-----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, BWQB0sCJw3heS4gWrlgwA8nB6Z12hIDX8UWjybpM+oqgxbz+xeOXP/ZRsX9AdsLf TI0To+QVzhw8P5fUxsNqaw== 0000950152-03-009489.txt : 20031110 0000950152-03-009489.hdr.sgml : 20031110 20031110162019 ACCESSION NUMBER: 0000950152-03-009489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20030926 FILED AS OF DATE: 20031110 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: 03988597 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 l03447ae10vq.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 SEPTEMBER 26, 2003 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 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES NO X ----- ----- 4,554,269 Common Shares were outstanding as of November 7, 2003 PART I. - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Dayton Superior Corporation and Subsidiaries Condensed Consolidated Balance Sheets As of September 26, 2003 and December 31, 2002 (Amounts in thousands) (Unaudited)
September 26, December 31, 2003 2002 ------------- ------------ ASSETS Current assets: Cash ........................................................... $ 1,668 $ 2,404 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $4,470 and $4,861 ........... 71,981 61,165 Inventories (Note 3b) .......................................... 50,713 47,911 Prepaid expenses and other current assets ...................... 6,271 7,054 Prepaid income taxes ........................................... 6,075 4,009 Future income tax benefits ..................................... 6,194 6,194 --------- --------- Total current assets ...................................... 142,902 128,737 --------- --------- Rental equipment, net ............................................ 87,142 63,160 --------- --------- Property, plant and equipment .................................... 111,584 103,846 Less accumulated depreciation .................................. (49,113) (42,600) --------- --------- Net property, plant and equipment ......................... 62,471 61,246 --------- --------- Goodwill ......................................................... 107,328 107,328 Intangible assets, net of accumulated amortization (Note 3d) ..... 6,516 8,405 Other assets ..................................................... 4,336 5,095 --------- --------- Total assets ................................... $ 410,695 $ 373,971 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Current maturities of long-term debt (Note 4) .................. $ 2,577 $ 6,991 Accounts payable ............................................... 24,173 25,667 Accrued compensation ........................................... 14,459 20,948 Other accrued liabilities ...................................... 12,721 9,380 --------- --------- Total current liabilities ................................. 53,930 62,986 Long-term debt, net of current portion (Note 4) .................. 337,731 292,545 Deferred income taxes ............................................ 11,118 11,919 Other long-term liabilities ...................................... 10,730 10,762 --------- --------- Total liabilities ......................................... 413,509 378,212 --------- --------- Shareholders' deficit: Common shares .................................................. 115,573 102,525 Loans to shareholders .......................................... (2,723) (2,878) Treasury shares, at cost, 36,747 shares in 2003 and 2002 ....... (1,184) (1,184) Cumulative other comprehensive loss ............................ (1,250) (1,716) Accumulated deficit ............................................ (113,230) (100,988) --------- --------- Total shareholders' deficit ............................... (2,814) (4,241) --------- --------- Total liabilities and shareholders' deficit ............... $ 410,695 $ 373,971 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 2 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Operations For The Three and Nine Fiscal Months Ended September 26, 2003 and September 27, 2002 (Amounts in thousands) (Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended ------------------------------ ------------------------------ (as restated) (as restated) September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Product sales .......................................... $ 85,242 $ 90,418 $ 227,885 $ 250,954 Rental revenue ......................................... 10,545 11,064 24,421 33,719 Used rental equipment sales ............................ 5,201 9,413 26,190 20,839 --------- --------- --------- --------- Net sales ............................................ 100,988 110,895 278,496 305,512 --------- --------- --------- --------- Product sales .......................................... 67,795 67,355 178,026 185,429 Rental revenue ......................................... 6,386 4,629 15,932 13,968 Used rental equipment sales ............................ 2,078 2,288 7,797 6,388 --------- --------- --------- --------- Cost of sales ........................................ 76,259 74,272 201,755 205,785 --------- --------- --------- --------- Product sales .......................................... 17,447 23,063 49,859 65,525 Rental revenue ......................................... 4,159 6,435 8,489 19,751 Used rental equipment sales ............................ 3,123 7,125 18,393 14,451 --------- --------- --------- --------- Gross profit ......................................... 24,729 36,623 76,741 99,727 Selling, general and administrative expenses ........... 23,074 21,349 62,689 67,365 Facility closing and severance expenses (Note 7) ....... 499 2,285 1,243 2,859 Amortization of intangibles ............................ 184 150 443 301 --------- --------- --------- --------- Income from operations ............................... 972 12,839 12,366 29,202 Other expenses Interest expense ..................................... 11,199 8,468 28,272 24,881 Loss on early extinguishment of long-term debt ....... -- -- 2,480 -- Other expense ........................................ 27 59 164 209 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle .......................................... (10,254) 4,312 (18,550) 4,112 Provision (benefit) for income taxes ................... (3,861) 1,725 (6,307) 1,645 --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle ..................... (6,393) 2,587 (12,243) 2,467 Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 (Note 3) ........... -- -- -- (17,140) --------- --------- --------- --------- Net income (loss) .................................... $ (6,393) $ 2,587 $ (12,243) $ (14,673) ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 3 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows For The Nine Fiscal Months Ended September 26, 2003 and September 27, 2002 (Amounts in thousands) (Unaudited)
September 26, September 27, 2003 2002 ------------- ------------- Cash Flows From Operating Activities: Net loss .................................................................. $ (12,243) $ (14,673) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation ............................................................ 18,110 15,089 Amortization of intangibles ............................................. 443 301 Loss on early extinguishment of long-term debt .......................... 2,480 -- Cumulative effect of change in accounting principle (Note 3) ............ -- 17,140 Deferred income taxes ................................................... (801) (30) Amortization of deferred financing costs and debt discount .............. 2,229 1,721 Gain on sales of rental equipment and property, plant and equipment ... (18,255) (14,284) Changes in assets and liabilities, net of effects of acquisition: Accounts receivable ..................................................... (10,817) (22,130) Inventories ............................................................. (2,802) (5,933) Accounts payable ........................................................ (1,494) 509 Accrued liabilities and other long-term liabilities ..................... (3,645) (5,656) Prepaid expenses and other assets ....................................... (1,268) 6,997 --------- --------- Net cash used in operating activities ............................. (28,063) (20,949) --------- --------- Cash Flows From Investing Activities: Property, plant and equipment additions ................................... (5,932) (8,390) Proceeds from sales of property, plant and equipment ...................... 82 1,999 Rental equipment additions ................................................ (21,501) (8,605) Proceeds from sales of rental equipment ................................... 26,190 20,838 Acquisition (Note 2) ...................................................... (13,535) -- --------- --------- Net cash (used in) provided by investing activities ............... (14,696) 5,842 --------- --------- Cash Flows From Financing Activities: Repayments of long-term debt .............................................. (176,563) (2,959) Issuance of long-term debt ................................................ 206,195 14,737 Proceeds from sale/leaseback transaction .................................. -- 2,258 Financing costs incurred .................................................. (1,278) -- Purchase of treasury shares ............................................... -- (205) Repayment of loans to shareholders ........................................ 154 249 Issuance of common shares ................................................. 13,049 86 --------- --------- Net cash provided by financing activities ......................... 41,557 14,166 --------- --------- Effect of Exchange Rate Changes on Cash ...................................... 466 86 --------- --------- Net decrease in cash .............................................. (736) (855) Cash, beginning of period .................................................... 2,404 4,989 --------- --------- Cash, end of period .......................................................... $ 1,668 $ 4,134 ========= ========= Supplemental Disclosures: Cash paid (refunded) for income taxes, net ................................ $ (3,531) $ 432 Cash paid for interest .................................................... 21,596 17,914 Purchases of equipment on capital leases .................................. 2,958 1,740 Issuance of note in conjunction with acquisition .......................... 6,965 --
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 4 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For The Three and Nine Fiscal Months Ended September 26, 2003 and September 27, 2002 (Amounts in thousands) (Unaudited)
Three Fiscal Months Ended Nine Fiscal Months Ended ----------------------------- ----------------------------- September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net income (loss) ............ $ (6,393) $ 2,587 $(12,243) $(14,673) Other comprehensive income: Foreign currency translation adjustment ............... (25) (91) 466 84 -------- -------- -------- -------- Comprehensive income (loss) .. $ (6,418) $ 2,496 $(11,777) $(14,589) ======== ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 5 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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, 2002. The interim results may not be indicative of future periods. (2) ACQUISITION On July 29, 2003, the Company completed the acquisition of substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. for $19,965 plus $535 in acquisition costs. The purchase price was comprised of $13,000 in cash and a non-interest bearing (other than in the case of default) senior unsecured note payable to the seller with a present value of $6,965 and a face amount of $12,000. The note was issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The first $250 installment payment on the note was paid on September 30, 2003, and an additional $750 is due on December 31, 2003. Thereafter, annual payments of $1,000 are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6,000 due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, the Company has used an interest rate of 14.5%. The $13,000 of cash was funded through the issuance by the Company of 541,667 common shares valued at $13,000 in the aggregate to the Company's majority shareholder. The $535 in acquisition costs was funded through borrowings on the revolving credit facility. The acquisition has been accounted for as a purchase, and the results of Safway have been included in the Company's consolidated financial statements from the date of acquisition. The purchase price has been allocated based on the estimated fair value of the assets acquired, as follows: Rental equipment $ 20,035 Property, plant and equipment 500 Covenants not to compete 465 Payable for covenants not to compete (465) --------- Purchase price $ 20,535 =========
6 This allocation may change, as the Company's independent appraisal of the assets acquired and evaluations of costs to exit Safway's facilities has not been completed. The following pro forma information sets forth the consolidated results of operations for the three and nine months ended September 26, 2003, and September 27, 2002 as though the acquisition had been completed as of the beginning of each period presented:
Pro Forma Pro Forma Three fiscal months ended Nine fiscal months ended ------------------------------ ------------------------------ September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net Sales ..................... $ 102,350 $ 117,338 $ 291,092 $ 325,437 Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle ................... (11,095) 3,181 (21,559) 842 Income (loss) before cumulative effect of change in accounting principle ........ $ (6,904) $ 1,910 $ (14,082) $ 513
In accordance with SEC rules and regulations, pro forma information includes costs that are expected to be eliminated under the company's ownership. (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, 2002. 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, among others. 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 13-week periods ending on a Friday near 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. 7 Following is a summary of the components of inventories as of September 26, 2003 and December 31, 2002:
September 26, December 31, 2003 2002 ------------- ------------ Raw materials .............. $ 9,763 $ 15,984 Work in progress ........... 3,068 3,069 Finished goods ............. 39,181 29,932 -------- -------- 52,012 48,985 Net realizable value reserve (1,299) (1,074) -------- -------- $ 50,713 $ 47,911 ======== ========
