-----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, HIat7LUgjTPWnlJfVJHqGnWR6umeLCD468SqdjqMY2LAHl5zXDKb0nZNaYCzePsh lCIVjFgz7zpEZQOKSGcNaw== 0000950152-02-006111.txt : 20020812 0000950152-02-006111.hdr.sgml : 20020812 20020812144648 ACCESSION NUMBER: 0000950152-02-006111 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20020628 FILED AS OF DATE: 20020812 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11781 FILM NUMBER: 02726638 BUSINESS ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 BUSINESS PHONE: 9374287172 MAIL ADDRESS: STREET 1: 7777 WASHINGTON VILLAGE DRIVE STREET 2: SUITE 130 CITY: DAYTON STATE: OH ZIP: 45459 10-Q 1 l95334ae10vq.txt DAYTON SUPERIOR CORPORATION 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED COMMISSION FILE NUMBER June 28, 2002 1-11781 DAYTON SUPERIOR CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) OHIO 31-0676346 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 7777 Washington Village Dr., Suite 130 Dayton, Ohio 45459 - ---------------------------------------- ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 937-428-6360 NOT APPLICABLE - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed from last report) Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO --------- --------- ____________ Common Shares were outstanding as of August 9, 2002 PART I. -- FINANCIAL INFORMATION ITEM 1 -- FINANCIAL STATEMENTS Dayton Superior Corporation and Subsidiaries Condensed Consolidated Balance Sheets As of June 28, 2002 and December 31, 2001 (Amounts in thousands)
(Unaudited) June 28, December 31, 2002 2001 --------------- ----------------- ASSETS Current assets: Cash $ 4,597 $ 4,989 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $6,655 and $7,423 70,338 51,628 Inventories (Note 3) 55,360 47,900 Prepaid expenses and other current assets 7,082 9,637 Prepaid income taxes 1,959 1,225 Future income tax benefits 7,316 7,962 --------------- ----------------- Total current assets 146,652 123,341 --------------- ----------------- Rental equipment, net (Note 3) 67,345 71,323 --------------- ----------------- Property, plant and equipment 103,075 100,052 Less accumulated depreciation (42,157) (39,931) --------------- ----------------- Net property, plant and equipment 60,918 60,121 --------------- ----------------- Goodwill and intangible assets, net of accumulated amortization (Note 3) 117,006 136,626 Other assets 4,268 5,432 --------------- ----------------- Total assets $ 396,189 $ 396,843 --------------- ----------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt (Note 4) $ 5,485 $ 5,001 Accounts payable 32,311 27,340 Accrued compensation 14,465 19,935 Other accrued liabilities 10,872 14,122 --------------- ----------------- Total current liabilities 63,133 66,398 Long-term debt, net (Note 4) 311,161 286,945 Deferred income taxes 10,167 13,365 Other long-term liabilities 12,158 13,414 --------------- ----------------- Total liabilities 396,619 380,122 --------------- ----------------- Shareholders' equity (deficit): Common shares 102,083 102,044 Loans to shareholders (2,945) (3,030) Treasury shares, at cost, 33,697 and 29,288 shares in 2002 and 2001, respectively (1,167) (979) Cumulative other comprehensive loss (416) (589) Accumulated deficit (97,985) (80,725) --------------- ----------------- Total shareholders' equity (deficit) (430) 16,721 --------------- ----------------- Total liabilities and shareholders' equity (deficit) $ 396,189 $ 396,843 =============== =================
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 2 Dayton Superior Corporation and Subsidiaries Condensed Consolidated Statements of Operations For The Three and Six Fiscal Months Ended June 28, 2002 and June 29, 2001 (Amounts in thousands) (Unaudited)
Three Fiscal Months Ended Six Fiscal Months Ended ----------------------------- ------------------------------ June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ------------ ------------ ------------- ------------- Net sales $ 106,506 $ 111,064 $ 185,008 $ 194,421 Cost of sales 69,919 69,610 121,904 125,950 ------------ ------------ ------------- ------------- Gross profit 36,587 41,454 63,104 68,471 Selling, general and administrative expenses 22,788 25,756 46,016 51,786 Facility closing and severance expenses (Note 7) 453 3,320 574 3,320 Amortization of goodwill and intangibles 78 1,054 151 1,991 ------------ ------------ ------------- ------------- Income from operations 13,268 11,324 16,363 11,374 Other expenses Interest expense 8,407 8,959 16,413 17,744 Other expense, net 45 (6) 150 4 ------------ ------------ ------------- ------------- Income (loss) before provision (benefit) for income taxes 4,816 2,371 (200) (6,374) Provision (benefit) for income taxes 1,926 1,126 (80) (3,028) ------------ ------------ ------------- ------------- Net income (loss) before cumulative effect of change in accounting principle 2,890 1,245 (120) (3,346) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 (Note 3) - - (17,140) - ------------ ------------ ------------- ------------- Net income (loss) $ 2,890 $ 1,245 $ (17,260) $ (3,346) ------------ ------------ ------------- -------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 Dayton Superior Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows For The Six Fiscal Months Ended June 28, 2002 and June 29, 2001 (Amounts in thousands) (Unaudited)
June 28, June 29, 2002 2001 ---------------- ---------------- Cash Flows From Operating Activities: Net loss $ (17,260) $ (3,346) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 10,004 10,035 Amortization of goodwill and intangibles 151 1,991 Cumulative effect of change in accounting principle (Note 3) 17,140 - Deferred income taxes 202 (1,148) Amortization of deferred financing costs and debt discount 1,150 1,066 Gain on sales of rental equipment and property, plant and equipment (7,959) (4,950) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (18,711) (14,273) Inventories (7,460) (4,045) Accounts payable 4,971 6,283 Accrued liabilities and other long-term liabilities (10,237) (2,386) Other, net 2,474 (907) ---------------- ---------------- Net cash used in operating activities (25,535) (11,680) ---------------- ---------------- Cash Flows From Investing Activities: Property, plant and equipment additions (6,518) (4,383) Proceeds from sales of fixed assets 1,888 - Rental equipment additions (6,022) (10,312) Proceeds from sales of rental equipment 11,426 7,908 Acquisitions (Note 2) - (40,163) ---------------- ---------------- Net cash provided by (used in) investing activities 774 (46,950) ---------------- ---------------- Cash Flows From Financing Activities: Repayments of long-term debt (1,686) (30,024) Issuance of long-term debt 25,944 85,925 Purchase of treasury shares (188) (734) Repayment of loans to shareholders 85 - Issuance of common shares, net of issuance costs 39 5,371 Financing costs incurred - (741) ---------------- ---------------- Net cash provided by financing activities 24,194 59,797 ---------------- ---------------- Effect of Exchange Rate Changes on Cash 175 (60) ---------------- ---------------- Net increase (decrease) in cash (392) 1,107 Cash, beginning of period 4,989 1,782 ---------------- ---------------- Cash, end of period $ 4,597 $ 2,889 ================ ================ Supplemental Disclosures: Cash paid (refunded) for income taxes, net $ 355 $ (3,351) Cash paid for interest 15,557 16,486 Issuance of common shares in conjunction with acquisition - 2,842 Issuance of common shares and loans to shareholders - 309
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 Dayton Superior Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) For The Three and Six Fiscal Months Ended June 28, 2002 and June 29, 2001 (Amounts in thousands) (Unaudited)
Three Fiscal Months Six Fiscal Months Ended Ended ------------------------------- ----------------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ------------- --------------- ------------- -------------- Net income (loss) $2,890 $1,245 $(17,260) $(3,346) Other comprehensive income (loss): Foreign currency translation adjustment 128 55 175 (60) ------------- --------------- ------------- -------------- Comprehensive income (loss) $3,018 $1,300 $(17,085) $(3,406) ============= =============== ============= ==============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 28, 2002 AND JUNE 29, 2001 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (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 accounting principles generally accepted in the United States 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, 2001. (2) ACQUISITIONS (a) AnconCCL Inc.--On June 19, 2001, the Company acquired the stock of AnconCCL Inc., dba BarLock ("BarLock"), for approximately $9,900 in cash, including acquisition costs. The payment was funded through the Company's credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of BarLock have been included in the accompanying financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $10,800, including goodwill of $7,100) and liabilities assumed (approximately $900). Pro forma financial information is not required as this was not a significant acquisition. (b) Aztec Concrete Accessories, Inc.--On January 4, 2001, the Company acquired the stock of Aztec Concrete Accessories, Inc. ("Aztec") for approximately $32,800, including acquisition costs. The payment of the purchase price consisted of cash of approximately $29,900 and 105,263 common shares valued at approximately $2,900. The cash portion was funded through the issuance of 189,629 common shares valued at approximately $5,100 to Odyssey Investment Partners, LLC ("Odyssey"), and an increase of approximately $24,800 to the credit facility. The business is being operated as part of the Company's concrete accessories business. 6 The acquisition has been accounted for as a purchase, and the results of Aztec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $44,000, including goodwill of approximately $35,400) and liabilities assumed (approximately $11,200, including a deferred compensation liability of approximately $7,700). Pro forma financial information is not required as this was not a significant acquisition. (3) 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, 2001. 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 made at year end. Examples of such estimates include changes in the deferred tax accounts 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 year end is December 31. The Company's fiscal quarters are defined as the periods ending on the Friday nearest to the end of March, June and September. (b) Inventories--The Company values all inventories at the lower of first-in, first-out ("FIFO") cost or market. The Company provides net realizable value reserves which 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. Following is a summary of the components of inventories as of June 28, 2002, and December 31, 2001:
June 28, December 31, 2002 2001 ---------------- ------------- Raw materials $ 14,091 $ 11,581 Work in progress 4,973 3,624 Finished goods and work in progress 38,105 34,639 ---------------- ------------- 57,169 49,844 Net realizable value reserve (1,809) (1,944) ---------------- ------------- $ 55,360 $ 47,900 ================ =============
(c) Rental Equipment--Rental equipment is manufactured or purchased by the Company for resale and for rent to others on a short-term basis. Rental equipment is recorded at the lower of FIFO cost or market and is depreciated over the estimated useful life of the equipment, three to fifteen years, on a straight-line basis. The balances as of June 28, 2002 and December 31, 2001 are net of accumulated depreciation of $23,064 and $20,002, respectively. Rental revenues and cost of sales associated with rental revenue are as follows: 7
Three Fiscal Months Six Fiscal Months Ended Ended ----------------------- ----------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ----------- --------- ---------- ---------- Rental revenue $10,685 $13,068 $21,516 $25,273 Cost of sales 3,360 2,508 6,698 6,984 ---------- --------- ---------- ---------- Gross profit $ 7,325 $10,560 $14,818 $18,289 ========== ========= ========== ==========
Effective January 1, 2002, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the useful life of certain items within the rental fleet was shorter than the fifteen-year life previously assigned. The study showed that a three-year life was more appropriate based upon the nature of these products. These products include smaller hardware and accessories that accompany steel forms and the recently introduced European forming systems. As a result of the change, the Company recorded incremental depreciation of approximately $1,000 in the three months ended June 28, 2002 and approximately $2,100 in the first six months of 2002, which is reflected in cost of goods sold in the accompanying June 28, 2002 consolidated statement of operations. Effective January 1, 2001, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the renovation of the plywood surface of certain products within the rental fleet extended the useful life beyond normal repair and maintenance. Accordingly, the Company began capitalizing rather than expensing these renovation related expenditures. Simultaneously, the useful lives of the plywood surface was reduced from fifteen years to three years to match the useful life of the renovation. As a result of the change, the Company recorded incremental depreciation of approximately $2,300 in the six months ended June 29, 2001, which is reflected in cost of goods sold in the accompanying June 28, 2001 consolidated statement of operations. (d) New Accounting Pronouncements--In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to only allow the purchase method of accounting. In addition, the two statements preclude amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. The Company adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, the Company recorded a non-cash charge in the first quarter of 2002 of $17,140 ($19,894 of goodwill, less an income tax benefit of $2,754), which is reflected as a cumulative effect of change in accounting principle. This amount does not affect the Company's ongoing operations. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in 8 masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. The following is a reconciliation from reported net income/(loss) to net income/(loss) adjusted for the amortization of goodwill:
Three Fiscal Months Six Fiscal Months Ended Ended -------------------------- -------------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ----------- ---------- ---------- ---------- Net income (loss) before cumulative effect of change in accounting principle, as reported $2,890 $ 1,245 $ (120) $(3,346) Amortization of goodwill, net of tax benefit - 933 - 1,688 --------- --------- --------- --------- Net income (loss) before cumulative effect of change in accounting principle, as adjusted $2,890 $ 2,178 $ (120) $(1,658) ========= ========= ========= =========
(e) Reclassifications--Certain reclassifications have been made to the 2001 amounts to conform to their 2002 classifications. (4) CREDIT ARRANGEMENTS Following is a summary of the Company's long-term debt as of June 28, 2002 and December 31, 2001:
June 28, December 31, 2002 2001 ------------- -------------- Revolving credit facility, weighted average interest rate of 5.2% $ 27,925 $ 2,000 Acquisition credit facility, weighted average interest rate of 4.7% 9,250 9,250 Term Loan Tranche A, weighted average interest rate of 4.8% 21,053 22,161 Term Loan Tranche B, weighted average interest rate of 5.2% 98,008 98,500 Senior Subordinated Notes, interest rate of 13.0% 170,000 170,000 Debt discount on Senior Subordinated Notes (10,836) (11,297) Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand 1,144 1,214 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 102 118 ------------ ----------- Total long-term debt 316,646 291,946 Less current maturities (5,485) (5,001) ------------ ----------- Long-term portion $ 311,161 $ 286,945 ============ ===========
