996 (unaudited)............................................................................................. F-21 Consolidated Statements of Cash Flows for the three fiscal months ended March 31, 1995 and March 29, 1996 (unaudited)............................................................................................. F-22 Notes to Consolidated Financial Statements (unaudited)................................................... F-23 Dur-O-Wal, Inc. and Subsidiary: Reports of Independent Accountants....................................................................... F-24 Consolidated Statements of Operations for the years ended December 31, 1992, 1993, and 1994.............. F-26 Consolidated Statements of Cash Flows for the years ended December 31, 1992, 1993, and 1994.............. F-27 Notes to Consolidated Financial Statements............................................................... F-28 Consolidated Statements of Income for the periods January 1 through October 15, 1994 and 1995 (unaudited)............................................................................................. F-31 Consolidated Statements of Cash Flows for the periods January 1 through October 15, 1994 and 1995 (unaudited)............................................................................................. F-32 Notes to Consolidated Financial Statements (unaudited)................................................... F-33
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Dayton Superior Corporation: We have audited the accompanying consolidated balance sheets of Dayton Superior Corporation (an Ohio corporation) and Subsidiaries as of December 31, 1994 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dayton Superior Corporation and Subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Dayton, Ohio February 10, 1996 (except with respect to the matters discussed in Note 10 as to which the date is June 18, 1996). F-2 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1994 AND 1995 ASSETS
1994 1995 --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS) CURRENT ASSETS: Cash................................................................................. $464 $643 Accounts receivable, net of allowance for doubtful accounts of $764 and $708 (Note 4)......................................... 9,089 11,724 Inventories (Notes 2 and 4).......................................................... 9,724 12,392 Rental equipment, net (Note 2)....................................................... 847 1,235 Prepaid expenses..................................................................... 507 474 Prepaid income taxes................................................................. -- 436 Future income tax benefits (Note 7).................................................. -- 1,393 --------- --------- Total current assets............................................................... 20,631 28,297 --------- --------- PROPERTY, PLANT AND EQUIPMENT (Note 2): Land................................................................................. 496 932 Building and improvements............................................................ 5,263 8,209 Machinery and equipment.............................................................. 11,835 18,419 --------- --------- 17,594 27,560 Less accumulated depreciation........................................................ (8,022) (10,000) --------- --------- Net property, plant and equipment................................................ 9,572 17,560 --------- --------- GOODWILL AND INTANGIBLE ASSETS, net of accumulated amortization (Note 2).............................................. 42,130 57,734 OTHER ASSETS........................................................................... 38 269 --------- --------- Total assets....................................................................... $ 72,371 $ 103,860 --------- --------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 4)........................................... $-- $32 Accounts payable..................................................................... 6,391 8,043 Amounts due to former shareholder (Note 5)........................................... -- 1,000 Accrued interest..................................................................... 4 2,063 Accrued compensation and benefits.................................................... 3,251 3,889 Other accrued liabilities............................................................ 1,624 2,987 Income taxes payable................................................................. 174 -- --------- --------- Total current liabilities.......................................................... 11,444 18,014 LONG-TERM DEBT (Note 4)................................................................ 24,448 52,980 DEFERRED INCOME TAXES (Note 7)......................................................... -- 2,781 OTHER LONG-TERM LIABILITIES............................................................ 1,969 2,600 --------- --------- Total liabilities.................................................................. 37,861 76,375 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 8) REDEEMABLE PREFERRED SHARES (Note 5)................................................... 6,836 -- --------- --------- SHAREHOLDERS' EQUITY: Class A Common shares; no par value; 20,000,000 shares authorized; 2,040,000 and 2,804,500 shares issued; and 2,038,000 and 2,802,500 shares outstanding............. 14,554 17,483 Class B Common shares; no par value; 15,000,000 shares authorized; 873,400 and 485,500 shares issued and outstanding............................................... 1,714 1,942 Cumulative foreign currency translation adjustment................................... (157) (139) Excess pension liability (Note 6).................................................... (295) (50) Retained earnings.................................................................... 11,939 8,330 Treasury shares, Class A Common, 2,000 shares, at cost............................... (81) (81) --------- --------- Total shareholders' equity......................................................... 27,674 27,485 --------- --------- Total liabilities and shareholders' equity....................................... $ 72,371 $ 103,860 --------- --------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. F-3 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ---------- ----------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NET SALES................................................................. $75,154 $82,341 $92,802 COST OF SALES............................................................. 55,427 58,011 63,990 ---------- ----------- ----------- Gross profit............................................................ 19,727 24,330 28,812 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............................. 15,871 18,027 20,189 ---------- ----------- ----------- Income from operations.................................................. 3,856 6,303 8,623 OTHER EXPENSES: Interest expense, net................................................... 10,118 6,017 4,231 Other, net.............................................................. -- 873 (3) ---------- ----------- ----------- Income (loss) before income taxes and extraordinary item................ (6,262) (587) 4,395 PROVISION (BENEFIT) FOR INCOME TAXES...................................... (89) 95 690 ---------- ----------- ----------- Income (loss) before extraordinary item................................. (6,173) (682) 3,705 EXTRAORDINARY ITEM-- Gain on forgiveness of debt, net of income tax effect of $92 (Note 3)... -- 31,354 -- ---------- ----------- ----------- Net income (loss)....................................................... (6,173) 30,672 3,705 Dividends on Redeemable Preferred Shares.................................. -- (361) (470) Accretion on Redeemable Preferred Shares.................................. -- (136) (192) Redemption of Redeemable Preferred Shares in excess of book value......... -- -- (2,972) ---------- ----------- ----------- Net income (loss) available to common shareholders........................ $(6,173) $30,175 $71 ---------- ----------- ----------- ---------- ----------- ----------- Income (loss) per share before extraordinary item......................... $(64.95) $(0.58) $0.02 Extraordinary item per share.............................................. -- 15.50 -- ---------- ----------- ----------- Net income (loss) per share............................................... $(64.95) $14.92 $0.02 ---------- ----------- ----------- ---------- ----------- ----------- Weighted average common and common equivalent shares outstanding.......... 95,039 2,021,918 3,560,808 ---------- ----------- ----------- ---------- ----------- -----------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. F-4 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
CUMULATIVE CLASS A CLASS B FOREIGN COMMON SHARES COMMON SHARES CURRENCY EXCESS ---------------------- ---------------------- SUBSCRIPTIONS TRANSLATION PENSION SHARES AMOUNT SHARES AMOUNT RECEIVABLE ADJUSTMENT LIABILITY --------- ----------- --------- ----------- ----------------- ------------- ----------- (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Balances, December 31, 1992....... 40,000 $ 10,000 10,000 $-- $-- $ (83 ) $-- Net loss.......................... Foreign currency translation adjustment....................... (33 ) Excess pension liability adjustment....................... (150) Reclassification of notes receivable from stock issuance... (268 ) --------- ----------- --------- ----------- ------ ------ ----------- Balances, December 31, 1993....... 40,000 10,000 10,000 -- (268 ) (116 ) (150) Net income........................ Foreign currency translation adjustment....................... (41 ) Excess pension liability adjustment....................... (145) Cancellation of notes receivable from stock issuance.............. 268 Issuance of Common Shares and warrants in exchange for debt, net of issuance costs (Note 3)... -- 554 863,400 1,714 Dividends on Redeemable Preferred Class A Shares, $7.22 per share............................ Accretion on Redeemable Preferred Class B Shares................... Issuance of Common Shares for cash............................. 2,000,000 4,000 --------- ----------- --------- ----------- ------ ------ ----------- Balances, December 31, 1994....... 2,040,000 14,554 873,400 1,714 -- (157 ) (295) Net income........................ Foreign currency translation adjustment....................... 18 Excess pension liability adjustment....................... 245 Dividends on Redeemable Preferred Class A Shares, $9.40 per share............................ Accretion on Redeemable Preferred Class B Shares................... Acquisition of Common Shares (Note 5)............................... (873,400) (1,714 ) Redemption of Redeemable Preferred Shares (Note 5).................. Issuance of Common Shares for cash, net of issuance costs...... 764,500 2,929 485,500 1,942 --------- ----------- --------- ----------- ------ ------ ----------- Balances, December 31, 1995....... 2,804,500 $ 17,483 485,500 $ 1,942 $-- $ (139 ) $(50) --------- ----------- --------- ----------- ------ ------ ----------- --------- ----------- --------- ----------- ------ ------ ----------- RETAINED TREASURY SHARES EARNINGS (ACCUMULATED ------------------------ DEFICIT) SHARES AMOUNT TOTAL -------------- ----------- ----------- --------- Balances, December 31, 1992....... $ (12,063 ) 350 $ (78 ) $ (2,224) Net loss.......................... (6,173 ) (6,173) Foreign currency translation adjustment....................... (33) Excess pension liability adjustment....................... (150) Reclassification of notes receivable from stock issuance... (268) -------------- ----- --- --------- Balances, December 31, 1993....... (18,236 ) 350 (78 ) (8,848) Net income........................ 30,672 30,672 Foreign currency translation adjustment....................... (41) Excess pension liability adjustment....................... (145) Cancellation of notes receivable from stock issuance.............. 1,650 (3 ) 265 Issuance of Common Shares and warrants in exchange for debt, net of issuance costs (Note 3)... 2,268 Dividends on Redeemable Preferred Class A Shares, $7.22 per share............................ (361 ) (361) Accretion on Redeemable Preferred Class B Shares................... (136 ) (136) Issuance of Common Shares for cash............................. 4,000 -------------- ----- --- --------- Balances, December 31, 1994....... 11,939 2,000 (81 ) 27,674 Net income........................ 3,705 3,705 Foreign currency translation adjustment....................... 18 Excess pension liability adjustment....................... 245 Dividends on Redeemable Preferred Class A Shares, $9.40 per share............................ (470 ) (470) Accretion on Redeemable Preferred Class B Shares................... (192 ) (192) Acquisition of Common Shares (Note 5)............................... (3,680 ) (5,394) Redemption of Redeemable Preferred Shares (Note 5).................. (2,972 ) (2,972) Issuance of Common Shares for cash, net of issuance costs...... 4,871 -------------- ----- --- --------- Balances, December 31, 1995....... $ 8,330 2,000 $ (81 ) $ 27,485 -------------- ----- --- --------- -------------- ----- --- ---------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. F-5 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1993 1994 1995 ---------- ------------ ------------ (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)...................................................................... $ (6,173) $30,672 $3,705 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary gain on forgiveness of debt............................................ -- (31,354) -- Depreciation......................................................................... 1,914 2,194 2,777 Amortization of goodwill and intangibles............................................. 1,303 1,305 1,491 Deferred income taxes................................................................ -- -- (120) Amortization of debt discount and deferred financing costs........................... 582 385 409 Loss (gain) on sales of assets....................................................... (71) 16 (17) Change in assets and liabilities, net of effects of acquisition of Dur-O-Wal, Inc. and Subsidiary: Accounts receivable.................................................................. (1,291) (1,580) 206 Inventories.......................................................................... (309) (1,692) (1,175) Prepaid income taxes and income taxes payable........................................ (138) 224 (473) Accounts payable..................................................................... 538 2,038 (425) Accrued liabilities.................................................................. 6,862 (9,954) 1,989 Other, net........................................................................... (714) 170 (141) ---------- ------------ ------------ Net cash provided by (used in) operating activities................................ 2,503 (7,576) 8,226 ---------- ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions, net........................................... (1,647) (2,082) (2,730) Proceeds from sales of assets.......................................................... 30 7 37 Acquisition of Dur-O-Wal, Inc. and Subsidiary, net of cash acquired (Note 1)........... -- -- (23,628) ---------- ------------ ------------ Net cash used in investing activities.............................................. (1,617) (2,075) (26,321) ---------- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid on Redeemable Preferred Shares.......................................... -- (361) (470) Repayments of long-term debt........................................................... -- (23,369) (98) Issuance of long-term debt............................................................. -- 24,414 28,594 Issuance of Common Shares and warrants................................................. -- 4,554 4,871 Financing costs and fees............................................................... -- (1,326) (247) Acquisition of Common Shares........................................................... -- -- (4,394) Redemption of Redeemable Preferred Shares.............................................. -- -- (10,000) ---------- ------------ ------------ Net cash provided by financing activities.......................................... -- 3,912 18,256 ---------- ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................................. (33) (41) 18 ---------- ------------ ------------ Net increase (decrease) in cash.................................................... 853 (5,780) 179 CASH, beginning of year.................................................................. 5,391 6,244 464 ---------- ------------ ------------ CASH, end of year........................................................................ $6,244 $464 $643 ---------- ------------ ------------ ---------- ------------ ------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. F-6 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) THE COMPANY The accompanying consolidated financial statements include the accounts of Dayton Superior Corporation and its wholly owned subsidiaries, Dayton Superior Canada Ltd. and commencing as of October 16, 1995, Dur-O-Wal, Inc., and Dur-O-Wal Limited (collectively referred to as the "Company"). All significant intercompany transactions have been eliminated. The Company operates in one segment, manufacturing and distributing concrete and masonry accessories. The Company is the largest North American manufacturer and distributor of specialized metal accessories used primarily in concrete construction and masonry construction. The Company's products are used primarily in two segments of the construction industry: non-residential building projects such as institutional buildings, retail sites, commercial offices and manufacturing facilities; and infrastructure projects such as highways, bridges, utilities, water and waste treatment facilities and airport runways. The Company believes that its distribution system is the largest in its industry, consisting of a network of 22 Company-operated service/distribution centers in the United States and Canada and over 3,000 customers, including stocking dealers, brokers, rebar fabricators, precast concrete manufacturers and concrete block manufacturers. The Company employs approximately 240 salaried and 470 hourly personnel, of whom approximately 300 of the hourly personnel and five of the salaried personnel are represented by labor unions. A collective bargaining agreement expiring in 1996 covers five salaried employees at the Company's Santa Fe Springs facility. As of December 31, 1994, Dayton Superior Corporation was a 52%-owned, indirect subsidiary of Onex Corporation ("Onex"), an Ontario corporation listed on the Toronto and Montreal Stock Exchanges. During October 1995, 98% of Onex's shares in the Company were transferred to Ripplewood Holdings L.L.C. ("Ripplewood"). Ripplewood holds 50.4% of the common shares of the Company as of December 31, 1995. Onex is a minority shareholder of Ripplewood. On October 16, 1995, the Company purchased all of the outstanding shares of Dur-O-Wal, Inc., a Chicago-area based manufacturer of masonry wall reinforcement products with seven manufacturing and distribution facilities throughout the United States and Canada. Sales are made principally to masonry block manufacturers and wholesalers of masonry materials throughout the United States and Canada. The purchase price of $21,875, plus acquisition costs of $1,766, was financed by draws on the line of credit, which aggregated $8,641, and new Senior Promissory Notes of $15,000. The acquisition has been accounted for as a purchase, and the results of Dur-O-Wal, Inc. and its subsidiary have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition has been allocated on the basis of appraised fair value of the assets acquired and liabilities assumed. Certain appraisals and evaluations are preliminary estimates and may change during 1996. In management's opinion, the preliminary allocation of the purchase price is not expected to differ materially from the final allocation. Cash.............................................................. $13 Other current assets.............................................. 5,948 Property, plant and equipment..................................... 7,620 Other assets...................................................... 267 Goodwill.......................................................... 17,167 --------- Total assets acquired........................................... 31,015 Liabilities assumed............................................... (7,374) --------- Net assets acquired............................................. $ 23,641 --------- ---------
F-7 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) THE COMPANY (CONTINUED) The unaudited consolidated results of operations on a pro forma basis as though Dur-O-Wal, Inc. had been acquired as of the beginning of 1994 are as follows:
1994 1995 ----------- ----------- Net sales........................................................... $ 106,965 $ 113,695 Gross profit........................................................ 30,421 33,718 Income before extraordinary item.................................... 487 3,404 Income (loss) before extraordinary item available for common shareholders....................................................... (10) (230) Income (loss) per share before extraordinary item................... (0.00) (0.08)
The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the Dur-O-Wal, Inc. acquisition been consummated as of the above date, nor are they necessarily indicative of future operating results. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) INVENTORIES--Substantially all finished products and raw materials are stated at the lower of last-in, first-out ("LIFO") cost (which approximates current cost) or market. The net realizable value reserves reflect the Company's best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value. The reserve is measured by taking an analysis of inventory with low sales during the year and comparing the net realizable value of these items to their cost. Following is a summary of the components of inventories as of December 31, 1994 and 1995, net of net realizable value reserves of $368 and $770, respectively:
1994 1995 --------- --------- Raw materials........................................................... $ 2,145 $2,562 Finished goods.......................................................... 7,579 9,830 --------- --------- 9,724 12,392 LIFO Reserve............................................................ -- -- --------- --------- $ 9,724 $ 12,392 --------- --------- --------- ---------
(b) PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are valued at cost and depreciated over their estimated useful lives using straight-line and accelerated methods. Following is a summary of estimated useful lives: Building and improvements...................................... 10-20 years Machinery and equipment........................................ 5-10 years
Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the improvement. Improvements and replacements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. (c) RENTAL EQUIPMENT--Rental equipment is manufactured by the Company for resale and for rent to others on a short-term basis. Rental equipment is amortized over the estimated useful life of the equipment, six years, on an accelerated method. The balances as of December 31, 1994 and 1995, are net of accumulated amortization of $1,161 and $1,438, respectively. Annual amortization is charged to cost of sales. Rental revenues account for less than 10% of the Company's net sales. F-8 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) INCOME TAXES--Deferred income taxes are determined by applying current statutory tax rates to the cumulative temporary differences between the carrying value of assets and liabilities for financial reporting and tax purposes. (e) GOODWILL AND INTANGIBLE ASSETS--Goodwill and intangible assets are recorded at the date of acquisition at their allocated cost. Amortization is provided over the estimated useful lives of the assets as disclosed below:
ACCUMULATED AMORTIZATION BALANCE AT AMORTIZATION ORIGINAL (STRAIGHT-LINE) AT DECEMBER 31, DESCRIPTION PERIOD-YEARS COST DECEMBER 31, 1995 1995 - ----------------------------- ----------------- --------- --------------------- -------------- Goodwill..................... 40 $ 64,207 $ (7,634) $ 56,573 Deferred financing costs..... 3-8 1,287 (250) 1,037 License agreement and other....................... 1-5 110 (43) 67 Deferred pension costs....... -- 57 -- 57
The carrying value of goodwill is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of undiscounted future expected cash flows from the use and ultimate disposition of the asset. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 establishes standards on accounting for the impairment of long-lived assets, goodwill, intangibles and assets to be disposed of. The Company is required to adopt SFAS 121 no later than January 1, 1996. The Company does not believe that the adoption will have a material impact on its consolidated financial statements. (f) FOREIGN CURRENCY TRANSLATION ADJUSTMENT--The financial statements and transactions of Dayton Superior Canada Ltd. and Dur-O-Wal, Ltd. are maintained in their functional currency (Canadian dollars) and are then translated into U.S. dollars. The balance sheets are translated at end of year rates while revenues, expenses and cash flows are translated at weighted average rates throughout the year. Translation adjustments, which result from the process of translating Canadian dollar financial statements to U.S. dollars, are accumulated in a separate component of shareholders' equity. (g) NET INCOME (LOSS) PER SHARE--Net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common and common share equivalents outstanding (adjusted for the stock split discussed in Note 10a) during the year. Common share equivalents include the number of shares issuable upon the exercise of outstanding options and warrants to purchase 346,600 Class A Common Shares, less the shares that could be purchased with the proceeds from the exercise of the options and warrants, based on an assumed initial public offering price of $13.50 per share. For the purposes of calculating net income (loss) per common and common equivalent share, common equivalent shares issued more than 12 months prior to the initial public offering are excluded in periods with a net loss available to common shareholders. Common equivalent shares issued less than 12 months prior to the initial public offering are included for all periods presented. F-9 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) STATEMENT OF CASH FLOWS--Cash and cash equivalents include all highly liquid investments with a maturity of three months or less at time of purchase. Following are additional cash flow disclosures for the years ended December 31, 1993, 1994, and 1995:
1993 1994 1995 --------- --------- --------- Cash paid for income taxes................................... $53 $1 $ 1,132 Cash paid for interest....................................... 1,989 16,590 1,763 Accretion of Redeemable Preferred Shares..................... -- 136 192 Issuance of Common Shares and Redeemable Preferred Shares in exchange for debt........................................... -- 8,414 -- Payable for acquisition of Common Shares..................... -- -- 1,000
(i) USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Examples of accounts in which estimates are used include the reserve for excess and obsolete inventory, the allowance for doubtful accounts, the accrual for self-insured employee medical claims, the self- insured product and general liability accrual, the self-insured workers' compensation accrual, the valuation allowance for deferred tax assets, and actuarial assumptions used in determining pension benefits. (3) EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT During May 1994, the Company consummated an agreement with its lenders to restructure its debt as a result of being in default on certain financial covenants and being unable to make payments of principal and interest as they came due. The following debt instruments and related items were retired: Revolving line of credit.......................................... $7,000 Senior Promissory Note............................................ 35,000 Senior Subordinated Promissory Notes.............................. 20,000 Junior Subordinated Notes Payable................................. 2,680 Unamortized debt discount......................................... (559) Financing costs................................................... (559) --------- $ 63,562 ---------
The Company funded the restructuring by issuing the following package of cash and securities to the former debt holders. The market value of the Redeemable Preferred Shares was determined by independent appraisal. The new Senior Promissory Notes were issued to and the revolving line of credit was established with third parties unrelated to the former debt holders. Cash.............................................................. $ 23,369 863,400 Class B Common Shares, valued at.......................... 1,714 50,000 Redeemable Preferred Shares, valued at market value of..... 5,000 50,000 Zero Coupon Redeemable Preferred Shares (redemption value $5,000), valued at market value of............................... 1,700 --------- 31,783 --------- Gain before related expenses and tax effect....................... $ 31,779 --------- ---------
F-10 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (3) EXTRAORDINARY GAIN ON FORGIVENESS OF DEBT (CONTINUED) In addition, the Company paid $14,631 of accrued but unpaid interest. The Company funded the cash portion of the transaction through cash on hand of $2,970, the issuance of Class A Common Shares to its principal shareholder for $4,000, the issuance of the Senior Notes due 2002 (which included the warrants to acquire 346,600 Class A Common Shares at $0.000002 per share and expire in 2002) for $25,000 and the establishment of a $20,000 revolving credit facility under which it drew $6,030. As a result of the transaction, the Company's debt was reduced by $33,767 and the Company recognized an extraordinary gain of $31,354 (net of tax effect of $92). (4) CREDIT ARRANGEMENTS Following is a summary of the Company's credit arrangements as of December 31, 1994 and 1995: (a) REVOLVING LINES OF CREDIT--During October 1995, the Company entered into two revolving line of credit agreements (the "Credit Facility") totalling $30,000 through December 1, 1999. The amount available under these agreements is limited to the sum of (a) 85% of eligible accounts receivable, (b) the lesser of $10,000 or 60% of eligible inventories, and (c) $5,000. At December 31, 1995, the Company had $21,832 available under these agreements, of which $13,280 was outstanding. These agreements replaced a May 1994, $19,000 revolving line of credit agreement with two banks and a CDN $1,000 revolving line of credit agreement with a Canadian affiliate of one of the banks. Borrowings outstanding under these agreements bear interest at prime plus 0.25% (8.75% at December 31, 1995), 30- or 60-day LIBOR plus 2.75% (8.539% and 8.6133%, respectively, at December 31, 1995) and 8.59% fixed through October 31, 1996, as selected by the Company. A commitment fee of 0.25% per annum is payable on the average unused amount. Average borrowings under these agreements and their predecessors were $7,000, $4,823, and $3,852 during 1993, 1994 and 1995, respectively, at an approximate weighted average interest rate of 7.5%, 8.2%, and 10.2%, respectively. The maximum borrowings outstanding during 1993, 1994, and 1995 were $7,000, $7,000 and $18,400, respectively. These agreements contain certain restrictive covenants, which require that, among other things, the Company maintain a minimum tangible net worth and limit its debt to tangible net worth ratio, capital expenditures and dividend payments. The Company was in compliance with the covenants as of December 31, 1995. F-11 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (4) CREDIT ARRANGEMENTS (CONTINUED) (b) LONG-TERM DEBT--Following is a summary of the Company's long-term debt as of December 31, 1994 and 1995:
1994 1995 --------- --------- Unsecured Senior Promissory Notes, interest at 11.75% payable semi-annually, payable in annual installments of $6,250 beginning December 31, 1999, through December 31, 2002.......................... $ 25,000 $ 25,000 Unamortized debt discount.............................................. (642) (575) Revolving lines of credit.............................................. 90 13,280 Unsecured Senior Promissory Notes, interest at 11.75% payable semi-annually, payable in annual installments of $3,750 beginning October 16, 2000, through October 16, 2003............................ -- 15,000 City of Parsons, Kansas Economic Development Loan, interest at 7.0% payable quarterly, payable in quarterly installments of $8 through July 2005, secured by real estate in Parsons.......................... -- 307 --------- --------- Total long-term debt................................................... 24,448 53,012 Less current portion................................................... -- (32) --------- --------- Long-term portion...................................................... $ 24,448 $ 52,980 --------- --------- --------- ---------
Scheduled maturities of long-term debt, excluding the effect of unamortized debt discount, are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ----------------------------------------------------------------------------------- --------- 1996............................................................................... $32 1997............................................................................... 32 1998............................................................................... 32 1999............................................................................... 19,562 2000............................................................................... 10,032 Thereafter......................................................................... 23,897 --------- $ 53,587 --------- ---------
The fair market value of the Company's fixed-rate long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. The estimated fair value of the City of Parsons, Kansas Economic Development Loan is approximately $250. The estimated fair values of the Senior Promissory Notes and Revolving Line of Credit approximate their face values. The new Senior Promissory Notes contain certain restrictive covenants, which require that, among other things, the Company maintain a minimum tangible net worth, a minimum current ratio, a minimum interest coverage ratio and limit its debt to equity ratio and its ability to pay dividends on Common Shares. The new Senior Promissory Notes contain a prepayment premium. The Company was in compliance with its loan covenants as of December 31, 1995. F-12 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (5) COMMON AND REDEEMABLE PREFERRED SHARES (a) REDEEMABLE PREFERRED SHARES--The Class A Redeemable Preferred Shares had a liquidation preference of $5,000. Dividends accrued at a rate of 12% and were payable semiannually. The Class B Redeemable Preferred Shares were recorded at their estimated fair market value ($1,700) on the date of issuance. The difference between the fair market value and the liquidation value was being accreted to retained earnings at an effective rate of approximately 13%. During October 1995, the Company purchased all of its Redeemable Preferred Shares from the holders at the $10,000 liquidation value. The difference between the liquidation value and the book value was charged to retained earnings. (b) COMMON SHARES--The following Common Share transactions occurred during 1994: - - Issuance of 863,400 Class B Common Shares to former debt holder (Note 3)..................................................................... 1,714 - - Issuance of warrants to holder of new Senior Promissory Notes to acquire 346,600 Class A Common Shares, net of issuance costs (Note 3).......... 554 - - Issuance of 2,000,000 Class A Common Shares to existing Class A shareholders for cash............................................................... 4,000 The following Common Share transactions occurred during 1995: - - Redemption of 873,400 Class B Common Shares for $4,394 of cash and a $1,000 payable due in 1996............................................. (5,394) - - Issuance of 764,500 Class A Common Shares to management, existing shareholders and two individuals, net of issuance costs................ 2,929 - - Issuance of 485,500 Class B Common Shares to holders of Senior Promissory Notes....................................................... 1,942
(c) STOCK OPTION PLANS--On May 26, 1994, the Company terminated the existing stock option plan and canceled all related outstanding options. The Company then approved a new stock option plan and granted options to certain members of management to purchase 208,250 Class A Common Shares. The option price is $1.96 per share, which was fair market value based on third-party transactions occurring at that time. The options become exercisable upon the third anniversary of the date the options were granted. Under certain conditions, including a qualified public offering, options granted to an optionee will become immediately exercisable. All options expire 10 years from the date of issuance. On October 11, 1995, the Company approved a new stock option plan, granting options to certain members of management to purchase 64,500 Class A Common Shares. The option price is $4.00 per share, which was fair market value based on third-party transactions occurring at that time. The options become exercisable upon the third anniversary of the date the options were granted. Under certain conditions, including a qualified public offering, options granted to an optionee will become immediately exercisable. All options expire 10 years from the date of issuance. In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation," which establishes new accounting and disclosure requirements for stock-based employee compensation plans. The Company will adopt this standard in fiscal 1996 by continuing to follow the accounting prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and presenting the required pro forma disclosures. Therefore, the application of this standard will not have a material impact on the Company's financial position or results of operations. F-13 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (5) COMMON AND REDEEMABLE PREFERRED SHARES (CONTINUED) A summary of changes in options for Class A Common Shares for the years ended December 31, 1993, 1994, and 1995 is as follows:
NUMBER OF PRICE PER SHARES SHARE ----------- -------------- Outstanding at December 31, 1992................................. 1,000 $250.00 Granted.......................................................... 300 250.00 Exercised........................................................ -- -- Canceled......................................................... -- -- ----------- -------------- Outstanding at December 31, 1993................................. 1,300 250.00 Granted.......................................................... 208,250 1.96 Exercised........................................................ -- -- Canceled......................................................... (1,300) 250.00 ----------- -------------- Outstanding at December 31, 1994................................. 208,250 1.96 Granted.......................................................... 64,500 4.00 Exercised........................................................ -- -- Canceled......................................................... -- -- ----------- -------------- Outstanding at December 31, 1995................................. 272,750 $1.96-$4.00 ----------- -------------- ----------- -------------- Exercisable at: December 31, 1993.............................................. 350 $250.00 December 31, 1994.............................................. -- -- December 31, 1995.............................................. -- --
All of the options outstanding would be exercisable upon completion of a qualified public offering. (6) BENEFIT PLANS The Company has pension or profit sharing plans covering substantially all of its employees. The Company does not provide any other post-employment benefits. (a) COMPANY-SPONSORED PENSION PLANS--The pension plans cover virtually all salaried and hourly employees not covered by multi-employer pension plans and provide benefits of stated amounts for each year of credited service. The Company funds such plans at a rate that meets or exceeds the minimum amounts required by applicable regulations. The plans' assets are primarily invested in mutual funds comprised primarily of common stock and corporate and U.S. government obligations. In determining the amounts below, the Company has used 7% in 1994 and 1995 for its weighted average discount rate and has used 8% in 1994 and 1995 for its expected rate of return on assets assumptions. Effective May 1, 1994, the Company amended the benefit obligation of The Dayton Superior Corporation Pension Plan for the Parsons union employees so that these employees do not earn additional benefits for future services. The Parsons union employees are now covered by a multi-employer pension plan. Future service will be counted towards vesting of benefits accumulated based on past service. This event qualifies as a curtailment of a defined benefit plan. Accordingly, the unrecognized prior service cost has been recognized and is included as a curtailment loss of $33. The Company does not intend to terminate the plan. F-14 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (6) BENEFIT PLANS (CONTINUED) The components of pension expense for these plans for the years ended December 31, 1993, 1994 and 1995 are as follows:
1993 1994 1995 --------- --------- --------- Service cost.............................................................. $363 $426 $459 Interest on projected benefit obligation.................................. 301 325 366 Actual return on plan assets.............................................. (266) (49) (1,047) Net amortization and deferral............................................. (1) (268) 720 Curtailment loss.......................................................... -- 33 -- --------- --------- --------- Total..................................................................... $397 $467 $498 --------- --------- --------- --------- --------- ---------
The Company-sponsored pension plans' funded status as of December 31, 1994 and 1995 are as follows:
1994 ----------------------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS TOTAL --------------- ------------- --------- Actuarial present value of benefit obligations: Vested benefit obligation.................................. $ 2,209 $ 1,903 $ 4,112 ------- ------------- --------- ------- ------------- --------- Accumulated benefit obligation............................. $ 2,346 $ 2,142 $ 4,488 ------- ------------- --------- ------- ------------- --------- Projected benefit obligation............................... $ 3,090 $ 2,142 $ 5,232 Plan assets at fair market value............................. 2,506 1,679 4,185 ------- ------------- --------- Projected benefit obligation in excess of plan assets........ 584 463 1,047 Unrecognized net loss........................................ (220) (295) (515) Prior service cost not yet recognized in net periodic pension costs....................................................... -- (63) (63) Adjustment required to recognize minimum liability........... -- 358 358 ------- ------------- --------- Pension liability............................................ $364 $463 $827 ------- ------------- --------- ------- ------------- ---------
F-15 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (6) BENEFIT PLANS (CONTINUED)
1995 ----------------------------------------- ASSETS EXCEED ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED ASSETS TOTAL --------------- ------------- --------- Actuarial present value of benefit obligations: Vested benefit obligation.................................. $ 2,576 $ 2,145 $ 4,721 ------- ------------- --------- ------- ------------- --------- Accumulated benefit obligation............................. $ 2,687 $ 2,244 $ 4,931 ------- ------------- --------- ------- ------------- --------- Projected benefit obligation............................... $ 3,688 $ 2,244 $ 5,932 Plan assets at fair market value............................. 3,211 2,050 5,261 ------- ------------- --------- Projected benefit obligation in excess of plan assets........ 477 194 671 Unrecognized net loss........................................ 130 (48) 82 Prior service cost not yet recognized in net periodic pension costs....................................................... -- (57) (57) Adjustment required to recognize minimum liability........... -- 108 108 ------- ------------- --------- Pension liability............................................ $607 $197 $804 ------- ------------- --------- ------- ------------- ---------
As of December 31, 1994 and 1995, the minimum liability is reflected as intangible assets of $63 and $57, respectively, and a reduction of shareholders' equity of $295 and $50, respectively. (b) MULTI-EMPLOYER PENSION PLANS--Approximately 14% of the Company's employees are currently covered by collectively bargained, multi-employer pension plans. Contributions are determined in accordance with the provisions of negotiated union contracts and generally are based on the number of hours worked. The Company does not have the information available to determine its share of the accumulated plan benefits or net assets available for benefits under the multi-employer pension plans. The aggregate amount charged to expense under these plans was $23, $61, and $77 for the years ended December 31, 1993, 1994 and 1995, respectively. (c) 401(K) SAVINGS PLAN--Virtually all employees are eligible to participate in Company sponsored 401(k) savings plans. Company matching contributions vary from 0% to 50% (on the first 2%) according to terms of the individual plans and collective bargaining agreements. The aggregate amount charged to expense under these plans was $172, $218, and $242 for the years ended December 31, 1993, 1994, and 1995, respectively. (7) INCOME TAXES The following is a summary of the components of the Company's income tax provision (benefit) for the years ended December 31, 1993, 1994, and 1995:
1993 1994 1995 --------- ----- --------- Currently payable (receivable): Federal....................................................................... $ (41) $ 30 $789 State and local............................................................... (48) 65 21 Deferred........................................................................ -- -- (120) --- --- --------- Total provision (benefit)....................................................... $ (89) $ 95 $690 --- --- --------- --- --- ---------
F-16 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (7) INCOME TAXES (CONTINUED) The effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 1993, 1994, and 1995 for the following reasons:
1993 1994 1995 ----------- ----------- ----------- Statutory income tax rate............................................. 34.0% 34.0% 34.0% State income taxes (net of federal tax benefit)....................... (0.3) (7.2) 0.3 Unrecognized benefit of losses........................................ (25.8) (7.2) -- Reduction in valuation allowance...................................... -- 42.6 (29.5) Nondeductible goodwill amortization................................... (6.7) (78.4) 10.4 Incremental Canadian income tax rate.................................. 0.3 -- -- Other, net............................................................ -- -- 0.5 ----- ----- ----- Effective income tax rate............................................. 1.5% (16.2)% 15.7% ----- ----- ----- ----- ----- -----
The components of the Company's future income tax benefits and deferred tax liabilities as of December 31, 1994 and 1995 are as follows:
1994 1995 --------- --------- Current deferred taxes: Net operating loss carryforwards................................................ $1,860 $-- Inventory reserves.............................................................. (847) (868) Allowance for doubtful accounts................................................. 285 267 Alternative minimum tax credit carryforwards.................................... 95 563 Accrued liabilities............................................................. 1,063 1,465 Other........................................................................... 4 (34) Valuation allowance............................................................. (1,297) -- --------- --------- Total......................................................................... 1,163 1,393 --------- --------- Long-term deferred taxes: Accelerated depreciation........................................................ (1,323) (3,509) Other long-term liabilities..................................................... 306 865 Other........................................................................... (146) (137) --------- --------- Total......................................................................... (1,163) (2,781) --------- --------- Net deferred taxes............................................................ $-- $ (1,388) --------- --------- --------- ---------
As of December 31, 1994, the Company had recorded a valuation allowance on the net deferred tax asset as realization of this asset was uncertain. During 1995, the Company eliminated its valuation allowance due to the utilization of its net operating loss carryforwards. F-17 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (8) COMMITMENTS AND CONTINGENCIES (a) OPERATING LEASES--Rental expense for property, plant and equipment (principally office and warehouse facilities and office equipment) was $990, $1,163 and $1,288 for the years ended December 31, 1993, 1994, and 1995, respectively. Terms generally range from one to ten years and some contain renewal options. The approximate aggregate minimum annual rental commitments under non-cancelable operating leases are as follows:
YEAR ENDING DECEMBER 31, AMOUNT - ------------------------------------------------------------------------------------ --------- 1996................................................................................ $ 1,510 1997................................................................................ 1,308 1998................................................................................ 947 1999................................................................................ 653 2000................................................................................ 270 --------- $ 4,688 --------- ---------
(b) LITIGATION--The Company is a defendant in various legal proceedings arising out of the conduct of its business. While the ultimate outcome of these lawsuits cannot be determined at this time, management is of the opinion that any liability, notwithstanding recoveries from insurance, would not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. (c) SELF-INSURANCE--The Company is self-insured for certain of its group medical, workers' compensation and product and general liability claims. The Company has stop loss insurance coverage at various per occurrence and per annum levels depending on type of claim. The Company consults with third party administrators to estimate the reserves required for these claims. No material revisions were made to the estimates for the years ended December 31, 1993, 1994 and 1995.The estimated range of losses for possible self-insurance losses as of December 31, 1995 is $1,000 to $2,500, and the Company has reserved $2,021. (9) RELATED PARTY TRANSACTIONS During 1995, the Company paid Ripplewood a management fee of $30. The Company will pay Ripplewood a fee of $600 at the time the initial public offering is completed for additional services provided in connection with the offering and related transactions. See Note 10(b). In addition, the Company reimburses Ripplewood for the allocable costs of certain insurance policies purchased by Ripplewood which cover both the Company and Ripplewood. Approximately $175 of such costs were allocated to the Company for the period October 13, 1995 through October 13, 1996. The Company paid a director/shareholder a management fee of $156 in 1993 and $25 in each of 1994 and 1995. The Company paid Onex a management fee of $94, $225, and $195 in 1993, 1994 and 1995, respectively. In addition, in October 1995, the Company paid Onex a fee of $400 for financial advisory services in connection with the acquisition of Dur-O-Wal, Inc. and related financing transactions. (10) SUBSEQUENT EVENTS (a) STOCK SPLIT--On June 18, 1996, the Company authorized a 50-for-1 stock split for Class A and B Common Shares. All references in the financial statements to number of shares or share prices have been restated to reflect the split. Immediately prior to the consummation of the Offering, 1,486,550 F-18 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1993, 1994 AND 1995 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (10) SUBSEQUENT EVENTS (CONTINUED) Class A Common Shares held by Ripplewood as of December 31, 1995 and the 36,000 Class A Common Shares acquired by Ripplewood on April 4, 1996 will be converted to 1,522,550 Class B Common Shares. Class B Common Shares have 10 votes per share. (b) PUBLIC OFFERING OF COMPANY SHARES--On March 29, 1996, the Company filed a Registration Statement with respect to Class A Common Shares with a proposed maximum aggregate offering price of $63,825,000. Reference is made to the "Risk Factors" section of the Registration Statement for further discussion. The proceeds from the sale of the Company's shares will be used to repay the Unsecured Senior Promissory Notes described in Note 4, totalling $40,000, plus accrued interest thereon and a prepayment premium of $2,400 negotiated by the Company. If the offering had occurred on January 1, 1995, net income for the year ended December 31, 1995, would have been $5,290 and earnings per share would have been $0.30. All stock options described in Note 5 and the warrants described in Note 3 become immediately exercisable upon the closing of the offering. There is no effect on the accounting treatment of the stock options and warrants as a result of the accelerated exercisability because there has been no change to the provisions of the stock options and warrants. There has been no change to the number of shares or price per share, and the accelerated exercisability feature existed on the date of grant. (c) ACQUISITION--On April 29, 1996, the Company acquired certain of the assets and assumed certain of the liabilities of a privately held concrete paving products manufacturer based in Kankakee, Illinois for cash. The purchase price, including acquisition costs, is estimated to be approximately $5,000 and is subject to post-closing adjustments. (d) AMENDMENT TO CREDIT ARRANGEMENTS--On June 17, 1996, the Company entered into an Amended Credit Facility (as so amended, the Amended Credit Facility) with Bank One, Dayton, NA and Bank of America Illinois (collectively, the "Banks") conditional upon consummation of the offering and will pay a commitment fee of $170 to the Banks in connection therewith. The Amended Credit Facility will provide for (i) a Term Loan and (ii) a Revolving Credit Facility. Amounts available under the Revolving Credit Facility will be equal to the lesser of (i) $37,000 or (ii) the sum of (x) 85% of eligible accounts receivable, (y) 60% of eligible inventories and (z) an amount up to $12,000 upon closing of the offering, decreasing in steps to zero on October 1, 1997. At March 29, 1996, if the Revolving Credit Facility had been in place, $29,700 would have been available thereunder, of which $17,070 of borrowings would have been outstanding. The Revolving Credit Facility will terminate in four years, with interest options based on (a) Bank One, Dayton, NA's prime rate or (b) LIBOR plus an amount between 1.00% and 2.75% (LIBOR plus 1.75% immediately following the offering) depending on the level of certain financial ratios. A commitment fee of between 0.125% and 0.50% per annum will be payable on the average unused amount depending on the level of certain financial ratios (0.25% per annum immediately following the offering). The principal amount of the Term Loan initially will be $13,000, but, upon completion of appraisals of the Company's fixed assets, will be the lesser of $13,000 or 70% of the appraised value of the Company's fixed assets. An appraisal is currently being conducted and will be completed within 60 days of the consummation of the offering. If the appraised value of the Company's fixed assets is equal to the depreciated book value of such assets at March 29, 1996, the amount of the Term Loan will be $12,185. The Term Loan will be due in full four years from its date of issuance with mandatory quarterly principal payments of $813 (subject to adjustment if the amount of the Term Loan is reduced as a result of the appraisals of the Company's fixed assets) plus interest. The Term Loan will permit the Company to choose from various interest rate options. F-19 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND MARCH 29, 1996 ASSETS
DECEMBER 31, 1995 -------------- MARCH 29, 1996 ------------ (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS) CURRENT ASSETS: Cash.............................................................................. $643 $103 Accounts receivable, net of allowance for doubtful accounts of $708 and $720............................................... 11,724 13,221 Inventories (Note 2).............................................................. 12,392 14,664 Rental equipment, net............................................................. 1,235 1,541 Prepaid expenses.................................................................. 474 751 Prepaid income taxes.............................................................. 436 427 Future income tax benefits........................................................ 1,393 1,393 -------------- ------------ Total current assets............................................................ 28,297 32,100 -------------- ------------ PROPERTY, PLANT AND EQUIPMENT (Note 3): 27,560 28,205 Less accumulated depreciation..................................................... (10,000 ) (10,798 ) -------------- ------------ Net property, plant and equipment............................................. 17,560 17,407 -------------- ------------ GOODWILL AND INTANGIBLE ASSETS, net of accumulated amortization.................................................... 57,734 57,276 OTHER ASSETS........................................................................ 269 269 -------------- ------------ Total assets.................................................................... $ 103,860 $ 107,052 -------------- ------------ -------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt........................................ $32 $32 Accounts payable......................................................... 8,043 9,796 Accrued liabilities...................................................... 7,876 6,096 Accrued interest......................................................... 2,063 1,845 ------------ ----------- Total current liabilities.............................................. 18,014 17,769 LONG-TERM DEBT ............................................................ 52,980 56,777 DEFERRED INCOME TAXES...................................................... 2,781 2,729 OTHER LONG-TERM LIABILITIES................................................ 2,600 2,693 ------------ ----------- Total liabilities...................................................... 76,375 79,968 ------------ ----------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Class A Common Shares.................................................... 17,483 17,483 Class B Common Shares.................................................... 1,942 1,942 Cumulative foreign currency translation adjustment....................... (139 ) (139 ) Excess pension liability................................................. (50 ) (50 ) Retained earnings........................................................ 8,330 7,929 Treasury shares, Class A Common, at cost................................. (81 ) (81 ) ------------ ----------- Total shareholders' equity............................................. 27,485 27,084 ------------ ----------- Total liabilities and shareholders' equity........................... $ 103,860 $ 107,052 ------------ ----------- ------------ -----------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. F-20 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE FISCAL MONTHS ENDED MARCH 31, 1995 AND MARCH 29, 1996
MARCH 31, MARCH 29, 1995 1996 ------------ ------------ (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NET SALES............................................................................. $17,977 $23,615 COST OF SALES......................................................................... 12,555 16,146 ------------ ------------ Gross profit........................................................................ 5,422 7,469 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................................... 4,664 6,035 ------------ ------------ Income from operations.............................................................. 758 1,434 OTHER EXPENSES: Interest expense, net............................................................... 909 1,585 Other, net.......................................................................... -- 8 ------------ ------------ Income (loss) before income taxes................................................... (151 ) (159 ) PROVISION FOR INCOME TAXES............................................................ -- 242 ------------ ------------ Net loss............................................................................ (151 ) (401 ) Dividends on Redeemable Preferred Shares.............................................. (150 ) -- Accretion on Redeemable Preferred Shares.............................................. (62 ) -- ------------ ------------ Net loss available to common shareholders............................................. $(363 ) $(401 ) ------------ ------------ ------------ ------------ Net loss per share.................................................................... $(0.12 ) $(0.12 ) ------------ ------------ ------------ ------------ Weighted average common and common equivalent shares outstanding...................... 2,956,789 3,333,389 ------------ ------------ ------------ ------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. F-21 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE FISCAL MONTHS ENDED MARCH 31, 1995 AND MARCH 29, 1996
1995 1996 ------------ ------------ (UNAUDITED) (UNAUDITED) (AMOUNTS)IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................................................ $ (151) $ (401) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation...................................................................... 579 908 Amortization of goodwill and intangibles.......................................... 349 406 Deferred income taxes............................................................. -- (52) Amortization of debt discount and deferred financing costs........................ 73 70 Loss (gain) on sales of assets.................................................... (2) (2) Change in assets and liabilities: Accounts receivable............................................................... (1,428) (1,497) Inventories....................................................................... (2,578) (2,666) Prepaid income taxes.............................................................. (217) 9 Accounts payable.................................................................. 1,269 1,753 Accrued liabilities............................................................... 60 (1,998) Other, net........................................................................ (87) (182) ------------ ------------ Net cash used in operating activities........................................... (2,133) (3,652) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions............................................. (505) (667) Proceeds from sales of assets....................................................... 2 2 ------------ ------------ Net cash used in investing activities........................................... (503) (665) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net..................................................... 2,170 3,777 ------------ ------------ Net cash provided by financing activities....................................... 2,170 3,777 ------------ ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH............................................... 2 -- ------------ ------------ Net increase (decrease) in cash................................................. (464) (540) CASH, beginning of period............................................................. 464 643 ------------ ------------ CASH, end of period................................................................... $ -- $ 103 ------------ ------------ ------------ ------------ SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for income taxes.......................................................... $ 216 $ 248 Cash paid for interest.............................................................. 22 1,783 SUPPLEMENTAL NONCASH DISCLOSURES: Accretion of preferred stock........................................................ 62 -- Accrual of preferred stock dividends................................................ 150 --
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. F-22 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND MARCH 29, 1996 (UNAUDITED) (1) CONSOLIDATED FINANCIAL STATEMENTS The interim consolidated financial statements included herein have been prepared by the Company, without audit, and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's annual financial statements for the year ended December 31, 1995. (2) ACCOUNTING POLICIES The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the Company's consolidated financial statements for the year ended December 31, 1995. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date) and management bonuses. Any adjustments pursuant to such estimates during the fiscal quarter were of a normal recurring nature. (a) FISCAL QUARTER--The Company's fiscal quarters are defined as the periods ending on the last Friday in March, June or September. (b) INVENTORIES--Substantially all finished products and raw materials are stated at the lower of last in, first out (LIFO) cost or market (which approximates current cost). Following is a summary of the components of inventories as of March 29, 1996:
DECEMBER 31, MARCH 29, 1995 1996 -------------- ----------- Raw materials..................................................... $ 2,562 $ 2,996 Finished goods.................................................... 9,830 11,668 -------------- ----------- 12,392 14,664 LIFO reserve...................................................... -- -- -------------- ----------- $ 12,392 $ 14,664 -------------- ----------- -------------- -----------
(c) GOODWILL AND INTANGIBLE ASSETS--In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS 121 establishes standards on accounting for the impairment of long-lived assets, goodwill, intangibles and assets to be disposed of. The Company adopted SFAS 121 on January 1, 1996. There was no effect on the consolidated financial statements as a result of the adoption of SFAS 121. (3) REVOLVING LINES OF CREDIT Borrowings outstanding bear interest at between 8.00% and 8.59% as selected by the Company. A commitment fee of 0.25% per annum is payable on the average unused amount. Average borrowings under the agreements were $14,959 and $1,127 during the three fiscal months ended March 29, 1996 and March 31, 1995, respectively, at an approximate weighted average interest rate of 8.8% and 13.3%, respectively. The maximum borrowings outstanding during the three fiscal months ended March 29, 1996 and March 31, 1995, was $17,240 and $2,590, respectively. F-23 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Dur-O-Wal, Inc. We have audited the accompanying consolidated statements of operations and cash flows of DUR-O-WAL, INC. AND SUBSIDIARY for the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Dur-O-Wal, Inc. and subsidiary for the year ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1(c) to the financial statements, the Company changed its method of accounting for certain inventories in 1994. ALTSCHULER, MELVOIN AND GLASSER LLP Chicago, Illinois April 21, 1995 F-24 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors DUR-O-WAL, Inc. We have audited the accompanying consolidated statements of operations and cash flows of Dur-O-Wal, Inc. and Subsidiary for the years ended December 31, 1992 and 1993. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Dur-O-Wal, Inc. and Subsidiary for the years ended December 31, 1992 and 1993 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Chicago, Illinois April 20, 1994 F-25 DUR-O-WAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1992 1993 1994 --------- --------- --------- (AMOUNTS IN THOUSANDS) Net sales...................................................................... $ 21,469 $ 22,149 $ 25,512 Cost of goods sold............................................................. 14,812 15,385 16,934 Depreciation and amortization.................................................. 832 413 287 --------- --------- --------- Gross profit................................................................... 5,825 6,351 8,291 Selling, general and administrative expenses................................... 4,280 4,343 5,208 Depreciation and amortization.................................................. 792 290 300 --------- --------- --------- Income from operations......................................................... 753 1,718 2,783 Other expenses: Interest..................................................................... 838 726 456 Miscellaneous, net........................................................... 136 297 157 --------- --------- --------- Income (loss) before income tax provision...................................... (221) 695 2,170 Income tax provision........................................................... 55 64 855 --------- --------- --------- Net income (loss).............................................................. $ (276) $ 631 $ 1,315 --------- --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these statements. F-26 DUR-O-WAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
1992 1993 1994 --------- --------- --------- (AMOUNTS IN THOUSANDS) Cash flows from operating activities: Net income (loss)............................................................. $(276) $631 $1,315 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property, plant and equipment............................... 874 443 317 Amortization of goodwill and other assets................................... 750 260 271 Provision (benefit) for deferred income taxes............................... (11) -- 243 Provision for doubtful accounts receivable.................................. 60 26 50 Provision for loss on inventories........................................... -- 125 (9) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable................................ 58 (396) (633) (Increase) decrease in inventories........................................ (137) 749 (792) (Increase) decrease in other current assets............................... 63 (22) 87 Increase in other assets.................................................. -- -- (130) Increase (decrease) in accounts payable................................... 312 (79) 950 Increase (decrease) in accrued expenses................................... (288) 128 315 Decrease in other liabilities............................................. -- -- (76) --------- --------- --------- Net cash provided by operating activities..................................... 1,405 1,865 1,908 --------- --------- --------- Cash flows from investing activities: Capital expenditures.......................................................... (251) (161) (173) --------- --------- --------- Cash flows from financing activities: Borrowings under loan agreements.............................................. 5,594 7,668 -- Repayments under loan agreements.............................................. (6,080) -- (4,000) Repayment of working capital revolver......................................... -- (8,980) (583) Refinancing proceeds from new term loan....................................... -- -- 4,500 Refinancing proceeds from new working capital revolver........................ -- -- 83 Payments under new term loan.................................................. -- -- (1,367) Borrowings under new working capital revolver................................. -- -- 9,524 Payments under new working capital revolver................................... -- -- (9,608) Payments under debt issued in conjunction with acquisition.................... (427) (428) (468) Common stock purchase......................................................... -- (15) -- Proceeds from issuance of common stock........................................ -- -- 5 Increase (decrease) in checks issued in excess of funds on deposit............ (273) 38 170 --------- --------- --------- Net cash used in financing activities......................................... (1,186) (1,717) (1,744) --------- --------- --------- Net effects of exchange rate changes on cash.................................... 44 18 (6) --------- --------- --------- Net increase (decrease) in cash................................................. 12 5 (15) Cash, beginning of year......................................................... 10 22 27 --------- --------- --------- Cash, end of year............................................................... $22 $27 $12 --------- --------- --------- --------- --------- --------- Supplemental disclosures of cash flows information: Cash paid during the year for: Interest.................................................................. $846 $739 $505 Income taxes.............................................................. 78 100 468
The accompanying notes are an integral part of these statements. F-27 DUR-O-WAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1992, 1993 AND 1994 (AMOUNTS IN THOUSANDS) (1) NATURE OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) NATURE OF ACTIVITIES--Dur-O-Wal, Inc. and its wholly-owned subsidiary, Dur-O-Wal Limited (together referred to as "the Company"), are engaged in the manufacture of masonry wall reinforcement products, sold principally to masonry block manufacturers and wholesalers of masonry materials throughout the United States and Canada. Operations are conducted from company owned premises in Aurora, Illinois and Baltimore, Maryland and leased facilities in Ontario, Canada and other various leased facilities throughout the United States. The Company grants uncollateralized credit to approximately 1,500 customers, none of which accounts for more than 4% of net sales. (b) PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Dur-O-Wal, Inc. and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated. (c) COST OF GOODS SOLD--Cost of goods sold in the United States is recorded on the last-in, first-out (LIFO) method. Effective January 1, 1994, the Company changed its method of accounting for purchased finished goods from the first-in, first-out (FIFO) method to the LIFO method. The Company believes that the use of the LIFO method better matches current costs with current revenues. There was no cumulative effect for this accounting change. The effect of this change decreased 1994 net income by approximately $61. Foreign cost of goods sold is recorded on the FIFO method. (d) DEPRECIATION AND AMORTIZATION--Property, plant and equipment are depreciated or amortized over their estimated useful lives using the straight-line method. Upon asset retirement or other disposition, cost and related accumulated depreciation are removed from the accounts, and any gain or loss is included in the consolidated statements of operations. Significant renewals and betterments are capitalized. Expenditures for maintenance and repairs are charged to operations. (e) AMORTIZATION OF GOODWILL AND OTHER ASSETS--Goodwill represents the excess of purchase price paid over the fair market value of assets acquired and is amortized on a straight-line basis over twenty years. Other assets, which consist primarily of capitalized loan fees and noncompete agreements, are stated at their fair values at the date of acquisition and are amortized on a straight-line basis over the term of the related loans and agreements of five and six years. (f) INCOME TAX PROVISION--Income tax expense is the total of taxes currently payable for the period and the change during the period in deferred tax assets and liabilities. The Company uses the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities using the tax rates in effect when such differences are expected to reverse. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. (g) FOREIGN CURRENCY TRANSLATION--The financial statements of the Company's operations located outside the United States are translated into United States dollars in accordance with SFAS No. 52, "Foreign Currency Translation." Profit and loss accounts are translated at the average monthly exchange rate prevailing during the year. F-28 DUR-O-WAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1992, 1993 AND 1994 (AMOUNTS IN THOUSANDS) (2) TERM AND WORKING CAPITAL REVOLVING DEBT On January 14, 1994, the Company refinanced its term loan and working capital revolver with another lender. The proceeds of the refinancing were used, in part, to pay certain obligations under noncompete/consulting agreements and to retire outstanding bank debt. The agreement provides revolving credit of up to $3,000 (limited to the lesser of $3,000 or the borrowing base, computed as a percentage of eligible inventory and accounts receivable) and a term loan of $4,500. While the agreement matures January 14, 1997, the Company can request and the lender can grant additional one-year extensions (the effect of which extension would be to continue the agreement for an additional three years), commencing April 30, 1995, 1996 and 1997. Interest on the term loan and revolver is payable monthly and through December 31, 1994 is computed at 1.50% and 1.25% above the lender's current corporate prime rate, respectively (prime rate was 8.50% at December 31, 1994). For the period January 1, 1995 through March 31, 1995, interest on the term loan and revolver was 1.25% and 1% above the lender's current corporate prime rate. Effective April 1, 1995, the agreement was amended to adjust interest on the term loan and the revolver to 1% and 0.5% above the lender's current corporate prime rate. The agreement includes covenants which, among other things, require the Company to maintain various financial ratios concerning collateral obligations, net worth, and debt service. Additionally, the agreement requires the Company to meet or exceed specific pre-tax earnings thresholds and limits the Company's total amount of annual capital expenditures. Under the agreement, the Company is also prohibited from incurring additional borrowings. The term loan and the revolver borrowings under the Secured Credit Agreement (the agreement) are collateralized by substantially all the assets of the Company. Interest expense on the above borrowings totaled approximately $697, $594, and $435 for the years ended December 31, 1992, 1993 and 1994, respectively. (3) INCOME TAXES The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. The adoption of this standard did not have a material effect on the Company's financial statements. As permitted under SFAS No. 109, prior years' financial statements were not restated. The income tax provision (benefit) for the years ended December 31, 1992, 1993 and 1994 consisted of:
1992 1993 1994 ----- ----- --------- Current: Federal.................................................................................. $ -- $ -- $ 476 State.................................................................................... -- -- 109 Foreign.................................................................................. 66 64 27 --- --- --------- 66 64 612 Deferred................................................................................... (11) -- 243 --- --- --------- $55 $64 $855 --- --- --------- --- --- ---------
For 1994, the difference between the statutory federal tax rate of 34% and the effective tax rate of 39.4%, related primarily to state and foreign income taxes. For 1993, the difference between the statutory federal tax rate of 34% and the effective tax rate of 9.3% related primarily to the utilization of net operating loss carryforwards. For 1992, the difference between the statutory federal rate of 34% and the effective tax rate of (24.9%) related primarily to there being no benefit from the net operating losses and taxes payable on income of the foreign subsidiary. F-29 DUR-O-WAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1992, 1993 AND 1994 (AMOUNTS IN THOUSANDS) (3) INCOME TAXES (CONTINUED) The valuation allowance decreased by $251 during the year ended December 31, 1994. (4) COMPENSATION AGREEMENTS The Company's deferred compensation agreement with its President permits the President to defer a portion of his salary for payment in the future plus accrued interest. Expense under this plan was $5 for each of the years ended December 31, 1992, 1993 and 1994. The Company's deferred compensation agreement with its subsidiary's General Manager resulted in the grant of "phantom stock" shares whereby the value of the shares was modified each year for a guaranteed yearly increase as specified by the agreement, plus an increase if certain performance goals were achieved for the year. This plan was discontinued in 1993 with payments of the deferred balance to be paid beginning in 1995. Expense under this plan was $10 and $71 for the years ended December 31, 1992 and 1993, respectively. The Company's supplemental compensation agreement with its President is funded with life insurance and provides compensation benefits upon death or retirement to the extent of the cash value of such insurance policy. The Company has agreed to fund the premiums under the policy and charges the premiums to expense when paid. The Company has funded four annual premium payments and borrowed against the cash value of the policy to fund five annual premiums to date. During 1994, $29 was charged to expense relating to the payment of interest on policy loans. The Company's Subscription Stock Purchase and Stock Appreciation Rights Agreements with certain executives provides for the annual purchase of a defined number of common shares at an amount determined by a formula. In addition, in lieu of exercising their stock options, participants may elect to receive stock appreciation rights ("SAR's") on a share-for-share basis. Upon sale of the Company, holders of the SAR's will receive, on a per share basis, the difference between their cost per share and the sale price per share. The SAR's expire on the earlier of the sale of the Company, termination of employment, or December 31, 1998. At December 31, 1994, 422.2 SAR's were outstanding at per share amounts ranging from $389 to $463. No accruals have been provided for the SAR's as management believes there has been no increase in value. 5) OPERATING LEASES The Company conducts a portion of its operations in leased facilities under noncancellable operating leases expiring at various dates through 1999. In addition, the Company leases certain equipment, principally automobiles and trucks, which are used in its operations. Most leases contain options which allow the Company to renew the leases at the fair market rental value. The Company also leases certain office equipment under short-term agreements. Rental expense under all operating leases was $434, $450 and $462 for the years ended December 31, 1992, 1993 and 1994, respectively. 6) SUBSEQUENT EVENT -- UNAUDITED On October 16, 1995, the shareholders of the Company sold the stock of the Company to Dayton Superior Corporation for $21,875 in cash. F-30 DUR-O-WAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS JANUARY 1 THROUGH OCTOBER 15, 1994 AND 1995
1994 1995 ------------ ------------ (UNAUDITED) (AMOUNTS IN THOUSANDS) Net sales.......................................................................... $ 18,998 $ 20,893 Cost of goods sold................................................................. 13,717 15,080 Depreciation and amortization...................................................... 222 238 ------------ ------------ Gross profit..................................................................... 5,059 5,575 Selling, general and administrative expenses....................................... 2,788 3,348 Depreciation and amortization...................................................... 201 203 ------------ ------------ Income from operations........................................................... 2,070 2,024 Other expenses: Interest......................................................................... 366 449 Miscellaneous, net............................................................... 125 24 ------------ ------------ Income before income tax provision............................................... 1,579 1,551 Income tax provision............................................................... 556 674 ------------ ------------ Net income....................................................................... $ 1,023 $ 877 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these statements. F-31 DUR-O-WAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE PERIODS JANUARY 1 THROUGH OCTOBER 15, 1994 AND 1995
1994 1995 ------------ ------------- (UNAUDITED) (AMOUNTS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income....................................................................... $ 1,023 $ 877 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property, plant and equipment.................................. 251 260 Amortization of goodwill....................................................... 172 181 Amortization of deferred financing costs....................................... 31 83 Provision (benefit) for deferred income taxes.................................. 4 (35) Changes in operating assets and liabilities: Accounts receivable............................................................ (778) (20) Inventories.................................................................... (60) 474 Prepaid income taxes........................................................... -- (137) Accounts payable and checks issued in excess of funds on deposit............... 329 (750) Accrued expenses............................................................... 108 (410) Other long-term liabilities.................................................... (93) 348 Other, net..................................................................... 84 23 ------------ ------ Net cash provided by operating activities.................................... 1,071 894 ------------ ------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures............................................................. (68) (436) ------------ ------ Net cash used in investing activities........................................ (68) (436) ------------ ------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayments under loan agreement.................................................. (655) (527) Proceeds from issuance of common stock........................................... 5 65 ------------ ------ Net cash used in financing activities........................................ (650) (462) ------------ ------ NET EFFECTS OF EXCHANGE RATE CHANGES ON CASH....................................... 11 5 ------------ ------ Net increase in cash......................................................... 364 1 CASH, beginning of period.......................................................... 27 12 ------------ ------ CASH, end of period................................................................ $ 391 $ 13 ------------ ------ ------------ ------ Supplemental disclosures of cash flows information: Cash paid during the period for: Interest....................................................................... $ 335 $ 324 Income taxes................................................................... 299 1,016
The accompanying notes are an integral part of these statements. F-32 DUR-O-WAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED STATEMENTS OCTOBER 15, 1994 AND 1995 (1) CONSOLIDATED FINANCIAL STATEMENTS The interim consolidated financial statements included herein have been prepared by the Company, without audit, and include, in the opinion of management, all adjustments necessary to state fairly the information set forth therein. Any such adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's audited consolidated financial statements for the year ended December 31, 1994. (2) ACCOUNTING POLICIES The interim consolidated financial statements have been prepared in accordance with the accounting policies described in the notes to the Company's consolidated financial statements for the year ended December 31, 1994 consolidated financial statements. While management believes that the procedures followed in the preparation of interim financial information are reasonable, the accuracy of some estimated amounts is dependent upon facts that will exist or calculations that will be accomplished at fiscal year end. Examples of such estimates include changes in the LIFO reserve (based upon the Company's best estimate of inflation to date) and management bonuses. Any adjustments pursuant to such estimates during the quarter were of a normal recurring nature. F-33 NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 Risk Factors................................... 10 Use of Proceeds................................ 14 Dividend Policy................................ 14 Capitalization................................. 15 Dilution....................................... 16 Selected Financial Data........................ 17 Pro Forma Combined Financial Information....... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 21 Business....................................... 29 Management..................................... 42 Certain Relationships and Related Party Transactions.................................. 48 Principal and Selling Shareholders............. 50 Description of Capital Shares.................. 53 Shares Eligible for Future Sale................ 56 Description of Certain Indebtedness............ 57 Underwriting................................... 58 Legal Matters.................................. 59 Experts........................................ 60 Available Information.......................... 60 Index to Financial Statements.................. F-1
------------------------ UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON SHARES, 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. 3,700,000 SHARES DAYTON SUPERIOR CORPORATION CLASS A COMMON SHARES (WITHOUT PAR VALUE) tuvw SALOMON BROTHERS INC LAZARD FRERES & CO. LLC ROBERT W. BAIRD & CO. INCORPORATED BT SECURITIES CORPORATION PROSPECTUS DATED , 1996 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is an itemized statement of the expenses (all but the Securities and Exchange Commission registration fees, the NASD filing fee, The New York Stock Exchange listing fee and the fee paid to Ripplewood are estimates) in connection with the issuance of the Class A Common Shares being registered hereunder, other than the Underwriters' discounts and certain expenses to be reimbursed by the Underwriters. Securities and Exchange Commission registration fees.......................... $ 22,009 NASD filing fee............................................................... 6,882 The New York Stock Exchange listing fee....................................... 81,142 Transfer agent fees........................................................... 3,500 Blue Sky fees and expenses.................................................... 10,000 Printing and engraving expenses............................................... 135,000 Legal fees and expenses....................................................... 230,000 Accounting fees and expenses.................................................. 250,000 Fee paid to Ripplewood........................................................ 600,000 Miscellaneous................................................................. 71,467 ----------- TOTAL....................................................................... $ 1,410,000 ----------- -----------
No portion of the foregoing expenses will be borne by the Selling Shareholders. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Article Eighth of the Company's Amended Articles of Incorporation sets forth certain rights of directors and officers of the Company to indemnification. Such rights provide indemnification by the Company to the extent permitted by Ohio law. The liabilities against which a director and officer may be indemnified and factors employed to determine whether a director and officer is entitled to indemnification in a particular instance depend on whether the proceedings in which the claim for indemnification arises were brought (a) other than by and in the right of the Company ("Third-Party Actions") or (b) by and in the right of the Company ("Derivative Actions"). In Third-Party Actions, the Company is required to indemnify each director and officer against expenses, including attorneys' fees, judgments, decrees, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened or actual proceeding in which such person may be involved by reason of having acted in such capacity, if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any matter the subject of a criminal proceeding, such person had no reasonable cause to believe that such person's conduct was unlawful. In Derivative Actions, the Company is required to indemnify each director and officer against expenses, including attorneys' fees, actually and reasonably incurred by such person in connection with the defense or settlement of any such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification is permitted with respect to (a) any matter as to which such person has been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Company unless a court determines such person is entitled to indemnification and (b) any liability asserted in connection with unlawful loans, dividends, distribution, distributions of assets and repurchases of shares of the Company under Section 1701.95 of the Ohio Revised Code. Unless indemnification is ordered by a court, the determination as to whether or not a person has satisfied the applicable standards of conduct (and therefore may be indemnified) is made by the Board of Directors of the Company by a majority vote of a quorum consisting of directors of the Company who II-1 were not parties to the action; or if such a quorum is not obtainable, or if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or by the shareholders of the Company. Article Eighth of the Amended Articles of Incorporation does not limit in any way other indemnification rights to which those seeking indemnification may be entitled. The Company maintains insurance policies which presently provide protection, within the maximum liability limits of the policies and subject to a deductible amount for each claim, to the Company under its indemnification obligations and to the directors and officers with respect to certain matters which are not covered by the Company's indemnification obligations. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. The following table sets forth certain information as to all securities of the Registrant sold by the Registrant in the past three years that were not registered under the Securities Act.
DATE OF SALE AGGREGATE PRICE DESCRIPTION OF SECURITIES PURCHASER - ------------------------------ ---------------- ------------------------------------- --------------------------- May 26, 1994 (1).............. $ 1,700,000 17,268 Old Class B Common Shares The Prudential Insurance Company of America and affiliate May 26, 1994 (1).............. $ 10,000,000 50,000 Series A and 50,000 Series B The Prudential Insurance Preferred Shares Company of America and affiliate May 26, 1994 (1)(2)........... $ 25,000,000 11.75% Senior Notes due 2002 and John Hancock Mutual Life Warrants to purchase 346,600 Class A Insurance Company and Common Shares affiliates and The Paul Revere Life Insurance Company and affiliates (collectively, the "Noteholders") May 26, 1994 (1).............. $ 4,000,000 2,000,000 Class A Common Shares Existing shareholders October 16, 1995 (2)(3)....... $ 748,200 187,050 Class A Common Shares Management of the Company October 16, 1995 (1)(2)....... $ 2,309,800 577,450 Class A Common Shares Existing shareholders and two individuals October 16, 1995 (1)(2)....... $ 15,000,000 11.75% Senior Notes due 2003 The Noteholders October 31, 1995 (1)(2)....... $ 1,942,000 485,500 Old Class B Common Shares The Noteholders
- ------------------------------ (1) Exemption was claimed under Section 4(2) of the Securities Act. The Registrant relied upon the fact that such securities were acquired by a sophisticated investor who had access to complete information concerning the Registrant and acquired such securities without a view to the distribution thereof. (2) Smith Barney Inc. earned a fee of $0.75 million in connection with the issuance on May 26, 1994 of the Senior Notes due 2002 and $1.0 million in connection with the Dur-O-Wal Acquisition and related financing transactions consummated in October 1995. (3) Exemption was claimed under Rule 701 under the Securities Act. The Registrant relied upon the fact that the securities were sold pursuant to an employees' compensatory plan and not for capital raising purposes. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS. See Exhibit Index following the signature pages to this Registration Statement. (b) FINANCIAL STATEMENT SCHEDULES. The following is a list of the Financial Statement Schedules furnished: (i) Dayton Superior Corporation and Subsidiary Schedule II-Valuation of Qualifying Accounts ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes: (a) To provide the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions described under Item 14 above, or otherwise, the registrant has 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 Registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question 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. (c) For purposes of determining any liability under the Act the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (d) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus 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. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miamisburg, State of Ohio, on June 18, 1996. DAYTON SUPERIOR CORPORATION By: ______/s/ JOHN A. CICCARELLI______ John A. Ciccarelli PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated. NAME TITLE DATE - ------------------------------------------------------ ------------------------------- ------------------------ * President, Chief June 18, 1996 John A. Ciccarelli Executive Officer and Director (principal executive officer) * Vice President, Finance June 18, 1996 Richard L. Braswell (principal financial and accounting officer) * Director June 18, 1996 Timothy C. Collins * Director June 18, 1996 Matthew O. Diggs, Jr. * Director June 18, 1996 Matthew M. Guerreiro Director Robert B. Holmes
* John A. Ciccarelli, by signing his name hereto, does hereby execute this Amendment to the Registration Statement on behalf of the directors and officers of the Registrant indicated above by asterisks, pursuant to powers of attorney duly executed by such directors and officers and filed as exhibits to the Registration Statement. By: ______/s/ JOHN A. CICCARELLI______ John A. Ciccarelli ATTORNEY-IN-FACT II-4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ----------------------- ------------------------------------------------------------------------------------ ----------- (1) UNDERWRITING AGREEMENT ** 1.1 Form of Underwriting Agreement...................................................... (3) ARTICLES OF INCORPORATION AND BY-LAWS + 3.1 Amended Articles of Incorporation of the Company.................................... ** 3.2 Proposed Amended Articles of Incorporation (to be effective immediately prior to the consummation of the Offering)...................................................... + 3.3 Code of Regulations of the Company (as amended)..................................... (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES + 4.1 Form of Class A Common Share Certificate............................................ (5) OPINION RE LEGALITY ** 5.1 Opinion of Thompson Hine & Flory P.L.L.............................................. (10) MATERIAL CONTRACTS + 10.1 Securities Purchase Agreements dated as of May 24, 1994 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2002.................... + 10.2 Supplemental Agreement dated as of October 12, 1995 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2002....................... + 10.3 Securities Purchase Agreement dated as of October 15, 1995 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2003............... + 10.4 Amended and Restated Loan Agreement dated as of October 16, 1995 between the Company and Bank One, Dayton, NA........................................................... + 10.5 Loan Agreement dated as of October 16, 1995 between Dur-O-Wal, Inc. and Bank One, Dayton, NA......................................................................... + 10.6 Amended and Restated Shareholder Agreement dated as of October 13, 1995 among the Company and certain shareholders of the Company.................................... ** 10.7 Proposed Amended and Restated Shareholder Agreement (to be effective immediately following consummation of the Offering)............................................ + 10.8 Management Incentive Program........................................................ + 10.9 1994 Stock Option Plan.............................................................. + 10.10 1995 Stock Option Plan.............................................................. + 10.11 1995 Management Stock Purchase Plan................................................. + 10.12 1996 Stock Option Plan.............................................................. + 10.13 Stock Purchase Agreement dated as of October 16, 1995 by and among the Company, Dur-O-Wal, Inc., Omni Investors, Inc. and certain individuals...................... + 10.14 Employment Agreement between Dur-O-Wal, Inc. and Mario Catani dated as of October 16, 1995........................................................................... + 10.15 Supplemental Retirement Benefit Trust Agreement dated as of June 20, 1996 betwen Dur-O-Wal, Inc. and Stanley M. Pillman, as trustee.................................
II-5
EXHIBIT NO. DESCRIPTION PAGE - ----------------------- ------------------------------------------------------------------------------------ ----------- + 10.16 Deferred Compensation Trust Agreement dated as of November 14, 1986 between Dur-O-Wal, Inc. and Stanley M. Pillman, as trustee................................. ** 10.17 Amended and Restated Loan Agreement dated as of June 17, 1996 among Dayton Superior Corporation, Bank One, Dayton, NA and Bank of America Illinois..................... ** 10.18 Amended and Restated Loan Agreement dated as of June 17, 1996 among Dur-O-Wal, Inc., Bank One, Dayton, NA and Bank of America Illinois.................................. (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS + 11.1 Computation of Earnings Per Share................................................... (21) SUBSIDIARIES OF THE REGISTRANT + 21.1 Subsidiaries of the Company......................................................... (23) CONSENTS OF EXPERTS AND COUNSEL ** 23.1 Consent of Arthur Andersen LLP...................................................... ** 23.2 Consent of Coopers & Lybrand LLP.................................................... ** 23.3 Consent of Altschuler, Melvoin and Glasser LLP...................................... 23.4 Consent of Thompson Hine & Flory P.L.L. is included in Exhibit 5.1 (24) POWERS OF ATTORNEY + 24.1 Powers of Attorney contained on the signature pages of the registration statement on Form S-1........................................................................... (99) FINANCIAL DATA SCHEDULE + 99.1 Financial Data Schedule.............................................................
- ------------------------ ** Filed herewith + Previously filed II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Dayton Superior Corporation and Subsidiaries included in this registration statement, and have issued our report thereon, dated February 10, 1996. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Dayton, Ohio February 10, 1996(except with respect to the matters discussed in Note 10, as to which the date is June 18, 1996). II-7 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
DEDUCTIONS CHARGED ------------------- (CREDITED) TO CHARGES FOR WHICH BALANCE AT COSTS AND OTHER RESERVES WERE BALANCE AT DESCRIPTION BEGINNING OF YEAR EXPENSES ADDITIONS CREATED END OF YEAR - ------------------------------------------- ------------------ --------------- -------------- ------------------- ------------ Allowance for Doubtful Accounts For the year ended December 31, 1993..... $ 1,525 (256) -- (139) $ 1,130 For the year ended December 31, 1994..... 1,130 (349) -- (17) 764 For the year ended December 31, 1995..... 764 (86) 47(1) (17) 708
- ------------------------ (1) Acquisition of Dur-O-Wal II-8 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE - ----------------------- ------------------------------------------------------------------------------------ ----------- (1) UNDERWRITING AGREEMENT ** 1.1 Form of Underwriting Agreement...................................................... (3) ARTICLES OF INCORPORATION AND BY-LAWS + 3.1 Amended Articles of Incorporation of the Company.................................... ** 3.2 Proposed Amended Articles of Incorporation (to be effective immediately prior to the consummation of the Offering)...................................................... + 3.3 Code of Regulations of the Company (as amended)..................................... (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES + 4.1 Form of Class A Common Share Certificate............................................ (5) OPINION RE LEGALITY ** 5.1 Opinion of Thompson Hine & Flory P.L.L.............................................. (10) MATERIAL CONTRACTS + 10.1 Securities Purchase Agreements dated as of May 24, 1994 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2002.................... + 10.2 Supplemental Agreement dated as of October 12, 1995 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2002....................... + 10.3 Securities Purchase Agreement dated as of October 15, 1995 between the Company and each of the purchasers of the Company's 11.75% Senior Notes due 2003............... + 10.4 Amended and Restated Loan Agreement dated as of October 16, 1995 between the Company and Bank One, Dayton, NA........................................................... + 10.5 Loan Agreement dated as of October 16, 1995 between Dur-O-Wal, Inc. and Bank One, Dayton, NA......................................................................... + 10.6 Amended and Restated Shareholder Agreement dated as of October 13, 1995 among the Company and certain shareholders of the Company.................................... ** 10.7 Proposed Amended and Restated Shareholder Agreement (to be effective immediately following consummation of the Offering)............................................ + 10.8 Management Incentive Program........................................................ + 10.9 1994 Stock Option Plan.............................................................. + 10.10 1995 Stock Option Plan.............................................................. + 10.11 1995 Management Stock Purchase Plan................................................. + 10.12 1996 Stock Option Plan.............................................................. + 10.13 Stock Purchase Agreement dated as of October 16, 1995 by and among the Company, Dur-O-Wal, Inc., Omni Investors, Inc. and certain individuals...................... + 10.14 Employment Agreement between Dur-O-Wal, Inc. and Mario Catani dated as of October 16, 1995........................................................................... + 10.15 Supplemental Retirement Benefit Trust Agreement dated as of June 20, 1996 between Dur-O-Wal, Inc. and Stanley M. Pillman, as trustee................................. + 10.16 Deferred Compensation Trust Agreement dated as of November 14, 1986 between Dur-O-Wal, Inc. and Stanley M. Pillman, as trustee.................................
EXHIBIT NO. DESCRIPTION PAGE - ----------------------- ------------------------------------------------------------------------------------ ----------- ** 10.17 Amended and Restated Loan Agreement dated as of June 17, 1996 among Dayton Superior Corporation, Bank One, Dayton, NA and Bank of America Illinois..................... ** 10.18 Amended and Restated Loan Agreement dated as of June 17, 1996 among Dur-O-Wal, Inc., Bank One, Dayton, NA and Bank of America Illinois.................................. (11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS + 11.1 Computation of Earnings Per Share................................................... (21) SUBSIDIARIES OF THE REGISTRANT + 21.1 Subsidiaries of the Company......................................................... (23) CONSENTS OF EXPERTS AND COUNSEL ** 23.1 Consent of Arthur Andersen LLP...................................................... ** 23.2 Consent of Coopers & Lybrand LLP.................................................... ** 23.3 Consent of Altschuler, Melvoin and Glasser LLP...................................... 23.4 Consent of Thompson Hine & Flory P.L.L. is included in Exhibit 5.1 (24) POWERS OF ATTORNEY + 24.1 Powers of Attorney contained on the signature pages of the registration statement on Form S-1...........................................................................
- ------------------------ ** Filed herewith + Previously filed EX-1.1 2 EXHIBIT 1.1 DAYTON SUPERIOR CORPORATION 3,700,000 Class A Common Shares* (without par value) Underwriting Agreement New York, New York ___________, 1996 Salomon Brothers Inc Lazard Freres & Co. LLC Robert W. Baird & Co. Incorporated BT Securities Corporation As Representatives of the several Underwriters, c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Dear Sirs: Dayton Superior Corporation, an Ohio corporation (the "COMPANY"), proposes to issue and sell to the underwriters named in Schedule I hereto (the "UNDERWRITERS"), for whom you (the "REPRESENTATIVES") are acting as representatives, 1,900,000 Class A Common Shares, without par value ("the COMMON SHARES"), of the Company, and the persons named in Schedule II hereto (the "SELLING SHAREHOLDERS") propose to sell to the Underwriters 1,800,000 Common Shares (said shares to be issued and sold by the Company and shares to be sold by the Selling Shareholders collectively being hereinafter called the "UNDERWRITTEN SECURITIES"). The Company and the Selling Shareholder named in Schedule III hereto also propose to grant to the Underwriters an option to purchase up to 555,000 additional Common Shares (the "OPTION SECURITIES"; the Option Securities, together with the Underwritten Securities, being hereinafter called the "SECURITIES"). - -------------------------- * Plus an option to purchase from Dayton Superior Corporation and the other person named in Schedule III hereto up to 555,000 additional shares to cover overallotments. 1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1. Certain terms used in this Section 1 are defined in paragraph (iii) hereof. (i) The Company has filed with the Securities and Exchange Commission (the "COMMISSION") a registration statement (file number 333-2974) on Form S-1, including a related preliminary prospectus, for the registration under the Securities Act of 1933 (the "ACT") of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including the related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission either (A) prior to effectiveness of such registration statement, a further amendment to such registration statement (including the form of final prospectus) or (B) after effectiveness of such registration statement, a final prospectus in accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (B), the Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the rules thereunder to be included in the Prospectus with respect to the Securities and the offering thereof. As filed, such amendment and form of final prospectus, or such final prospectus, shall contain all Rule 430A Information, together with all other such required information, with respect to the Securities and the offering thereof and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. (ii) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date, the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Act and the rules thereunder; on the Effective Date, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), did not or will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto). (iii) The terms which follow, when used in this Agreement, shall have the meanings indicated. The term THE "EFFECTIVE DATE" shall mean each date that the Registration Statement and any post-effective amendment or amendments thereto became or becomes effective. "EXECUTION TIME" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "PRELIMINARY PROSPECTUS" shall mean any preliminary prospectus referred to in paragraph (i) of this Section 1 and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information. "PROSPECTUS" shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Securities included in the Registration Statement at the Effective Date. "REGISTRATION STATEMENT" shall mean the registration statement referred to in paragraph (i) of this Section 1, and the exhibits thereto and financial statements contained therein, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto becomes effective prior to the Closing Date (as hereinafter defined), shall also mean such registration statement as so amended. Such term shall include Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "RULE 424" and "RULE 430A" refer to such rules under the Act. "RULE 430A INFORMATION" means information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. (iv) Each of the Company and its subsidiaries set forth on Schedule IV hereto (individually a "SUBSIDIARY" and collectively the "SUBSIDIARIES") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus. Each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business, except where the failure to so qualify or be in good standing would not, individually or in the aggregate, have a material adverse effect on the consolidated financial condition or results of operation of the Company and its consolidated subsidiaries taken as a whole (a "Material Adverse Effect"); no proceeding has been instituted in any such jurisdiction seeking to revoke, limit or curtail such power and authority or qualification which, if successful, would, individually or in the aggregate, have a Material Adverse Effect. Each of the Company and the Subsidiaries is in possession of and operating in compliance with all authorizations, licenses, certificates, consents, orders and permits from state, federal and other regulatory authorities, all of which are valid and in full force and effect, with such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. The Company does not own or control, directly or indirectly, any material equity interest in any corporation, association or other entity other than the Subsidiaries. Except as otherwise described in the Prospectus, all of the outstanding shares of capital stock of each of the Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any liens, encumbrances, security interests and claims whatsoever. (v) The Company has full legal right, power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, (A) any bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by which either of their properties may be bound, (B) the Amended Articles of Incorporation or Code of Regulations of the Company or the charter or bylaws of any Subsidiary, or (C) any law, order, rule, regulation, writ, injunction, judgment or decree binding upon the Company or any Subsidiary or over either of their properties other than, in the case of clauses (A) and (C) above, any breach, violation or default which, individually or in the aggregate, would not have a Material Adverse Effect. No consent, approval, authorization or order of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or over its properties is required for the execution and delivery of this Agreement and the consummation of the transactions contemplated herein, except such as may be required under the Act or the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (all of which requirements have been or will be satisfied in all material respects), and such as may be required under state or other securities or blue sky laws of any jurisdiction. (vi) All outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. The authorized and outstanding capital stock of the Company is as set forth in the Prospectus. The Securities to be sold by the Company hereunder have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company against payment therefor in accordance with the terms of this Agreement, will be duly and validly issued and fully paid and nonassessable, and will be sold free and clear of all liens, encumbrances, security interests and claims whatsoever; and no preemptive right, registration right, right of first refusal or other similar right of shareholders exists with respect to any of the Securities or the issuance and sale thereof except for the rights of the Selling Shareholders to participate in the offering and sale of the Securities as disclosed in or contemplated by the Prospectus. Except as disclosed in or contemplated by the Prospectus at the Closing Time (A) neither the Company nor any Subsidiary will have outstanding any options to purchase, or any preemptive rights or other rights to subscribe for or to purchase, any securities or obligations convertible into, or will be a party to any contracts or commitments to issue or sell, shares of capital stock of the Company or such Subsidiary, as the case may be, or any such options, rights, convertible securities or obligations and (B) there are no registration rights or similar rights of any person with respect to the capital stock of the Company. (vii) There is not any pending or, to the best of the Company's knowledge, threatened action, suit, claim or proceeding against the Company or any Subsidiary, or any of their respective properties, assets or rights or, to the Company's knowledge, any of their respective officers before any court, government or governmental agency, authority or body, domestic or foreign, having jurisdiction over the Company or such Subsidiaries, respectively, or over their respective properties or officers that (A) could reasonably be expected to result in any Material Adverse Effect, (B) could reasonably be expected to prevent consummation of the transactions contemplated hereby or (C) is required to be disclosed in the Registration Statement or Prospectus and is not so disclosed. (viii) Neither the Company nor any of the Subsidiaries is in violation or default of (A) its respective articles of incorporation, Code of Regulations, charter or bylaws (as the case may be), (B) any obligation, agreement, covenant or condition contained in any bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or such Subsidiary, respectively, is a party or by which its properties may be bound or (C) any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or such Subsidiary, respectively, or over its properties of which it has knowledge, except violations or defaults which, in the case of clauses (B) and (C) above, either individually or in the aggregate, would not have a Material Adverse Effect. (ix) Arthur Andersen LLP, Altschuler, Melvoin and Glasser LLP, and Coopers & Lybrand L.L.P. are independent accountants within the meaning of the Act and the rules thereunder. The financial statements, together with the related schedules and notes, included in the Registration Statement and the Prospectus, present fairly in all material respects the financial position and results of operations of the Company and its consolidated subsidiaries or Dur-O-Wal and its consolidated subsidiary, as the case may be, on the basis stated in the Registration Statement at the respective dates or for the respective periods to which they apply, and such financial statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods involved, except as disclosed in the notes thereto. The selected and summary financial data included in the Registration Statement have been derived from and compiled on a basis consistent with the audited and unaudited financial statements presented therein. (x) The Company and the Subsidiaries have filed all foreign, federal, state and local tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not have a Material Adverse Effect) and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, to the extent that any of the foregoing is due and payable, except for any such tax, assessment, fine or penalty that is currently being contested in good faith or as would not, individually or in the aggregate, have a Material Adverse Effect. (xi) Except as set forth in the Registration Statement and Prospectus, (A) each of the Company and the Subsidiaries is in compliance with all rules, laws and regulations relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("ENVIRONMENTAL LAWS") which are currently applicable to its business except for noncompliance that would not, individually or in the aggregate, have a Material Adverse Effect, (B) neither the Company nor any of the Subsidiaries have received any notice from any governmental authority or third party of an asserted claim under Environmental Laws, which claim is required to be disclosed in the Registration Statement and the Prospectus, (C) the Company does not expect the costs of complying with currently applicable Environmental Laws to be material to its consolidated results of operations and (D) to the Company's knowledge, no property which is owned, leased or occupied by the Company or any Subsidiary has been designated as a Superfund site pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or otherwise designated as a contaminated site under applicable state or local law. (b) Each Selling Shareholder severally and not jointly represents and warrants to, and agrees with, each Underwriter that: (i) Such Selling Shareholder is the lawful owner of the Securities to be sold by such Selling Shareholder hereunder and upon sale and delivery of, and payment for, such Securities, as provided herein, such Selling Shareholder will convey good and marketable title to such Securities, free and clear of all liens, encumbrances, security interests and claims whatsoever. (ii) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities and has not effected any sales of Common Shares which, if effected by the Company, would be required to be disclosed in response to Item 701 of Regulation S-K. (iii) Warrants exercisable for Common Shares or certificates representing Common Shares or Class B Common Shares, without par value (the "CLASS B COMMON SHARES"), of the Company in negotiable form have been placed in custody for delivery pursuant to the terms of this Agreement (and, in the case of such warrants and Class B Common Shares, for exercise or conversion, as the case may be) under an irrevocable Power of Attorney and Custody Agreement (the "CUSTODY AGREEMENT") executed and delivered by such Selling Shareholder, and duly authorized in the case of corporate Selling Shareholders, in the form heretofore furnished to you with John A. Cicarelli, Richard L. Braswell and John Duryea, acting jointly or individually, as custodians and attorneys-in-fact (the "ATTORNEYS-IN-FACT"). (iv) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by such Selling Shareholder of the transactions contemplated herein, except such as may be required under the Act or under state of other securities or the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals as have been obtained. (v) Neither the sale of the Securities being sold by such Selling Shareholder nor the consummation of any other of the transactions herein contemplated by such Selling Shareholder or the fulfillment of the terms hereof by such Selling Shareholder will conflict with, result in a breach or violation of, or constitute a default under any law or, in the case of corporate or trust Selling Shareholders, the charter or by-laws or trust documents of such Selling Shareholder or the terms of any material agreement or instrument to which such Selling Shareholder is a party or bound or to which any of the property or assets of such Selling Shareholder is subject, or any judgement, order or decree applicable to such Selling Shareholder of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over such Selling Shareholder, except such as would not materially impair the ability of such Selling Shareholder to perform its obligations hereunder. (vi) All information furnished by or on behalf of such Selling Shareholder for use in connection with the Registration Statement is now and, upon effectiveness of such document, will be, true and correct in all material respects and will not omit any material fact necessary to make such information not misleading. 2. PURCHASE AND SALE. (a) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell 1,900,000 Common Shares and each Selling Shareholder agrees, severally and not jointly, to sell the number of Common Shares set forth opposite its name on Schedule II hereto to the Underwriters, and each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Shareholders, at a purchase price of $ per share, the amount of the Underwritten Securities set forth opposite such Underwriter's name in Schedule I hereto. (b) Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company and the Selling Shareholder named on Schedule III hereto hereby grant an option to the several Underwriters to purchase, severally and not jointly, up to 555,000 shares of the Option Securities (in the respective maximum amounts set forth opposite their names) at the same purchase price per share as the Underwriters shall pay for the Underwritten Securities. Such option may be exercised only to cover over-allotments in the sale of the Underwritten Securities by the Underwriters. Such option may be exercised in whole or in part at any time (but not more than once) on or before the 30th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Company and such Selling Shareholder setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date. Delivery of certificates for the shares of Option Securities by the Company and such Selling Shareholder, and payment therefor to the Company and such Selling Shareholder, shall be made as provided in Section 3 hereof. The maximum number of shares of the Option Securities to be sold by the Company and such Selling Shareholder is set forth in Schedule III hereto. In the event that the Underwriters exercise less than their full over-allotment option, the number of shares of the Option Securities to be sold by each party listed on Schedule III shall be, as nearly as practicable, in the same proportion to each other as are the number of shares of the Option Securities listed opposite their respective names on said Schedule III. The number of shares of the Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Underwritten Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares. 3. DELIVERY AND PAYMENT. Delivery of and payment for the Underwritten Securities and the Option Securities (if the option provided for in Section 2(b) hereof shall have been exercised on or before the third business day prior to the Closing Date) shall be made at 10:00 AM, New York City time, on ____________, 1996, or such later date as the Representatives, the Company and the Selling Shareholders may agree upon in writing, which date and time may be postponed by agreement among the Representatives, the Company and the Selling Shareholders or as provided in Section 10 hereof (such date and time of delivery and payment for the Securities being herein called the "CLOSING DATE"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the respective aggregate purchase prices of the Securities being sold by the Company and each of the Selling Shareholders to or upon the order of the Company and the Selling Shareholders, which payment shall be made by wire transfers of Federal Funds, payable in same day funds on the Closing Date to the accounts of the Company and the Attorney- in-Fact as shall be designated in writing by the Company and the Attorney-in- Fact to the Representatives at least two business days prior to the Closing Date. Delivery of the Underwritten Securities and the Option Securities shall be made at such location as the Representatives shall reasonably designate at least one business day in advance of the Closing Date. Certificates for the Securities shall be registered in such names and in such denominations as the Representatives may request not less than three full business days in advance of the Closing Date. The Company and the Selling Shareholders agree to have the Securities available for inspection, checking and packaging by the Representatives in New York, New York, not later than 1:00 PM on the business day prior to the Closing Date. Each Selling Shareholder will pay all applicable state transfer taxes, if any, involved in the transfer to the several Underwriters of the Securities to be purchased by them from such Selling Shareholder and the respective Underwriters will pay any additional stock transfer taxes involved in further transfers. If the option provided for in Section 2(b) hereof is exercised after the third business day prior to the Closing Date, the Company will deliver (at the expense of the Company) to the Representatives, at One New York Plaza, New York, New York, on the date specified by the Representatives (which shall be within three business days after exercise of said option), certificates for the Option Securities in such names and denominations as the Representatives shall have requested against payment of the purchase price thereof to or upon the order of the Company and the Selling Shareholder identified in Schedule III, which payment shall be made by wire transfers of Federal Funds, payable in same day funds on the Closing Date to the accounts of the Company and the Selling Shareholder named on Schedule III hereto as shall be designated in writing by the Company and such Selling Shareholder to the Representatives at least two business days prior to the Closing Date. If settlement for the Option Securities occurs after the Closing Date, the Company and such Selling Shareholder will deliver to the Representatives on the settlement date for the Option Securities, and the obligation of the Underwriters to purchase the Option Securities shall be conditioned upon receipt of, supplemental opinions, certificates and letters confirming as of such date the opinions, certificates and letters delivered by the Company and such Selling Shareholder on the Closing Date pursuant to Section 6 hereof. 4. INDEPENDENT UNDERWRITER. (a) The Company hereby confirms its engagement of the services of Salomon Brothers Inc as, and Salomon Brothers Inc hereby confirms its agreement with the Company to render services as, a "qualified independent underwriter" (in such capacity, the "Independent Underwriter") within the meaning of Section 2(o) of Schedule E of the By-laws of the National Association of Securities Dealers, Inc. ("Schedule E") with respect to the offering and sale of the Securities. As compensation for the services of the Independent Underwriter hereunder, the Underwriters agree to pay the Independent Underwriter a fee of $10,000 on the Closing Date. (b) The Independent Underwriter hereby represents and warrants to, and agrees with, the Company, the Selling Shareholders and the other Underwriters that with respect to the offering and sale of Securities as described in the Prospectus: (i) the Independent Underwriter is a "qualified independent underwriter" within the meaning of Section 2(o) of Schedule E; (ii) the Independent Underwriter has participated in the preparation of the Registration Statement and the Prospectus and has exercised the usual standards of "due diligence" with respect thereto; and (iii) the Independent Underwriter has undertaken the legal responsibilities and liabilities of an underwriter under the Act, including those contained in Section 11 thereof, subject to the limitations on such liabilities set forth in Section 9 hereof (including without limitation, the nature of Salomon Brothers Inc's underwriting commitment as several and not joint). It is specifically understood, however, that Salomon Brothers Inc will bear such legal responsibilities and liabilities only to the extent, if any, that a court of competent jurisdiction rules in a judgment which has become final, and not subject to further appeal, that Salomon Brothers Inc, as Independent Underwriter, bears the legal responsibilities and liabilities of an "underwriter," and in such case only to the extent of the fee paid to such Independent Underwriter. (c) The Independent Underwriter hereby consents to the references to it as set forth under the caption "Underwriting" in the Prospectus. 