(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 September 26, 2003 and December 31, 2002 are net of accumulated depreciation of $27,595 and $24,181, respectively. (d) Goodwill and Intangible Assets -- Amortization is provided over the term of the loan (5 to 7 years) for deferred financing costs, the term of the agreement (1 to 5 years) for non-compete agreements, and over the estimated useful life (3 years) for intellectual property. Amortization of non-compete agreements and intellectual property is reflected as "Amortization of intangibles" in the accompanying consolidated statements of operations. The estimated aggregate amortization expense for each of the next five years is as follows: $211 for the balance of 2003, $699 in 2004, $40 in 2005, $40 in 2006, and $26 in 2007. Amortization of deferred financing costs is reflected as "Interest expense" in the accompanying consolidated statements of operations. The estimated aggregate interest expense for each of the next five years related to the amortization of deferred financing costs is as follows: $260 for the balance of 2003, $995 in 2004, $995 in 2005, $903 in 2006, and $811 in 2007. Intangible assets consisted of the following:
September 26, December 31, 2003 2002 ------------- ------------ Deferred financing costs........ $ 8,203 $ 10,550 Intellectual property........... 690 690 Covenants not to compete........ 2,060 1,595 ------- -------- 10,953 12,835 Less: accumulated amortization.. (4,437) (4,430) ------- -------- $ 6,516 $ 8,405 ======= ========
In June 2001, the Financial Accounting Standards Board ("FASB") 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. The Company 8 performs their annual review annually as of September. 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 in the accompanying September 27, 2002 consolidated statement of 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. (e) Customer Rebates -- The Company offers rebates to certain customers, which are redeemable only if the customer meets certain specified thresholds relating to a cumulative level of sales transactions. Pursuant to EITF 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products), the Company records such rebates as a reduction of revenue in the period the related revenues are recognized. (f) New Accounting Pronouncements -- In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 requires that an obligation associated with the retirement of a tangible long-lived asset be recognized as a liability when incurred. Subsequent to initial measurement, an entity recognizes changes in the amount of the liability resulting from the passage of time and revisions to either the timing or amount of estimated cash flows. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 9 2002. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation." Although it does not require use of fair value method of accounting for stock-based employee compensation, it does provide alternative methods of transition. It also amends the disclosure provisions of Statement 123 and APB Opinion No. 28, "Interim Financial Reporting," to require disclosure in the summary of significant accounting policies of the effects of an entity's accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual and interim financial statements. SFAS No. 148's amendment of the transition and annual disclosure requirements is effective for fiscal years ending after December 15, 2002. The amendment of disclosure requirements of APB Opinion No. 28 is effective for interim periods beginning after December 15, 2002. Although the Company has not changed to the fair value method, the disclosure requirements of this statement have been adopted. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 requires certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity to be classified as liabilities. The provisions of SFAS 150 are effective for financial instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, except for mandatory redeemable financial instruments of a nonpublic entity, this statement shall be effective for periods beginning after December 15, 2003. Management is currently assessing the impact of this pronouncement and has not determined the impact on the company's financial statements. In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements in this interpretation are required for financial statements of periods ending after December 15, 2002. The initial measurement provisions of the interpretation are applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption of this pronouncement did not have a material impact on the Company's consolidated financial position, results of operations or cash flows. In January 2003, the FASB issued Interpretation (FIN) No. 46, "Consolidation of Variable Interest Entities, an Interpretation of APB No. 50." FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a 10 controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN No. 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN No. 46 must be applied for the first interim or annual period beginning after December 15, 2003. The Company does not believe this pronouncement will have a material impact on its financial position, results of operations and cash flows. (g) Stock Options -- The Company measures compensation cost for stock options issued using the intrinsic value-based method of accounting in accordance with Accounting Principles Board Opinion (APB) No. 25. No compensation cost has been recognized in any period presented. If compensation cost for the Company's stock options had been determined based on the fair value method of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," the Company's net income would have been reduced to the pro forma amounts as follows:
Three fiscal months ended Nine fiscal months ended ----------------------------- ----------------------------- September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net income(loss) As Reported ........................... $ (6,393) $ 2,587 $(12,243) $(14,673) Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect ..... (62) (37) (193) (134) -------- --------- -------- -------- Pro Forma.............................. $ (6,455) $ 2,550 $(12,436) $(14,807) ======== ========= ======== ========
Because the fair value 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. (h) Reclassifications -- Certain reclassifications have been made to the 2002 amounts to conform to their 2003 classifications. 11 (4) CREDIT ARRANGEMENTS Following is a summary of the Company's long-term debt as of September 26, 2003 and December 31, 2002:
September 26, December 31, 2003 2002 ------------- ------------ Revolving credit facility, weighted average interest rate of 4.8% .............. $ 24,125 $ 10,050 Acquisition credit facility .................................................... -- 9,250 Term Loan Tranche A ............................................................ -- 19,391 Term Loan Tranche B ............................................................ -- 97,516 Senior Subordinated Notes, interest rate of 13.0% .............................. 154,729 170,000 Debt discount on Senior Subordinated Notes ..................................... (8,717) (10,374) Senior Second Secured Notes, interest rate of 10.75% ........................... 165,000 -- Debt discount on Senior Second Secured Notes ................................... (7,799) -- Senior Unsecured Note payable to seller of Safway, non-interest bearing, accreted at 14.5% .................................................. 7,131 -- Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand ...................................................... 1,110 1,110 Capital lease obligations ...................................................... 4,666 2,507 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% ....... 63 86 --------- --------- Total long-term debt ........................................................... 340,308 299,536 Less current maturities ........................................................ (2,577) (6,991) --------- --------- Long-term portion .............................................................. $ 337,731 $ 292,545 ========= =========
On June 9, 2003, the Company completed an offering of $165,000 of senior second secured notes (the "Senior Notes") in a private placement. The notes mature in June 2008 and 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 proceeds of the offering of the Senior Notes were $156,895 and were used to repay the Company's acquisition credit facility, term loan tranche A, term loan tranche B, and a portion of the revolving credit facility which was subsequently increased by $24,125. As a result of the transactions, the Company incurred a loss on the early extinguishment of long-term debt of $2,550. As of September 26, 2003, the Senior Subordinated Notes (the "Notes") have a principal amount of $154,729 and mature in June 2009. During the second quarter of 2003, the Company repurchased a portion of the Notes. A principal amount of $15,271, with a net book value of $14,381, was repurchased using the revolving credit facility for $14,311, resulting in a gain on the early extinguishment of long-term debt of $70. 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 holders to purchase 117,276 of the Company's Common Shares for $0.01 per share. The Company has a $50,000 revolving credit facility that matures in June 2006. The credit facility has several interest rate options that reprice on a short-term basis. At September 26, 2003, the Company had outstanding letters of credit of $5,485 and available borrowings of $20,390 under its revolving credit facility. 12 The average borrowings, maximum borrowings and weighted average interest rates on the revolving credit facility for the periods indicated were as follows:
Three fiscal months ended Nine fiscal months ended ----------------------------- ----------------------------- September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Revolving Credit Facility: Average borrowing ................ $18,508 $22,258 $22,787 $17,081 Maximum borrowing ................ 25,875 27,925 35,225 29,275 Weighted average interest rate ... 5.9% 5.8% 5.5% 6.2%
The credit facility was amended during the second quarter to remove certain of the restrictive financial covenants. As of September 26, 2003, the only remaining financial covenant requires that the Company not exceed a certain leverage ratio, as defined. The Company was in compliance with this covenant as of September 26, 2003. The amendment also limits the Company's borrowings to 75% of eligible accounts receivable and 50% of eligible inventories. The Company's wholly-owned domestic subsidiaries (Aztec Concrete Accessories, Inc.; Trevecca Holdings, Inc.; Dayton Superior Specialty Chemical Corp.; Symons Corporation; Dur-O-Wal, Inc.; and Southern Construction Products, Inc.) have guaranteed the Notes and the Senior Notes on a full, unconditional and joint and several basis. The wholly-owned foreign subsidiaries of the Company are not guarantors of the Notes nor the Senior Notes and do not have any credit arrangements senior to the Notes or Senior Notes. The following supplemental consolidating condensed balance sheets as of September 26, 2003 and December 31, 2002, the supplemental consolidating condensed statements of operations for the three and nine fiscal months ended September 26, 2003 and September 27, 2002 and cash flows for the nine fiscal months ended September 26, 2003 and September 27, 2002 depict in separate columns, the parent company, those subsidiaries which are guarantors, those subsidiaries that are non-guarantors, elimination adjustments and the consolidated total. This financial information may not necessarily be indicative of the result of operations or financial position of the subsidiaries had they been operated as independent entities. 13 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of September 26, 2003
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------- ------------ ------------ ASSETS Cash .................................. $ 1,131 $ (1,021) $ 1,558 $ -- $ 1,668 Accounts receivable, net .............. 41,740 29,497 744 71,981 Inventories ........................... 27,872 21,263 1,578 50,713 Intercompany .......................... 68,067 (68,038) (29) -- Other current assets .................. 13,375 5,100 65 18,540 --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS .............. 152,185 (13,199) 3,916 142,902 Rental equipment, net ................. 4,229 82,817 96 87,142 Property, plant and equipment, net .... 29,205 33,086 180 62,471 Investment in subsidiaries ............ 123,041 -- -- (123,041) -- Other assets .......................... 52,560 65,620 -- 118,180 --------- --------- --------- --------- --------- TOTAL ASSETS ...................... $ 361,220 $ 168,324 $ 4,192 $(123,041) $ 410,695 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT) Current maturities of long-term debt $ 2,577 $ -- $ -- $ -- $ 2,577 Accounts payable ...................... 18,904 4,693 576 24,173 Accrued liabilities ................... 19,972 6,994 214 27,180 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES ......... 41,453 11,687 790 53,930 Long-term debt, net ................... 336,913 818 -- 337,731 Other long-term liabilities ........... 6,766 15,061 21 21,848 Total shareholders' equity (deficit) (23,912) 140,758 3,381 (123,041) (2,814) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) .................. $ 361,220 $ 168,324 $ 4,192 $(123,041) $ 410,695 ========= ========= ========= ========= =========
14 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of December 31, 2002
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------- ------------ ------------ ASSETS Cash ............................... $ 1,605 $ (687) $ 1,486 $ -- $ 2,404 Accounts receivable, net ........... 30,223 30,487 455 61,165 Inventories ........................ 23,408 23,180 1,323 -- 47,911 Intercompany ....................... 56,498 (56,414) (84) -- -- Other current assets ............... 8,555 8,539 163 -- 17,257 --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS ........... 120,289 5,105 3,343 -- 128,737 Rental equipment, net .............. 4,268 58,846 46 -- 63,160 Property, plant and equipment, net . 25,690 35,378 178 -- 61,246 Investment in subsidiaries ......... 123,041 -- -- $(123,041) -- Other assets ....................... 53,497 67,331 -- -- 120,828 --------- --------- --------- --------- --------- TOTAL ASSETS ................... $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 6,991 $ -- $ -- $ -- $ 6,991 Accounts payable ................... 13,983 11,407 277 -- 25,667 Accrued liabilities ................ 18,022 12,152 154 -- 30,328 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES ...... 38,996 23,559 431 -- 62,986 Long-term debt, net ................ 292,545 -- -- -- 292,545 Other long-term liabilities ........ 5,730 16,763 188 -- 22,681 Total shareholders' equity (deficit) (10,486) 126,338 2,948 (123,041) (4,241) --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) ............... $ 326,785 $ 166,660 $ 3,567 $(123,041) $ 373,971 ========= ========= ========= ========= =========
15 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended September 26, 2003