As of June 28, 2002, the Company's credit facility consisted of (i) a $50,000 revolving credit facility maturing June 2006, (ii) a $30,000 acquisition facility, converting from revolving loans into term loans three years from the closing and maturing June 2006 and (iii) term loan facilities in an aggregate principal amount of $122,000, consisting of a $23,500 tranche A facility maturing June 2006 and a $98,500 tranche B facility maturing June 2008. 9 The credit facility provides that the Company will repay (i) the tranche A facility in quarterly installments commencing March 2002, (ii) the tranche B facility in quarterly installments, commencing March 2002 and (iii) the acquisition facility, in equal quarterly installments commencing in June 2004. The credit facility has several interest rate options, which reprice on a short-term basis. At June 28, 2002, the Company had outstanding letters of credit of approximately $6,300, and the Company had available borrowings of approximately $15,800 under its revolving credit facility. The average borrowings, maximum borrowings, and weighted average interest rates on the revolving credit facility and its predecessor for the periods indicated were as follows:
Three Fiscal Months Six Fiscal Months Ended Ended ------------------------ -------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ----------- ----------- ---------- -------- Revolving Credit Facility: Average borrowing $19,713 $15,323 $14,448 $13,376 Maximum borrowing 29,275 26,425 29,275 26,425 Weighted average interest rate 5.8% 9.1% 6.5% 9.6%
The credit facility contains certain restrictive covenants, which require that, among other things, the Company maintain a minimum interest coverage ratio, not exceed a certain leverage ratio, maintain a minimum EBITDA, as defined, and limit its capital expenditures. The Company was in compliance with its loan covenants as of June 28, 2002. The Senior Subordinated Notes (the "Notes") have a principal amount of $170,000 and mature in June 2009. The Notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The Notes were issued with warrants that allow the holder to purchase 117,276 of the Company's Common Shares for $0.01 per share. The Company's wholly-owned domestic subsidiaries (Aztec Concrete Accessories, Inc.; Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons Corporation; and Dur-O-Wal, Inc.) have guaranteed the Notes. The wholly-owned foreign subsidiaries of the Company are not guarantors of the Notes and do not have any credit arrangements senior to the Notes. Following are the supplemental consolidating condensed balance sheets as of June 28, 2002 and December 31, 2001, as well as the supplemental consolidating condensed statements of operations for the three and six fiscal months ended June 28, 2002 and June 29, 2001 and cash flows for the six fiscal months ended June 28, 2002 and June 29, 2001. 10 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of June 28, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ------------- -------------- --------------- -------------- ------------- ASSETS Cash $ 4,791 $ (1,184) $ 990 $ - $ 4,597 Accounts receivable, net 36,540 32,185 1,613 - 70,338 Inventories 27,916 26,507 937 - 55,360 Intercompany 64,511 (64,318) (193) - - Other current assets 8,547 7,642 168 - 16,357 ----------- ------------ ------------ ------------- ------------- TOTAL CURRENT ASSETS 142,305 832 3,515 - 146,652 Rental, net 5,997 61,293 55 - 67,345 Property, plant and equipment, net 25,843 34,878 197 - 60,918 Investment in subsidiaries 123,041 - - (123,041) - Other assets 55,428 65,846 - - 121,274 ----------- ------------ ------------ ------------- ------------- TOTAL ASSETS $352,614 $ 162,849 $3,767 $(123,041) $396,189 =========== ============ ============ ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 5,485 $ - $ - $ - $ 5,485 Accounts payable 15,360 16,550 401 - 32,311 Accrued liabilities 15,430 9,701 206 - 25,337 ----------- ------------ ------------ ------------- ------------- TOTAL CURRENT LIABILITIES 36,275 26,251 607 - 63,133 Long-term debt, net 311,161 - - - 311,161 Other long-term liabilities 1,505 20,625 195 - 22,325 Total shareholders' equity (deficit) 3,673 115,973 2,965 (123,041) (430) ----------- ------------ ------------ ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $352,614 $ 162,849 $3,767 $(123,041) $396,189 =========== ============ ============ ============= =============
11 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of December 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ------------- -------------- --------------- -------------- ------------ ASSETS Cash $ 2,714 $ 832 $1,443 $ - $ 4,989 Accounts receivable, net 20,014 30,516 1,098 51,628 Inventories 23,030 23,925 945 - 47,900 Intercompany 58,692 (58,584) (108) - - Other current assets 9,046 9,594 184 - 18,824 ------------ ------------- ------------- ------------ ------------ TOTAL CURRENT ASSETS 113,496 6,283 3,562 - 123,341 Rental equipment, net 6,256 65,009 58 - 71,323 Property, plant and equipment, net 23,708 36,222 191 - 60,121 Investment in subsidiaries 122,864 - - (122,864) - Other assets 55,899 86,159 - - 142,058 ------------ ------------- ------------- ------------ ------------ TOTAL ASSETS $322,223 $193,673 $3,811 $(122,864) $396,843 ============ ============= ============= ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 5,001 $ - $ - $ - $ 5,001 Accounts payable 12,579 14,548 213 - 27,340 Accrued liabilities 20,004 13,742 311 - 34,057 ------------ ------------- ------------- ------------ ------------ TOTAL CURRENT LIABILITIES 37,584 28,290 524 - 66,398 Long-term debt, net 286,945 - - - 286,945 Other long-term liabilities 4,461 22,132 186 - 26,779 Total shareholders' equity (deficit) (6,767) 143,251 3,101 (122,864) 16,721 ------------ ------------- ------------- ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $322,223 $193,673 $3,811 $(122,864) $396,843 ============ ============= ============= ============ ============
12 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended June 28, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- -------------- --------------- -------------- Net sales $47,256 $57,594 $1,656 $106,506 Cost of sales 28,868 40,203 848 69,919 ---------- ----------- ---------- ----------- Gross profit 18,388 17,391 808 36,587 Selling, general and administrative expenses 10,049 12,378 361 22,788 Facility closing and severance expenses 364 89 - 453 Amortization of goodwill and intangibles 73 5 - 78 Management fees (75) - 75 - ---------- ----------- ---------- ----------- Income (loss) from operations 7,977 4,919 372 13,268 Other expenses Interest expense 8,207 200 - 8,407 Other expense (income), net 187 (78) (64) 45 ---------- ----------- ---------- ----------- Income (loss) before provision (benefit) for income taxes (417) 4,797 436 4,816 Provision (benefit) for income taxes (167) 1,919 174 1,926 ---------- ----------- ---------- ----------- Net loss $ (250) $ 2,878 $ 262 $ 2,890 ========== =========== ========== ===========
13 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- -------------- --------------- -------------- Net sales $ 53,705 $54,575 $2,784 $111,064 Cost of sales 35,260 32,571 1,779 69,610 ---------- ---------- ----------- ----------- Gross profit 18,445 22,004 1,005 41,454 Selling, general and administrative expenses 10,126 15,139 491 25,756 Facility closing and severance expenses 1,935 1,385 - 3,320 Amortization of goodwill and intangibles 454 600 - 1,054 Management fees (110) - 110 - ---------- ---------- ----------- ----------- Income (loss) from operations 6,040 4,880 404 11,324 Other expenses Interest expense 8,777 182 - 8,959 Other expense (income), net (9) 2 1 (6) ---------- ---------- ----------- ----------- Income (loss) before provision (benefit) for income taxes (2,728) 4,696 403 2,371 Provision (benefit) for income taxes (1,299) 2,229 196 1,126 ---------- ---------- ----------- ----------- Net Income (loss) $(1,429) $ 2,467 $ 207 $ 1,245 ========== ========== =========== ===========
14 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Six Fiscal Months Ended June 28, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- -------------- --------------- -------------- Net sales $78,150 $104,184 $2,674 $185,008 Cost of sales 47,389 73,126 1,389 121,904 ---------- ----------- ---------- ----------- Gross profit 30,761 31,058 1,285 63,104 Selling, general and administrative expenses 20,349 24,901 766 46,016 Facility closing and severance expenses 485 89 - 574 Amortization of goodwill and intangibles 141 10 - 151 Management fees (150) - 150 - ---------- ----------- ---------- ----------- Income from operations 9,936 6,058 369 16,363 Other expenses Interest expense 16,087 326 - 16,413 Other expense, net 109 12 29 150 ---------- ----------- ---------- ----------- Income (loss) before provision (benefit) for income taxes (6,260) 5,720 340 (200) Provision (benefit) for income taxes (2,504) 2,288 136 (80) ---------- ----------- ---------- ----------- Net Income (loss) before cumulative effect of change in accounting principle (3,756) 3,432 204 (120) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 - (17,140) - (17,140) ---------- ----------- ---------- ----------- Net income (loss) $(3,756) $(13,708) $204 $(17,260) ========== =========== ========== ===========
15 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Six Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- -------------- --------------- -------------- Net sales $ 93,483 $96,488 $4,450 $194,421 Cost of sales 61,839 61,289 2,822 125,950 ---------- ----------- ----------- ----------- Gross profit 31,644 35,199 1,628 68,471 Selling, general and administrative expenses 20,015 30,891 880 51,786 Facility closing and severance expenses 1,935 1,385 - 3,320 Amortization of goodwill and intangibles 913 1,078 - 1,991 Management fees (150) - 150 - ---------- ----------- ----------- ----------- Income from operations 8,931 1,845 598 11,374 Other expenses Interest expense 17,418 326 - 17,744 Other expense (income), net (3) 7 - 4 ---------- ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes (8,484) 1,512 598 (6,374) Provision (benefit) for income taxes (4,030) 718 284 (3,028) ---------- ----------- ----------- ----------- Net income (loss) $(4,454) $ 794 $ 314 $(3,346) ========== =========== =========== ===========
16 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Six Fiscal Months Ended June 28, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- -------------- --------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (3,756) $(13,708) $ 204 $(17,260) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 3,614 7,667 24 11,305 Cumulative effect of change in accounting principle - 17,140 - 17,140 Deferred income taxes 202 - - 202 Gain on sales of rental equipment and fixed assets (675) (7,274) (10) (7,959) Change in assets and liabilities (12,315) (15,735) (913) (28,963) ----------- ----------- ----------- ------------ Net cash used in operating activities (12,930) (11,910) (695) (25,535) ----------- ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (4,408) (2,081) (29) (6,518) Proceeds from sales of fixed assets 1,036 852 - 1,888 Rental equipment additions (346) (5,670) (6) (6,022) Proceeds from sales of rental equipment 350 11,059 17 11,426 ----------- ----------- ----------- ------------ Net cash provided by (used in) investing activities (3,368) 4,160 (18) 774 ----------- ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net 24,258 - - 24,258 Redemption of Class A common shares and purchase of treasury shares (188) - - (188) Repayment of loans to shareholders 85 - - 85 Issuance of common shares 39 - - 39 Intercompany (5,819) 5,734 85 - ----------- ----------- ----------- ------------ Net cash provided by financing activities 18,375 5,734 85 24,194 ----------- ----------- ----------- ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 175 175 ----------- ----------- ----------- ------------ Net increase (decrease) in cash 2,077 (2,016) (453) (392) CASH, beginning of period 2,714 832 1,443 4,989 ----------- ----------- ----------- ------------ CASH, end of period $ 4,791 $ (1,184) $ 990 $ 4,597 =========== =========== =========== ============
17 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Six Fiscal Months Ended June 29, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ------------- ------------- --------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (4,454) $ 794 $ 314 $ (3,346) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 4,178 8,891 23 13,092 Deferred income taxes (1,148) - - (1,148) Gain on sales of rental equipment and fixed assets (307) (4,584) (59) (4,950) Change in assets and liabilities, net of the effects of acquisitions (16,022) 3,059 (2,365) (15,328) ----------- ------------ ---------- ----------- Net cash provided by (used in) operating activities (17,753) 8,160 (2,087) (11,680) ----------- ------------ ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (1,560) (2,802) (21) (4,383) Rental equipment additions (759) (9,514) (39) (10,312) Proceeds from sale of rental equipment 727 7,065 116 7,908 Acquisitions, net (40,163) - - (40,163) ----------- ------------ ---------- ----------- Net cash provided by (used in) investing activities (41,755) (5,251) 56 (46,950) ----------- ------------ ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net 55,901 - - 55,901 Purchase of treasury shares (734) - - (734) Issuance of common shares 5,371 - - 5,371 Financing costs incurred (741) - - (741) Intercompany (1,783) (59) 1,842 - ----------- ------------ ---------- ----------- Net cash provided by (used in) financing activities 58,014 (59) 1,842 59,797 ----------- ------------ ---------- ----------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (60) (60) ----------- ------------ ---------- ----------- Net increase (decrease) in cash (1,494) 2,850 (249) 1,107 CASH, beginning of period 1,603 (825) 1,004 1,782 ----------- ------------ ---------- ----------- CASH, end of period $ 109 $ 2,025 $ 755 $ 2,889 =========== ============ ========== ===========
18 (5) STOCK OPTION PLANS The Company has a stock option plan, which provides for an option exercise price equal to the stock's market price on the date of grant. The options are accounted for under APB Opinion No. 25, under which no compensation costs have been recognized. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income (loss) for the three and six fiscal months ended June 28, 2002 and June 29, 2001 would have been reduced to the following pro forma amounts:
Three Fiscal Months Six Fiscal Months Ended Ended ------------------------ -------------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ------------ ---------- ------------ ------------ Net income (loss) As Reported $2,890 $1,245 $(17,260) $(3,346) Pro Forma 2,844 1,061 (17,357) (3,725)
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the activity of the Company's stock option plans for the six fiscal months ended June 28, 2002 is presented in the table below:
Weighted Average Number of Exercise Price Shares Per Share ------------- ----------------- Outstanding at December 31, 2001 541,258 $ 24.17 Granted 7,839 27.50 Exercised (3,050) 2.29 Cancelled (4,865) 24.08 ------------- ----------------- Outstanding at June 28, 2002 541,182 $ 24.34 ============= =================
(6) SEGMENT REPORTING The Company operates in three segments: concrete accessories, concrete forming systems, and paving products. The segments are differentiated by their products and services, all of which serve the construction industry. Sales between segments are recorded at normal selling price by the selling division and at cost for the buying division, with the profit recorded as an intersegment elimination. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. 19 Information about the income (loss) of each segment and the reconciliations to the consolidated amounts for the three and six fiscal months ended June 28, 2002 and June 29, 2001 follows:
Three Fiscal Months Six Fiscal Months Ended Ended ------------------------- ------------------------ June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Concrete Accessories $ 57,337 $ 61,341 $ 103,503 $ 109,890 Concrete Forming Systems 30,211 34,846 55,149 59,807 Paving Products 18,958 14,877 26,356 24,724 ---------- ---------- ---------- ---------- Net sales to external customers $ 106,506 $ 111,064 $ 185,008 $ 194,421 ========== ========== ========== ========== Concrete Accessories $ 1,480 $ 1,467 $ 2,638 $ 2,565 Concrete Forming Systems 2,312 2,132 4,022 3,430 Paving Products 695 878 1,195 1,295 ---------- ---------- ---------- ---------- Net sales to other segments $ 4,487 $ 4,477 $ 7,855 $ 7,290 ========== ========== ========== ========== Concrete Accessories $ 10,155 $ 7,471 $ 14,739 $ 11,835 Concrete Forming Systems 4,590 5,780 6,083 4,135 Paving Products 2,711 2,355 2,664 2,634 Corporate (1,609) (1,650) (3,070) (3,238) Intersegment Eliminations (2,579) (2,632) (4,053) (3,992) ---------- ---------- ---------- ---------- Income from operations $ 13,268 $ 11,324 $ 16,363 $ 11,374 ========== ========== ========== ========== Concrete Accessories $ 2,734 $ 3,277 $ 5,518 $ 6,438 Concrete Forming Systems 4,676 4,967 9,181 9,980 Paving Products 997 715 1,714 1,326 ---------- ---------- ---------- ---------- Interest expense $ 8,407 $ 8,959 $ 16,413 $ 17,744 ========== ========== ========== ========== Concrete Accessories $ 7,311 $ 4,200 $ 9,079 $ 5,393 Concrete Forming Systems (21) 813 (3,111) (5,845) Paving Products 1,714 1,640 955 1,308 Corporate (1,609) (1,650) (3,070) (3,238) Intersegment Eliminations (2,579) (2,632) (4,053) (3,992) ---------- ---------- ---------- ---------- Income (loss) before income taxes $ 4,816 $ 2,371 $ (200) $ (6,374) ========== ========== ========== ========== Concrete Accessories $ 1,037 $ 1,326 $ 2,244 $ 2,608 Concrete Forming Systems 3,509 2,309 6,924 6,763 Paving Products 365 275 708 549 Corporate 73 53 128 115 ---------- ---------- ---------- ---------- Depreciation $ 4,984 $ 3,963 $ 10,004 $ 10,035 ========== ========== ========== ========== Concrete Accessories $ 23 $ 862 $ 83 $ 1,688 Concrete Forming Systems 10 148 10 210 Paving Products 45 44 58 93 ---------- ---------- ---------- ---------- Amortization of goodwill and intangibles $ 78 $ 1,054 $ 151 $ 1,991 ========== ========== ========== ==========
20 Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the three and six fiscal months ended June 28, 2002 and June 29, 2001 is as follows:
Three Fiscal Months Six Fiscal Months Ended Ended --------------------- --------------------- June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ---------- --------- ---------- --------- Concrete Accessories $ 1,386 $ 1,460 $ 2,135 $ 2,481 Concrete Forming Systems 417 685 1,333 1,295 Paving Products 822 283 3,004 485 Corporate 46 122 46 122 -------- -------- -------- -------- Property, Plant and Equipment Additions $ 2,671 $ 2,550 $ 6,518 $ 4,383 ======== ======== ======== ======== Concrete Accessories $ 166 $ 483 $ 426 $ 812 Concrete Forming Systems 1,598 4,685 5,596 9,500 -------- -------- -------- -------- Rental Equipment Additions $ 1,764 $ 5,168 $ 6,022 $10,312 ======== ======== ======== ========
Information regarding each segment's assets and the reconciliation to the consolidated amounts as of June 28, 2002 and December 31, 2001 is as follows:
As of ------------------------ June 28, December 31, 2002 2001 --------- ----------- Concrete Accessories $191,720 $212,008 Concrete Forming Systems 134,230 135,302 Paving Products 41,843 24,858 Corporate and Unallocated 28,396 24,675 --------- ---------- Total Assets $396,189 $396,843 ========= ==========
21 (7) FACILITY CLOSING AND SEVERANCE EXPENSES During the second quarter of 2002, the Company approved and began implementing plans to exit one of its distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. The total anticipated cost of the facility closure and severance was $440, and was to encompass approximately eight employee terminations. The total estimated exit costs are comprised of approximately $190 related to employee involuntary termination benefits, approximately $220 related to lease termination costs, and approximately $30 related to other post-closing maintenance costs. Accordingly, the Company recorded a facility closing and severance expense of approximately $440 in the second quarter of 2002. Of the amounts accruable at the time of the plan's approval, approximately $334 is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. At the end of the second quarter of 2002, plans were also being developed to further reduce employee headcount throughout the Company. Since these plans were not yet fully developed, no facility closing and severance costs were reflected at the end of the second quarter of 2002, but these will be reflected in the third quarter results for 2002. During 2001, the Company approved and began implementing two plans to exit certain manufacturing and distribution facilities and to reduce overall Company headcount. As a result of the continued implementation of the plans, the Company has incurred $134 of facility closing and severance expense in 2002, which is related primarily to facility relocation activities. Of the amounts accruable at the time of the plans' approval, approximately $1,102 is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. Below is a summary of the amounts charged against the facility closing and severance reserves in 2002:
Six Fiscal Months Ended June 28, 2002 --------------- Balance at December 31, 2001 $2,900 Facility Closing and Severance Expense 574 Items Charged Against Reserve: Involuntary Termination Costs (901) Lease Termination Costs (295) Other Post-Closing Costs (842) ------------- Balance at June 28, 2002 $1,436 =============
22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. As of June 28, 2002, we have three principal operating divisions, which are organized around the following product lines: - Concrete Accessories; - Concrete Forming Systems; and - Paving Products. ACQUISITIONS We have completed and integrated two acquisitions since the beginning of 2001. These acquisitions are summarized in the following table:
Purchase Price Date Business Acquired Division (In millions) ---- ----------------- -------- ------------- January 2001 Aztec Concrete Accessories Concrete Accessories $32.8 June 2001 BarLock Concrete Accessories 9.9
23 RESULTS OF OPERATIONS The following table summarizes our results of operations as a percentage of net sales.
Three Fiscal Months Six Fiscal Months Ended Ended June 28, June 29, June 28, June 29, 2002 2001 2002 2001 ---------- ---------- --------- --------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 65.6 62.7 65.9 64.8 ---------- ---------- --------- --------- Gross profit 34.4 37.3 34.1 35.2 Selling, general and administrative expenses 21.4 23.2 24.9 26.6 Facility closing and severance expenses 0.4 3.0 0.3 1.7 Amortization of goodwill and intangibles 0.1 0.9 0.1 1.0 ---------- ---------- --------- --------- Income from operations 12.5 10.2 8.8 5.9 Interest expense, net 7.9 8.1 8.8 9.1 Other expense, net 0.1 - 0.1 0.1 ---------- ---------- --------- --------- Income (loss) before provision (benefit) for income taxes 4.5 2.1 (0.1) (3.3) Provision (benefit) for income taxes 1.8 1.0 - (1.6) ---------- ---------- --------- --------- Net before cumulative effect of change in accounting principle 2.7 1.1 (0.1) (1.7) Cumulative effect of change in accounting principle - - (9.2) - ---------- ---------- --------- --------- Net loss 2.7% 1.1% (9.3)% (1.7)% ========== ========== ========= =========
COMPARISON OF THREE FISCAL MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001 NET SALES Net sales decreased $4.6 million, or 4.1%, to $106.5 million in the second quarter of 2002 from $111.1 million in the second quarter of 2001. The following table summarizes net sales by segment:
Three Fiscal Months Ended ------------------------------------------------------- June 28, 2002 June 29, 2001 -------------------------- -------------------------- (In thousands) Net Sales % Net Sales % % Change ------------- --------- ------------ --------- ----------- Concrete accessories $ 58,817 55.2% $ 62,808 56.5% (6.4)% Concrete forming systems 32,523 30.5 36,978 33.3 (12.0) Paving products 19,653 18.5 15,755 14.2 24.7 Intersegment eliminations (4,487) (4.2) (4,477) (4.0) 0.2 ------------- --------- ------------ --------- Net sales $106,506 100.0% $111,064 100.0% (4.1)% ============= ========= ============ =========
24 Net sales of concrete accessories decreased $4.0 million, or 6.4%, to $58.8 million in the second quarter of 2002 from $62.8 million in the second quarter of 2001. This was due to unfavorable volume and pricing as the concrete accessories markets were weaker in the second quarter of 2002 compared to 2001. This was partially offset by increased sales as a result of the BarLock acquisition, which contributed $1.4 million. Net sales of concrete forming systems decreased 12.0% to $32.5 million for the second quarter of 2002 compared to $37.0 million in the second quarter of 2001. This was also due to unfavorable volume and pricing as the concrete forming systems markets were weaker in the second quarter of 2002 compared to 2001. Net sales of paving products increased $3.9 million, or 24.7%, in the second quarter of 2002 compared to the second quarter of 2001. In the first quarter of 2002, state funding for highway construction projects was down as a result of the recession and continued delays in activity on some larger airport runway projects as a result of the September 11, 2001 terrorist attacks. During the second quarter of 2002, state funding was released for these projects, and accordingly the paving products division benefited from this increased volume. GROSS PROFIT Gross profit for the second quarter of 2002 was $36.6 million, a decrease of $4.9 million from $41.5 million in the second quarter of 2001. This was due to the unfavorable sales volume and pricing discussed previously, as well as $1.0 million of additional depreciation expense from the change in accounting estimate in 2002. These factors were offset partially by the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans. Gross margin was 34.4% in the second quarter of 2002, decreasing from 37.3% in the same quarter of 2001. This was due to the unfavorable sales volume and unfavorable pricing, both of which are attributable to our markets being weaker in 2002 compared to 2001. Gross margins were also unfavorably impacted by a shift in the mix of products sold, as paving products have lower gross margins. These were offset partially by the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans. OPERATING EXPENSES Selling, general, and administrative expenses ("SG&A expenses") decreased $3.0 million to $22.8 million in the second quarter of 2002, from $25.8 million in the second quarter of 2001, primarily due to the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans and the receipt of approximately $0.4 million, net of recovery expenses, from Royal Surplus Lines Insurance Co. to cover certain costs related to the EFCO litigation. These factors were offset partially by the increased SG&A expenses as a result of the BarLock acquisition. During the second quarter of 2002, we approved and began implementing plans to exit one of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with our net sales. The total anticipated cost of the facility closure and severance is $0.4 million, and is to encompass approximately eight employee 25 terminations. The total estimated exit costs are comprised of approximately $0.2 million related to employee involuntary termination benefits, and approximately $0.2 million related to lease termination costs and other post-closing maintenance costs. Accordingly, we recorded a facility closing and severance expense of approximately $0.4 million in the second quarter of 2002. Of the amounts accruable at the time of the plan's approval, approximately $0.3 million is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. At the end of the second quarter of 2002, plans were also being developed to further reduce employee headcount throughout the Company. Since these plans were not yet fully developed, no facility closing and severance costs were reflected at the end of the second quarter of 2002, but these will be reflected in the third quarter results for 2002. During 2001, we approved and began implementing two plans to exit certain manufacturing and distribution facilities and to reduce overall headcount. As a result of the continued implementation of the plans, we incurred $0.1 million of facility closing and severance expense in 2002, which is related primarily to facility relocation activities. Of the amounts accruable at the time of the plans' approval, approximately $1.1 million is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. Below is a summary of the amounts charged against the facility closing and severance reserves in 2002:
Three Fiscal Months Ended June 28, 2002 ------------- Balance at March 29, 2002 $1.8 Facility Closing and Severance Expense 0.5 Items Charged Against Reserve: Involuntary Termination Costs (0.4) Lease Termination Costs (0.1) Other Post-Closing Costs (0.4) ------------- Balance at June 28, 2002 $1.4 =============
Amortization of goodwill and intangibles decreased to $0.1 million in the second quarter of 2002 from $1.1 million in the second quarter of 2001 due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." This statement precludes amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. The adoption of the new accounting standard will result in a reduction in annual amortization expense of approximately $3.7 million. The amount of amortization expense recognized in the second quarter of 2001, which was not recognized in the second quarter of 2002 was approximately $1.0 million. 26 OTHER EXPENSES Interest expense decreased to $8.4 million in the second quarter of 2002 from $9.0 million in the second quarter of 2001 due to lower interest rates in the second quarter of 2002 compared to 2001, offset partially by increased long-term debt resulting from the acquisition of BarLock in June 2001. INCOME BEFORE INCOME TAXES Income before income taxes in the second quarter of 2002 was $4.8 million as compared to $2.4 million in the second quarter of 2001 and was comprised of the following:
Three Fiscal Months Ended ------------------------------------- June 28, June 29, 2002 2001 ---------------- ----------------- Concrete accessories $7,311 $4,200 Concrete forming systems (21) 813 Paving products 1,714 1,640 Corporate (1,609) (1,650) Intersegment eliminations (2,579) (2,632) ------------ ------------- Income before income taxes $4,816 $2,371 ============ =============
Concrete accessories' income before income taxes of $7.3 million in the second quarter of 2002 increased from $4.2 million in the second quarter of 2001. This was due to the benefit of the cost reduction initiatives implemented by management, the benefit provided from the acquisition of BarLock, the reduction in amortization expense with the adoption of SFAS No. 142, and lower interest expense as a result of lower interest rates. In addition, the facility closing and severance charge recorded in the second quarter of 2001 was $2.9 million compared to $0.4 million in the second quarter of 2002. These were offset partially by the decreased sales volume, unfavorable pricing and unfavorable mix in the existing business due to weaker markets in 2002 compared to 2001. Concrete forming systems was virtually break-even in the second quarter of 2002 compared to income of $0.8 million in the second quarter of 2001. This was due to the decreased sales volume, unfavorable pricing and unfavorable mix, as well as $1.0 million of additional depreciation expense from the change in accounting estimate in 2002. These were offset partially by the benefit of the cost reduction initiatives implemented by management, and lower interest expense as a result of lower interest rates. Income before income taxes from paving products increased to $1.7 million in the second quarter of 2002 from $1.6 million in the second quarter of 2001. This was due to the increased net sales volume in the second quarter of 2002, offset partially by increased interest expense as a result of average borrowings being higher in 2002. The increase in average borrowings was due primarily to an inventory build as a result of the first quarter 2002 delays in releasing state funding for highway construction projects and delays in activity on some larger airport runway projects, and increased spending on the construction of a new facility in Birmingham, AL. Corporate expenses in the second quarter of 2002 decreased slightly from the second quarter of 2001 as a result of the cost reduction initiatives implemented by management. Elimination of profit on intersegment sales was virtually flat between periods at $2.6 million. 27 NET INCOME The effective tax rate decreased to 40.0% in the second quarter of 2002 from 47.5% in the second quarter of 2001. The reduction in the effective tax rate is due to the adoption of SFAS No. 142, which eliminated non-deductible goodwill amortization in the second quarter of 2002. Net income for the second quarter of 2002 was $2.9 million compared to $1.2 million in the second quarter of 2001 due to the factors described above. COMPARISON OF SIX FISCAL MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001 NET SALES Net sales decreased $9.4 million, or 4.8%, to $185.0 million in the first half of 2002 from $194.4 million in the first half of 2001. The following table summarizes net sales by segment:
Six Fiscal Months Ended -------------------------------------------------------- June 28, 2002 June 29, 2001 --------------------------- --------------------------- Net Sales % Net Sales % % Change ------------- ------------ -------------- ----------- ------------ Concrete accessories $106,141 57.4% $112,455 57.8% (5.6)% Concrete forming systems 59,171 32.0 63,237 32.5 (6.4) Paving products 27,551 14.9 26,019 13.4 5.9 Intersegment eliminations (7,855) (4.3) (7,290) (3.7) 7.8 ------------- ------------ -------------- ----------- Net sales $185,008 100.0% $194,421 100.0% (4.8)% ============= ============ ============== ===========
Net sales of concrete accessories decreased $6.3 million, or 5.6%, to $106.1 million in the first half of 2002 from $112.4 million in the first half of 2001. This was due to unfavorable volume and pricing as the concrete accessories markets were weaker in the first half of 2002 compared to 2001. This was partially offset by increased sales as a result of the BarLock acquisition, which contributed $3.2 million. Net sales of concrete forming systems decreased 6.4% to $59.2 million for the first half of 2002 compared to $63.2 million in the first half of 2001. This was also due to unfavorable volume and pricing as the concrete forming systems markets were weaker in the first half of 2002 compared to 2001. Net sales of paving products increased $1.5 million, or 5.9%, in the first half of 2002 compared to the first half of 2001 due to an increase in volume as a result of the Transportation Equity Act for the 21st Century, known as TEA-21. GROSS PROFIT Gross profit for the first half of 2002 was $63.1 million, a decrease of $5.4 million from $68.5 million in the first half of 2001. This was due to the unfavorable sales volume and pricing discussed previously, offset partially by the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans. 28 Gross margin was 34.1% in the first half of 2002, decreasing from 35.2% last year. This was due to the unfavorable sales volume and unfavorable pricing, both of which are attributable to our markets being weaker in 2002 compared to 2001. Gross margins were also unfavorably impacted by a shift in the mix of products sold, as paving products have lower gross margins. These were offset partially by the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans. OPERATING EXPENSES Selling, general, and administrative expenses ("SG&A expenses") decreased $5.8 million to $46.0 million in the first half of 2002, from $51.8 million in the first half of 2001, primarily due to the cost savings realized from the implementation of the 2001 and 2002 facility closing and severance plans and the receipt of approximately $0.4 million, net of recovery expenses, from Royal Surplus Lines Insurance Co. to cover certain costs related to the EFCO litigation. These factors were offset partially by the increased SG&A expenses as a result of the BarLock acquisition. During the second quarter of 2002, we approved and began implementing plans to exit one of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with our net sales. The total anticipated cost of the facility closure and severance is $0.4 million, and is to encompass approximately eight employee terminations. The total estimated exit costs are comprised of approximately $0.2 million related to employee involuntary termination benefits, and approximately $0.2 million related to lease termination costs and other post-closing maintenance costs. Accordingly, we recorded a facility closing and severance expense of approximately $0.4 million in the first half of 2002. Of the amounts accruable at the time of the plan's approval, approximately $0.3 million is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. At the end of the second quarter of 2002, plans were also being developed to further reduce employee headcount throughout the Company. Since these plans were not yet fully developed, no facility closing and severance costs were reflected at the end of the second quarter of 2002, but these will be reflected in the third quarter results for 2002. During 2001, we approved and began implementing plans to exit certain manufacturing and distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with our net sales. The total anticipated cost of the facility closures and severance was $4.7 million, and was to encompass approximately 200 employee terminations. Of this amount, approximately $3.3 million was expensed during the second quarter of 2001. The total estimated exit costs were comprised of approximately $1.7 million related to employee involuntary termination benefits, approximately $0.7 million related to lease termination costs, approximately $1.0 million related to relocation activities and approximately $1.2 million related to other post-closing maintenance costs. As a result of the continued implementation of the plans, we incurred approximately $0.2 million of facility closing and severance expense in 2002, which is related primarily to facility relocation activities. Of the amounts accruable at the time of the plans' approval, approximately $1.1 million is included in "Other Accrued Liabilities" in the accompanying June 28, 2002 consolidated balance sheet. 29 Below is a summary of the amounts charged against the facility closing and severance reserves in 2002:
Six Fiscal Months Ended June 28, 2002 --------------- Balance at December 31, 2001 $2.9 Facility Closing and Severance Expense 0.6 Items Charged Against Reserve: Involuntary Termination Costs (0.9) Lease Termination Costs (0.3) Other Post-Closing Costs (0.9) --------------- Balance at June 28, 2002 $1.4 ===============
Amortization of goodwill and intangibles decreased to $0.2 million in the first half of 2002 from $2.0 million in the first half of 2001 due to the adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets." This statement precludes amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. The adoption of the new accounting standard will result in a reduction in annual amortization expense of approximately $3.7 million. The amount of amortization expense recognized in the first half of 2001, which was not recognized in the first half of 2002 was approximately $1.8 million. OTHER EXPENSES Interest expense decreased to $16.4 million in the first half of 2002 from $17.7 million in the first half of 2001 due to lower interest rates in the first half of 2002 compared to 2001, offset partially by increased long-term debt resulting from the acquisition of BarLock in June 2001. LOSS BEFORE INCOME TAXES Loss before income taxes in the first half of 2002 was $0.2 million as compared to a loss of $6.4 million in the first half of 2001 and was comprised of the following:
Six Fiscal Months Ended --------------------------------- June 28, June 29, 2002 2001 ---------------- --------------- Concrete accessories $ 9,079 $ 5,393 Concrete forming systems (3,111) (5,845) Paving products 955 1,308 Corporate (3,070) (3,238) Intersegment eliminations (4,053) (3,992) ---------------- --------------- Income before income taxes $ (200) $(6,374) ================ ===============
30 Concrete accessories' income before income taxes of $9.1 million in the first half of 2002 increased from $5.4 million in the first half of 2001. This was due to the benefit of the cost reduction initiatives implemented by management, the benefit provided from the acquisition of BarLock, the reduction in amortization expense with the adoption of SFAS No. 142, and lower interest expense as a result of lower interest rates. In addition, the facility closing and severance charge recorded in the first half of 2001 was $2.9 million compared to $0.4 million in the first half of 2002. These were offset partially by the decreased sales volume, unfavorable pricing and unfavorable mix in the existing business due to weaker markets in 2002 compared to 2001. Concrete forming systems' loss before income taxes was $3.1 million in the first half of 2002 compared to a loss of $5.8 million in the first half of 2001. This was due to the benefit of the cost reduction initiatives implemented by management and lower interest expense as a result of lower interest rates. These were offset partially by the decreased sales volume, unfavorable pricing and unfavorable mix in the existing business due to weaker markets in 2002 compared to 2001. Income before income taxes from paving products decreased to $1.0 million in the first half of 2002 from $1.3 million in the first half of 2001. This was due primarily to an unfavorable mix of product sales, as well as higher interest expense as a result of higher average borrowings in 2002. The increase in average borrowings was due primarily to an inventory build as a result of the first quarter 2002 delays in releasing state funding for highway construction projects and delays in activity on some larger airport runway projects, and increased spending on the construction of a new manufacturing facility in Birmingham, AL. These were partially offset by the benefit of increased net sales volume in the first half of 2002. Corporate expenses decreased to $3.1 million in the first half of 2002 from $3.2 million in the first half of 2001 as a result of the cost reduction initiatives implemented by management. Elimination of profit on intersegment sales was $4.1 million in the first half of 2002 compared to $4.0 million in the first half of 2001. NET LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE The effective tax rate decreased to 40.0% in the first half of 2002 from 47.5% in the first half of 2001. The reduction in the effective tax rate is due to the adoption of SFAS No. 142, which eliminated non-deductible goodwill amortization in the first half of 2002. Net loss before cumulative effect of change in accounting principle for the first half of 2002 was $0.1 million compared to a loss of $3.3 million in the first half of 2001 due to the factors described above. 31 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to only allow the purchase method of accounting. In addition, the two statements preclude amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in the first half of 2002 of $17.1 million ($19.9 million of goodwill, less an income tax benefit of $2.8 million), which is reflected as a cumulative effect of change in accounting principle. This amount does not affect our ongoing operations. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill:
Six Fiscal Months Ended ------------------------- June 28, June 29, 2002 2001 ----------- ------------ Net loss before cumulative effect of change in accounting principle, as reported $(120) $(3,346) Amortization of goodwill, net of tax benefit - 1,688 ----------- ---------- Net loss before cumulative effect of change in accounting principle, as adjusted $(120) $(1,658) =========== ============
NET LOSS The net loss for the first half of 2002 was $17.3 million compared to a loss of $3.3 million in the first half of 2001 due to the factors described above. 32 LIQUIDITY AND CAPITAL RESOURCES Our key statistics for measuring liquidity and capital resources are net cash provided by operating activities, capital expenditures, amounts available under the revolving credit facility and cash gap, which is used to control working capital. Cash gap is defined as the number of days of outstanding accounts receivable, plus the number of days of inventory on hand, less the number of days of outstanding accounts payable. Our capital requirements relate primarily to capital expenditures, debt service and the cost of acquisitions. Historically, our primary sources of financing have been cash from operations, borrowings under our revolving line of credit and the issuance of long-term debt and equity. Net cash used in operating activities in the first half of 2002 was $25.5 million and was comprised of the following: Net loss $ (17.3) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 10.0 Amortization of goodwill and intangibles 0.2 Cumulative effect of change in accounting principle 17.1 Deferred income taxes 0.2 Amortization of deferred financing costs and debt discount 1.2 Gain on sales of rental equipment and property, plant and equipment (8.0) Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (18.7) Inventories (7.5) Accounts payable 5.0 Accrued liabilities and other long-term liabilities (10.2) Other, net 2.5 -------- Net cash used in operating activities $ (25.5) ========
Our investing activities consisted of net proceeds from the sales of fixed assets and rental equipment of $0.8 million in the first half of 2002, compared to net capital expenditures of $6.8 million in the first half of 2001. As of June 28, 2002, we had long-term debt of $316.6 million, comprised of: (a) $170.0 million in principal amount of Senior Subordinated Notes, with a net book value of $159.2 million, (b) $156.2 million outstanding of a $202.0 million credit facility, which consists of a $50.0 million revolving credit facility, a $30.0 million acquisition facility, a $23.5 million term loan under the tranche A facility and a $98.5 million term loan under the tranche B facility, (c) $1.1 million of debentures previously held by the Dayton Superior Capital Trust, and (d) a $0.1 million note to the City of Parsons, Kansas. At June 28, 2002, we had outstanding letters of credit of $6.3 million, and we had available borrowings of $15.8 million under our revolving credit facility. Approximately $9.3 million of the $30.0 million acquisition facility, $21.1 million of the $23.5 million tranche A facility, and $98.0 million of the $98.5 million tranche B facility were outstanding. 33 Our net borrowings for the first six months of 2002 were $24.3 million, which was primarily due to the seasonal build in working capital. At June 28, 2002, working capital was $83.5 million, compared to $56.9 million at December 31, 2001. The increase in working capital is attributable to normal seasonal working capital growth. For the first half of 2002, our average cash gap days were 73, which is five days unfavorable from the 68 days reported in the first half of 2001. This is primarily due to increased inventory in the paving products segment because of the early 2002 delays in activity on some highway construction and airport runway projects. We expect this paving inventory to return to 2001 levels by year-end 2002. We believe our 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. As previously discussed in the "Results of Operations," we have experienced weakness in demand for some of our products as a result of general economic conditions. If economic conditions do not improve in the second half of 2002, we may elect to seek approval from the lenders under our credit facility to modify the financial ratios applicable to future periods. We intend to fund future acquisitions with cash, securities, or a combination of cash and securities, to the extent we use cash for all or part of any acquisitions. We expect to raise such cash from operations or from borrowings under our credit facility or, if feasible and attractive, issuances of long-term debt or additional common shares. SEASONALITY Our operations are seasonal in nature with approximately 55% of sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. INFLATION We do not believe inflation had a significant impact on our operations over the past two years. In the past, we have been able to pass along all or a portion of the effect of increases in the price of steel, our principal raw material. There can be no assurance we will be able to continue to pass on the cost of such increases in the future. The United States has recently imposed tariffs on certain steel imported into the United States, which may have the effect of increasing steel prices. At this point, we are unable to determine the impact that these tariffs will have on our results of operations. FORWARD-LOOKING STATEMENTS This Form 10-Q includes, and future filings by us on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by us and our management may include certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestitive opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by us and our management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. We disclaim any obligation to 34 update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements made by us and our management as the result of a number of important factors. Representative examples of these factors include (without limitation) the cyclical nature of nonresidential building and infrastructure construction activity, which can be affected by factors outside our control such as weakness in the general economy, a decrease in governmental spending, interest rate increases, and changes in banking and tax laws; our ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (our principal raw material) and our ability to pass along such price increases to our customers; the effects of weather and seasonality on the construction industry; increasing consolidation of our customers; the mix of products we sell; the competitive nature of our industry; and the amount of debt we must service. This list is not intended to be exhaustive, and additional information can be found in our annual report on Form 10-K for the year ended December 31, 2001. In addition to these factors, actual future performance, outcomes and results may differ materially because of other, more general, factors including (without limitation) general industry and market conditions and growth rates, domestic economic conditions, governmental and public policy changes and the continued availability of financing in the amounts, at the terms and on the conditions necessary to support our future business. 