5. OFFERING BY UNDERWRITERS. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus. 6. AGREEMENTS. (a) The Company agrees with the several Underwriters that: (i) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement, any supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment, supplement or Rule 462(b) Registration Statement to which you reasonably object. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company will promptly advise the Representatives (A) when the Registration Statement, if not effective at the Execution Time, shall have become effective, (B) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (C) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (D) of any request by the Commission for any amendment of the Registration Statement or supplement to the Prospectus or for any additional information, (E) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (F) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order and, if issued, to obtain as soon as possible the withdrawal thereof. (ii) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend the Registration Statement, or supplement the Prospectus, to comply with the Act or the rules thereunder, the Company promptly will (A) prepare and file with the Commission, subject to the second sentence of paragraph (a)(i) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance and (B) supply any supplemented Prospectus to you in such quantities as you may reasonably request. (iii) As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (iv) The Company will furnish to the Representatives and counsel for the Underwriters, without charge, copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Representatives may reasonably request. The Company will furnish or cause to be furnished to the Representatives copies of all reports on Form SR required by Rule 463 under the Act. The Company will pay the expenses of printing or other production of all documents relating to the offering. (v) The Company will (A) arrange for the qualification of the Securities for sale under the securities or blue sky laws of such jurisdictions in the United States and Canada as the Representatives may designate (PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a foreign corporation in any such jurisdiction or execute any general consent to service of process in any such jurisdiction) and (B) will maintain such qualifications in effect so long as required for the distribution of the Securities and will pay the fee of the National Association of Securities Dealers, Inc., in connection with its review of the offering. (vi) The Company will not, and will obtain the agreement of each of its directors, officers and employees who hold Common Shares or options exercisable into Common Shares that each such person will not, during the period of 360 days following the Execution Time, without the prior written consent of the Representatives, sell, offer to sell, contract to sell, grant any option for the sale of, otherwise dispose of, directly or indirectly, or announce the offering of, any other Common Shares or any securities convertible into, or exchangeable for, Common Shares; PROVIDED, HOWEVER, that (A) the Company may issue and sell Common Shares pursuant to an employee stock option plan, stock ownership plan or dividend reinvestment plan of the Company in effect at the Execution Time, (B) the Company may issue Common Shares issuable upon the conversion of securities or the exercise of warrants outstanding at the Execution Time and (C) after the expiration of a period of 90 days following the Execution Time, the Company may issue and sell Common Shares or securities convertible into, or exchangeable for, Common Shares in a merger, acquisition or business combination, and PROVIDED, FURTHER, that such holders of Common Shares or options exercisable into Common Shares, other than the Company or Ripplewood, may transfer Common Shares or options exercisable into Common Shares (X) as bona fide gifts, (Y) pursuant to a final divorce decree, or (Z) pursuant to the laws of testamentary or intestate descent. (vii) The Company confirms as of the date hereof that it is in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92- 198, AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company further agrees that if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "DEPARTMENT"), whichever date is later, or if the information reported in the Prospectus, if any, concerning the Company's business with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate, in a form acceptable to the Department. (viii) The Company [(A) on or prior to the Effective Date, will amend its existing Credit Facility, dated ________, with Bank One, Dayton NA, as such amendments are described under the headings "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Indebtedness" in the Prospectus and (B)] immediately following the Closing, will apply the net proceeds from the sale of its Common Shares to prepay its 11.75% Senior Notes due December 31, 2002 and its 11.75% Senior Notes due December 31, 2003 in the principal amounts of $25,000,000 and $15,000,000, respectively, in each case as is described under the heading "Use of Proceeds" in the Prospectus. (b) Ripplewood agrees with the several Underwriters that it will not during the period of 360 days following the Execution Time, without the prior written consent of the Representatives, sell, offer to sell, contract to sell, grant any option for the sale of, otherwise dispose of, directly or indirectly, or announce the offering of, any other Common Shares or Class B Common Shares owned by Ripplewood, or any securities convertible into, or exchangeable for, Common Shares or Class B Common Shares; PROVIDED, HOWEVER, that Ripplewood may transfer Common Shares to a Ripplewood Successor, but only if the Ripplewood Successor agrees to be, and, during the 360-day period set forth above, remains, subject to the terms of this subsection (b) of Section 6. For purposes of this Agreement, "RIPPLEWOOD SUCCESSOR" shall mean (X) any person, corporation, partnership, limited liability company or other entity that is merged into Ripplewood or with which Ripplewood is merged or consolidated or that succeeds, directly or indirectly, to the ownership of the business of, or all or substantially all of the assets and liabilities of, Ripplewood, whether by formation of a holding company, transfer of assets or otherwise, and (Y) any person who is employed by Ripplewood or a Ripplewood Successor referred to in the foregoing clause (x) or who is a shareholder, partner, member or other equity owner of Ripplewood or any such Ripplewood Successor, in each case so long as such person remains so employed or such a shareholder, partner, member or other equity owner. (c) Each Selling Shareholder continuing to hold Common Shares after the consummation of the Offering agrees with the several Underwriters that it will not during the period of 360 days following the Execution Time, without the prior written consent of the Representatives, sell, offer to sell, contract to sell, grant any option for the sale of, otherwise dispose of, directly or indirectly, or announce the offering of, any other Common Shares, or any securities convertible into, or exchangeable for, Common Shares; PROVIDED, HOWEVER, that each such Selling Shareholder may transfer Common Shares (I) as bona fide gifts, (II) pursuant to a final divorce decree or (III) pursuant to the laws of testamentary or intestate descent. 7. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the Underwriters to purchase the Underwritten Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Shareholders contained herein as of the Execution Time, the Closing Date and any settlement date pursuant to Section 3 hereof, to the accuracy of the statements of the Company and the Selling Shareholders made in any certificates pursuant to the provisions hereof, to the performance by the Company and the Selling Shareholders of their respective obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than (I) 6:00 PM, New York City time, on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM, New York City time, on such date or (II) 12:00 Noon, New York City time, on the business day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM, New York City time, on such date; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) (i) The Company shall have furnished to the Representatives the opinion of Thompson Hine & Flory P.L.L., counsel for the Company, dated the Closing Date, to the effect that: (A) each of the Company, Dur-O-Wal, Inc. ("DUR-O-WAL") and Omni Investors Inc. ("OMNI") has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing under the laws of each jurisdiction which requires such qualification wherein it owns or leases material properties or conducts material business except where the failure to so qualify would not have a Material Adverse Effect; (B) all the outstanding shares of capital stock of Dur-O-Wal and Omni have been duly authorized and validly issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all of the outstanding shares of capital stock of Dur-O-Wal and Omni are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other liens, encumbrances, security interests and claims; (C) the Company's authorized equity capitalization is as set forth in the Prospectus; the classes and description of capital shares of the Company conform to the description thereof contained in the Prospectus; the outstanding Common Shares (including the Securities being sold hereunder by the Selling Shareholders) have been duly authorized and validly issued and are fully paid and nonassessable; the Securities being sold hereunder by the Company have been duly authorized, and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be validly issued, fully paid and nonassessable; the Securities being sold hereunder by the Company are duly authorized for listing, subject to official notice of issuance, on the New York Stock Exchange; the certificates for the Securities are in valid and sufficient form; and the holders of outstanding capital shares of the Company are not entitled to preemptive or other rights to subscribe for the Securities; (D) to the best knowledge of such counsel, there is no pending or threatened action, suit, claim or proceeding against the Company or any Subsidiary, or any of their respective officers or any of their respective properties, assets or rights before any court, government or governmental agency, authority or body or any arbitrator involving the Company or any of the Subsidiaries of a character required to be disclosed in the Registration Statement or Prospectus which is not so disclosed, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit, which is not described or filed as required; (E) to the best knowledge of such counsel based solely upon a telephone conversation with the staff of the Commission, the Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus (other than the financial statements and other financial and statistical information contained therein as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act and the rules thereunder; and such counsel has no reason to believe that at the Effective Date the Registration Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus includes any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (F) this Agreement has been duly authorized, executed and delivered by the Company; (G) no consent, approval, authorization or order of any court or governmental agency or body is required for the execution and delivery of this Agreement and the consummation of the transactions contemplated herein, except such as have been obtained under the Act and the Exchange Act, such as may be required under state or other securities or blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained; (H) neither the issue and sale of the Securities, nor the consummation of any other of the transactions contemplated herein nor the fulfillment of the terms hereof will conflict with, result in a breach or violation of, or constitute a default under the articles of incorporation or Code of Regulations of the Company or under the charter or bylaws of the Subsidiaries or conflict in a material respect with, result in a material breach or violation of, or constitute a material default under any law or the terms of any agreement or instrument known to such counsel and to which the Company or any of the Subsidiaries is a party or bound or any judgment, order or decree known to such counsel to be applicable to or binding on the Company or any of the Subsidiaries; and (I) no holders of securities of the Company have rights to the registration of such securities under the Registration Statement except as disclosed in the Prospectus. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of Ohio or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Reference to the Prospectus in this paragraph (b) include any supplements thereto at the Closing Date. (ii) The Company shall have furnished to the Representatives the statement of Cravath, Swaine & Moore, special counsel for the Company, dated the Closing Date, to the effect that such counsel participated in conferences with certain officers of, and the accountants for, the Company and with the Representatives and counsel for the Underwriters concerning the preparation of the Registration Statement and the Prospectus and that although such counsel cannot and does not assume responsibility for the accuracy or completeness of the statements made in the Registration Statement and Prospectus, such counsel's work in connection with the Registration Statement and Prospectus did not disclose any information that gave such counsel reason to believe that (A) the Registration Statement, at the time the Registration Statement became effective, or the Prospectus, as of the Closing Date (except the financial statements and other statistical, accounting or financial information included therein, as to which such counsel need not express any view), were not appropriately responsive in all material respects to the requirements of the Securities Act, or (B) the Registration Statement, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, at the Closing Date, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case except for the financial statements and other statistical, accounting or financial information included therein, as to which such counsel need not express any view). (iii) The Company shall have furnished to the Representatives the opinion of Cravath, Swaine & Moore, special counsel for the Company, dated the Closing Date, to the effect that: no authorization, approval or other action by, and no notice to, consent of, order of, or filing with, any United States Federal or New York court or governmental authority or regulatory body is required for the consummation by the Company of the transactions contemplated herein except such as have been obtained under the Act and the Exchange Act and such as may be required under state or other securities or blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained. (c) Ripplewood shall have furnished to the Representatives the opinion of Cravath, Swaine & Moore, special counsel for Ripplewood, dated the Closing Date, to the effect that: (i) this Agreement has been duly authorized, executed and delivered by Ripplewood and is valid and binding on Ripplewood and Ripplewood has full limited liability company authority to sell, transfer and deliver in the manner provided in this Agreement the Securities being sold by Ripplewood hereunder; (ii) upon delivery of the Securities to be sold by Ripplewood to the Underwriters, payment therefor by the Underwriters, and registration of the certificates evidencing such Securities in the name of the Underwriters (or a nominee thereof), the Underwriters will acquire ownership of the Securities to be sold by Ripplewood free of any adverse claims (as such term is defined in Section 8-302 of the Uniform Commercial Code in the State of New York), assuming that each of the Underwriters is acting in good faith and has no notice of any adverse claim; (iii) no authorization, approval or other action by, and no notice to, consent of, order of, or filing with, any United States Federal or New York court or governmental authority or regulatory body is required for the consummation by Ripplewood of the transactions contemplated herein, except such as may have been obtained under the Act and the Exchange Act and such as may be required under state or other securities or blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained; and [(iv) neither the sale of the Securities being sold by any Selling Shareholder nor the consummation of any other of the transactions herein contemplated by any Selling Shareholder or the fulfillment of the terms hereof by any Selling Shareholder will conflict with, result in a breach or violation of, or constitute a default under any law or any applicable charter or by-laws of the Selling Shareholder or the terms of any indenture or other agreement or instrument known to such counsel and to which any Selling Shareholder or any of its subsidiaries is a party or bound, or any judgment, order or decree known to such counsel to be applicable to any Selling Shareholder or any of its subsidiaries of any court, regulatory body, administrative agency, governmental body or arbitrator having jurisdiction over any Selling Shareholder or any of its subsidiaries]. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of New York or the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of Ripplewood and public officials. (d) Counsel for each of the Selling Shareholders other than Ripplewood shall have furnished to the Representatives an opinion on behalf of such Selling Shareholder, dated the Closing Date, to the effect that: (i) this Agreement and the Custody Agreement have been duly executed and delivered, and, in the case of a corporate or trust Selling Shareholder, duly authorized, by such Selling Shareholder; the Custody Agreement is valid and binding on such Selling Shareholder; such Selling Shareholder has full legal right and authority to sell, transfer and deliver in the manner provided in this Agreement and the Custody Agreement the Securities being sold by such Selling Shareholder hereunder; (ii) upon delivery of the Securities to be sold by such Selling Shareholder to the Underwriters, payment therefor by the Underwriters, and registration of the certificates evidencing such Securities in the name of the Underwriters (or a nominee thereof), the Underwriters will acquire ownership of the Securities to be sold by such Selling Shareholder free of any adverse claims (as such term is defined in Section 8-302 of the Uniform Commercial Code in the State of New York), assuming that each of the Underwriters is acting in good faith and has no notice of any adverse claim; and (iii) no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by such Selling Shareholder of the transactions contemplated herein, except such as may have been obtained under the Act and the Exchange Act and such as may be required under the blue sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters and such other approvals (specified in such opinion) as have been obtained. In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the state in which they are admitted to practice, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of such Selling Shareholder and public officials. (e) The Representatives shall have received from Debevoise & Plimpton, counsel for the Underwriters, such opinion or opinions, dated the Closing Date, with respect to the issuance and sale of the Securities, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Company and each Selling Shareholder shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. In rendering such opinion, Debevoise & Plimpton shall be entitled to rely on the opinion delivered pursuant to 7(b)(i) as to all matters governed by the law of the State of Ohio. (f) The Company shall have furnished to the Representatives a certificate of the Company, signed by the President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and (iii) since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto), there has been no material adverse change in the condition (financial or other), earnings, business or properties of the Company and its subsidiaries, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (g) Each Selling Shareholder shall have furnished to the Representatives a certificate, signed by such Selling Shareholder or, in the case of a corporate or trust Selling Shareholder, the Chairman of the Board or the President and the principal financial or accounting officer of such Selling Shareholder, dated the Closing Date, to the effect that the representations and warranties of such Selling Shareholder in this Agreement and the Custody Agreement are true and correct in all material respects on and as of the Closing Date to the same effect as if made on the Closing Date and all of the agreements and covenants of such Selling Shareholder herein and therein have been complied with in all material respects on or prior to the Closing Date and, in the case of Ripplewood, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus, any supplement to the Prospectus and this Agreement. (h) Each Selling Shareholder shall have furnished to the Representatives on or prior to the Closing Date a properly completed and executed United States Treasury Department Form W-9 or statement specified by Treasury Department regulations in lieu thereof. (i) At the Execution Time and at the Closing Date, Arthur Andersen LLP shall have furnished to the Representatives a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in the form attached as Exhibit A hereto. (j) At the Execution Time and at the Closing Date, Altschuler, Melvoin and Glasser LLP shall have furnished to the Representatives a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the applicable published rules and regulations thereunder and stating in effect that in their opinion the audited financial statements for Dur-O-Wal, Inc. and its subsidiary for the year ended December 31, 1994 included in the Registration Statement and the Prospectus and reported on by them comply in form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations. (k) At the Execution Time and at the Closing Date, Coopers & Lybrand L.L.P. shall have furnished to the Representatives a letter or letters, dated respectively as of the Execution Time and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the applicable published rules and regulations thereunder and stating in effect that in their opinion the audited financial statements for Dur-O-Wal, Inc. and its subsidiary for the years ended December 31, 1993 and 1992 included in the Registration Statement and the Prospectus and reported on by them comply in form in all material respects with the applicable accounting requirements of the Act and the related published rules and regulations. (l) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been (A) any change or decrease specified in the letter or letters referred to in paragraph (i) of this Section 7 or (B) any change, or any development involving a prospective change, in or affecting the business or properties of the Company and its subsidiaries the effect of which, in any case referred to in clause (A) or (B) above, is, in the judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto). (m) At the Execution Time, each director, officer and employee of the Company who holds Common Shares or options exercisable into Common Shares shall have furnished to the Representatives a letter substantially in the form of Exhibit B hereto in which each such person agrees not to sell, offer to sell, contract to sell, grant any option for the sale of or otherwise dispose of, directly or indirectly, or announce an offering of, any Common Shares beneficially owned by such person or any securities convertible into, or exchangeable for, Common Shares for a period of 360 days following the Execution Time without the prior written consent of the Representatives, other than Common Shares transferred (I) as bona fide gifts, (II) pursuant to a final divorce decree or (III) pursuant to the laws of testamentary or intestate descent. (n) Prior to the Closing Date, the Company and each Selling Shareholder shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request. If any of the conditions specified in this Section 7 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be can celed at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company and each Selling Shareholder in writing or by telephone or telegraph confirmed in writing. The documents required to be delivered by this Section 7 shall be delivered at the office of Debevoise & Plimpton, counsel for the Underwriters, at 875 Third Avenue, New York, New York 10022, on the Closing Date. 8. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 7 hereof is not satisfied, because of any termination pursuant to Section 11 hereof or because of any refusal, inability or failure on the part of the Company or any Selling Shareholder to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally upon demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. If the Company is required to make any payments to the Underwriters under this Section 8 because of any Selling Shareholder's refusal, inability or failure to satisfy any condition to the obligations of the Underwriters set forth in Section 7, such Selling Shareholder shall reimburse the Company on demand for all amounts so paid. 9. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless Salomon Brothers Inc in its capacity as Independent Underwriter and each Underwriter (including Salomon Brothers Inc), the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that (I) the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein (it being understood that the statements set forth in the last paragraph of the cover page, the paragraph regarding stabilization on the inside front cover page and under the heading "Underwriting" (other than information about Ripplewood contained therein) in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus) and (II) with respect to any untrue statement or omission of a material fact made in any Preliminary Prospectus, the indemnity agreement contained in this Section 9(a) shall not inure to the benefit of any Underwriter (or any of the directors, officers, employees and agents of such Underwriter or any controlling person of such Underwriter) from whom the person asserting any such loss, claim, damage or liability purchased Securities if a copy of the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto prior to the time of the sale to such person) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Securities to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such losses, claims, damages or liabilities. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Selling Shareholder severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, Salomon Brothers Inc in its capacity as Independent Underwriter and each Underwriter (including Salomon Brothers Inc), the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act and each other Selling Shareholder to the same extent as the indemnity set forth in clause (a) of this Section 9 from the Company, but only with reference to written information furnished to the Company by or on behalf of such Selling Shareholder specifically for inclusion in the documents referred to in the foregoing indemnity; PROVIDED, HOWEVER, that in no case shall the liability of any Selling Shareholder under this Section 9(b) exceed the aggregate public offering price of the Securities sold by such Selling Shareholder to the Underwriters minus the underwriting discounts or commissions paid thereon to the Underwriters by such Selling Shareholder. The Company and each Underwriter acknowledge that (I) the statements set forth in the footnotes to the table under the heading "Principal and Selling Shareholders" in any Preliminary Prospectus and the Prospectus as such statements relate to each Selling Shareholder, constitute the only information furnished in writing by or on behalf of such Selling Shareholder (other than Ripplewood) for inclusion in any Preliminary Prospectus or the Prospectus, and each Selling Shareholder confirms that such statements, to the extent they relate to such Selling Shareholder, are correct and (II) statements set forth in the footnotes to the table under the heading "Principal and Selling Shareholders," and under the subheading "Ripplewood" in such section; under the subheading "Ripplewood" in the "Prospectus Summary" and under the headings "Management" and "Certain Relationships and Related Party Transactions" in any Preliminary Prospectus and the Prospectus constitute information furnished in writing by or on behalf of Ripplewood for inclusion in any Preliminary Prospectus or the Prospectus, and Ripplewood confirms that such statements, to the extent they relate to Ripplewood, are correct. This indemnity agreement will be in addition to any liability which the Selling Shareholders may otherwise have. (c) Each Underwriter severally agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Act or the Exchange Act, Salomon Brothers Inc in its capacity as Independent Underwriter and each Selling Shareholder and each person who controls such Selling Shareholder within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. The Company and the Selling Shareholders acknowledge that the statements set forth in the last paragraph of the cover page, the last paragraph on the inside front cover page regarding stabilization and under the heading "Underwriting" (other than information about Ripplewood contained therein) in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus, and you, as the Representatives, confirm that such statements are correct. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. (d) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (I) will not relieve it from liability under paragraph (a), (b) or (c) of this Section 9 unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (II) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a), (b) or (c) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); PROVIDED, HOWEVER, that such counsel shall be reasonably satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including not more than one local counsel in any relevant jurisdiction for all indemnified parties), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (A) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (B) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (C) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (D) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (e) In the event that the indemnity provided in paragraph (a), (b) or (c) of this Section 9 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company, the Selling Shareholders, the Underwriters and the Independent Underwriter agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "LOSSES") to which the Company, one or more of the Selling Shareholders, one or more of the Underwriters or the Independent Underwriter may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company, the Selling Shareholders, the Underwriters and the Independent Underwriter from the offering of the Securities; PROVIDED, HOWEVER, that in no case shall (I) Salomon Brothers Inc in its capacity as Independent Underwriter be responsible for any amount in excess of the compensation received by Salomon Brothers Inc for acting in such capacity and (II) any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder; PROVIDED, FURTHER, HOWEVER, that in no case shall any Selling Shareholder be responsible for any amount in excess of the aggregate public offering price of the Securities sold by such Selling Shareholder to the Underwriters minus the underwriting discounts or commissions paid thereon to the Underwriters by such Selling Shareholder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company, the Selling Shareholders, the Underwriters and the Independent Underwriter shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company, the Selling Shareholders, the Underwriters and the Independent Underwriter in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company and a Selling Shareholder shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it. Benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Benefits received by Salomon Brothers Inc in its capacity as Independent Underwriter shall be deemed to be equal to the compensation received by Salomon Brothers Inc for acting in such capacity as set forth in Section 4 hereto. Relative fault shall be determined by reference to whether any alleged untrue statement or omission relates to information provided by the Company, the Selling Shareholders or the Underwriters. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (e), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company and each person who controls a Selling Shareholder within the meaning of either the Act or the Exchange Act shall have the same rights to contribution as such Selling Shareholder, subject in each case to the applicable terms and conditions of this paragraph (e). 10. DEFAULT BY AN UNDERWRITER. If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; PROVIDED, HOWEVER, that in the event that the aggregate amount of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter, the Selling Shareholders or the Company. In the event of a default by any Underwriter as set forth in this Section 10, the Closing Date shall be postponed for such period, not exceeding seven days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company, the Selling Shareholders and any nondefaulting Underwriter for damages occasioned by its default hereunder. 11. TERMINATION. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if prior to such time (A) trading in the Company's Common Shares shall have been suspended by the Commission or the New York Stock Exchange or trading in securities generally on the New York Stock Exchange shall have been suspended or limited (other than pursuant to circuit breaker rules) or minimum prices shall have been established on such Exchange, (B) a banking moratorium shall have been declared either by Federal or New York State authorities or (C) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto). 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The respective agreements, representations, warranties, indemnities and other statements of the Company, each Selling Shareholder, the Underwriters and the Independent Underwriter set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Independent Underwriter, any Selling Shareholder or the Company or any of the officers, directors or controlling persons referred to in Section 9 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 8 and 9 hereof shall survive the termination or cancellation of this Agreement. 13. NOTICES. All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telegraphed and confirmed to them, care of Salomon Brothers Inc, at Seven World Trade Center, New York, New York 10048; or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 721 Richard Street, Miamisburg, Ohio 45342; or if sent to the Selling Shareholders, will be mailed, delivered or telegraphed and confirmed to it them at the addresses set forth on Schedule V hereto. 14. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 9 hereof, and no other person will have any right or obligation hereunder. 15. APPLICABLE LAW. This Agreement 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 law of another jurisdiction would be required thereby. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company, the several Selling Shareholders and the several Underwriters. Very truly yours, DAYTON SUPERIOR CORPORATION By:___________________________ Name: Title: RIPPLEWOOD HOLDINGS L.L.C. By:___________________________ Name: Title: JOHN HANCOCK LIFE INSURANCE COMPANY JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY OF AMERICA THE PAUL REVERE PROTECTIVE LIFE INSURANCE COMPANY THE PAUL REVERE LIFE INSURANCE COMPANY THE PAUL REVERE VARIABLE ANNUITY INSURANCE COMPANY RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, AS TRUSTEE FOR THE TEXTRON COLLECTIVE INVESTMENT TRUST Thomas M. Begel Damon Mezzacappa Michel David-Weill David B. Dillard Steven Rattner David McMillan, Jr. Jonathan H. Kagan Saundra L. Gulley Dod A. Fraser Stanley S. Shuman By:_____________________________ Name: as Attorney-in-Fact acting on behalf of each of the Selling Shareholders named above The foregoing Agreement is hereby confirmed and accepted as of the date first above written. Salomon Brothers Inc By: ___________________________ Name: Title: For themselves and the other several Underwriters named in Schedule I to the foregoing Agreement. FORM OF COMFORT LETTER EXHIBIT B DAYTON SUPERIOR CORPORATION PUBLIC OFFERING OF COMMON SHARES _______, 1996 Salomon Brothers Inc Lazard Freres & Co. LLC Robert W. Baird & Co. Incorporated BT Securities Corporation As Representatives of the several Underwriters, c/o Salomon Brothers Inc Seven World Trade Center New York, New York 10048 Dear Sirs: This letter is being delivered to you in connection with the proposed Underwriting Agreement (the "Underwriting Agreement"), between Dayton Superior Corporation, an Ohio corporation (the "Company"), certain Selling Shareholders named therein and each of you as representatives of a group of Underwriters named therein, relating to an underwritten public offering of Class A Common Shares, without par value (the "Common Shares"), of the Company. In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned agrees, without your prior written consent, not to sell, offer to sell, contract to sell, grant any option for the sale of, otherwise dispose of, directly or indirectly, or announce an offering of, any Common Shares of the Company beneficially owned by the undersigned or any securities convertible into, or exchangeable for, Common Shares during the 360 days following the day on which the Underwriting Agreement is executed, other than Common Shares or other securities transferred (I) as bona fide gifts, (II) pursuant to a final divorce decree or (III) pursuant to the laws of testamentary or intestate descent. If for any reason the Underwriting Agreement shall be terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth herein shall likewise be terminated. Yours very truly, _________________________ Name: Title: SCHEDULE I Number of Shares of Underwritten Securities Underwriters To Be Purchased - -------------------------------- ---------------------------------------- Salomon Brothers Inc Lazard Freres & Co. LLC Robert W. Baird & Co. Incorporated BT Securities Corporation --------- Total . . . . . . . . 3,700,000 --------- SCHEDULE II Number of Shares of Underwritten Securities Selling Shareholders To Be Sold - -------------------------------- ----------------------- Ripplewood Holdings L.L.C. John Hancock Mutual Life Insurance Company John Hancock Life Insurance Company of America The Paul Revere Life Insurance Company The Paul Revere Protective Life Insurance Company The Paul Revere Variable Annuity Insurance Company Thomas M. Begel 178,800 Daman Mezzacappa 71,500 Michel David-Weill 12,900 David B. Dillard 30,717 Steven Rattner 3,536 Dod A. Fraser 9,000 Jonathan H. Kagan 10,377 Saundra L. Gulley 5,450 David McMillan, Jr. 5,470 Society of the New York Hospital Fund, Inc. 20,000 Pierpont Morgan Library 2,850 Educational Broadcasting Corporation (Thirteen-WNET) 5,750 Stanley S. Shuman 125,000 Number of Shares of Underwritten Securities Selling Shareholders To Be Sold - -------------------------------- ----------------------- Textron Collective Investment Trust 168,000 _________ Total . . . . 1,800,000 _________ SCHEDULE III Maximum Number of Option Name Securities to be Sold Dayton Superior Corporation 277,500 Ripplewood Holdings L.L.C. 277,500 - ------------------------------------------ --------------------------------- --------- Total . . . . . . . . 555,000 --------- SCHEDULE IV Subsidiaries Dayton Superior Canada Ltd. Omni Investors Inc. Dur-O-Wal, Inc. Dur-O-Wal Ltd. SCHEDULE V Addresses of Selling Shareholders EX-3.2 3 EXHIBIT 3.2 061196 AMENDED ARTICLES OF INCORPORATION OF DAYTON SUPERIOR CORPORATION FIRST: The name of the Corporation is Dayton Superior Corporation. SECOND: The place in the State of Ohio where the principal office of the Corporation is located is Miamisburg in Montgomery County. THIRD: The purposes for which the Corporation is formed is to manufacture and supply concrete and masonry accessories and to engage in any other lawful act or activity for which a corporation may be formed under Chapter 1701 of the Ohio Revised Code. FOURTH: The Corporation shall have authority to issue 27,005,850 capital shares, classified as follows: (i) 20,000,000 Class A Common Shares, without par value ("Class A common Shares"); (ii) 2,005,850 Class B Common Shares, without par value ("Class B Common Shares"); and (iii) 5,000,000 Preferred Shares, without par value ("Preferred Shares"). The Class A Common Shares and the Class B Common Shares sometimes are referred to herein collectively as the "Common Shares". A. COMMON SHARES. The express terms of the Common Shares of each class shall be as follows: 1. IDENTICAL RIGHTS. Except as otherwise provided in this Article Fourth, all Common Shares shall be identical and shall entitle the holder thereof to the same rights and privileges. 2. DIVIDENDS. From and after the date of issuance, the holders of outstanding Common Shares shall be entitled to receive dividends on the Common Shares when, as and if declared by the directors out of funds legally available for such purpose. All holders of Common Shares shall share ratably, in accordance with the number of shares held by each such holder, in all dividends or distributions payable in cash, in property or in securities (other than Common Shares) of the Corporation. All dividends or distributions declared on the Common Shares which are payable in Common Shares shall be declared at the same rate on both classes of Common Shares, but shall be payable only in Class A Common Shares to the holders of Class A Common Shares and in Class B Common Shares to the holders of Class B Common Shares. 3. SUBDIVISIONS AND COMBINATIONS OF SHARES. The Corporation shall not in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by stock split, stock dividend or otherwise) the outstanding Common Shares of either class unless the outstanding Common Shares of the other class are proportionately subdivided or combined. 4. LIQUIDATION. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the affairs of the Corporation, the holders of the Common Shares shall share ratably, in accordance with the number of shares held by each such holder, in all of the assets of the Corporation available for distribution to the holders of Common Shares. 5. VOTING RIGHTS. Except as otherwise required by law, the holder or holders of the Class A Common Shares and the Class B Common Shares shall vote together as one class on all matters on which the holders of Common Shares are entitled to vote. The holder or holders of the Class A Common Shares shall be entitled to one vote for each Class A Common Share held of record, and the holder or holders of the Class B Common Shares shall be entitled to ten votes for each Class B Common Share held of record. 6. CONVERSION. (a) Each Class B Common Share shall be convertible at any time, at the option of the holder, into one fully-paid and non-assessable Class A Common Share by delivering to the principal office of the Corporation: (i) the certificate or certificates representing the Class B Common Shares to be converted, duly endorsed in blank or accompanied by proper instruments of transfer, and (ii) written notice (a "Conversion Notice") to the Corporation specifying the number of Class B Common Shares to be converted into Class A Common Shares and stating the name or names (with addresses) and denominations in which the certificate or certificates representing the Class A Common Shares issuable upon such conversion are to be issued and including instructions for the delivery of such certificate or certificates. The conversion of the Class B Common Shares for which a Conversion Notice is given shall be effective at the time at which the Conversion Notice and the certificate or certificates representing the Class B Common Shares to be converted are delivered to the Corporation or such later time as may be specified in the Conversion Notice. At the time a conversion becomes effective: (i) each person named in the Conversion Notice as the person to whom a certificate or certificates representing Class A Common Shares is to be issued shall be deemed to be the holder of record of the number of Class A Common Shares to be represented by such certificate or certificates, (ii) the rights of the holder with respect to the Class B Common Shares being converted shall cease and terminate and (iii) the Corporation or its transfer agent thereafter promptly shall issue and deliver a certificate or certificates representing the number of Class A Common Shares to which each such record holder is entitled by reason of the conversion to such holder at the address set forth in the Conversion Notice. -2- (b) Each Class B Common Share which is sold or otherwise transferred to any person other than a Ripplewood Successor (as hereinafter defined) automatically shall convert upon such sale or transfer, without any further action of the holder of such Class B Common Shares, into one fully-paid and non-assessable Class A Common Share. If at any time the aggregate number of Class B Common Shares held by Ripplewood and all Ripplewood Successors is less than the Minimum Number of Shares (as hereinafter defined), each outstanding Class B Common Share automatically shall convert, without any further action of any holder of any such Class B Common Shares, into one fully-paid and non- assessable Class A Common Share. Upon any such automatic conversion, each record holder of a certificate that, immediately prior to the effectiveness of the conversion, represented Class B Common Shares shall be entitled to receive in exchange for such certificate, upon surrender of such certificate to the Corporation at its principal office, a certificate representing the number of Class A Common Shares to which such holder is entitled as a result of the conversion. Until surrendered and exchanged in accordance herewith, each certificate that, immediately prior to effectiveness of the conversion, represented Class B Common Shares shall represent the Class A Common Shares to which the holder is entitled as a result of the conversion. For purposes of this Section 6(b): (i) "Ripplewood Successor" means (x) any person, corporation, partnership, limited liability company or other entity that is merged into Ripplewood or with which Ripplewood is merged or consolidated or that succeeds, directly or indirectly, to the ownership of the business of, or all or substantially all of the assets and liabilities of, Ripplewood, whether by formation of a holding company, transfer of assets or otherwise, and (y) any person who is employed by, or a trustee of, Ripplewood or a Ripplewood Successor referred in the foregoing clause (x) or who is a shareholder, partner, member or other equity owner of Ripplewood or any such Ripplewood Successor, in each case so long as such person remains so employed or such a shareholder, partner, member or other equity owner, and (ii) "Minimum Number of Shares" means 622,525 Class B Common Shares, subject to proportionate adjustment to reflect any subdivision (by stock split, stock dividend or otherwise) or combination (by stock split, stock dividend or otherwise) of the outstanding Common Shares. (c) Upon the voluntary or automatic conversion of Class B Common Shares into Class A Common Shares as provided in this Section 6, the Class B Common Shares so converted automatically shall be retired and shall become authorized and unissued Class A Common Shares. (d) The Corporation at all times shall reserve and shall keep available out of its authorized but unissued Class A Common Shares or Class A Common Shares held in its treasury, solely for the purpose of issuance upon conversion of the Class B Common Shares as provided in this Section 6, such number of Class A Common Shares as then shall be issuable upon conversion of all outstanding Class B Common Shares. 7. MERGERS, ETC. In the event of any merger, consolidation, business combination or other reorganization in which any consideration is to be received by the holders of Common Shares, the holders of the Class A Common Shares and the holders of the Class B Common Shares shall receive the same consideration on a per share basis; provided, however, -3- that, if such consideration shall consist in any part of voting securities (or of options or warrants to purchase, or securities convertible into or exchangeable for, voting securities), the holders of the Class B Common Shares may receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the holders of the Class A Common Shares but otherwise with the same terms as those voting securities to be received by the holders of the Class A Common Shares (or options or warrants to purchase, or securities convertible into or exchangeable for, voting securities with ten times the number of votes per share as those voting securities issuable upon the exercise of the options or warrants to be received by the holders of the Class A Common Shares but otherwise with the same terms as those voting securities issuable upon the exercise of the options or warrants to be received by the holders of the Class A Common Shares or into which the convertible or exchangeable securities to be received by the holders of the Class A Common Shares may be converted or exchanged). 8. PRE-EMPTIVE RIGHTS. The holders of the Common Shares shall not have any preemptive rights under Section 1701.15 of the Ohio Revised Code. B. PREFERRED SHARES. The express terms of the Preferred Shares shall be as follows: 1. SERIES OF PREFERRED SHARES. Within the limitations and restrictions set forth in this Article Fourth, the directors are authorized, at any time or from time to time, to adopt amendments to these Amended Articles of Incorporation with respect to any authorized and unissued Preferred Shares to fix or alter the division of such shares into series, the designation and number of shares of each series, the dividend rates, dates of payment of dividends and the dates from which they are cumulative, redemption rates, redemption prices, liquidation prices, sinking fund requirements, conversion rights, any restrictions on issuance of shares of the same series or of any other class or series and any other terms not prohibited by law. 2. VOTING RIGHTS. Except as otherwise provided by law, the holders of the Preferred Shares shall have no voting rights; provided, however, that so long as there are no Preferred Shares issued and outstanding, the directors are authorized, at any time or from time to time, to adopt an amendment to these Amended Articles of Incorporation to fix or alter the voting rights of the Preferred Shares, as a class. FIFTH: When authorized by the affirmative vote of the directors, without any action by the shareholders, the Corporation may purchase its own shares for such prices, in such manner and upon such terms and conditions as the directors from time to time may determine, except that no such purchase shall be made if immediately thereafter the Corporation's assets would be less than its liabilities plus stated capital, if any, or if the Corporation is insolvent (as defined in Chapter 1701 of the Ohio Revised Code) or if there is reasonable ground to believe that by such purchase it would be rendered insolvent. -4- SIXTH: The shareholders of the Corporation shall have no right to vote cumulatively in the election of directors. SEVENTH: Notwithstanding any provision of Chapter 1701 of the Ohio Revised Code (or any successor provision) now or hereafter in force designating for any purpose the vote or consent of the holders of shares entitling them to exercise in excess of a majority of the voting power of the Corporation, or of any particular class or classes of shares of the Corporation, such action, unless otherwise expressly required by statute or these Amended Articles of Incorporation, may be taken by the vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes. EIGHTH: 8.1 LIMITATION OF LIABILITY. (a) No person shall be found to have violated any duties to the Corporation as a director of the Corporation in any action brought against the person (including actions involving or affecting any of the following: (i) a change or potential change in control of the Corporation; (ii) a termination or potential termination of the person's service to the Corporation as a director; or (iii) the person's service in any other position or relationship with the Corporation), unless it is proved by clear and convincing evidence that the person did not act in good faith, in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, or with the care that an ordinarily prudent person in a like position would use under similar circumstances. (b) In performing any duties to the Corporation as a director, the director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, that are prepared or presented by: (i) one or more directors, officers, or employees of the Corporation who the director reasonably believes are reliable and competent in the matters prepared or presented; (ii) counsel, public accountants, or other persons as to matters that the director reasonably believes are within the person's professional or expert competence; or (iii) a committee of the directors upon which the director does not serve, duly established in accordance with the provisions of the Corporation's Code of Regulations, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if the director has knowledge concerning the matter in question that would cause reliance on information, opinions, reports, or statements that are prepared by the foregoing persons to be unwarranted. (c) In determining what a director reasonably believes to be in the best interests of the Corporation, the director shall consider the interests of the shareholders and, in the director's discretion, may consider any of the following: (i) the interests of the Corporation's employees, suppliers, creditors, and customers; (ii) the economy of the state and nation; (iii) community and societal considerations; and (iv) the long-term as well as short- term interests of the Corporation and its shareholders, including the possibility that these interests may be best served by the continued independence of the Corporation. -5- (d) A director shall be liable in damages for any action the director takes or fails to take as a director only if it is proved by clear and convincing evidence in a court of competent jurisdiction that the action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation. Notwithstanding the foregoing, nothing contained in this paragraph (d) affects the liability of directors under Section 1701.95 of the Ohio Revised Code or limits relief available under Section 1701.60 of the Ohio Revised Code. 8.2 THIRD PARTY ACTION INDEMNIFICATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, member, manager or agent of another corporation, domestic or foreign, nonprofit or for profit, limited liability company, partnership, joint venture, trust, or other enterprise, against expenses, including attorney's fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, the person had reasonable cause to believe that the conduct was unlawful. 8.3 DERIVATIVE ACTION INDEMNIFICATION. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, member, manager or agent of another corporation, domestic or foreign, nonprofit or for profit, limited liability company, partnership, joint venture, trust, or other enterprise, against expenses, including attorney's fees, actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification shall be made in respect of any of the following: (i) any claim, issue, or matter as to which the person is adjudged to be liable for negligence or misconduct in the performance of the person's duty to the Corporation unless, and only to the extent that, the court of common pleas or the court in which such action or suit was brought determines upon application that, despite the adjudication of liabilities, but in view of all the circumstances of the case, the person is fairly and -6- reasonably entitled to indemnity for such expenses as the court of common pleas or such other court shall deem proper; or (ii) any action or suit in which the only liability asserted against the director is pursuant to Section 1701.95 of the Ohio Revised Code. 8.4 SUCCESS ON MERITS. To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Section 8.2 or 8.3, or in defense of any claim, issue, or matter therein, the person shall be indemnified against expenses, including attorney's fees, actually and reasonably incurred by the person in connection with the action, suit or proceeding. 8.5 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under Section 8.2 or 8.3, unless ordered by a court, shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because the person has met the applicable standard of conduct set forth in Section 8.2 or 8.3. Such determination shall be made as follows: (i) by a majority vote of a quorum consisting of directors of the Corporation who were not and are not parties to or threatened with any such action, suit, or proceeding; (ii) if the quorum described in subparagraph (a) of this Section 8.5 is not obtainable or if a majority vote of a quorum of disinterested director so directs, in a written opinion by independent legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation or any person to be indemnified within the past five years; (iii) by the shareholders; or (iv) by the court of common pleas or the court in which the action, suit, or proceeding was brought. In the case of an action or suit brought by or in the right of the Corporation under Section 8.3, any determination made by the disinterested directors under subparagraph (i) of this Section 8.5 or by independent legal counsel under subparagraph (ii) of this Section 8.5 shall be communicated promptly to the person who threatened or brought the action or suit, and within ten days after receipt of the notification, the person shall have the right to petition the court of common pleas or the court in which such action or suit was brought to review the reasonableness of such determination. 8.6 PAYMENT OF EXPENSES IN ADVANCE. (a) Unless the only liability asserted against a director in an action, suit, or proceeding referred to in Section 8.2 or 8.3 is pursuant to Section 1701.95 of the Ohio Revised Code, expenses, including attorney's fees, incurred by the director in defending the action, suit, or proceeding shall be paid by the Corporation as they are -7- incurred, in advance of the final disposition of the action, suit, or proceeding, upon receipt of an undertaking by or on behalf of the director in which the director agrees to do both of the following: (i) repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the director's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Corporation or undertaken with reckless disregard for the best interests of the Corporation; and (ii) reasonably cooperate with the Corporation concerning the action, suit, or proceeding. (b) Expenses, including attorney's fees, incurred by a director or officer in defending any action, suit, or proceeding referred to in Section 8.2 or 8.3, may be paid by the Corporation as they are incurred, in advance of the final disposition of the action, suit, or proceeding as authorized by the directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount, if it ultimately is determined that the director or officer is not entitled to be indemnified by the Corporation. 8.7 NONEXCLUSIVITY. The indemnification authorized by this Article Eighth shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification under these Amended Articles of Incorporation, the Code of Regulations or any agreement, vote of shareholders or disinterested directors, or otherwise, both as to action in the person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer, and shall inure to the benefit of the heirs, executors, and administrators of such a person. 8.8 INSURANCE. The Corporation may purchase and maintain insurance or furnish similar protection including but not limited to trust funds, letters of credit, or self-insurance, on behalf of or for any person who is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, trustee, officer, employee, or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust, or other enterprise, against any liability asserted against the person and incurred by the person in any such capacity, or arising out of the person's status as such, whether or not the Corporation would have the power to indemnify the person against such liability under this Article Eighth. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. 8.9 NO LIMITATION. The authority of the Corporation to indemnify persons pursuant to Sections 8.2 and 8.3 does not limit the payment of expenses as they are incurred, indemnification, insurance, or other protection that may be provided pursuant to Sections 8.6, 8.7 and 8.8. Sections 8.2 and 8.3 do not create any obligation to repay or return payments made by the Corporation pursuant to Sections 8.6, 8.7 and 8.8. NINTH: The provisions of Section 1701.831 of the Ohio Revised Code shall not apply to control share acquisitions of shares of the Corporation. -8- TENTH: These Amended Articles of Incorporation supersede the existing Amended Articles of Incorporation of the Corporation. ELEVENTH: At the time these Amended Articles of Incorporation are filed with the Secretary of State of Ohio (the "Effective Time"), the following changes in the outstanding capital shares of the Corporation (the "Recapitalization") shall occur automatically in the order set forth below and without further action by any holder of any such capital shares: (i) each Class B Common Share outstanding immediately prior to the Effective Time shall be converted into and shall become one fully- paid and non-assessable Class A Common Share; (ii) each Class A Common Share outstanding immediately prior to the Effective Time (including, without limitation, those issued upon conversion of the Class B Common Shares into Class A Common Shares pursuant to subparagraph (i) above) shall be converted into and shall become 50 fully-paid and non-assessable Class A Common Shares with the express terms set forth in these Amended Articles of Incorporation; (iii) each Class A Common Share outstanding immediately prior to the Effective Time and held by Ripplewood Holdings L.L.C. (consisting of those issued upon conversion of each Class A Common Share into 50 Class A Common Shares pursuant to subparagraph (ii) above) shall be converted into and shall become one fully-paid and non-assessable Class B Common Share with the express terms set forth in these Amended Articles of Incorporation; (iv) all of the Class B Common Shares outstanding immediately prior to the Effective Time which are converted into Class A Common Shares at the Effective Time pursuant to the foregoing provisions shall, upon such conversion, be retired and restored to the status of authorized and unissued Class A Common Shares, and all outstanding Class A Common Shares outstanding immediately prior to the Effective Time which are converted into Class B Common Shares at the Effective Time pursuant to the foregoing provisions shall, upon such conversion, be retired and shall become authorized and unissued Class A Common Shares; and (v) the stated capital, if any, of the Class A Common Shares and the Class B Common Shares shall be eliminated. Promptly after the Effective Time, each record holder of a certificate that, immediately prior to the Effective Time, represented Class A Common Shares or Class B Common Shares shall be entitled to receive in exchange for such certificate, upon surrender of such certificate to the Corporation at its principal office, a certificate for the number of Class A Common Shares or Class B Common Shares to which such holder is entitled as a result of the Recapitalization. Until surrendered and exchanged in accordance herewith, each certificate that, immediately prior -9- to the Effective Time, represented Common Shares shall represent the number and class of Common Shares to which the holder is entitled as a result of the Recapitalization. -10- EX-5.1 4 EXHIBIT 5.1 [LETTER HEAD] June 18, 1996 Dayton Superior Corporation 721 Richard Street Miamisburg, OH 45342 Gentlemen: We have acted as counsel to Dayton Superior Corporation, an Ohio corporation (the "COMPANY"), in connection with the offering by the Company and certain shareholders of the Company (the "SELLING SHAREHOLDERS") of up to an aggregate of 3,700,000 of the Company's Class A Common Shares, without par value ("CLASS A COMMON SHARES"), pursuant to a Registration Statement on Form S-1 (Registration No. 333-2974) (the "REGISTRATION STATEMENT") filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and up to an additional 555,000 Class A Common Shares which may be issued pursuant to the Registration Statement upon the exercise of an over-allotment option granted to the Underwriters named in the Registration Statement. Of the Class A Common Shares being offered, 1,974,750 Class A Common Shares plus up to an additional 277,500 Class A Common shares subject to the over-allotment option are being offered by the Company (the "COMPANY SHARES") and 1,725,250 Class A Common Shares plus up to an additional 277,500 Class A Common Shares subject to the over-allotment option are being offered by the Selling Shareholders (the "SELLING SHAREHOLDER SHARES"). In connection with this opinion, we have examined the Company's Amended Articles of Incorporation as they now are in effect and as they are proposed to be amended in connection with the consummation of the offering, various corporate records and proceedings with respect to the organization of the Company and the issuance of the Class A Common Shares and such other matters as we considered important in order to render an informed opinion on the matters set forth herein. Based upon the foregoing, it is our opinion that: THOMPSON HINE & FLORY Dayton Superior Corporation June 18, 1996 Page 2 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio. 2. Upon the filing of Amended Articles of Incorporation in the form filed as an exhibit to the Registration Statement with the Secretary of State of Ohio immediately prior to the consummation of the offering as described in the Registration Statement, the Company Shares will be duly authorized and, upon issuance of such shares and payment therefor in accordance with the Underwriting Agreement filed as an exhibit to the Registration Statement, the Company Shares will be validly issued, fully paid and nonassessable. 