-----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, Tn9RUboEJ5qDvKcgQ1OvIxKnnczkKmYjsdC0hBlRU4yuQ64Ej9XMtgjBhgsmkmb8 CocztANh/WPWnUU0L6p6ig== 0000950152-04-002493.txt : 20040330 0000950152-04-002493.hdr.sgml : 20040330 20040330142045 ACCESSION NUMBER: 0000950152-04-002493 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11781 FILM NUMBER: 04699944 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-K 1 l05622ae10vk.txt DAYTON SUPERIOR CORPORATION 10-K/FYE 12-31-03 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11781 DAYTON SUPERIOR CORPORATION (Exact name of registrant as specified in its charter) Ohio 31-0676346 (State of incorporation) (I.R.S. Employer Identification No.) 7777 Washington Village Dr. Suite 130 Dayton, Ohio 45459 (Address of principal executive office) Registrant's telephone number, including area code: (937) 428-6360 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Junior Subordinated Debentures Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] As of March 29, 2003, there were 4,554,827 common shares outstanding, all of which were privately held and not traded on a public market. As of June 30, 2003, none of the outstanding shares were held by non-affiliates. 1 In this Annual Report on Form 10-K, unless otherwise noted, the terms "Dayton Superior," "we," "us" and "our" refer to Dayton Superior Corporation and its subsidiaries. PART I ITEM 1. BUSINESS. AVAILABLE INFORMATION The Company files annual, quarterly, and current reports, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934. The public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports and information statements, and other information regarding issuers, including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. GENERAL 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 in terms of revenues. In many of our product lines, we believe we are the market leader in terms of revenues competing primarily in two segments of the construction industry: infrastructure construction, such as highways, bridges, utilities, water and waste treatment facilities and airport runways, and non-residential building, such as schools, stadiums, prisons, retail sites, commercial offices, hotels and manufacturing facilities. We derive our revenue from a mix of sales of consumable products (accessories, chemicals, etc.) and the sale and rental of engineered concrete forming equipment. Through our network of 26 service/distribution centers, we serve over 5,000 customers, comprised of independent distributors and a broad array of pre-cast concrete manufacturers, general contractors, subcontractors and metal fabricators. We sell most of our 21,000 products under well established, industry-recognized brand names, and manufacture the vast majority of these products "in-house." We believe that the breadth of our product offerings and national distribution network allow us to service the largest customer base in the industry by providing a "one-stop" alternative to our customers. We believe that none of our competitors can match our combination of product breadth and national reach. In addition, our nationwide customer base enables us to efficiently cross-sell our products and provides us with a platform from which we can broadly distribute newly developed and acquired product lines. Finally, our national customer base provides us with geographically dispersed sales, which can mitigate the effects of regional economic downturns. In an effort to reduce costs and enhance customer responsiveness, effective January 1, 2003, we reorganized our company from six autonomous manufacturing and sales divisions into two sales units ("CPG" and Symons) and a new product fulfillment unit (Supply Chain). CPG 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 CPG and Symons. 2 CONSTRUCTION PRODUCTS GROUP In terms of revenues, we believe that CPG is the leading North American supplier of: - CONCRETE ACCESSORIES, which are used for connecting forms for poured-in-place concrete walls, anchoring or bracing for walls and floors, supporting bridge framework and positioning steel reinforcing bars; and - WELDED DOWEL ASSEMBLIES, which are paving products used in the construction and rehabilitation of concrete roads, highways and airport runways to extend the life of the pavement. In addition, CPG supplies: - MASONRY PRODUCTS, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls; and - CHEMICALS, which can be used in conjunction with our construction products for various purposes including form release, bond breakers, curing compounds, liquid hardeners, sealers, water repellents, bonding agents, grouts and other uses related to the pouring and placement of concrete. SYMONS We believe we are the leading North American manufacturer, in terms of revenues, of concrete forming systems, which are 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. Symons both rents and sells its forms through a network of 16 company-operated distribution centers and through numerous third party distributors, some of whom also purchase accessories and chemicals from CPG. PRODUCTS Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. Most of our products are consumable, providing us with a source of recurring revenue. In addition, while our products represent a relatively small portion of a construction project's total cost, our products assist in ensuring the on-time, quality completion of those projects. We continually attempt to increase the number of products we offer by using engineers and product development teams to introduce new products and refine existing products. CPG. CPG manufactures and sells concrete accessories primarily under the Dayton/Richmond(R), Aztec(R) and BarLock(R) brand names, masonry products primarily under the Dur-O-Wal(R) brand name and paving products primarily under the American Highway Technology(R) name, but we also offer some paving products under the Dayton/Richmond(R) name. CPG PRODUCTS INCLUDE: - WALL-FORMING PRODUCTS. Wall-forming products include shaped metal ties and accessories that are used with modular forms to hold concrete in place when walls are poured at a construction site or are prefabricated off site. These products, which generally are not reusable, are made of wire or plastic or a combination of both materials. - BRIDGE DECK PRODUCTS. Bridge deck products are metal assemblies of varying designs used to support the formwork used by contractors in the construction and rehabilitation of bridges. - BAR SUPPORTS. Bar supports are non-structural steel, plastic, or cementitious supports used to position rebar within a horizontal slab or form to be filled with concrete. Metal bar 3 supports are often plastic or epoxy coated, galvanized or equipped with plastic tips to prevent creating a conduit for corrosion of the embedded rebar. - SPLICING PRODUCTS. Splicing products are used to join two pieces of rebar together while at a construction site without the need for extensive preparation of the rebar ends. - PRECAST AND PRESTRESSED CONCRETE CONSTRUCTION PRODUCTS. Precast and prestressed concrete construction products are metal assemblies of varying designs used in the manufacture of precast concrete panels and prestressed concrete beams and structural members. Precast concrete panels and prestressed concrete beams are fabricated away from the construction site and transported to the site. Precast concrete panels are used in the construction of prisons, freeway sound barrier walls, external building facades and other similar applications. Prestressed concrete beams use multiple strands of steel cable under tension embedded in concrete beams to provide rigidity and bearing strength, and often are used in the construction of bridges, parking garages and other applications where long, unsupported spans are required. - TILT-UP CONSTRUCTION PRODUCTS. Tilt-up construction products include a complete line of inserts, lifting hardware and adjustable beams used in the tilt-up method of construction, in which the concrete floor slab is used as part of a form for casting the walls of a building. After the cast walls have hardened on the floor slab, a crane is used to "tilt-up" the walls, which then are braced in place until they are secured to the rest of the structure. Tilt-up construction generally is considered to be a faster method of constructing low-rise buildings than conventional poured-in-place concrete construction. Some of our tilt-up construction products can be rented as well as sold. - FORMLINER PRODUCTS. Formliner products include plastic and elastomeric products that adhere to the inside face of forms to provide shape to the surface of the concrete. - CHEMICAL PRODUCTS. Chemical products sold by CPG include a broad spectrum of chemicals for use in concrete construction, including form release agents, bond breakers, curing compounds, liquid hardeners, sealers, water repellents, bonding agents, grouts and epoxies, and other chemicals used in the pouring and placement of concrete and curing compounds used in concrete road construction. - MASONRY PRODUCTS. Masonry products are wire products sold under the Dur-O-Wal(R) name that improve the performance and longevity of masonry walls by providing crack control, greater elasticity and higher strength to withstand seismic shocks and better resistance to rain penetration. - WELDED DOWEL ASSEMBLIES. Welded dowel assemblies are used to transfer dynamic loads between two adjacent slabs of concrete roadway. Metal dowels are part of a dowel basket design that is imbedded in two adjacent slabs to transfer the weight of vehicles as they move over a road. - CORROSIVE-PREVENTING EPOXY COATINGS. Corrosive-preventing epoxy coatings are used for infrastructure construction products and a wide range of industrial and construction uses. SYMONS. Symons manufactures, sells and rents reusable modular concrete forming systems primarily under the Symons(R) name. SYMONS PRODUCTS INCLUDE: - CONCRETE FORMING SYSTEMS. Concrete forming systems are reusable, engineered modular forms which hold liquid concrete in place on concrete construction jobs while it hardens. Standard forming systems are made of steel and plywood and are used in the creation of concrete walls and columns. Specialty forming systems consist primarily of steel forms that are designed to meet architects' specific needs for concrete placements. Both standard and specialty forming systems and related accessories are sold and rented for use. 4 - SHORING SYSTEMS. Shoring systems, including aluminum beams and joists, post shores and shoring frames are used to support deck and other raised forms while concrete is being poured. - ARCHITECTURAL PAVING PRODUCTS. Architectural paving products are used to apply decorative texture and coloration to concrete surfaces while concrete is being poured. - CONSTRUCTION CHEMICALS. Construction chemicals sold by the Symons business unit include form release agents, sealers, water repellents, grouts and epoxies and other chemicals used in the pouring, stamping and placement of concrete. MANUFACTURING We manufacture a substantial majority of the products we sell. As part of our reorganization effective January 1, 2003, we reorganized most of our manufacturing and distribution operations into Supply Chain, our new product fulfillment unit, which manufactures and distributes our products in support of CPG and Symons. CPG obtains the majority of the products it sells from the Supply Chain group and manufactures its chemicals product line. Symons obtains Steel-Ply(R) forms from the Supply Chain unit and manufactures and assembles or outsources some of the manufacturing involved in some of the other all-steel forms. Most of our CPG products are manufactured in 17 facilities throughout the United States. Our production volumes enable us to design and build or custom modify much of the equipment we use to manufacture these products, using a team of experienced manufacturing engineers and tool and die makers. By developing our own automatic high-speed manufacturing equipment, we believe we generally have achieved significantly greater productivity, lower capital equipment costs, lower scrap rates, higher product quality, faster changeover times, and lower inventory levels than most of our competitors. In addition, our ability to "hot-dip" galvanize masonry products provides us with an advantage over many competitors' manufacturing masonry wall reinforcement products, which lack this internal capability. We also have a flexible manufacturing setup and can make the same products at several locations using short and discrete manufacturing lines. We manufacture our Symons concrete forming systems at two facilities in the United States. These facilities incorporate semi-automated and automated production lines, heavy metal presses, forging equipment, stamping equipment, robotic welding machines, drills, punches, and other heavy machinery typical for this type of manufacturing operation. We are currently moving a significant percentage of our annual production requirements to Reynosa, Mexico. We believe that by relocating a portion of our manufacturing to Mexico, we will realize approximately $5 million in savings annually. We also intend to outsource some of our production requirements to lower cost foreign producers, which we believe will generate significant additional savings. DISTRIBUTION We distribute our products through over 1,100 independent distributors, and our own network of 26 service/distribution centers located in the United States and Canada. We have 10 distribution centers dedicated to our CPG business unit and 16 distribution centers dedicated to our Symons business unit. Some locations carry more than one of our product lines. We ship most of our products to our service/distribution centers from our manufacturing plants; however, a majority of our centers also are able to produce smaller batches of some products on an as-needed basis to fill rush orders. We have an on-line inventory tracking system for CPG, which enables our customer service representatives to identify, reserve and ship inventory quickly from any of our locations in response to telephone orders. 