35 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At June 28, 2002, we had financial instruments that were sensitive to changes in interest rates. These financial instruments consist of $170.0 million of principal amount of fixed rate Senior Subordinated Notes, with a book value of $159.2 million, a $202.0 million credit facility, of which $156.2 million was outstanding, and $1.2 million in other fixed-rate, long-term debt. The Senior Subordinated Notes bear interest at 13.0% on the $170.0 million of principal and mature in 2009. The estimated fair value of the notes approximates the face value. Our credit facility has several interest rate options, which re-price on a short-term basis. Accordingly, the fair value of the credit facility approximates its $156.2 million face value. The interest rates at June 28, 2002 range from 4.7% to 5.2%. Other long-term debt consists of a.) $1.1 million of debentures previously held by the Dayton Superior Capital Trust, with a fair value of $1.8 million and b.) a $0.1 million, 7.0% loan due in installments of $32 thousand per year with an estimated fair value of $0.1 million. In the ordinary course of our business, we also are exposed to price changes in raw materials (particularly steel bar and rod and steel flat plate) and products purchased for resale. The prices of these items can change significantly due to changes in the markets in which our suppliers operate. We generally do not use financial instruments to manage our exposure to changes in commodity prices. 36 PART II. -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. As described in Dayton Superior's Annual Report on Form 10-K for the year ended December 31, 2001, Dayton Superior's Symons Corporation subsidiary is a defendant in a declaratory judgment action filed in the California Superior Court in San Francisco by Royal Surplus Lines Insurance Co., Symons' primary insurance carrier, and Symons' excess insurance carriers. The insurance carriers are seeking a declaration that Symons is not entitled to insurance coverage under their policies for the claims made by Symons to recover certain defense costs and damages paid by Symons in 1999 in a civil action brought by EFCO Corp. The excess insurance carriers have not asserted claims that would entitle them to the award of damages against Symons. In June 2002, Symons settled its claims against Royal. In addition to the $0.2 million partial payment that Royal had paid to Symons in 1999 in the defense of the underlying EFCO case, Royal paid an additional approximately $1.9 million ($1.1 million net of recovery costs) to Symons in the fourth quarter of 2001, after deducting the self-insured retention required under the insurance policy. In June of 2002, Royal paid an additional approximately $0.8 million ($0.4 million net of recovery costs) to Symons in final settlement of its defense and indemnity obligations under its primary insurance policies. Under the terms of the final settlement, Royal gave up its right to reclaim any amounts it has paid to Symons. Symons is proceeding against the excess insurance carriers in this lawsuit to recover certain amounts it paid in the EFCO case. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Index to Exhibit following the signature page to this report for a list of Exhibits. (b) Reports on Form 8-K. During the quarter ended June 28, 2002, we filed the following Current Reports on Form 8-K: Current Report on Form 8-K dated June 10, 2002, reporting under Item 4 (Changes in Registrant's Certifying Accountant) the dismissal of Arthur Andersen LLP as our independent accountants and the engagement of Deloitte & Touche LLP as our independent accountants for the year ending December 31, 2002. Current Report on Form 8-K dated June 21, 2002, reporting under Item 5 (Other Events) announcing the naming of Stephen R. Morrey as chief executive officer, effective July 15, 2002. 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAYTON SUPERIOR CORPORATION DATE: August 9, 2002 BY: /s/ Alan F. McIlroy -------------- ----------------------- Alan F. McIlroy Vice President and Chief Financial Officer 38 INDEX TO EXHIBITS ----------------- Exhibit No. Description - ----------- ----------- (10) Material Contracts 10.1 Form of Amended and Restated Stock Option Agreement entered into between Dayton Superior Corporation and certain of its executive officers 10.2 Employment Agreement dated and effective June 12, 2002 by and between Dayton Superior Corporation and Stephen R. Morrey (99) Additional Exhibits 99.1 Sarbanes-Oxley certification of President and Chief Executive Officer. 99.2 Sarbanes-Oxley certification of Vice President and Chief Financial Officer. 39 EX-10.1 3 l95334aexv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 INCENTIVE STOCK OPTION AGREEMENT AMENDED AND RESTATED AS OF ______________, 2002 THIS AGREEMENT, originally effective as of June 16, 2000 (the "Grant Date"), and amended and restated effective as of ______________, 2002 (the "First Amendment Date") is made by and among Dayton Superior Corporation, an Ohio corporation (the "Company"), and __________________, an employee of the Company (or one of its Subsidiaries, as defined herein), hereinafter referred to as "Optionee." WHEREAS, pursuant to Section 8.2 of the 2000 Stock Option Plan of Dayton Superior Corporation, as amended, the terms of which are hereby incorporated by reference and made a part of this Agreement, the Company has reserved the right to amend this Agreement; and WHEREAS, the Company and the Optionee have mutually agreed that it is in their best interest to amend this Agreement as set forth herein; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree that, effective as of the First Amendment Date, this Agreement is hereby amended and restated as follows: ARTICLE I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan. The singular pronoun shall include the plural, where the context so indicates. Section 1.1 Affiliate "Affiliate" shall mean, with respect to any Person, a Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, such Person, and with respect to the Company, also any entity designated by the Board in which the Company or one of its Affiliates has an interest, and with respect to Odyssey, also any Affiliate of any partner of Odyssey. Section 1.2 EBITDA Target; Base Cumulative EBITDA Target; High Cumulative EBITDA Target "EBITDA Target", "Base Cumulative EBITDA Target" and "High Cumulative EBITDA Target" shall be as set forth in Appendix A to this Agreement, subject to the provisions of Section 4.7. Section 1.3 Basic Option "Basic Option" shall have the meaning set forth in Section 2.1. Section 1.4 Cause "Cause" shall mean the Optionee's (i) willful or gross misconduct or material failure in the performance of the Optionee's duties and responsibilities to the Company, other than any such failure resulting from the Optionee's Disability, which misconduct or failure continues beyond 14 days after the Company notifies the Optionee, in writing, of the Company's finding of such misconduct or failure; or (ii) conviction of, or plea of guilty or nolo contendre to, a felony or a crime involving moral turpitude; or (iii) fraud or personal dishonesty involving the Company's assets. Section 1.5 Change in Control "Change in Control" shall mean the occurrence of any of the following: (i) a change in ownership or control of the Company effected through a transaction or series of transactions whereby any "person" or related "group" of "persons" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries, a Principal Stockholder or a "person" that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or a Principal Stockholder) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than 50% of the total combined voting power of the Company's securities outstanding immediately after such transaction or series of transactions, (ii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company, or the Company and its Subsidiaries taken as a whole, to any "person" (as defined above), or (iii) any consolidation or merger of the Company with or into any other corporation or entity or "person" (as defined above) in which the stockholders of the Company prior to such consolidation or merger own less than fifty percent (50%) of the Company's voting power immediately after such consolidation or merger, excluding any consolidation or merger affected exclusively to change the domicile of the Company. Section 1.6 Chief Executive Officer "Chief Executive Officer" shall mean the Chief Executive Officer of the Company. Section 1.7 Determination Date "Determination Date" with respect to a given fiscal year, shall mean a date, not later than 90 days following December 31st of such year, as of which the Committee determines, pursuant to Section 3.1(d) herein, whether the EBITDA Target, Base Cumulative EBITDA Target and High Cumulative EBITDA Target have been met with respect to such fiscal year. Section 1.8 Disability "Disability" shall mean the inability of the Optionee to perform his or her duties with the Company or a Subsidiary on a full time basis for more than six months within any 12-month period due to reasonably documented physical or mental illness. 2 Section 1.9 EBITDA; Cumulative EBITDA "EBITDA" with respect to any period of determination shall mean the sum of the following (without duplication): (i) consolidated net income (or loss) of the Company and, if applicable, its Subsidiaries, for such period (exclusive of all extraordinary, unusual, or nonrecurring charges, gains and losses (including, without limitation, all restructuring costs and any expense or charge related to the repurchase of capital stock or warrants or options to purchase capital stock) and the related tax effects according to generally accepted accounting principles ("GAAP")), as determined in accordance with GAAP consistently applied, as such principles are in effect on the First Amendment Date, plus (ii) amounts deducted from net revenues in determining such net income (or loss) on account of (w) depreciation and amortization, (x) interest expense (net of interest income), (y) all taxes on income and (z) any management or acquisition fee charged to the Company by the Principal Stockholder. "Cumulative EBITDA" as of a given date shall mean the total of EBITDA from and after January 1, 2000 through such date. Section 1.10 High Performance Option "High Performance Option" shall have the meaning set forth in Section 2.1. Section 1.11 Investment "Investment" shall mean any investment of funds by the Principal Stockholder in debt and equity securities or instruments of the Company and its Subsidiaries. Section 1.12 Investor Return "Investor Return" shall mean the annual compounded pre-tax internal rate of return on a given Investment determined with respect to the period beginning on the initial date of such Investment and ending on the effective date of a Change in Control. Section 1.13 Management Stockholders' Agreement "Management Stockholders' Agreement" shall mean that certain Management Stockholders' Agreement dated as of June 16, 2000 among the Company, Odyssey, and the stockholder parties thereto, as amended from time to time. Section 1.14 Odyssey "Odyssey" shall mean Odyssey Investment Partners Fund, L.P. Section 1.15 Option "Option" shall mean the Incentive Stock Option to purchase Common Stock granted under this Agreement and shall include, collectively, the Basic Option and the High Performance Option. Section 1.16 Person 3 "Person" shall mean an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature. Section 1.17 Plan "Plan" shall mean the 2000 Stock Option Plan of Dayton Superior Corporation, as amended from time to time. Section 1.18 Principal Stockholder "Principal Stockholder" shall mean (a) Odyssey and Odyssey Coinvestors, LLC (together, the "Odyssey Stockholders"), (b) any general or limited partner or member of any Odyssey Stockholder (an "Odyssey Partner"), (c) any corporation, partnership, limited liability company or other entity that is an Affiliate of any Odyssey Stockholder or of any Odyssey Partner (collectively, the "Odyssey Affiliates"), (d) any managing director, member, general partner, director, limited partner, officer or employee of (i) any Odyssey Stockholder, (ii) any Odyssey Partner or (iii) any Odyssey Affiliate, or the heirs, executors, administrators, testamentary trustees, legatees or beneficiaries of any of the foregoing Persons referred to in this clause (d) (collectively, the "Odyssey Associates"), (e) any trust, the beneficiaries of which, or corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, include only Odyssey Stockholders, Odyssey Partners, Odyssey Affiliates, Odyssey Associates, their spouses or their lineal descendants; and (f) a voting trustee for one or more Odyssey Stockholders, Odyssey Affiliates, Odyssey Partners or Odyssey Associates, provided that in no event shall the Company or any Subsidiary be considered an Odyssey Partner, Odyssey Affiliate, or Odyssey Associate and provided further that an underwriter or other similar intermediary engaged by the Company in an offering of the Company's debt or equity securities or other instruments shall not be deemed a Principal Stockholder with respect to such engagement. Section 1.19 Proceeds "Proceeds" shall mean the aggregate fair market value of the consideration received (excluding any management or similar fees) by the Principal Stockholder in connection with a Change in Control, after taking into account all post closing adjustments, and assuming exercise of all options and warrants outstanding as of the effective date of such Change in Control (after giving effect to different dates of investment, if any, and after giving effect to any dilution of securities or instruments arising in connection with such Change in Control), provided however, that if the Principal Stockholder retains any Investment or portion thereof following such Change in Control, the fair market value of such Investment (or portion) immediately following such Change in Control shall be deemed "consideration received" for purposes of calculating the Proceeds, and provided further that the fair market value of any non-cash consideration (including stock) shall be determined as of the date of such Change in Control. Section 1.20 Subsidiary "Subsidiary" of any entity shall mean any corporation in an unbroken chain of corporations beginning with such entity if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 4 Section 1.21 Target Amount "Target Amount" shall mean, with respect to any Investment, a dollar amount representing: (a) For purposes of the Basic Option, (i) If the Investment was made on or prior to June 16, 2003, three times the amount of such Investment; and (ii) If the Investment was made on or after June 17, 2003, a 30% Investor Return on such Investment. (b) For purposes of the High Performance Option, four times the amount of such Investment. For purposes of calculating the Target Amount: (x) the amount of an Investment shall be the amount paid by such Principal Stockholder to any Person (including, without limitation, the Company, any Subsidiary, or any underwriter) for the purchase of such debt or equity securities or instruments, provided that if such Principal Stockholder shall have acquired such debt or equity securities or instruments directly from another Principal Stockholder or through an uninterrupted series of Principal Stockholders, the amount of such Investment shall be the amount initially paid to purchase such debt or equity securities or instruments from a Person other than a Principal Stockholder; and (y) the initial date of an Investment shall be the date such Principal Stockholder purchased such debt or equity securities or instruments from any Person (including, without limitation, the Company, any Subsidiary, or any underwriter), provided that if such Principal Stockholder acquired such debt or equity securities or instruments directly from another Principal Stockholder or through an uninterrupted series of Principal Stockholders, the initial date of such Investment shall be the date such debt or equity securities or instruments were initially acquired from a Person other than a Principal Stockholder. ARTICLE II. GRANT OF OPTION Section 2.1 Grant of Option In consideration of the Optionee's agreement to remain in the employ of the Company or one of its Subsidiaries and for other good and valuable consideration, effective as of the Grant Date, the Company irrevocably granted to the Optionee the Option to purchase any part or all of an aggregate of ___________ shares of Common Stock (the "Basic Option") and an additional ________ shares of Common Stock (the "High Performance Option"). Such Option remains subject to the terms and conditions set forth in the Plan and this Agreement, as amended. Section 2.2 Option Subject to Plan The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article VI and Sections 8.1, 8.2, 8.3 and 8.5 thereof. 