3. The Selling Shareholder Shares are duly authorized, validly issued, fully paid and nonassessable. This opinion is solely for your information in connection with the Registration Statement and is not to be quoted or otherwise referred to in any of your financial statements or public releases, filed with any governmental agency or given to any other person without our prior written consent. This opinion may not be relied upon by any other person or used by you for any other purpose without our prior written consent. We consent to the use of this opinion as an exhibit to the Registration Statement, and we consent to the reference to our firm under the caption "Legal Matters" in the Prospectus forming a part of the Registration Statement. Very truly yours, /s/ Thompson Hine & Flory P.L.L. EX-10.7 5 EXHIBIT 10.7 060596 DAYTON SUPERIOR CORPORATION AMENDED AND RESTATED SHAREHOLDER AGREEMENT Dated as of [ (1) ], 1996 _________________ (1) Agreement to be dated as of the closing date of the Company's initial public offering. ARTICLE I DEFINITIONS Page ---- SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II CERTAIN TRANSACTIONS SECTION 2.1 Amendment of Prior Agreement. . . . . . . . . . . . . . . . . . 4 SECTION 2.2 1994 Stock Option Plan. . . . . . . . . . . . . . . . . . . . . 4 ARTICLE III BOARD OF DIRECTORS; VOTING AGREEMENTS SECTION 3.1 Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.2 Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.3 Termination of Voting Agreements and Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE IV TRANSFER OF COMMON SHARES SECTION 4.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 4.2 Restrictions on Transfer; Legend on Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 4.3 Tag-Along Rights. . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 4.4 Drag-Along Rights . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE V REGISTRATION RIGHTS SECTION 5.1 Registration on Request . . . . . . . . . . . . . . . . . . . . 9 SECTION 5.2 Incidental Registration . . . . . . . . . . . . . . . . . . . .10 SECTION 5.3 Registration Procedures . . . . . . . . . . . . . . . . . . . .11 SECTION 5.4 Underwritten Offerings. . . . . . . . . . . . . . . . . . . . .15 SECTION 5.5 Preparation; Reasonable Investigation . . . . . . . . . . . . .16 SECTION 5.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . .16 SECTION 5.7 Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . .20 -i- ARTICLE VI CERTAIN COVENANTS SECTION 6.1 Action by Shareholders. . . . . . . . . . . . . . . . . . . . .20 SECTION 6.2 Further Actions . . . . . . . . . . . . . . . . . . . . . . . .20 ARTICLE VII MISCELLANEOUS SECTION 7.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 SECTION 7.2 Binding Nature of Agreement . . . . . . . . . . . . . . . . . .21 SECTION 7.3 Descriptive Headings. . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.4 Specific Performance. . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.9 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . .21 SECTION 7.10 Additional Parties. . . . . . . . . . . . . . . . . . . . . . .22 SECTION 7.11 No Third Party Beneficiaries. . . . . . . . . . . . . . . . . .22 SECTION 7.12 Agent for Management Investors. . . . . . . . . . . . . . . . .22 -ii- DAYTON SUPERIOR CORPORATION AMENDED AND RESTATED SHAREHOLDER AGREEMENT THIS AMENDED AND RESTATED SHAREHOLDER AGREEMENT (this "Agreement") is made as of [ (1)], 1996 by and among DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "Company"), each of the holders of Common Shares (as such term is defined herein) or options or warrants to acquire Common Shares indicated at the end of this Agreement, and such other holders of Common Shares or options or warrants to acquire Common Shares as, from time to time, may become parties to this Agreement in accordance with the provisions hereof (individually, a "Shareholder" and, collectively, the "Shareholders"), under the following circumstances: A. The Company and each of the holders of its capital shares entered into an Amended and Restated Shareholder Agreement dated as of October 13, 1995 (the "Prior Agreement") in order to make certain provisions with respect to their ownership of capital shares of the Company; and B. Certain of the parties to the Prior Agreement (the "Selling Shareholders") have sold their Common Shares in the Company's initial public offering (the "Offering"); and C. The Company and the Shareholders now desire to amend and restate the Prior Agreement in certain respects to reflect the completion of the Offering and the sale by the Selling Shareholders of their Common Shares and to set forth certain other agreements. NOW, THEREFORE, in consideration of the foregoing and of the mutual agreements and covenants contained herein, the sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Section 1.1 DEFINITIONS. Unless otherwise defined herein, the following terms used in this Agreement shall have the meanings specified below: "AFFILIATE" shall mean, with respect to any Person, any of (a) a director or executive officer of such Person, (b) a spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of any director or executive officer of such -1- Person), and (c) any other Person that, directly or indirectly, controls, or is controlled by or is under common control with such Person. For the purpose of this definition, "control" (including the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities or by contract or agency or otherwise. "CLASS A COMMON SHARES" shall mean Class A Common Shares, without par value, of the Company. "CLASS B COMMON SHARES" shall mean Class B Common Shares, without par value, of the Company. "COMMISSION" shall mean the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "COMMON SHARES" shall mean the Class A Common Shares and the Class B Common Shares. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. "MANAGEMENT INVESTORS" shall mean those members of the management of the Company (other than Matthew O. Diggs, Jr.) who own Class A Common Shares or options to acquire such shares granted under an employee stock option plan of the Company. "PERSON" shall mean an individual or a corporation, association, partnership, limited liability company, organization, business or other entity, including a government or a subdivision thereof or a governmental agency. "PUBLIC SALE" shall mean any sale of Common Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 (or any similar provision then in force) adopted under the Securities Act. "REGISTRABLE SECURITIES" shall mean, as to any Shareholder, (a) any issued and outstanding Common Shares owned or acquired by such Shareholder and (b) any securities issued or issuable with respect to any Common Shares referred to in (a) above by way of shares dividend or shares split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (w) a -2- registration statement with respect to the sale of such Registrable Securities shall have become effective under the Securities Act and such Registrable Securities shall have been disposed of in accordance with such registration statement, (x) such Registrable Securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (y) such Registrable Securities shall have been otherwise transferred, new certificates for such Registrable Securities not bearing a legend restricting further transfer shall have been delivered by the Company and a subsequent disposition of such Registrable Securities shall not require registration or qualification under the Securities Act or any similar state law then in force, or (z) such Registrable Securities shall have ceased to be outstanding. "REGISTRATION EXPENSES" shall mean all reasonable expenses incident to the Company's performance of its obligations under Sections 5.1 through 5.6 hereof, including, without limitation (i) all registration, filing and NASD fees, (ii) all fees and expenses of complying with securities or blue sky laws, (iii) all word processing, duplicating and printing expenses, (iv) all messenger and delivery expenses, (v) the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance, (vi) the fees and disbursements of any one counsel retained by the holder or holders of a majority of the Registrable Securities being registered (or, if Ripplewood has requested the registration under Section 5.1, any one counsel selected by Ripplewood to represent all holders of Registrable Securities being registered) and (vii) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding underwriting discounts and commissions and transfer taxes. "RESTRICTED SECURITIES" shall mean all Common Shares and any securities obtained upon exchange for or upon conversion or transfer of or as a distribution on such Common Shares or any such securities and except that any particular Restricted Securities shall cease to be such when (w) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (x) they shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (y) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (z) they shall have ceased to be outstanding. Whenever any particular securities cease to be Restricted Securities, the holder thereof shall be entitled to receive from the issuer thereof or its transfer agent, without expense (other than transfer taxes, if any), new securities of like tenor not bearing a legend of the character set forth in Section 4.2. "RIPPLEWOOD GROUP" shall mean Ripplewood and its Affiliates and all other Shareholders owning Common Shares as to which Ripplewood controls the voting rights. -3- "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "SUBSIDIARIES" means, as to any Person, any corporation, limited or general partnership, limited liability company, trust, association or other business entity of which an aggregate of at least a majority of the outstanding voting shares or other equivalent controlling interest is, at the time, directly or indirectly, owned by such Person and/or one or more Subsidiaries of such Person. "VOTING SHARES" shall mean all of the Company's capital shares entitled to vote generally in the election of directors of the Company. ARTICLE II CERTAIN TRANSACTIONS SECTION 2.1. AMENDMENT OF PRIOR AGREEMENT. (a) The Prior Agreement hereby is amended and restated in its entirety as set forth in this Agreement. (b) Each of the parties to the Prior Agreement who is a party hereto hereby releases and discharges all other parties to the Prior Agreement and their respective present or former officers, directors, employees, affiliates, representative, shareholders, successors and assigns (collectively, the "Releasee") from all claims, rights, causes of actions, suits or recoveries, known or unknown, whether absolute or contingent or due or to become due, that might be brought against the Releasee under the Prior Agreement. SECTION 2.2. 1994 STOCK OPTION PLAN. Each Management Investor who holds an option granted under the 1994 Stock Option Plan hereby acknowledges and agrees that all references in such plan and options to the Prior Agreement hereafter shall refer to this Agreement, as it may be amended from time to time. ARTICLE III BOARD OF DIRECTORS; VOTING AGREEMENTS SECTION 3.1. BOARD OF DIRECTORS. From and after the date hereof, each of the Shareholders shall vote all Voting Shares held by such Shareholder, and shall take all other necessary or desirable actions within the control of such Shareholder: (i) to cause the number of directors of the Company (the "Board") to be fixed at such number as Ripplewood may specify; -4- (ii) to cause the election to the Board (whether at a meeting of the shareholders or pursuant to an action by written consent of the shareholders in lieu of a meeting) of the Persons designated by Ripplewood ("Ripplewood Designees"); (iii) at the written request of Ripplewood given at any time, to cause the immediate removal from the Board (with or without cause) of any Ripplewood Designee(s) specified by Ripplewood (and if any such request is given during any meeting, at the option of Ripplewood, to cause such meeting to be adjourned pending filling the vacancy caused by such removal in accordance with clause (iv) below); and (iv) in the event that any Ripplewood Designee for any reason ceases to serve as a director during such person's term of office, to cause the resulting vacancy on the Board to be filled with a Ripplewood Designee immediately upon the written request of Ripplewood, whether at a meeting of the shareholders or pursuant to an action by written consent of the shareholders in lieu of a meeting. SECTION 3.2. VOTING AGREEMENTS. From and after the date hereof and until the provisions of this Section 3.2 shall terminate as provided in Section 3.3 hereof, each of the Management Investors: (a) shall vote all of the Voting Shares held by such Person (including shares acquired after the date hereof) in the same manner as the Voting Shares held by Ripplewood are voted on all matters acted upon at any annual or special meeting of shareholders or by written consent in lieu of a meeting, and (b) irrevocably constitutes and appoints the Person who is at the time the Senior Managing Director and Chief Executive Officer of Ripplewood its proxy to vote all of the Voting Shares held by such Person in the same manner as the Voting Shares held by Ripplewood are voted on all matters acted upon at any annual or special meeting of shareholders or by written consent in lieu of a meeting; PROVIDED, that this Section 3.2 shall be inapplicable with respect to any matters which would both adversely affect the rights of Voting Shares held by any such Person and treat such Person differently from other holders of Voting Shares. The voting agreements and proxies granted pursuant to this Section 3.2 are coupled with an interest. Each Person subject to a voting agreement and proxy pursuant to this Section 3.2 represents that he or it has not granted and is not a party to any proxy, voting trust or other agreement which in each case is inconsistent with or conflicts with the provisions of this Agreement, and no such Person shall grant any proxy or become a party to any voting trust or other agreement which in each case is inconsistent with or conflicts with the provisions of this Agreement. The Company shall cause any Person who hereafter becomes a Management Investor to become a party to this Agreement and to become subject to all of the provisions of this Agreement, including, without limitation, the provisions of this Section 3.2. SECTION 3.3. TERMINATION OF VOTING AGREEMENTS AND PROXIES. With respect to Voting Shares subject to a voting agreement and proxy pursuant to Sections 3.1 and 3.2, such -5- voting agreement and proxy shall terminate automatically (without any action on behalf of the holder of such shares or any other party) and be of no further force and effect at such time as all of the Class B Common Shares are converted into Class A Common Shares in accordance with their terms. ARTICLE IV TRANSFER OF COMMON SHARES SECTION 4.1. GENERAL. Except as otherwise provided in the Amended Articles of Incorporation, this Agreement or by law, each Shareholder may transfer its Common Shares at any time to any Person. SECTION 4.2. RESTRICTIONS ON TRANSFER; LEGEND ON CERTIFICATES. (a) Except as otherwise provided in this Agreement, Restricted Securities shall not be transferable except: (i) pursuant to an effective registration statement under the Securities Act, (ii) pursuant to Rule 144 (or any successor provisions) under the Securities Act, or (iii) upon receipt by the Company of an opinion of counsel (which may be an in-house counsel) reasonably satisfactory to the Company to the effect that such transfer is exempt from the registration requirements of the Securities Act. (b) Unless otherwise expressly provided herein, each certificate for Restricted Securities and each certificate issued in exchange for or upon transfer of any thereof shall be stamped or otherwise imprinted with a legend in substantially the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and the transfer of such securities is subject to the conditions specified in that certain Amended and Restated Shareholder Agreement among Dayton Superior Corporation and the shareholders listed therein, as the same may be amended from time to time, a counterpart of which has been placed on file by the issuer at its principal place of business and its registered office. The issuer reserves the right to refuse the transfer of such securities until such conditions have been fulfilled with respect to such transfer." (c) Any other provision of this Agreement to the contrary notwithstanding, no transfer of any Common Shares other than a Public Sale may be made to any Person unless such Person shall have agreed in writing that such Person, as a Shareholder, and the Common Shares it acquires shall be bound by and be entitled to the benefits of all the provisions of this Agreement applicable to shares of the type acquired by such Person. Any purported transfer of Common Shares without compliance with the applicable provisions of this Agreement shall be void and of no effect, and the purported transferee shall have no rights hereunder. In the event of such non-complying transfer, the Company shall not transfer any such Common Shares on its books or recognize the purported transferee as a shareholder or partner, for any purpose, until all applicable provisions of this Agreement have been complied with. -6- SECTION 4.3. TAG-ALONG RIGHTS. If Ripplewood proposes to transfer to any Person (the "Transferee"), in one or a series of related transactions other than in a Public Sale, Common Shares representing 40% or more of the Common Shares then owned by Ripplewood, Ripplewood shall first give to each Shareholder a written notice (a "Transfer Notice"), setting forth: (a) the number of Common Shares that the Transferee proposes to acquire from Ripplewood, (b) the name and address of the Transferee, (c) the proposed purchase price, terms of payment and other material terms and conditions of the Transferee's offer (including representations, warranties and indemnities) and (d) a representation from Ripplewood to the effect that Ripplewood will not transfer its shares to the Transferee unless the Transferee agrees to purchase, upon the purchase by the Transferee of any Common Shares owned by Ripplewood and for the same per share consideration, that number of Common Shares (or if such number is not an integral number, the next integral number which is greater than such number) which shall be the product of (i) the total number of Common Shares then owned by such Shareholder and (ii) a fraction, the denominator of which shall be the total number of Common Shares then held by Ripplewood and the numerator of which shall be the number of Common Shares held by Ripplewood indicated in the Transfer Notice as subject to purchase by the Transferee. Such Shareholder shall have the right, for a period of 15 days after the Transfer Notice is given, to accept such offer in whole or in part, exercisable by delivering a written notice to Ripplewood and the Company within such 15-day period, setting forth therein the number and class of Common Shares (which may be the number of shares set forth in the offer by the Transferee or a portion thereof) to be sold by such Shareholder. Prior to the earlier of (x) the end of such 15-day period, (y) the acceptance of the Transferee's offer (whether based directly on the offer pursuant to the Transfer Notice or on an agreement reached between the Shareholder and the Transferee) or (z) the rejection of the offer, Ripplewood shall not complete any sale of Common Shares to the Transferee. Thereafter, for a period of 120 days after the prohibition under the preceding sentence terminates, Ripplewood may sell to the Transferee, for the consideration and on the terms set forth in the Transfer Notice, the Common Shares stated in the Transfer Notice as subject to purchase by the Transferee; PROVIDED, that the Transferee shall simultaneously purchase all such Common Shares from those who have accepted the Transferee's offer. SECTION 4.4. DRAG-ALONG RIGHTS. If Ripplewood proposes to transfer to any Person (the "Proposed Transferee") Common Shares representing 40% or more of the Common Shares then owned by Ripplewood other than in a Public Sale, Ripplewood shall have the right (the "Drag-Along Right") to require each other Shareholder to sell to the Proposed Transferee for the same per share consideration received by Ripplewood that number of Common Shares (or if such number is not an integral number, the next integral number which is greater than such number) which is the product of (i) the total number of Common Shares then owned by such Shareholder, and (ii) a fraction, the denominator of which is the total number of Common Shares then owned by Ripplewood, and the numerator of which is the number of such shares indicated in the Drag-Along Notice (as hereinafter defined) as subject to purchase by the Proposed Transferee. To exercise the Drag-Along Right, Ripplewood shall first give to the Company and each other Shareholder (pursuant to a list provided by the Company) a written notice (a "Drag-Along Notice") setting forth: (a) -7- the number of Common Shares that the Proposed Transferee proposes to acquire from Ripplewood, (b) the name and address of the Proposed Transferee, (c) the proposed purchase price, terms of payment and other material terms and conditions of the Proposed Transferee's offer and (d) the aggregate number of Common Shares owned by each such Shareholder as to which Ripplewood desires to exercise its Drag-Along Right pursuant to this Section 4.4 (which may be the number of shares determined pursuant to the previous sentence or a portion thereof, provided that the proportion of shares as to which Ripplewood desires to exercise its Drag-Along Right is the same for all Shareholders). Each Shareholder thereafter shall be obligated to sell the Common Shares subject to such Drag-Along Notice and to make his proportionate share of the representations, warranties and indemnities contained in the transfer agreement; PROVIDED, that the sale to the Proposed Transferee is consummated within 120 days of delivery of the Drag-Along Notice. If the sale is not consummated within such 120-day period, then each Shareholder no longer shall be obligated to sell such Shareholder's shares pursuant to that specific Drag-Along Right but shall remain subject to the provisions of this Section 4.4. The provisions of this Section 4.4 shall not apply to transfers by Ripplewood to any Affiliate of Ripplewood, transfers by any Affiliate of Ripplewood to Ripplewood or transfers by any Affiliate of Ripplewood to any other Affiliate of Ripplewood but shall apply to transfers by any Affiliate of Ripplewood to any Person other than Ripplewood or any Affiliate of Ripplewood. ARTICLE V REGISTRATION RIGHTS SECTION 5.1. REGISTRATION ON REQUEST. (a) Upon the written request of Ripplewood requesting that the Company effect the registration under the Securities Act of all or a portion of Ripplewood's Registrable Securities and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all holders of Registrable Securities, and thereupon the Company will use its best efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by Ripplewood for disposition in accordance with the intended method of disposition stated in such request; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 20 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities if the method of disposition stated in Ripplewood's request is other than an underwritten offering); and -8- (iii) all Common Shares which the Company may elect to register in connection with the offering of Registrable Securities pursuant to this Section 5.1, all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional shares of Common Shares, if any, so to be registered: PROVIDED, that Ripplewood shall be entitled to not more than two registrations upon request; and PROVIDED, FURTHER, that no registration shall be counted as a registration requested by Ripplewood for purposes of this Section 5.1 unless at least 75% of the Registrable Securities requested to be registered by Ripplewood are registered and the registration statement with respect thereto has become effective. (b) Registrations under this Section 5.1 shall be on such appropriate registration form of the Commission (i) as shall be selected by the Company and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration. (c) The Company will pay all Registration Expenses in connection with the registration requested pursuant to this Section 5.1. (d) If a requested registration pursuant to this Section 5.1 involves an underwritten offering, the underwriter or underwriters thereof shall be selected by the Company and shall be reasonably acceptable to Ripplewood. (e) If a requested registration pursuant to this Section 5.1 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy to each holder of Registrable Securities requesting registration) that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceeds the number which can be sold in such offering within a price range acceptable to the holders of a majority of the Registrable Securities so requested to be included, the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the holder or holders of Registrable Securities, PRO RATA among such holders on the basis of the number of such securities requested to be included by such holders, and (ii) second, securities the Company proposes to sell and other securities of the Company included in such registration by the holders thereof. SECTION 5.2. INCIDENTAL REGISTRATION. (a) If the Company at any time proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4, S-8, S-14 or S-15 or any successor or similar forms), whether or not for sale for its own account, it will each such time give prompt written notice to all holders of Registrable Securities of its intention to do so and of such holders' rights under this Section 5.2. Upon the written request of any such holder made within 20 days after the receipt of any such -9- notice (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, PROVIDED that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith) and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities pursuant to this Section 5.2. (b) If (i) a registration pursuant to this Section 5.2 involves an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, to be distributed (on a firm commitment basis) by or through one or more underwriters of recognized standing under underwriting terms appropriate for such a transaction, and (ii) the managing underwriter of such underwritten offering shall inform the Company and holders of the Registrable Securities requesting such registration by letter of its belief that the distribution of all or a specified number of such Registrable Securities concurrently with the securities being distributed by such underwriters would interfere with the successful marketing of the securities being distributed by such underwriters (such writing to state the basis of such belief and the approximate number of such Registrable Securities which may be distributed without such effect), then the Company may, upon written notice to all holders of such Registrable Securities, reduce PRO RATA (if and to the extent stated by such managing underwriter to be necessary to eliminate such effect) the number of such Registrable Securities the registration of which shall have been requested by each holder of Registrable Securities so that the resultant aggregate number of such Registrable Securities so included in such registration shall be equal to the number of shares stated in such managing underwriter's letter. SECTION 5.3. REGISTRATION PROCEDURES. If and whenever the Company is required to use its best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Section 5.1 or 5.2, the Company shall, as expeditiously as possible: -10- (i) prepare and (within 60 days after the end of the period within which requests for registration may be given to the Company or in any event as soon thereafter as possible) file with the Commission the requisite registration statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use its best efforts to cause such registration statement to become and remain effective; PROVIDED, HOWEVER, that the Company may discontinue any registration of its securities which are not Registrable Securities (and, under the circumstances specified in Section 5.2(a), its securities which are Registrable Securities) at any time prior to the effective date of the registration statement relating thereto; PROVIDED, further, that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until 90 days after such registration statement becomes effective; (iii) furnish to each seller of Registrable Securities covered by such registration statement and each underwriter, if any, of the securities being sold by such seller such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller; (iv) use its best efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any seller thereof and any underwriter of the securities being sold by such seller shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to -11- qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (v) use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; (vi) furnish to each seller of Registrable Securities a copy of (x) any opinion of counsel received by the Company, and (y) any "comfort" letter received by the Company; (vii) notify the holders of Registrable Securities and the managing underwriter or underwriters, if any, promptly and confirm such advice in writing promptly thereafter: (A) when the registration statement, the prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; (B) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (C) of the issuance by the Commission of any stop order suspending the effectiveness of the registration or the initiation of any proceedings by any Person for that purpose; (D) if at any time the representations and warranties of the Company made as contemplated by Section 5.4 below cease to be true and correct; or (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; and (viii) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon the Company's discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein -12- or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller promptly prepare and furnish to such seller and each underwriter, if any, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (ix) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (x) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act, and will furnish to each such seller at least five business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus and shall not file any thereof to which any such seller shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (xi) make available for inspection by a representative of the holders of Registrable Securities, any underwriter participating in any disposition pursuant to the registration and any attorney or accountant retained by such selling holders or underwriter (each, an "Inspector"), all financial and other records, pertinent corporate documents and properties of the Company (the "Records"), and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration; PROVIDED, that the Company shall not be required to comply with this subdivision (xi) if there is a reasonable likelihood, in the judgment of the Company, that such delivery could result in the loss of any attorney-client privilege related thereto; and PROVIDED, FURTHER, that Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors (other than to any holder of Registrable Securities) unless (x) such Records have become generally available to the public or (y) the disclosure of such Records may be necessary or appropriate (A) in compliance with any law, rule, regulation or order applicable to any such Inspectors or holder of Registrable Securities, (B) -13- in response to any subpoena or other legal process, (C) in connection with any litigation to which such Inspectors or any holder of Registrable Securities is a party or (D) to avoid or correct material misstatements or omissions in the prospectus; (xii) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; (xiii) use its best efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the Registrable Securities are then listed; and (xiv) use its best efforts to provide a CUSIP number for the Registrable Securities, not later than the effective date of the registration. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration) to which the holders of at least a majority of the Registrable Securities covered by such registration statement or the underwriter or underwriters, if any, shall reasonably object; PROVIDED, that the Company may file such document in a form required by law or upon the advice of its counsel. Upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (viii) of this Section 5.3, each holder of Registerable Securities shall forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 5.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in subdivision (ii) of this Section 5.3 shall be extended by the length of the period from and including the date when each seller of any Registrable Securities covered by such registration statement shall have received such notice to the date on which each such seller has received the copies of the supplemented or amended prospectus contemplated by subdivision (viii) of this Section 5.3. -14- If any such registration or comparable statement refers to any holder of Registrable Securities by name or otherwise as the holder of any securities of the Company, then such holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such holder, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any other applicable statute then in force, the deletion of the reference to such holder. SECTION 5.4. UNDERWRITTEN OFFERINGS. (a) The holders of Registrable Securities to be distributed in any underwritten offering shall be parties to the underwriting agreement between the Company and such underwriters. (b) (i) Each holder of Registrable Securities agrees by acquisition.of such Registrable Securities, if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of any equity securities of the Company, during the seven days prior to and the 90 days after any underwritten registration pursuant to Section 5.1 or 5.2 has become effective, except as part of such underwritten registration, whether or not such holder participates in such registration. Each holder of Registrable Securities agrees that the Company may instruct its transfer agent to place stop transfer notations in its records to enforce this Section 5.4. (ii) The Company shall (x) if so required by the managing underwriter, not sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the seven days prior to and the 90 days after any underwritten registration pursuant to Section 5.1 or 5.2 has become effective, except as part of such underwritten registration and except pursuant to registrations on Form S-4, S-8, S-14 or S-15 or any successor or similar forms thereto, and (y) cause each holder of its equity securities or any securities convertible into or exchangeable or exercisable for any of such securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a Public Sale) to agree not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of such securities during such period except as part of such underwritten registration. (c) No Person may participate in any underwritten offering hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the Company and the holders of a majority of Registrable Securities to be included in such -15- underwritten offering, (ii) completes and executes all questionnaires providing information about such person and other documents (other than powers of attorney) required under the terms of such underwriting arrangements and (iii) makes representations and warranties with respect to information provided by such Person as may be reasonably requested. SECTION 5.5. PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. SECTION 5.6. INDEMNIFICATION. (a) In the event any registration statement is filed under the Securities Act pursuant to Section 5.1 or 5.2, the Company shall agree at such time to indemnify and hold harmless the holder of any Registrable Securities covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such holder or any such underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company will reimburse such holder and each such director, officer, underwriter and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; PROVIDED, that the Company shall not be liable in any such case (i) to any such holder, any such officer or director of any such holder or any Person who controls any such holder to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such holder specifically stating that it is for use in the preparation thereof, (ii) to any such underwriter or any such Person who -16- controls any such underwriter to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such underwriter specifically stating that it is for use in the preparation thereof; and PROVIDED, further that the Company shall not be liable to any Person who participates as an underwriter in the offering or sale of Registrable Securities or to any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, within the time required by the Securities Act to the Person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. (b) The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 5.1 or 5.2, that the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 5.6) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; PROVIDED, that such indemnification shall be limited to the net proceeds to be received by the prospective seller of such Registrable Securities. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (c) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 5.6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the -17- commencement of such action; PROVIDED, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 5.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. (d) Indemnification similar to that specified in the preceding subdivisions of this Section 5.6 (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority, other than the Securities Act. (e) The indemnification required by this Section 5.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) If the indemnification provided for in the preceding subdivisions of this Section 5.6 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the holder or underwriter, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company -18- on the one hand and the holder or underwriter, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Registrable Securities by the Company to the purchasers bear to the gain realized by the selling holder or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the holder or underwriter, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the holder or by the underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; PROVIDED, that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 5.6, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (f) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (a) or (b) of this Section 5.6 had been available under the circumstances. The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this subdivision (f) were determined by PRO RATA allocation (even if the holders, Requesting Holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph and subdivision (c) of this Section 5.6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (f), no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. SECTION 5.7. RULE 144. The Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule -19- may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. ARTICLE VI CERTAIN COVENANTS SECTION 6.1. ACTION BY SHAREHOLDERS. The Shareholders shall from time to time vote their Common Shares as may be required to cause the Company to comply with the provisions of this Agreement. SECTION 6.2. FURTHER ACTIONS. In case at any time after the date hereof any further action is necessary or desirable to carry out the purposes of this Agreement, each party hereto shall take all such necessary action. ARTICLE VII MISCELLANEOUS SECTION 7.1. NOTICES. All notices and other communications provided for hereunder shall be dated and in writing and shall be deemed to have been given (i) when delivered, if delivered personally or sent by confirmed telecopy, (ii) on the next business day if sent by overnight courier and (iii) when received if delivered otherwise. Such notices shall be addressed to the appropriate party to the attention of the person who executed this Agreement at the address set forth under such party's name at the end of this Agreement (or to the attention of such other person or to such other address as such party shall have furnished to each other party in accordance with this Section 7.1), provided that (A) notice to any of the Management Investors shall be given to the Agent for the Management Investors, Dayton Superior Corporation, 721 Richard Street, Miamisburg, Ohio 45342, Attention: John A. Ciccarelli, or such other Person designated pursuant to Section 8.12 hereof. A copy of any notice sent to the Company shall be sent by the party sending such notice to the Company to David A. Neuhardt, Thompson Hine & Flory P.L.L., 2000 Courthouse Plaza Northwest, Dayton, Ohio 45402. SECTION 7.2. BINDING NATURE OF AGREEMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto or their successors in interest, except as expressly otherwise provided herein. SECTION 7.3. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. -20- SECTION 7.4. SPECIFIC PERFORMANCE. Without limiting the rights of each party hereto to pursue all other legal and equitable rights available to such party for the other parties' failure to perform their obligations under this Agreement, the parties hereto acknowledge and agree that the remedy at law for any failure to perform their obligations hereunder would be inadequate and that each of them, respectively, shall be entitled to specific performance, injunctive relief or other equitable remedies in the event of any such failure. SECTION 7.5. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Ohio, without regard to the principles of conflicts of law. SECTION 7.6. COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. SECTION 7.7. SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. SECTION 7.8. ENTIRE AGREEMENT. This Agreement is intended by the parties hereto as a final and complete expression of their agreement and understanding in respect to the subject matter contained herein. This Agreement supersedes all prior agreements and understandings, written or oral, between the parties with respect to such subject matter. SECTION 7.9. AMENDMENT AND WAIVER. Any provision of this Agreement may be amended if, but only if, such amendment is in writing and is signed by the Company and Shareholders owning at least a majority of the then outstanding Common Shares held by all Shareholders who are parties to this Agreement at the time (taken together as a single class); PROVIDED that (i) no such amendment may adversely affect the rights of any Shareholder without the prior written consent of such Shareholder and (ii) no such amendment may both (x) adversely affect the rights of Shareholders of any class and (y) treat the holders of such class differently from holders of another class in a manner not contemplated by this Agreement without the prior written consent of holders of a majority of shares (whether outstanding or issuable) of the class so adversely affected. The Company shall provide notice to all Shareholders of any amendment to this Agreement which was not approved in writing by such Shareholder. Any provision of this Agreement may be waived if, but only if, such waiver is in writing and is signed by or on behalf of the party waiving such provision. SECTION 7.10. ADDITIONAL PARTIES. A Person who holds or acquires any Common Shares or any security which is convertible into or exchangeable for, or any option, warrant -21- or other right to acquire, Common Shares after the date of this Agreement may become a party to this Agreement if the Company so agrees by executing and delivering to the Company a dated, counterpart signature page to this Agreement or other instrument acceptable to the Company evidencing such Person's agreement to become a party to this Agreement and bound hereby, and such Person shall become a party to and bound by this Agreement effective upon acceptance of such signature page or other instrument by the Company (to be evidenced by the Company's execution thereof). SECTION 7.11. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall convey any rights upon any person or entity which is not a party or an assignee of a party to this Agreement. SECTION 7.12. AGENT FOR MANAGEMENT INVESTORS. John A. Ciccarelli or such other person who is the President of the Company at the time shall act as agent for each of the Management Investors (the "Agent for the Management Investors") for all purposes of this Agreement, and all payments, obligations, notices or other deliveries from the Company or any other Shareholder may be made to the Agent for the Management Investors. IN WITNESS WHEREOF, the parties indicated below have entered into this Agreement as of the date first above written. DAYTON SUPERIOR CORPORATION 721 Richard Street Miamisburg, Ohio 45342 Attention: President RIPPLEWOOD HOLDINGS L.L.C. 712 Fifth Avenue, 40th floor New York, NY 10019 MATTHEW O. DIGGS, JR. The Diggs Group Inc. 40 North Main Street Dayton, OH 45402 STEVEN RATTNER Lazard Freres & Co. LLC 30 Rockefeller Plaza New York, New York 10020 "Management Investors" JOHN A. CICCARELLI -22- MICHAEL C. DEIS MARK K. KALER JAMES C. STEWART J.R. PAINE, JR. RICHARD L. BRASWELL JAMES FENNESSY GREGORY ARNETT MICHAEL BARNETT MARIO CATANI WILLIAM S. JAGGER MYRON JORNOV J. DALE LEATH DENNIS MALLANEY JAMES METZ ROY L. EDGAR KEITH E. KELLER DONALD VAN GERVE STEVEN GETZ KEVIN KRIEBS JEFFREY MATTHEWS LARRY MONGOLE JAMES SWAFFAR -23- 24 EX-10.17 6 EXHIBIT 10.17 AMENDED AND RESTATED LOAN AGREEMENT This Amended and Restated Loan Agreement is made as of the 17th day of June, 1996 by and among DAYTON SUPERIOR CORPORATION, an Ohio corporation, with its principal place of business at 721 Richard Street, Miamisburg, Ohio 45342 (the "Borrower"), and BANK ONE, DAYTON, N.A. ("Bank One") in its individual capacity and as Bank Agent, with its principal place of business at Kettering Tower, P.O. Box 1103, Dayton, Ohio 45401-1103, BANK OF AMERICA ILLINOIS ("BOA") in its individual capacity, an Illinois banking corporation with an office located at 231 South LaSalle Street, Chicago, Illinois 60697, and BANK OF AMERICA ILLINOIS in its capacity as Collateral Agent, an Illinois banking corporation with an office located at 231 South LaSalle Street, Chicago, Illinois 60697. RECITALS A. As of May 26, 1994, the Borrower entered into a Loan Agreement and various ancillary and related agreements with National Canada Finance Corp. ("NCFC") and Bank One with respect to a Nineteen Million Dollar ($19,000,000) revolving credit facility (the "Original Credit Facility"). B. As of October 16, 1995, NCFC assigned its entire interest in the Original Credit Facility to Bank One. C. As of October 16, 1995, the Borrower and Bank One entered into an Amended and Restated Loan Agreement and various ancillary and related agreements, which amended and restated the Original Credit Facility, and which increased the revolving credit facility to Twenty-Five Million Dollars ($25,000,000) (the "Amended Credit Facility"). D. As of October 16, 1995, the Borrower's wholly-owned subsidiary, Dur-O-Wal, Inc. ("Dur-O-Wal") and Bank One entered into a Loan Agreement and various ancillary and related agreements with respect to a Five Million Dollar ($5,000,000) revolving credit facility (the "Dur-O-Wal Facility") which facility was guaranteed by Borrower. E. The parties intend to further modify and amend the Amended Credit Facility by the execution of this Agreement so as to (i) add BOA as a co-lender with Bank One, (ii) increase the total revolving credit facility to Thirty-Two Million Dollars ($32,000,000), (iii) provide for a term loan facility in the amount of Eight Million Five Hundred Thousand Dollars ($8,500,000), (iv) modify various pricing terms, and (v) modify and amend various other matters as more full set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 CAPITALIZED TERMS. As used in this Agreement the following capitalized terms shall have the following meanings: "Accumulated Funding Deficiency" means an "accumulated funding deficiency" as defined in Section 302 of ERISA or Section 412(a) of the Code. "Advance" means a borrowing and disbursement of the Revolving Credit Loan. "Affiliate" means any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Borrower. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. All of Borrower's parent corporations and subsidiary corporations shall be deemed to be affiliates of Borrower for purposes of this Agreement. "Agents" means the Bank Agent and the Collateral Agent. "Aggregate Commitment" means the aggregate of the Commitments of the Banks hereunder. "Agreement" means this Amended and Restated Loan Agreement, as it may be amended or modified and in effect from time to time. "Authorized Officer" means any of the President, Vice President Finance, or any officer of the Borrower authorized by its Board of Directors, acting singly. "Bank Agent" means Bank One, in such capacity, and not in its individual capacity as a Bank, and any successor appointed pursuant to Section 9. "Bank One" means Bank One, Dayton, N.A., its successors and assigns. "BOA" means Bank of America Illinois, its successors and assigns. -2- "Banks" means BOA and Bank One and their respective successors and assigns. "Borrower" means Dayton Superior Corporation. "Borrowing Base Certificate" is defined in Section 2.1(e). "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.6(a). "Business Day" means (i) with respect to any borrowing, payment or rate selection of Libor Rate Advances, a day other than Saturday or Sunday on which banks are open for business in Dayton and New York and on which dealings in U.S. dollars are carried on in the London interbank market and (ii) for all other purposes, a day other than Saturday or Sunday on which banks are open for business in Dayton. "Capitalized Lease" of a Person means any lease of property by such person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. "Code" means the Internal Revenue Code of 1986, as amended, and the income tax regulations issued thereunder from time to time. "Collateral" means the "Collateral" under and as defined in the Security Documents. "Collateral Agent" means BOA, in such capacity, and not in its capacity as a Bank, and any successor appointed pursuant to Section 9. "Commitment" means, for each Bank, the obligation of the Bank to make Revolving Credit Loans not exceeding the amount set forth in Section 2.1, as such amount may be modified from time to time. "Compliance Certificate" means a compliance certificate in substantially the form of EXHIBIT 1(a) hereto, with appropriate insertions, signed by an Authorized Officer, showing the calculations necessary to determine compliance with this Agreement and stating that no Event of Default or Unmatured Default exists, or if any Event of Default or Unmatured Default exists, describing the nature thereof and any action the Borrower is taking or proposes to take with respect thereto. -3- "Consolidated Current Assets" shall mean all assets of the Borrower and its Subsidiaries which may be properly classified as consolidated current assets in accordance with GAAP. "Consolidated Current Liabilities" shall mean, as of any date of determination, all liabilities of the Borrower and its Subsidiaries which may be properly classified as consolidated current liabilities in accordance with GAAP. "Current Obligations" is defined in Section 6.12. "Debt" shall mean all items (on a consolidated basis) which, in accordance with GAAP (as hereinafter defined), would be included in determining total liabilities, as shown on the liability side of Borrower's balance sheet as of the date Debt is to be determined and, in any event, shall include any liability secured by a mortgage, pledge, lien, or security interest on property owned or acquired, whether or not such liability shall have been assumed, and guarantees, endorsements (other than for collection in the ordinary course of business), and other contingent obligations in respect of obligations of others. A Capitalized Lease creates Debt for purposes of this definition. "Default Rate" means the interest rate determined pursuant to Section 2.9. "Dollars" means United States dollars. "DOW" means Dur-O-Wal, Inc., a Delaware corporation. "DOW Loan Agreement" means that certain Amended and Restated Loan Agreement entered into by DOW and the Banks in their individual capacity and in their capacity as Bank Agent and Collateral Agent, as of even date herewith. "EBITDA" means Borrower's Net Income (on a consolidated basis) before interest, income taxes, depreciation and amortization. EBITDA will (i) be calculated utilizing the last in-first out method of cost accounting for inventory and (ii) not include any gains recognized by Borrower as earnings which relate to adjustments made by Borrower as a result of the Tax Reform Act of 1986 or any other extraordinary accounting adjustments or non-recurring items of income. "Eligible Account Receivable" means an account receivable owned by Borrower as to which the Collateral Agent has a fully perfected first priority security interest and which meet the following requirements at the time it comes into existence and continues to meet such requirements until it is collected in full: (a) the account receivable is not more than ninety (90) days old according to the date of its original invoice; -4- (b) the account receivable arose from the performance of services or an outright sale of goods by Borrower with such services having been performed or goods having been shipped to the account debtors, and Borrower being in possession of, or having delivered to the Banks, shipping and delivery receipts or other evidence of such performance or shipment; (c) the account debtor shall have accepted the goods or services of the Borrower without dispute or claim of any kind; (d) the account receivable is not subject to any Lien (other than Liens in favor of the Collateral Agent), and except as set forth herein, Borrower has not made any other assignment thereof nor created any other security interest therein, nor permitted any of its rights therein to be reached by any other attachment, levy, garnishment or other judicial process; (e) the account receivable shall be legally enforceable and shall not be subject to set-off, credit, counterclaim, allowance or adjustment by the account debtors (except normal discount allowed for prompt payment, refunds, returns, allowances and warranty obligations in the ordinary course of business (subject to Section 6.14)), nor represent retainage being held by the account debtor, and the account debtors have not returned any of the goods from the sale of which the account receivable arose; (f) the account receivable arose in the ordinary course of its business and did not arise from the performance of services or sale of goods to any Affiliate, supplier, or employee of the Borrower; (g) none of the transactions underlying or giving rise to the account receivable shall, to the best knowledge of Borrower, violate any applicable state or federal laws or regulations and all documents relating to the account receivable shall be legally enforceable in accordance with their terms; (h) no notice of bankruptcy or insolvency of the account debtor has been received by or is known to the Borrower; (i) the account debtor shall not have 50% or more of its payment obligations to the Borrower unpaid over 90 days from invoice date; (j) if the account debtor is the United States or any department, agency, or instrumentality thereof, the Banks have been so notified and the Borrower has executed any instruments and taken any steps required by the Banks in order that all moneys due or to become due under any such contract shall be -5- assigned to the Banks and notice thereof given to the Government under and in compliance with the Federal Assignment of Claims Act; and (k) in the case of an account receivable evidenced by a promissory note, such note shall have been endorsed and delivered to the Collateral Agent; (l) the account debtor with respect thereto is a resident or citizen of, and is located within, the United States of America, Canada, or a United States possession, unless the sale of goods giving rise to such account receivable is on letter of credit, banker's acceptance or other credit support terms satisfactory to the Banks; and (m) the Banks, in their reasonable discretion, have not deemed the account or the account debtor ineligible. "Eligible Inventory" means only items of finished goods inventories, work-in-process, semi-finished goods, and raw materials owned by Borrower as to which the Collateral Agent has a fully perfected first priority security interest, which are valued at the lower of cost or fair market value, determined in accordance with the "first in, first out" cost accounting system, and which meet the following requirements: (a) the item consists of finished goods inventories held for sale in the ordinary course of Borrower's business, work-in-process, semi-finished goods, or raw materials used in the manufacture of finished goods inventories, provided, however, that Eligible Inventory shall not include any furniture, fixtures, equipment or machinery, nor any item that is obsolete or not of merchantable quality and condition; (b) the item is not subject to any Lien (other than Liens in favor of the Collateral Agent) and Borrower has not made any assignment thereof nor created any security interest therein, nor permitted any of its interest therein to be reached by attachment, levy, garnishment or other judicial process; (c) the item is located on property owned or leased by Borrower and is not located in any jurisdiction other than as provided in EXHIBIT A to the Security Agreement or such other locations permitted pursuant to Section 12 of the Security Agreement; (d) the item has not been sold on a consignment or "sale or return" basis to others; (e) the item is not rented to a customer of Borrower, provided, however, that an item shall be treated as Eligible -6- Inventory after termination of the rental arrangement when the item has been returned to Borrower's place of business; provided, further, that such item shall be included in Eligible Inventory at the book value for such item; (f) the item is not held by a bailee or warehouseman unless the Banks have received an executed bailee waiver/agreement and accompanying UCC financing statements all in form and substance satisfactory to the Banks; (g) the item is located at a processing facility of another Person, to the extent the Collateral Agent has a perfected first security interest in such item and the Collateral Agent has received from such Person an executed waiver/agreement in form and substance satisfactory to the Collateral Agent; and (h) the item is not located at a facility for which the Collateral Agent has not received a Landlord's Waiver as contemplated by Section 3.2 of the Agreement. (i) the Banks, in their reasonable discretion, have not deemed the item ineligible. "Environmental Compliance and Indemnification Agreement" means the Environmental Compliance and Indemnification Agreement executed by Borrower in favor of the Banks, as the same may be amended or modified and in effect from time to time. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default" is defined in Section 7.1. "Fixed Rate" means the per annum rate of interest (rounded up to the nearest 1/16 of 1%), plus [250 basis points in the event Borrower selects the one year Fixed Rate Interest Period, 275 basis points in the event Borrower selects the two year Fixed Rate Interest Period, or 300 basis points in the event Borrower selects the three year Fixed Rate Interest period] that is determined by dividing: (i) the per annum rate of interest or yield available with respect to United States Treasury Securities with a maturity of equal to the Fixed Rate Interest Period selected by Borrower in an aggregate amount comparable to the amount outstanding as to which the determination of the Fixed Rate is being made at or about 10:00 A.M. New York time [or such later time as near to 10:00 A.M. New York time as is reasonably practicable, if the Bank does not establish such rate at or about 10:00 A.M. New York time] two (2) Business Days immediately prior to the first day of the related Fixed Rate Interest Period; all as conclusively determined in good faith by the Bank Agent, such rate to be rounded up, if necessary, to the nearest whole multiple of 1/100 of 1%; by (ii) a percentage -7- equal to one hundred percent (100%) minus the maximum stated rate of all Reserve Requirements as specified in Regulation D of the Board of Governors of the Federal Reserve System, including, without limitation, any marginal, emergency, supplemental, special or other reserves, that would be applicable to any member bank of the Federal Reserve System during such Fixed Rate Period in respect of a Treasury in an amount comparable to the amount bearing interest at the Fixed Rate and with a term equal to the Fixed Rate Interest Period selected by Borrower. "Fixed Rate Option" means the right of Borrower exercisable as set forth in Section 2.8 hereof, to have the interest rate applicable to all or a portion of the Term Loan computed based on a Fixed Rate. "Fixed Rate Interest Period" means, with respect to all or a portion of the Term Loan, a period of one, two, or three years commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such Fixed Rate Period would end on a day which is not a Business Day, such Fixed Rate Period shall end on the next successive Business Day. The Fixed Rate Interest Period shall not extend beyond the Termination Date. "Fixed Rate Prepayment Premium" means for the prepaid portion of the Term Loan as to which the Borrower has selected the Fixed Rate Option, the amount, if any, by which (a) the present value as of the prepayment date of all payments of principal and interest scheduled to be paid with respect to the portion of the Term Loan being prepaid during the period from the prepayment date through the end of the applicable Fixed Rate Interest Period, exceeds (b) the total principal scheduled to be paid with respect to the portion of the Term Loan being prepaid during the remainder of such Fixed Rate Interest Period. The present value of each such scheduled payment of principal and interest shall be calculated by using the number of months (including any fraction of a month) from the prepayment date to the scheduled payment date, and a discount rate which, when compounded monthly, is equivalent to the Applicable Treasury Rate. As used herein, "Applicable Treasury Rate" means, as of any prepayment date, the average "ask yield" per annum for U.S. Government bonds and notes maturing in the calendar month in which the applicable Fixed Rate Interest Period ends (or if none matures in such month, the next preceding month in which any such bonds or notes mature), as reported in the WALL STREET JOURNAL five (5) business days prior to such prepayment date, or if no longer reported in the WALL STREET Journal, in another similar daily publication reporting such yields. "GAAP" means Generally Accepted Accounting Principles. "Interest Period" means a Libor Interest Period or a Fixed Rate Interest Period. -8- "Investment" of a Person means any loan, advance, extension of credit (excluding accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, notes, debentures or other securities of any other Person made by such Person. "Lending Installation" means any office, branch, subsidiary or affiliate of any Bank or Agent. "Libor Interest Period" means, with respect to a Libor Rate Advance, a period of one, two, three, four, or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such Libor Interest Period would end on a day which is not a Business Day, such Libor Interest Period shall end on the next succeeding Business Day. "Libor Rate" means the per annum rate of interest (rounded up to the nearest 1/16 of 1%), plus the Libor Spread, that is determined by dividing: (i) the per annum rate of interest that is offered for deposits in United States Dollars ("Dollars") in immediately available funds in an aggregate amount comparable to the amount outstanding as to which the determination of the Libor Rate is being made and for periods comparable to the Libor Interest Period selected by Borrower to the Bank Agent by other prime banks in the London interbank market, selected by the Bank Agent in the Bank Agent's discretion, at or about 10:00 A.M. New York time [or such later time as near to 10:00 A.M. New York time as is reasonably practicable, if the Bank Agent does not establish such rate at or about 10:00 A.M. New York time] two (2) Business Days immediately prior to the first day of the related Libor Interest Period; all as conclusively determined in good faith by the Bank Agent, such rate to be rounded up, if necessary, to the nearest whole multiple of 1/100 of 1%; by (ii) a percentage equal to one hundred percent (100%) minus the maximum stated rate of all Reserve Requirements as specified in Regulation D of the Board of Governors of the Federal Reserve System including, without limitation, any marginal, emergency, supplemental, special or other reserves, that would be applicable to any member bank of the Federal Reserve System during such Libor Interest Period in respect of eurocurrency or eurofunding lending or liabilities. "Libor Rate Advance" means an Advance which bears interest at the Libor Rate for a particular Libor Rate Interest Period. "Libor Rate Option" means the option of Borrower, exercisable as set forth in Sections 2.7 and 2.8 hereof, to have the interest rate under the Notes computed based upon the Libor Rate, in the case of the Revolving Credit Notes, and the Term Loan Libor Rate, in the case of the Term Notes. -9- "Libor Spread" means (i) 225 basis points (2.25%) if, as of the Measuring Date (as hereinafter defined), the ratio of Borrower's EBITDA to interest expense is greater than 2.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 5.00 to 1.00; (ii) 175 basis points (1.75%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 2.50 to 1.00 and the ratio of Borrower's Total Debt to EBITDA is less than 4.00 to 1.00; (iii) 150 basis points (1.50%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 3.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 3.50 to 1.00; (iv) 125 basis points (1.25%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 3.50 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 3.00 to 1.00; and (v) 100 basis points (1.00%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 4.