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------- ------------ Net sales.................................. $ 62,887 $ 34,937 $3,164 $100,988 Cost of sales.............................. 47,591 26,745 1,923 76,259 --------- -------- ------ -------- Gross profit............................ 15,296 8,192 1,241 24,729 Selling, general and administrative expenses................................ 12,544 10,070 460 23,074 Facility closing and severance expenses.... 271 228 - 499 Amortization of intangibles................ 74 110 - 184 Management fees............................ (75) - 75 - --------- -------- ------ -------- Income from operations.................. 2,482 (2,216) 706 972 Other expenses Interest expense........................ 11,153 46 - 11,199 Other expense........................... 66 - (39) 27 --------- -------- ------ -------- Income (loss) before provision (benefit) for income taxes...................... (8,737) (2,262) 745 (10,254) Provision (benefit) for income taxes....... (3,455) (692) 286 (3,861) --------- -------- ------ -------- Net income (loss) available to common shareholders............................ $ (5,282) $ (1,570) $ 459 $ (6,393) ========= ======== ====== ========
16 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Operations Three Fiscal Months Ended September 27, 2002
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales.................................. $59,711 $49,572 $1,612 $110,895 Cost of sales.............................. 37,632 35,811 829 74,272 ------- ------- ------ -------- Gross profit............................ 22,079 13,761 783 36,623 Selling, general and administrative expenses................................ 8,781 12,159 409 21,349 Facility closing and severance expenses.... 1,644 641 - 2,285 Amortization of intangibles................ 56 94 - 150 Management fees............................ (75) - 75 - ------- ------- ------ -------- Income from operations.................. 11,673 867 299 12,839 Other expenses Interest expense........................ 8,240 228 - 8,468 Other expense (income), net............. (72) 107 24 59 ------- ------- ------ -------- Income before provision for income taxes... 3,505 532 275 4,312 Provision for income taxes................. 1,402 213 110 1,725 ------- ------- ------ -------- Net income available to common shareholders $ 2,103 $ 319 $ 165 $ 2,587 ======= ======= ====== ========
17 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Operations Nine Fiscal Months Ended September 26, 2003
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------- ------------ Net sales.................................. $ 168,416 $ 101,821 $ 8,259 $ 278,496 Cost of sales.............................. 123,214 73,310 5,231 201,755 --------- --------- ------- --------- Gross profit............................ 45,202 28,511 3,028 76,741 Selling, general and administrative expenses................................ 32,930 28,403 1,356 62,689 Facility closing and severance expenses.... 973 270 - 1,243 Amortization of intangibles................ 220 223 - 443 Management fees............................ (225) 225 - --------- --------- ------- --------- Income from operations.................. 11,304 (385) 1,447 12,366 Other expenses: Interest expense........................ 28,166 106 28,272 Loss on early extinguishment of long-term debt.................................. 2,480 - - 2,480 Other expense........................... 120 55 (11) 164 --------- --------- ------- --------- Income (loss) before provision (benefit) for income taxes...................... (19,462) (546) 1,458 (18,550) Provision (benefit) for income taxes....... (6,617) (186) 496 (6,307) --------- --------- ------- --------- Net income (loss) available to common shareholders............................ $ (12,845) $ (360) $ 962 $ (12,243) ========= ========= ======= =========
18 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Operations Nine Fiscal Months Ended September 27, 2002
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------- ------------ Net sales.................................. $143,050 $158,166 $4,296 $305,512 Cost of sales.............................. 90,210 113,347 2,228 205,785 -------- -------- ------ -------- Gross profit............................ 52,840 44,819 2,068 99,727 Selling, general and administrative expenses................................ 29,130 37,060 1,175 67,365 Facility closing and severance expenses.... 2,129 730 - 2,859 Amortization of goodwill and intangibles... 197 104 - 301 Management fees............................ (225) - 225 - -------- -------- ------ -------- Income from operations.................. 21,609 6,925 668 29,202 Other expenses Interest expense........................ 24,327 554 - 24,881 Other expense, net...................... 37 119 53 209 -------- -------- ------ -------- Income (loss) before provision (benefit) for income taxes...................... (2,755) 6,252 615 4,112 Provision (benefit) for income taxes....... (1,102) 2,501 246 1,645 -------- -------- ------ -------- Net income (loss) before cumulative effect of change in accounting principle.......... (1,653) 3,751 369 2,467 Cumulative effect of change in accounting principle, net of income tax benefit of $2,754.................................. - 17,140) - (17,140) -------- -------- ------ -------- Net income (loss) available to common shareholders............................ $ (1,653) $(13,389) $ 369 $(14,673) ======== ======== ====== ========
19 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Nine Fiscal Months Ended September 26, 2003
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................... $ (12,845) $ (360) $ 962 $ (12,243) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization....... 4,003 14,511 40 18,553 Loss on early extinguishment of long-term debt.................... 2,480 - - 2,480 Deferred income taxes............... (801) - - (801) Amortization of deferred financing costs and debt discount........... 2,229 - - 2,229 Gain on sales of rental equipment and property, plant and equipment..... (1,128) (17,108) (19) (18,255) Change in assets and liabilities, net of the effects of acquisitions........... (23,189) 4,552 (1,389) (20,026) --------- -------- ----- --------- Net cash provided by (used in) operating activities.............. (29,251) 1,595 (407) (28,063) --------- -------- ----- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions.. (2,002) (3,922) (8) (5,932) Proceeds from sales of property, plant and equipment............................. - 82 - 82 Rental equipment additions............... (588) (20,849) (64) (21,501) Proceeds from sales of rental equipment.. 1,444 24,714 32 26,190 Acquisition.............................. - (13,535) - (13,535) --------- -------- ----- --------- Net cash provided by (used in) investing activities.............. (1,146) (13,510) (40) (14,696) --------- -------- ----- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt............. (176,563) - - (176,563) Issuance of long-term debt, net.......... 206,195 - - 206,195 Financing costs incurred................. (1,278) - - (1,278) Issuance of common shares................ 13,049 - - 13,049 Repayment of loans to shareholders....... 154 - - 154 Intercompany........................... (11,635) 11,582 54 - --------- -------- ----- --------- Net cash provided by (used in) financing activities.............. 29,922 11,582 54 41,557 --------- -------- ----- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.... - - 466 466 --------- -------- ----- --------- Net increase (decrease) in cash..... (475) (334) 73 (736) CASH, beginning of period.................. 1,605 (687) 1,486 2,404 --------- -------- ----- --------- CASH, end of period........................ $ 1,130 $ (1,021) $ 1,559 1,668 ========= ======== ===== =========
20 Dayton Superior Corporation and Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Nine Fiscal Months Ended September 27, 2002
Dayton Superior Guarantor Non-Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................... $ (1,653) $(13,389) $ 369 $(14,673) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization....... 5,432 11,641 38 17,111 Cumulative effect of change in accounting principle.............. - 17,140 - 17,140 Deferred income taxes............... (30) - - (30) Gain on sales of rental equipment and fixed assets...................... (764) (13,499) (21) (14,284) Change in assets and liabilities........ (8,903) (16,067) (1,243) (26,213) -------- -------- -------- -------- Net cash used in operating activities (5,918) (14,174) (857) (20,949) -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions.. (5,364) (2,976) (50) (8,390) Proceeds from sales of fixed assets...... 1,094 877 28 1,999 Rental equipment additions............... (482) (8,103) (20) (8,605) Proceeds from sales of rental equipment.. 544 20,242 52 20,838 -------- -------- -------- -------- Net cash provided by (used in) investing activities.............. (4,208) 10,040 10 5,842 -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt, net.......... 11,778 - - 11,778 Proceeds from sale/leaseback transaction 633 1,597 28 2,258 Redemption of Class A common shares and purchase of treasury shares........... (205) - - (205) Repayment of loans to shareholders ...... 249 - - 249 Issuance of common shares................ 86 - - 86 Intercompany............................. (1,087) 1,035 52 - -------- -------- -------- -------- Net cash provided by financing activities........................ 11,454 2,632 80 14,166 -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH.... - - 86 86 -------- -------- -------- -------- Net increase (decrease) in cash..... 1,328 (1,502) (681) (855) CASH, beginning of period.................. 2,714 832 1,443 4,989 -------- -------- -------- -------- CASH, end of period........................ $ 4,042 $ (670) $ 762 $ 4,134 ======== ======== ======== ========
21 (5) STOCK OPTION PLANS The Company has a stock option plan that 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. A summary of the activity of the Company's stock option plans for the nine fiscal months ended September 26, 2003 is presented in the table below:
Weighted Average Number of Exercise Price Shares Per Share ----------- ---------------- Outstanding at December 31, 2002.................................. 671,684 $25.00 Granted........................................................... 37,859 27.50 Cancelled......................................................... (117,502) 25.19 -------- ------ Outstanding at September 26, 2003................................. 592,041 $25.12 ======== ======
(6) SEGMENT REPORTING In an effort to reduce cost and enhance customer responsiveness, the Company consolidated its overhead structure from five marketing arms down to two effective January 1, 2003. Accordingly, the Company changed its reporting as a result of this consolidation such that it now reports under two segments: Construction Products Group and Symons. Construction Products Group and Symons sell primarily to external customers and are differentiated by their products and services, both of which serve the construction industry. Construction Products Group sells concrete accessories, which are used in connecting forms for poured-in-place concrete walls, anchoring or bracing for walls and floors, supporting bridge framework and positioning steel reinforcing bars; masonry accessories, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls; paving products which are used in the construction and rehabilitation of concrete roads, highways, and airport runways to extend the life of the pavement; and construction chemicals which are used in conjunction with its other products. Symons sells and rents reusable engineered forms and related accessories used in the construction of concrete walls, columns and bridge supports to hold concrete in place while it hardens and construction chemicals which are used in conjunction with its other products. Sales between Construction Products Group and Symons are recorded at normal selling price by the selling segment and at cost for the buying segment, 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, property, plant and equipment, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. 22 Information about the income (loss) of each segment and the reconciliations to the consolidated amounts for the three and nine fiscal months ended September 26, 2003 and September 27, 2002 follows. The 2002 amounts have been reclassified to conform to the 2003 classification.
Three fiscal months ended Nine fiscal months ended --------------------------------- ------------------------------- (as restated) (as restated) September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Construction Products Group................. $ 72,650 $ 77,896 $ 193,693 $ 214,375 Symons...................................... 28,338 32,999 84,803 91,137 --------- --------- --------- --------- Net sales to external customers............. $ 100,988 $ 110,895 $ 278,496 $ 305,512 ========= ========= ========= ========= Construction Products Group................. $ 3,217 $ 3,579 $ 9,112 $ 10,556 Symons...................................... 2,533 2,521 6,867 6,543 --------- --------- --------- --------- Net sales to other segments................. $ 5,750 $ 6,100 $ 15,979 $ 17,099 ========= ========= ========= ========= Construction Products Group................. $ 4,473 $ 10,298 $ 14,021 $ 25,996 Symons...................................... 3,574 8,681 17,446 20,109 Corporate................................... (4,274) (2,474) (10,819) (8,279) Intersegment Eliminations................... (2,801) (3,666) (8,282) (8,624) --------- --------- --------- --------- Income from operations...................... $ 972 $ 12,839 $ 12,366 $ 29,202 ========= ========= ========= ========= Construction Products Group................. $ 3,674 $ 9,485 $ 13,293 $ 25,128 Symons...................................... 3,528 8,656 17,297 20,014 Corporate................................... (14,655) (10,163) (40,858) (32,406) Intersegment Eliminations................... (2,801) (3,666) (8,282) (8,624) --------- --------- --------- --------- Income (loss) before income taxes and cumulative effect of change in accounting principle $ (10,254) $ 4,312 $ (18,550) $ 4,112 ========= ========= ========= ========= Construction Products Group................. $ 1,690 $ 1,607 $ 5,047 $ 4,782 Symons...................................... 4,685 2,997 11,694 8,928 Corporate................................... 398 481 1,369 1,379 --------- --------- --------- --------- Depreciation................................ $ 6,773 $ 5,085 $ 18,110 $ 15,089 ========= ========= ========= ========= Construction Products Group................. $ 36 $ 29 $ 109 $ 107 Symons...................................... 111 94 224 104 Corporate................................... 37 27 110 90 --------- --------- --------- --------- Amortization of intangibles................ $ 184 $ 150 $ 443 $ 301 ========= ========= ========= =========
23 Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the nine fiscal months ended September 26, 2003 and September 27, 2002 is as follows:
Nine fiscal months ended --------------------------------------- September 26, 2003 September 27, 2002 ------------------ ------------------ Construction Products Group................................ $ 4,995 $ 5,776 Symons..................................................... 487 2,044 Corporate.................................................. 450 570 -------- -------- Property, Plant and Equipment Additions.................... $ 5,932 $ 8,390 ======== ======== Construction Products Group................................ $ 652 $ 565 Symons..................................................... 20,849 8,040 -------- -------- Rental Equipment Additions................................. $ 21,501 $ 8,605 ======== ========