5 Section 2.3 Option Price The purchase price of the shares of Common Stock covered by the Option shall be $27.00 per share (without commission or other charge). ARTICLE III. EXERCISABILITY Section 3.1 Commencement of Exercisability (a) Subject to subsections (e) and (f) and Section 3.3, 21.25% of the Basic Option shall become exercisable in two cumulative installments as follows: (i) The first installment shall consist of 16.25% of the shares covered by such Basic Option and shall be exercisable as of the First Amendment Date; (ii) The second installment shall consist of 5% of the shares covered by such Basic Option and shall become exercisable on June 16, 2002; (b) Subject to subsections (e) and (f) and Section 3.3, the remaining 78.75% of the Basic Option, as well as the entire High Performance Option shall become exercisable in full on June 15, 2009 provided that the Optionee remains continuously employed in active service by the Company from the Grant Date through such date. (c) Notwithstanding Section 3.1(b), but subject to subsections (e) and (f) and Section 3.3, 78.75% of the shares subject to the Basic Option shall become exercisable as follows: (i) Annual Performance Test. If the EBITDA for any fiscal year 2002 through 2005 equals or exceeds the EBITDA Target for such fiscal year, on the Determination Date for such fiscal year, a portion of the Basic Option shall become exercisable as follows: (A) An installment consisting of 11.25% of the shares covered by the Basic Option shall become exercisable on the Determination Date for fiscal year 2002 if EBITDA for such fiscal year equals or exceeds the EBITDA Target for such year; and (B) An installment consisting of 16.25% of the shares covered by the Basic Option shall become exercisable on the Determination Date for each fiscal year 2003 through 2005 if EBITDA for such fiscal year equals or exceeds the EBITDA Target for such year. (ii) Missed Years and Catch-Up Opportunities. (A) If any installment subject to exercisability pursuant to Section 3.1(c)(i) fails to become exercisable in accordance therewith, such installment shall become exercisable on the Determination Date for the first fiscal year thereafter ending on or prior to December 31, 2005 (if any) with respect to which fiscal year (x) the EBITDA for such fiscal year equals or exceeds the EBITDA Target for such year and (y) the Cumulative EBITDA through the last day of such 6 fiscal year equals or exceeds the Base Cumulative EBITDA Target through such date; and (B) 18.75% of the Basic Option shall become exercisable on the Determination Date for the first fiscal year ending on or prior to December 31, 2005 (if any) with respect to which fiscal year (x) the EBITDA for such fiscal year equals or exceeds the EBITDA Target for such year and (y) the Cumulative EBITDA through the last day of such fiscal year equals or exceeds the High Cumulative EBITDA Target through such date provided that in no event shall the Basic Option become exercisable for greater than 100% of the shares subject thereto. (iii) Discretionary Catch-Up Opportunity. If any portion of the Basic Option subject to accelerated vesting under this Section 3.1(c) remains unexercisable following the Determination Date for the fiscal year ending December 31, 2005, the Board may, in its discretion, provide that the vesting of such portion may accelerate subsequent to such Determination Date subject to the attainment of such performance targets or the satisfaction of such other terms and conditions as the Board may determine in its discretion. (d) As of the Determination Date for each fiscal year 2002 through 2005, the Committee shall make the determination, in accordance with this Section 3.1, as to whether the EBITDA Target, Base Cumulative EBITDA Target and High Cumulative EBITDA Target have been met, and shall determine, in accordance with this Section 3.1, the extent, if any, to which the Basic Option has become exercisable. As soon as practicable following the Determination Date, the Committee shall notify the Optionee of its determinations and provide Optionee with a copy of the calculations supporting the Committee's conclusions. (e) Notwithstanding the foregoing provisions of this Section 3.1, but subject to subsection (f) and Section 3.3, (i) the Basic Option shall become fully vested and exercisable immediately prior to the effective date of a Change in Control through which the Principal Stockholder receives Proceeds greater than or equal to the sum of the Target Amounts (as defined in Section 1.21(a)) with respect to all Investments; and (ii) the High Performance Option shall become fully vested and exercisable immediately prior to the effective date of a Change in Control through which the Principal Stockholder receives Proceeds greater than or equal to the sum of the Target Amounts (as defined in Section 1.21(b)) with respect to all Investments. (f) No portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable. Section 3.2 Duration of Exercisability The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it is exercised or the Option expires pursuant to Section 3.3. 7 Section 3.3 Expiration of Option The Option may not be exercised to any extent by anyone after the first to occur of the following events: (a) The expiration of ten years from the Grant Date; or (b) The 90th day following the date of the Optionee's Termination of Employment for any reason other than for Cause (unless the Optionee dies within said 90-day period, in which case the Option shall cease to be exercisable upon the expiration of 90 days from the date of the Optionee's death); or (c) Except as the Committee may otherwise approve, the date of the Optionee's Termination of Employment by the Company for Cause. Section 3.4 Partial Exercise Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable; provided, however, that each partial exercise shall be for not less than one hundred (100) shares (or the total amount then exercisable pursuant to Section 3.1, if a smaller number of shares) and shall be for whole shares only. Section 3.5 Exercise of Option The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article VI of the Plan. Section 3.6 Special Tax Consequences The Option is intended to be an Incentive Stock Option, and the amendment to the Option made hereunder as of the First Amendment Date is not intended to affect such Incentive Stock Option status. The Optionee acknowledges that, to the extent that the aggregate fair market value of stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code), including the Option, are exercisable for the first time by the Optionee during any fiscal year (under the Plan and all other stock option plans of the Company, any Subsidiary and any parent corporation) exceeds $100,000, such options shall be treated as not qualifying under Section 422 of the Code but rather shall be treated and taxable as non-qualified options. The Optionee further acknowledges that the rule set forth in the preceding sentence shall be applied by taking options into account in the order in which they were granted, and the stock certificate issued upon exercise of the options shall designate whether such stock was acquired upon exercise of an Incentive Stock Option. For purposes of these rules, the fair market value of stock shall be determined as of date of grant of the applicable option covering such stock. ARTICLE IV. OTHER PROVISIONS Section 4.1 Not a Contract of Employment 8 Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without Cause. Section 4.2 Shares Subject to Plan and Management Stockholders' Agreement The Optionee acknowledges that any shares acquired upon exercise of the Option are subject to the terms of the Plan and the Management Stockholders' Agreement including without limitation, the restrictions set forth in Section 6.5 of the Plan. If the Optionee is not already a party to the Management Stockholders' Agreement at the time he or she exercises all or part of the Option, such exercise shall be conditioned upon the Optionee's delivery to the Company of such Management Stockholders' Agreement, executed by the Optionee. Section 4.3 Construction This Agreement shall be administered, interpreted and enforced under the laws of the State of Ohio. Section 4.4 Conformity to Securities Laws The Optionee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 4.5 Options Not Transferable The Option may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Committee, pursuant to a domestic relations order (as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder), unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. No Option or interest or right therein shall be liable for the debts, contracts or engagements of the Optionee or Optionee's successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Section 4.6 No Rights as Stockholder 9 The Optionee shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to the Optionee and the Optionee's name has been entered as the shareholder of record with respect to such shares on the books of the Company. Section 4.7 Adjustments in Targets The EBITDA Targets, Base Cumulative EBITDA Targets and High Cumulative EBITDA Targets specified in Appendix A are based upon certain revenue and expense assumptions about the future business of the Company as of the First Amendment Date. Accordingly, in the event that, after the First Amendment Date, the Committee determines, in its sole discretion, that any acquisition or any divestiture of any business by the Company or any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or the financial statements of the Company, or change in applicable laws, regulations, or accounting principles occurs such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to the Option, then the Committee shall adjust the financial targets set forth on Appendix A to reflect the projected effect of such transaction(s) or event(s) on such targets. Without limiting the generality of the foregoing, in the event the Company acquires any business: (a) with respect to such acquired business, EBITDA and Cumulative EBITDA with respect to the fiscal year in which such acquisition occurs shall be calculated pro-rata from the date of such acquisition, and (b) in the event the Committee determines that an adjustment to the targets set forth on Appendix A is appropriate, such adjustment shall be made from the date of such acquisition and shall be made pro rata with respect to the fiscal year in which such acquisition occurs. [signature page follows] 10 DAYTON SUPERIOR CORPORATION By:____________________________________________ Title:_________________________________________ ______________________________ Optionee ______________________________ ______________________________ Address Optionee's Taxpayer Identification Number:_________________________________ 11 EX-10.2 4 l95334aexv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS AGREEMENT, (the "Agreement") dated and effective as of the signing date indicated on the signature page below (the "Effective Date") is made by and between Dayton Superior Corporation, an Ohio corporation (the "Company"), and Stephen R. Morrey (the "Executive"). RECITALS: WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company; NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which consideration are hereby acknowledged, the parties agree as follows: 1. Certain Definitions. (a) "Annual Base Salary" shall have the meaning set forth in Section 4(a). (b) "Board" shall mean the Board of Directors of the Company. (c) The Company shall have "Cause" to terminate the Executive's employment hereunder upon the Executive's: (i) willful or gross misconduct or material failure in the performance of his duties and responsibilities hereunder (or in the event of any termination pursuant to Section 7(a)(ii) hereof, duties and responsibilities commensurate with the Executive's position), other than any such failure resulting from the Executive's Disability, which misconduct or failure continues beyond 14 days after the company notifies the Executive, in writing, of the Company's finding of such misconduct or failure; or (ii) conviction of or plea of guilty or nolo contendre to, a felony, or a crime involving moral turpitude; or (iii) fraud or personal dishonesty involving the Company's assets. (d) "Change in Control" shall mean a change in ownership or control of the Company effected through a transaction or series of transactions (other than an offering of Common Stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any "person" or related "group" of "persons" (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any of its subsidiaries, an employee benefit plan maintained by the Company or any of its subsidiaries, a Principal Stockholder or a "person" that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or a Principal Stockholder) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company's securities outstanding immediately after such acquisition. (e) "Common Stock" shall mean the Class A common shares of the Company, without par value. (f) "Company" shall have the meaning set forth in the preamble hereto. (g) "Compensation Committee" shall mean the Compensation Committee of the Board. (h) "Date of Termination" shall mean (i) if the Executive's employment is terminated by reason of his death, the date of his death, and (ii) if the Executive's employment is terminated pursuant to Sections 5(a)(ii) - (vi), the date specified in the Notice of Termination. (i) "Disability" shall mean the inability of the Executive to perform his duties and responsibilities as an officer or employee of the Company or any of its subsidiaries on a full-time basis for more than six months within any 12-month period because of a physical, mental or emotional incapacity resulting from injury, sickness or disease. (j) "EBITDA" with respect to any period of determination shall mean the sum of the following (without duplication): (i) consolidated net income (or loss) of the Company and, if applicable, its subsidiaries for such period (exclusive of the effect of extraordinary items), as determined by the Company's independent certified public accountants in accordance with generally accepted accounting principles consistently applied, as such principles are in effect at the date hereof, plus (ii) amounts deducted from net revenues in determining such net income (or loss) on account of (w) depreciation and amortization, (x) interest expense (net of interest income), (y) all taxes on income and (z) any management or acquisition fee charged to the Company by the Principal Stockholder. (k) "Effective Date" shall have the meaning set forth in the recitals hereto. (l) "Employment Date" shall have the meaning set forth in Section 2. (m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (n) "Executive" shall have the meaning set forth in the preamble here- to. (o) The Executive shall have "Good Reason" to resign hereunder if (i) the Executive's title hereunder is materially diminished or (ii) the Company requires the Executive to report to any individual or group other than the full Board, in either case without his written 2 consent and provided that the Executive has provided the Company with notice thereof and a reasonable opportunity to cure. (p) "Management Stockholders' Agreement" shall mean that certain Management Stockholders' Agreement to be entered into by and among the Company, Odyssey Investment Partners Fund, LP, the Executive and the other employee stockholders party thereto, effective as of June 16, 2000, as amended from time to time. (q) "Notice of Termination" shall have the meaning set forth in Section 5(b). (r) "Option Agreements" shall mean any written agreements between the Company and the Executive pursuant to which the Executive holds or is granted options to purchase Common Stock. (s) "Option Plan" shall mean the 2000 Stock Option Plan of Dayton Superior Corporation, as amended from time to time. (t) "Principal Stockholder" shall mean Odyssey Investment Partners Fund, LP and any of its Permitted Assignees (as such term is defined in the Management Stockholders' Agreement). (u) "Prohibited Competition" shall have the meaning set forth in Section 7(b). (v) "Purchased Stock" Shall have the meaning set forth in Section 4(d). (w) "Signing Bonus" Shall have the meaning set forth in Section 4(b)(ii). (x) "Term" shall have the meaning set forth in Section 2. 