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 2.50 to 1.00. In the event Borrower fails to maintain any of the specified combinations of EBITDA to interest expense and Total Debt to EBITDA set forth above as of any Measuring Date, the Libor Spread shall be 275 basis points (2.75%). As used herein, "Measuring Date" shall mean the last day of the fiscal quarter of the Borrower immediately preceding each date of determination of the Libor Spread hereunder. The Libor Spread will be reset quarterly (based on the ratios herein set forth as of the Measuring Date) with such reset Libor Spread in effect for three calendar months beginning on the first day of the third full calendar month after the end of each Measuring Date, and such reset Libor Spread shall be applicable to all outstanding Loans utilizing the Libor Spread and new Advances of the Revolving Credit Loan and conversions of the Term Loan making reference thereto. "Lien" means any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest under a Capitalized Lease or analogous instrument, whether consensual or non-consensual, in, of or on any Person's assets or properties in favor of any other Person. "Loans" means collectively the Revolving Credit Loan and the Term Loan. "Loan Documents" means this Agreement, the Notes and the Security Documents. "Lock Box Agreement" is defined in Section 3.10. "Long-Term Debt" means, for any period of determination thereof, the long-term debt of the Borrower as of such date as determined in accordance with GAAP. -10- "Material Adverse Effect" means a material adverse effect on the financial condition, properties, results of operations and/or business of the Borrower and its consolidated Subsidiaries. " Mortgaged Property" means the real property owned by Borrower and identified in EXHIBIT 1(b). "Mortgages" means the Open-End Mortgages, Assignments of Rents and Leases, and Security Agreements granted by Borrower in favor of the Collateral Agent, as the same may be amended or modified and in effect from time to time. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the controlled group is a party to which more than one employer is obligated to make contributions. "Net Fixed Assets" means the net book value determined based on Borrower's most recent monthly financial statement of all furniture, fixtures, equipment and real estate owned by Borrower "Net Income" means, for any period of determination thereof, the net income of the Borrower, as reflected in the income statement of the Borrower for such period, and as determined in accordance with GAAP. "Net Worth" shall be determined in accordance with GAAP. "Notes" mean the Amended and Restated Revolving Credit Note, the Revolving Credit Note, and the Term Notes. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all other obligations of the Borrower to the Bank arising under the Loan Documents. "Omni" means Omni Investors, Inc., a Delaware corporation. "Overadvance Amount" means subject to adjustment as provided in Section 2.1(g): Up to $10,000,000 from closing through 08/31/96; Up to $7,500,000 from 09/01/96 through 12/31/96; Up to $10,000,000 from 01/01/97 through 03/31/97; Up to $7,500,000 from 04/01/97 through 05/30/97; Up to $5,000,000 from 06/01/97 through 07/31/97/; Up to $2,500,000 from 08/01/97 through 09/30/97; and zero (0) thereafter. "PBGC" means the Pension Benefit Guaranty Corporation and its successors and assigns. -11- "Permitted Liens" means: (a) Liens for taxes, assessments or governmental charges not then due and payable or the validity of which is being contested in good faith; provided the Borrower has adequate reserves set aside for such contest and provided further that no foreclosure actions have been instituted by any such governmental entity; (b) Liens arising in connection with court proceedings, provided the execution of such liens is effectively stayed and the underlying action has been appealed or is being contested in good faith and the Borrower has set aside adequate reserves for such court proceedings; (c) Liens arising in the ordinary cause of business (including (i) Liens under workmen's compensation and similar laws, (ii) mechanics' and warehousemen's Liens and similar Liens) that are not incurred in connection with the borrowing of money and provided that such Liens will not result in a Material Adverse Effect; (d) any Lien incurred in connection with the Agreement and the Loan Documents; (e) subject to Section 6.8 and 6.9 of the Agreement, any Lien on any property of any Person existing at the time it becomes a Subsidiary of the Borrower; provided that such lien does not extend to any other assets of the Borrower or its other Subsidiaries; and provided further that the indebtedness secured by such Lien would be permitted under Section 6.1; (f) Liens securing assets acquired or constructed after the date of this Agreement; provided such liens do not exceed fifty percent (50%) of the fair market value of such asset; (g) Liens incurred in connection with the borrowing of money not permitted by subsections (e) and (f) above; provided that immediately thereafter the aggregate amount of debt secured by Liens incurred pursuant to this subsection (g) would not exceed 5.0% of Total Capitalization as such term is defined in the Senior Note Agreements; and (h) any Lien resulting from renewing, extending or refunding a Lien provided that the principal amount of the Debt secured thereby is not increased and the Lien is not extended to any other property. "Person" means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. -12- "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any Subsidiary may have any liability. "Prime Based Rate" means a rate per annum equal to the Prime Rate changing when and as the Prime Rate changes. "Prime Based Rate Advance" means an Advance which bears interest at the Prime Based Rate for a particular Prime Based Rate Interest Period. "Prime Based Rate Interest Period" means any period during which Prime Based Rate Advance is outstanding. "Prime Based Rate Option" means the option of Borrower to have interest rate under the Note computed based on the Prime Based Rate. "Prime Rate" means a rate per annum announced by the Bank Agent from time to time, as its prime rate of interest for short term, unsecured commercial loans based on its consideration of economic, money market, business, and competitive factors. The Prime Rate is a reference rate for the information and use of the Bank Agent in establishing the actual rate to be charged to its borrower and is not necessarily the Bank Agent's most favored rate. In the event of a change in the Prime Rate, the Prime Based Rate shall be adjusted accordingly as of the date of each such change, it being the intent that the Prime Based Rate shall increase or decrease simultaneously with each increase or decrease in the Prime Rate. Any change in the Prime Based Rate shall become effective automatically without notice to the Borrower. "Prohibited Transaction" means a "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code. "Rate Option" means the Libor Rate Option, the Fixed Rate Option or the Prime Based Rate Option. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. -13- "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a reportable event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code. "Reserve Requirement" means, with respect to a Libor Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on new non-personal time deposits of $100,000 or more with a maturity equal to that of the Libor liabilities (in the case of Libor Advances). "Revolving Credit Loan" means the Loan in the aggregate amount not to exceed Thirty-Two Million Dollars ($32,000,000) by the Banks to Borrower as more fully set forth in Section 2.1. "Revolving Credit Notes" means collectively the promissory notes made by Borrower in favor of the Banks pursuant to Section 2.1(b) evidencing the Revolving Credit Loan, and any amendment, modification, renewal or replacement of any such note "Section" means a numbered section of this Agreement, unless another document is specifically referenced. "Security Agreement" means the Amended and Restated Security Agreement of even date herewith made by and between the Collateral Agent and the Borrower, as the same may be amended or modified and in effect from time to time. "Security Documents" means the Security Agreement and all other instruments and documents referred to in Article 3, and all other documents executed pursuant to or in connection with any of the foregoing. "Senior Debt" means all Debt of the Borrower from time to time reflected as a liability on Borrower's balance sheet, which is not expressly subordinated to the Loans. "Senior Notes" means collectively (i) the Smith Barney Senior Notes and (ii) the Fifteen Million Dollar (15,000,000) 11 3/4% Notes issued by Borrower on October 16, 1995. "Senior Note Agreements" means the instruments and agreements executed by Borrower in connection with the Senior Notes. -14- "Shareholders' Equity" means the shareholders' equity, as determined in accordance with GAAP (on a consolidated basis), of the Borrower. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Smith Barney Senior Notes" means the Twenty-Five Million Dollar ($25,000,000) Senior Notes issued through Smith Barney Shearson, Inc. on May 24, 1994. "Subsidiary" means any corporation or other entity the majority of outstanding shares having the ability to elect a majority of the directors of which is at the time owned by the Borrower or another Subsidiary. "Tangible Net Worth" shall mean the Borrower's consolidated Net Worth determined in accordance with GAAP, based on a FIFO method of cost accounting for inventory (including the sum of common stock, paid in capital, and earned surplus), LESS (i) employee, officer, or Affiliate accounts receivable, LESS (ii) all capitalized organizational or closing costs, LESS (iii) the then amount of deferred debt or equity issuance costs and deferred financing costs, LESS (iv) goodwill, LESS (v) investments in any stock, obligations, or securities of, or any other interest in, any Person, LESS (vi) any other asset considered under GAAP as an intangible asset. "Term Loan Libor Rate" means the Libor Rate plus 50 basis points (0.50%). "Term Loan" means the loan in the aggregate amount of Eight Million Five Hundred Thousand Dollars ($8,500,000) by the Banks to Borrower as more fully set forth in Section 2.2. "Term Notes" mean collectively the promissory notes made by Borrower in favor of the Banks pursuant to Section 2.2(b) evidencing the Term Loan, and any amendment, modification, renewal or replacement of any such promissory note. "Termination Date" means June 16, 2000. "Total Debt" means all Debt of Borrower. "Unfunded Liabilities" means, (i) in the case of Single Employer Plans, the amount (if any) by which the present value of all vested nonforfeitable benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, and (ii) in the case of Multiemployer Plans, the withdrawal liability of the Borrower and the Subsidiaries. -15- "Unmatured Default" means a circumstance that with the giving of notice, the passage of time, or both, would constitute an Event of Default. 1.2 OTHER DEFINITIONAL PROVISIONS; CONSTRUCTION. Unless otherwise specified, (i) All terms defined in this Agreement, whether or not defined in Section 1, have the defined meanings provided in this Agreement when used in this Agreement, in any other of the Loan Documents, or any other certificate, instrument or other document madeor delivered pursuant to this Agreement or any other Loan Document, unless otherwise defined therein. (ii) As used in this Agreement, in any other of the Loan Documents, or in any other certificate, instrument or document made or delivered pursuant hereto or thereto, accounting terms relating to Borrower not defined in this Agreement have the respective meanings given to them in accordance with generally accepted accounting principles in the United States of America as in effect at the time any determination is made or financial statement or information is required or furnished under this Agreement ("GAAP"). (iii) References to the Uniform Commercial Code, or UCC, mean as enacted in the particular jurisdictions encompassed by the reference. (iv) The definition of any document or instrument includes all schedules, attachments and exhibits thereto and all renewals, extensions, supplements, restatements and amendments thereof. (v) "Hereunder," "herein," "hereto," "this Agreement" and words of similar import refer to this entire document; "including" is used by way of illustration and not by way of limitation, unless the context clearly indicates the contrary; the singular includes the plural and conversely. (vi) All of the uncapitalized terms contained in the Loan Documents which are defined under the UCC will, unless the context indicates otherwise, have the meanings provided for in the UCC. 1.3 CALCULATION OF FINANCIAL COVENANTS. All financial statements of Borrower required hereunder and all financial ratios and covenants referred to or agreed to hereunder shall be prepared and/or determined (i) in accordance with GAAP except to the extent otherwise specified in this Agreement (ii) on a consolidated basis and (iii) in a manner consistent with the immediately preceding like period except for such changes required under GAAP. -16- ARTICLE 2 LOANS, ADVANCES, FEES AND PAYMENTS 2.1 REVOLVING CREDIT LOAN. (a) Subject to, and in accordance with the terms, conditions, and provisions of this Agreement, the Banks will lend and re-lend to the Borrower and the Borrower will borrow and re-borrow from the Banks such amounts as the Borrower may request from time to time (such amounts outstanding under this Section 2.1 from time to time collectively will be designated the "Revolving Credit Loan"), up to a maximum amount outstanding at any one time of Nineteen Million Two Hundred Thousand Dollars ($19,200,000) in the case of Bank One and Twelve Million Eight Hundred Thousand Dollars ($12,800,000) in the case of BOA, or Thirty Two Million Dollars ($32,000,000) in the aggregate for both Banks. The Revolving Credit Loan at all times will be subject to the terms and conditions and made upon the representations and warranties and covenants of the Borrower set forth in this Agreement. (b) The Revolving Credit Loan shall be evidenced by promissory notes of the Borrower (collectively, the "Revolving Credit Notes") in the form attached hereto and made a part hereof as EXHIBIT 2.1. The Revolving Credit Loan will bear interest and be repayable in the manner set forth herein and in the Revolving Credit Notes and the Revolving Credit Loan will be subject to all of the terms and conditions specified in the Revolving Credit Notes and in this Agreement. (c) Borrower may borrow, repay or prepay, without premium or penalty (subject to Section 2.12 regarding prepayments of Libor Rate Advances), and re-borrow the Revolving Credit Loan under this Agreement. (d) Subject to Section 2.1(f) below, the Banks will advance the Revolving Credit Loan in the maximum aggregate amount of Thirty Two Million Dollars ($32,000,000) to Borrower based on Borrower's Eligible Accounts Receivable or Eligible Inventory and the Overadvance Amount. Subject to Section 2.1(f), the amounts of such Advances outstanding at any one time shall in no event be greater than the sum of (i) eighty-five percent (85%) of Borrower's Eligible Accounts Receivable, (ii) sixty percent (60%) of Borrower's Eligible Inventory, provided, however, that Advances against Eligible Inventory shall not exceed Nine Million Dollars ($9,000,000), and (iii) the Overadvance Amount. (e) On the 15th and 30th day of each month (or, if such day is not a Business Day, on the Business Day next following) the Borrower shall execute and deliver to the Banks a certificate (the "Borrowing Base Certificate") on a form supplied by the Bank Agent, -17- which shall describe in detail the status of the Loan and the status of all Collateral securing the Loan as of the 1st and 15th days of such month, respectively, and shall contain such other information as may be requested by the Banks, from time to time. The Borrower shall execute and deliver to the Banks a Borrowing Base Certificate on more frequent intervals than semi-monthly if there exists any Event of Default or Unmatured Default. (f) The amount that the Banks shall be obligated to advance pursuant to this Section 2.1 shall be reduced by the aggregate amount of all letters of credit issued by the Banks for the benefit of Borrower from time to time. Such reduction shall be applied first to the amount available to be advanced against Eligible Inventory and Eligible Accounts Receivable and then against the Overadvance Amount. (g) The Overadvance Amount will be increased by up to Two Million Dollars ($2,000,000) (but in no event shall such increase exceed the amount of the shortfall provided for in (i) and (ii) below) in the event (i) the appraisals, referred to in Section 2.3 below, reflect an aggregate fair market value for the appraised assets and properties which is not more than Two Million Eight Hundred Thousand Dollars ($2,800,000) lower than the net book value of such assets (as reflected in the May 31, 1996 interim financial statements of the Borrower delivered to the Banks), AND/OR (ii) the Borrower receives less than Twenty One Million Dollars ($21,000,000) (but more than the Twenty Million Dollars ($20,000,000)) needed to satisfy the condition set forth in Section 8.1 below) from Borrower's initial public offering of its shares. (h) The Overadvance Amount set forth in Section 1 shall be repaid by Borrower by the dates set forth in the definition of such term in Section 1. 2.2 TERM LOAN. (a) Subject to, and in accordance with the terms, conditions, and provisions of this Agreement, the Banks will lend to the Borrower and the Borrower will borrow from the Banks Five Million One Hundred Thousand Dollars ($5,100,000) in the case of Bank One and Three Million Four Hundred Thousand Dollars ($3,400,000) in the case of BOA, or Eight Million Five Hundred Thousand Dollars ($8,500,000) in the aggregate for both Banks, combined (such amounts outstanding under this Section 2.2 from time to time collectively will be designated the "Term Loan"). The Banks shall advance the amount of the Term Loan to the Borrower upon the closing of this Agreement. The Borrower shall not be entitled to reborrow any installment payment or other amount paid by Borrower to the Banks with respect to the Term Loan. The Term Loan at all times will be subject to the terms and conditions and made upon the representations and warranties and covenants of the Borrower set forth in this Agreement. -18- (b) The Term Loan shall be evidenced by promissory notes of the Borrower (collectively, the "Term Notes") in the form attached hereto and made a part hereof as EXHIBIT 2.2. The Term Loan will bear interest and be repayable in the manner set forth herein and in the Term Notes and the Term Loan will be subject to all of the terms and conditions specified in the Term Notes and in this Agreement. (c) In the event any portion of a Term Loan as to which the Borrower has selected the Fixed Rate, is prepaid, whether voluntarily or involuntarily (including, without limitation, upon the occurrence of an Event of Default under this Agreement or as provided for in Sections 3.6.2 and 3.9 of the Mortgages), prior to the end of the Fixed Rate Interest Period applicable to such Term Loan, such prepayment shall be accompanied by the Fixed Rate Prepayment Premium, together with interest on the amount prepaid. 2.3 TERM LOAN ADJUSTMENTS. Borrower acknowledges and agrees that the Banks will be advancing funds for the Term Loan to Borrower on the basis of assumed values for the Mortgaged Property and certain equipment of Borrower, which are subject to confirmation by certain appraisals which have not yet been completed. The parties anticipate that all appraisals required by the Banks will be obtained within sixty (60) days of the date of this Agreement. In the event seventy percent (70%) of the appraised values (on a fair market value analysis) as set forth in the appraisals is less than Eight Million Five Hundred Thousand Dollars ($8,500,000) the Term Loan shall be immediately repaid by Borrower by the amount of such shortfall. The amount of such shortfall shall increase the amount of the Revolving Credit Loan and the Overadvance Amount as provided in Section 2.1(g) above, and the Borrower may use the increased Revolving Credit Loan, subject to the provisions of Section 2.1(d) above, to so repay the Term Loan. The failure to obtain appraisals within one hundred twenty (120) days of the date of this Agreement shall be an Event of Default under this Agreement, if such failure is the result of the actions or inactions of Borrower. 2.4 LETTERS OF CREDIT. (a) In addition to cash Advances, as set forth in Section 2.1, Bank Agent agrees to issue up to Three Million Dollars ($3,000,000) of letters of credit for Borrower as account party for purposes directly related to the purchase of Eligible Inventory, which issuance shall be considered the same as an advance of Revolving Credit Loan proceeds for purposes hereof. The Bank Agent shall not be obligated to issue a letter of credit unless the Banks would be obligated if so requested to make a cash Advance to Borrower under Section 2.1. No such letter of credit shall have an expiration date beyond the Termination Date. The Bank Agent shall send copies of all such letters of credit to the Collateral Agent. -19- (b) The Bank Agent may condition any issuance of a letter of credit upon the execution and delivery by Borrower of a reimbursement agreement and such other documents as Bank Agent may require. The Borrower shall at all times protect, indemnify and save harmless the Banks from and against any and all claims, actions, suits and other legal proceedings, and from and against any and all losses, claims, demands, liabilities, damages, charges, attorneys' fees and other expenses which the Banks may, at any time sustain or incur by reason of or in consequence of or arising out of the issuance of any letter of credit, other than as a result of the Bank Agent's gross negligence or willful misconduct. (c) In the event any such letter of credit is drawn upon, the amount paid by the Bank Agent on such draw shall be considered a Prime Based Rate Advance of the Revolving Credit Loan, with the obligation to repay such advance evidenced by the Revolving Credit Notes and secured by the Security Documents. The issuance of any letter of credit shall be subject generally to the same conditions and requirements as set forth herein and, in addition, to such additional conditions and requirements as the Bank Agent in its sole discretion shall deem appropriate from time to time, including the payment of out of pocket costs. (d) Each Bank and the Borrower agree that, in paying any drawing under a letter of credit, the Bank Agent shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the letter of credit) or to ascertain or inquire as to the validity of accuracy of any such document or the authority of the Person executing or delivering any such document. (e) No Person nor any of the respective correspondents, participants or assignees of the Bank Agent shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any letter of credit related document. (f) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any letter of credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have the beneficiary or transferee at law or under any other agreement. No Person, nor any of the respective correspondents, participants or assignee of the Bank Agent shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 2.4(g) below; however, anything in such clauses to the contrary notwithstanding, that the Borrower may have a claim against the Bank Agent, and the Bank Agent may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or -20- exemplary, damages suffered by the Borrower which the Borrower proves were caused by the Bank Agent's willful misconduct or gross negligence or the Bank Agent's willful failure to pay under any letter of credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a letter of credit. In furtherance and not in limitation of the foregoing: (i) the Bank Agent may accept documents that appear on their face to be in order, without responsibility for investigation; and (ii) the Bank Agent shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a letter of credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. (g) The obligations of the Borrower under this Agreement and any documents related to the issuance of a letter of credit to reimburse the Bank Agent for a drawing under a letter of credit, and to repay any drawing under a letter of credit converted into a Revolving Credit Loan, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other document executed in connection with any letter of credit under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any document related to any letter of credit; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any letter of credit or any other amendment or waiver of or any consent to or departure from all or any of the documents related to any letter of credit by any Person; (iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of any letter of credit (or any Person for whom any such beneficiary or any other such transfer may be acting), the Bank Agent or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the documents related to any letter of credit or any unrelated transactions; (iv) any draft demand, certificate or other document presented under any letter of credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any letter of credit; (v) any payment by the Bank Agent under any letter of credit against presentation of a draft or certificate that does not strictly comply with the terms of any letter of credit; or any -21- payment made by the Bank Agent under any letter of credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any letter of credit, including any arising in connection with any bankruptcy or insolvency proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to or departure from any other guarantee by any Person for all or any of the obligations of the Borrower in respect of any letter of credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. (h) The Borrower shall pay to the Bank Agent from time to time on demand the normal issuance, presentation amendment and other processing fees, and other standard costs and charges, of the Bank Agent relating to letters of credit as from time to time in effect. (i) The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently at the time of issuance of any letter of credit shall (unless otherwise expressly provided in the letters of credit) apply to the letters of credit. 2.5 EXPIRATION. (a) The obligation of the Banks to make Advances pursuant to this Agreement shall expire on the Termination Date. (b) The Obligations (regardless of the stated maturity dates of the Notes), shall be immediately due and payable on the Termination Date and upon acceleration of the Obligations pursuant to Article 7 below. 2.6 FEES. (a) FACILITY FEE. The Borrower agrees to pay to the Bank Agent a facility fee on the excess of the daily average unused amount of the Aggregate Commitment over the outstanding principal amount of the Revolving Credit Loan (including the stated amount of any letters of credit issued by the Bank Agent for the account of the Borrower), for the period from the date of this Agreement to but excluding the Termination Date, at a rate equal to one-quarter of one percent (.25%) per annum through December 31, 1996 and thereafter at a rate determined based on the following table: -22- Test Facility Fee ---- ------------ (a) (1) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 2.00:1 and .375% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 5.00:1 (b) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 2.50:1 and . 25% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 4.00:1 (c) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 3.00:1 and . 25% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 3.50:1 (d) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 3.50:1 and .125% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 3.00:1 (e) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 4.00:1 and .125% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 2.50:1 -23- Each Test set forth above shall be computed as of the Computation Date. As used herein, "Computation Date" shall mean the last day of the fiscal quarter of the Borrower immediately preceding the date of determination of the Facility Fee hereunder. In the event the Borrower fails to maintain any of the specified combinations of EBITDA to interest expense and Total Debt to EDITDA set forth above as of any Computation Date, the Facility Fee shall be 0.50%. The Facility Fee shall be computed based on a 360 day year. The Facility Fee will be computed quarterly (based on the ratios herein set forth as of the Computation Date), with such recomputed Facility Fee in effect for three calendar months beginning on the first day of the third full calendar month after the end of each Computation Date. The Facility Fee shall be distributed to the Banks by the Bank Agent ratably in accordance with the respective Commitments of the Banks. (b) CLOSING FEE. The Borrower agrees to pay the Bank Agent a closing fee of Fifty Thousand Dollars ($50,000) and the Collateral Agent a closing fee of One Hundred Twenty Thousand Dollars ($120,000), on the Closing Date. (c) AUDIT FEES/CUSTOMARY CHARGES. Borrower shall pay to the Collateral Agent an audit fee of Thirty Thousand Dollars $30,000) per year (on a consolidated basis with Dur-O-Wal, Inc.) payable annually in advance. The audit fee for the first year shall be paid upon execution of this Agreement. The Borrower will pay the Banks throughout the term of the Loans customary banking charges applicable to all commercial customers. (d) LETTER OF CREDIT FEES. Borrower shall pay to the Banks a fee determined by multiplying the principal amount of each letter of credit issued by the Bank Agent for Borrower as account party by the lesser of (i) 1.50% or (ii) the then Applicable Libor Spread. Each renewal of an outstanding letter of credit shall be deemed to be an issuance of a letter of credit for this purpose. 2.7 REVOLVING CREDIT LOAN ADVANCES AND RATE ELECTIONS. (a) The Borrower shall give the Bank Agent notice (a "Borrowing Notice") in such form as the Bank Agent may require from time to time of its request for each Advance of the Revolving Credit Loan not later than (i) 12:00 p.m. Dayton time two Business Days prior to the date such Advance is requested to be made if such Advance is to be made as a Libor Rate Advance, and (ii) by 2:00 p.m. on the Business Day the Advance is requested to be made in all other cases, which notice shall specify the amount of the requested Advance, the date of the requested Advance (which shall be a Business Day), whether a Libor Rate Advance or Prime Rate Based Advance is requested and, in the case of each requested Libor Rate Advance, the Libor Interest Period to be initially applicable to such Advance. The Libor Rate Option shall not be available if the -24- Libor Interest Period sought to be elected would extend beyond the Termination Date. (b) Each Advance shall be in the minimum amount of One Hundred Thousand Dollars ($100,000) and in multiples of Ten Thousand Dollars ($10,000) if in excess thereof. (c) Subject to the terms and conditions of this Agreement, the proceeds of each such requested Advance shall be made available to the Borrower by depositing the proceeds thereof, in immediately available funds, in an account maintained and designated by the Borrower at the principal office of the Bank. (d) The Bank Agent shall immediately provide by facsimile a copy of the Borrowing Notice to each Bank. Each Bank, on the date an Advance is to be made, shall provide to the Bank Agent its pro rata share (based on the Commitments of the Banks) of such Advance in immediately available funds at the principal office of the Bank Agent for disbursement to the Borrower. Unless the Bank Agent shall have received notice from any Bank prior to the making of such Advance under this Section 2.5 that such Bank will not make available to the Bank Agent such Bank's portion of such Advance, the Bank Agent may assume that such Bank has made such portion available to the Bank Agent on the date such Advance is requested to be made in accordance with this Section 2.5. If and to the extent such Bank shall not have so made such portion available to the Bank Agent prior to the making of such Advance, the Bank Agent may (but shall not be obligated to) make such amount available to the Borrower, and such Bank agrees to pay to the Bank Agent upon demand such amount together with interest thereon, for each day from the date such amount is made available to the Borrower by the Bank Agent until the date such amount is repaid to the Bank Agent, at a rate per annum equal to the opening federal funds rate paid by the Bank Agent in its regional federal funds market for overnight borrowings from other banks. If such Bank shall pay such amount to the Bank Agent together with interest, such amount so paid shall constitute a part of the related Loan for purposes of this Agreement. The failure of any Bank to make its portion of any such Loan available to the Bank Agent shall not relieve any other Bank of its obligations to make available its portion of such Advance on the date such Advance is requested to be made, but no Bank shall be responsible for failure of any other Bank to make such portion available to the Bank Agent on the date of any such Advance. (e) All Advances made under this Section 2.6 shall be evidenced by the Revolving Credit Notes and all such Advances shall be due and payable and bear interest as provided in the Revolving Credit Notes. The Bank Agent shall maintain computerized records reflecting the date, amount and type of each Advance and the duration of the related Interest Period (if applicable), the amount of each payment or prepayment of principal thereon, which records -25- shall constitute prima facie evidence of the information so recorded, PROVIDED, HOWEVER, that failure of the Bank Agent to record, or any error in recording, any such information shall not relieve the Borrower of its obligation to repay the outstanding principal amount of the Notes. (f) By notice (a "Continuation/Conversion Notice") delivered to the Bank Agent at or before 12:00 p.m. (Dayton time) on any Business Day, the Borrower may elect, from time to time on not less than three (3) Business Days' notice: (i) that all or any portion of any Advances be converted from Prime Based Rate Advances into Libor Rate Advances; and (ii) on the expiration of the Interest Period applicable to any Libor Rate Advances, that all or any portion of such Advance be continued as Libor Rate Advances, or converted into Prime Based Rate Advances, as the case may be; PROVIDED that no portion of the outstanding principal amount of any Advances may be continued as, or be converted into, Libor Rate Advances when any Event of Default or Unmatured Default has occurred and is continuing. (g) No Advance may be made or continued as, or converted into, a Libor Rate Advance if, after giving effect to such action, the aggregate principal amount of any Libor Rate Advances having a particular Interest Period is less than One Million Dollars ($1,000,000) in the aggregate or not in a multiple of One Hundred Thousand Dollars ($100,000). (h) Notwithstanding anything to the contrary herein, any Advance for which the Libor Rate Option is not effectively elected in accordance with this Agreement, or for which the Libor Rate Option is otherwise prohibited, shall be a Prime Based Rate Advance. (i) All Rate Option notices given by the Borrower to the Bank Agent shall be in writing in the form of the Borrowing Notice or such other form as the Bank Agent may require from time to time, or a Continuation/Conversion Notice, in such form as the Bank Agent may require from time to time. 2.8 TERM LOAN RATE ELECTIONS. (a) Interest on the Term Loan shall initially be computed at the Term Loan Libor Rate. (b) By Notice (a "Term Loan Continuation/Conversion Notice") delivered to the Bank Agent at or before 12:00 p.m. -26- (Dayton time) on any Business Day, the Borrower may elect, from time to time on not less than three (3) Business Days' notice: (i) that the interest rate applicable to all or a portion of the Term Loan be converted from Prime Based Rate to the Term Loan Libor Rate or the Fixed Rate; and (ii) on the expiration of the Interest Period applicable in the event the Term Loan Libor Rate or the Fixed Rate is applicable, that the interest rate continue to be the Term Loan Libor rate or Fixed Rate, as the case may be, or be converted to be the Fixed Rate or the Term Loan Libor Rate, or the Prime Based Rate as the case may be; PROVIDED that the interest rate on the Term Loan may not be continued as, or be converted into, the Term Loan Libor Rate or Fixed Rate when any Event of Default or Unmatured Default has occurred and is continuing. (c) Notwithstanding anything to the contrary herein, any Advance for which neither the Libor Rate Option nor the Fixed Rate Option is effectively elected in accordance with this Agreement, or for which the Libor Rate Option or the Fixed Rate Option, whichever is elected, is otherwise prohibited, shall be a Prime Based Rate Advance. (d) The Bank Agent shall maintain computerized records reflecting the duration of the related Interest Period (if applicable), and the amount of each payment or prepayment of principal thereon, which records shall constitute prima facie evidence of the information so recorded, PROVIDED, HOWEVER, that failure of the Bank Agent to record, or any error in recording, any such information shall not relieve the Borrower of its obligation to repay the outstanding principal amount of the Term Notes. (e) The interest rate on the Term Loan may not be made or continued as, or converted to, the Term Loan Libor Rate if, after giving effect to such action, the aggregate principal amount of the Term Loan having a particular Interest Period is less than One Million Dollars ($1,000,000) in the aggregate or not in a multiple of One Hundred Thousand Dollars ($100,000). (f) All Rate Option notices given by the Borrower to the Bank Agent shall be in writing in the form of the Borrowing Notice or such other form as the Bank Agent may required from time to time, or a Continuation/Conversion Notice, in such form as the Bank Agent may require from time to time. 2.9 HANDLING OF PAYMENTS. (a) All payments to be made by the Borrower hereunder shall be made in Dollars and in immediately available funds to the -27- Bank Agent for the account of the Banks at the Bank Agent's address referred to in Section 10.6 not later than 2:00 p.m. Dayton time on the date on which such payment shall become due. To the extent of availability of funds, all payments will be debited by the Bank Agent from Borrower's designated account on the due dates. Payments received after 2:00 p.m. Dayton time shall be deemed to be payments made prior to 2:00 p.m. Dayton time on the next succeeding Business Day. (b) On the day such payments are deemed received, the Bank Agent shall remit to the Banks their pro rata shares of such payments in immediately available funds (based on the relative Commitments of the Banks). If and to the extent the Bank Agent shall not remit to any Bank any amount to be remitted hereunder on the date required, the Bank Agent shall compensate such Bank for the late remittance at a rate per annum equal to the opening federal funds rate paid by the Bank in its regional federal funds market for overnight borrowings from other banks. (c) All payments which are available to be applied to the payment of principal pursuant to any Note shall be applied first to the payment of principal as to which the Prime Based Rate is applicable, and then, if all principal as to which the Prime Based Rate is applicable have been paid in full, to the payment of principal as to which the Libor Rate, the Term Loan Libor Rate, or the Fixed Rate is applicable. 2.10 RATE AFTER MATURITY. Any Obligation not paid at maturity, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to the Prime Based Rate plus four percent (4%) per annum (such rate being the "Default Rate"). 2.11 LENDING INSTALLATIONS. Subject to Section 2.15 hereof, each Bank may book its loans at any Lending Installation selected by such Bank and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Bank for the benefit of such Lending Installation. Each Bank may, by written or telex notice to the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.12 EARLY PAYMENT OF LIBOR LOANS. If any amount as to which a Libor Rate Option election is in effect is repaid on a day other than the last day of the applicable Libor Interest Period, or becomes payable on a day other than the last day of the applicable Libor Interest Period due to acceleration or otherwise, Borrower shall pay, on demand by the Bank Agent, such amount (as determined by the Bank) as is required to compensate the Banks for any losses, costs, or expenses which the Banks may reasonably incur as a result of such payment or acceleration, including, without limitation, any -28- loss, cost, or expense (including loss of profit) incurred by reason of liquidation or reemployment of deposits or other funds acquired by the Banks to fund or maintain such amount bearing interest at a Libor Rate. 2.13 YIELD PROTECTION. If any law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or compliance by any Bank therewith, (a) subjects any Bank to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding taxation of or measured by the overall net income of such Bank), or changes the basis of taxation of payments to any Bank in respect of its Loans or other amounts due it hereunder, or (b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (other than reserves and assessments taken into account in determining the interest rate applicable to Libor Rate Advances), or (c) imposes any other condition the result of which is to increase the cost to any Bank of making, funding or maintaining loans or reduces any amount receivable by any Bank in connection with loans, or requires such Bank to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Banks, or (d) affects the amount of capital required or expected to be maintained by any Bank or any corporation controlling any Bank and the Banks determines the amount of capital required is increased by or based upon the existence of this Agreement or their obligation to make Loans hereunder or of commitments of this type, then, within 15 days of written demand by the Bank in question, the Borrower shall pay such Bank that portion of such increased expense incurred (including, in the case of Section 2.11(d), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such changes in regulation after taking into account such Bank's policies as to capital adequacy) or reduction in an amount received which such Bank determines is attributable to making, funding and maintaining the Loan in question and its Commitment. 2.14 AVAILABILITY OF RATE OPTIONS. If any Bank determines that maintenance of its Libor Rate at a suitable Lending Installation would violate any applicable law, rule, regulation, or -29- directive, whether or not having the force of law, or if the Bank determines that a Rate Option does not accurately reflect the cost of making or maintaining Loans bearing interest at such Rate Option, then the Bank Agent shall suspend the availability of the affected Rate Option. 2.15 MITIGATION. (a) At any time that any of its Libor Rate Loans are affected by the circumstances described in Section 2.12 or Section 2.13, the Borrower shall either (i) if the affected Libor Rate Loans are to be made pursuant to an Advance, withdraw the related Borrowing Notice by giving the Bank Agent written notice thereof on the same date that the Borrower was notified by a Bank Agent pursuant to Section 2.12 or 2.13, before such Bank's match funds, or (ii) if the affected Libor Rate Loan or Loans are then outstanding, reborrow each Libor Rate Loan so affected (after the maturity thereof) as a Prime Rate Loan or a Fixed Rate Loan. (b) Promptly after giving notice to the Borrower pursuant to Section 2.12 or Section 2.13, any Bank giving such notice will upon the written request of Borrower specifying an alternate Lending Installation, use its reasonable efforts to designate such Lending Installations as the office from which any of its Loans bearing interest in accordance with such Rate Option will be made after such designation if such designation will avoid the need for, or reduce the amount of, any payment to which such Bank would otherwise be entitled pursuant to Section 2.11 and will not, in the sole discretion of such Bank, be otherwise disadvantageous to such Bank. 2.16 BANK CERTIFICATES; SURVIVAL OF INDEMNITY. The Bank Agent shall deliver to the Borrower a certificate of the Banks as to the amount due under Sections 2.11, 2.12, and/or 2.13 which certificate shall be prepared in good faith, show in reasonable detail the basis of its calculations and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Borrower of the certificate. The obligations of the Borrower under Sections 2.11, 2.12, and 2.13 shall survive payment of the Obligations and termination of this Agreement. 2.17 BASIC CONDITIONS TO EACH ADVANCE. The following conditions precedent must be satisfied on each Borrowing Date in order for an Advance to be made: (a) There exists no Event of Default or Unmatured Default; (b) The representations and warranties contained in Article 4 are true and correct as of such Borrowing Date except for changes in the Exhibits hereto reflecting transactions permitted by this Agreement; and -30- (c) The Borrower has furnished the Bank Agent with a duly completed Borrowing Notice. The making of each Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Article 8 and this Section 2.17 have been satisfied. ARTICLE 3 COLLATERAL In order to secure the repayment of the Obligations, Borrower shall execute and deliver, and/or cause to be executed and delivered, the following (the "Security Documents"): 3.1 The Amended and Restated Security Agreement in the form attached hereto as EXHIBIT 3.1, which shall grant, subject only to Permitted Liens, the Collateral Agent a first and only security interest, on all of the Borrower's Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, Proceeds, Books and Records, and other property defined as Collateral in the Amended and Restated Security Agreement. 3.2 Landlord's Waivers in the form attached as EXHIBIT 3.2. 3.3 Open-End Mortgages, Assignment of Rents and Leases, and Security Agreements in the form attached hereto as EXHIBIT 3.3, which shall grant the Collateral Agent a first and only mortgage lien, subject to Permitted Encumbrances, on the Mortgaged Property and the other property described therein. 3.4 Environmental Compliance and Indemnification Agreement attached hereto as EXHIBIT 3.4 relating to the property described therein. 3.5 The Stock Pledge Agreements attached hereto as EXHIBIT 3.5 relating to the DOW and Omni shares described therein. 3.6 The Negative Pledge Agreement in the form attached hereto as EXHIBIT 3.6. 3.7 The Guarantees executed by Borrower and Omni in favor of the Banks in the form attached hereto as EXHIBIT 3.7. 3.8 Such UCC financing statements and other documents as may be determined by the Collateral Agent to be necessary or desirable to grant and perfect a first priority security interest in the Collateral and the property described in the Mortgages, and such other documents and agreements as may be requested by any Bank in connection with the documents listed in Section 3.1 through 3.5. -31- 3.9 If requested by the Bank Agent, a Lock Box Agreement in the form prescribed by the Bank Agent. 3.10The Borrower shall have ninety (90) days from the date of this Agreement within which to obtain and to deliver to the Banks, the Landlord Waivers referred to in Section 3.2 above. ARTICLE 4 REPRESENTATIONS AND WARRANTIES To induce the Banks to make the Loan, the Borrower hereby represents and warrants to the Banks as follows: 4.1 GOOD STANDING. The Borrower and each of its Subsidiaries (i) is a corporation duly organized, existing, and in good standing under the laws of the state or other jurisdiction of their incorporation, and (ii) has the power to own its property and to carry on its business and is qualified to do business and is in good standing in each jurisdiction in which the character of its properties owned by it or the transaction of its business makes such qualification necessary. 4.2 AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, to execute and deliver the Notes and the Security Documents, and to perform and comply with the terms and conditions, set forth herein and therein, all of which have been duly authorized by all proper and necessary corporate action of the Borrower. No consent or approval of the shareholders of the Borrower or of any governmental authority is required as a condition to the validity of this Loan Agreement, the Notes, or the Security Documents. 4.3 SUBSIDIARIES. Each Subsidiary of Borrower is set forth on EXHIBIT 4.3 which exhibit sets forth the Subsidiary(s) (i) full corporate name, (ii) the state or other jurisdiction of incorporation, and (iii) the ownership of such entity, by number of shares and percentage of ownership. Each Subsidiary (i) is a corporation duly organized, existing, and in good standing under the laws of the states set forth on EXHIBIT 4.3, and (ii) has the power to own its property and to carry on its business and is qualified to do business and is in good standing in each jurisdiction in which the character of its properties or the transaction of its business makes such qualification necessary. 4.4 BINDING AGREEMENT. This Agreement constitutes, and the Notes and the Security Documents constitute or will constitute when issued and delivered for value received, the valid and legally binding obligations of the Borrower enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, -32- reorganization and other similar laws affecting creditors' rights generally and general equitable principles. 4.5 LITIGATION. Except as set forth on EXHIBIT 4.5, there are no proceedings pending or, so far as any person signing below on behalf of the Borrower knows, threatened before any court or administrative agency which would reasonably be expected, if concluded adversely to Borrower or any Subsidiary, result in a Material Adverse Effect, nor, so far as any person signing below on behalf of Borrower knows, is any investigation pending that could lead to any such proceedings, nor does any basis for any proceeding exist. 4.6 NO CONFLICTING AGREEMENTS. There are no provisions of the Borrower's Articles of Incorporation or Code of Regulations and no provisions of any existing mortgage, deed of trust, indenture, contract, lease, or agreement binding on the Borrower or affecting its property which would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Loan Agreement, the Notes, and the Security Documents. 4.7 FINANCIAL CONDITION. The Borrower's consolidated financial statements, copies of which are attached hereto as EXHIBIT 4.7, were prepared in accordance with GAAP consistently applied and are complete and correct and fairly and accurately present the financial condition of the Borrower, and its consolidated Subsidiaries, as of their date and the results of its operations for the period then ended. There has been no Material Adverse Effect since the date of such financial statements. 4.8 INFORMATION. All information contained in any financial statement, application, schedule, report, certificate, opinion, or any other document given by the Borrower with any of the Security Documents is in all material respects true and accurate, and the Borrower has not omitted to state any material fact or any fact necessary to make such information not misleading. 4.9 ASSETS AND PROPERTIES. Upon the execution of the Loan Agreement, the Borrower and its Subsidiaries will have good and marketable title or legal and equitable ownership to all of its assets and properties and there will be no Liens outstanding against any of the assets and properties except Liens in favor of the Collateral Agent and Permitted Liens. 4.10 TAXES. All taxes imposed upon the Borrower and its Subsidiaries and their properties, operations, and income have been paid and discharged prior to the date when any interest or penalty would accrue for the nonpayment thereof except for those taxes being contested in good faith and by appropriate proceedings by the Borrower, or the Subsidiaries, as the case may be. -33- 4.11 ERISA. Any Plan established and maintained by the Borrower and any Subsidiary is a qualifying plan under the applicable requirements of ERISA, and there is no current matter which would materially adversely affect the qualified tax-exempt status of any Plan; the Borrower has not engaged in or is engaging in any Prohibited Transaction or has incurred any Accumulated Funding Deficiency in connection with any such Plan, whether or not waived, and no Reportable Event has occurred with respect to any Plan subject to the minimum funding requirements of Section 412 of the Code, no Multiemployer Plan has "terminated," as that term is defined in ERISA; (except with respect to the withdrawal from the National Industrial Group Pension Plan No. 00742 as to which there is no withdrawal liability) the Borrower has not "withdrawn" or "partially withdrawn" from any Multiemployer Plan; and no Multiemployer Plan is in "reorganization" nor has notice been received from the administrator of any Multiemployer Plan that any such Plan will be placed in "reorganization." 4.12 NAMES OF BORROWER. During the period commencing five (5) years prior to the date of this Agreement the Borrower has not done business under any name other than the name of the Borrower set forth in this Agreement and the name "Robert Screw Products Corporation." 4.13 MARGIN STOCK. The Borrower does not own and has no present intention of acquiring any "margin stock" within the meaning of Regulation U. None of the proceeds of the Loan will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any margin stock or for any other purpose which might constitute the transactions contemplated hereby a "purpose credit" within the meaning of Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any such statutes. 4.14 TRADEMARKS, ETC. The Borrower and each of its Subsidiaries possesses all trademarks, trade names, brand names, copyrights, licenses, or rights in any thereof, necessary to the conduct of its business as now conducted, without conflict with the rights or claimed rights of others, except where the failure to do so would not result in a Material Adverse Effect. 4.15 VIOLATION OF LAWS, ETC. Neither the consummation of the Loan nor the use, directly or indirectly, of all or any portion of the proceeds of the Loan hereunder, nor (except where the failure to do so would not result in a Material Adverse Effect) the present or contemplated future operation of the business of Borrower, violates or will violate or result in a violation of any provision of any applicable statute, regulation or order of, or any restriction -34- imposed by the United States of America, any state thereof in which Borrower does business or owns property, or any authorized official, board, department, instrumentality, or agency hereof without limiting the generality of the foregoing. ARTICLE 5 AFFIRMATIVE COVENANTS The Borrower covenants and agrees that from the date of execution of this Agreement until all Obligations of the Borrower to the Banks under this Agreement and the other Loan Documents have been fully paid it will (and, with respect to Sections 5.2, 5.11, 5.12, 5.13, and 5.19 will cause its Subsidiaries to): 5.1 USE OF LOAN PROCEEDS. Use the proceeds of the Loans for the repayment of the Senior Notes and, in the case of the Revolving Credit Loan, (i) acquisitions as contemplated by Sections 6.8 and 6.9, (ii) capital expenditures permitted by Section 6.10, and (iii) for short term working capital. 5.2 BOOKS, RECORDS AND INSPECTIONS. Maintain proper books of account and other records and enter therein complete and accurate entries and records of all of its transactions in accordance with GAAP, and give representatives of the Banks access thereto at all reasonable times, including permission to examine, copy and make abstracts from any of such books and records and such other information which might be helpful to the Banks in evaluating the status of the Loans as it may from time to time request and the Borrower will make available to the Banks for examination copies of any reports, statements or returns which the Borrower may make to or file with any governmental department, bureau or agency, federal or state. 5.3 ANNUAL FINANCIALS. Furnish to the Banks as soon as available but in no event later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated and consolidating financial statements of the Borrower, including balance sheet, statement of income, statement of shareholder equity and statement of cash flow, for such fiscal year in comparative form with the prior year, fully certified by independent certified public accountants satisfactory to the Banks and containing the opinion of such independent certified public accountants subject only to qualifications satisfactory to the Banks. Such financial statements shall be accompanied by the accountants' statement that no Event of Default, nor any Unmatured Default, exists hereunder, or, if an Event of Default or Unmatured Default exists, specifying the Event of Default or Unmatured Default. 5.4 INTERIM FINANCIALS. Furnish to the Banks as soon as available but in no event more than thirty (30) days after the end -35- of each calendar month (except the last month of each fiscal year), financial statements, on a consolidated basis, of the Borrower, including balance sheet, statement of income, statement of shareholder equity and statement of cash flow, for such period and year to date in comparative form with the year earlier periods, prepared and certified by the chief financial officer of the Borrower. 5.5 ACCOUNTS RECEIVABLE AND INVENTORY SCHEDULES. Furnish the Banks, by the 15th of each month (or if such day is not a Business Day, on the next Business Day), a statement of accounts receivable, as of the end of the prior month, of the Borrower in such detail as the Banks may reasonably request, attested by an officer of the Borrower. On each such statement, accounts receivable will be broken down into 30-day, 60-day and 90-day categories. In addition, the Borrower shall furnish the Banks with monthly inventory balances which report shall be in form and substance satisfactory to the Banks. 5.6 FINANCIAL PROJECTIONS. No later than sixty (60) days after the end of each fiscal year, deliver to the Banks income statement financial projections, in form and substance satisfactory to the Banks, for Borrower's following fiscal year. No later than ninety (90) days after the end of each fiscal year deliver to the Banks balance sheet and statement of cash flow financial projections in form and substance satisfactory to the Banks, for Borrower's following fiscal year. All such financial projections shall be prepared on a consolidated and consolidating basis. 5.7 PUBLIC FILINGS. Copies of all documents filed by the Company with the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934 shall be delivered to the Banks promptly after filing with the SEC. 5.8 OTHER INFORMATION. Furnish to the Banks, promptly from time to time, such information concerning the operations, business, affairs, and financial condition of the Borrower as the Bank may reasonably request. 5.9 LITIGATION. Promptly upon the commencement thereof, provide the Banks with written notice of any litigation, including arbitrations, and of any proceedings before any governmental agency, involving Borrower or any Affiliate, where the amount exceeds Two Hundred Fifty Thousand Dollars ($250,000) or causes the aggregate of all such claims to exceed Six Hundred Twenty-Five Thousand Dollars ($625,000), to the extent not acknowledged in writing by the insurance carrier to be fully covered by insurance. Notify the Banks of any litigation threatened against the Borrower or any Affiliate that would have a Material Adverse Effect and of the entry of any judgment or lien, other than a Permitted Lien, against any of the assets or properties of Borrower or any Affiliate. -36- 5.10 PRESERVATION OF PROPERTIES. At all times (a) maintain its properties, whether owned or leased, in good operating condition, and from time to time will make all proper repairs, renewals, replacements, additions, and improvements thereto needed to maintain such properties in good operating condition, (b) comply (i) with the provisions of all leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder, and (ii) as more fully set forth in Section 5.13 below, comply with all laws, rules, regulations, and orders applicable to the properties or any part thereof; provided, however, that nothing contained in this Section shall require the making of any repair, renewal, replacement, addition, or improvement to a particular property or the continued maintenance of any property which would not be required in the exercise of sound business judgment. 5.11 INSURANCE. At all times maintain with well-rated and responsible insurance companies reasonably satisfactory to the Banks such insurance as is required by applicable laws and such other insurance in such amounts, of such types, and against such risks, hazards, liabilities, casualties, and contingencies as is customarily maintained by companies similarly situated, and (b) file with the Banks upon request a detailed list of the insurance then in effect and stating the names of the insurance companies, the types, the amounts, and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby, and, within thirty (30) days after notice in writing from the Banks, obtain such additional insurance as the Banks may reasonably request. All insurance shall be satisfactory in form and substance to the Banks. The Banks shall be named as an Additional Insured on all liability insurance policies and the Collateral Agent named as a loss payee and secured creditor, pursuant to a lender loss payable endorsement, on all property insurance maintained by Borrower to the extent of the Banks' interest in such property. 5.12 TAXES. Except to the extent that the validity or amount thereof is being contested in good faith and by appropriate proceedings, the Borrower will pay and discharge all taxes prior to the date when any interest or penalty would accrue for the nonpayment thereof. 5.13MAINTAIN EXISTENCE. At all times maintain in full force and effect its corporate existence, rights, privileges, and franchises and will qualify and remain qualified in all jurisdictions where qualification is required. The Borrower shall be entitled to physically relocate to a new jurisdiction provided: (i) the Borrower gives thirty (30) days advance written notification to the Banks; (ii) the Borrower qualifies to do business in such jurisdiction; (iii) the Banks have a first perfected security interest in the Collateral in such jurisdiction; and (iv) the Borrower pays all expenses, fees, taxes, -37- and other costs which the Banks incur in perfecting their security interests in such jurisdiction. 5.14 COMPLIANCE WITH LAWS. At all times comply with all applicable federal, state, and local laws, rules, and regulations, and orders of any court or other governmental authority having jurisdiction over Borrower, its business or property except when the failure to do so would not result in a Material Adverse Effect. 5.15 NET WORTH. The Borrower shall have and maintain a minimum consolidated Net Worth as follows: (a) From the date of this Agreement through December 30, 1996, Forty Two Million Five Hundred Thousand Dollars ($42,500,000); (b) From December 31, 1996 through December 30, 1997, Forty Six Million Dollars ($46,000,000); (c) From December 31, 1997 through December 30, 1998, Forty Nine Million Five Hundred Thousand Dollars ($49,500,000); (d) From December 31, 1998 and thereafter, Fifty Three Million Dollars ($53,000,000). The Borrower's Net Worth shall be tested each fiscal quarter in arrears. 5.16 TANGIBLE NET WORTH. The Borrower's consolidated negative Tangible Net Worth shall not exceed Twelve Million Dollars ($12,000,000). The Borrower's Tangible Net Worth shall be tested each fiscal quarter in arrears. 5.17 SCHEDULE OF SALARIES. On an annual basis, the Borrower shall furnish the Banks with a detailed statement of the salaries, and other compensation, for each official position occupied by its officers. The Borrower shall be entitled to make normal and customary increases to its officers' compensation provided the Borrower is in full compliance with the terms of this Agreement, including, without limitation, all affirmative and negative covenants contained herein. 5.18 COMPLIANCE CERTIFICATE. Furnish the Banks with the items furnished to the Banks pursuant to Sections 5.3 and 5.4, above, and in no event less frequently than monthly, a duly executed Compliance Certificate. 5.19 CHECKING ACCOUNT. Borrower will maintain its checking account and lock box with Bank Agent. 5.20 ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENTS. Borrower, and its Subsidiaries, will complete, execute, and deliver -38- to the Collateral Agent an Environmental Questionnaire and Disclosure form ("EQD") as requested by the Collateral Agent. The EQD shall be satisfactorily completed and delivered to the Collateral Agent within ninety (90) days of the execution of this Agreement. 5.21ENVIRONMENTAL REPORTS. Borrower will deliver Phase I Environmental Reports (in form and substance satisfactory to the Banks) to the Banks with respect to the Mortgaged Properties within forty-five (45) days of the execution of this Agreement. 5.22 FURTHER ASSURANCES. Upon the request of the Banks, the Borrower shall duly execute and deliver to the Banks such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Banks to carry out more effectively the provisions and purposes of this Agreement. ARTICLE 6 NEGATIVE COVENANTS The Borrower covenants and agrees that from the date of execution of this Agreement until all Obligations of the Borrower to the Banks under this Agreement and the other Loan Documents have been fully paid Borrower, and Borrower's Subsidiaries, will not, without the prior written consent of the Banks: 6.1 DEBT. Incur any Debt other than: (a) the Loans and any subsequent Debt to the Banks; (b) open account obligations incurred in the ordinary course of business having maturities of less than ninety (90) days; (c) rental and lease payments as permitted by Section 6.2; (d) replacements and refinancings of the foregoing provided the principal amount of Debt so replaced or refinanced is not increased; (e) the Debt identified in EXHIBIT 6.1; and (f) other indebtedness approved in writing by the Banks. 6.2 LEASE OBLIGATIONS. Enter into any rental or lease agreement for real or personal property whereby Borrower's lease obligations for any fiscal year would exceed Three Million Dollars ($3,000,000), in the aggregate, for all such obligations. 6.3 LIENS. Create, assume or permit to exist any Lien upon any assets now owned or hereafter acquired by Borrower or enter into any arrangement for the acquisition of property subject to any conditional sales agreement, except for Permitted Liens. 6.4 GUARANTIES. Become a guarantor or surety of, or otherwise become or be responsible in any manner (whether by agreement to purchase any obligations, stock, assets, goods, or services or otherwise) with respect to, any undertaking of any other Person, other than with respect to the obligations of Dur-O-Wal, -39- Inc. to the Banks. Notwithstanding the foregoing, the Borrower shall be entitled to guarantee mortgage loans for employees (not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate) on a short-term basis, which are necessary in order to relocate Borrower's employees. 