5 SALES AND MARKETING We employed approximately 280 sales and marketing personnel at December 31, 2003, of whom approximately two-thirds were field sales people and one-third were customer service representatives. Sales and marketing personnel are located in all of our service/distribution centers. We produce product catalogs and promotional materials that illustrate certain construction techniques in which our products can be used to solve typical construction problems. We promote our products through seminars and other customer education efforts and work directly with architects and engineers to secure the use of our products whenever possible. We consider our engineers to be an integral part of the sales and marketing effort. Our engineers have developed proprietary software applications to conduct extensive pre-testing on both new products and construction projects. CUSTOMERS We have over 5,000 customers, of which approximately 50% purchase our products for resale. Our customer base is geographically diverse, with no customer accounting for more than 3% of net sales in 2003. CPG. CPG has approximately 2,600 customers, consisting of distributors, rebar fabricators, precast and prestressed concrete manufacturers, brick and concrete block manufacturers, general contractors and sub-contractors. We estimate that approximately 85% of the customers of this business unit purchase our products for resale. The largest customer of the business unit accounted for approximately 5% of the business unit's 2003 net sales. CPG has instituted a certified dealer program for those dealers who handle our tilt-up construction products. This program was established to educate dealers in the proper use of our tilt-up products and to assist them in providing engineering assistance to their customers. Certified dealers are not permitted to carry other manufacturers' tilt-up products, which we believe are incompatible with ours and, for that reason, could be unsafe if used with our products. The business unit currently has 98 certified tilt-up construction product dealers. SYMONS. Symons has approximately 2,500 customers, consisting of distributors, precast and prestressed concrete manufacturers, general contractors and subcontractors. We estimate that approximately 90% of the customers of this business unit are the end-users of its products, while approximately 10% of those customers purchase its products for resale or re-rent. This business unit's largest customer accounted for 7% of the business unit's 2003 net sales. RAW MATERIALS Our principal raw materials are steel wire rod, steel hot rolled bar, metal stampings and flat steel, aluminum sheets and extrusions, plywood, cement and cementitious ingredients, liquid chemicals, zinc, plastic resins and injection-molded plastic parts. We currently purchase materials from over 600 vendors and are not dependent on any single vendor or small group of vendors for any significant portion of our raw material purchases. Steel, in its various forms, constitutes approximately 20% of our cost of sales. We are currently facing rising steel prices and a potential impending steel shortage. We have responded by increasing our sales prices in October 2003, January 2004, and March 2004 and will continue to announce pricing increases in response to rising steel costs. COMPETITION Our industry is highly competitive in most product categories and geographic regions. We compete with a limited number of full-line national manufacturers of concrete accessories, concrete forming systems and paving products, and a much larger number of regional manufacturers and manufacturers with limited product lines. We believe competition in our industry is largely based on, among other things, price, quality, breadth of product lines, distribution capabilities (including quick delivery times), and customer service. Due primarily to factors such as freight rates, quick delivery times 6 and customer preference for local suppliers, some local or regional manufacturers and suppliers may have a competitive advantage over us in a given region. We believe the size, breadth, and quality of our product lines provide us with advantages of scale in both distribution and production relative to our competitors. TRADEMARKS AND PATENTS We sell most products under the registered trade names Dayton Superior(R), Dayton/Richmond(R), Symons(R), Aztec(R), BarLock(R), Conspec(R), Edoco(R), Dur-O-Wal(R) and American Highway Technology(R), which we believe are widely recognized in the construction industry and, therefore, are important to our business. Although some of our products (and components of some products) are protected by patents, we do not believe these patents are material to our business. At December 31, 2003, we had approximately 200 trademarks and 140 patents. EMPLOYEES As of December 31, 2003, we employed approximately 700 salaried and 1,200 hourly personnel, of whom approximately 800 of the hourly personnel and 7 of the salaried personnel are represented by labor unions. Employees at our Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas; Tremont, Pennsylvania; Long Beach, California; Santa Fe Springs, California; City of Industry, California, and Aurora, Illinois manufacturing/distribution plants and our service/distribution center in Atlanta, Georgia are covered by collective bargaining agreements. We believe we have good employee and labor relations. SEASONALITY Our operations are seasonal in nature, with approximately 55% of our sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. BACKLOG We typically ship most of our products, other than paving products and most specialty forming systems, within one week and often within 24 hours after we receive the order. Other product lines, including paving products and specialty forming systems, may be shipped up to six months after we receive the order, depending on our customer's needs. Accordingly, we do not maintain significant backlog, and backlog as of any particular date has not been representative of our actual sales for any succeeding period. RISKS RELATED TO OUR BUSINESS CYCLICALITY OF CONSTRUCTION INDUSTRY--The construction industry is cyclical, and a continued significant downturn in the construction industry could further decrease our revenues and profits and adversely affect our financial condition. Because our products primarily are used in infrastructure construction and non-residential building, our sales and earnings are strongly influenced by construction activity, which historically has been cyclical. Construction activity can decline because of many factors we cannot control, such as: - - weakness in the general economy; - - a decrease in government spending at the federal and state levels; - - interest rate increases; and - - changes in banking and tax laws. 7 SUBSTANTIAL LEVERAGE--Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the exchange notes. We have a significant amount of indebtedness and debt service requirements. The following chart shows certain important credit statistics as of December 31, 2003: Total long-term indebtedness, including current maturities .... $341.8 million Shareholders' deficit ......................................... $ 7.3 million
Our substantial indebtedness could have important consequences. For example, it could: - - make it more difficult for us to satisfy our obligations under outstanding indebtedness; - - increase our vulnerability to general adverse economic and industry conditions; - - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes; - - limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; - - place us at a disadvantage to our competitors that have less debt; and - - limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds. In addition, failing to comply with those covenants could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations. In addition, we and our subsidiaries may be able to incur substantial additional indebtedness in the future under the terms of the indenture that will govern the notes, the senior subordinated notes, the senior credit facility and other indebtedness. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we, and they, now face could increase. NET LOSSES--Our business has experienced net losses over the past several periods. We reported net losses of approximately $20.3 million in 2002 and $17.1 million in 2003. Our results of operations will continue to be affected by events and conditions both within and beyond our control, including competition, economic, financial, business and other conditions. Therefore, we cannot assure you that we will not continue to incur net losses in the future. PRICE INCREASES AND AVAILABILITY--We may not be able to pass on the cost of commodity price increases to our customers. Steel, in its various forms, is our principal raw material, constituting approximately 20% of our cost of sales in 2003. Historically, steel prices have fluctuated and we are currently facing rising steel prices and a potential impending steel shortage. Any decrease in our volume of steel purchases could affect our ability to secure volume purchase discounts that we have obtained in the past. Additionally, the overall increase in energy costs, including natural gas and petroleum products, has adversely impacted our overall operating costs in the form of higher raw material, utilities, and freight costs. We cannot assure you we will be able to pass these cost increases on to our customers. WEATHER-RELATED RISKS--Weather causes our operating results to fluctuate and could adversely affect the demand for our products and decrease our revenues. Our operating results tend to fluctuate from quarter to quarter because, due to weather, the construction industry is seasonal in most of North America, which is where almost all of our sales are made. Demand for our products generally is higher in the spring and summer than in the winter and late fall. As a result, our first quarter net sales typically are the lowest of the year and we experience a net loss. Our net sales and operating income in the fourth quarter also generally are less than in the second and third quarters. In addition, severe weather could adversely affect our business, financial condition and results of operation. Adverse weather, such as unusually prolonged periods of cold or rain, blizzards, hurricanes and other severe weather patterns, 8 could delay or halt construction activity over wide regions of the country. For example, an unusually severe winter, such as the 2002-2003 winter, leads to reduced construction activity and magnifies the seasonal decline in our revenues and earnings during the winter months. Although weather conditions have not historically had a material long-term effect on our results of operations, sustained extreme adverse weather conditions could have a material adverse effect on our business, financial condition and results of operations. CHEMICAL PRODUCTS COMPETITION--We are significantly smaller than some of our construction chemical competitors. In the sale of some construction chemicals, we must compete with a number of national and international companies that are many times larger than we are in terms of total assets and annual revenues. Because our resources are more limited, we may not be able to compete effectively and profitably on a sustained basis in the markets in which those competitors are actively present. POTENTIAL EXPOSURE TO ENVIRONMENTAL LIABILITIES--We may be liable for costs under certain environmental laws, even if we did not cause any environmental problems. Changes in environmental laws or unexpected investigations could adversely affect our business. Our business and our facilities are subject to a number of federal, state and local environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of these materials. Pursuant to certain environmental laws, a current or previous owner or operator of land may be liable for the costs of investigation and remediation of hazardous materials at the property. These laws typically impose liability whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials. Persons who arrange (as defined under these statutes) for the disposal or treatment of hazardous materials also may be liable for the costs of investigation and