Information regarding each segment's assets and the reconciliation to the consolidated amounts as of September 26, 2003 and December 31, 2002 is as follows:
As of --------------------------------------- September 26, 2003 December 31, 2002 ------------------ ----------------- Construction Products Group................................ $ 166,927 $159,955 Symons..................................................... 143,840 115,071 Corporate and Unallocated.................................. 99,928 98,945 --------- -------- Total Assets............................................... $ 410,695 $373,971 ========= ========
24 (7) FACILITY CLOSING AND SEVERANCE EXPENSES During 2000, as a result of the acquisition of Conspec, the Company approved and began implementing a plan to consolidate certain of it's existing operations. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ----------- ----------- ------------- ------------ ------- Balance, January 1, 2002................. $ - $ 490 $ - $ 177 $ 667 Facility closing and severance expenses.. - - - - - Items charged against reserve............ - (221) - (84) (305) ----- ----- ---- ----- ----- Balance, December 31, 2002............... - 269 - 93 362 Facility closing and severance expenses.. - - - Items charged against reserve............ - (43) - (75) (118) ----- ----- ---- ----- ----- Balance, September 26, 2003.............. $ - $ 226 $ - $ 18 $ 244 ===== ===== ==== ===== =====
The remaining lease termination costs are expected to be paid through 2007, and the remaining other post-closing costs are expected to be paid in the balance of 2003. During 2001, the Company approved and began implementing a plan to exit certain of its manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ----------- ----------- ----------- ----------- --------- Balance, January 1, 2002................. $ 931 $ 524 $ - $ 786 $ 2,241 Facility closing and severance expenses.. - - 108 - 108 Items charged against reserve............ (931) (314) (108) (475) (1,828) ----- ----- ------ ------ ------- Balance, December 31, 2002............... - 210 - 311 521 Facility closing and severance expenses.. 36 - - 36 Items charged against reserve............ - (122) - (311) (433) ----- ----- ------ ------ ------- Balance, September 26, 2003.............. $ - $ 124 $ - $ - $ 124 ===== ===== ====== ====== =======
The remaining balance is expected to be paid through 2004. 25 During 2002, the Company approved and began implementing a plan to exit certain of its distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
----------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------- ------------ ---------- ----------- ---------- Facility closing and severance expenses...... $ 4,441 $ 650 $ - $ 200 $ 5,291 Items charged against reserve................ (2,029) (566) - (200) (2,795) ------- ----- ---- ------ ------- Balance, December 31, 2002................... 2,412 84 - - 2,496 Facility closing and severance expenses...... (35) - - - (35) Items charged against reserve................ (2,145) (84) - - (2,229) ------- ----- ---- ------ ------- Balance, September 26, 2003.................. $ 232 $ - $ - $ - $ 232 ======= ===== ==== ====== =======
The remaining balance is expected to be paid through 2004. During 2003, the Company approved and began implementing a plan to exit certain of its manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. These costs are being expensed in accordance with SFAS No. 146. Activity for this plan for the nine months ended September 26, 2003, was as follows:
---------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------- ------------ ---------- ----------- --------- Facility closing and severance expenses...... $ 827 $ - $ - $ 415 $ 1,242 Items charged against reserve................ (827) - - (415) (1,242) ------ ---- --- ------ ------- Balance, September 26, 2003.................. $ - $ - $ - $ - $ - ====== ==== === ====== =======
The total expected cost for this plan is approximately $2,000. (8) RESTATEMENT Subsequent to the issuance of the Company's financial statements for the quarter ended September 27, 2002, the Company's management determined that the Company did not adopt Emerging Issues Task Force (EITF) 00-10 "Accounting for Shipping and Handling Fees and Costs" in its financial statements. EITF 00-10 was required to be adopted in the year ended December 31, 2000. As a result, certain reclassifications were made to the condensed consolidated statements of operations for both the three and nine month periods ended September 27, 2002 to conform to this guidance. 26 The effects of the restatement on the three and nine month periods ended September 27, 2002 are as follows:
Three Months Ended Nine Months Ended September 27, 2002 September 27, 2002 ---------------------------------------- --------------------------------------- As Reported As Restated As Reported As Restated ------------------- -------------------- ------------------- ------------------- Sales $105,285 $110,895 $290,293 $305,512 Cost of Sales 68,662 74,272 190,566 205,785 -------- -------- -------- -------- Gross Profit $ 36,623 $ 36,623 $ 99,727 $ 99,727 ======== ======== ======== ========
As a result of adopting EITF 00-10, the Company's December 31, 2002, 2001 and 2000 net sales and cost of sales both increased by $20,453, $21,791, and $19,223, respectively, to reflect the inclusion of shipping revenues and costs, but there was no effect on previously reported gross profit, income from operations, net income (loss), cash flows or financial position. The Company will file a Form 10-K/A for the year ended December 31, 2002 as soon as practicable. This Form 10-K/A will reflect the following restatement on the years ended December 31, 2002, 2001 and 2000.
December 31, 2002 December 31, 2001 December 31, 2000 ------------------------- ----------------------- ---------------------- As As As As As As Reported Restated Reported Restated Reported Restated -------- -------- -------- -------- -------- --------- Sales $378,284 $398,737 $393,700 $415,491 $367,845 $387,068 Cost of Sales 249,408 269,861 254,430 276,221 229,523 248,746 -------- -------- -------- -------- -------- -------- Gross Profit $128,876 $128,876 $139,270 $139,270 $138,322 $138,322 ======== ======== ======== ======== ======== ========
27 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 a leading manufacturer 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. In an effort to reduce costs and enhance customer responsiveness, effective January 1, 2003 we reorganized our company from five autonomous manufacturing and sales divisions into two sales units (Construction Products Group and Symons) and a new product fulfillment unit (Supply Chain). Construction Products Group and Symons are primarily responsible for sales, customer service and new product development. As part of this effort, we reorganized most of our manufacturing and distribution operations into our Supply Chain unit, which manufactures and distributes our products in support of Construction Products Group and Symons. o Construction Products Group. Construction Products Group derives its revenues from the sale of products primarily to independent distributors and contractors. We also provide some equipment on a rental basis. Construction Products Group obtains the majority of the products it sells from the Supply Chain product fulfillment group and manufactures its chemicals product line. Cost of sales for the products sold by the Construction Products Group consists primarily of purchased steel and other raw materials, as well as the costs associated with manufacturing, assembly, testing, and associated overhead. Orders from customers for our paving products are affected by state and local government infrastructure expenditures and their related bid processes. Due to the project-oriented nature of paving jobs, these products generally are made to order. As a result of all of the foregoing, product inventories are maintained at relatively low levels. o Symons. Symons derives its revenues from the sale and rental of engineered, reusable modular forming systems and related accessories to independent distributors and contractors. Sales of both new and used concrete forming systems and specific consumables generally represent approximately two-thirds of the revenues of this business unit, and rentals represent the remaining one-third. This business unit's products include systems with steel frames and a plywood face, known as Steel-Ply(R), and systems that use steel in both the frame and face. Symons obtains Steel-Ply(R) forms from the Supply Chain product fulfillment group and manufactures and assembles or outsources some of the manufacturing involved in some of the other forms. This outsourcing strategy allows us to fulfill larger orders without increased overhead. Cost of sales for Symons consists primarily of purchased steel and specialty plywood, and other raw materials, depreciation and maintenance of rental equipment, and the costs associated with manufacturing, assembly and overhead. 28 o Supply Chain. As part of our reorganization, effective January 1, 2003, we reorganized most of our manufacturing and distribution operations into Supply Chain, our newly formed product fulfillment unit, which manufactures and distributes our products in support of Construction Products Group and manufactures Steel-Ply(R) forms for Symons. We design and manufacture or customize most of the machines we use to produce concrete accessories, and these proprietary designs allow for quick changeover of machine set-ups. This flexibility, together with our extensive distribution system, enables Construction Products Group to deliver many of its concrete accessories within 24 hours of a customer order. For segment reporting purposes, we include Supply Chain in Construction Products Group. ACQUISITION On July 29, 2003, we completed the acquisition of substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. for $20.0 million plus $0.5 million in acquisition costs. The purchase price was comprised of $13 million in cash and a non-interest bearing (other than in the case of default) senior unsecured note, payable to the seller, with a present value of $7.0 million and a face amount of $12 million. The note was issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The face amount of the note is $12.0 million. The first $250,000 installment payment on the note was paid on September 30, 2003, and an additional $750,000 installment payment is due on December 31, 2003. Thereafter, annual payments of $1.0 million are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6.0 million due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, we have used an interest rate of 14.5%. The $13.0 million of cash was funded through the issuance by us of 541,667 common shares valued at $13.0 million in the aggregate to our majority shareholder. The $535 in acquisition costs was funded through borrowings on the revolving credit facility. 29 FACILITY CLOSING AND SEVERANCE EXPENSES During 2000, as a result of the acquisition of Conspec, we approved and began implementing a plan to consolidate certain of our existing operations. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
(Amounts in thousands) -------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------ ----------- ----------- ------------ --------- Balance, January 1, 2002.................. $ - $ 490 $ - $ 177 $ 667 Facility closing and severance expenses... - - - - - Items charged against reserve............. - (221) - (84) (305) ---- ----- ---- ----- ----- Balance, December 31, 2002................ - 269 - 93 362 Facility closing and severance expenses... - - - - - Items charged against reserve............. - (43) - (75) (118) ---- ----- ---- ----- ----- Balance, September 26, 2003............... $ - $ 226 $ - $ 18 $ 244 ==== ===== ==== ===== =====
The remaining lease termination costs are expected to be paid through 2007, and the remaining other post-closing costs are expected to be paid in the balance of 2003. During 2001, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
(Amounts in thousands) -------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------ ----------- ----------- ------------ --------- Balance, January 1, 2002.................. $ 931 $ 524 $ - $ 786 $ 2,241 Facility closing and severance expenses... - - 108 - 108 Items charged against reserve............. (931) (314) (108) (475) (1,828) ----- ----- ------ ----- ------- Balance, December 31, 2002................ - 210 - 311 521 Facility closing and severance expenses... - 36 - - 36 Items charged against reserve............. - (122) - (311) (433) ----- ----- ------ ----- ------- Balance, September 26, 2003............... $ - $ 124 $ - $ - $ 124 ===== ===== ====== ===== =======
The remaining balance is expected to be paid through 2004. 30 During 2002, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. Activity for this plan for the year ended December 31, 2002 and for the nine months ended September 26, 2003 was as follows:
(Amounts in thousands) -------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------ ----------- ----------- ------------ --------- Facility closing and severance expenses... $ 4,441 $ 650 $ -- $ 200 $ 5,291 Items charged against reserve............. (2,029) (566) -- (200) (2,795) -------- ----- ----- ------ ------- Balance, December 31, 2002................ 2,412 84 -- -- 2,496 Facility closing and severance expenses... (35) -- -- -- (35) Items charged against reserve............. (2,145) (84) -- -- (2,229) -------- ----- ----- ------ ------- Balance, September 26, 2003............... $ 232 $ -- $ -- $ -- $ 232 ======== ===== ===== ====== =======
The remaining balance is expected to be paid through 2004. During 2003, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall Company headcount in order to keep its cost structure in alignment with its net sales. These costs are being expensed in accordance with SFAS No. 146. Activity for this plan for the nine months ended September 26, 2003, was as follows:
(Amounts in thousands) -------------------------------------------------------------------------- Involuntary Lease Relocation Other Post- Termination Termination of Closing Benefits Costs Operations Costs Total ------------ ----------- ----------- ------------ --------- Facility closing and severance expenses... $ 827 $ -- $ -- $ 415 $ 1,242 Items charged against reserve............. (827) -- -- (415) (1,242) ------ ----- ----- ----- -------- Balance, September 26, 2003............... $ -- $ -- $ -- $ -- $ -- ====== ===== ===== ===== ========
The total expected cost for this plan is approximately $2 million. 31 RESULTS OF OPERATIONS As discussed in Note 8 to the unaudited financial statements, the three and nine month periods ended September 27, 2002 have been restated to reflect the adoption of EITF 00-10. This discussion gives effect to the restatements. The following table summarizes our results of operations as a percentage of net sales for the periods indicated.