6.5 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend or change its Articles of Incorporation or Code of Regulations, recapitalize or otherwise change or adjust its capital stock. 6.6 ERISA COMPLIANCE. Restate or amend any Plan established and maintained by the Borrower in a manner designed to disqualify such Plan under the applicable requirements of the Code; permit officers of the Borrower to materially adversely affect the qualified tax-exempt status of any Plan of the Borrower; engage in any Accumulated Funding Deficiency, whether or not waived in connection with any Plan; take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Borrower pursuant to Section 4068 of ERISA; fail to notify the Banks that notice has been received of a termination of any Multiemployer Plan to which the Borrower has an obligation to contribute; incur a complete or partial withdrawal from any Multiemployer Plan to which the Borrower has an obligation to contribute; or fail to notify the Bank that notice has been received from the administrator of any Multiemployer Plan to which the Borrower has an obligation to contribute that any such plan will be placed in "reorganization." 6.7 PURCHASE OR REDEMPTION OF SECURITIES - DIVIDEND RESTRICTIONS. Purchase or redeem any shares of its capital stock, declare or pay any dividends thereon (other than stock dividends), make any distribution to shareholders, or set aside any funds for any such purpose, and not prepay, purchase, or redeem any indebtedness of the Borrower other than the Loans. 6.8 PROHIBITED INVESTMENTS. Except as otherwise provided below, purchase or hold beneficially any stock, other securities or evidences of indebtedness of, make any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, firm, corporation, trust, association or other entity, except for short term investments of excess working capital invested in one or more of the following: (a) investments (of one year or less) in direct or guaranteed obligations of the United States, or any agencies thereof; (b) investments in certificates of deposit, repurchase agreements, Eurodollar deposits and banker's acceptances from commercial banks having combined capital and surplus greater than One Hundred Million Dollars ($100,000,000) and having a long-term certificate of deposit rating of either A2 by Moody's or A by Standard and Poor's or higher; (c) investments in commercial paper and short-term taxable or tax-exempt instruments, including debt of any state or any political subdivision, assigned -40- either of the two highest ratings by Moody's and Standard & Poor's and maturing within one year; (d) long-term instruments assigned either of the two highest ratings by Moody's or Standard & Poor's, and having either "put" or rate reset features recurring no less often than annually; and (e) investments approved in writing from time to time by the Bank prior to the making thereof. The Borrower shall be entitled to purchase or own stock and other securities of, and make loans to any Subsidiary of the Borrower, provided such Subsidiary joins in the execution of the Loan Documents and provided further that the Bank obtain a first perfected security interest in such Subsidiary's Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, and other property defined in the Amended and Restated Security Agreement attached hereto as EXHIBIT 3.1. Further, the Borrower shall be entitled to make investments in joint ventures (whether such joint ventures be structured as partnerships or corporations), in the same primary line of business or an allied product line of the Borrower in an amount not to exceed Two Million Dollars ($2,000,000) in the aggregate, provided the joint venture entity joins in the execution of the Loan Documents and provided further that the Bank obtain a first perfected security interest in the joint venture entity's Accounts, Inventory, Deposit Accounts, and other property defined in the Security Agreement attached hereto as EXHIBIT 3.1. 6.9 MERGERS, SALE OF ASSETS, DISSOLUTION, ETC. (a) Enter into any transaction of merger or consolidation, or transfer, sell, assign, lease, or otherwise dispose of (other than sales of finished products in the ordinary course of business) all or a substantial part of its properties or assets, or any of its assets or properties necessary for the proper conduct of its business, or any stock or other equity interest in Dur-O-Wal, Inc., or wind up, liquidate or dissolve, or agree to do any of the foregoing. (b) Except as otherwise provided, Borrower shall not engage in any acquisitive corporate transaction, whether such transaction is structured as a purchase of assets, a purchase of stock, or statutory merger, without the prior written consent of the Banks. Notwithstanding the foregoing, the Borrower shall be permitted to engage in acquisitive transactions, in its same primary line of business or an allied product line, not exceeding in the aggregate an amount equal to 5% of Borrower's Net Worth without the prior consent of the Banks. In the event the Borrower makes any such acquisition the Banks shall be entitled to a first perfected security interest in the Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, Proceeds, and Books and Records, and other property defined in the Amended and Restated Security Agreement attached hereto as EXHIBIT 3.1, of the entity acquired. In no event shall the Borrower -41- undertake any such acquisition of the stock or substantially all of the assets of another entity unless a majority of the Board of Directors of the selling entity have approved the transaction in writing. 6.10 CAPITAL EXPENDITURES. (a) Make capital expenditures in any fiscal year in excess of three percent (3%) of gross sales for that fiscal year; provided, that if actual capital expenditures in any fiscal year are less than the capital expenditures permitted hereby, the difference between permitted capital expenditures (including any carry forward from any previous year) and actual capital expenditures may be carried forward and utilized in any subsequent fiscal year; provided further that Borrower is in full compliance with this Agreement and that after giving pro forma effect to such capital expenditure Borrower would continue to be in full compliance with this Agreement. (b) Sale-leaseback transactions and acquisitions permitted under Section 6.9 shall not constitute capital expenditures for purposes of this Section 6.10. 6.11 EMPLOYEE LOANS. Make any loans to any officer, director, or other employee of the Borrower in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate. 6.12 RATIO OF EBITDA TO CURRENT OBLIGATIONS. The Borrower shall not permit the ratio of Borrower's "EBITDA" to Borrower's "current obligations" to be less than: (a) 2.00:1 through 12/30/96; (b) 2.50:1 beginning 12/31/96 and continuing through 12/30/97; (c) 3.00:1 beginning 12/31/97 and continuing through the Termination Date. "Current obligations" shall mean, with respect to each three month period (as provided below), the sum of (a) except as otherwise provided below, the portion of Borrower's Long-Term Debt maturing less than one (1) year after the date of determination; (b) interest expense; and (c) Capitalized Lease payments accrued during the period. During the third year of the Loans, the Loans shall not be considered as having a maturity of less than one (1) year, unless there exists an Event of Default or an Unmatured Default. The interest expense component for the first year of this Agreement shall be computed by annualizing the interest expense on the Borrower's new senior debt as provided by this Agreement. The one-time charge associated with the retirement of Borrower's Senior -42- Notes shall be excluded from the computation of "current obligations." This covenant shall be tested quarterly, in arrears, at the expiration of each fiscal quarter of the Borrower, for the twelve (12) month period ending with and including the immediately preceding quarter. Until July 1, 1997, the calculation shall be on an annualized basis based only on the months and/or quarters elapsed during the term of the Loan. 6.13 TOTAL DEBT TO EBITDA. The Borrower shall not permit the ratio of Borrower's Debt to Borrower's "EBITDA" to exceed the following: (a) 5.0:1 from the date of this Agreement through December 30, 1996; (b) 4.25:1 beginning December 31, 1996 and continuing through December 30, 1997; and (c) 3.5:1 beginning December 31, 1997 and continuing through the Termination Date. This covenant shall be tested quarterly, in arrears, at the expiration of each fiscal quarter of the Borrower, for the twelve (12) month period ending with and including the immediately preceding quarter. 6.14 COMPROMISE OF RECEIVABLES. Except for normal trade discounts allowed by Borrower in the normal course of business, and accounts receivable which are over ninety (90) days old from the original invoice date (in which event the Borrower, in the exercise of its sound business discretion, may adjust or compromise such accounts receivable as Borrower deems necessary), Borrower shall not, without the prior consent of the Banks in each instance, except in the ordinary course of Business, on a case by case basis, compromise or adjust any of the accounts receivable (or extend the time for payment thereof) or provide any additional discounts, allowances or credit thereon. Notwithstanding the foregoing, in the event any compromise or adjustment to an account receivable results in the outstanding Loan to be greater than the amount of permissible advances set forth in Section 2.1 above, the foregoing shall result in an "overadvance" which shall be immediately paid by Borrower to the Banks. 6.15 USE OF LOANS. The Borrower does not extend or maintain, in the ordinary course of business, credit for the purpose, whether immediate, incidental, or ultimate, of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used for the purpose, whether immediate, incidental, -43- or ultimate, of buying or carrying any such margin stock or maintaining or extending credit to others for such purpose. 6.16 MANAGEMENT FEES. Except with respect to a one-time only payment of Six Hundred Thousand Dollars ($600,000) to Ripplewood Holdings, pay any management or similar fee to any Affiliate. 6.17 INTERCOMPANY ADVANCES. The maximum amount of intercompany obligations owed by all Subsidiaries to the Borrower (on a consolidated basis) shall not exceed One Million Dollars ($1,000,000). 6.18 CONSOLIDATED WORKING CAPITAL. The Borrower shall not permit its Consolidated Current Assets to be less than its Consolidated Current Liabilities at any time prior to December 31, 1997, or less than 120% of its Consolidated Current Liabilities at any time thereafter. ARTICLE 7 EVENTS OF DEFAULT; REMEDIES 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events for any reason whatsoever (and whether such occurrence be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute an Event of Default: (a) the non-payment of any principal, interest or other amount payable under the Notes or any of the other Loan Documents when due, whether by acceleration or otherwise; (b) the occurrence of any Event of Default as set forth in the Guarantees executed contemporaneously with this Agreement by the Borrower in favor of the Banks with respect to the Dur-O-Wal Loan Agreement; (c) the default in the due observance of any affirmative covenant, negative covenant or agreement to be kept and performed by the Borrower under the terms of this Agreement (provided however, that so long as Borrower notifies the Banks in writing of any such default immediately after Borrower or any of its agents knew or should have known of the existence of such default, and provided that the default in question is determined by the Banks to be reasonably susceptible of being cured, and provided that Borrower immediately upon giving such notice commences such cure and thereafter diligently pursues said cure to completion; Borrower shall have a period of thirty (30) days after such notice to the Banks to cure such default before such default becomes an -44- Event of Default under this Section 7.1(c); provided further that, notwithstanding the foregoing, if the default hereunder is related to a matter for which a grace period is established by law, agreement or otherwise, any grace period hereunder shall in no event extend beyond any applicable grace period established by such law, agreement or otherwise); (d) any representation or warranty made by the Borrower in this Agreement or in the other Loan Documents shall be false or erroneous in any respect or any breach thereof shall have been committed; (e) the occurrence of a default by Borrower, or any Affiliate, under any other obligation to the Banks, or any affiliate of the Banks, which extends beyond any applicable grace or cure period, including, without limitation, the occurrence of any Event of Default under the Dur-O-Wal, Inc. Loan Agreement; provided that no Event of Default shall be deemed to have occurred under this Section 7.1(e) by reason of a default under Section 7.1(k) of the Dur-O-Wal, Inc. Loan Agreement unless the event which caused the default under Section 7.1(k) of the Dur-O-Wal, Inc. Loan Agreement also causes an Event of Default under Section 7.1(k) of this Agreement. (f) the occurrence of any Event of Default under the other Loan Documents; (g) (i) the validity or effectiveness of any Loan Document or its transfer, grant, pledge, mortgage or assignment by the Borrower or Dur-O-Wal, Inc. to the Banks or the Collateral Agent is materially impaired; (ii) the Borrower or DOW asserts that any Loan Document is not a legal, valid or binding obligation of the party thereto (other than the Banks) enforceable in accordance with its terms; or (iii) the security interest or lien purported to be created by any of the Loan Documents will for any reason cease to be, or be asserted by the Borrower or DOW not to be, a valid perfected lien with the respect to more than a de minimis portion of the Collateral. (h) the commencement of any foreclosure proceedings, proceedings in aid of execution, attachment actions, levies against, or the filing by any taxing authority of a lien (except any such tax lien currently being diligently contested in good faith by proceedings for which the Borrower has set aside adequate reserves with respect thereto and for which no foreclosure proceeding, levy, or similar proceeding has commenced) against, any of the assets of the Borrower or any party to the Security Documents; -45- (i) the Borrower becomes insolvent or generally does not pay its debts as they become due, or if a petition for relief in a bankruptcy court is filed by the Borrower, or if the Borrower applies for, consents to, or acquiesces in the appointment of a trustee, custodian, or receiver for the Borrower or any of its assets and property, or makes a general assignment for the benefit of creditors; or in the absence of such application, consent, or acquiescence, a trustee, custodian, or receiver is appointed for the Borrower or for a substantial part of the assets and property of the Borrower; or any bankruptcy, reorganization, debt arrangement, or other proceedings or case under any bankruptcy or insolvency law or any dissolution or liquidation proceeding is instituted against the Borrower; or the Borrower takes any action to authorize any of the actions described in this paragraph; (j) the default in the payment or performance of any Debt in a principal amount of One Hundred Thousand Dollars ($100,000) or greater after giving affect to any applicable grace periods of the Borrower to others; and (k) any event that, in the opinion of the Banks, has or may have a material adverse effect on the Collateral, or which has or may have a Material Adverse Effect. 7.2 REMEDIES. (a) Upon the occurrence and during the continuance of any Event of Default, the Banks, shall have the right to, by notice to the Borrower (i) terminate the Commitments and/or (ii) declare the outstanding principal of, and accrued interest on, the Notes, and all other amounts owing under this Agreement and the other Loan Documents, to be immediately due and payable, whereupon the Commitments shall terminate forthwith and all such amounts shall become immediately due and payable, PROVIDED that in the case of any event or condition described in Section 7.1(i), the Commitment shall automatically terminate and all such amounts shall automatically become immediately due and payable without notice; in all cases without demand, presentment, protest, diligence, notice of dishonor or other formality, all of which are hereby expressly waived. (b) Upon the occurrence and during the continuance of any Event of Default, the Banks shall have the right to, in addition to the remedies provided in Section 7.2(a), exercise and enforce any and all other rights and remedies available to the Banks, whether arising under this Agreement, the Security Documents, the Notes or under applicable law, in any manner deemed appropriate by the Banks, including suit in equity, action at law, or other appropriate proceedings, whether for the specific performance (to the extent permitted by law) of any covenant or agreement contained in this Agreement, the Security Documents, or -46- in the Notes or in aid of the exercise of any power granted in this Agreement, the Security Documents, and the Notes. (c) Upon the occurrence and during the continuance of any Event of Default, the Banks may at any time and from time to time, without notice to the Borrower (any requirement for such notice being expressly waived by the Borrower) set off and apply against any and all of the obligations of the Borrower now or hereafter existing under this Agreement any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Banks to or for the credit or the account of the Borrower and any property of the Borrower from time to time in possession of the Banks, irrespective of whether or not the Banks shall have made any demand hereunder and although such obligations may be contingent and unmatured. The rights of the Banks under this Section 7.2(c) are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Banks may have. (d) Upon the occurrence and during the continuance of an Event of Default, the Banks shall have the right to adjust the percentage of Eligible Accounts Receivable and Eligible Inventory against which they will advance, if the Banks elect to continue to make Advances, which the Banks shall have no obligation to do, and any such adjustment shall, at the Banks' option, continue to be effective after the Event of Default is cured or waived. (e) Upon the occurrence of an Event of Default or an Unmatured Default, the Banks shall have the right to take dominion of all funds of the Borrower and to implement such procedures, including, without limitation, daily reporting on Borrowing Base Certificates as the Banks may deem appropriate in their sole discretion. (f) After the existence of an Unmatured Default has been declared by the Banks by written notice to Borrower, and any applicable cure periods have expired without the Unmatured Default having been cured, such that an Event of Default has occurred, no curative action by the Borrower shall be deemed to cure the Event of Default and the Banks shall have no obligation to accept any purported cure of the Event of Default by the Borrower. -47- 7.3 APPLICATION OF LIQUIDATION PROCEEDS. Notwithstanding any other provision of this Agreement, all funds received by the Banks from the exercise of remedies under this Agreement, the Security Documents, or otherwise, shall, unless otherwise required by applicable law, be applied in the manner set forth as follows: (a) First, to the payment of advances by the Banks or the Collateral Agent for the protection and preservation of their liens and the Collateral, and all out-of-pocket expenses (to the extent not paid by the Borrower) and audit fees incurred by or payable to the Bank Agent or the Collateral Agent in connection with the exercise of such rights and remedies, or otherwise pursuant to the Security Documents, including, without limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses. (b) Next, to the payment of such amounts as may be due and payable under Sections 2.6, 2.12, 2.13, and/or 2.2(c). (c) Next, to the payment of late charges and interest then owed to the Banks under or with respect to the Loans, in such order as the Banks may in their sole discretion determine. (d) Next, to the payment of the principal balance then owed to the Banks under the Loans and allocated between Prime Rate Based Advances, Libor Rate Advances and Fixed Rate Advances as determined by the Banks. (e) Next, to the payment of all other amounts owed by the Borrower to any of the Banks, the Bank Agent, or the Collateral Agent under this Agreement, or any Security Document. (f) Next, to the payment of all other amounts owed by the Borrower or any of its Affiliates to the Banks. (g) Next, to the Borrower or such other Person as may be legally entitled thereto. ARTICLE 8 CONDITIONS PRECEDENT The Banks' obligation to fund Advances and the Term Loan pursuant to Article 2 of this Agreement is subject to the conditions that: 8.1 The Borrower shall have completed an initial public offering of its shares and shall have received at least Twenty Million Dollars ($20,000,000) of net cash proceeds from such offering. The Borrower shall deliver such documents and other -48- papers to the Banks as the Banks may reasonably require in order to ascertain that this condition has been satisfied. 8.2 There does not exist any condition which would constitute an Event of Default or an Unmatured Default. 8.3 The representations, affirmative covenants, negative covenants and warranties of the Borrower contained herein are true and correct in all material respects. 8.4 The Banks shall have been furnished copies, certified by the secretary or assistant secretary of the Borrower, of resolutions of the Board of Directors of the Borrower authorizing, as applicable, the execution of this Agreement, the Notes, and the Security Documents and the other Loan Documents. 8.5 The Banks shall have received an opinion satisfactory in form and substance to the Banks as to such matters related to the Loan as may be required by the Banks rendered by counsel for the Borrower satisfactory to the Banks. 8.6 There shall not have occurred, in the opinion of the Banks, any material adverse change in Borrower's business, operations or financial condition. 8.7 The Banks shall have received title insurance policies in form and substance satisfactory to the Banks with respect to the Mortgaged Properties. 8.8 The Banks shall have audited the Collateral and found the results of such audit to be satisfactory. 8.9 The Banks shall have received the insurance certificates required to be delivered by Borrower. 8.10 The Banks shall have filed all Uniform Commercial Code Financing Statements in such jurisdictions as deemed necessary and/or advisable by the Banks. 8.11 The Banks shall have filed the Mortgages in the jurisdictions set forth in each such document. 8.12 The Banks shall have received Certificates of Good Standing from each jurisdiction (which issues such certificates) in which the Borrower, or any Subsidiary, does business, and a certified copy of the Borrower's, and each Subsidiary's, Articles of Incorporation and Code of Regulation or By-Laws. 8.13 The Borrower shall have executed and delivered to the Banks the Security Documents and the Borrower shall have complied with the terms thereof. -49- 8.14 The Borrower shall have paid the Banks all closing and other fees payable hereunder. 8.15 The Banks shall have received such UCC and related lien searches as the Banks deem necessary and/or advisable and the Banks shall be satisfied with the results of such lien searches. 8.16 The Borrower shall deliver documents, in form and substance satisfactory to the Banks, to evidence that the Senior Notes are being paid in full with the proceeds of the Loans. 8.17 The Banks shall have received copies or originals of all other documents which may have been reasonably required in connection with the transactions provided for in this Agreement. 8.18 The DOW Loan Agreement shall have been executed and delivered by DOW and the Banks and all conditions contained therein satisfied. ARTICLE 9 AGENCY PROVISIONS AND RELATIONSHIP OF BANKS 9.1 APPOINTMENT. Bank One is hereby appointed as Bank Agent hereunder, and BOA authorizes the Bank Agent to act as the agent of such Bank. BOA is hereby appointed as Collateral Agent hereunder and under the other Loan Documents and Bank One authorizes the Collateral Agent to act as the collateral agent for Bank One. The Bank Agent and the Collateral Agent agree to act as such upon the express conditions contained in this Article 9 and the other Loan Documents. Neither the Bank Agent nor the Collateral Agent shall have a fiduciary relationship in respect of any Bank by reason of this Agreement or any Loan Document. 9.2 POWERS. The Bank Agent shall have and may exercise such powers hereunder and the Loan Documents as are specifically delegated to the Bank Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The Bank Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action hereunder or any Loan Document, except any action specifically provided by this Agreement or any Loan Document to be taken by the Bank Agent. The Collateral Agent shall have and may exercise such powers hereunder as are specifically delegated to the Collateral Agent by the terms hereof, and the Security Documents, together with such powers as are reasonably incidental thereto. The Collateral Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action hereunder, or any Loan Document, except any action specifically provided by this Agreement, or any Loan Document, to be taken by the Collateral Agent. -50- 9.3 GENERAL IMMUNITY. Neither the Bank Agent nor any of its directors, officers, agents or employees shall be liable to BOA for any action taken or omitted to be taken by it or them hereunder or under or any Loan Document or in connection herewith except for its or their own gross negligence or wilful misconduct. Neither the Collateral Agent nor any of its directors, officers, agents or employees shall be liable to the Banks or any Bank for any action taken or omitted to be taken by it or them hereunder or in connection herewith except for its or their own gross negligence or wilful misconduct. 9.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Bank Agent nor the Collateral Agent shall be responsible to the Banks for any recitals, reports, statements, warranties or representations herein or in any other Loan Document or be bound to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any other Loan Document. 9.5 ACTION ON INSTRUCTIONS OF BANKS. Each of the Bank Agent and the Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under the other Loan Documents in accordance with written instructions signed by both of the Banks, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 9.6 EMPLOYMENT OF AGENTS AND COUNSEL. Each of the Bank Agent and the Collateral Agent may execute any of its duties as Agent hereunder or under the other Loan Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each of the Bank Agent and the Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency created hereby and by the other Loan Documents and its duties hereunder and thereunder. 9.7 RELIANCE ON DOCUMENTS; COUNSEL. Each of the Bank Agent and the Collateral Agent shall be entitled to rely upon any note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Bank Agent or the Collateral Agent, as the case may be, which counsel may be employees of the Bank Agent or the Collateral Agent, as the case may be. 9.8 BANK AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Banks agree to reimburse and indemnify each of the Bank Agent and the Collateral Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower for -51- which the Bank Agent or the Collateral Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Bank Agent or the Collateral Agent on behalf of the Banks, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Bank Agent or the Collateral Agent in any way relating to or arising out of this Agreement, any other Loan Document or any other document delivered in connection with this Agreement or any other Loan Document or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof of any other Loan Document or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or wilful misconduct of the Bank Agent or Collateral Agent, as the case may be. 9.9 RIGHTS AS A BANK. With respect to its Commitment, Loans made by it and the Note issued to it, each of the Bank Agent and the Collateral Agent shall have the same rights and powers hereunder as any Bank and may exercise the same as though it were not the Bank Agent or Collateral Agent, as the case may be, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include each of the Bank Agent and the Collateral Agent in their respective individual capacities. Each of the Bank Agent and the Collateral Agent may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with the Borrower as if it were not the Bank Agent or Collateral Agent, as the case may be. 9.10 BANK CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Bank Agent, the Collateral Agent or any other Bank and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Bank also acknowledges that it will, independently and without reliance upon the Bank Agent, the Collateral Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 9.11 SUCCESSOR AGENT. Each of the Bank Agent and the Collateral Agent may resign at any time by giving written notice thereof to the Banks and the Borrower, and each of the Bank Agent and the Collateral Agent may be removed at any time with or without cause by written notice received by the Bank Agent or the Collateral Agent, as the case may be, from the Banks. Upon any such resignation or removal, with the prior written approval of the -52- Borrower, such consent not to be unreasonably withheld, the Banks shall have the right to appoint, on behalf of the Borrower and the Banks, a successor Bank Agent or Collateral Agent, as the case may be. If no successor Bank Agent or Collateral Agent shall have been so appointed by the Banks and shall have accepted such appointment within thirty days after the retiring Bank Agent's or Collateral Agent's giving notice of resignation, then the retiring Bank Agent or Collateral Agent, as the case may be, may appoint with the prior written consent of the Borrower, such consent not to be unreasonably withheld, on behalf of the Borrower and the Banks, a successor Bank Agent or Collateral Agent, as the case may be. Such successor Bank Agent or Collateral Agent shall be a commercial bank having capital and retained earnings of at least Fifty Million dollars ($50,000,000). Upon the acceptance of any appointment as Bank Agent or Collateral Agent hereunder by a successor Bank Agent or Collateral Agent, as the case may be, such successor Bank Agent or Collateral Agent, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Bank Agent or Collateral Agent, as the case may be, and the retiring Bank Agent or Collateral Agent, as the case may be, shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring Bank Agent's or Collateral Agent's resignation hereunder as Bank Agent or Collateral Agent, as the case may be, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Bank Agent or Collateral Agent, as the case may be, hereunder and under the other Loan Documents. 9.12 COLLATERAL RELEASES. The Collateral Agent shall be authorized to execute and deliver to the Borrower releases of Collateral (including UCC-3's and such other documents as the Borrower may reasonably require) which have been approved by the Banks in writing. 9.13 SHARING OF PAYMENTS. The Banks agree among themselves that, in the event that any Bank shall, subsequent to the occurrence and during the continuance of an Event of Default, obtain payment of the principal of or interest on any Loan made by it through the exercise of a right of set-off, banker's lien or counterclaim or by provision of adequate protection of any deposit treated as cash collateral under the federal Bankruptcy Code or otherwise, such payment shall be applied as provided in Section 9.18 through the purchase by such Bank from the other Banks participation in such Loans made by them in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all of the Banks share such payment as provided in Section 9.18. The Banks further agree among themselves that if payment to a Bank obtained by such Bank through the exercise of a right of set-off, banker's lien or counterclaim or otherwise as aforesaid shall be rescinded or must otherwise be restored, each Bank which shall have shared the benefit of such payment shall -53- return its share of that benefit to each Bank whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Bank so purchasing a participation in such Loans to the Borrower by any other Bank may, to the fullest extent permitted by law, exercise all rights of payment, including set-off, banker's lien or counterclaim, with respect to such participation as fully as if such Bank were a holder of such Loan made hereunder to the Borrower in the amount of such participation. If any Bank or the Bank Agent shall fail to remit to the Bank Agent or any other Bank an amount payable by such Bank or the Bank Agent to the Bank Agent or such other Bank pursuant to this Agreement on the date when such amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Bank Agent or such other Bank at a rate per annum equal to the rate at which borrowings are available to the payee in its overnight federal funds market. 9.14 EVENTS OF DEFAULT. Neither the Bank Agent nor the Collateral Agent, shall be deemed to have knowledge of the occurrence of any Event of Default, or any Unmatured Default, unless the Bank Agent or the Collateral Agent, as the case may be, has received written notice from a Bank or the Borrower specifying such Event of Default or Unmatured Default and stating that such notice is a notice of Default. In the event that the Bank Agent or the Collateral Agent, as the case may be, receives such a notice, the Bank Agent shall give written notice thereto to the Banks. The Bank Agent or the Collateral Agent, as the case may be, shall take only such action with respect to such Event of Default or Unmatured Default as shall be reasonably directed in writing by both of the Banks; PROVIDED, HOWEVER, that, unless and until the Bank Agent or the Collateral Agent, as the case may be, shall have received such direction, the Collateral Agent, as the case may be, may take such action, or refrain from taking such action, with respect thereto as it shall deem advisable in the best interests of the Banks. 9.15 CONSENT OF BANKS REQUIRED. No Agent, nor Bank, shall, except to the extent it is required to do so under the Loan Documents or by law, without the consent of both of the Banks: (a) agree to modify or amend the Loan Documents; or (b) grant any waivers under the Loan Documents; or (c) consent to the placing of any lien on the Collateral other than that created by the Security Documents; or (d) release any material collateral for the Loans (provided, however, that Collateral Agent may release Collateral for the Loans without the consent of any Bank in the event that the Collateral released in any calendar year does not have a value of more than Twenty-Five Thousand Dollars ($25,000); or -54- (e) consent or agree to any change in the pricing or interest rate or fees applicable of the Loan; or (f) consent or agree to postpone the due date of any payment of principal and/or interest under either or both of the Loans; or (g) sell or contract to sell any Collateral after acquisition of the title thereto; or (h) waive compliance with any condition, covenant or other provision of the Loan Documents; or (i) waive any Event of Default that has been declared by notice to Borrower. The Collateral Agent shall be entitled to rely conclusively upon a certificate of value executed by an officer of the Borrower in connection with any release of Collateral as set forth in Section 9.15(d) above. 9.16 EXERCISE OF REMEDIES UNDER THIS AGREEMENT. Notwithstanding any other provision of this Agreement, or the other Loan Documents, the Banks agree among themselves that neither the Bank Agent nor the Collateral Agent will be required to take any action under Section 7.2 of this Agreement, or under the other Loan Documents, unless directed to do so in writing by both of the Banks. 9.17 EXERCISE OF REMEDIES UNDER ADDITIONAL ARRANGEMENTS. Notwithstanding any other provision of this Agreement, the Banks agree among themselves that no Bank shall take, or be permitted to take, any action under any other arrangement with Borrower unless permitted to do so in writing by both of the Banks. 9.18 APPLICATION OF LIQUIDATION PROCEEDS. Notwithstanding any other provision of this Agreement, all funds received by the Bank Agent, the Collateral Agent or any Bank from the exercise of remedies under this Agreement, the Security Documents, or otherwise, shall, unless otherwise required by applicable law, be applied in the manner set forth as follows: (a) First, to the payment of advances by the Banks or the Collateral Agent for the protection and preservation of their liens and the Collateral, and all out-of-pocket expenses (to the extent not paid by the Borrower) and audit fees incurred by or payable to the Bank Agent or the Collateral Agent in connection with the exercise of such rights and remedies, or otherwise pursuant to the Security Documents, including, without limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses. -55- (b) Next, to the payment of such amounts as may be due and payable under Sections 2.6, 2.12, 2.13, and/or 2.2(c). (c) Next, to the payment of late charges and interest then owed to the Banks under or with respect to the Loans, in such order as the Banks may in their sole discretion determine, in accordance with their respective pro rata shares. (d) Next, to the payment of the principal balance then owed to the Banks under the Loans, in accordance with their respective pro rata shares and allocated between Prime Rate Based Advances, Libor Rate Based Advances and Fixed Rate Advances as determined by the Banks. (e) Next, to the payment of all other amounts owed by the Borrower to any of the Banks, the Bank Agent, or the Collateral Agent under this Agreement, or any Security Document, in accordance with their pro rata shares. (f) Next, to the payment of all other amounts owed by the Borrower or any of its Affiliates to any of the Banks, the Bank Agent, or the Collateral Agent, in accordance with their respective pro rata shares. (g) Next, to the Borrower or such other Person as may be legally entitled thereto. As used in this Section, "pro rata shares" with respect to any particular amount owed by the Borrower on the Loan shall mean the proportion which the total of such amount owed by the Borrower to each Bank bears to the total of such amount owed by the Borrower to all of the Banks and, with respect to any other amount owed by the Borrower or any of its Affiliates to the Banks, or any of them, shall mean the proportion which the total of such amount owed by the Borrower and its Affiliates to each Bank bears to the total of such amount owed by the Borrower to all of the Banks. 9.19 BENEFIT. The provisions of this Article 9 are solely for the benefit of the Bank Agent, the Collateral Agent and the Banks, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Bank Agent and the Collateral Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. -56- ARTICLE 10 PARTICIPATION; ASSIGNMENTS 10.1 PARTICIPATION. (a) PERMITTED PARTICIPANTS; EFFECT. Subject to this Section 10.1(a), either Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in the Loans, the Notes and any other interest of such Bank under the Loan Documents. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under the Loan Documents shall remain unchanged. (b) BENEFIT OF SETOFF AND INDEMNITIES. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 7.2(c) in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Bank under the Loan Documents, provided that the Bank shall retain the right of setoff provided in Section 7.2(c) with respect to the amount of participating interests sold to each Participant, except to the extent such Participant has exercised its right of setoff. The Banks agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 7.2(c), agrees to share with the Banks, any amount received pursuant to the exercise of its right of setoff pro rata in accordance with the outstanding amount of the Loan held by each. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.2(c), 2.12, 2.13, and 2.15 with respect to its participation in the Commitments and the Libor Rate Advances and Fixed Rate Advances outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the Banks would have been entitled to receive in respect of the amount of the participation transferred by such Bank to such Participant had no such transfer occurred. 10.2 ASSIGNMENTS. (a) PERMITTED ASSIGNMENTS. Subject to this Section 10.2(a), either Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time, in a minimum amount of Five Million Dollars ($5,000,000), assign to one or more banks or other entities ("Purchasers") its rights and obligations under the Loan Documents. Notwithstanding the foregoing, any such assignment to a Purchaser shall be subject to Borrower's prior written consent (which consent shall not be unreasonably withheld or delayed) and, provided, further, neither -57- Bank shall be entitled to assign more than fifty percent (50%) of their total interest in the Loans and the Notes to any Purchaser. (b) EFFECT; EFFECTIVE DATE. Upon delivery to Borrower of a notice of assignment, such assignment shall become effective on the effective date specified in such notice of assignment. Borrower shall execute and deliver such amendments and modifications to the Loan Documents the Bank may require in order to reflect and facilitate such assignment. 10.3 DISSEMINATION OF INFORMATION. The Borrower authorizes each Bank to disclose to any Participant, purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "Transferee") and any prospective Transferee any and all information in such Bank's possession concerning the creditworthiness of the Borrower. ARTICLE 11 GENERAL 11.1 SURVIVAL OF PROVISIONS. All representations, warranties, covenants and agreements made by the Borrower herein will survive the execution and delivery of this Loan Agreement, the Note, and the Security Documents. 11.2 RELATIONSHIP OF PARTIES. This Agreement and the Loan Documents shall not in any respect be interpreted, deemed or construed as making the Bank an agent, a partner, or joint venturer with the Borrower, nor shall it be interpreted, deemed or construed as making the Bank the agent or representative of the Borrower, and the Borrower agrees not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving the Banks. In no event shall the Banks be liable for debts or claims accruing or arising against the Borrower. The relationship of the Banks to the Borrower is that of "lender" and "borrower." The Banks shall not have any fiduciary responsibilities to the Borrower. The Banks undertake no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 11.3 NEGOTIATIONS. Each party acknowledges that it has participated in the negotiation of this Agreement and the other Loan Documents, and no provision of this Agreement or the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto or thereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated or drafted such provision; that the Borrower at all times has had access to an attorney in the negotiation of the terms of and in the preparation -58- and execution of this Agreement and the other Loan Documents, and the Borrower has had the opportunity to review and analyze this Agreement and the other Loan Documents for a sufficient period of time prior to the execution and delivery thereof; that no representations or warranties have been made by or on behalf of the Bank, or relied upon by the Borrower pertaining to the subject matter of this Agreement and the other Loan Documents, other than those that are set forth in this Agreement and the other Loan Documents, and all prior statements, representations and warranties, if any, are totally superseded and merged into this Agreement and the other Loan Documents, which represent the final and sole agreement of the parties with respect to the matters which are the subject hereof and thereof; that all of the terms of this Agreement and the other Loan Documents were negotiated at arm's length, and that this Agreement and the other Loan Documents were prepared and executed without fraud, duress, undue influence or coercion of any kind exerted by any of the parties upon the others; and that the execution and delivery of this Agreement is the free and voluntary act of the Borrower. 11.4 RIGHTS AND REMEDIES CUMULATIVE. The rights of the Banks arising under the provisions and covenants contained in this Agreement, the Notes, the Security Documents and any other of the Loan Documents, and under applicable law, shall be separate, distinct and cumulative and none of them shall be exclusive of the others. No act of a Bank shall be construed as an election to proceed under any one provision herein or in such other documents to the exclusion of any other provision, anything herein or otherwise to the contrary notwithstanding. 11.5 WAIVER. No waiver, amendment, release or modification of this Agreement shall be established by conduct or by any oral agreement, custom or course of dealing or by any delay or failure to act, but solely by an instrument in writing duly executed by the Bank. In the event any provision contained in this Agreement should be breached by the Borrower and thereafter be duly waived by the Bank, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 11.6 NOTICES. All notices, demands, requests, consents or approvals required hereunder shall be in writing and shall be conclusively deemed to have been received by a party hereto and to be effective when (i) deposited in the U.S. Mail if sent certified mail, return receipt requested, postage prepaid, or by recognized overnight courier service, (ii) sent via facsimile, or (iii) in case of any other means of delivery, actually delivered to such party, in each case addressed as set forth below (or at such other address as such party may specify to the other party in writing): -59- To Bank One: Bank One, Dayton, NA Kettering Tower P.O. Box 1103 Dayton, Ohio 45401-1103 Attn: Mr. Paul Harris, Vice President Fax #: (513) 449-4885 To BOA: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Mr. Charles A. Gonzalez, Vice President Fax #: (312) 828-1974 To Collateral Agent: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Mr. David A. Johanson, Vice President and Senior Agency Officer Fax #: (312) 974-9102 To the Borrower: Dayton Superior Corporation 721 Richard Street Miamisburg, Ohio 45342 Attn: Mr. Richard L. Braswell, Vice President Fax #: (513) 866-9448 11.7 PERFORMANCE BY THE BANK. The Banks shall have the right (but not the obligation) to do or cause to be done any reasonable thing which Borrower or any party to the Loan Documents is obligated to do or cause to be done, but has not done or caused to be done, which may in the opinion of the Banks have an adverse effect on the Collateral or a Material Adverse Effect. Borrower shall reimburse the Banks any amounts paid or advanced by the Banks for any cost, expense or fee (including attorney's fees) in connection with any such action and for any cost, expense or fee incurred in connection with the enforcement or exercise of any right or remedy granted the Banks pursuant to the Loan Documents or in connection with any other question or matter arising in connection with the Loan Documents. All such amounts shall be due and payable upon demand and shall bear interest at the default rate specified in Section 2.8 from the date of demand until paid. No such action by the Banks shall be deemed to cure any default by Borrower. 11.8 FURTHER ASSURANCES. Borrower shall execute and deliver to the Bank such agreements, instruments, documents, financing statements and other writings as may be requested from time to time by the Bank to perfect and to maintain the perfection of the Bank's -60- security title and security interest in and to the Collateral, or to properly evidence the Loan. 11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof; without limiting the foregoing, the parties agree that this Agreement amends and restates in full that certain Amended and Restated Loan Agreement between Borrower and Bank One, dated October 16, 1995. 11.10 COUNTERPART EXECUTION. This Agreement may be executed in several counterparts, each of which shall be regarded as an original, and all of which together shall constitute one and the same instrument, notwithstanding the fact that Borrower and the Banks have not each executed the same instrument. 11.11 HEADINGS. The headings to the Articles and Sections hereof are for reference only and shall not limit or define in any way the content thereof. 11.12 REFERENCES. All references in this Agreement to any of the Loan Documents or any other documents or instruments shall be deemed to be references to the Loan Documents or other documents or instruments as the same may from time to time be modified, amended, renewed, consolidated or extended. 11.13 APPROVAL OF PAPERS. All papers and documents submitted, and those to be prepared and executed in connection with this Agreement, including, without limitation, the Loan Documents, shall be subject to the approval of the Banks and its counsel as to form and substance. 11.14 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more provisions of this Agreement shall not affect the remaining provisions of this Agreement, or any part thereof. 11.15 TIME OF ESSENCE. Wherever time is mentioned in this Agreement, it shall be construed to mean that time is of the essence. 11.16 GENDER AND NUMBER. Whenever used herein, words of any gender shall be construed to include any other gender, and words in the singular shall be construed to include the plural and vice versa, unless the context otherwise requires. -61- 11.17 BINDING EFFECT. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights under the Loan Documents. 11.18 LEGAL LIMITATION OF EXTENSIONS OF CREDIT. Anything contained in this Agreement to the contrary notwithstanding, the Bank shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 11.19 TAXES. Any taxes (excluding income taxes) payable or ruled payable by Federal or State authority in respect of the execution and delivery of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 11.20 REIMBURSEMENTS. The Borrower shall reimburse the Banks for any costs, internal charges and out-of-pocket expenses which shall be set forth in a detailed invoice (including reasonable attorneys' fees and time charges of attorneys for the Banks, which attorneys may be employees of the Banks) paid or incurred by the Bank in connection with the preparation, review, execution, delivery, amendment, modification, administration, collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Banks, and its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Bank is a party thereto) which they may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or thereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder; provided, however, that no such indemnification shall be available if the claim is based upon the gross negligence or wilful misconduct of the Banks. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 11.21 LIABILITY OF BANKS TO BORROWER. The Borrower (i) agrees that the Banks shall have no liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Banks, final and not subject to review on appeal, that such losses were the result of acts or omissions on the part of the Banks, constituting gross negligence, wilful misconduct or knowing violations of law and (ii) waives, releases and agrees not to sue upon any claim against the Banks (whether sounding in tort, contract or otherwise) except a claim based upon gross negligence, wilful misconduct or knowing violations of law. -62- Whether or not such damages are related to a claim that is subject to the waiver effected above and whether or not such waiver is effective, the Banks shall have no liability with respect to, and the Borrower hereby waives, releases and agrees not to sue upon any claim for, any special, indirect or consequential damages suffered by the Borrower in connection with, arising out of, or in any way related to the transactions contemplated or the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Banks, final and not subject to review on appeal, that such damages were the result of acts or omissions on the part of the Banks, constituting wilful misconduct or knowing violations of law. 11.22 JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR OHIO STATE COURT SITTING IN DAYTON OR CINCINNATI, OHIO, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE BANKS TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE BANKS OR ANY AFFILIATE OF ANY BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN DAYTON OR CINCINNATI, OHIO. 11.23 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 11.24 GOVERNING LAW. This Agreement has been negotiated, executed and delivered in Ohio, is to be performed in Ohio and is to be governed by and construed in accordance with the laws (excluding the law of conflicts) of the State of Ohio. -63- IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the 17th day of June, 1996. DAYTON SUPERIOR CORPORATION By: ________________________________ Name:_______________________________ Title:______________________________ BANK ONE, DAYTON, N.A. (in its individual capacity and as Bank Agent) By: ________________________________ Name:_______________________________ Title:______________________________ BANK OF AMERICA ILLINOIS (in its individual capacity) By: ________________________________ Name:_______________________________ Title:______________________________ BANK OF AMERICA ILLINOIS (in its capacity as Collateral Agent) By: ________________________________ Name:_______________________________ Title:______________________________ STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of June, 1996, by ______________________________, as _____________ on behalf of DAYTON SUPERIOR CORPORATION. ________________________________ Notary Public -64- STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of June, 1996, by _____________________, as _____________ on behalf of BANK ONE, DAYTON, N.A. ________________________________ Notary Public STATE OF __________ ) ) SS: COUNTY OF __________ ) The foregoing Agreement was acknowledged before me this ___ day of _______, 1996, by _____________________, as _____________ on behalf of BANK OF AMERICA ILLINOIS. ________________________________ Notary Public STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of June, 1996, by _____________________, as _____________ on behalf of BANK OF AMERICA ILLINOIS as Collateral Agent. ________________________________ Notary Public -65- EX-10.18 7 EXHIBIT 10.18 AMENDED AND RESTATED LOAN AGREEMENT This Amended and Restated Loan Agreement is made as of the ___ day of June, 1996 by and among DUR-O-WAL, INC., a Delaware corporation, with its principal place of business at 3115 N. Wilke Road, Suite A, Arlington Heights, Illinois 60004 (the "Borrower"), and BANK ONE, DAYTON, N.A. ("Bank One") in its individual capacity and as Bank Agent, with its principal place of business at Kettering Tower, P.O. Box 1103, Dayton, Ohio 45401-1103, BANK OF AMERICA ILLINOIS ("BOA") in its individual capacity, an Illinois banking corporation with an office located at 231 South LaSalle Street, Chicago, Illinois 60697, and BANK OF AMERICA ILLINOIS in its capacity as Collateral Agent, an Illinois banking corporation with an office located at 231 South LaSalle Street, Chicago, Illinois 60697. RECITALS A. As of October 16, 1995, the Borrower and Bank One entered into a Loan Agreement and various ancillary and related agreements, with respect to a Five Million Dollar ($5,000,000) revolving credit facility (the "Original Credit Facility") which facility was guaranteed by Dayton Superior Corporation ("DSC"). B. The parties intend to modify and amend the Original Credit Facility by the execution of this Agreement so as to (i) add BOA as a co-lender with Bank One, (ii) maintain the revolving credit facility at Five Million Dollars ($5,000,000), (iii) provide for a term loan facility in the amount of Four Million Five Hundred Thousand Dollars ($4,500,000), (iv) modify various pricing terms, and (v) modify and amend various other matters as more full set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.1 CAPITALIZED TERMS. As used in this Agreement the following capitalized terms shall have the following meanings: "Accumulated Funding Deficiency" means an "accumulated funding deficiency" as defined in Section 302 of ERISA or Section 412(a) of the Code. "Advance" means a borrowing and disbursement of the Revolving Credit Loan. "Affiliate" means any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Borrower. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise. All of Borrower's parent corporations and subsidiary corporations shall be deemed to be affiliates of Borrower for purposes of this Agreement. "Agents" means the Bank Agent and the Collateral Agent. "Aggregate Commitment" means the aggregate of the Commitments of the Banks hereunder. "Agreement" means this Amended and Restated Loan Agreement, as it may be amended or modified and in effect from time to time. "Authorized Officer" means any of the President, Vice President Finance, or any officer of the Borrower authorized by its Board of Directors, acting singly. "Bank Agent" means Bank One, in such capacity, and not in its individual capacity as a Bank, and any successor appointed pursuant to Section 9. "Bank One" means Bank One, Dayton, N.A., its successors and assigns. "BOA" means Bank of America Illinois, its successors and assigns. "Banks" means BOA and Bank One and their respective successors and assigns. "Borrower" means Dur-O-Wal, Inc.. "Borrowing Base Certificate" is defined in Section 2.1(e). "Borrowing Date" means a date on which an Advance is made hereunder. "Borrowing Notice" is defined in Section 2.6(a). "Business Day" means (i) with respect to any borrowing, payment or rate selection of Libor Rate Advances, a day other than Saturday or Sunday on which banks are open for business in Dayton and New York and on which dealings in U.S. dollars are carried on -2- in the London interbank market and (ii) for all other purposes, a day other than Saturday or Sunday on which banks are open for business in Dayton. "Capitalized Lease" of a Person means any lease of property by such person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP. "Capitalized Lease Obligations" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP. "Code" means the Internal Revenue Code of 1986, as amended, and the income tax regulations issued thereunder from time to time. "Collateral" means the "Collateral" under and as defined in the Security Documents. "Collateral Agent" means BOA, in such capacity, and not in its capacity as a Bank, and any successor appointed pursuant to Section 9. "Commitment" means, for each Bank, the obligation of the Bank to make Revolving Credit Loans not exceeding the amount set forth in Section 2.1, as such amount may be modified from time to time. "Compliance Certificate" means a compliance certificate in substantially the form of EXHIBIT 1(a) hereto, with appropriate insertions, signed by an Authorized Officer, showing the calculations necessary to determine compliance with this Agreement and stating that no Event of Default or Unmatured Default exists, or if any Event of Default or Unmatured Default exists, describing the nature thereof and any action the Borrower is taking or proposes to take with respect thereto. "Consolidated Current Assets" shall mean all assets of the Borrower and its Subsidiaries which may be properly classified as consolidated current assets in accordance with GAAP. "Consolidated Current Liabilities" shall mean, as of any date of determination, all liabilities of the Borrower and its Subsidiaries which may be properly classified as consolidated current liabilities in accordance with GAAP. "Current Obligations" is defined in Section 6.12. "Debt" shall mean all items (on a consolidated basis) which, in accordance with GAAP (as hereinafter defined), would be included in determining total liabilities, as shown on the liability side of Borrower's balance sheet as of the date Debt is to be determined and, in any event, shall include any liability secured by a mortgage, pledge, lien, or security interest on property owned or -3- acquired, whether or not such liability shall have been assumed, and guarantees, endorsements (other than for collection in the ordinary course of business), and other contingent obligations in respect of obligations of others. A Capitalized Lease creates Debt for purposes of this definition. "Default Rate" means the interest rate determined pursuant to Section 2.9. "Dollars" means United States dollars. "DSC" means Dayton Superior Corporation, an Ohio Corporation. "DSC Loan Agreement" means that certain Amended and Restated Loan Agreement entered into by DSC and the Banks in their individual capacity and in their capacity as Bank Agent and Collateral Agent, as of even date herewith. "EBITDA" means Borrower's Net Income (on a consolidated basis) before interest, income taxes, depreciation and amortization. EBITDA will (i) be calculated utilizing the last in-first out method of cost accounting for inventory and (ii) not include any gains recognized by Borrower as earnings which relate to adjustments made by Borrower as a result of the Tax Reform Act of 1986 or any other extraordinary accounting adjustments or non-recurring items of income. "Eligible Account Receivable" means an account receivable owned by Borrower as to which the Collateral Agent has a fully perfected first priority security interest and which meet the following requirements at the time it comes into existence and continues to meet such requirements until it is collected in full: (a) the account receivable is not more than ninety (90) days old according to the date of its original invoice; (b) the account receivable arose from the performance of services or an outright sale of goods by Borrower with such services having been performed or goods having been shipped to the account debtors, and Borrower being in possession of, or having delivered to the Banks, shipping and delivery receipts or other evidence of such performance or shipment; (c) the account debtor shall have accepted the goods or services of the Borrower without dispute or claim of any kind; (d) the account receivable is not subject to any Lien (other than Liens in favor of the Collateral Agent), and except as set forth herein, Borrower has not made any other assignment thereof nor created any other security interest therein, nor permitted any of its rights therein to be reached -4- by any other attachment, levy, garnishment or other judicial process; (e) the account receivable shall be legally enforceable and shall not be subject to set-off, credit, counterclaim, allowance or adjustment by the account debtors (except normal discount allowed for prompt payment, refunds, returns, allowances and warranty obligations in the ordinary course of business (subject to Section 6.14)), nor represent retainage being held by the account debtor, and the account debtors have not returned any of the goods from the sale of which the account receivable arose; (f) the account receivable arose in the ordinary course of its business and did not arise from the performance of services or sale of goods to any Affiliate, supplier, or employee of the Borrower; (g) none of the transactions underlying or giving rise to the account receivable shall, to the best knowledge of Borrower, violate any applicable state or federal laws or regulations and all documents relating to the account receivable shall be legally enforceable in accordance with their terms; (h) no notice of bankruptcy or insolvency of the account debtor has been received by or is known to the Borrower; (i) the account debtor shall not have 50% or more of its payment obligations to the Borrower unpaid over 90 days from invoice date; (j) if the account debtor is the United States or any department, agency, or instrumentality thereof, the Banks have been so notified and the Borrower has executed any instruments and taken any steps required by the Banks in order that all moneys due or to become due under any such contract shall be assigned to the Banks and notice thereof given to the Government under and in compliance with the Federal Assignment of Claims Act; and (k) in the case of an account receivable evidenced by a promissory note, such note shall have been endorsed and delivered to the Collateral Agent; (l) the account debtor with respect thereto is a resident or citizen of, and is located within, the United States of America, Canada, or a United States possession, unless the sale of goods giving rise to such account receivable is on letter of credit, banker's acceptance or other credit support terms satisfactory to the Banks; and -5- (m) the Banks, in their reasonable discretion, have not deemed the account or the account debtor ineligible. "Eligible Inventory" means only items of finished goods inventories, work-in-process, semi-finished goods, and raw materials owned by Borrower as to which the Collateral Agent has a fully perfected first priority security interest, which are valued at the lower of cost or fair market value, determined in accordance with the "first in, first out" cost accounting system, and which meet the following requirements: (a) the item consists of finished goods inventories held for sale in the ordinary course of Borrower's business, work-in-process, semi-finished goods, or raw materials used in the manufacture of finished goods inventories, provided, however, that Eligible Inventory shall not include any furniture, fixtures, equipment or machinery, nor any item that is obsolete or not of merchantable quality and condition; (b) the item is not subject to any Lien (other than Liens in favor of the Collateral Agent) and Borrower has not made any assignment thereof nor created any security interest therein, nor permitted any of its interest therein to be reached by attachment, levy, garnishment or other judicial process; (c) the item is located on property owned or leased by Borrower and is not located in any jurisdiction other than as provided in EXHIBIT A to the Security Agreement or such other locations permitted pursuant to Section 12 of the Security Agreement; (d) the item has not been sold on a consignment or "sale or return" basis to others; (e) the item is not rented to a customer of Borrower, provided, however, that an item shall be treated as Eligible Inventory after termination of the rental arrangement when the item has been returned to Borrower's place of business; provided, further, that such item shall be included in Eligible Inventory at the book value for such item; (f) the item is not held by a bailee or warehouseman unless the Banks have received an executed bailee waiver/agreement and accompanying UCC financing statements all in form and substance satisfactory to the Banks; (g) the item is located at a processing facility of another Person, to the extent the Collateral Agent has a perfected first security interest in such item and the Collateral Agent has received from such Person an executed -6- waiver/agreement in form and substance satisfactory to the Collateral Agent; and (h) the item is not located at a facility for which the Collateral Agent has not received a Landlord's Waiver as contemplated by Section 3.2 of the Agreement. (i) the Banks, in their reasonable discretion, have not deemed the item ineligible. "Environmental Compliance and Indemnification Agreement" means the Environmental Compliance and Indemnification Agreement executed by Borrower in favor of the Banks, as the same may be amended or modified and in effect from time to time. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Event of Default" is defined in Section 7.1. "Fixed Rate" means the per annum rate of interest (rounded up to the nearest 1/16 of 1%), plus [250 basis points in the event Borrower selects the one year Fixed Rate Interest Period, 275 basis points in the event Borrower selects the two year Fixed Rate Interest Period, or 300 basis points in the event Borrower selects the three year Fixed Rate Interest period] that is determined by dividing: (i) the per annum rate of interest or yield available with respect to United States Treasury Securities with a maturity of equal to the Fixed Rate Interest Period selected by Borrower in an aggregate amount comparable to the amount outstanding as to which the determination of the Fixed Rate is being made at or about 10:00 A.M. New York time [or such later time as near to 10:00 A.M. New York time as is reasonably practicable, if the Bank does not establish such rate at or about 10:00 A.M. New York time] two (2) Business Days immediately prior to the first day of the related Fixed Rate Interest Period; all as conclusively determined in good faith by the Bank Agent, such rate to be rounded up, if necessary, to the nearest whole multiple of 1/100 of 1%; by (ii) a percentage equal to one hundred percent (100%) minus the maximum stated rate of all Reserve Requirements as specified in Regulation D of the Board of Governors of the Federal Reserve System, including, without limitation, any marginal, emergency, supplemental, special or other reserves, that would be applicable to any member bank of the Federal Reserve System during such Fixed Rate Period in respect of a Treasury in an amount comparable to the amount bearing interest at the Fixed Rate and with a term equal to the Fixed Rate Interest Period selected by Borrower. "Fixed Rate Option" means the right of Borrower exercisable as set forth in Section 2.8 hereof, to have the interest rate applicable to all or a portion of the Term Loan computed based on a Fixed Rate. -7- "Fixed Rate Interest Period" means, with respect to all or a portion of the Term Loan, a period of one, two, or three years commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such Fixed Rate Period would end on a day which is not a Business Day, such Fixed Rate Period shall end on the next successive Business Day. The Fixed Rate Interest Period shall not extend beyond the Termination Date. "Fixed Rate Prepayment Premium" means for the prepaid portion of the Term Loan as to which the Borrower has selected the Fixed Rate Option, the amount, if any, by which (a) the present value as of the prepayment date of all payments of principal and interest scheduled to be paid with respect to the portion of the Term Loan being prepaid during the period from the prepayment date through the end of the applicable Fixed Rate Interest Period, exceeds (b) the total principal scheduled to be paid with respect to the portion of the Term Loan being prepaid during the remainder of such Fixed Rate Interest Period. The present value of each such scheduled payment of principal and interest shall be calculated by using the number of months (including any fraction of a month) from the prepayment date to the scheduled payment date, and a discount rate which, when compounded monthly, is equivalent to the Applicable Treasury Rate. As used herein, "Applicable Treasury Rate" means, as of any prepayment date, the average "ask yield" per annum for U.S. Government bonds and notes maturing in the calendar month in which the applicable Fixed Rate Interest Period ends (or if none matures in such month, the next preceding month in which any such bonds or notes mature), as reported in the WALL STREET JOURNAL five (5) business days prior to such prepayment date, or if no longer reported in the WALL STREET Journal, in another similar daily publication reporting such yields. "GAAP" means Generally Accepted Accounting Principles. "Interest Period" means a Libor Interest Period or a Fixed Rate Interest Period. "Investment" of a Person means any loan, advance, extension of credit (excluding accounts receivable arising in the ordinary course of business on terms customary in the trade), deposit account or contribution of capital by such Person to any other Person or any investment in, or purchase or other acquisition of, the stock, notes, debentures or other securities of any other Person made by such Person. "Lending Installation" means any office, branch, subsidiary or affiliate of any Bank or Agent. "Libor Interest Period" means, with respect to a Libor Rate Advance, a period of one, two, three, four, or six months commencing on a Business Day selected by the Borrower pursuant to this Agreement. If such Libor Interest Period would end on a day which -8- is not a Business Day, such Libor Interest Period shall end on the next succeeding Business Day. "Libor Rate" means the per annum rate of interest (rounded up to the nearest 1/16 of 1%), plus the Libor Spread, that is determined by dividing: (i) the per annum rate of interest that is offered for deposits in United States Dollars ("Dollars") in immediately available funds in an aggregate amount comparable to the amount outstanding as to which the determination of the Libor Rate is being made and for periods comparable to the Libor Interest Period selected by Borrower to the Bank Agent by other prime banks in the London interbank market, selected by the Bank Agent in the Bank Agent's discretion, at or about 10:00 A.M. New York time [or such later time as near to 10:00 A.M. New York time as is reasonably practicable, if the Bank Agent does not establish such rate at or about 10:00 A.M. New York time] two (2) Business Days immediately prior to the first day of the related Libor Interest Period; all as conclusively determined in good faith by the Bank Agent, such rate to be rounded up, if necessary, to the nearest whole multiple of 1/100 of 1%; by (ii) a percentage equal to one hundred percent (100%) minus the maximum stated rate of all Reserve Requirements as specified in Regulation D of the Board of Governors of the Federal Reserve System including, without limitation, any marginal, emergency, supplemental, special or other reserves, that would be applicable to any member bank of the Federal Reserve System during such Libor Interest Period in respect of eurocurrency or eurofunding lending or liabilities. "Libor Rate Advance" means an Advance which bears interest at the Libor Rate for a particular Libor Rate Interest Period. "Libor Rate Option" means the option of Borrower, exercisable as set forth in Sections 2.7 and 2.8 hereof, to have the interest rate under the Notes computed based upon the Libor Rate, in the case of the Revolving Credit Notes, and the Term Loan Libor Rate, in the case of the Term Notes. "Libor Spread" means (i) 225 basis points (2.25%) if, as of the Measuring Date (as hereinafter defined), the ratio of Borrower's EBITDA to interest expense is greater than 2.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 5.00 to 1.00; (ii) 175 basis points (1.75%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 2.50 to 1.00 and the ratio of Borrower's Total Debt to EBITDA is less than 4.00 to 1.00; (iii) 150 basis points (1.50%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 3.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 3.50 to 1.00; (iv) 125 basis points (1.25%) if, as of the Measuring Date, the ratio of Borrower's EBITDA to interest expense is greater than 3.50 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 3.00 to 1.00; and (v) 100 basis points (1.00%) if, as of the Measuring -9- Date, the ratio of Borrower's EBITDA to interest expense is greater than 4.00 to 1.00 AND the ratio of Borrower's Total Debt to EBITDA is less than 2.50 to 1.00. In the event Borrower fails to maintain any of the specified combinations of EBITDA to interest expense and Total Debt to EBITDA set forth above as of any Measuring Date, the Libor Spread shall be 275 basis points (2.75%). As used herein, "Measuring Date" shall mean the last day of the fiscal quarter of the Borrower immediately preceding each date of determination of the Libor Spread hereunder. The Libor Spread will be reset quarterly (based on the ratios herein set forth as of the Measuring Date) with such reset Libor Spread in effect for three calendar months beginning on the first day of the third full calendar month after the end of each Measuring Date, and such reset Libor Spread shall be applicable to all outstanding Loans utilizing the Libor Spread and new Advances of the Revolving Credit Loan and conversions of the Term Loan making reference thereto. "Lien" means any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest under a Capitalized Lease or analogous instrument, whether consensual or non-consensual, in, of or on any Person's assets or properties in favor of any other Person. "Loans" means collectively the Revolving Credit Loan and the Term Loan. "Loan Documents" means this Agreement, the Notes and the Security Documents. "Lock Box Agreement" is defined in Section 3.10. "Long-Term Debt" means, for any period of determination thereof, the long-term debt of the Borrower as of such date as determined in accordance with GAAP. "Material Adverse Effect" means a material adverse effect on the financial condition, properties, results of operations and/or business of the Borrower and its consolidated Subsidiaries. " Mortgaged Property" means the real property owned by Borrower and identified in EXHIBIT 1(b). "Mortgage" means the Open-End Mortgage, Assignment of Rents and Leases, and Security Agreement granted by Borrower in favor of the Collateral Agent, as the same may be amended or modified and in effect from time to time. "Multiemployer Plan" means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the controlled group is a party to which more than one employer is obligated to make contributions. -10- "Net Fixed Assets" means the net book value determined based on Borrower's most recent monthly financial statement of all furniture, fixtures, equipment and real estate owned by Borrower "Net Income" means, for any period of determination thereof, the net income of the Borrower, as reflected in the income statement of the Borrower for such period, and as determined in accordance with GAAP. "Net Worth" shall be determined in accordance with GAAP. "Notes" mean the Amended and Restated Revolving Credit Note, the Revolving Credit Note, and the Term Notes. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Notes, all accrued and unpaid fees and all other obligations of the Borrower to the Bank arising under the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation and its successors and assigns. "Permitted Liens" means: (a) Liens for taxes, assessments or governmental charges not then due and payable or the validity of which is being contested in good faith; provided the Borrower has adequate reserves set aside for such contest and provided further that no foreclosure actions have been instituted by any such governmental entity; (b) Liens arising in connection with court proceedings, provided the execution of such liens is effectively stayed and the underlying action has been appealed or is being contested in good faith and the Borrower has set aside adequate reserves for such court proceedings; (c) Liens arising in the ordinary cause of business (including (i) Liens under workmen's compensation and similar laws, (ii) mechanics' and warehousemen's Liens and similar Liens) that are not incurred in connection with the borrowing of money and provided that such Liens will not result in a Material Adverse Effect; (d) any Lien incurred in connection with the Agreement and the Loan Documents; (e) subject to Section 6.8 and 6.9 of the Agreement, any Lien on any property of any Person existing at the time it becomes a Subsidiary of the Borrower; provided that such lien does not extend to any other assets of the Borrower or its other Subsidiaries; -11- and provided further that the indebtedness secured by such Lien would be permitted under Section 6.1; (f) Liens securing assets acquired or constructed after the date of this Agreement; provided such liens do not exceed fifty percent (50%) of the fair market value of such asset; (g) Liens incurred in connection with the borrowing of money not permitted by subsections (e) and (f) above; provided that immediately thereafter the aggregate amount of debt secured by Liens incurred pursuant to this subsection (g) would not exceed 5.0% of Total Capitalization as such term is defined in the Senior Note Agreements; and (h) any Lien resulting from renewing, extending or refunding a Lien provided that the principal amount of the Debt secured thereby is not increased and the Lien is not extended to any other property. "Person" means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Plan" means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Borrower or any Subsidiary may have any liability. "Prime Based Rate" means a rate per annum equal to the Prime Rate changing when and as the Prime Rate changes. "Prime Based Rate Advance" means an Advance which bears interest at the Prime Based Rate for a particular Prime Based Rate Interest Period. "Prime Based Rate Interest Period" means any period during which Prime Based Rate Advance is outstanding. "Prime Based Rate Option" means the option of Borrower to have interest rate under the Note computed based on the Prime Based Rate. "Prime Rate" means a rate per annum announced by the Bank Agent from time to time, as its prime rate of interest for short term, unsecured commercial loans based on its consideration of economic, money market, business, and competitive factors. The Prime Rate is a reference rate for the information and use of the Bank Agent in establishing the actual rate to be charged to its borrower and is not necessarily the Bank Agent's most favored rate. In the event of a change in the Prime Rate, the Prime Based Rate shall be adjusted accordingly as of the date of each such change, it being the intent that the Prime Based Rate shall increase or -12- decrease simultaneously with each increase or decrease in the Prime Rate. Any change in the Prime Based Rate shall become effective automatically without notice to the Borrower. "Prohibited Transaction" means a "prohibited transaction" as defined in Section 406 of ERISA or Section 4975 of the Code. "Rate Option" means the Libor Rate Option, the Fixed Rate Option or the Prime Based Rate Option. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reportable Event" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such Section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a reportable event regardless of the issuance of any such waivers in accordance with Section 412(d) of the Code. "Reserve Requirement" means, with respect to a Libor Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on new non-personal time deposits of $100,000 or more with a maturity equal to that of the Libor liabilities (in the case of Libor Advances). "Revolving Credit Loan" means the Loan in the aggregate amount not to exceed Five Million Dollars ($5,000,000) by the Banks to Borrower as more fully set forth in Section 2.1. "Revolving Credit Notes" means collectively the promissory notes made by Borrower in favor of the Banks pursuant to Section 2.1(b) evidencing the Revolving Credit Loan, and any amendment, modification, renewal or replacement of any such note "Section" means a numbered section of this Agreement, unless another document is specifically referenced. -13- "Security Agreement" means the Amended and Restated Security Agreement of even date herewith made by and between the Collateral Agent and the Borrower, as the same may be amended or modified and in effect from time to time. "Security Documents" means the Security Agreement and all other instruments and documents referred to in Article 3, and all other documents executed pursuant to or in connection with any of the foregoing. "Senior Debt" means all Debt of the Borrower from time to time reflected as a liability on Borrower's balance sheet, which is not expressly subordinated to the Loans. "Senior Notes" means collectively (i) the Smith Barney Senior Notes and (ii) the Fifteen Million Dollar (15,000,000) 11 3/4% Notes issued by DSC on October 16, 1995. "Senior Note Agreements" means the instruments and agreements executed by DSC in connection with the Senior Notes. "Shareholders' Equity" means the shareholders' equity, as determined in accordance with GAAP (on a consolidated basis), of the Borrower. "Single Employer Plan" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "Smith Barney Senior Notes" means the Twenty-Five Million Dollar ($25,000,000) Senior Notes issued by DSC through Smith Barney Shearson, Inc. on May 24, 1994. "Subsidiary" means any corporation or other entity the majority of outstanding shares having the ability to elect a majority of the directors of which is at the time owned by the Borrower or another Subsidiary. "Tangible Net Worth" shall mean the Borrower's consolidated Net Worth determined in accordance with GAAP, based on a FIFO method of cost accounting for inventory (including the sum of common stock, paid in capital, and earned surplus), LESS (i) employee, officer, or Affiliate accounts receivable, LESS (ii) all capitalized organizational or closing costs, LESS (iii) the then amount of deferred debt or equity issuance costs and deferred financing costs, LESS (iv) goodwill, LESS (v) investments in any stock, obligations, or securities of, or any other interest in, any Person, LESS (vi) any other asset considered under GAAP as an intangible asset. "Term Loan Libor Rate" means the Libor Rate plus 50 basis points (0.50%). -14- "Term Loan" means the loan in the aggregate amount of Four Million Five Hundred Thousand Dollars ($4,500,000) by the Banks to Borrower as more fully set forth in Section 2.2. "Term Notes" mean collectively the promissory notes made by Borrower in favor of the Banks pursuant to Section 2.2(b) evidencing the Term Loan, and any amendment, modification, renewal or replacement of any such promissory note. "Termination Date" means June 16, 2000. "Total Debt" means all Debt of Borrower. "Unfunded Liabilities" means, (i) in the case of Single Employer Plans, the amount (if any) by which the present value of all vested nonforfeitable benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan, and (ii) in the case of Multiemployer Plans, the withdrawal liability of the Borrower and the Subsidiaries. "Unmatured Default" means a circumstance that with the giving of notice, the passage of time, or both, would constitute an Event of Default. 1.2 OTHER DEFINITIONAL PROVISIONS; CONSTRUCTION. Unless otherwise specified, (i) All terms defined in this Agreement, whether or not defined in Section 1, have the defined meanings provided in this Agreement when used in this Agreement, in any other of the Loan Documents, or any other certificate, instrument or other document madeor delivered pursuant to this Agreement or any other Loan Document, unless otherwise defined therein. (ii) As used in this Agreement, in any other of the Loan Documents, or in any other certificate, instrument or document made or delivered pursuant hereto or thereto, accounting terms relating to Borrower not defined in this Agreement have the respective meanings given to them in accordance with generally accepted accounting principles in the United States of America as in effect at the time any determination is made or financial statement or information is required or furnished under this Agreement ("GAAP"). (iii) References to the Uniform Commercial Code, or UCC, mean as enacted in the particular jurisdictions encompassed by the reference. (iv) The definition of any document or instrument includes all schedules, attachments and exhibits thereto and all renewals, extensions, supplements, restatements and amendments thereof. -15- (v) "Hereunder," "herein," "hereto," "this Agreement" and words of similar import refer to this entire document; "including" is used by way of illustration and not by way of limitation, unless the context clearly indicates the contrary; the singular includes the plural and conversely. (vi) All of the uncapitalized terms contained in the Loan Documents which are defined under the UCC will, unless the context indicates otherwise, have the meanings provided for in the UCC. 1.3 CALCULATION OF FINANCIAL COVENANTS. All financial statements of Borrower required hereunder and all financial ratios and covenants referred to or agreed to hereunder shall be prepared and/or determined (i) in accordance with GAAP except to the extent otherwise specified in this Agreement (ii) on a consolidated basis with DSC and (iii) in a manner consistent with the immediately preceding like period except for such changes required under GAAP. ARTICLE 2 LOANS, ADVANCES, FEES AND PAYMENTS 2.1 REVOLVING CREDIT LOAN. (a) Subject to, and in accordance with the terms, conditions, and provisions of this Agreement, the Banks will lend and re-lend to the Borrower and the Borrower will borrow and re-borrow from the Banks such amounts as the Borrower may request from time to time (such amounts outstanding under this Section 2.1 from time to time collectively will be designated the "Revolving Credit Loan"), up to a maximum amount outstanding at any one time of Three Million Dollars ($3,000,000) in the case of Bank One and Two Million Dollars ($2,000,000) in the case of BOA, or Five Million Dollars ($5,000,000) in the aggregate for both Banks. The Revolving Credit Loan at all times will be subject to the terms and conditions and made upon the representations and warranties and covenants of the Borrower set forth in this Agreement. (b) The Revolving Credit Loan shall be evidenced by promissory notes of the Borrower (collectively, the "Revolving Credit Notes") in the form attached hereto and made a part hereof as EXHIBIT 2.1. The Revolving Credit Loan will bear interest and be repayable in the manner set forth herein and in the Revolving Credit Notes and the Revolving Credit Loan will be subject to all of the terms and conditions specified in the Revolving Credit Notes and in this Agreement. (c) Borrower may borrow, repay or prepay, without premium or penalty (subject to Section 2.12 regarding prepayments -16- of Libor Rate Advances), and re-borrow the Revolving Credit Loan under this Agreement. (d) Subject to Section 2.1(f) below, the Banks will advance the Revolving Credit Loan in the maximum aggregate amount of Five Million Dollars ($5,000,000) to Borrower based on Borrower's Eligible Accounts Receivable and Eligible Inventory. Subject to Section 2.1(f), the amounts of such Advances outstanding at any one time shall in no event be greater than the sum of (i) eighty-five percent (85%) of Borrower's Eligible Accounts Receivable, (ii) sixty percent (60%) of Borrower's Eligible Inventory, provided, however, that Advances against Eligible Inventory shall not exceed One Million Dollars ($1,000,000). (e) On the 15th and 30th day of each month (or, if such day is not a Business Day, on the Business Day next following) the Borrower shall execute and deliver to the Banks a certificate (the "Borrowing Base Certificate") on a form supplied by the Bank Agent, which shall describe in detail the status of the Loan and the status of all Collateral securing the Loan as of the 1st and 15th days of such month, respectively, and shall contain such other information as may be requested by the Banks, from time to time. The Borrower shall execute and deliver to the Banks a Borrowing Base Certificate on more frequent intervals than semi-monthly if there exists any Event of Default or Unmatured Default. (f) The amount that the Banks shall be obligated to advance pursuant to this Section 2.1 shall be reduced by the aggregate amount of all letters of credit issued by the Banks for the benefit of Borrower from time to time. 2.2 TERM LOAN. (a) Subject to, and in accordance with the terms, conditions, and provisions of this Agreement, the Banks will lend to the Borrower and the Borrower will borrow from the Banks Two Million Seven Hundred Thousand Dollars ($2,700,000) in the case of Bank One and One Million Eight Hundred Thousand Dollars ($1,800,000) in the case of BOA, or Four Million Five Hundred Thousand Dollars ($4,500,000) in the aggregate for both Banks, combined (such amounts outstanding under this Section 2.2 from time to time collectively will be designated the "Term Loan"). The Banks shall advance the amount of the Term Loan to the Borrower upon the closing of this Agreement. The Borrower shall not be entitled to reborrow any installment payment or other amount paid by Borrower to the Banks with respect to the Term Loan. The Term Loan at all times will be subject to the terms and conditions and made upon the representations and warranties and covenants of the Borrower set forth in this Agreement. (b) The Term Loan shall be evidenced by promissory notes of the Borrower (collectively, the "Term Notes") in the form -17- attached hereto and made a part hereof as EXHIBIT 2.2. The Term Loan will bear interest and be repayable in the manner set forth herein and in the Term Notes and the Term Loan will be subject to all of the terms and conditions specified in the Term Notes and in this Agreement. (c) In the event any portion of a Term Loan as to which the Borrower has selected the Fixed Rate, is prepaid, whether voluntarily or involuntarily (including, without limitation, upon the occurrence of an Event of Default under this Agreement or as provided for in Sections 3.6.2 and 3.9 of the Mortgages), prior to the end of the Fixed Rate Interest Period applicable to such Term Loan, such prepayment shall be accompanied by the Fixed Rate Prepayment Premium, together with interest on the amount prepaid. 2.3TERM LOAN ADJUSTMENTS. Borrower acknowledges and agrees that the Banks will be advancing funds for the Term Loan to Borrower on the basis of assumed values for the Mortgaged Property and certain equipment of Borrower, which are subject to confirmation by certain appraisals which have not yet been completed. The parties anticipate that all appraisals required by the Banks will be obtained within sixty (60) days of the date of this Agreement. In the event seventy percent (70%) of the appraised values (on a fair market value analysis) as set forth in the appraisals is less than Four Million Five Hundred Thousand Dollars ($4,500,000) the Term Loan shall be immediately repaid by Borrower by the amount of such shortfall. The amount of such shortfall shall increase the amount of the outstanding Revolving Credit Loan, and the Borrower may use the Revolving Credit Loan, subject to the provisions of Section 2.1(d) above, to so repay the Term Loan. The failure to obtain appraisals within one hundred twenty (120) days of the date of this Agreement shall be an Event of Default under this Agreement, if such failure is the result of the actions or inactions of Borrower. 2.4 LETTERS OF CREDIT. (a) In addition to cash Advances, as set forth in Section 2.1, Bank Agent agrees to issue up to Three Million Dollars ($3,000,000) of letters of credit for Borrower and/or DSC (on a consolidated basis) as account party for purposes directly related to the purchase of Eligible Inventory, which issuance shall be considered the same as an advance of Revolving Credit Loan proceeds for purposes hereof. The Bank Agent shall not be obligated to issue a letter of credit unless the Banks would be obligated if so requested to make a cash Advance to Borrower under Section 2.1. No such letter of credit shall have an expiration date beyond the Termination Date. The Bank Agent shall send copies of all such letters of credit to the Collateral Agent. (b) The Bank Agent may condition any issuance of a letter of credit upon the execution and delivery by Borrower of a -18- reimbursement agreement and such other documents as Bank Agent may require. The Borrower shall at all times protect, indemnify and save harmless the Banks from and against any and all claims, actions, suits and other legal proceedings, and from and against any and all losses, claims, demands, liabilities, damages, charges, attorneys' fees and other expenses which the Banks may, at any time sustain or incur by reason of or in consequence of or arising out of the issuance of any letter of credit, other than as a result of the Bank Agent's gross negligence or willful misconduct. (c) In the event any such letter of credit is drawn upon, the amount paid by the Bank Agent on such draw shall be considered a Prime Based Rate Advance of the Revolving Credit Loan, with the obligation to repay such advance evidenced by the Revolving Credit Notes and secured by the Security Documents. The issuance of any letter of credit shall be subject generally to the same conditions and requirements as set forth herein and, in addition, to such additional conditions and requirements as the Bank Agent in its sole discretion shall deem appropriate from time to time, including the payment of out of pocket costs. (d) Each Bank and the Borrower agree that, in paying any drawing under a letter of credit, the Bank Agent shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the letter of credit) or to ascertain or inquire as to the validity of accuracy of any such document or the authority of the Person executing or delivering any such document. (e) No Person nor any of the respective correspondents, participants or assignees of the Bank Agent shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any letter of credit related document. (f) The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any letter of credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower's pursuing such rights and remedies as it may have the beneficiary or transferee at law or under any other agreement. No Person, nor any of the respective correspondents, participants or assignee of the Bank Agent shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 2.4(g) below; however, anything in such clauses to the contrary notwithstanding, that the Borrower may have a claim against the Bank Agent, and the Bank Agent may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the Bank Agent's willful misconduct or gross -19- negligence or the Bank Agent's willful failure to pay under any letter of credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a letter of credit. In furtherance and not in limitation of the foregoing: (i) the Bank Agent may accept documents that appear on their face to be in order, without responsibility for investigation; and (ii) the Bank Agent shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a letter of credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. (g) The obligations of the Borrower under this Agreement and any documents related to the issuance of a letter of credit to reimburse the Bank Agent for a drawing under a letter of credit, and to repay any drawing under a letter of credit converted into a Revolving Credit Loan, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other document executed in connection with any letter of credit under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any document related to any letter of credit; (ii)any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Borrower in respect of any letter of credit or any other amendment or waiver of or any consent to or departure from all or any of the documents related to any letter of credit by any Person; (iii) the existence of any claim, set-off, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of any letter of credit (or any Person for whom any such beneficiary or any other such transfer may be acting), the Bank Agent or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the documents related to any letter of credit or any unrelated transactions; (iv)any draft demand, certificate or other document presented under any letter of credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any letter of credit; (v) any payment by the Bank Agent under any letter of credit against presentation of a draft or certificate that does not strictly comply with the terms of any letter of credit; or any payment made by the Bank Agent under any letter of credit to any Person purporting to be a trustee in bankruptcy, debtor-in- -20- possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any letter of credit, including any arising in connection with any bankruptcy or insolvency proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to or departure from any other guarantee by any Person for all or any of the obligations of the Borrower in respect of any letter of credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. (h) The Borrower shall pay to the Bank Agent from time to time on demand the normal issuance, presentation amendment and other processing fees, and other standard costs and charges, of the Bank Agent relating to letters of credit as from time to time in effect. (i) The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce ("UCP") most recently at the time of issuance of any letter of credit shall (unless otherwise expressly provided in the letters of credit) apply to the letters of credit. 2.5 EXPIRATION. (a) The obligation of the Banks to make Advances pursuant to this Agreement shall expire on the Termination Date. (b) The Obligations (regardless of the stated maturity dates of the Notes), shall be immediately due and payable on the Termination Date and upon acceleration of the Obligations pursuant to Article 7 below. 2.6 FEES. (a) FACILITY FEE. The Borrower agrees to pay to the Bank Agent a facility fee on the excess of the daily average unused amount of the Aggregate Commitment over the outstanding principal amount of the Revolving Credit Loan (including the stated amount of any letters of credit issued by the Bank Agent for the account of the Borrower), for the period from the date of this Agreement to but excluding the Termination Date, at a rate equal to one-quarter of one percent (.25%) per annum through December 31, 1996 and thereafter at a rate determined based on the following table: -21- Test Facility Fee ---- ------------ (a) (1) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 2.00:1 and .375% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 5.00:1 (b) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 2.50:1 and . 25% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 4.00:1 (c) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 3.00:1 and . 25% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 3.50:1 (d) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 3.50:1 and .125% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 3.00:1 (e) (i) Ratio of Borrower's EBITDA to Borrower's total interest expense greater than 4.00:1 and .125% (ii) Ratio of Borrower's Total Debt to Borrower's EBITDA less than 2.50:1 -22- Each Test set forth above shall be computed as of the Computation Date. As used herein, "Computation Date" shall mean the last day of the fiscal quarter of the Borrower immediately preceding the date of determination of the Facility Fee hereunder. In the event the Borrower fails to maintain any of the specified combinations of EBITDA to interest expense and Total Debt to EDITDA set forth above as of any Computation Date, the Facility Fee shall be 0.50%. The Facility Fee shall be computed based on a 360 day year. The Facility Fee will be computed quarterly (based on the ratios herein set forth as of the Computation Date), with such recomputed Facility Fee in effect for three calendar months beginning on the first day of the third full calendar month after the end of each Computation Date. The Facility Fee shall be distributed to the Banks by the Bank Agent ratably in accordance with the respective Commitments of the Banks. (b) CLOSING FEE. The Borrower (or DSC) agrees to pay the Bank Agent a closing fee of Fifty Thousand Dollars ($50,000) and the Collateral Agent a closing fee of One Hundred Twenty Thousand Dollars ($120,000), on the Closing Date. The payment of the Closing Fee may be allocated between the Borrower and DSC, as determined by the Borrower and DSC. (c) AUDIT FEES/CUSTOMARY CHARGES. Borrower shall pay to the Collateral Agent an audit fee of Thirty Thousand Dollars $30,000) per year (on a consolidated basis with DSC) payable annually in advance. The audit fee for the first year shall be paid upon execution of this Agreement. The Borrower will pay the Banks throughout the term of the Loans customary banking charges applicable to all commercial customers. The payment of the audit fees may be allocated between the Borrower and DSC, as may be determined by the Borrower and DSC. (d) LETTER OF CREDIT FEES. Borrower shall pay to the Banks a fee determined by multiplying the principal amount of each letter of credit issued by the Bank Agent for Borrower as account party by the lesser of (i) 1.50% or (ii) the then Applicable Libor Spread. Each renewal of an outstanding letter of credit shall be deemed to be an issuance of a letter of credit for this purpose. 2.7 REVOLVING CREDIT LOAN ADVANCES AND RATE ELECTIONS. (a) The Borrower shall give the Bank Agent notice (a "Borrowing Notice") in such form as the Bank Agent may require from time to time of its request for each Advance of the Revolving Credit Loan not later than (i) 12:00 p.m. Dayton time two Business Days prior to the date such Advance is requested to be made if such Advance is to be made as a Libor Rate Advance, and (ii) by 2:00 p.m. on the Business Day the Advance is requested to be made in all other cases, which notice shall specify the amount of the requested Advance, the date of the requested Advance (which shall be a Business Day), whether a Libor Rate Advance or Prime Rate Based -23- Advance is requested and, in the case of each requested Libor Rate Advance, the Libor Interest Period to be initially applicable to such Advance. The Libor Rate Option shall not be available if the Libor Interest Period sought to be elected would extend beyond the Termination Date. (b) Each Advance shall be in the minimum amount of One Hundred Thousand Dollars ($100,000) and in multiples of Ten Thousand Dollars ($10,000) if in excess thereof. (c) Subject to the terms and conditions of this Agreement, the proceeds of each such requested Advance shall be made available to the Borrower by depositing the proceeds thereof, in immediately available funds, in an account maintained and designated by the Borrower at the principal office of the Bank. (d) The Bank Agent shall immediately provide by facsimile a copy of the Borrowing Notice to each Bank. Each Bank, on the date an Advance is to be made, shall provide to the Bank Agent its pro rata share (based on the Commitments of the Banks) of such Advance in immediately available funds at the principal office of the Bank Agent for disbursement to the Borrower. Unless the Bank Agent shall have received notice from any Bank prior to the making of such Advance under this Section 2.5 that such Bank will not make available to the Bank Agent such Bank's portion of such Advance, the Bank Agent may assume that such Bank has made such portion available to the Bank Agent on the date such Advance is requested to be made in accordance with this Section 2.5. If and to the extent such Bank shall not have so made such portion available to the Bank Agent prior to the making of such Advance, the Bank Agent may (but shall not be obligated to) make such amount available to the Borrower, and such Bank agrees to pay to the Bank Agent upon demand such amount together with interest thereon, for each day from the date such amount is made available to the Borrower by the Bank Agent until the date such amount is repaid to the Bank Agent, at a rate per annum equal to the opening federal funds rate paid by the Bank Agent in its regional federal funds market for overnight borrowings from other banks. If such Bank shall pay such amount to the Bank Agent together with interest, such amount so paid shall constitute a part of the related Loan for purposes of this Agreement. The failure of any Bank to make its portion of any such Loan available to the Bank Agent shall not relieve any other Bank of its obligations to make available its portion of such Advance on the date such Advance is requested to be made, but no Bank shall be responsible for failure of any other Bank to make such portion available to the Bank Agent on the date of any such Advance. (e) All Advances made under this Section 2.6 shall be evidenced by the Revolving Credit Notes and all such Advances shall be due and payable and bear interest as provided in the Revolving Credit Notes. The Bank Agent shall maintain computerized records -24- reflecting the date, amount and type of each Advance and the duration of the related Interest Period (if applicable), the amount of each payment or prepayment of principal thereon, which records shall constitute prima facie evidence of the information so recorded, PROVIDED, HOWEVER, that failure of the Bank Agent to record, or any error in recording, any such information shall not relieve the Borrower of its obligation to repay the outstanding principal amount of the Notes. (f) By notice (a "Continuation/Conversion Notice") delivered to the Bank Agent at or before 12:00 p.m. (Dayton time) on any Business Day, the Borrower may elect, from time to time on not less than three (3) Business Days' notice: (i) that all or any portion of any Advances be converted from Prime Based Rate Advances into Libor Rate Advances; and (ii)on the expiration of the Interest Period applicable to any Libor Rate Advances, that all or any portion of such Advance be continued as Libor Rate Advances, or converted into Prime Based Rate Advances, as the case may be; PROVIDED that no portion of the outstanding principal amount of any Advances may be continued as, or be converted into, Libor Rate Advances when any Event of Default or Unmatured Default has occurred and is continuing. (g) No Advance may be made or continued as, or converted into, a Libor Rate Advance if, after giving effect to such action, the aggregate principal amount of any Libor Rate Advances having a particular Interest Period is less than One Million Dollars ($1,000,000) in the aggregate or not in a multiple of One Hundred Thousand Dollars ($100,000). (h) Notwithstanding anything to the contrary herein, any Advance for which the Libor Rate Option is not effectively elected in accordance with this Agreement, or for which the Libor Rate Option is otherwise prohibited, shall be a Prime Based Rate Advance. (i) All Rate Option notices given by the Borrower to the Bank Agent shall be in writing in the form of the Borrowing Notice or such other form as the Bank Agent may require from time to time, or a Continuation/Conversion Notice, in such form as the Bank Agent may require from time to time. 2.8 TERM LOAN RATE ELECTIONS. (a) Interest on the Term Loan shall initially be computed at the Term Loan Libor Rate. -25- (b) By Notice (a "Term Loan Continuation/Conversion Notice") delivered to the Bank Agent at or before 12:00 p.m. (Dayton time) on any Business Day, the Borrower may elect, from time to time on not less than three (3) Business Days' notice: (i) that the interest rate applicable to all or a portion of the Term Loan be converted from Prime Based Rate to the Term Loan Libor Rate or the Fixed Rate; and (ii)on the expiration of the Interest Period applicable in the event the Term Loan Libor Rate or the Fixed Rate is applicable, that the interest rate continue to be the Term Loan Libor rate or Fixed Rate, as the case may be, or be converted to be the Fixed Rate or the Term Loan Libor Rate, or the Prime Based Rate as the case may be; PROVIDED that the interest rate on the Term Loan may not be continued as, or be converted into, the Term Loan Libor Rate or Fixed Rate when any Event of Default or Unmatured Default has occurred and is continuing. (c) Notwithstanding anything to the contrary herein, any Advance for which neither the Libor Rate Option nor the Fixed Rate Option is effectively elected in accordance with this Agreement, or for which the Libor Rate Option or the Fixed Rate Option, whichever is elected, is otherwise prohibited, shall be a Prime Based Rate Advance. (d) The Bank Agent shall maintain computerized records reflecting the duration of the related Interest Period (if applicable), and the amount of each payment or prepayment of principal thereon, which records shall constitute prima facie evidence of the information so recorded, PROVIDED, HOWEVER, that failure of the Bank Agent to record, or any error in recording, any such information shall not relieve the Borrower of its obligation to repay the outstanding principal amount of the Term Notes. (e) The interest rate on the Term Loan may not be made or continued as, or converted to, the Term Loan Libor Rate if, after giving effect to such action, the aggregate principal amount of the Term Loan having a particular Interest Period is less than One Million Dollars ($1,000,000) in the aggregate or not in a multiple of One Hundred Thousand Dollars ($100,000). (f) All Rate Option notices given by the Borrower to the Bank Agent shall be in writing in the form of the Borrowing Notice or such other form as the Bank Agent may required from time to time, or a Continuation/Conversion Notice, in such form as the Bank Agent may require from time to time. 2.9 HANDLING OF PAYMENTS. -26- (a) All payments to be made by the Borrower hereunder shall be made in Dollars and in immediately available funds to the Bank Agent for the account of the Banks at the Bank Agent's address referred to in Section 10.6 not later than 2:00 p.m. Dayton time on the date on which such payment shall become due. To the extent of availability of funds, all payments will be debited by the Bank Agent from Borrower's designated account on the due dates. Payments received after 2:00 p.m. Dayton time shall be deemed to be payments made prior to 2:00 p.m. Dayton time on the next succeeding Business Day. (b) On the day such payments are deemed received, the Bank Agent shall remit to the Banks their pro rata shares of such payments in immediately available funds (based on the relative Commitments of the Banks). If and to the extent the Bank Agent shall not remit to any Bank any amount to be remitted hereunder on the date required, the Bank Agent shall compensate such Bank for the late remittance at a rate per annum equal to the opening federal funds rate paid by the Bank in its regional federal funds market for overnight borrowings from other banks. (c) All payments which are available to be applied to the payment of principal pursuant to any Note shall be applied first to the payment of principal as to which the Prime Based Rate is applicable, and then, if all principal as to which the Prime Based Rate is applicable have been paid in full, to the payment of principal as to which the Libor Rate, the Term Loan Libor Rate, or the Fixed Rate is applicable. 2.10 RATE AFTER MATURITY. Any Obligation not paid at maturity, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to the Prime Based Rate plus four percent (4%) per annum (such rate being the "Default Rate"). 2.11 LENDING INSTALLATIONS. Subject to Section 2.15 hereof, each Bank may book its loans at any Lending Installation selected by such Bank and may change its Lending Installation from time to time. All terms of this Agreement shall apply to any such Lending Installation and the Notes shall be deemed held by each Bank for the benefit of such Lending Installation. Each Bank may, by written or telex notice to the Borrower, designate a Lending Installation through which Loans will be made by it and for whose account Loan payments are to be made. 2.12EARLY PAYMENT OF LIBOR LOANS. If any amount as to which a Libor Rate Option election is in effect is repaid on a day other than the last day of the applicable Libor Interest Period, or becomes payable on a day other than the last day of the applicable Libor Interest Period due to acceleration or otherwise, Borrower shall pay, on demand by the Bank Agent, such amount (as determined by the Bank) as is required to compensate the Banks for any losses, -27- costs, or expenses which the Banks may reasonably incur as a result of such payment or acceleration, including, without limitation, any loss, cost, or expense (including loss of profit) incurred by reason of liquidation or reemployment of deposits or other funds acquired by the Banks to fund or maintain such amount bearing interest at a Libor Rate. 2.13 YIELD PROTECTION. If any law or any governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or compliance by any Bank therewith, (a) subjects any Bank to any tax, duty, charge or withholding on or from payments due from the Borrower (excluding taxation of or measured by the overall net income of such Bank), or changes the basis of taxation of payments to any Bank in respect of its Loans or other amounts due it hereunder, or (b) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (other than reserves and assessments taken into account in determining the interest rate applicable to Libor Rate Advances), or (c) imposes any other condition the result of which is to increase the cost to any Bank of making, funding or maintaining loans or reduces any amount receivable by any Bank in connection with loans, or requires such Bank to make any payment calculated by reference to the amount of loans held or interest received by it, by an amount deemed material by the Banks, or (d) affects the amount of capital required or expected to be maintained by any Bank or any corporation controlling any Bank and the Banks determines the amount of capital required is increased by or based upon the existence of this Agreement or their obligation to make Loans hereunder or of commitments of this type, then, within 15 days of written demand by the Bank in question, the Borrower shall pay such Bank that portion of such increased expense incurred (including, in the case of Section 2.11(d), any reduction in the rate of return on capital to an amount below that which it could have achieved but for such changes in regulation after taking into account such Bank's policies as to capital adequacy) or reduction in an amount received which such Bank determines is attributable to making, funding and maintaining the Loan in question and its Commitment. -28- 2.14 AVAILABILITY OF RATE OPTIONS. If any Bank determines that maintenance of its Libor Rate at a suitable Lending Installation would violate any applicable law, rule, regulation, or directive, whether or not having the force of law, or if the Bank determines that a Rate Option does not accurately reflect the cost of making or maintaining Loans bearing interest at such Rate Option, then the Bank Agent shall suspend the availability of the affected Rate Option. 2.15 MITIGATION. (a) At any time that any of its Libor Rate Loans are affected by the circumstances described in Section 2.12 or Section 2.13, the Borrower shall either (i) if the affected Libor Rate Loans are to be made pursuant to an Advance, withdraw the related Borrowing Notice by giving the Bank Agent written notice thereof on the same date that the Borrower was notified by a Bank Agent pursuant to Section 2.12 or 2.13, before such Bank's match funds, or (ii) if the affected Libor Rate Loan or Loans are then outstanding, reborrow each Libor Rate Loan so affected (after the maturity thereof) as a Prime Rate Loan or a Fixed Rate Loan. (b) Promptly after giving notice to the Borrower pursuant to Section 2.12 or Section 2.13, any Bank giving such notice will upon the written request of Borrower specifying an alternate Lending Installation, use its reasonable efforts to designate such Lending Installations as the office from which any of its Loans bearing interest in accordance with such Rate Option will be made after such designation if such designation will avoid the need for, or reduce the amount of, any payment to which such Bank would otherwise be entitled pursuant to Section 2.11 and will not, in the sole discretion of such Bank, be otherwise disadvantageous to such Bank. 2.16 BANK CERTIFICATES; SURVIVAL OF INDEMNITY. The Bank Agent shall deliver to the Borrower a certificate of the Banks as to the amount due under Sections 2.11, 2.12, and/or 2.13 which certificate shall be prepared in good faith, show in reasonable detail the basis of its calculations and shall be final, conclusive and binding on the Borrower in the absence of manifest error. Unless otherwise provided herein, the amount specified in the certificate shall be payable on demand after receipt by the Borrower of the certificate. The obligations of the Borrower under Sections 2.11, 2.12, and 2.13 shall survive payment of the Obligations and termination of this Agreement. 2.17 BASIC CONDITIONS TO EACH ADVANCE. The following conditions precedent must be satisfied on each Borrowing Date in order for an Advance to be made: (a) There exists no Event of Default or Unmatured Default; -29- (b) The representations and warranties contained in Article 4 are true and correct as of such Borrowing Date except for changes in the Exhibits hereto reflecting transactions permitted by this Agreement; and (c) The Borrower has furnished the Bank Agent with a duly completed Borrowing Notice. The making of each Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Article 8 and this Section 2.17 have been satisfied. ARTICLE 3 COLLATERAL In order to secure the repayment of the Obligations, Borrower shall execute and deliver, and/or cause to be executed and delivered, the following (the "Security Documents"): 3.1 The Amended and Restated Security Agreement in the form attached hereto as EXHIBIT 3.1, which shall grant, subject only to Permitted Liens, the Collateral Agent a first and only security interest, on all of the Borrower's Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, Proceeds, Books and Records, and other property defined as Collateral in the Amended and Restated Security Agreement. 3.2 Landlord's Waivers in the form attached as EXHIBIT 3.2. 3.3 Open-End Mortgage, Assignment of Rents and Leases, and Security Agreement in the form attached hereto as EXHIBIT 3.3, which shall grant the Collateral Agent a first and only mortgage lien, subject to Permitted Encumbrances, on the Mortgaged Property and the other property described therein. 3.4 Environmental Compliance and Indemnification Agreement attached hereto as EXHIBIT 3.4 relating to the property described therein. 3.5 The Stock Pledge Agreements attached hereto as EXHIBIT 3.5 relating to the Dur-O-Wal Limited shares described therein. 3.6 The Negative Pledge Agreement in the form attached hereto as EXHIBIT 3.6. 3.7 The Guarantees executed by DSC in favor of the Banks in the form attached hereto as EXHIBIT 3.7. 3.8 Such UCC financing statements and other documents as may be determined by the Collateral Agent to be necessary or desirable -30- to grant and perfect a first priority security interest in the Collateral and the property described in the Mortgages, and such other documents and agreements as may be requested by any Bank in connection with the documents listed in Section 3.1 through 3.5. 3.9 If requested by the Bank Agent, a Lock Box Agreement in the form prescribed by the Bank Agent. 3.10The Borrower shall have ninety (90) days from the date of this Agreement within which to obtain and to deliver to the Banks, the Landlord Waivers referred to in Section 3.2 above. ARTICLE 4 REPRESENTATIONS AND WARRANTIES To induce the Banks to make the Loan, the Borrower hereby represents and warrants to the Banks as follows: 4.1 GOOD STANDING. The Borrower and each of its Subsidiaries (i) is a corporation duly organized, existing, and in good standing under the laws of the state or other jurisdiction of their incorporation, and (ii) has the power to own its property and to carry on its business and is qualified to do business and is in good standing in each jurisdiction in which the character of its properties owned by it or the transaction of its business makes such qualification necessary. 4.2 AUTHORITY. The Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, to execute and deliver the Notes and the Security Documents, and to perform and comply with the terms and conditions, set forth herein and therein, all of which have been duly authorized by all proper and necessary corporate action of the Borrower. No consent or approval of the shareholders of the Borrower or of any governmental authority is required as a condition to the validity of this Loan Agreement, the Notes, or the Security Documents. 4.3 SUBSIDIARIES. Each Subsidiary of Borrower is set forth on EXHIBIT 4.3 which exhibit sets forth the Subsidiary(s) (i) full corporate name, (ii) the state or other jurisdiction of incorporation, and (iii) the ownership of such entity, by number of shares and percentage of ownership. Each Subsidiary (i) is a corporation duly organized, existing, and in good standing under the laws of the states set forth on EXHIBIT 4.3, and (ii) has the power to own its property and to carry on its business and is qualified to do business and is in good standing in each jurisdiction in which the character of its properties or the transaction of its business makes such qualification necessary. -31- 4.4 BINDING AGREEMENT. This Agreement constitutes, and the Notes and the Security Documents constitute or will constitute when issued and delivered for value received, the valid and legally binding obligations of the Borrower enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization and other similar laws affecting creditors' rights generally and general equitable principles. 4.5 LITIGATION. Except as set forth on EXHIBIT 4.5, there are no proceedings pending or, so far as any person signing below on behalf of the Borrower knows, threatened before any court or administrative agency which would reasonably be expected, if concluded adversely to Borrower or any Subsidiary, result in a Material Adverse Effect, nor, so far as any person signing below on behalf of Borrower knows, is any investigation pending that could lead to any such proceedings, nor does any basis for any proceeding exist. 4.6 NO CONFLICTING AGREEMENTS. There are no provisions of the Borrower's Articles of Incorporation or Code of Regulations and no provisions of any existing mortgage, deed of trust, indenture, contract, lease, or agreement binding on the Borrower or affecting its property which would conflict with or in any way prevent the execution, delivery, or carrying out of the terms of this Loan Agreement, the Notes, and the Security Documents. 4.7 FINANCIAL CONDITION. The Borrower's consolidated financial statements, copies of which are attached hereto as EXHIBIT 4.7, were prepared in accordance with GAAP consistently applied and are complete and correct and fairly and accurately present the financial condition of the Borrower, and its consolidated Subsidiaries, as of their date and the results of its operations for the period then ended. There has been no Material Adverse Effect since the date of such financial statements. 4.8 INFORMATION. All information contained in any financial statement, application, schedule, report, certificate, opinion, or any other document given by the Borrower with any of the Security Documents is in all material respects true and accurate, and the Borrower has not omitted to state any material fact or any fact necessary to make such information not misleading. 4.9 ASSETS AND PROPERTIES. Upon the execution of the Loan Agreement, the Borrower and its Subsidiaries will have good and marketable title or legal and equitable ownership to all of its assets and properties and there will be no Liens outstanding against any of the assets and properties except Liens in favor of the Collateral Agent and Permitted Liens. 4.10 TAXES. All taxes imposed upon the Borrower and its Subsidiaries and their properties, operations, and income have been paid and discharged prior to the date when any interest or penalty -32- would accrue for the nonpayment thereof except for those taxes being contested in good faith and by appropriate proceedings by the Borrower, or the Subsidiaries, as the case may be. 4.11 ERISA. Any Plan established and maintained by the Borrower and any Subsidiary is a qualifying plan under the applicable requirements of ERISA, and there is no current matter which would materially adversely affect the qualified tax-exempt status of any Plan; the Borrower has not engaged in or is engaging in any Prohibited Transaction or has incurred any Accumulated Funding Deficiency in connection with any such Plan, whether or not waived, and no Reportable Event has occurred with respect to any Plan subject to the minimum funding requirements of Section 412 of the Code, no Multiemployer Plan has "terminated," as that term is defined in ERISA; (except with respect to the withdrawal from the National Industrial Group Pension Plan No. 00742 as to which there is no withdrawal liability) the Borrower has not "withdrawn" or "partially withdrawn" from any Multiemployer Plan; and no Multiemployer Plan is in "reorganization" nor has notice been received from the administrator of any Multiemployer Plan that any such Plan will be placed in "reorganization." 4.12 NAMES OF BORROWER. During the period commencing five (5) years prior to the date of this Agreement the Borrower has not done business under any name other than the name of the Borrower set forth in this Agreement. 4.13 MARGIN STOCK. The Borrower does not own and has no present intention of acquiring any "margin stock" within the meaning of Regulation U. None of the proceeds of the Loan will be used, directly or indirectly, by the Borrower for the purpose of purchasing or carrying, or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry, any margin stock or for any other purpose which might constitute the transactions contemplated hereby a "purpose credit" within the meaning of Regulation U, or cause this Agreement to violate any other regulation of the Board of Governors of the Federal Reserve System or the Securities Exchange Act of 1934 or the Small Business Investment Act of 1958, as amended, or any rules or regulations promulgated under any such statutes. 4.14 TRADEMARKS, ETC. The Borrower and each of its Subsidiaries possesses all trademarks, trade names, brand names, copyrights, licenses, or rights in any thereof, necessary to the conduct of its business as now conducted, without conflict with the rights or claimed rights of others, except where the failure to do so would not result in a Material Adverse Effect. 4.15VIOLATION OF LAWS, ETC. Neither the consummation of the Loan nor the use, directly or indirectly, of all or any portion of the proceeds of the Loan hereunder, nor (except where the failure to do so would not result in a Material Adverse Effect) the present -33- or contemplated future operation of the business of Borrower, violates or will violate or result in a violation of any provision of any applicable statute, regulation or order of, or any restriction imposed by the United States of America, any state thereof in which Borrower does business or owns property, or any authorized official, board, department, instrumentality, or agency hereof without limiting the generality of the foregoing. ARTICLE 5 AFFIRMATIVE COVENANTS The Borrower covenants and agrees that from the date of execution of this Agreement until all Obligations of the Borrower to the Banks under this Agreement and the other Loan Documents have been fully paid it will (and, with respect to Sections 5.2, 5.11, 5.12, 5.13, and 5.19 will cause its Subsidiaries to): 5.1 USE OF LOAN PROCEEDS. Use the proceeds of the Loans for the repayment of the Senior Notes and, in the case of the Revolving Credit Loan, (i) acquisitions as contemplated by Sections 6.8 and 6.9, (ii) capital expenditures permitted by Section 6.10, and (iii) for short term working capital. 5.2 BOOKS, RECORDS AND INSPECTIONS. Maintain proper books of account and other records and enter therein complete and accurate entries and records of all of its transactions in accordance with GAAP, and give representatives of the Banks access thereto at all reasonable times, including permission to examine, copy and make abstracts from any of such books and records and such other information which might be helpful to the Banks in evaluating the status of the Loans as it may from time to time request and the Borrower will make available to the Banks for examination copies of any reports, statements or returns which the Borrower may make to or file with any governmental department, bureau or agency, federal or state. 5.3 ANNUAL FINANCIALS. Furnish to the Banks as soon as available but in no event later than ninety (90) days after the end of each fiscal year of the Borrower, the consolidated and consolidating financial statements of the Borrower, including balance sheet, statement of income, statement of shareholder equity and statement of cash flow, for such fiscal year in comparative form with the prior year, fully certified by independent certified public accountants satisfactory to the Banks and containing the opinion of such independent certified public accountants subject only to qualifications satisfactory to the Banks. Such financial statements shall be accompanied by the accountants' statement that no Event of Default, nor any Unmatured Default, exists hereunder, or, if an Event of Default or Unmatured Default exists, specifying the Event of Default or Unmatured Default. -34- 5.4 INTERIM FINANCIALS. Furnish to the Banks as soon as available but in no event more than thirty (30) days after the end of each calendar month (except the last month of each fiscal year), financial statements, on a consolidated basis, of the Borrower, including balance sheet, statement of income, statement of shareholder equity and statement of cash flow, for such period and year to date in comparative form with the year earlier periods, prepared and certified by the chief financial officer of the Borrower. 5.5 ACCOUNTS RECEIVABLE AND INVENTORY SCHEDULES. Furnish the Banks, by the 15th of each month (or if such day is not a Business Day, on the next Business Day), a statement of accounts receivable, as of the end of the prior month, of the Borrower in such detail as the Banks may reasonably request, attested by an officer of the Borrower. On each such statement, accounts receivable will be broken down into 30-day, 60-day and 90-day categories. In addition, the Borrower shall furnish the Banks with monthly inventory balances which report shall be in form and substance satisfactory to the Banks. 