remediation of these substances at the disposal or treatment site, regardless of whether the affected site is owned or operated by them. We believe we are in material compliance with applicable environmental laws. However, because we own and operate a number of facilities where industrial activities have been historically conducted and because we arrange for the disposal of hazardous materials at many disposal sites, we may incur costs for investigation and remediation, as well as capital costs associated with compliance with these laws. These environmental costs have not been material in the past and are not expected to be material in the future. Nevertheless, more stringent environmental laws as well as more vigorous enforcement policies or discovery of previously unknown conditions requiring remediation could impose material costs and liabilities on us, which could have a material adverse effect on our business, financial condition and results of operations. CONSOLIDATION OF OUR DISTRIBUTORS--Increasing consolidation of our distributors may negatively affect our earnings. We believe that there is an increasing trend among our distributors to consolidate into larger entities. As our distributors increase in size and market power, they may be able to exert pressure on us to reduce prices or create price competition by dealing more readily with our competitors. If the consolidation of our distributors does result in increased price competition, our sales and profit margins may be adversely affected. UNREALIZED COST SAVINGS--We may not realize or continue to realize the cost savings that we have achieved or anticipate achieving from our manufacturing cost improvement programs and company reorganization. Beginning in 2001, we implemented strategic initiatives designed to reduce our manufacturing costs, and beginning in the second half of 2002, we began to consolidate our operating divisions and eliminate redundant overhead expense. Our future cost savings expectations with respect to these initiatives are necessarily based upon a number underlying estimates and assumptions, which may or may not prove to be accurate. In addition, these underlying estimates and assumptions are subject to significant economic, competitive and other uncertainties that are beyond our control. INCREASED DEPENDENCE ON FOREIGN OPERATIONS--Political and economic conditions in Mexico could adversely affect us. Our manufacturing cost improvement programs have resulted in our moving a significant percentage of our annual production requirements to Reynosa, Mexico. The success of our operations in Mexico will depend on numerous factors, many of which will be beyond our control, including our inexperience with operating in Mexico or abroad, generally, general economic conditions, currency fluctuations, restrictions on the repatriation of assets, compliance with Mexican laws and standards and political risks. 9 PRODUCT MIX PROFIT MARGINS--A change in the mix of products we sell could negatively affect our earnings. Some of our products historically have had narrow profit margins. If the mix of products we sell shifts to include a larger percentage of products with narrow profit margins, our earnings may be negatively affected. RISKS ASSOCIATED WITH ACQUISITIONS--We may complete acquisitions that disrupt our business. If we make acquisitions, we could do any of the following, which could adversely affect our business, financial condition and results of operations: - - incur substantial additional debt, which may reduce funds available for operations and future opportunities and increase our vulnerability to adverse general economic and industry conditions and competition; - - assume contingent liabilities; or - - take substantial charges to write off goodwill and other intangible assets. In addition, acquisitions can involve other risks, such as: - - difficulty in integrating the acquired operations, products and personnel into our existing business; - - costs, which are greater than anticipated or cost savings, which are less than anticipated; - - diversion of management time and attention; and - - adverse effects on existing business relationships with our suppliers and customers and the suppliers and customers of the acquired business. COMPETITION--The markets in which we sell our products are highly competitive. We compete against some national and many regional rivals. The uniformity of products among competitors results in substantial pressure on pricing and profit margins. As a result of these pricing pressures, we may in the future experience reductions in the profit margins on our sales, or we may be unable to pass any cost increases on to our customers. We believe that our purchasing power, nationwide distribution network, marketing capabilities and manufacturing efficiency allow us to competitively price our products. We cannot assure you that we will be able to maintain or increase our current market share of our products or compete successfully in the future. CONTROL BY ODYSSEY--We are controlled by Odyssey Investment Partners, LLC. Odyssey and its co-investors indirectly own 92% of our outstanding common shares and, therefore, have the power, subject to certain exceptions, to control our affairs and policies. They also control the election of directors, the appointment of management, the entering into of mergers, sales of substantially all of our assets and other extraordinary transactions. The directors have authority, subject to the terms of our debt, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions about our capital stock. The interests of Odyssey and its affiliates could conflict with the interest of our note holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of the Odyssey investors, as holders of our equity, might conflict with the interests of our note holder. Affiliates of Odyssey may also have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though these transactions might involve risks to holders of our notes. RISKS ASSOCIATED WITH OUR WORKFORCE--We depend on our highly trained employees, and any work stoppage or difficulty hiring similar employees would adversely affect our business. We could be adversely affected by a shortage of skilled employees. As of December 31, 2003, approximately 40% of our employees were unionized. We are subject to several collective bargaining agreements with these employees. There are six collective bargaining agreement expiring in 2004, covering hourly employees at the Parsons, Kansas; Miamisburg, Ohio; Aurora, Illinois; Atlanta, Georgia; City of Industry, California, and Santa Fe Springs, California facilities. Although we believe that our relations with our employees are good, we cannot assure you that we will be able to negotiate a satisfactory renewal of 10 these collective bargaining agreements or that our employee relations will remain stable. Because we maintain a relatively small inventory of finished goods and operate on relatively short lead times for our products, any shortage of labor could have a material adverse effect on our business, financial condition and results of operations. DEPENDENCE ON KEY PERSONNEL--If we lose our senior management, our business may be adversely affected. The success of our business is largely dependent on our senior managers, as well as on our ability to attract and retain other qualified personnel. We cannot assure you that we will be able to attract and retain the personnel necessary for the development of our business. The loss of the services of key personnel or the failure to attract additional personnel as required could have a material adverse effect on our business, financial condition and results of operations. We do not currently maintain "key person" life insurance on any of our key employees. RESTRICTIVE COVENANTS--Our senior credit facility and our note indentures contain various covenants which limit the discretion of our management in the operation of our business including, among other things, our ability to: - - incur additional debt; - - pay dividends or distributions on our capital stock or repurchase our capital stock; - - enter into guarantees; - - issue preferred stock of subsidiaries; - - restrict the rights of our subsidiaries to make distributions to us; - - make certain investments; - - create liens to secure debt; - - enter into transactions with affiliates; - - merge or consolidate with another company; - - transfer and sell assets; - - change the terms of certain of our debt; and - - create new subsidiaries. In addition, if we fail to comply with our senior credit facility, our note indentures, or any other subsequent financing agreements, a default could occur. Such a default could allow the lenders, if the agreements so provide, to accelerate the related debt as well as any other debt to which a cross-acceleration or cross-default provision applies. In addition, the lenders could terminate any commitments they had made to supply us with further funds. 11 ITEM 2. PROPERTIES. Our corporate headquarters are located in leased facilities in Dayton, Ohio. We believe our facilities provide adequate manufacturing and distribution capacity for our needs. We also believe all of the leases were entered into on market terms. Our other principal facilities are located throughout North America, as follows:
Leased/ Size Lease Location Use Principal Business Unit Owned (Sq. Ft.) Expiration Date - --------------------- -------------------------- -------------------------- ------ ------- --------------- Birmingham, Alabama Manufacturing/Distribution Construction Products Group Leased 287,000 12/12/ 2021 Des Plaines, Illinois Manufacturing/Distribution Symons Owned 171,650 Miamisburg, Ohio Manufacturing/Distribution Construction Products Group Owned 126,000 Parsons, Kansas Manufacturing/Distribution Construction Products Group Owned 98,250 Aurora, Illinois Manufacturing/Distribution Construction Products Group Owned 109,000 Kankakee, Illinois Manufacturing/Distribution Construction Products Group Leased 107,900 12/31/2007 Tremont, Pennsylvania Manufacturing/Distribution Construction Products Group Owned 86,000 New Braunfels, Texas Manufacturing/Distribution Symons Owned 89,600 Fontana, California Manufacturing/Distribution Construction Products Group Leased 114,275 12/31/2007 Parker, Arizona Manufacturing/Distribution Construction Products Group Leased 60,000 Month to Month Modesto, California Manufacturing/Distribution Construction Products Group Leased 54,100 12/31/2007 Reynosa, Mexico Manufacturing/Distribution Construction Products Group Leased 110,000 07/16/2006 Atlanta, Georgia Service/Distribution Construction Products Group Leased 49,392 08/31/2006 Grand Prairie, Texas Service/Distribution Construction Products Group Leased 45,000 12/31/2004 Seattle, Washington Service/Distribution Construction Products Group Leased 40,640 06/30/2006 Toronto, Ontario Manufacturing/Distribution Construction Products Group Leased 45,661 01/31/2005 Oregon, Illinois Service/Distribution Construction Products Group Owned 39,000 Kansas City, Kansas Manufacturing/Distribution Construction Products Group Owned 33,000 Folcroft, Pennsylvania Service/Distribution Construction Products Group Owned 32,000
ITEM 3. LEGAL PROCEEDINGS. During the ordinary course of our business, we are from time to time threatened with, or may become a party to, legal actions and other proceedings. While we are currently involved in various legal proceedings, we believe the results of these proceedings will not have a material effect on our business, financial condition or results of operations. We believe that our potential exposure to these legal actions is adequately covered by product and general liability insurance, and, in some instances, by indemnification arrangements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. There is no established public trading market for our common shares. As of December 31, 2003, there were 35 holders of our common shares. On October 22, 2003, we sold 400 Common Shares to Peter J. Astrauskas at an aggregate price of $9,600 ($24.00 per share) in connection with the employment of Mr. Astrauskas as our Vice President, Engineering. 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. 12 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected historical consolidated financial information as of and for each of the years in the five-year period ended December 31, 2003. The selected historical financial information as of and for the years ended December 31, 1999 and 2000 has been derived from our consolidated financial statements, which were audited by Arthur Andersen LLP, our former independent public accountants. The selected historical financial information as of and for the years ended December 31, 2001, 2002, and 2003 have been derived from our consolidated financial statements, which have been audited by Deloitte & Touche LLP. Our audited consolidated financial statements for the three years ended December 31, 2003 are included elsewhere herein. You should read the following table together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section below and our restated consolidated financial statements and their related notes included elsewhere herein.