2. Employment. The Company shall continue to employ the Executive and the Executive shall remain in the employ of the Company, for the period set forth in this Section 2, in the positions set forth in Section 3 and upon the other terms and conditions herein provided. The initial term of employment under this Agreement (the "Initial Term") shall be for the period beginning on July 15, 2002 (the "Employment Date") and ending on the fourth anniversary thereof unless earlier terminated as provided in Section 5; provided, however, that the Agreement shall automatically be extended, beginning on the fourth anniversary of the Employment Date, for successive one-year periods (each, an "Extension Term") unless so earlier terminated under Section 5 or unless the Executive or the Company shall give written notice to the other of his or its intention not to renew this Agreement no less than 120 days prior to the scheduled expiration of the Initial Term or the then applicable Extension Term (the Initial Term and any Extension Term shall collectively be referred to hereunder as the "Term"). 3 3. Position, Duties and Location. (a) During the Term, the Executive shall serve as the Chief Executive Officer of the Company and, subject to his election thereto, as a member of the Board, with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Board. During the Term, the Executive will report to the entire Board, and not to any individual or any sub-committee of the Board. During the period of the Executive's employment as Chief Executive Officer, the Executive shall devote substantially all his working time and efforts to the business and affairs of the Company; provided, that it shall not be considered a violation of the foregoing for the Executive to (i) with the prior consent of the Board (which consent shall not unreasonably be withheld), serve on corporate, industry, civic or charitable boards or committees and (ii) manage his personal investments, so long as none of such activities significantly interferes with the Executive's duties hereunder. (b) As of the Employment Date, the Principal Stockholders shall cause the Executive to be appointed or elected to the Board. During the Term, the Board shall propose the Executive for re-election to the Board and the Principal Stockholders shall vote all of their shares of Common Stock in favor of such re-election. If elected or appointed thereto, and only for the duration of such elected term or appointment, the Executive shall also serve as a director of any of the Company's subsidiaries and/or in one or more executive offices of any entities owned by the Company. (c) The Executive's principal place of employment shall be the Company's offices in Dayton, OH. The Executive shall promptly, and in no event later than December 31, 2002, relocate his household from the Romeo, Michigan area to the Dayton, Ohio area. 4. Compensation and Related Matters. (a) Annual Base Salary. During the Term, Company shall pay to the Executive a base salary at a rate that is no less than $375,000 per annum (the "Annual Base Salary"), payable in accordance with the Company's normal payroll practices. The rate of the Annual Base Salary shall be reviewed by the Compensation Committee on or prior to each anniversary of the Employment Date during the Term and may be increased, but not decreased, upon such review. (b) Bonuses. (i) Annual Bonus. For each fiscal year during the Term, the Executive shall be eligible to participate in the Company's annual cash bonus plan in accordance with terms and provisions which shall be consistent with the Company's executive bonus policy in effect as of the Effective Date. Notwithstanding the foregoing, the Executive's annual bonus for the 2002 fiscal year shall be at least $112,000. 4 (ii) Signing Bonus. No later than five business days following the Executive's receipt of his first paycheck in accordance with the Company's normal payroll practices, the Company shall pay to the executive a one-time signing bonus of $100,000 (the "Signing Bonus"). If for any reason the Executive fails to relocate his household to the Dayton, Ohio area in accordance with the terms of Section 3(c), then the Executive shall immediately, upon such failure, return the full amount of the Signing Bonus to the Company. (c) Long Term Incentive Compensation. During the Term, the Executive shall be entitled to participate in the Option Plan or any successor plan thereto. (d) Stock Purchase. (i) Not more than two weeks after the Executive receives the Signing Bonus, the Executive shall purchase from the Company 14,545.45 shares of Common Stock (the "Purchased Stock") at the price of $27.50 per share. Such shares shall be subject to the terms of, and such purchase shall be contingent upon, the Executive's execution of, the Management Stockholders' Agreement. (ii) As of the date the Executive purchases the Purchased Stock from the Company, the Executive shall deliver to the Company, as consideration for the Purchased Stock (A) $50,000 in cash and (B) one or more promissory notes executed by the Executive in favor of the Company in the aggregate principal amount of $350,000 (which note or notes shall be fully recourse to the Executive with respect to a principal amount of no more than $175,000). In addition, the parties shall enter into any subscription agreement, loan agreement, pledge agreement, or other similar agreement evidencing the purchase and sale of the Purchased Stock and/or the loan evidenced by the promissory note as is reasonably requested by the Company, in each case containing customary terms and conditions consistent with the Company's past practice. (e) Benefits. During the Term, the Executive shall be entitled to participate in the employee benefit plans, programs and arrangements of the Company in effect as of the date hereof (or, to the extent determined by the Board or Compensation Committee, in effect hereafter) which are applicable to the senior officers of the Company generally, subject to and on a basis consistent with the terms, conditions and overall administration thereof. Furthermore, during the Term, the benefits provided under such employee benefit plans, programs and arrangements (other than any stock option, restricted stock or other equity based plan) shall, in the aggregate, be substantially equivalent to the benefits provided by the Company as of the Effective Date (other than pursuant to any stock option, restricted stock or other equity based plan). 5 (f) Expenses. Pursuant to the Company's customary policies in force at the time of payment, the Executive shall be reimbursed for all expenses properly incurred by the Executive on the Company's behalf in the performance of the Executive's duties hereunder. (g) Vacation. During the Term, the Executive shall be entitled to 20 vacation days, and to compensation in respect of earned but unused vacation days in accordance with the Company's vacation policy as in effect as of the Effective Date. The Executive shall also be entitled to paid holidays in accordance with the Company's practices with respect to same as in effect as of the Effective Date. (h) Automobile. During the Term, the Company shall provide the Executive with an annual personal automobile allowance of $13,800. In addition to such annual allowance, upon furnishing of adequate documentation, the Company shall reimburse the Executive for reasonable, documented fuel and maintenance expenses incurred by the Executive with respect to such personal automobile. (i) Club Membership and Hangar Fees. During the Term, the Company shall pay on behalf of the Executive, or reimburse the Executive for, (i) membership fees payable in connection with the Executive's membership in one country, alumni, or social club of the Executive's choice and/or (ii) hangar fees for the Executive's personal aircraft, provided that such membership and/or hangar fees shall not in the aggregate exceed $6,000 per year. (j) Tax and Financial Planning Assistance. During the Term, the Company shall, upon submission of proper documentation, pay on behalf of the Executive, or reimburse the Executive for, reasonable expenses incurred for professional assistance in planning and preparing his tax returns and managing his financial affairs, consistent with the Company's practices as in effect on the date of execution of this Agreement. (k) Relocation Expenses. (i) Upon furnishing of adequate documentation, the Company shall reimburse the Executive for reasonable, customary, documented, out-of-pocket expenses, not to exceed $100,000, associated with the relocation of the Executive and his family from the Romeo, Michigan area to the Dayton, Ohio area. Such expenses shall include moving expenses, meals, closing costs, real estate commissions, attorney's fees, and other similar expenses incurred in connection with the relocation of his household and the sale of his principal residence. (ii) Upon furnishing of adequate documentation, the Company shall reimburse the Executive for reasonable, documented expenses incurred for up to two house hunting trips to the Dayton, Ohio area to be taken by the Executive and his spouse. 6 (iii) The Executive shall promptly sell his principal residence in Romeo, Michigan in a commercially reasonable manner. The Company shall reimburse the Executive for the positive difference, if any, between the market value (as determined below) of his current residence and the sale price of such residence. The market value of the Executive's home shall be determined by a nationally recognized appraisal firm retained by the Company. The Company shall pay the expenses for such appraisal. (l) Airplane. The Company shall reimburse the Executive for all reasonable travel and business expenses incurred by him in the use of his personal aircraft for the performance of his duties to the Company, in accordance with such procedures as shall be established in good faith by the Company. 5. Termination. (a) The Executive's employment hereunder may be terminated by the Company or the Executive, as applicable, without any breach of this Agreement only under the following circumstances and in accordance with subsection (b): (i) Death. The Executive's employment hereunder shall terminate upon his death. (ii) Disability. If the Company determines in good faith that the Executive has incurred a Disability, the Company may give the Executive written notice of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such Notice of Termination by the Executive, provided that within such 30 day period the Executive shall not have returned to full-time performance of his duties. (iii) Termination for Cause. The Company may terminate the Executive's employment hereunder for Cause. (iv) Termination without Cause. The Company may terminate the Executive's employment hereunder without Cause. (v) Resignation without Good Reason. The Executive may resign his employment hereunder without Good Reason. (vi) Resignation for Good Reason. The Executive may resign his employment hereunder for Good Reason. (b) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive under this Section 5 (other than termination pursuant to subsection (a)(i)) shall be communicated by a written notice from the Board or the Executive to the other, 7 indicating the specific termination provision in this Agreement relied upon, setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and specifying a Date of Termination (a "Notice of Termination"). For purposes of this Agreement, the "Date of Termination" shall be (i) with respect to any termination by reason of the Executive's Disability, 30 days following the receipt of the notice described in Section 5(a)(ii); (ii) with respect to the Executive's termination for Cause, the date of the Notice of Termination, and (iii) with respect to the Executive's termination of employment for any other reason, at least 30 days following the date of the Notice of Termination. The Executive shall continue to receive his Annual Base Salary, annual bonus and all other compensation and perquisites referenced in Section 4 through the Date of Termination. 6. Severance Payments. (a) Termination for any Reason. In the event the Executive's employment with the Company is terminated for any reason, the Company shall pay the Executive (or his beneficiary in the event of his death) any unpaid Annual Base Salary that has accrued as of the Date of Termination, any unreimbursed expenses due to the Executive and an amount for accrued but unused vacation days. The Executive shall also be entitled to accrued, vested benefits under the Company's benefit plans and programs as provided therein. The Executive shall be entitled to the additional payments and benefits described below only as set forth herein. (b) Termination without Cause or Termination by Reason of Death or Disability. In the event of the Executive's Termination without Cause (pursuant to Section 5(a)(iv)) resignation for Good Reason (pursuant to Section 5(a)(vi) or termination by reason of Death or Disability (pursuant to Section 5(a)(i) or (ii), respectively), in each case during the Term (including any Extension Term), the Company shall pay to the Executive the amounts described in subsection (a) and, subject to the Executive's compliance with Sections 7 and 8 and the Executive's execution of a general waiver and release of claims agreement in the Company's customary form: (i) pay to the Executive, for the twenty-four month period following the Date of Termination, in accordance with its regular payroll practice, his Annual Base Salary as in effect on the Date of Termination; and (ii) for the year in which the termination occurs, pay to the Executive a pro-rated amount of bonus based on the Company's executive annual bonus plan as in effect at that time; and (iii) continue for three years the Executive's coverage under the Company medical and dental plans and programs in which the Executive was entitled to participate immediately prior to the Date of Termination (or, if the Company amends, replaces or terminates any such plan or program following such Date of Termination, the Company 8 medical and dental plans provided to employees similarly situated to Executive), as if the Executive were an active employee during such time, subject to standard employee contributions by the Executive as are required under such plans, and further subject to the Executive's election of "COBRA" continuation coverage during such period. All post-employment coverage under such plans shall be co-extensive with COBRA continuation coverage required by federal (and where applicable by state) law, and shall cease if the Executive becomes eligible for coverage under another employer's plans. 