THREE FISCAL MONTHS ENDED NINE FISCAL MONTHS ENDED --------------------------------- -------------------------------- September 26, September 27, September 26, September 27, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net sales........................................... 100.0% 100.0% 100.0% 100.0% Cost of sales....................................... 75.5 67.0 72.4 67.4 ----- ----- ----- ----- Gross profit........................................ 24.5 33.0 27.6 32.6 Selling, general and administrative expenses........ 22.8 19.2 22.5 22.0 Facility closing and severance expenses............. 0.5 2.1 0.4 0.9 Amortization of intangibles......................... 0.2 0.1 0.3 0.1 ----- ----- ----- ----- Income from operations.............................. 1.0 11.6 4.4 9.6 Interest expense.................................... 11.2 7.6 10.2 8.1 Loss on early extinguishment of long-term debt...... - - 0.8 - Other expense....................................... - 0.1 0.1 0.2 ----- ----- ----- ----- Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle........................... (10.2) 3.9 (6.7) 1.3 Provision (benefit) for income taxes................ (3.9) 1.6 (2.3) 0.5 ----- ----- ----- ----- Income (loss) before cumulative effect of change in accounting principle............................. (6.3) 2.3 (4.4) 0.8 Cumulative effect of change in accounting principle. - - - (5.6) ----- ----- ----- ----- Net income (loss)................................... (6.3)% 2.3% (4.4)% (4.8)% ===== ===== ===== =====
32 COMPARISON OF THREE FISCAL MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27, 2002 NET SALES Net sales decreased $9.9 million, or 8.9%, to $101.0 million in the third quarter of 2003 from $110.9 million in the third quarter of 2002. The following table summarizes our net sales by segment:
Three fiscal months ended --------------------------------------------------------- September 26, 2003 September 27, 2002 -------------------------- ----------------------- (In thousands) (as restated) Net Sales % Net Sales % % Change --------- ------- ---------- ------- -------- Construction Products Group............ $ 75,867 75.1% $ 81,475 73.5% (6.9)% Symons................................. 30,871 30.6 35,520 32.0 (13.1) Intersegment eliminations.............. (5,750) (5.7) (6,100) (5.5) (5.7) --------- ----- --------- ----- Net sales.............................. $ 100,988 100.0% $ 110,895 100.0% (8.9)% ========= ===== ========= =====
Net sales for the Construction Products Group decreased $5.6 million, or 6.9%, to $75.9 million in the third quarter of 2003 from $81.5 million in the third quarter of 2002, primarily due to the weaker markets in the third quarter of 2003, compared to the same period in 2002, as a result of the domestic economy adversely impacting non-residential construction. Net sales of Symons decreased $4.6 million, or 13.1%, to $30.9 million for the third quarter of 2003, compared to $35.5 million in the third quarter of 2002, primarily due to lower sales of used rental fleet, which decreased to $4.6 million, from $9.2 million. The contribution of Safway added approximately $2.8 million in net sales, but was offset by lower sales of consumable products and rental revenues from the existing business due to the weaker markets in the third quarter of 2003, compared to the third quarter of 2002. GROSS PROFIT Gross profit for the third quarter of 2003 was $24.7 million, a decrease of $11.9 million from $36.6 million in the third quarter of 2002. This was primarily due to the decreased revenues discussed previously, as well as higher operating expenses, such as steel, insurance, and depreciation. Gross profit was 24.5% of sales in the third quarter of 2003, decreasing from 33.0% in the same quarter of 2002. This was due primarily to the combination of a lower mix of sales of used rental fleet and the impact of fixed costs on lower sales. OPERATING EXPENSES Selling, general and administrative expenses increased $1.7 million to $23.1 million in the third quarter of 2003 from $21.4 million in the third quarter of 2002. Approximately $0.9 million was due to the acquisition of Safway. The remaining increase was primarily due to 33 higher operating expenses such as professional fees related to a re-evaluation of our distribution model, and hiring and severance costs related to management changes. Facility closing and severance expense during the third quarter of 2003 was $0.5 million compared to $2.3 million in the third quarter of 2002. Amortization of intangibles was $0.2 million in the third quarters of both 2003 and 2002. OTHER EXPENSES Interest expense increased to $11.2 million in the third quarter of 2003 from $8.5 million in the third quarter of 2002. This was primarily due to the higher interest rate from the new senior second secured notes and higher borrowings. INCOME (LOSS) BEFORE INCOME TAXES Loss before income taxes in the third quarter of 2003 was $(10.3) million compared to income of $4.3 million in the third quarter of 2002, and was comprised of the following:
Three fiscal months ended ------------------------------------------ September 26, 2003 September 27, 2002 ------------------ ------------------ (In thousands) Construction Products Group............ $ 3,674 $ 9,485 Symons................................. 3,528 8,656 Corporate.............................. (14,655) (10,163) Intersegment eliminations.............. (2,801) (3,666) ---------- ---------- Income (loss) before income taxes...... $ (10,254) $ 4,312 ========== ==========
34 Construction Products Group's income before income taxes of $3.7 million in the third quarter of 2003 decreased from $9.5 million in the third quarter of 2002. This was primarily due to the lower net sales volumes and higher operating expenses such as steel, insurance, and professional fees. Symons' income before income taxes was $3.5 million in the third quarter of 2003, compared to $8.7 million in the third quarter of 2002. This was due primarily to the decrease in sales of used rental equipment, lower rental revenues, and higher depreciation expense. Corporate expenses increased to $14.7 million in the third quarter of 2003 from $10.2 million in the third quarter of 2002. This increase was due primarily to higher interest expense as a result of the higher interest rate on the senior second secured notes, higher borrowings, and hiring and severance costs due to management changes. Elimination of gross profit on intersegment sales was $2.8 million in the third quarter of 2003 and as compared to $3.7 million in the third quarter of 2002 due to lower intersegment sales. NET INCOME (LOSS) The effective income tax rate in the third quarter of 2003 was 37.7%. The net loss for the third quarter of 2003 was $(6.4) million, compared to income of $2.6 million in the third quarter of 2002, due to the factors described above. COMPARISON OF NINE FISCAL MONTHS ENDED SEPTEMBER 26, 2003 AND SEPTEMBER 27, 2002 NET SALES Net sales decreased $27.0 million, or 8.8%, to $278.5 million in the first three quarters of 2003 from $305.5 million in the first three quarters of 2002. The following table summarizes our net sales by segment:
Nine fiscal months ended ---------------------------------------------------------- September 26, 2003 September 27, 2002 ------------------------ --------------------------- (In Thousands) (as restated) Net Sales % Net Sales % % Change --------- ------- --------- ------- -------- Construction Products Group............ $202,805 72.8% $224,931 73.6% (9.8)% Symons................................. 91,670 32.9 97,680 32.0 (6.2) Intersegment eliminations.............. (15,979) (5.7) (17,099) (5.6) (6.6) -------- ----- -------- ----- Net sales.............................. $278,496 100.0% $305,512 100.0% (8.8)% ======== ===== ======== =====
Net sales for the Construction Products Group decreased $22.1 million, or 9.8%, to $202.8 million in the first nine months of 2003 from $224.9 million in the first nine months of 2002. 35 This is primarily due to the weaker markets in the first nine months of 2003, compared to the same period in 2002. Net sales of Symons products decreased by 6.2% to $91.7 million, including $2.8 million from the acquisition of Safway, in the first nine months of 2003, compared to $97.7 million in the first nine months of 2002. This decrease was due to rental revenues, which declined by $7.9 million, and to lower sales of consumable products, which declined by $3.6 million, both due to the weaker markets in 2003. This was partially offset by sales of used rental fleet, which increased $5.5 million. GROSS PROFIT Gross profit for the first nine months of 2003 was $76.7 million, a decrease of $23.0 million from $99.7 million in the first nine months of 2002. This was primarily due to the decreased revenues discussed previously. Higher operating expenses, such as steel, insurance, and depreciation, were offset by the cost savings realized from the implementation of the facility closing and severance plans. Gross profit was 27.6% of sales in the first nine months of 2003, decreasing from 32.6% in the first nine months of 2002. This was due primarily to the combination of lower mix of rental revenues and the impact of fixed costs on lower sales. OPERATING EXPENSES Selling, general and administrative expenses decreased $4.7 million to $62.7 million in the first nine months of 2003 from $67.4 million in the first nine months of 2002, primarily due to the cost savings realized from the implementation of the facility closing and severance plans. These were partially offset by the acquisition of Safway and higher operating expenses such as professional fees related to a re-evaluation of our distribution model, and hiring and severance costs related to management changes. Facility closing and severance expense during the first nine months of 2003 was $1.2 million, compared to $2.9 million in the first nine months of 2002. Amortization of intangibles was $0.4 million in the first three quarters of 2003, compared to $0.3 million in the first three quarters of 2002. OTHER EXPENSES Interest expense increased $3.4 million to $28.3 million in the first nine months of 2003 from $24.9 million in the first nine months of 2002. This was primarily due to the higher interest rate on the new senior second secured notes and higher borrowings. On June 9, 2003, we completed an offering of $165.0 million of senior second secured notes in a private placement. The proceeds of the offering of the senior second secured notes were used to repay our acquisition credit facility, term loan tranche A, term loan tranche B and a portion of the revolving credit facility. As a result of these transactions, we incurred a loss on the early extinguishment of long-term debt of $2.5 million. 36 INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE Income (loss) before income taxes and cumulative effect of change in accounting principle in the first nine months of 2003 was $(18.6) million, as compared to $4.1 million of income in the first nine months of 2002, and was comprised of the following:
Nine fiscal months ended -------------------------------------- September 26, 2003 September 27, 2002 ------------------ ------------------ Construction Products Group............................... $ 13,293 $ 25,128 Symons.................................................... 17,297 20,014 Corporate................................................. (40,858) (32,406) Intersegment eliminations................................. (8,282) (8,624) ---------- ---------- Income (loss) before income taxes and cumulative effect of change in accounting principle............................ $ (18,550) $ 4,112 ========== ==========
Construction Products Group's income before income taxes of $13.3 million in the first nine months of 2003 decreased from $25.1 million in the first nine months of 2002. This decrease was primarily due to the lower net sales volumes in 2003. Higher operating costs, such as steel, insurance, and professional services, were offset by the cost savings realized from the facility closing and severance plans implemented by management. Symons' income before income taxes was $17.3 million in the first nine months of 2003, compared to $20.0 million in the first nine months of 2002. This decrease was due primarily to the decrease in net sales. Higher depreciation and operating costs were offset by the cost savings realized from the facility closing and severance plans implemented by management. Corporate expenses increased to $40.9 million in the first nine months of 2003 from $32.4 million in the first nine months of 2002. This increase was due primarily to higher interest expense as a result of the higher interest rate on the new senior second secured notes, and the $2.5 million loss on early extinguishment of long-term debt discussed previously. Elimination of gross profit on intersegment sales was $8.3 million in the first nine months of 2003, compared to $8.6 million in the first nine months of 2002. LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE The effective income tax rate in the first three quarters of 2003 was 34.0%. The loss before cumulative effect of change in accounting principle for the first three quarters of 2003 was $(12.2) million, compared to $2.5 million in the first three quarters of 2002, due to the factors described above. 37 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 SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to allow only 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 these statements effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in the first quarter 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. NET LOSS The net loss for the first nine months of 2003 was $(12.2) million, compared to a loss of $(14.7) million in the first nine months of 2002, due to the factors described above. LIQUIDITY AND CAPITAL RESOURCES Our key statistics for measuring liquidity and capital resources are net cash provided by operating activities, capital expenditures and amounts available under the revolving credit facility. 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 credit facility and the issuance of long-term debt and equity. Net cash used in operating activities in the first nine months of 2003 was $28.1 million, compared to $21.0 million in the first nine months of 2002. Net loss after non-cash adjustments was $8.1 million for the first nine months of 2003, compared to income of $5.2 million in the first nine months of 2002. Changes in assets and liabilities resulted in a $20 million use of cash in the first nine months of 2003, as compared to $26.2 million in the first nine months of 2002. Net cash used in investing activities was $14.7 million in the first nine months of 2003, compared to net cash provided by investing activities of $5.8 million in the first nine months of 2002. Property, plant and equipment additions decreased to $5.9 million in the first nine months of 2003 from $8.4 million in the first three quarters of 2002, as management 38 continues to closely monitor our spending in a weak market. Rental equipment sales, net of rental equipment additions, were $4.7 million in the first nine months of 2003, compared to $12.2 million in the first nine months of 2002. This is due to the implementation of our plan to continue to augment traditional forming rental fleet with European clamping systems. During the third quarter of 2003, the cash portion of the acquisition of Safway was $13.5 million, including $0.5 million of acquisition costs. Our majority shareholders contributed $13.0 million for this acquisition. The $13.0 million of cash was funded through the issuance by us of 541,667 common shares valued at $13.0 million in the aggregate to our majority shareholder. The $0.5 million of acquisition costs was funded through borrowings on the revolving credit facility. As of September 26, 2003, our long-term debt consisted of the following:
September 26, 2003 ------------- Revolving credit facility, weighted average interest rate of 4.8%................... $ 24,125 Senior Subordinated Notes, interest rate of 13.0%................................... 154,729 Debt discount on Senior Subordinated Notes.......................................... (8,717) Senior Second Secured Notes, interest rate of 10.75%................................ 165,000 Debt discount on Senior Second Secured Notes........................................ (7,799) Senior Unsecured Note payable to seller of Safway, non-interest bearing, accreted at 14.5%.......................................................................... 7,131 Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand...................................................................... 1,110 Capital lease obligations........................................................... 4,666 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0%............ 63 --------- Total long-term debt................................................................ 340,308 Less current maturities............................................................. (2,577) --------- Long-term portion................................................................... $ 337,731 =========
At September 26, 2003, of the $50.0 million revolving credit facility that was available to us, $24.1 million of borrowings were outstanding, increased from $10.1 million outstanding as of December 31, 2002, along with $5.5 million of letters of credit, with the remaining $20.4 million available for borrowing. We have received a commitment for an $80 million senior secured revolving credit facility. This credit facility would be used to refinance the existing $50 million revolving credit facility and to provide financing for future acquisitions and ongoing working capital needs. Closing of this transaction is contingent upon normal due diligence. On June 9, 2003, we completed an offering of $165.0 million of senior second secured notes in a private placement. The proceeds of the offering, $156.9 million, net of discounts, were used to repay our acquisition credit facility, term loan tranche A, term loan tranche B and a portion of the revolving credit facility. In June 2003, we repurchased $15.3 million in principal amount of senior subordinated notes for $14.3 million with borrowings under the revolving credit facility. At September 26, 2003, working capital was $89.0 million, compared to $65.8 million at December 31, 2002. The increase in working capital is attributable to normal seasonal working capital growth and the acquisition of Safway. 39 We intend to pursue additional acquisitions that present opportunities to realize significant synergies, operating expense economies or overhead cost savings or to increase our market position. We regularly engage in discussions with respect to potential acquisitions and investments. There are no definitive agreements with respect to any material acquisitions at this time, and we cannot assure you that we will be able to reach an agreement with respect to any future acquisition. Our acquisition strategy may require substantial capital, and no assurance can be given that we will be able to raise any necessary funds on terms acceptable to us or at all. We intend to fund acquisitions with cash, securities or a combination of cash and securities. To the extent we use cash for all or part of any future acquisitions, we expect to raise the cash from our business operations, from borrowings under our revolving credit facility or, if feasible and attractive, by issuing long-term debt or additional common shares. If we incur additional debt to finance acquisitions, our total interest expense will increase. On July 29, 2003 we completed the acquisition of substantially all of the fixed assets and rental fleet assets Safway Formwork Systems, L.L.C. for $20.0 million. The purchase price was comprised of $13.0 million in cash and a non-interest bearing (other than in the case of default) senior unsecured note with a present value of $7.0 million payable to the seller. The note was issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The face amount of the note is $12.0 million. The first $250,000 installment payment on the note was paid on September 30, 2003, and an additional $750,000 is due on December 31, 2003. Thereafter, annual payments of $1.0 million are due on September 30 of each year from 2004 through 2008, with a final balloon payment of $6.0 million due on December 31, 2008. For purposes of calculating the net present value of the senior unsecured note, we have used an interest rate of 14.5%. The $13.0 million of cash was funded through the issuance by us of 541,667 common shares valued at $13.0 million in the aggregate to our majority shareholder. Our ability to make scheduled payments of principal of, or to pay the interest on, or to refinance, our indebtedness, or to fund planned capital expenditures and research and development will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and anticipated operating improvements, management believes that cash flow from operations and available borrowings under our revolving credit facility will be adequate to meet our future liquidity for the foreseeable future. We cannot assure you, however, that our business will generate sufficient cash flow from operations, that operating improvements will be realized on schedule or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may from time to time seek to retire our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, in privately negotiated transactions or otherwise. Any such repurchases or exchanges will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including our revolving credit facility, the senior 40 subordinated notes and the senior second secured notes, on commercially reasonable terms or at all. COMMITMENTS There were no significant changes to future payments under non-cancelable operating leases from December 31, 2002. Scheduled repayments of long-term debt and minimum lease payments under capital leases as of September 26, 2003 were:
LONG-TERM YEAR DEBT CAPITAL LEASES TOTAL --------------- ---------- -------------- ----------- Balance of 2003 $ 2,118 $ 371 $ 2,489 2004 1,032 1,176 2,208 2005 1,023 1,129 2,152 2006 25,125 808 25,933 2007 1,000 654 1,654 Thereafter 326,860 692 327,552 --------- -------- --------- $ 357,158 $ 4,830 $ 361,988 ========= ======== =========
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 the volume of our sales. 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 to our customers a portion of the increases in the price of steel (our principal raw material). We may not be able to pass on steel price increases in the future. CRITICAL ACCOUNTING POLICIES In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States of America. These principles require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. There have been no material changes in our policies or estimates since December 31, 2002. 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," 41 "estimates" and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by our management and us are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. We disclaim any obligation to 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; the amount of debt we must service; the effects of weather and the seasonality of the construction industry; our ability to implement cost savings programs successfully and on a timely basis; and Dayton Superior's ability to successfully integrate acquisitions on a timely basis. 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, 2002. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At September 26, 2003, we had financial instruments that were sensitive to changes in interest rates. These financial instruments consisted of: o $154.7 million of senior subordinated notes; with a net book value of $146.0 million; o $165.0 million of senior second secured notes; with a net book value of $157.2 million; o $50.0 million revolving credit facility, $24.1 million of which was outstanding at September 26, 2003; o $4.7 million in capital lease obligations; and o $1.2 million in other fixed-rate, long-term debt. The senior subordinated notes bear interest at 13.0% on the $154.7 million of principal and mature in 2009. The estimated fair value of the notes, based on a trading price of 89.0% of the principal amount at September 26, 2003, is $137.7 million. 42 The senior second secured notes bear interest at 10.75% on the $165.0 million of principal and mature in 2008. The estimated fair value of the notes, based on a trading price of 101.8% of the principal amount at September 26, 2003, is $168.0 million. Our revolving 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 $24.1 million face value. The weighted average interest rate at September 26, 2003 was 4.8%. Other long-term debt consists of $1.1 million of debentures previously held by the Dayton Superior Capital Trust, with a fair value of $1.8 million and a $0.1 million, 7.0% loan due in installments of $32,000 per year with an estimated fair value of $34,000. 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. ITEM 4. CONTROLS AND PROCEDURES. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level. There has been no change in our internal controls over financial reporting during the most recent quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. 43 PART II. - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On July 29, 2003, the Company sold 541,667 Common Shares to Odyssey Investment Partners Fund, LP for an aggregate purchase price of $13 million ($24 per share) to fund the cash portion of the purchase price paid by the Company to purchase substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. On September 4, 2003, the Company sold 1,042 Common shares to Edward J. Puisis for an aggregate purchase price of $25,008 ($24 per share) in conjunction with his employment with the Company. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. On September 4, 2003, the Company sold 1,000 Common shares to Steven C. Huston for an aggregate purchase price of $24,000 ($24 per share) in conjunction with his employment with the Company. The shares were issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. ITEM 5. OTHER INFORMATION Subsequent to the issuance of the Company's financial statements for the quarter ended September 27, 2002, the Company's management determined that the Company did not fully adopt Emerging Issues Task Force (EITF) 00-10 "Accounting for Shipping and Handling Fees and Costs" in its financial statements. EITF 00-10 was required to be adopted in the year ended December 31, 2000. As a result, certain reclassifications were made to the condensed consolidated statements of operations for both the three and nine month periods ended September 27, 2002 to conform to this guidance. In order to reflect the application of EITF 00-10 in all periods affected, reclassifications to the financial statements for the years ended December 31, 2002, 2001 and 2000 are expected to be made as soon as practicable. The Company is evaluating the impact of these reclassifications on sales and cost of sales for the years ended December 31, 2002, 2001 and 2000. These reclassifications will not have any effect on previously reported gross profit, income from operations, net income (loss), cash flows or financial position. 44 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. See Index to Exhibits following the signature page to this report for a list of Exhibits. (b) Reports on Form 8-K. During the quarter ended September 26, 2003, we filed the following Current Reports on Form 8-K: Current Report on Form 8-K dated July 1, 2003, reporting under item 5 the execution of an agreement to acquire substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. Current Report on Form 8-K dated July 29, 2003, reporting under item 9 the completion of the Company's acquisition of substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. Current Report on Form 8-K dated August 5, 2003, reporting under item 12 summary financial results for the second quarter and first half of 2003. Current Report on Form 8-K dated August 5, 2003, reporting under item 5 the election of Edward J. Puisis as Vice President and Chief Financial Officer. Current Report on Form 8-K dated August 13, 2003, reporting under item 2 the completion of the Company's acquisition of substantially all of the fixed assets and rental fleet assets of Safway Formwork Systems, L.L.C. 45 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: November 10, 2003 BY: /s/ Edward J. Puisis -------------------------- ----------------------------------- Edward J. Puisis Vice President and Chief Financial Officer 46 INDEX TO EXHIBITS -----------------
Exhibit No. Description - ---------- ----------- (10) Material Contracts 10.1 Employment Agreement between Edward J. Puisis and Dayton Superior Corporation. 10.2 Incentive stock option agreement between Edward J. Puisis and Dayton Superior Corporation. 10.3 Letter Agreement between Raymond Bartholomae and Dayton Superior Corporation. 10.4 Employment Agreement between Peter Astrauskas and Dayton Superior Corporation. 10.5 Amendment to Employment Agreement between Peter Astrauskas and Dayton Superior Corporation. (31) Rule 13a-14(a)/15d-14(a) Certifications 31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certification of Vice President and Chief Financial Officer (32) Section 1350 Certifications 32.1 Section 1350 Certification of President and Chief Executive Officer 32.2 Section 1350 Certification of Vice President and Chief Financial Officer
EX-10.1 3 l03447aexv10w1.txt EXHIBIT 10.1 EXHIBIT 10.1 EXECUTION COPY 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 Edward J. Puisis (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) Puisis Employment Agmt 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 hereto. Puisis Employment Agmt 2 (o) "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. (p) "Notice of Termination" shall have the meaning set forth in Section 5(b). (q) "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. (r) "Option Plan" shall mean the 2000 Stock Option Plan of Dayton Superior Corporation, as amended from time to time. (s) "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). (t) "Prohibited Competition" shall have the meaning set forth in Section 7(b). (u) "Purchased Stock" Shall have the meaning set forth in Section 4(d). (v) "Signing Bonus" Shall have the meaning set forth in Section 4(b)(ii). (w) "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 August 11, 2003 (the "Employment Date") and ending on the second anniversary thereof unless earlier terminated as provided in Section 5; provided, however, that the Agreement shall automatically be extended, beginning on the second 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"). Puisis Employment Agmt 3 3. Position, Duties and Location. (a) During the Term, the Executive shall serve as the Chief Financial Officer of the Company, with such customary responsibilities, duties and authority as may from time to time be assigned to the Executive by the Chief Executive Officer. During the Term, the Executive will report to the Chief Executive Officer. During the period of the Executive's employment as Chief Financial 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) The Executive's principal place of employment shall be the Company's offices in Dayton, Ohio. The Executive shall promptly, and in no event later than December 31, 2003, relocate his household from the Union, Kentucky 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 $250,000 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 2003 fiscal year shall be at least $125,000, payable in accordance with normal payment terms of the bonus policy. (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 $175,000 (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(b), then the Executive shall immediately, upon such failure, return the full amount of the Signing Bonus to the Company. Puisis Employment Agmt 4 (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 three (3) business days after the Executive receives the Signing Bonus, the Executive shall purchase from the Company 1,042 shares of Common Stock (the "Purchased Stock") at the price of $24.00 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. 