Year Ended December 31, ------------------------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales $ 377,854 $ 398,737 $ 415,491 $ 387,068 $ 322,170 Cost of sales 273,598 269,861 276,221 248,746 201,445 --------- --------- --------- --------- --------- Gross profit 104,256 128,876 139,270 138,322 120,725 Selling, general and administrative expenses 87,020 91,221 97,532 92,941 79,819 Facility closing and severance expenses (1) 2,294 5,399 7,360 2,517 - Amortization of goodwill and intangibles 944 603 3,912 2,508 2,369 --------- --------- --------- --------- --------- Income from operations 13,998 31,653 30,466 40,356 38,537 Interest expense 39,955 33,967 35,024 22,574 11,661 Lawsuit judgment - - - 15,341(2) - Loss on early extinguishment of long-term debt 2,480(4) - - 7,761(3) - Loss (gain) on disposals of property, plant and equipment (636) 1,115 (7) - - Other expense 20 80 102 293 230 --------- --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle (27,821) (3,509) (4,653) (5,613) 26,646 Provision (benefit) for income taxes (10,713) (386) (1,179) (1,478) 11,991 --------- --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle (17,108) (3,123) (3,474) (4,135) 14,655 Cumulative effect of change in accounting principle, net of income tax benefit - (17,140)(5) - - - --------- --------- --------- --------- --------- Net income (loss) (17,108) (20,263) (3,474) (4,135) 14,655 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit - - - 583 320 --------- --------- --------- --------- --------- Net income (loss) available to common shareholders $ (17,108) $ (20,263) $ (3,474) $ (4,718) $ 14,335 ========= ========= ========= ========= =========
13
Year Ended December 31, ----------------------------------------------------------- 2003 2002 2001 2000 1999 --------- --------- --------- --------- --------- (dollars in thousands) Other Financial Data: Depreciation and amortization $ 26,878 $ 21,453 $ 22,202 $ 15,121 $ 14,086 Property, plant and equipment additions, net 6,935 9,267 9,755 11,483 7,469 Rental equipment additions, net (12,152) (17,230) 3,191 801 4,052 Balance Sheet Data (at period end): Working Capital $ 71,594 $ 65,751 $ 56,943 $ 60,868 $ 50,469 Goodwill and Intangibles 119,932 115,733 136,626 97,044 75,522 Total Assets 393,384 373,971 396,843 335,418 278,679 Long-term debt (including current portion) 341,890 299,536 291,946 245,925 105,173 Convertible trust preferred securities - - - - 19,556 Shareholders' equity (deficit) (7,267) (4,241) 16,721 13,196 88,772
(1) From 2000 through 2003, we approved and implemented several plans to exit additional manufacturing and distribution facilities and reduce overall headcount to keep our cost structure aligned with our net sales. We describe the facility closing and severance expenses relating to these consolidation efforts in "Management's Discussion and Analysis of Financial Condition and Results of Operations--Facility Closing and Severance Expenses." (2) Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. In October 2000, Symons satisfied a judgment of $14.1 million, post-judgment interest of $1.1 million, and defense costs of $0.1 million, by payment to EFCO from our cash on hand and from our revolving credit facility. (3) During June 2000, in connection with the recapitalization, we refinanced our then-existing bank indebtedness. Additionally, the Dayton Superior Capital Trust, which held solely debentures, was dissolved. The company-obligated mandatorily redeemable convertible trust preferred securities converted to debentures having the right to receive cash in the amount of $22.00, plus accrued dividends, per preferred security. As a result we recorded a loss in 2000 of $7.8 million, comprised of the following: Expense deferred financing costs on previous long-term debt $ 2.7 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 0.5 Expense issuance costs on company-obligated mandatorily redeemable convertible trust Preferred securities 1.7 Prepayment premium on conversion of company-obligated mandatorily redeemable convertible trust preferred securities into debentures 2.1 Financing cost for unused long-term debt commitment 0.8 ----- $ 7.8 =====
This loss was recorded as an extraordinary loss in 2000 and subsequently was reclassified as an ordinary loss as a result of our adoption in 2003 of SFAS No. 145, "Rescission of FASB Statement Nos. 4,44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections." 14 (4) On June 9, 2003, we completed an offering of $165 million 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 $157 million and were used to repay our acquisition credit facility, term loan tranche A, term loan tranche B, and a portion of the revolving credit facility, which was subsequently increased by $24.4 million. As a result of the transactions, we incurred a loss on the early extinguishment of long-term debt of $2.5 million, due to the expensing of deferred financing costs. The Senior Notes are secured by substantially all assets of the Company. (5) We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in 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. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Founded in 1924, 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 in terms of revenues. Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. In 2001, we acquired Aztec Concrete Accessories, Inc., a manufacturer of plastic products for the construction industry, primarily in the Western United States. We also have expanded our business units through additional smaller acquisitions. 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. ("Safway Formwork") for $20.0 million. Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. In an effort to reduce costs and enhance customer responsiveness, effective January 1, 2003, we reorganized our company from six autonomous manufacturing and sales divisions into two sales units (CPG and Symons) and a new product fulfillment unit (Supply Chain). CPG 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 CPG and Symons. CPG. CPG derives its revenues from the sale of products primarily to independent distributors and contractors. CPG also provides some equipment on a rental basis. CPG 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 CPG 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 governmental infrastructure expenditures and their related bid processes. Due to the project-oriented nature of paving jobs, these products generally are made to order. 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, also 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 all-steel 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. SUPPLY CHAIN. As part of our reorganization, effective January 1, 2003, we reorganized most of our manufacturing and distribution operations into Supply Chain, our new product fulfillment unit, which manufactures and distributes our products in support of CPG and Symons. In addition to manufacturing 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 CPG to deliver many of its concrete accessories within 24 hours of a customer order. We are currently moving a significant percentage of our annual production requirements to Reynosa, Mexico. We believe that by relocating a portion of our manufacturing to Mexico, we will realize approximately $5 million in savings annually. We also intend to outsource some of our production requirements to lower cost foreign producers, which we believe will generate significant additional savings. For segment reporting purposes, we include Supply Chain within CPG. 16 SAFWAY FORMWORK 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. Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. 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 book value of the note at December 31, 2003 was $6.4 million. The face value 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 was due on December 31, 2003. The settlement of normal purchase price adjustments resulted in a $417,000 reduction in the December payment to $333,000. A subsequent purchase price adjustment of $240,000 was paid in March 2004. 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. The Company exercised its option to acquire additional rental equipment from Safway. The Company issued a non-interest bearing note with a present value of $1.6 million. The note is being accreted to the face value of $2.0 million using the effective interest method and is reflected as interest expense. Minimum payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and 2007, and $795,000 in 2008. Payments may be accelerated if certain revenue targets are met. Safway Formwork sold and rented concrete forming and shoring systems, principally European style products designed and manufactured by TK's affiliated European concrete forming and shoring business, to a national customer base. For the period from October 1, 2002 through July 25, 2003, Safway Formwork had revenues of $17.0 million. By acquiring the Safway Formwork rental fleet assets, which had a gross book value at July 25, 2003 of approximately $41.8 million, we expect to increase our presence in the concrete forming and shoring systems business and expand our product offerings by advancing our plan to continue augmenting Symons' existing rental fleet with European clamping systems. As part of the asset acquisition we entered into an exclusive manufacturing and distribution agreement with certain of TK's affiliates under which we were granted the exclusive right to manufacture, design, market, offer, sell and distribute certain European formwork products within the United States, Mexico and Canada. The acquisition has been accounted for as a purchase, and the results of Safway Formwork have been included in our consolidated financial statements from the date of acquisition. The purchase price has been allocated based on the fair value of the assets acquired and liabilities assumed. 17 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 years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- --------- -------- (AMOUNTS IN THOUSANDS) Balance, January 1, 2001 .................... $ 738 $ 540 $ - $ 575 $ 1,853 Facility closing and severance expenses ..... - - - - - Items charged against reserve ............... (738) (50) - (398) (1,186) -------- -------- -------- -------- -------- Balance, December 31, 2001 .................. - 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 ..... - (212) - - (212) Items charged against reserve ............... - (57) - (93) (150) -------- -------- -------- -------- -------- Balance, December 31, 2003 .................. $ - $ - $ - $ - $ - ======== ======== ======== ======== ========
During 2001, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- --------- -------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ..... $ 3,287 $ 685 $ - $ 786 $ 4,758 Items charged against reserve ............... (2,356) (161) - - (2,517) ------- ------- -------- ------- ------- Balance, December 31, 2001 .................. 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 ..... - 379 - - 379 Items charged against reserve ............... - (175) - (311) (486) ------- ------- -------- ------- ------- Balance, December 31, 2003 .................. $ - $ 414 $ - $ - $ 414 ======= ======= ======== ======= =======