5.6 FINANCIAL PROJECTIONS. No later than sixty (60) days after the end of each fiscal year, deliver to the Banks income statement financial projections, in form and substance satisfactory to the Banks, for Borrower's following fiscal year. No later than ninety (90) days after the end of each fiscal year deliver to the Banks balance sheet and statement of cash flow financial projections in form and substance satisfactory to the Banks, for Borrower's following fiscal year. All such financial projections shall be prepared on a consolidated and consolidating basis. 5.7 PUBLIC FILINGS. Copies of all documents filed by the Company with the Securities and Exchange Commission ("SEC") pursuant to the Securities Exchange Act of 1934 shall be delivered to the Banks promptly after filing with the SEC. 5.8 OTHER INFORMATION. Furnish to the Banks, promptly from time to time, such information concerning the operations, business, affairs, and financial condition of the Borrower as the Bank may reasonably request. 5.9 LITIGATION. Promptly upon the commencement thereof, provide the Banks with written notice of any litigation, including arbitrations, and of any proceedings before any governmental agency, involving Borrower or any Affiliate, where the amount exceeds Two Hundred Fifty Thousand Dollars ($250,000) or causes the aggregate of all such claims to exceed Six Hundred Twenty-Five Thousand Dollars ($625,000), to the extent not acknowledged in writing by the insurance carrier to be fully covered by insurance. Notify the Banks of any litigation threatened against the Borrower or any Affiliate that would have a Material Adverse Effect and of the entry of any judgment or lien, other than a Permitted Lien, -35- against any of the assets or properties of Borrower or any Affiliate. 5.10 PRESERVATION OF PROPERTIES. At all times (a) maintain its properties, whether owned or leased, in good operating condition, and from time to time will make all proper repairs, renewals, replacements, additions, and improvements thereto needed to maintain such properties in good operating condition, (b) comply (i) with the provisions of all leases to which it is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder, and (ii) as more fully set forth in Section 5.13 below, comply with all laws, rules, regulations, and orders applicable to the properties or any part thereof; provided, however, that nothing contained in this Section shall require the making of any repair, renewal, replacement, addition, or improvement to a particular property or the continued maintenance of any property which would not be required in the exercise of sound business judgment. 5.11 INSURANCE. At all times maintain with well-rated and responsible insurance companies reasonably satisfactory to the Banks such insurance as is required by applicable laws and such other insurance in such amounts, of such types, and against such risks, hazards, liabilities, casualties, and contingencies as is customarily maintained by companies similarly situated, and (b) file with the Banks upon request a detailed list of the insurance then in effect and stating the names of the insurance companies, the types, the amounts, and rates of the insurance, dates of the expiration thereof and the properties and risks covered thereby, and, within thirty (30) days after notice in writing from the Banks, obtain such additional insurance as the Banks may reasonably request. All insurance shall be satisfactory in form and substance to the Banks. The Banks shall be named as an Additional Insured on all liability insurance policies and the Collateral Agent named as a loss payee and secured creditor, pursuant to a lender loss payable endorsement, on all property insurance maintained by Borrower to the extent of the Banks' interest in such property. 5.12 TAXES. Except to the extent that the validity or amount thereof is being contested in good faith and by appropriate proceedings, the Borrower will pay and discharge all taxes prior to the date when any interest or penalty would accrue for the nonpayment thereof. 5.13MAINTAIN EXISTENCE. At all times maintain in full force and effect its corporate existence, rights, privileges, and franchises and will qualify and remain qualified in all jurisdictions where qualification is required. The Borrower shall be entitled to physically relocate to a new jurisdiction provided: (i) the Borrower gives thirty (30) days advance written notification to the Banks; (ii) the Borrower -36- qualifies to do business in such jurisdiction; (iii) the Banks have a first perfected security interest in the Collateral in such jurisdiction; and (iv) the Borrower pays all expenses, fees, taxes, and other costs which the Banks incur in perfecting their security interests in such jurisdiction. 5.14COMPLIANCE WITH LAWS. At all times comply with all applicable federal, state, and local laws, rules, and regulations, and orders of any court or other governmental authority having jurisdiction over Borrower, its business or property except when the failure to do so would not result in a Material Adverse Effect. 5.15NET WORTH. The Borrower shall have and maintain a minimum consolidated Net Worth as follows: (a) From the date of this Agreement through December 30, 1996, Forty Two Million Five Hundred Thousand Dollars ($42,500,000); (b) From December 31, 1996 through December 30, 1997, Forty Six Million Dollars ($46,000,000); (c) From December 31, 1997 through December 30, 1998, Forty Nine Million Five Hundred Thousand Dollars ($49,500,000); (d) From December 31, 1998 and thereafter, Fifty Three Million Dollars ($53,000,000). The Borrower's Net Worth shall be tested each fiscal quarter in arrears. 5.16 TANGIBLE NET WORTH. The Borrower's consolidated negative Tangible Net Worth shall not exceed Twelve Million Dollars ($12,000,000). The Borrower's Tangible Net Worth shall be tested each fiscal quarter in arrears. 5.17 SCHEDULE OF SALARIES. On an annual basis, the Borrower shall furnish the Banks with a detailed statement of the salaries, and other compensation, for each official position occupied by its officers. The Borrower shall be entitled to make normal and customary increases to its officers' compensation provided the Borrower is in full compliance with the terms of this Agreement, including, without limitation, all affirmative and negative covenants contained herein. 5.18 COMPLIANCE CERTIFICATE. Furnish the Banks with the items furnished to the Banks pursuant to Sections 5.3 and 5.4, above, and in no event less frequently than monthly, a duly executed Compliance Certificate. 5.19 CHECKING ACCOUNT. Borrower will maintain its checking account and lock box with Bank Agent (or an affiliate). -37- 5.20 ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENTS. Borrower, and its Subsidiaries, will complete, execute, and deliver to the Collateral Agent an Environmental Questionnaire and Disclosure form ("EQD") as requested by the Collateral Agent. The EQD shall be satisfactorily completed and delivered to the Collateral Agent within ninety (90) days of the execution of this Agreement. 5.21 ENVIRONMENTAL REPORTS. Borrower will deliver Phase I Environmental Reports (in form and substance satisfactory to the Banks) to the Banks with respect to the Mortgaged Properties within forty-five (45) days of the execution of this Agreement. 5.22 FURTHER ASSURANCES. Upon the request of the Banks, the Borrower shall duly execute and deliver to the Banks such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of the Banks to carry out more effectively the provisions and purposes of this Agreement. ARTICLE 6 NEGATIVE COVENANTS The Borrower covenants and agrees that from the date of execution of this Agreement until all Obligations of the Borrower to the Banks under this Agreement and the other Loan Documents have been fully paid Borrower, and Borrower's Subsidiaries, will not, without the prior written consent of the Banks: 6.1 DEBT. Incur any Debt other than: (a) the Loans and any subsequent Debt to the Banks; (b) open account obligations incurred in the ordinary course of business having maturities of less than ninety (90) days; (c) rental and lease payments as permitted by Section 6.2; (d) replacements and refinancings of the foregoing provided the principal amount of Debt so replaced or refinanced is not increased; (e) the Debt identified in EXHIBIT 6.1; and (f) other indebtedness approved in writing by the Banks. 6.2 LEASE OBLIGATIONS. Enter into any rental or lease agreement for real or personal property whereby Borrower's lease obligations for any fiscal year would exceed Three Million Dollars ($3,000,000), in the aggregate on a consolidated basis with DSC, for all such obligations. 6.3 LIENS. Create, assume or permit to exist any Lien upon any assets now owned or hereafter acquired by Borrower or enter into any arrangement for the acquisition of property subject to any conditional sales agreement, except for Permitted Liens. 6.4 GUARANTIES. Become a guarantor or surety of, or otherwise become or be responsible in any manner (whether by -38- agreement to purchase any obligations, stock, assets, goods, or services or otherwise) with respect to, any undertaking of any other Person, other than with respect to the obligations of DSC to the Banks. Notwithstanding the foregoing, the Borrower shall be entitled to guarantee mortgage loans for employees (not to exceed Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate) on a short-term basis, which are necessary in order to relocate Borrower's employees. 6.5 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Amend or change its Articles of Incorporation or Code of Regulations, recapitalize or otherwise change or adjust its capital stock. 6.6 ERISA COMPLIANCE. Restate or amend any Plan established and maintained by the Borrower in a manner designed to disqualify such Plan under the applicable requirements of the Code; permit officers of the Borrower to materially adversely affect the qualified tax-exempt status of any Plan of the Borrower; engage in any Accumulated Funding Deficiency, whether or not waived in connection with any Plan; take any action or fail to take any action which causes a termination of any Plan in a manner which could result in the imposition of a lien on the property of the Borrower pursuant to Section 4068 of ERISA; fail to notify the Banks that notice has been received of a termination of any Multiemployer Plan to which the Borrower has an obligation to contribute; incur a complete or partial withdrawal from any Multiemployer Plan to which the Borrower has an obligation to contribute; or fail to notify the Bank that notice has been received from the administrator of any Multiemployer Plan to which the Borrower has an obligation to contribute that any such plan will be placed in "reorganization." 6.7 PURCHASE OR REDEMPTION OF SECURITIES - DIVIDEND RESTRICTIONS. Purchase or redeem any shares of its capital stock, declare or pay any dividends thereon (other than stock dividends), make any distribution to shareholders, or set aside any funds for any such purpose, and not prepay, purchase, or redeem any indebtedness of the Borrower other than the Loans. Notwithstanding the foregoing, the Borrower shall be entitled to declare and pay dividends, in the ordinary course of business, to DSC. 6.8 PROHIBITED INVESTMENTS. Except as otherwise provided below, purchase or hold beneficially any stock, other securities or evidences of indebtedness of, make any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, firm, corporation, trust, association or other entity, except for short term investments of excess working capital invested in one or more of the following: (a) investments (of one year or less) in direct or guaranteed obligations of the United States, or any agencies thereof; (b) investments in certificates of deposit, repurchase agreements, Eurodollar deposits and banker's acceptances from commercial banks having combined capital and -39- surplus greater than One Hundred Million Dollars ($100,000,000) and having a long-term certificate of deposit rating of either A2 by Moody's or A by Standard and Poor's or higher; (c) investments in commercial paper and short-term taxable or tax-exempt instruments, including debt of any state or any political subdivision, assigned either of the two highest ratings by Moody's and Standard & Poor's and maturing within one year; (d) long-term instruments assigned either of the two highest ratings by Moody's or Standard & Poor's, and having either "put" or rate reset features recurring no less often than annually; and (e) investments approved in writing from time to time by the Bank prior to the making thereof. The Borrower shall be entitled to purchase or own stock and other securities of, and make loans to any Subsidiary of the Borrower, provided such Subsidiary joins in the execution of the Loan Documents and provided further that the Bank obtain a first perfected security interest in such Subsidiary's Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, and other property defined in the Amended and Restated Security Agreement attached hereto as EXHIBIT 3.1. Further, the Borrower shall be entitled to make investments in joint ventures (whether such joint ventures be structured as partnerships or corporations), in the same primary line of business or an allied product line of the Borrower in an amount not to exceed Two Million Dollars ($2,000,000) in the aggregate (all as determined on a consolidated basis with DSC), provided the joint venture entity joins in the execution of the Loan Documents and provided further that the Bank obtain a first perfected security interest in the joint venture entity's Accounts, Inventory, Deposit Accounts, and other property defined in the Security Agreement attached hereto as EXHIBIT 3.1. 6.9 MERGERS, SALE OF ASSETS, DISSOLUTION, ETC. (a) Enter into any transaction of merger or consolidation, or transfer, sell, assign, lease, or otherwise dispose of (other than sales of finished products in the ordinary course of business) all or a substantial part of its properties or assets, or any of its assets or properties necessary for the proper conduct of its business, or any stock or other equity interest in Dur-O-Wal, Inc., or wind up, liquidate or dissolve, or agree to do any of the foregoing. (b) Except as otherwise provided, Borrower shall not engage in any acquisitive corporate transaction, whether such transaction is structured as a purchase of assets, a purchase of stock, or statutory merger, without the prior written consent of the Banks. Notwithstanding the foregoing, the Borrower shall be permitted to engage in acquisitive transactions, in its same primary line of business or an allied product line, not exceeding in the aggregate an amount equal to 5% of Borrower's Net Worth without the prior consent of the Banks. In the event the Borrower -40- makes any such acquisition the Banks shall be entitled to a first perfected security interest in the Accounts, Inventory, Equipment, General Intangibles, Intellectual Property, Deposit Accounts, Proceeds, and Books and Records, and other property defined in the Amended and Restated Security Agreement attached hereto as EXHIBIT 3.1, of the entity acquired. In no event shall the Borrower undertake any such acquisition of the stock or substantially all of the assets of another entity unless a majority of the Board of Directors of the selling entity have approved the transaction in writing. 6.10CAPITAL EXPENDITURES. (a) Make capital expenditures in any fiscal year in excess of three percent (3%) of gross sales for that fiscal year; provided, that if actual capital expenditures in any fiscal year are less than the capital expenditures permitted hereby, the difference between permitted capital expenditures (including any carry forward from any previous year) and actual capital expenditures may be carried forward and utilized in any subsequent fiscal year; provided further that Borrower is in full compliance with this Agreement and that after giving pro forma effect to such capital expenditure Borrower would continue to be in full compliance with this Agreement. (b) Sale-leaseback transactions and acquisitions permitted under Section 6.9 shall not constitute capital expenditures for purposes of this Section 6.10. 6.11EMPLOYEE LOANS. Make any loans to any officer, director, or other employee of the Borrower in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate. 6.12RATIO OF EBITDA TO CURRENT OBLIGATIONS. The Borrower shall not permit the ratio of Borrower's "EBITDA" to Borrower's "current obligations" to be less than: (a) 2.00:1 through 12/30/96; (b) 2.50:1 beginning 12/31/96 and continuing through 12/30/97; (c) 3.00:1 beginning 12/31/97 and continuing through the Termination Date. "Current obligations" shall mean, with respect to each three month period (as provided below), the sum of (a) except as otherwise provided below, the portion of Borrower's Long-Term Debt maturing less than one (1) year after the date of determination; (b) interest expense; and (c) Capitalized Lease payments accrued during the period. During the third year of the Loans, the Loans shall not be considered as having a maturity of less than one (1) -41- year, unless there exists an Event of Default or an Unmatured Default. The interest expense component for the first year of this Agreement shall be computed by annualizing the interest expense on the Borrower's new senior debt as provided by this Agreement. The one-time charge associated with the retirement of Borrower's Senior Notes shall be excluded from the computation of "current obligations." This covenant shall be tested quarterly, in arrears, at the expiration of each fiscal quarter of the Borrower, for the twelve (12) month period ending with and including the immediately preceding quarter. Until July 1, 1997, the calculation shall be on an annualized basis based only on the months and/or quarters elapsed during the term of the Loan. 6.13 TOTAL DEBT TO EBITDA. The Borrower shall not permit the ratio of Borrower's Debt to Borrower's "EBITDA" to exceed the following: (a) 5.0:1 from the date of this Agreement through December 30, 1996; (b) 4.25:1 beginning December 31, 1996 and continuing through December 30, 1997; and (c) 3.5:1 beginning December 31, 1997 and continuing through the Termination Date. This covenant shall be tested quarterly, in arrears, at the expiration of each fiscal quarter of the Borrower, for the twelve (12) month period ending with and including the immediately preceding quarter. 6.14COMPROMISE OF RECEIVABLES. Except for normal trade discounts allowed by Borrower in the normal course of business, and accounts receivable which are over ninety (90) days old from the original invoice date (in which event the Borrower, in the exercise of its sound business discretion, may adjust or compromise such accounts receivable as Borrower deems necessary), Borrower shall not, without the prior consent of the Banks in each instance, except in the ordinary course of Business, on a case by case basis, compromise or adjust any of the accounts receivable (or extend the time for payment thereof) or provide any additional discounts, allowances or credit thereon. Notwithstanding the foregoing, in the event any compromise or adjustment to an account receivable results in the outstanding Loan to be greater than the amount of permissible advances set forth in Section 2.1 above, the foregoing shall result in an "overadvance" which shall be immediately paid by Borrower to the Banks. 6.15USE OF LOANS. The Borrower does not extend or maintain, in the ordinary course of business, credit for the purpose, whether -42- immediate, incidental, or ultimate, of buying or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Loan will be used for the purpose, whether immediate, incidental, or ultimate, of buying or carrying any such margin stock or maintaining or extending credit to others for such purpose. 6.16 MANAGEMENT FEES. Pay any management or similar fees to any Affiliate, other than a management fee to DSC not to exceed One Hundred Thousand Dollars ($100,000) per year. 6.17 INTERCOMPANY ADVANCES. The maximum amount of intercompany obligations owed by all Subsidiaries to the Borrower (on a consolidated basis) shall not exceed One Million Dollars ($1,000,000). 6.18 CONSOLIDATED WORKING CAPITAL. The Borrower shall not permit its Consolidated Current Assets to be less than its Consolidated Current Liabilities at any time prior to December 31, 1997, or less than 120% of its Consolidated Current Liabilities at any time thereafter. ARTICLE 7 EVENTS OF DEFAULT; REMEDIES 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following events for any reason whatsoever (and whether such occurrence be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body) shall constitute an Event of Default: (a) the non-payment of any principal, interest or other amount payable under the Notes or any of the other Loan Documents when due, whether by acceleration or otherwise; (b) the occurrence of any Event of Default as set forth in the Guarantees executed contemporaneously with this Agreement by DSC in favor of the Banks; (c) the default in the due observance of any affirmative covenant, negative covenant or agreement to be kept and performed by the Borrower under the terms of this Agreement (provided however, that so long as Borrower notifies the Banks in writing of any such default immediately after Borrower or any of its agents knew or should have known of the existence of such default, and provided that the default in question is determined by the Banks to be reasonably susceptible of being cured, and provided that Borrower immediately upon giving such notice commences such -43- cure and thereafter diligently pursues said cure to completion; Borrower shall have a period of thirty (30) days after such notice to the Banks to cure such default before such default becomes an Event of Default under this Section 7.1(c); provided further that, notwithstanding the foregoing, if the default hereunder is related to a matter for which a grace period is established by law, agreement or otherwise, any grace period hereunder shall in no event extend beyond any applicable grace period established by such law, agreement or otherwise); (d) any representation or warranty made by the Borrower in this Agreement or in the other Loan Documents shall be false or erroneous in any respect or any breach thereof shall have been committed; (e) the occurrence of a default by Borrower, or any Affiliate, under any other obligation to the Banks, or any affiliate of the Banks, which extends beyond any applicable grace or cure period, including, without limitation, the occurrence of any Event of Default under the DSC Loan Agreement; provided that no Event of Default shall be deemed to have occurred under this Section 7.1(e) by reason of a default under Section 7.1(k) of the DSC Loan Agreement unless the event which caused the default under Section 7.1(k) of the DSC Loan Agreement also causes an Event of Default under Section 7.1(k) of this Agreement. (f) the occurrence of any Event of Default under the other Loan Documents; (g) (i) the validity or effectiveness of any Loan Document or its transfer, grant, pledge, mortgage or assignment by the Borrower or DSC to the Banks or the Collateral Agent is materially impaired; (ii) the Borrower or DSC asserts that any Loan Document is not a legal, valid or binding obligation of the party thereto (other than the Banks) enforceable in accordance with its terms; or (iii) the security interest or lien purported to be created by any of the Loan Documents will for any reason cease to be, or be asserted by the Borrower or DSC not to be, a valid perfected lien with the respect to more than a de minimis portion of the Collateral. (h) the commencement of any foreclosure proceedings, proceedings in aid of execution, attachment actions, levies against, or the filing by any taxing authority of a lien (except any such tax lien currently being diligently contested in good faith by proceedings for which the Borrower has set aside adequate reserves with respect thereto and for which no foreclosure -44- proceeding, levy, or similar proceeding has commenced) against, any of the assets of the Borrower or any party to the Security Documents; (i) the Borrower becomes insolvent or generally does not pay its debts as they become due, or if a petition for relief in a bankruptcy court is filed by the Borrower, or if the Borrower applies for, consents to, or acquiesces in the appointment of a trustee, custodian, or receiver for the Borrower or any of its assets and property, or makes a general assignment for the benefit of creditors; or in the absence of such application, consent, or acquiescence, a trustee, custodian, or receiver is appointed for the Borrower or for a substantial part of the assets and property of the Borrower; or any bankruptcy, reorganization, debt arrangement, or other proceedings or case under any bankruptcy or insolvency law or any dissolution or liquidation proceeding is instituted against the Borrower; or the Borrower takes any action to authorize any of the actions described in this paragraph; (j) the default in the payment or performance of any Debt in a principal amount of One Hundred Thousand Dollars ($100,000) or greater after giving affect to any applicable grace periods of the Borrower to others; and (k) any event that, in the opinion of the Banks, has or may have a material adverse effect on the Collateral, or which has or may have a Material Adverse Effect. 7.2 REMEDIES. (a) Upon the occurrence and during the continuance of any Event of Default, the Banks, shall have the right to, by notice to the Borrower (i) terminate the Commitments and/or (ii) declare the outstanding principal of, and accrued interest on, the Notes, and all other amounts owing under this Agreement and the other Loan Documents, to be immediately due and payable, whereupon the Commitments shall terminate forthwith and all such amounts shall become immediately due and payable, PROVIDED that in the case of any event or condition described in Section 7.1(i), the Commitment shall automatically terminate and all such amounts shall automatically become immediately due and payable without notice; in all cases without demand, presentment, protest, diligence, notice of dishonor or other formality, all of which are hereby expressly waived. (b) Upon the occurrence and during the continuance of any Event of Default, the Banks shall have the right to, in addition to the remedies provided in Section 7.2(a), exercise and enforce any and all other rights and remedies available to the Banks, whether arising under this Agreement, the Security Documents, the Notes or under applicable law, in any manner deemed appropriate by the Banks, including suit in equity, action at law, or other appropriate proceedings, whether for the specific -45- performance (to the extent permitted by law) of any covenant or agreement contained in this Agreement, the Security Documents, or in the Notes or in aid of the exercise of any power granted in this Agreement, the Security Documents, and the Notes. (c) Upon the occurrence and during the continuance of any Event of Default, the Banks may at any time and from time to time, without notice to the Borrower (any requirement for such notice being expressly waived by the Borrower) set off and apply against any and all of the obligations of the Borrower now or hereafter existing under this Agreement any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Banks to or for the credit or the account of the Borrower and any property of the Borrower from time to time in possession of the Banks, irrespective of whether or not the Banks shall have made any demand hereunder and although such obligations may be contingent and unmatured. The rights of the Banks under this Section 7.2(c) are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Banks may have. (d) Upon the occurrence and during the continuance of an Event of Default, the Banks shall have the right to adjust the percentage of Eligible Accounts Receivable and Eligible Inventory against which they will advance, if the Banks elect to continue to make Advances, which the Banks shall have no obligation to do, and any such adjustment shall, at the Banks' option, continue to be effective after the Event of Default is cured or waived. (e) Upon the occurrence of an Event of Default or an Unmatured Default, the Banks shall have the right to take dominion of all funds of the Borrower and to implement such procedures, including, without limitation, daily reporting on Borrowing Base Certificates as the Banks may deem appropriate in their sole discretion. (f) After the existence of an Unmatured Default has been declared by the Banks by written notice to Borrower, and any applicable cure periods have expired without the Unmatured Default having been cured, such that an Event of Default has occurred, no curative action by the Borrower shall be deemed to cure the Event of Default and the Banks shall have no obligation to accept any purported cure of the Event of Default by the Borrower. 7.3 APPLICATION OF LIQUIDATION PROCEEDS. Notwithstanding any other provision of this Agreement, all funds received by the Banks from the exercise of remedies under this Agreement, the Security Documents, or otherwise, shall, unless otherwise required by applicable law, be applied in the manner set forth as follows: (a) First, to the payment of advances by the Banks or the Collateral Agent for the protection and preservation of their -46- liens and the Collateral, and all out-of-pocket expenses (to the extent not paid by the Borrower) and audit fees incurred by or payable to the Bank Agent or the Collateral Agent in connection with the exercise of such rights and remedies, or otherwise pursuant to the Security Documents, including, without limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses. (b) Next, to the payment of such amounts as may be due and payable under Sections 2.6, 2.12, 2.13, and/or 2.2(c). (c) Next, to the payment of late charges and interest then owed to the Banks under or with respect to the Loans, in such order as the Banks may in their sole discretion determine. (d) Next, to the payment of the principal balance then owed to the Banks under the Loans and allocated between Prime Rate Based Advances, Libor Rate Advances and Fixed Rate Advances as determined by the Banks. (e) Next, to the payment of all other amounts owed by the Borrower to any of the Banks, the Bank Agent, or the Collateral Agent under this Agreement, or any Security Document. (f) Next, to the payment of all other amounts owed by the Borrower or any of its Affiliates to the Banks. (g) Next, to the Borrower or such other Person as may be legally entitled thereto. ARTICLE 8 CONDITIONS PRECEDENT The Banks' obligation to fund Advances and the Term Loan pursuant to Article 2 of this Agreement is subject to the conditions that: 8.1 DSC shall have completed an initial public offering of its shares and shall have received at least Twenty Million Dollars ($20,000,000) of net cash proceeds from such offering. The Borrower shall deliver such documents and other papers to the Banks as the Banks may reasonably require in order to ascertain that this condition has been satisfied. 8.2 There does not exist any condition which would constitute an Event of Default or an Unmatured Default. 8.3 The representations, affirmative covenants, negative covenants and warranties of the Borrower contained herein are true and correct in all material respects. -47- 8.4 The Banks shall have been furnished copies, certified by the secretary or assistant secretary of the Borrower, of resolutions of the Board of Directors of the Borrower authorizing, as applicable, the execution of this Agreement, the Notes, and the Security Documents and the other Loan Documents. 8.5 The Banks shall have received an opinion satisfactory in form and substance to the Banks as to such matters related to the Loan as may be required by the Banks rendered by counsel for the Borrower satisfactory to the Banks. 8.6 There shall not have occurred, in the opinion of the Banks, any material adverse change in Borrower's business, operations or financial condition. 8.7 The Banks shall have received title insurance policies in form and substance satisfactory to the Banks with respect to the Mortgaged Property. 8.8 The Banks shall have audited the Collateral and found the results of such audit to be satisfactory. 8.9 The Banks shall have received the insurance certificates required to be delivered by Borrower. 8.10 The Banks shall have filed all Uniform Commercial Code Financing Statements in such jurisdictions as deemed necessary and/or advisable by the Banks. 8.11 The Banks shall have filed the Mortgage in the jurisdiction set forth in such document. 8.12 The Banks shall have received Certificates of Good Standing from each jurisdiction (which issues such certificates) in which the Borrower, or any Subsidiary, does business, and a certified copy of the Borrower's, and each Subsidiary's, Articles of Incorporation and Code of Regulation or By-Laws. 8.13 The Borrower shall have executed and delivered to the Banks the Security Documents and the Borrower shall have complied with the terms thereof. 8.14 The Borrower shall have paid the Banks all closing and other fees payable hereunder. 8.15 The Banks shall have received such UCC and related lien searches as the Banks deem necessary and/or advisable and the Banks shall be satisfied with the results of such lien searches. 8.16 The Borrower shall deliver documents, in form and substance satisfactory to the Banks, to evidence that the Senior Notes are being paid in full with the proceeds of the Loans. -48- 8.17 The Banks shall have received copies or originals of all other documents which may have been reasonably required in connection with the transactions provided for in this Agreement. 8.18 The DSC Loan Agreement shall have been executed and delivered by DSC and the Banks and all conditions contained therein satisfied. ARTICLE 9 AGENCY PROVISIONS AND RELATIONSHIP OF BANKS 9.1 APPOINTMENT. Bank One is hereby appointed as Bank Agent hereunder, and BOA authorizes the Bank Agent to act as the agent of such Bank. BOA is hereby appointed as Collateral Agent hereunder and under the other Loan Documents and Bank One authorizes the Collateral Agent to act as the collateral agent for Bank One. The Bank Agent and the Collateral Agent agree to act as such upon the express conditions contained in this Article 9 and the other Loan Documents. Neither the Bank Agent nor the Collateral Agent shall have a fiduciary relationship in respect of any Bank by reason of this Agreement or any Loan Document. 9.2 POWERS. The Bank Agent shall have and may exercise such powers hereunder and the Loan Documents as are specifically delegated to the Bank Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto. The Bank Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action hereunder or any Loan Document, except any action specifically provided by this Agreement or any Loan Document to be taken by the Bank Agent. The Collateral Agent shall have and may exercise such powers hereunder as are specifically delegated to the Collateral Agent by the terms hereof, and the Security Documents, together with such powers as are reasonably incidental thereto. The Collateral Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action hereunder, or any Loan Document, except any action specifically provided by this Agreement, or any Loan Document, to be taken by the Collateral Agent. 9.3 GENERAL IMMUNITY. Neither the Bank Agent nor any of its directors, officers, agents or employees shall be liable to BOA for any action taken or omitted to be taken by it or them hereunder or under or any Loan Document or in connection herewith except for its or their own gross negligence or wilful misconduct. Neither the Collateral Agent nor any of its directors, officers, agents or employees shall be liable to the Banks or any Bank for any action taken or omitted to be taken by it or them hereunder or in connection herewith except for its or their own gross negligence or wilful misconduct. -49- 9.4 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Bank Agent nor the Collateral Agent shall be responsible to the Banks for any recitals, reports, statements, warranties or representations herein or in any other Loan Document or be bound to ascertain or inquire as to the performance or observance of any of the terms of this Agreement or any other Loan Document. 9.5 ACTION ON INSTRUCTIONS OF BANKS. Each of the Bank Agent and the Collateral Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under the other Loan Documents in accordance with written instructions signed by both of the Banks, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. 9.6 EMPLOYMENT OF AGENTS AND COUNSEL. Each of the Bank Agent and the Collateral Agent may execute any of its duties as Agent hereunder or under the other Loan Documents by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Each of the Bank Agent and the Collateral Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency created hereby and by the other Loan Documents and its duties hereunder and thereunder. 9.7 RELIANCE ON DOCUMENTS; COUNSEL. Each of the Bank Agent and the Collateral Agent shall be entitled to rely upon any note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Bank Agent or the Collateral Agent, as the case may be, which counsel may be employees of the Bank Agent or the Collateral Agent, as the case may be. 9.8 BANK AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Banks agree to reimburse and indemnify each of the Bank Agent and the Collateral Agent ratably in proportion to their respective Commitments (i) for any amounts not reimbursed by the Borrower for which the Bank Agent or the Collateral Agent is entitled to reimbursement by the Borrower under the Loan Documents, (ii) for any other expenses incurred by the Bank Agent or the Collateral Agent on behalf of the Banks, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Bank Agent or the Collateral Agent in any way relating to or arising out of this Agreement, any other Loan Document or any other document delivered -50- in connection with this Agreement or any other Loan Document or the transactions contemplated hereby or thereby or the enforcement of any of the terms hereof of any other Loan Document or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or wilful misconduct of the Bank Agent or Collateral Agent, as the case may be. 9.9 RIGHTS AS A BANK. With respect to its Commitment, Loans made by it and the Note issued to it, each of the Bank Agent and the Collateral Agent shall have the same rights and powers hereunder as any Bank and may exercise the same as though it were not the Bank Agent or Collateral Agent, as the case may be, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include each of the Bank Agent and the Collateral Agent in their respective individual capacities. Each of the Bank Agent and the Collateral Agent may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with the Borrower as if it were not the Bank Agent or Collateral Agent, as the case may be. 9.10 BANK CREDIT DECISION. Each Bank acknowledges that it has, independently and without reliance upon the Bank Agent, the Collateral Agent or any other Bank and based on the financial statements prepared by the Borrower and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Bank also acknowledges that it will, independently and without reliance upon the Bank Agent, the Collateral Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents. 9.11 SUCCESSOR AGENT. Each of the Bank Agent and the Collateral Agent may resign at any time by giving written notice thereof to the Banks and the Borrower, and each of the Bank Agent and the Collateral Agent may be removed at any time with or without cause by written notice received by the Bank Agent or the Collateral Agent, as the case may be, from the Banks. Upon any such resignation or removal, with the prior written approval of the Borrower, such consent not to be unreasonably withheld, the Banks shall have the right to appoint, on behalf of the Borrower and the Banks, a successor Bank Agent or Collateral Agent, as the case may be. If no successor Bank Agent or Collateral Agent shall have been so appointed by the Banks and shall have accepted such appointment within thirty days after the retiring Bank Agent's or Collateral Agent's giving notice of resignation, then the retiring Bank Agent or Collateral Agent, as the case may be, may appoint with the prior written consent of the Borrower, such consent not to be unreasonably withheld, on behalf of the Borrower and the Banks, a successor Bank Agent or Collateral Agent, as the case may be. Such successor -51- Bank Agent or Collateral Agent shall be a commercial bank having capital and retained earnings of at least Fifty Million dollars ($50,000,000). Upon the acceptance of any appointment as Bank Agent or Collateral Agent hereunder by a successor Bank Agent or Collateral Agent, as the case may be, such successor Bank Agent or Collateral Agent, as the case may be, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Bank Agent or Collateral Agent, as the case may be, and the retiring Bank Agent or Collateral Agent, as the case may be, shall be discharged from its duties and obligations hereunder and under the other Loan Documents. After any retiring Bank Agent's or Collateral Agent's resignation hereunder as Bank Agent or Collateral Agent, as the case may be, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Bank Agent or Collateral Agent, as the case may be, hereunder and under the other Loan Documents. 9.12 COLLATERAL RELEASES. The Collateral Agent shall be authorized to execute and deliver to the Borrower releases of Collateral (including UCC-3's and such other documents as the Borrower may reasonably require) which have been approved by the Banks in writing. 9.13 SHARING OF PAYMENTS. The Banks agree among themselves that, in the event that any Bank shall, subsequent to the occurrence and during the continuance of an Event of Default, obtain payment of the principal of or interest on any Loan made by it through the exercise of a right of set-off, banker's lien or counterclaim or by provision of adequate protection of any deposit treated as cash collateral under the federal Bankruptcy Code or otherwise, such payment shall be applied as provided in Section 9.18 through the purchase by such Bank from the other Banks participation in such Loans made by them in such amounts, and make such other adjustments from time to time, as shall be equitable to the end that all of the Banks share such payment as provided in Section 9.18. The Banks further agree among themselves that if payment to a Bank obtained by such Bank through the exercise of a right of set-off, banker's lien or counterclaim or otherwise as aforesaid shall be rescinded or must otherwise be restored, each Bank which shall have shared the benefit of such payment shall return its share of that benefit to each Bank whose payment shall have been rescinded or otherwise restored. The Borrower agrees that any Bank so purchasing a participation in such Loans to the Borrower by any other Bank may, to the fullest extent permitted by law, exercise all rights of payment, including set-off, banker's lien or counterclaim, with respect to such participation as fully as if such Bank were a holder of such Loan made hereunder to the Borrower in the amount of such participation. If any Bank or the Bank Agent shall fail to remit to the Bank Agent or any other Bank an amount payable by such Bank or the Bank Agent to the Bank Agent or such other Bank pursuant to this Agreement on the date when such -52- amount is due, such payments shall be made together with interest thereon for each date from the date such amount is due until the date such amount is paid to the Bank Agent or such other Bank at a rate per annum equal to the rate at which borrowings are available to the payee in its overnight federal funds market. 9.14 EVENTS OF DEFAULT. Neither the Bank Agent nor the Collateral Agent, shall be deemed to have knowledge of the occurrence of any Event of Default, or any Unmatured Default, unless the Bank Agent or the Collateral Agent, as the case may be, has received written notice from a Bank or the Borrower specifying such Event of Default or Unmatured Default and stating that such notice is a notice of Default. In the event that the Bank Agent or the Collateral Agent, as the case may be, receives such a notice, the Bank Agent shall give written notice thereto to the Banks. The Bank Agent or the Collateral Agent, as the case may be, shall take only such action with respect to such Event of Default or Unmatured Default as shall be reasonably directed in writing by both of the Banks; PROVIDED, HOWEVER, that, unless and until the Bank Agent or the Collateral Agent, as the case may be, shall have received such direction, the Collateral Agent, as the case may be, may take such action, or refrain from taking such action, with respect thereto as it shall deem advisable in the best interests of the Banks. 9.15 CONSENT OF BANKS REQUIRED. No Agent, nor Bank, shall, except to the extent it is required to do so under the Loan Documents or by law, without the consent of both of the Banks: (a) agree to modify or amend the Loan Documents; or (b) grant any waivers under the Loan Documents; or (c) consent to the placing of any lien on the Collateral other than that created by the Security Documents; or (d) release any material collateral for the Loans (provided, however, that Collateral Agent may release Collateral for the Loans without the consent of any Bank in the event that the Collateral released in any calendar year does not have a value of more than Twenty-Five Thousand Dollars ($25,000); or (e) consent or agree to any change in the pricing or interest rate or fees applicable of the Loan; or (f) consent or agree to postpone the due date of any payment of principal and/or interest under either or both of the Loans; or (g) sell or contract to sell any Collateral after acquisition of the title thereto; or -53- (h) waive compliance with any condition, covenant or other provision of the Loan Documents; or (i) waive any Event of Default that has been declared by notice to Borrower. The Collateral Agent shall be entitled to rely conclusively upon a certificate of value executed by an officer of the Borrower in connection with any release of Collateral as set forth in Section 9.15(d) above. 9.16 EXERCISE OF REMEDIES UNDER THIS AGREEMENT. Notwithstanding any other provision of this Agreement, or the other Loan Documents, the Banks agree among themselves that neither the Bank Agent nor the Collateral Agent will be required to take any action under Section 7.2 of this Agreement, or under the other Loan Documents, unless directed to do so in writing by both of the Banks. 9.17 EXERCISE OF REMEDIES UNDER ADDITIONAL ARRANGEMENTS. Notwithstanding any other provision of this Agreement, the Banks agree among themselves that no Bank shall take, or be permitted to take, any action under any other arrangement with Borrower unless permitted to do so in writing by both of the Banks. 9.18 APPLICATION OF LIQUIDATION PROCEEDS. Notwithstanding any other provision of this Agreement, all funds received by the Bank Agent, the Collateral Agent or any Bank from the exercise of remedies under this Agreement, the Security Documents, or otherwise, shall, unless otherwise required by applicable law, be applied in the manner set forth as follows: (a) First, to the payment of advances by the Banks or the Collateral Agent for the protection and preservation of their liens and the Collateral, and all out-of-pocket expenses (to the extent not paid by the Borrower) and audit fees incurred by or payable to the Bank Agent or the Collateral Agent in connection with the exercise of such rights and remedies, or otherwise pursuant to the Security Documents, including, without limitation, all costs and expenses of collection, attorneys' fees, court costs and foreclosure expenses. (b) Next, to the payment of such amounts as may be due and payable under Sections 2.6, 2.12, 2.13, and/or 2.2(c). (c) Next, to the payment of late charges and interest then owed to the Banks under or with respect to the Loans, in such order as the Banks may in their sole discretion determine, in accordance with their respective pro rata shares. (d) Next, to the payment of the principal balance then owed to the Banks under the Loans, in accordance with their -54- respective pro rata shares and allocated between Prime Rate Based Advances, Libor Rate Based Advances and Fixed Rate Advances as determined by the Banks. (e) Next, to the payment of all other amounts owed by the Borrower to any of the Banks, the Bank Agent, or the Collateral Agent under this Agreement, or any Security Document, in accordance with their pro rata shares. (f) Next, to the payment of all other amounts owed by the Borrower or any of its Affiliates to any of the Banks, the Bank Agent, or the Collateral Agent, in accordance with their respective pro rata shares. (g) Next, to the Borrower or such other Person as may be legally entitled thereto. As used in this Section, "pro rata shares" with respect to any particular amount owed by the Borrower on the Loan shall mean the proportion which the total of such amount owed by the Borrower to each Bank bears to the total of such amount owed by the Borrower to all of the Banks and, with respect to any other amount owed by the Borrower or any of its Affiliates to the Banks, or any of them, shall mean the proportion which the total of such amount owed by the Borrower and its Affiliates to each Bank bears to the total of such amount owed by the Borrower to all of the Banks. 9.19 BENEFIT. The provisions of this Article 9 are solely for the benefit of the Bank Agent, the Collateral Agent and the Banks, and the Borrower shall not have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Bank Agent and the Collateral Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower. ARTICLE 10 PARTICIPATION; ASSIGNMENTS 10.1 PARTICIPATION. (a) PERMITTED PARTICIPANTS; EFFECT. Subject to this Section 10.1(a), either Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities ("Participants") participating interests in the Loans, the Notes and any other interest of such Bank under the Loan Documents. In the event of any such sale by a Bank of participating interests to a -55- Participant, such Bank's obligations under the Loan Documents shall remain unchanged. (b) BENEFIT OF SETOFF AND INDEMNITIES. The Borrower agrees that each Participant shall be deemed to have the right of setoff provided in Section 7.2(c) in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Bank under the Loan Documents, provided that the Bank shall retain the right of setoff provided in Section 7.2(c) with respect to the amount of participating interests sold to each Participant, except to the extent such Participant has exercised its right of setoff. The Banks agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 7.2(c), agrees to share with the Banks, any amount received pursuant to the exercise of its right of setoff pro rata in accordance with the outstanding amount of the Loan held by each. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.2(c), 2.12, 2.13, and 2.15 with respect to its participation in the Commitments and the Libor Rate Advances and Fixed Rate Advances outstanding from time to time; provided, that no Participant shall be entitled to receive any greater amount pursuant to such Sections than the Banks would have been entitled to receive in respect of the amount of the participation transferred by such Bank to such Participant had no such transfer occurred. 10.2 ASSIGNMENTS. (a) PERMITTED ASSIGNMENTS. Subject to this Section 10.2(a), either Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time, in a minimum amount of Five Million Dollars ($5,000,000), assign to one or more banks or other entities ("Purchasers") its rights and obligations under the Loan Documents. Notwithstanding the foregoing, any such assignment to a Purchaser shall be subject to Borrower's prior written consent (which consent shall not be unreasonably withheld or delayed) and, provided, further, neither Bank shall be entitled to assign more than fifty percent (50%) of their total interest in the Loans and the Notes to any Purchaser. (b) EFFECT; EFFECTIVE DATE. Upon delivery to Borrower of a notice of assignment, such assignment shall become effective on the effective date specified in such notice of assignment. Borrower shall execute and deliver such amendments and modifications to the Loan Documents the Bank may require in order to reflect and facilitate such assignment. 10.3 DISSEMINATION OF INFORMATION. The Borrower authorizes each Bank to disclose to any Participant, purchaser or any other Person acquiring an interest in the Loan Documents by operation of -56- law (each a "Transferee") and any prospective Transferee any and all information in such Bank's possession concerning the creditworthiness of the Borrower. ARTICLE 11 GENERAL 11.1SURVIVAL OF PROVISIONS. All representations, warranties, covenants and agreements made by the Borrower herein will survive the execution and delivery of this Loan Agreement, the Note, and the Security Documents. 11.2 RELATIONSHIP OF PARTIES. This Agreement and the Loan Documents shall not in any respect be interpreted, deemed or construed as making the Bank an agent, a partner, or joint venturer with the Borrower, nor shall it be interpreted, deemed or construed as making the Bank the agent or representative of the Borrower, and the Borrower agrees not to make any contrary assertion, contention, claim or counterclaim in any action, suit or other legal proceeding involving the Banks. In no event shall the Banks be liable for debts or claims accruing or arising against the Borrower. The relationship of the Banks to the Borrower is that of "lender" and "borrower." The Banks shall not have any fiduciary responsibilities to the Borrower. The Banks undertake no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 11.3NEGOTIATIONS. Each party acknowledges that it has participated in the negotiation of this Agreement and the other Loan Documents, and no provision of this Agreement or the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto or thereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured, dictated or drafted such provision; that the Borrower at all times has had access to an attorney in the negotiation of the terms of and in the preparation and execution of this Agreement and the other Loan Documents, and the Borrower has had the opportunity to review and analyze this Agreement and the other Loan Documents for a sufficient period of time prior to the execution and delivery thereof; that no representations or warranties have been made by or on behalf of the Bank, or relied upon by the Borrower pertaining to the subject matter of this Agreement and the other Loan Documents, other than those that are set forth in this Agreement and the other Loan Documents, and all prior statements, representations and warranties, if any, are totally superseded and merged into this Agreement and the other Loan Documents, which represent the final and sole agreement of the parties with respect to the matters which are the subject hereof and thereof; that all of the terms of this Agreement and the other Loan Documents were negotiated at arm's length, and that this -57- Agreement and the other Loan Documents were prepared and executed without fraud, duress, undue influence or coercion of any kind exerted by any of the parties upon the others; and that the execution and delivery of this Agreement is the free and voluntary act of the Borrower. 11.4RIGHTS AND REMEDIES CUMULATIVE. The rights of the Banks arising under the provisions and covenants contained in this Agreement, the Notes, the Security Documents and any other of the Loan Documents, and under applicable law, shall be separate, distinct and cumulative and none of them shall be exclusive of the others. No act of a Bank shall be construed as an election to proceed under any one provision herein or in such other documents to the exclusion of any other provision, anything herein or otherwise to the contrary notwithstanding. 11.5WAIVER. No waiver, amendment, release or modification of this Agreement shall be established by conduct or by any oral agreement, custom or course of dealing or by any delay or failure to act, but solely by an instrument in writing duly executed by the Bank. In the event any provision contained in this Agreement should be breached by the Borrower and thereafter be duly waived by the Bank, such waiver shall be limited to the particular breach so waived and shall not be deemed to waive any other breach hereunder. 11.6NOTICES. All notices, demands, requests, consents or approvals required hereunder shall be in writing and shall be conclusively deemed to have been received by a party hereto and to be effective when (i) deposited in the U.S. Mail if sent certified mail, return receipt requested, postage prepaid, or by recognized overnight courier service, (ii) sent via facsimile, or (iii) in case of any other means of delivery, actually delivered to such party, in each case addressed as set forth below (or at such other address as such party may specify to the other party in writing): To Bank One: Bank One, Dayton, NA Kettering Tower P.O. Box 1103 Dayton, Ohio 45401-1103 Attn: Mr. Paul Harris, Vice President Fax #: (513) 449-4885 To BOA: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Mr. Charles A. Gonzalez, Vice President Fax #: (312) 828-1974 -58- To Collateral Agent: Bank of America Illinois 231 South LaSalle Street Chicago, Illinois 60697 Attn: Mr. David A. Johanson, Vice President and Senior Agency Officer Fax #: (312) 974-9102 To the Borrower: Dur-O-Wal, Inc. 3115 N. Wilke Road, Suite A Arlington Heights, IL 60004 Attn: Mr. Mario Catani, President Fax #: ______________________ With a Copy To: Dayton Superior Corporation 721 Richard Street Miamisburg, Ohio 45342 Attn: Mr. Richard L. Braswell, Vice President Fax #: (513) 866-9448 11.7 PERFORMANCE BY THE BANK. The Banks shall have the right (but not the obligation) to do or cause to be done any reasonable thing which Borrower or any party to the Loan Documents is obligated to do or cause to be done, but has not done or caused to be done, which may in the opinion of the Banks have an adverse effect on the Collateral or a Material Adverse Effect. Borrower shall reimburse the Banks any amounts paid or advanced by the Banks for any cost, expense or fee (including attorney's fees) in connection with any such action and for any cost, expense or fee incurred in connection with the enforcement or exercise of any right or remedy granted the Banks pursuant to the Loan Documents or in connection with any other question or matter arising in connection with the Loan Documents. All such amounts shall be due and payable upon demand and shall bear interest at the default rate specified in Section 2.8 from the date of demand until paid. No such action by the Banks shall be deemed to cure any default by Borrower. 11.8 FURTHER ASSURANCES. Borrower shall execute and deliver to the Bank such agreements, instruments, documents, financing statements and other writings as may be requested from time to time by the Bank to perfect and to maintain the perfection of the Bank's security title and security interest in and to the Collateral, or to properly evidence the Loan. 11.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof; without limiting the foregoing, the parties agree that this Agreement amends and restates in full that certain -59- Amended and Restated Loan Agreement between Borrower and Bank One, dated October 16, 1995. 11.10 COUNTERPART EXECUTION. This Agreement may be executed in several counterparts, each of which shall be regarded as an original, and all of which together shall constitute one and the same instrument, notwithstanding the fact that Borrower and the Banks have not each executed the same instrument. 11.11 HEADINGS. The headings to the Articles and Sections hereof are for reference only and shall not limit or define in any way the content thereof. 11.12 REFERENCES. All references in this Agreement to any of the Loan Documents or any other documents or instruments shall be deemed to be references to the Loan Documents or other documents or instruments as the same may from time to time be modified, amended, renewed, consolidated or extended. 11.13 APPROVAL OF PAPERS. All papers and documents submitted, and those to be prepared and executed in connection with this Agreement, including, without limitation, the Loan Documents, shall be subject to the approval of the Banks and its counsel as to form and substance. 11.14 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held or deemed to be or shall, in fact, be inoperative or unenforceable as applied in any particular case for any other reason, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatever. The invalidity of any one or more provisions of this Agreement shall not affect the remaining provisions of this Agreement, or any part thereof. 11.15 TIME OF ESSENCE. Wherever time is mentioned in this Agreement, it shall be construed to mean that time is of the essence. 11.16 GENDER AND NUMBER. Whenever used herein, words of any gender shall be construed to include any other gender, and words in the singular shall be construed to include the plural and vice versa, unless the context otherwise requires. 11.17 BINDING EFFECT. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights under the Loan Documents. -60- 11.18 LEGAL LIMITATION OF EXTENSIONS OF CREDIT. Anything contained in this Agreement to the contrary notwithstanding, the Bank shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 11.19 TAXES. Any taxes (excluding income taxes) payable or ruled payable by Federal or State authority in respect of the execution and delivery of the Loan Documents shall be paid by the Borrower, together with interest and penalties, if any. 11.20 REIMBURSEMENTS. The Borrower shall reimburse the Banks for any costs, internal charges and out-of-pocket expenses which shall be set forth in a detailed invoice (including reasonable attorneys' fees and time charges of attorneys for the Banks, which attorneys may be employees of the Banks) paid or incurred by the Bank in connection with the preparation, review, execution, delivery, amendment, modification, administration, collection and enforcement of the Loan Documents. The Borrower further agrees to indemnify the Banks, and its directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Bank is a party thereto) which they may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or thereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder; provided, however, that no such indemnification shall be available if the claim is based upon the gross negligence or wilful misconduct of the Banks. The obligations of the Borrower under this Section shall survive the termination of this Agreement. 11.21 LIABILITY OF BANKS TO BORROWER. The Borrower (i) agrees that the Banks shall have no liability to the Borrower (whether sounding in tort, contract or otherwise) for losses suffered by the Borrower in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Banks, final and not subject to review on appeal, that such losses were the result of acts or omissions on the part of the Banks, constituting gross negligence, wilful misconduct or knowing violations of law and (ii) waives, releases and agrees not to sue upon any claim against the Banks (whether sounding in tort, contract or otherwise) except a claim based upon gross negligence, wilful misconduct or knowing violations of law. Whether or not such damages are related to a claim that is subject to the waiver effected above and whether or not such waiver is effective, the Banks shall have no liability with respect to, and the Borrower hereby waives, releases and agrees not to sue upon any claim for, any special, indirect or consequential damages suffered by the Borrower in connection with, arising out of, or in any way -61- related to the transactions contemplated or the relationship established by the Loan Documents, or any act, omission or event occurring in connection therewith, unless it is determined by a judgment of a court that is binding on the Banks, final and not subject to review on appeal, that such damages were the result of acts or omissions on the part of the Banks, constituting wilful misconduct or knowing violations of law. 11.22 JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR OHIO STATE COURT SITTING IN DAYTON OR CINCINNATI, OHIO, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE BANKS TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE BANKS OR ANY AFFILIATE OF ANY BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN DAYTON OR CINCINNATI, OHIO. 11.23 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 11.24 GOVERNING LAW. This Agreement has been negotiated, executed and delivered in Ohio, is to be performed in Ohio and is to be governed by and construed in accordance with the laws (excluding the law of conflicts) of the State of Ohio. -62- IN WITNESS WHEREOF, the Borrower and the Bank have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the ____ day of June, 1996. DUR-O-WAL, INC. By: ________________________________ Name:_______________________________ Title:______________________________ BANK ONE, DAYTON, N.A. (in its individual capacity and as Bank Agent) By: ________________________________ Name:_______________________________ Title:______________________________ BANK OF AMERICA ILLINOIS (in its individual capacity) By: ________________________________ Name:_______________________________ Title:______________________________ BANK OF AMERICA ILLINOIS (in its capacity as Collateral Agent) By: ________________________________ Name:_______________________________ Title:______________________________ STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of ______________, 1996, by ______________________________, as _____________ on behalf of DUR-O-WAL, INC.. ________________________________ Notary Public -63- STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of _______, 1996, by _____________________, as _____________ on behalf of BANK ONE, DAYTON, N.A. ________________________________ Notary Public STATE OF ___________ ) ) SS: COUNTY OF __________ ) The foregoing Agreement was acknowledged before me this ___ day of _______, 1996, by _____________________, as _____________ on behalf of BANK OF AMERICA ILLINOIS. ________________________________ Notary Public STATE OF OHIO ) ) SS: COUNTY OF MONTGOMERY ) The foregoing Agreement was acknowledged before me this ___ day of _______, 1996, by _____________________, as _____________ on behalf of BANK OF AMERICA ILLINOIS as Collateral Agent. ________________________________ Notary Public -64- EX-23.1 8 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. Dayton, Ohio ARTHUR ANDERSEN LLP June 18, 1996 EX-23.2 9 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement of Dayton Superior Corporation on Form S-1 of our report dated April 20, 1994, on our audits of the consolidated statements of operations and cash flows of Dur-O-Wal, Inc. and Subsidiary for the years ended December 31, 1992 and 1993. We also consent to the reference to our firm under the caption "Experts." COOPERS & LYBRAND L.L.P. Chicago, Illinois June 18, 1996 EX-23.3 10 EXHIBIT 23.3 CONSENT OF INDEPENDENT AUDITORS We have issued our report dated April 21, 1995 accompanying the financial statements of Dur-O-Wal, Inc. and subsidiary contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts". Chicago, Illinois ALTSCHULER, MELVOIN AND GLASSER LLP June 18, 1996 -----END PRIVACY-ENHANCED MESSAGE-----