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 the sum of $25,008 in cash. In addition, the parties shall enter into a subscription agreement or other similar agreement evidencing the purchase and sale of the Purchased Stock, containing customary terms and conditions consistent with the Company's past practices. (ii) Not more than three (3) business days after the Executive receives his annual cash bonus for fiscal years 2003 and 2004, the Executive shall purchase in each year an additional $12,500 worth of Common Stock at the then current fair market value of the Common Stock. Such shares shall be subject to the terms of the Management Shareholders' Agreement. As of the dates the Executive purchases the additional shares, the Executive shall deliver to the Company the sum of $12,500 in cash, and the parties shall enter into a subscription agreement or other similar agreement evidencing the purchase and sale of the additional shares. (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). (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 twenty (20) vacation days annually, 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 Puisis Employment Agmt 5 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. During the Term, the Company shall pay on behalf of the Executive, or reimburse the Executive for, membership fees payable in connection with the Executive's membership in one country, alumni, or social club of the Executive's choice, provided that such costs to the Company shall not in the aggregate exceed $6,000 per year. The Company shall pay on behalf of the Executive, or reimburse the Executive for, the actual cost of an initiation fee, if any, for such country, alumni or social club up to $5,000. (j) 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 Union, Kentucky 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) The Executive shall promptly sell his principal residence in Union, Kentucky 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. 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. Puisis Employment Agmt 6 (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. The Executive may resign his employment hereunder at any time for any 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, 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)) or Puisis Employment Agmt 7 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 twelve 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 one year 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 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 one year 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 Puisis Employment Agmt 8 (B) (1) The Executive shall not engage in any Prohibited Competition at any time during the period of one year following the Termination Date; and (2) Subject to (x) the Executive's continued compliance with Sections 7 and 8 hereof throughout such one-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 twelve 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 (c) Continue for one year 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 Puisis Employment Agmt 9 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. 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 Puisis Employment Agmt 10 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. 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. Puisis Employment Agmt 11 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 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 If to the Executive, to him at the address set forth below under his signature, with copies to: [ ] 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. Puisis Employment Agmt 12 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 Chief Executive officer. 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 Dayton, 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 Puisis Employment Agmt 13 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. So long as the Executive has not been found by a Court to have 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, including tail and/or occurrence coverage. 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 lan or the Management Stockholders' Agreement, this Agreement shall govern. [signature page follows] Puisis Employment Agmt 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. DAYTON SUPERIOR CORPORATION By: _______________________________________ Stephen R. Morrey President and Chief Executive Officer Date: EXECUTIVE ___________________________________________ Edward J. Puisis 976 Dustwhirl Drive Union, Kentucky 41091 Date: Puisis Employment Agmt 15 EX-10.2 4 l03447aexv10w2.txt EXHIBIT 10.2 EXHIBIT 10.2 EXECUTION COPY INCENTIVE STOCK OPTION AGREEMENT THIS AGREEMENT, dated and effective as of the date indicated on the signature page below (the "Effective Date"), is made by and among Dayton Superior Corporation, an Ohio corporation (the "Company"), and Edward J. Puisis, an employee of the Company (or one of its Subsidiaries, as defined herein), hereinafter referred to as "Optionee." WHEREAS, the Company wishes to afford the Optionee the opportunity to purchase shares of its Class A Common Shares, without par value (the "Common Stock"); and WHEREAS, the Company wishes to carry out the 2000 Stock Option Plan of Dayton Superior Corporation, as amended (the "Plan") (the terms of which are hereby incorporated by reference and made a part of this Agreement); and WHEREAS, the Company has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the Incentive Stock Option provided for herein to the Optionee as an inducement to enter into or remain in the service of the Company (or one of its Subsidiaries) and as an incentive for increased efforts during such service, and has advised the Company thereof and instructed the undersigned officers to issue said Option; 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 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; Cumulative EBITDA Target "EBITDA Target", and "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 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 Puisis Stock Option Agmt 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 1.4 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 1.5 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 and Cumulative EBITDA Target have been met with respect to such fiscal year. Section 1.6 Disability "Disability" shall mean the inability of the Optionee to perform his 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. Section 1.7 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 Effective Date, plus (ii) amounts deducted from net revenues in determining such net income (or loss) on account of (w) depreciation and amortization, (x) Puisis Stock Option Agmt 2 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, 2003 through such date. Section 1.8 Employment Date "Employment Date" shall mean August 11, 2003. Section 1.9 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 1.10 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 1.11 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 1.12 Odyssey "Odyssey" shall mean Odyssey Investment Partners Fund, L.P. Section 1.13 Option "Option" shall mean the Incentive Stock Option to purchase Common Stock granted under this Agreement. Section 1.14 Person "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 1.15 Plan "Plan" shall mean the 2000 Stock Option Plan of Dayton Superior Corporation, as amended from time to time. Section 1.16 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 Puisis Stock Option Agmt 3 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 1.17 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 1.18 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. Section 1.19 Target Amount "Target Amount" shall mean, with respect to any Investment, a dollar amount representing: (a) If the Investment was made on or prior to June 16, 2003, 2.25 times the amount of such Investment; and (b) If the Investment was made on or after June 17, 2003, a 30% Investor Return on such Investment. For purposes of calculating the Target Amount: Puisis Stock Option Agmt 4 (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 (a) In consideration of the Optionee's agreement to become employed by the Company and for other good and valuable consideration, effective as of the Employment Date, the Company irrevocably grants to the Optionee the Option to purchase any part or all of an aggregate of 55,000 shares of Common Stock (the "Option"). Such Option remains subject to the terms and conditions set forth in the Plan and this Agreement, as amended. (b) Notwithstanding the foregoing, in the event the Optionee has not entered into employment with the Company as of the Employment Date pursuant to the terms of that certain Employment Agreement by and among the Company and the Optionee and dated as of the Effective Date, the Option shall be canceled and this Agreement shall be null and void in all respects. 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. Section 2.3 Option Price The purchase price of the shares of Common Stock covered by the Option shall be $24.00 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, 25% of the Option shall become exercisable in three cumulative installments as follows: Puisis Stock Option Agmt 5 (i) The first installment shall consist of 8.33% of the shares covered by such Option and shall become exercisable on December 31, 2003; (ii) The second installment shall consist of 8.33% of the shares covered by such Option and shall become exercisable on December 31, 2004; and (iii) The third installment shall consist of 8.33% of the shares covered by such Option and shall become exercisable on December 31, 2005. (b) Subject to subsections (e) and (f) and Section 3.3, the remaining 75% of the Option shall become exercisable in full on August 11, 2012 provided that the Optionee remains continuously employed in active service by the Company from the Employment Date through such date. (c) Notwithstanding Section 3.1(b), but subject to subsections (e) and (f) and Section 3.3, 75% of the shares subject to the Option shall become exercisable as follows: (i) Annual Performance Test. If the EBITDA for any fiscal year 2003 through 2007 equals or exceeds the EBITDA Target for such fiscal year, an installment consisting of 15% of the shares covered by the Option shall become exercisable on the Determination Date for such fiscal year. (ii) Missed Years and Catch-Up Opportunities. 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, 2007 (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 Cumulative EBITDA Target through such date, provided that in no event shall the Option become exercisable for greater than 100% of the shares subject thereto. (iii) Discretionary Catch-Up Opportunity. If any portion of the Option subject to accelerated vesting under this Section 3.1(c) remains unexercisable following the Determination Date for the fiscal year ending December 31, 2007, 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 2003 through 2007, the Committee shall make the determination, in accordance with this Section 3.1, as to whether the EBITDA Target and Cumulative EBITDA Target have been met, and shall determine, in accordance with this Section 3.1, the extent, if any, to which the 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, the Option shall become fully vested and exercisable immediately Puisis Stock Option Agmt 6 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 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. 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 Effective 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 later of (i) the expiration of 90 days from the date of the Optionee's death or (ii) such time as is necessary under the probate of the Executive's estate); 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. 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 Puisis Stock Option Agmt 7 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 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 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 Puisis Stock Option Agmt 8 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 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 and 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 Effective Date. Accordingly, in the event that, after the Effective 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. Section 4.8 Conflict To the extent that there is any conflict between the terms of this Agreement and the terms of the Management Stockholders' Agreement or the Plan, this Agreement shall govern. Section 4.9 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. [signature page follows] Puisis Stock Option Agmt 9 DAYTON SUPERIOR CORPORATION By:_____________________________ Title:__________________________ Date:___________________________ _______________________________ Optionee _______________________________ _______________________________ Address Date: Optionee's Taxpayer Identification Number:____________________________ Puisis Stock Option Agmt 10 APPENDIX A INCENTIVE STOCK OPTION AGREEMENT EBITDA TARGETS ($ MILLIONS) FISCAL YEAR ENDING DECEMBER 31
TARGET 2003 2004 2005 2006 2007 - ----------------- ---- ----- ----- ----- ----- EBITDA 55.0 63.0 78.0 92.0 103.0 CUMULATIVE EBITDA 55.0 118.0 196.0 288.0 391.0
Puisis Stock Option Agmt 11 EX-10.3 5 l03447aexv10w3.txt EXHIBIT 10.3 EXHIBIT 10.3 August 13, 2003 Raymond Bartholomae 28223 Gray Barn Lane Lake Barrington, Illinois 60010 Dear Ray: This letter (this "Letter") will acknowledge our agreement and understanding with respect to certain terms of your employment. This Letter is signed on the date indicated herein, but will be effective immediately upon the expiration of your Employment Agreement, as defined below. As you know, on March 13, 2003, the Dayton Superior Corporation (the "Company") provided you with a notice that your employment agreement signed on January 19, 2000 (the "Employment Agreement") was not being renewed. In accordance with the Employment Agreement and the letter agreement signed by you and the Company on May 13, 2002, you will become an employee at will with the Company upon the termination of your Employment Agreement on June 16, 2003. This Letter sets forth the terms of your employment with the Company. We have agreed to the following: 1. Employee at Will. You are an employee at will with the Company. The Company may terminate your employment at any time for any legal reason, at its discretion. Likewise, you may resign from your employment with the Company at any time for any reason, by giving the Company 30 days advance written notice. 2. Termination. If the Company terminates your employment, it will do so for Cause or Without Cause. The Company may terminate you for Cause upon your: (a) willful or gross misconduct or material failure in the performance of your duties and responsibilities for the Company, other than any such failure resulting from your Disability (as defined below), which misconduct or failure continues 14 days after the Company notifies you in writing of the Company's finding of such misconduct or failure; or (b) conviction of or plea of guilty or nolo contendre to a felony or a crime involving moral turpitude; or (c) fraud or personal dishonesty involving the Company's assets. Raymond Bartholomae August 13, 2003 Page 2 If the Company terminates your employment for any reason other than Cause, it shall be a termination Without Cause. "Disability" in this Letter shall mean your inability to perform your duties and responsibilities as an officer or employee of the Company or any of its subsidiaries on a full-time basis for more than 6 months within any 12-month period because of a physical, mental or emotional incapacity resulting from injury, sickness or disease. 3. Severance. If the Company terminates your employment Without Cause, or if you die while employed by the Company, the Company shall: (a) For the year in which the termination occurs, pay you or your estate a prorated amount of bonus, in accordance with the Company's regular bonus payment practice, based on the Company's Executive Annual Bonus Plan as in effect at that time, corresponding to the time period from January 1 of that year until the date of your termination; (b) For the 36 month period following the date of your termination (the "Severance Period"), pay to you or your estate, in accordance with the Company's regular payroll practice, either the average of your annual base salary for the three years prior to your termination, or your then current annual base salary, whichever is greater; (c) For the Severance Period, pay to you or your estate, in accordance with the Company's regular bonus payment practice, the average of your annual bonus payment for the three years prior to your termination, prorated for the number of calendar days the Severance Period applies to each particular calendar year. (d) For the Severance Period, pay to you or your estate your car allowance in effect at the time of your termination; and (e) Continue in place until you reach the age of 65, your and your spouse's coverage under the Company's medical and dental plans and programs, including your group life insurance coverage, in which you are entitled to participate immediately prior to your termination (or, if we amend, replace or terminate any such plan or program following your termination, our medical and dental plans provided to employees similarly situated to you), as if you were an active employee during such time, subject to standard employee contributions by you as you are required under such plans. 