The remaining lease termination costs are expected to be paid in 2004. 18 During 2002, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- --------- -------- (AMOUNTS IN THOUSANDS) 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 ..... 202 (11) - - 191 Items charged against reserve ............... (2,414) (73) - - (2,487) -------- -------- -------- -------- -------- Balance, December 31, 2003 .................. $ 200 $ - $ - $ - $ 200 ======== ======== ======== ======== ========
The remaining involuntary termination benefits are expected to be paid in 2004. During 2003, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- --------- -------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses .... $ 988 $ 27 $ - $ 921 $ 1,936 Items charged against reserve .............. (988) (27) - (921) (1,936) ------- ------- ------ ------- ------- Balance, December 31, 2003 ................. $ - $ - $ - $ - $ - ======= ======= ====== ======= =======
19 RESULTS OF OPERATIONS The following table summarizes our results of operations as a percentage of net sales for the periods indicated:
YEARS ENDED DECEMBER 31, 2003 2002 2001 ---- ---- ---- Product sales 79.9% 79.8% 80.8% Rental revenue 9.6 11.3 13.8 Used rental equipment sales 10.5 8.9 5.5 ----- ----- ----- Net sales 100.0 100.0 100.0 ----- ----- ----- Product cost of sales 78.5 74.5 74.3 Rental cost of sales 65.5 43.0 31.9 Used rental equipment cost of sales 32.2 38.4 37.7 ----- ----- ----- Cost of sales 72.4 67.7 66.5 ----- ----- ----- Product gross profit 21.5 25.5 25.7 Rental gross profit 34.5 57.0 68.1 Used rental equipment gross profit 67.8 61.6 62.3 ----- ----- ----- Gross profit 27.6 32.3 33.5 Selling, general and administrative expenses 23.0 22.9 23.5 Facility closing and severance expenses 0.6 1.4 1.8 Amortization of goodwill and intangibles 0.2 0.1 0.9 ----- ----- ----- Income from operations 3.7 7.9 7.3 Interest expense 10.6 8.5 8.4 Loss on early extinguishment of long-term debt 0.7 - - Loss (gain) on disposals of property, plant, and equipment (0.2) 0.3 - Other expense - - - ----- ----- ----- Income (loss) before provision (benefit) for income taxes (7.4) (0.9) (1.1) Provision (benefit) for income taxes (2.8) (0.1) (0.3) ----- ----- ----- Income (loss) before cumulative effect of change in accounting principle (4.5) (0.8) (0.8) Cumulative effect of change in accounting principle, net of income tax benefit - (4.3) - ----- ----- ----- Net income (loss) (4.5)% (5.1)% (0.8)% ===== ===== =====
20 COMPARISON OF YEARS ENDED DECEMBER 31, 2002 AND 2003 NET SALES. Our 2003 net sales were $377.9 million, a 5.2% decrease from $398.7 million in 2002. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2003 2002 ---------------------- ---------------------- (IN THOUSANDS) % SALES % SALES % CHANGE --------- ----- --------- ----- ------ Construction Products Group: Product sales $ 262,753 69.5% $ 278,473 69.8% (5.6)% Rental revenue 3,194 0.8 4,694 1.2 (32.0) Used rental equipment sales 4,403 1.2 4,085 1.0 7.8 --------- ---- --------- ---- Total Construction Products Group 270,350 71.5 287,252 72.0 (5.9) Symons: Product sales 60,936 16.1 60,773 15.2 0.3 Rental revenue 33,100 8.8 40,386 10.1 (18.0) Used rental equipment cost of sales 35,320 9.3 31,556 7.9 11.9 --------- ---- --------- ---- Total Symons 129,356 34.2 132,715 33.2 (2.5) Intersegment eliminations (21,852) (5.8) (21,230) (5.3) 2.9 --------- ---- --------- ---- Net sales $ 377,854 100.0% $ 398,737 100.0% (5.2)% ========= ===== ========= =====
CPG's sales decreased by 5.9% to $270.4 million in 2003 from $287.3 million in 2002. This decrease was due to unfavorable volume, as the construction products markets were weaker in 2003 compared to 2002. Symons' sales decreased by 2.5% to $129.4 million in 2003 from $132.7 million in 2002. Product sales increased 0.3% to $60.9 million from $60.8 million. Rental revenues decreased 18.0% to $33.1 million in 2003 from $40.4 million in 2002. The acquisition of Safway contributed $5.2 million of rental revenues in the five months after acquisition. This was offset by lower revenues in existing product lines, due to lower rental rates and, to a lesser extent, volume, both due to weaker markets. We estimate that approximately 80% of the decrease in rental revenues in existing product lines is due to rates. Symons' sales of used rental equipment increased 11.9% to $35.3 million from $31.6 million. Safway contributed $4.4 million with the remaining increase due to customers desiring to increase their own fleet of rental equipment. GROSS PROFIT. Gross profit for 2003 was $104.3 million, a $24.6 million decrease from the $128.9 million reported for 2002. Gross profit was 27.6% of sales in 2003, decreasing from 32.3% in 2002. Product gross profit was $64.8 million, or 21.5% of product sales, in 2003, compared to $81.2 million, or 25.5% of product sales in 2002. The decrease in percent of product sales was due to higher costs of steel of approximately $1.8 million, insurance and health care benefits of approximately $2.5 million, consistent with general market trends, and the impact of fixed costs on lower product sales. Rental gross profit decreased by $13.2 million to $12.5 million, or 34.5% of rental revenue, in 2003 from $25.7 million, or 57.0 % of rental revenue in 2002. Lower rental revenues of $8.8 million and higher depreciation expense of $4.5 million were the causes for the decline. Approximately $2.9 million of the higher depreciation expense was due to the acquisition of Safway. Gross profit on used rental equipment sales was $26.9 million, or 67.8% of used rental equipment sales, compared to $22.0 million, or 61.6% of used rental equipment sales, in 2002. The increase in percent of used rental equipment sales was due to older equipment with less net book value being sold. 21 OPERATING EXPENSES. Our selling, general, and administrative expenses decreased $4.2 million to $87.0 million in 2003 from $91.2 million in 2002, as a result of the cost reduction initiatives we implemented in 2003 and 2002, which more than offset the $3.3 million added by the acquisition of Safway. Facility closing and severance expenses in 2003 were approximately $2.3 million and approximately $5.4 million in 2002. Amortization of intangibles increased $0.3 million to $0.9 million in 2003 from $0.6 million in 2002, due to the amortization of intangibles acquired with Safway. OTHER EXPENSES. Interest expense increased to $40.0 million in 2003 from $34.0 million in 2002, due to higher interest rates on the new Senior Secured Notes and higher outstanding long-term debt balances in 2003. The gain on disposals of property, plant and equipment was $0.6 million in 2003, as compared to a loss of $1.1 million in 2002. The 2003 amount related to real estate disposed due to being redundant with an acquired Safway leased facility. The 2002 amount related to the write-off of certain assets that were disposed of in conjunction with our facility closing plans. LOSS BEFORE BENEFIT FOR INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The loss before income taxes and cumulative effect of change in accounting principle in 2003 was $27.8 million, as compared to $3.5 million in 2002, and was comprised of the following:
YEARS ENDED DECEMBER 31, ------------------------------ 2003 2002 ---------- ---------- (IN THOUSANDS) Construction Products Group $ 18,057 $ 28,265 Symons 20,733 27,076 Intersegment eliminations (11,695) (11,032) Corporate, including interest expense (54,916) (47,818) ---------- ---------- Loss before benefit for income taxes, and cumulative effect of change in accounting principle $ (27,821) $ (3,509) ========== ==========
CPG's income before provision for income taxes of $18.1 million in 2003 decreased from $28.3 million in 2002. Gross profit decreased by $13.0 million due to the unfavorable sales volume, and higher steel, insurance, and benefit costs discussed above. These were partially offset by the benefit of $2.4 million of selling, general, and administrative expenses from the cost reductions we implemented. All other items netted to a decrease in income of $0.3 million. Symons' income before income taxes was $20.7 million in 2003, compared to $27.1 million in 2002. This was due to lower gross profit of $9.2 million, primarily due to lower rental revenues from weaker markets in 2003 compared to 2002. These were partially offset by the benefit of lower selling, general, and administrative expenses of $3.0 million from the cost reduction initiatives we implemented. All other items netted to a decrease in income of $0.2 million. Corporate expenses increased to $54.9 million in 2003 from $47.8 million in 2002 primarily due to higher interest expense, which increased by $6.0 million. Elimination of gross profit on intersegment sales increased to $11.7 million in 2003 from $11.0 million in 2002 due to higher intersegment sales from more cross selling of products. LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The effective tax rate in 2003 was 38.5%, which is different from the statutory rate, primarily due to the state income taxes. The net loss before cumulative effect of change in accounting principle for 2003 was $17.1 million, compared to a loss of $3.1 million in 2002 due to the factors described above. 22 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in 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 or our cash flow. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill: NET LOSS. The net loss for 2003 was $17.1 million, compared to a loss of $20.3 million in 2002 due to the factors described above. COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2002 NET SALES. Our 2002 net sales were $398.7 million, a 4.0% decrease from $415.5 million in 2001. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2002 2001 ---------------------- ---------------------- (AS RESTATED) (IN THOUSANDS) % NET SALES % NET SALES % CHANGE --------- ----- --------- ----- ------ Construction Products Group $ 287,252 72.0% $ 296,365 71.3% (3.1)% Symons 132,715 33.3 140,168 33.7 (5.3) Intersegment eliminations (21,230) (5.3) (21,042) (5.0) 0.9 --------- ---- --------- ---- Net sales $ 398,737 100.0% $ 415,491 100.0% (4.0)% ========= ===== ========= =====