7. Competition. (a) (i) The Executive shall not engage in any Prohibited Competition (as defined below in Section 7(b)) at any time during the Term, and, subject to subsection (ii) for a period of two years after the end of the Term. (ii) Notwithstanding Section (a)(i), in the event that (x) the Company gives valid notice of non-extension of the Term (y) the Executive continues to perform services for the Company on an at-will basis following the expiration of the Initial Term, or, as applicable, the expiration of any Extension Term and (z) the Company terminates the Executive's employment following the expiration of the Initial Term or, as applicable, the expiration of any Extension Term, for any reason other than for Cause, then, effective as of the date of such termination (the "Termination Date"), at the Company's option, either: (A) This Section 7 shall be null and void in all respects; or (B) (1) The Executive shall not engage in any Prohibited Competition at any time during the period of two years following the Termination Date; and (2) Subject to (x) the Executive's continued compliance with Sections 7 and 8 hereof throughout such two-year period, and (y) the Executive's execution of a general waiver and release of claims agreement effective as of the Termination Date in the Company's customary form, the Company shall: (a) Pay to the Executive, for the twenty-four month period following the Termination Date, in accordance with the Company's regular payroll practice, the Executive's Annual Base Salary as in effect on the Termination Date; and (b) For the year in which the termination occurs, pay to the Executive a pro-rated amount of his annual bonus based on the Company's executive annual bonus plan as in effect at that time; and 9 (c) Continue for three years the Executive's coverage under the Company's medical and dental plans and programs in which he was entitled to participate immediately prior to the Termination Date (or, if the Company amends, replaces or terminates any such plan or program following the Termination Date, the Company's medical and dental plans provided to employees similarly situated to the Executive), as if the Executive was an active employee during such time, subject to standard employee contributions by the Executive as are required under such plans, and further subject to the Executive's election of "COBRA" continuation coverage during such period. All post-employment coverage under such plans shall be co-extensive with COBRA continuation coverage required by federal (and where applicable by state) law, and shall cease if you become eligible for coverage under another employer's plans. In the event that the Company terminates the Executive's employment without Cause pursuant to this subsection (ii), the Company will provide the Executive with written notice on or prior to the 10th business day following such termination as to whether or not the Company intends to enforce section (A) or (B) of this subsection (ii). (b) For purposes of this Agreement, the Executive shall be considered to engage in prohibited competition ("Prohibited Competition") if the Executive shall: directly or indirectly, engage in or own, manage, join, operate or control, or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant or otherwise with, or permit his name to be used by or in connection with, any business or organization which produces, designs, conducts research on, provides, sells, leases, distributes or markets accessories, chemicals, forming and related products used in concrete and masonry construction (the "Business") which, directly or indirectly, competes with the Business conducted by Company and its subsidiaries in North America, South America and Europe, it being understood that the foregoing shall not limit the Executive from making passive investments of less than 5% of the outstanding equity securities in any entity listed for trading on a national stock exchange or quoted on any recognized automatic quotation system. (c) In the event any the terms of this Section 7 shall be determined by any court of competent jurisdiction to be unenforceable by reason of extending for too great a period of time or over too great a geographical area or by reason of being too extensive in any other respect, it will be interpreted to extend only over the maximum period of time for which it may be enforceable, and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. 10 8. Nondisclosure of Proprietary Information. (a) Except as required in the faithful performance of the Executive's duties hereunder or pursuant to subsection (c), the Executive shall, in perpetuity, maintain in confidence and shall not directly, indirectly or otherwise, use, disseminate, disclose or publish, or use for his benefit or the benefit of any person, firm, corporation or other entity any confidential or proprietary information or trade secrets, and any other information that would be protected under the Uniform Trade Secrets Act in Ohio, of or relating to the Company, including, without limitation, information with respect to the Company's operations, processes, products, inventions, business practices, business strategy, business development, finances, principals, vendors, distributors, suppliers, customers, potential customers, manufacturing methods, sales methods, marketing methods, costs, prices, contractual relationships, information systems, regulatory status, compensation paid to employees or other terms of employment, or deliver to any person, firm, corporation or other entity any document, record, notebook, computer program or similar repository of or containing any such confidential or proprietary information or trade secrets. The parties hereby stipulate and agree that as between them the foregoing matters are important, material and confidential proprietary information and trade secrets and affect the successful conduct of the businesses of the Company (and any successor or assignee of the Company). The parties hereto agree that "confidential or proprietary information" shall not include information that (i) is a matter of public knowledge (other than by act of the Executive in violation hereof); (ii) was provided to the Executive (without breach of any obligation of confidence owed to the Company) by a third party which is not an affiliate of the Company or (iii) is required to be disclosed by law or judicial or administrative process. (b) Upon termination of the Executive's employment with Company for any reason and upon the Company's request, the Executive will promptly deliver to the Company all correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning, without limitation, the Company's operations, processes, products, inventions, business practices, business strategy, business development, finances, principals, vendors, distributors, suppliers, customers, potential customers, manufacturing methods, sales methods, marketing methods, costs, prices, contractual relationships, information systems, regulatory status, compensation paid to employees or other terms of employment and/or which contain proprietary information or trade secrets. (c) The Executive may respond to a lawful and valid subpoena or other legal process but shall give the Company the earliest possible notice thereof, shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought and shall assist such counsel in resisting or otherwise responding to such process. 11 9. Injunctive Relief. It is recognized and acknowledged by the Executive that a breach of the covenants contained in Sections 7 and 8 will cause irreparable damage to the Company and its goodwill, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, the Executive agrees that in the event of a breach of any of the covenants contained in Sections 7 and 8, in addition to any other remedy which may be available at law or in equity, the Company shall be entitled to specific performance and injunctive relief. 10. Survival. The expiration or termination of the Term shall not impair the rights or obligations of any party hereto which shall have accrued hereunder prior to such expiration. 11. Binding on Successors. This Agreement shall be binding upon and inure to the benefit of the Company, the Executive and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. 12. Governing Law. This Agreement shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Ohio. 13. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 14. Notices. Any notice, request, claim, demand, document or other communication hereunder to any party shall be effective upon receipt (or refusal of receipt) and shall be in writing and delivered personally or sent by telex, telecopy, or certified or registered mail, postage prepaid, as follows: (a) If to the Company, to: Dayton Superior Corporation 7777 Washington Village Drive, Suite 130 12 Dayton, OH 45459 Attention: Corporate Secretary Phone: (937) 428-6360 Fax: (937) 428-9115 with copies to: Odyssey Investment Partners Fund, LP 280 Park Avenue West Tower, 38th Floor New York, New York 10017 Attention: William Hopkins Phone: (212) 351-7900 Fax: (212) 351-7925 and Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Bradd L. Williamson, Esq. Phone: (212) 906-1200 Fax: (212) 751-4864 If to the Executive, to him at the address set forth below under his signature, with copies to: Peter Hardin-Levine, Esq. Baker & Hostetler 3200 National City Center 1900 E. 9th Street Cleveland, OH 44114 Phone: (216) 861-7909 Fax: (216) 696-0740 or at any other address as any party shall have specified by notice in writing to the other party in accordance with this Section 14. 15. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same Agreement. 13 16. Entire Agreement. The terms of this Agreement, together with the Management Stockholders' Agreement, the Option Plan and the Option Agreements, are intended by the parties to be the final expression of their agreement with respect to the employment of the Executive by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Agreement, and the aforementioned contemporaneous documents, shall constitute the complete and exclusive statement of its terms and that no extrinsic evidence whatsoever may be introduced in any judicial, administrative, or other legal proceeding to vary the terms of this Agreement. Notwithstanding any of the foregoing to the contrary, in the event of a conflict between the terms of this Agreement and the Management Stockholders' Agreement, the terms of this Agreement shall govern. 17. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except by an instrument in writing, signed by the Executive and the Chairman of the Compensation Committee. By an instrument in writing similarly executed, the Executive or the Company may waive compliance by the other party or parties with any provision of this Agreement that such other party was or is obligated to comply with or perform; provided, however, that such waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent failure. No failure to exercise and no delay in exercising any right, remedy or power hereunder shall preclude any other or further exercise of any other right, remedy or power provided herein or by law or in equity. 18. No Inconsistent Actions. The parties hereto shall not voluntarily undertake or fail to undertake any action or course of action inconsistent with the provisions or essential intent of this Agreement. Furthermore, it is the intent of the parties hereto to act in a fair and reasonable manner with respect to the interpretation and application of the provisions of this Agreement. 19. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Cleveland, Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Company shall be entitled to seek a restraining order or injunction in any court of competent jurisdiction to prevent any continuation of any violation of the provisions of Section 7 or 8 of this Agreement and the Executive hereby consents that such restraining order or injunction may be granted without the necessity of the Company's posting any bond; and provided further, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising 14 under or in connection with this Agreement. Each of the parties hereto shall bear its share of the fees and expenses of any arbitration hereunder. 20. Indemnification and Insurance; Legal Expenses. During the Term and so long as the Executive has not breached any of his obligations set forth in Sections 7 and 8, the Company shall indemnify the Executive to the fullest extent permitted by the laws of the State of Ohio, as in effect at the time of the subject act or omission, and shall advance to the Executive reasonable attorneys' fees and expenses as such fees and expenses are incurred (subject to an undertaking from the Executive to repay such advances if it shall be finally determined by a judicial decision which is not subject to further appeal that the Executive was not entitled to the reimbursement of such fees and expenses) and he shall be entitled to the protection of any insurance policies the Company shall elect to maintain generally for the benefit of its directors and officers ("Directors and Officers Insurance") against all costs, charges and expenses incurred or sustained by him in connection with any action, suit or proceeding to which he may be made a party by reason of his being or having been a director, officer or employee of the Company or any of its subsidiaries or his serving or having served any other enterprise as a director, officer or employee at the request of the Company (other than any dispute, claim or controversy arising under or relating to this Agreement). The Company covenants to maintain during the Term for the benefit of the Executive (in his capacity as an officer and director of the Company) Directors and Officers Insurance providing customary benefits to the Executive. 21. Taxes. All payments to be made to the Executive under this Agreement will be subject to any applicable withholding of federal, state and local income, employment and other taxes. 22. Conflict. To the extent that there is any conflict between the terms of this Agreement and the terms of the Option Plan or the Management Stockholders' Agreement, this Agreement shall govern. [signature page follows] 15 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. DAYTON SUPERIOR CORPORATION By:_____________________________________________ Name: Title: Date: EXECUTIVE ________________________________________________ Stephen R. Morrey ________________________________________________ ________________________________________________ ________________________________________________ Address Date: 16 Upon the Effective Date, accepted and agreed to for purposes of Section 3(b) ODYSSEY INVESTMENT PARTNERS FUND, LP By: ODYSSEY CAPITAL PARTNERS, LLC, its general partner By:_____________________________________________ Name: Title: Date: __________________________________________ 17 EX-99.1 5 l95334aexv99w1.txt EX-99.1 CERTIFICATION OF CEO EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Stephen R. Morrey, President and Chief Executive Officer of Dayton Superior Corporation (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Quarterly Report on Form 10-Q of the Company for the period ending June 28, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 12, 2002 /s/ Stephen R. Morrey Stephen R. Morrey President and Chief Executive Officer EX-99.2 6 l95334aexv99w2.txt EX-99.2 CERTIFICATION OF CFO EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Alan F. McIlroy, Vice President and Chief Financial Officer of Dayton Superior Corporation (the "Company"), do hereby certify in accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: The Quarterly Report on Form 10-Q of the Company for the period ending June 28, 2002 (the "Periodic Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 12, 2002 /s/ Alan F. McIlroy Alan F. McIlroy Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----