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. Raymond Bartholomae August 13, 2003 Page 3 If the Company terminates your employment for Cause, you will not be entitled to any severance benefits. 4. Resignation. If you resign or retire from the Company, you will be entitled to accrued, vested benefits under the Company's applicable employee benefit plans, programs and arrangements, as provided therein. You will not be entitled to any severance benefits if you resign or retire from the Company. 5. Change of Control. "Change in Control" shall mean the occurrence of any of the following: (a) 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; (b) 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 (c) 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. If there is a Change in Control while you are employed by the Company, then the Severance Period shall convert from 36 months to 24 months. 6. Non-Competition. (a) You shall not engage in any Prohibited Competition, as defined below, at any time during your employment with the Company and the 36 months following your departure from the Company (the "Non-Competition Raymond Bartholomae August 13, 2003 Page 4 Period"); provided, however, that the Company's Board of Directors may, at its discretion, waive your obligation to abide by the non-competition provisions set forth in this Letter. If the Company's Board of Directors waives your non-competition obligations in this Letter, it reserves the right to subsequently enforce the non-competition provisions during the Non-Competition Period in the event that your employment changes. You agree to notify the Company immediately if your employment changes during the Non-Competition Period. Your rights to the severance benefits described in this Letter shall be unchanged whether or not the Company's Board of Directors elects to waive these non-competition provisions. If there is a Change in Control while you are employed by the Company, then the Non-Competition Period shall convert from 36 months to 24 months. (b) For purposes of this Letter, you shall be considered to engage in prohibited competition ("Prohibited Competition") if you 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 you 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 of the terms of this paragraph 6 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. 7. Nondisclosure of Proprietary Information. (a) Except as required in the faithful performance of your duties hereunder or pursuant to subsection 7(c), you shall, in perpetuity, maintain in Raymond Bartholomae August 13, 2003 Page 5 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 you in violation hereof); (ii) was provided to you (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 your employment with Company for Cause or Without Cause, and upon the Company's request, you 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) You 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. Raymond Bartholomae August 13, 2003 Page 6 8. Injunctive Relief. You recognize and acknowledge that your breach of the covenants contained in Sections 6 and 7 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, you agree that in the event of a breach of any of the covenants contained in Sections 6 and 7, 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. 9. Binding on Successors. This Letter shall be binding upon and inure to the benefit of the Company, you and their respective successors, assigns, personnel and legal representatives, executors, administrators, heirs, distributees, devisees, and legatees, as applicable. 10. Governing Law. This Letter shall be governed, construed, interpreted and enforced in accordance with the substantive laws of the State of Ohio. 11. 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, or at any other address as any party shall have specified by notice in writing to the other party in accordance with this Paragraph 11: If to the Company, to: Dayton Superior Corporation 7777 Washington Village Drive, Suite 130 Dayton, OH 45459 Attn: Corporate Secretary Phone: (937) 428-6360 Fax: (937) 428-9115 with copies to: Peter Hardin-Levine, Esq. Baker & Hostetler LLP 3200 National City Center 1900 E. 9th Street Cleveland, Ohio 44114 Phone: (216) 861-7909 Fax: (216) 696-0470 and Raymond Bartholomae August 13, 2003 Page 7 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 If to you, to the address set forth below under you signature. 12. Counterparts. This Letter 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 Letter. 13. Entire Agreement. The terms of this Letter are intended by the parties to be the final expression of their agreement with respect to your employment by the Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The parties further intend that this Letter 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 Letter. Notwithstanding any of the foregoing to the contrary, in the event of a conflict between the terms of this Letter and any other agreement between the parties, the terms of this Letter shall govern. 14. Amendments. This Letter may not be modified, amended, or terminated except by an instrument in writing, signed by you and the Company's CEO. 15. Arbitration. Any dispute or controversy arising under or in connection with this Letter shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in Dayton, 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 6 or 7 of this Letter and you hereby consent that such restraining order or injunction may be granted without the necessity of the Company posting any bond 16. Taxes. All payments to be made to you under this Letter will be subject to any applicable withholding of federal, state and local income, employment and other taxes. Raymond Bartholomae August 13, 2003 Page 8 In consideration of the foregoing agreements and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, you and the Company agree to the foregoing terms and conditions set forth in this Letter. Please indicate your agreement with and acceptance of the terms and conditions set forth in this Letter by signing below, and return a copy of this Letter to me at your earliest convenience. If you have any questions, please feel free to call me. Very truly yours, Dayton Superior Corporation By: ___________________________________ Stephen R. Morrey President & Chief Executive Officer Agreed and accepted: ________________________________________ Raymond E. Bartholomae 28223 Gray Barn Lane Lake Barrington, Illinois 60010 Date: __________________________________ EX-10.4 6 l03447aexv10w4.txt EXHIBIT 10.4 EXHIBIT 10.4 August 13, 2003 Mr. Peter Astrauskas 3034 E. Nance Street Mesa, Arizona 85213-1644 Dear Peter, This confirms our discussions on the offer of employment, and your acceptance, on the following terms and conditions: Title. Your title will be Vice President-Engineering, reporting directly to me. I will submit your name to the Board of Directors at the next board meeting for election as an officer of the corporation. Responsibilities. You will be responsible for the development and implementation of value engineering initiatives in our manufacturing processes and in our product offerings. Base Salary. Your base salary will be $170,000 per year. Bonus. Your target bonus opportunity under the company's Management Incentive Program will be 50% of base salary per year. Your bonus for 2003 will be prorated. Sign-On Bonus. You will receive a sign-on bonus of $15,000.00. Share Purchase. You will purchase 400 shares of common stock of Dayton Superior Corporation at a price of $24.00 per share. You will complete such purchase within 30 days after commencing your employment with the company. This purchase of common stock will be presented to the Board of Directors for approval. Stock Options. You will receive a grant to acquire 20,000 shares of common stock in Dayton Superior Corporation at the time you join the company, at a price of $24.00 per share, subject to the terms of the company's 2000 Stock Option Plan. This grant of options will be presented to the Board of Directors for its approval. Car Allowance. You will receive a car allowance of $1,150 per month. Start Date. Your employment will commence on or about September 8, 2003. Mr. Peter Astrauskas, Page 2, August 13, 2003 Employment Agreement. As you understand, your employment with the company is "at will." However, we will provide you with twelve (12) months of base salary and car allowance payments if your employment with the company is terminated for any reason other than (i) for "cause," as defined below, or (ii) your resignation, within one year from the date you commence employment with the company. For purposes of this letter, "cause" shall mean: (i) Willful or gross misconduct or material failure in the performance of the duties commensurate with your position, other than any such failure resulting from your "disability" (as defined below), which misconduct or failure continues beyond 14 days after the Company notifies you, in writing, of the Company's finding of such misconduct or failure; or (ii) Conviction of or a plea of guilty or nolo contendre to a felony, or a crime of moral turpitude; or (iii) Fraud or personal dishonesty involving the Company's assets. Relocation. You will be eligible to participate in the relocation program for existing employees. As an alternative, in the event you choose not to relocate to the Dayton, Ohio area, the Company will provide you with a furnished one-bedroom apartment in Dayton up to $1,365 per month. Employee Benefits. You will be eligible to participate in the normal Dayton Superior benefits programs under the terms of the plan documents. For your medical and health benefits, the company will reimburse you monthly for private health and medical coverage (COBRA, etc.) until such time as you are eligible to participate in the Dayton Superior programs. Vacation. You will receive four (4) weeks of vacation each year. Your vacation for 2003 will be prorated. Drug Screen. This offer is contingent upon you passing a pre-employment drug screen. You should contact Doug Good at (937) 866-0711, extension 260, to arrange for this test. Mr. Peter Astrauskas, Page 3, August 13, 2003 Peter, I'm excited about you joining our team and look forward to working with you on the many challenges we will be facing in the future. Please sign the enclosed copy of this letter indicating your acceptance of these terms. Please fax the signed copy to my attention at (937) 428-9115 and return the original in the enclosed envelope. Sincerely, DAYTON SUPERIOR CORPORATION Stephen R. Morrey President and Chief Executive Officer SRM:ll Enclosures Accepted by: _________________________________ __________________ Peter Astrauskas Date EX-10.5 7 l03447aexv10w5.txt EXHIBIT 10.5 EXHIBIT 10.5 October 3, 2003 Mr. Peter Astrauskas 3034 E. Nance Street Mesa, AZ 85213-1644 Re: Amendment to Employment Agreement Dear Peter, This letter will serve as an amendment to the Employment Agreement between Dayton Superior Corporation and you dated August 13, 2003. The Employment Agreement is hereby amended as follows: 1. Dayton Superior will pay up to $1,000 per month towards your living expenses in Dayton, Ohio. The rental for an apartment will be paid directly by Dayton Superior, and all utilities associated with the apartment shall be paid by you, then reimbursed by Dayton Superior. 2. Dayton Superior will make a one-time payment to you of $4,000 to cover the cost of furniture, appliances, and other furnishings for the apartment in Dayton, Ohio. 3. Dayton Superior will pay up to $2,500 in moving expenses to move furniture and other personal items from your home in Mesa, Arizona to Dayton, Ohio. 4. Regarding your business travel on behalf of Dayton Superior, it shall be acceptable for you to travel to and from Phoenix, AZ, or to layover in Phoenix, AZ for a period of time, if the airfare is not significantly higher (i.e. less than 10%) than the comparable airfare to and from Dayton, Ohio. All other terms and conditions of the Employment Agreement shall remain in full force and effect. Please indicate your acceptance of these revised terms by signing below. DAYTON SUPERIOR CORPORATION Stephen R. Morrey President and Chief Executive Officer Agreed: __________________________ Peter Astrauskas EX-31.1 8 l03447aexv31w1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Stephen R. Morrey, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dayton Superior Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Dayton Superior Corporation as of, and for, the periods presented in this quarterly report; 4. Dayton Superior Corporation's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Dayton Superior Corporation and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dayton Superior Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of Dayton Superior Corporation's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this quarterly report any change in Dayton Superior Corporation's internal control over financial reporting that occurred during Dayton Superior Corporation's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Dayton Superior Corporation's internal control over financial reporting; and 5. Dayton Superior Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dayton Superior Corporation's auditors and the audit committee of Dayton Superior Corporation's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Dayton Superior Corporation's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Dayton Superior Corporation's internal control over financial reporting. November 10, 2003 /s/ Stephen R. Morrey Stephen R. Morrey President and Chief Executive Officer EX-31.2 9 l03447aexv31w2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Edward J. Puisis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Dayton Superior Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Dayton Superior Corporation as of, and for, the periods presented in this quarterly report; 4. Dayton Superior Corporation's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Dayton Superior Corporation and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Dayton Superior Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of Dayton Superior Corporation's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and c) disclosed in this quarterly report any change in Dayton Superior Corporation's internal control over financial reporting that occurred in Dayton Superior Corporation's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Dayton Superior Corporation's internal control over financial reporting; and 5. Dayton Superior Corporation's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Dayton Superior Corporation's auditors and the audit committee of Dayton Superior Corporation's board of directors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Dayton Superior Corporation's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Dayton Superior Corporation's internal control over financial reporting. November 10, 2003 /s/ Edward J. Puisis Edward J. Puisis Vice President and Chief Financial Officer EX-32.1 10 l03447aexv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 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 September 26, 2003 (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: November 10, 2003 /s/ Stephen R. Morrey Stephen R. Morrey President and Chief Executive Officer EX-32.2 11 l03447aexv32w2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward J. Puisis, 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 September 26, 2003 (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: November 10, 2003 /s/ Edward J. Puisis Edward J. Puisis Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----