CPG's sales decreased by 3.1% to $287.3 million in 2002 from $296.4 million in 2001. This decrease was primarily due to unfavorable volume and pricing, as the construction products markets were weaker in 2002 compared to 2001. Symons' sales decreased by 5.3% to $132.7 million in 2002 from $140.2 million in 2001 due to unfavorable rental revenues and pricing, as the concrete forming systems markets were weaker in 2002 compared to 2001. GROSS PROFIT. Gross profit for 2002 was $128.9 million, a $10.4 million decrease from the $139.3 million reported for 2001. This was primarily due to the unfavorable volume and pricing discussed previously. In addition, a change in accounting estimate relating to the depreciable lives of a portion of the rental fleet reduced 2002 gross profit by $2.0 million. These were partially offset by the cost savings realized from the implementation of the 2001 and 2002 facility closing and headcount reduction plans. Gross profit was 32.3% of sales in 2002, decreasing from 33.5% in 2001. The decrease from 2001 was due to the unfavorable sales volume and pricing, a higher mix of lower gross profit paving products, a lower mix of higher gross profit Symons and concrete accessories products, a lower mix of higher gross profit rental revenues and higher medical and insurance costs. These were partially offset by a higher mix of sales of higher gross profit used rental fleet in the Symons segment, and the cost savings realized from the implementation of the 2001 and 2002 facility closing and headcount reduction plans. OPERATING EXPENSES. Our selling, general, and administrative expenses decreased $6.3 million to $91.2 million in 2002 from $97.5 million in 2001, as a result of the cost reduction initiatives we implemented in 2001 and 2002. Facility closing and severance expenses in 2002 were approximately $5.4 million and approximately $7.4 million in 2001. Amortization of goodwill and intangibles decreased $3.3 million to $0.6 million in 2002 from $3.9 million in 2001, due to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets." This statement 23 precludes amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. OTHER EXPENSES. Interest expense decreased to $34.0 million in 2002 from $35.0 million in 2001 primarily due to lower interest rates in 2002. The loss on disposals of property, plant and equipment was $1.1 million in 2002, which related to the write-off of certain assets that were disposed of in conjunction with our facility closing plans. LOSS BEFORE BENEFIT FOR INCOME TAXES, AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The loss before income taxes and cumulative effect of change in accounting principle in 2002 was $3.5 million, as compared to $4.7 million in 2001, and was comprised of the following:
YEARS ENDED DECEMBER 31, -------------------------------- 2002 2001 ---------- --------- (IN THOUSANDS) Construction Products Group $ 28,265 $ 29,315 Symons 27,076 31,324 Intersegment eliminations (11,032) (11,187) Corporate, including interest expense (47,818) (54,105) ---------- --------- Loss before benefit for income taxes, and cumulative effect of change in accounting principle $ (3,509) $ (4,653) ========== =========
CPG's income before provision for income taxes of $28.3 million in 2002 decreased from $29.3 million in 2001, due to the unfavorable sales volume and pricing. These were partially offset by the benefit of the cost reductions we implemented, lower amortization expense with the adoption of SFAS No. 142, and lower facility closing and severance expenses in 2002 compared to 2001. Symons' income before income taxes was $27.1 million in 2002, compared to $31.3 million in 2001. This was due to the decreased sales volume, unfavorable pricing and unfavorable mix of lower rental revenues due to weaker markets in 2002 compared to 2001. These were partially offset by the benefit of the cost reduction initiatives we implemented, and the increased sales of higher gross profit used rental fleet. Corporate expenses decreased to $47.8 million, including interest expense of $34.0 million, in 2002 from $54.1 million, including interest expense of $35.0 million, in 2001 due to lower facility closing and severance expenses, lower interest expense as a result of lower interest rates, and the benefit of the cost reduction initiatives we implemented. Elimination of gross profit on intersegment sales decreased to $11.0 million in 2002 from $11.1 million in 2001 due to the mix of intersegment sales. LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. The effective tax rate in 2002 was 11.0%, which is different from the statutory rate, primarily due to the unfavorable impact of permanent book/tax differences. The net loss before cumulative effect of change in accounting principle for 2002 was $3.1 million, compared to a loss of $3.5 million in 2001 due to the factors described above. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. We adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, we recorded a non-cash charge in 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 or our cash flow. 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. 24 The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill:
Years Ended December 31, 2002 2001 -------- -------- (In thousands) Net loss before cumulative effect of change in accounting principle, as reported $ (3,123) $ (3,474) Amortization of goodwill, net of tax benefit - 3,375 -------- -------- Net loss before cumulative effect of change in accounting principle, as adjusted $ (3,123) $ (99) ======== ========
NET LOSS. The net loss for 2002 was $20.3 million, compared to a loss of $3.5 million in 2001 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 our 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 generated from operations, borrowings under our revolving credit facility and the issuance of long-term debt and equity. Net cash used in operating activities for 2003 and 2002 was $32.5 million and $17.3 million, respectively. Net loss after non-cash adjustments for 2003 was $22.4 million compared to net income of $3.0 million in 2002. This was due to the higher loss before cumulative effect of change in accounting principle in 2003 and the benefit for income taxes in 2003 being primarily non-cash deferred. Changes in assets and liabilities resulted in a use of cash of $10.1 million in 2003 compared to $20.3 million in 2002. This was attributed to smaller growth in accounts receivable in 2003 and the timing of income tax refunds received. Net cash used in investing activities for 2003 was $8.1 million. Our investing activities consisted of net proceeds from the sale of fixed assets and rental equipment of $5.2 million in 2003, compared $8.0 million in 2002. In addition, our investing activities in 2003 consisted of the acquisition of Safway Formwork Systems LLC, which resulted in a use of cash in the amount of $13.7 million. Our capital expenditures in 2003 included additions to the rental fleet of $27.6 million and net property, plant, and equipment additions of $6.9 million, offset by $39.7 million of proceeds from sales of rental equipment. As of December 31, 2003, our long-term debt consisted of the following: Revolving credit facility, weighted average interest rate of 5.2% $ 24,375 Senior Subordinated Notes, interest rate of 13.0% 154,729 Debt discount on Senior Subordinated Notes (8,514) Senior Second Secured Notes, interest rate of 10.75% 165,000 Debt discount on Senior Second Secured Notes (7,454) Senior Unsecured Note payable to seller of Safway, non-interest bearing, accreted at 14.5% 7,999 Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand 1,110 Capital lease obligations 4,590 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 55 --------- Total long-term debt 341,890 Less current maturities (3,067) --------- Long-term portion $ 338,823 =========
25 At December 31, 2003, of the $50.0 million revolving credit facility that was available to us, $24.4 million of borrowings were outstanding, along with $7.0 million of letters of credit, with the remaining $18.6 million available for borrowing. Our long-term debt borrowings, net of repayments for the year ended December 31, 2003 were $28.6 million. We incurred $1.9 million of financing costs primarily related to the issuance of the Senior Secured Notes. The Company may, from time to time, seek to retire its outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. At December 31, 2003, working capital was $71.6 million, compared to $65.8 million at December 31, 2002. Accounts receivable increased by $3.7 million due to higher fourth quarter net sales. Inventories increased $1.5 million from 2002 to 2003. Raw materials declined $6.4 million due to the timing of receipts and work in process and finished goods increased $7.9 million due to support of the implementation of our manufacturing rationalization plan. Prepaid expenses and other current assets decreased $2.4 million from 2002 to 2003 due to the timing of insurance payments. Prepaid income taxes and future income tax benefits combined decreased $3.9 million due to the cash refunds from the carryback of our 2002 tax losses. Accounts payable decreased from 2002 due to lower raw material purchases in the fourth quarter of 2003, and by decreasing the payment time on steel purchases in exchange for discounts. Accrued liabilities in total increased $1.7 million from 2002 to 2003. Accrued interest increased $4.1 million due to the timing of required interest payments on the $165.0 million Senior Second Secured Notes. This was partially offset by the lower accrual for retirement contributions as the Company suspended contributions for service rendered in 2003. In addition, required accruals have decreased in conjunction with the lower net sales volumes and the reductions in number of facilities and headcount as a result of our facility closing and severance plans. On June 9, 2003 we completed an offering of $165.0 million of 10.75% Senior Second Secured Notes due 2008. The proceeds of the offering, $159.0 million, net of discounts, were used to repay acquisition credit facility, term loan tranche A, term loan tranche B and a portion of the revolving credit facility. Also in June 2003, we repurchased $15.3 million in principal amount of our senior subordinated notes for $14.3 million with borrowings under our revolving credit facility. The Senior Second Secured Notes are secured by substantially all assets of the Company. On January 30, 2004, we established an $80 million senior secured revolving credit facility, which was used to refinance our previous $50 million revolving credit facility. The new credit facility has no financial covenants and is subject to availability under a borrowing base calculation. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10 million. As of January 30, 2004, all $80 million was available under the facility. The credit facility is secured by substantially all assets of the Company. 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. 26 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. Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. 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 book value of the note at December 31, 2003 was $6.4 million. The face value 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 was due on December 31, 2003. The settlement of normal purchase price adjustments resulted in a $417,000 reduction in the December payment to $333,000. A subsequent purchase price adjustment of $240,000 was paid in March 2004. 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. The Company exercised its option to acquire additional rental equipment from Safway. The Company issued a non-interest bearing note with a present value of $1.6 million. The note is being accreted to the face value of $2.0 million using the effective interest method and is reflected as interest expense. Minimum payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and 2007, and $795,000 in 2008. Payments may be accelerated if certain revenue targets are met. We believe our liquidity, capital resources and cash flows from operations are sufficient, in the absence of additional acquisitions, to fund the capital expenditures we have planned and our working capital and debt service requirements. 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 subordinated notes and the senior second secured notes, on commercially reasonable terms or at all. 27 COMMITMENTS Certain purchase commitments contain guaranteed purchase levels with vendors. The maximum potential future payout is reflected in the purchase obligations column and there are no guaranteed purchase levels in excess of what the Company intends to purchase in the normal course of business. Our Management Stockholders' Agreement states that, upon termination of the employment of a management stockholder, the management stockholder has certain put rights, and the Company has certain call rights, with respect to the stockholder's common stock. See discussion of Management Stockholders' Agreement in Item 11. Scheduled payments of long-term debt, future minimum lease payments under capital leases, future lease payments under non-cancelable operating leases, purchase obligations, and other long-term liabilities at December 31, 2003 were as follows:
Other Long- Long-term Capital Operating Purchase Term Year Debt Leases Leases Obligations Liabilities Total - ---------- -------- -------- --------- ----------- ----------- -------- 2004 $ 1,523 $ 1,514 $ 5,749 $ 798 $ 5,407 $ 14,991 2005 196 1,392 5,016 792 50 7,446 2006 24,763 965 3,588 792 50 30,158 2007 418 772 2,460 792 - 4,442 2008 171,639 664 1,353 - 173,656 Thereafter 154,729 127 7,300 - 162,156 -------- -------- -------- -------- -------- -------- $353,268 $ 5,434 $ 25,466 $ 3,174 $ 5,507 $392,849 ======== ======== ======== ======== ======== ========
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 may not be able to pass on the cost of commodity price increases to our customers. Steel, in its various forms, is our principal raw material, constituting approximately 20% of our cost of sales in 2003. Historically, steel prices have fluctuated and we are currently facing rising steel prices and a potential impending steel shortage. Any decrease in our volume of steel purchases could affect our ability to secure volume purchase discounts that we have obtained in the past. Additionally, the overall increase in energy costs, including natural gas and petroleum products, has adversely impacted our overall operating costs in the form of higher raw material, utilities, and freight costs. We cannot assure you we will be able to pass these cost increases on to our customers. STOCK COLLATERAL VALUATION - SENIOR SECOND SECURED NOTES Rule 3-16 of the SEC's Regulation S-X requires the presentation of a subsidiary's stand-alone, audited financial statements if the subsidiary's capital stock secures an issuer's notes and the par value, book value or market value ("Applicable Value") of the stock equals or exceeds 20% of the aggregate principal amount of the secured class of securities the ("Collateral Threshold.") The indenture governing our Senior Second Secured Notes and the security documents for the notes provide that the collateral will never include the capital stock of any subsidiary to the extent the Applicable Value of the stock is equal to or greater than the Collateral Threshold. As a result, we will not be required to present separate financial statements of any of our subsidiaries under Rule 3-16. In addition, in the event that Rule 3-16 or Rule 3-10 of Regulation S-X is amended, modified or interpreted by the SEC to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other governmental agency) of separate financial statements of 28 any of our subsidiaries due to the fact that such subsidiary's capital stock or other securities secure our Senior Second Secured Notes, then the capital stock or other securities of such subsidiary automatically will be deemed not to be part of the collateral for the notes but only to the extent necessary to not be subject to such requirement. In such event, the security documents for the Senior Second Secured Notes may be amended or modified, without the consent of any holder of notes, to the extent necessary to release the liens of the Senior Second Secured Notes on the shares of capital stock or other securities that are so deemed to no longer constitute part of the collateral; however, the excluded collateral will continue to secure our first priority lien obligations such as our senior secured revolving credit facility. As a result of the provisions in the indenture and security documents relating to subsidiary capital stock, holders of our Senior Second Secured Notes may at any time in the future lose all or a portion of their security interest in the capital stock of any of our other subsidiaries if the Applicable Value of that stock were to become equal to or greater than the Collateral Threshold. As of December 31, 2003, all of the capital stock of our subsidiaries Dur-O-Wal, Inc., Trevecca Holdings, Inc., Dayton Superior Specialty Chemical Corp., Aztec Concrete Accessories, Inc. and Southern Construction Products, Inc. and 65% of the voting capital stock and 100% of the non-voting capital stock of our subsidiary Dayton Superior Canada Ltd. constitute collateral for the notes. The capital stock of our subsidiary, Symons Corporation, does not currently constitute collateral for the notes, since the Applicable Value of the capital stock of Symons Corporation equals or exceeds the Collateral Threshold. The Applicable Value of the capital stock of each of Dayton Superior Specialty Chemical Corp., Aztec Concrete Accessories, Inc. and Trevecca Holdings, Inc. (the direct, holding company parent of Aztec Concrete Accessories, Inc.) is currently near the Collateral Threshold. We have based our determination of which subsidiary's capital stock currently constitutes collateral upon the book value, par value and estimated market value of the capital stock of each of our subsidiaries as of December 31, 2003. The Applicable Value for the capital stock of each of our subsidiaries is the greater of the book value and estimated market value, as the value of each subsidiary's capital stock is nominal and therefore has not impacted our calculation of Applicable Value. Set forth in the table below is the Applicable Value of each subsidiary's capital stock as of December 31, 2003:
Subsidiary Applicable Value as of 12/31/2003 - --------------------------------------- --------------------------------- Symons Corporation $ 112,682 Aztec Concrete Accessories, Inc. 30,756 Dur-O-Wal, Inc. 6,908 Trevecca Holdings, Inc. (1) 30,756 Dayton Superior Specialty Chemical Corp. 29,150 Southern Construction Products, Inc. (2) - Dayton Superior Canada Ltd. 5,223
(1) Trevecca Holdings, Inc. is a holding company, the sole asset of which has remained the capital stock of Aztec Concrete Accessories, Inc. since we acquired Trevecca Holdings and Aztec Concrete Accessories in January 2001. (2) Southern Construction Products, Inc. is currently an inactive corporation with no assets. Based upon the foregoing, as of December 31, 2003, the Applicable Value of the capital stock of Symons Corporation exceeded the Collateral Threshold. As a result, the capital stock of Symons Corporation is not currently included in the Collateral. The Applicable Value of the capital stock of our other subsidiaries did not exceed the Collateral Threshold as of December 31, 2003. In respect of Aztec Concrete Accessories, Inc., Trevecca Holdings, Inc., and Dayton Superior Specialty Chemical Corp., the Applicable Value of their common stock was based upon book value. Book value of a subsidiary's capital stock is calculated as of each preceding period end and represents the original purchase price of the subsidiary's capital stock plus any income earned and less any losses and any transfers of assets. In respect of Symons Corporation, Dur-O-Wal, Inc., and Dayton Superior Canada Ltd, the Applicable Value of their common stock was based upon estimated market value. We have calculated the 29 estimated market value of our subsidiaries' capital stock by determining the earnings before interest, taxes, depreciation, and amortization, or EBITDA, of each subsidiary for the twelve months ended December 31, 2003, adjusted in each case to add back facility closing and severance expenses, loss on sale of fixed assets and other expense, and multiplied this adjusted EBITDA by 5.5 times. We retain an independent appraisal firm for purposes of calculating the market value of our common stock on a going concern basis, as required under our Management Stockholders' Agreement and in connection with determining equity-based compensation. The appraisal firm has informed us that a range of 5 to 6 times adjusted EBITDA is reasonable for determining the fair value of the capital stock of smaller, basic manufacturing companies. We determined that using a multiple of 5.5 times, which is the mid-point of the range described above, is a reasonable and appropriate means for determining fair value of our subsidiaries' capital stock. Set forth below is the adjusted EBITDA of each of our subsidiaries other than Southern Construction Products, Inc. (which has no adjusted EBITDA) for the twelve months ended December 31, 2003, together with a reconciliation to the net income (loss) of each of these subsidiaries:
DAYTON SUPERIOR DAYTON SYMONS AZTEC CONCRETE DUR-O-WAL, TREVECCA SPECIALTY SUPERIOR CORPORATION ACCESSORIES, INC. INC. HOLDINGS, INC. CHEMICAL CORP. CANADA LTD. ----------- ----------------- --------- -------------- --------------- ----------- Net Income $ 150 $ 2,970 $ 396 $ 2,970 $ 1,623 $ 357 Provision for Income Taxes 94 1,859 248 1,859 1,016 224 Other (Income) Expense (84) - - - 110 316 Interest Expense 323 - - - - - Income from Operations 483 4,830 644 4,830 2,748 896 Facility Closing and Severance Expenses 569 - - - 96 - Depreciation Expense 18,785 591 612 591 799 53 Amortization of Intangibles 651 - - - - - --------- --------- --------- --------- --------- --------- Adjusted valuation EBITDA 20,488 5,421 1,256 5,421 3,644 950 Multiple 5.5 5.5 5.5 5.5 5.5 5.5 --------- --------- --------- --------- --------- --------- Estimated Fair Value $ 112,682 $ 29,814 $ 6,908 $ 29,814 $ 20,042 $ 5,223 ========= ========= ========= ========= ========= =========
As described above, we have used EBITDA and adjusted EBITDA of each of our subsidiaries solely for purposes of determining the estimated market value of their capital stock to determine whether that capital stock is included in the collateral. EBITDA and adjusted EBITDA are not recognized financial measures under generally accepted accounting principles and do not purport to be alternatives to operating income as indicators of operating performance or to cash flows from operating activities as measures of liquidity. Additionally, EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our consolidated results as reported under generally accepted accounting principles. Because not all companies use identical calculations, the presentation of adjusted EBITDA also may not be comparable to other similarly titled measures of other companies. You are encouraged to evaluate the adjustments taken and the reasons we consider them appropriate for analysis for determining estimated market value of our subsidiaries' capital stock. A change in the Applicable Value of the capital stock of any of our subsidiaries could result in a subsidiary's capital stock that was previously excluded from collateral becoming part of the collateral or a subsidiary's capital stock that was previously included in collateral to become excluded. The following table reflects the amounts by which the Applicable Value of each subsidiary's capital stock as of December 31, 2003 and the adjusted EBITDA of each subsidiary for the twelve months ended December 31, 2003 would have to increase in order for that subsidiary's capital stock to no longer constitute collateral or, in the case of Symons Corporation, would have to decrease in order for the capital stock of Symons Corporation to become collateral: 30
Change in Applicable Change in Adjusted Subsidiary Value EBITDA - --------------------------------------- -------------------- ------------------ Symons Corporation $(79,681) $(14,488) Aztec Concrete Accessories, Inc. 2,245 580 Dur-O-Wal, Inc. 26,093 4,744 Trevecca Holdings, Inc. 2,245 580 Dayton Superior Specialty Chemical Corp. 3,851 2,356 Southern Construction Products, Inc. - - Dayton Superior Canada Ltd. 27,778 5,050
CRITICAL ACCOUNTING POLICIES In preparing our consolidated financial statements, we follow accounting principles generally accepted in the United States. 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. On an on-going basis, we evaluate our estimates, including those related to allowance for doubtful accounts, inventories, investments, long-lived assets, income taxes, insurance reserves, restructuring liabilities, environmental contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. INVENTORIES We value all inventories at the lower of first-in, first-out, or FIFO, cost or market and includes all costs directly associated with manufacturing products: materials, labor and manufacturing overhead. We provide net realizable value reserves, which reflect our best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value. RENTAL EQUIPMENT We manufacture rental equipment for resale and for rent to others on a short-term basis. We record rental equipment at the lower of FIFO cost or market and it is depreciated over the estimated useful life of the equipment, three to fifteen years, on a straight-line method. Rental equipment that is sold is also treated on a FIFO basis. INCOME TAXES We have generated deferred tax assets or liabilities due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance against deferred tax assets at the balance sheet date is not considered necessary because it is more likely than not the deferred tax assets will be fully realized. We record liabilities relating to income taxes utilizing known obligations and estimates of potential obligations. REVENUE RECOGNITION Revenue is recognized from product sales when the product is shipped from our facilities and risk of loss and title have passed to the customer. Additionally, revenue is recognized at the customer's written request and when the customer has made a fixed commitment to purchase goods on a fixed schedule consistent with the customer's business, where risk of ownership has passed to the buyer, the goods are set-aside in storage and the Company does not retain any specific performance obligations such that the earning process is not complete. For transactions where such conditions are not satisfied, revenue is deferred until the terms of acceptance are satisfied. On rental equipment sales, revenue is recognized and recorded on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. 31 INSURANCE RESERVES We are self-insured for certain of our group medical, workers' compensation and product and general liability claims. We have stop loss insurance coverage at various per occurrence and per annum levels depending on type of claim. We consult with third party administrators to estimate the reserves required for these claims. Actual claims experience can impact these calculations and, to the extent that subsequent claim costs vary from estimates, future earnings could be impacted and the impact could be material. We made no material revisions to the estimates for the years ended December 31, 2003, 2002 and 2001. PENSION LIABILITIES Pension and other retirement benefits, including all relevant assumptions required by accounting principles generally accepted in the United States of America, are evaluated each year. Due to the technical nature of retirement accounting, outside actuaries are used to provide assistance in calculating the estimated future obligations. Since there are many assumptions used to estimate future retirement benefits, differences between actual future events and prior estimates and assumptions could result in adjustments to pension expense and obligations. Certain actuarial assumptions, such as the discount rate and expected long-term rate of return, have a significant effect on the amounts reported for net periodic pension cost and the related benefit obligations. ACCOUNTS RECEIVABLE ALLOWANCE We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required. OTHER LOSS RESERVES We have other loss exposures, such as facility closing and severance liabilities and litigation. Establishing loss reserves for these matters requires us to estimate and make judgments in regards to risk exposure and ultimate liability. We establish accruals for these exposures; however, if our exposure exceeds our estimates we could be required to record additional charges. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS 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. The adoption of this pronouncement in 2003 resulted in the classification in 2003 of the loss on the early extinguishment of long-term debt as other expense. In July 2002, the FASB issued Statement of 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. Statement 146 is to be applied prospectively to exit or disposal activities initiated 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 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 32 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. The Company does not believe this pronouncement will have a material impact on its consolidated financial position, results of operations, or cash flows. 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 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 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 2003, FASB issued a revised interpretation of FIN No. 46, "FIN No. 46-R." This supercedes Fin No. 46 and clarifies and expands current accounting guidance for variable interest entities. Fin No. 46 and Fin No. 46-R are effective immediately for all variable interest entities created after January 31, 2003, and for variable interest entities created prior to February 1, 2003, no later than the end of the first reporting period after March 15, 2004. We have not utilized such entities and therefore the adoption of Fin No. 46 and FIN No. 46-R had no effect on our consolidated financial statements. In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises the disclosures required for pension plans and other postretirement benefit plans. The company adopted this revised statement effective December 31, 2003. See Note 6 to the consolidated financial statements for the revised disclosures. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition, corrected copy". This bulletin revises or rescinds portions of the previous interpretive guidance included in Topic 13 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance related to revenue recognition. The adoption of SAB No. 104 did not have a material impact on the Company's consolidated financial statements. 33 FORWARD-LOOKING STATEMENTS This Form 10-K includes, and future filings by us on Form 10-K, Form 10-Q, and Form 8-K, and future oral and written statements by us and our management may include certain forward-looking statements, including (without limitation) statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestitive opportunities and other similar forecasts and statements of expectation. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and "should," and variations of these words and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements by 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, our ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (our principal raw material) and our ability to pass along such price increases to our customers; the effects of weather and seasonality on the construction industry; increasing consolidation of our customers; the mix of products we sell; the competitive nature of our industry; and the amount of debt we must service. This list is not intended to be exhaustive, and additional information can be found under "Risks Related to Our Business" in Part I of this annual report on Form 10-K. 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. 34 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of December 31, 2003, we had financial instruments, which were sensitive to changes in interest rates. These financial instruments consist of: - $50 million revolving credit facility, $24.4 million of which was outstanding at December 31, 2003; - $154.7 million of Senior Subordinated Notes; - $165.0 million of Senior Second Secured Notes; - $8.0 million Senior Unsecured Note payable to seller of Safway - $4.6 million in capital lease obligations - $1.2 million in other fixed-rate, long-term debt. Our $50,000 revolving credit facility was due to mature in June 2006. The credit facility has several interest rate options that reprice on a short-term basis. At December 31, 2003, the Company had outstanding letters of credit of $7,000 and available borrowings of $18,625 under its $50,000 revolving credit facility. The weighted average interest rate as of December 31, 2003 was 5.2%. The credit facility was secured by substantially all assets of the Company. Our $154.7 million of senior subordinated notes mature in June 2009. The notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The net book value of the notes at December 31, 2003 was $146.2 million. The notes were issued with warrants that allow the holder to purchase 117,276 of the Company's Class A Common Shares for $0.01 per share. The senior subordinated notes have an interest rate of 13.0%. The estimated fair value of the notes is $134.6 million as of December 31, 2003. Our $165.0 million of senior second secured notes mature in June 2008. 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 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 $24,375. As a result of the transactions, the Company incurred a loss on the early extinguishment of long-term debt of $2,550, due to the expensing of deferred financing costs. The net book value of the notes at December 31, 2003 was $157.6 million. The senior second secured notes have an interest rate of 10.75%. The estimated fair value of the notes is $169.1 million as of December 31, 2003. 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 Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. 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 value 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 was due on December 31, 2003. The settlement of normal purchase price adjustments resulted in a $417,000 reduction in the December payment to $333,000. A subsequent purchase price adjustment of $240,000 was paid in March 2004. 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. The book value of the note at December 31, 2003 was $6.4 million. 35 The Company exercised its option to acquire additional rental equipment from Safway. The Company issued a non-interest bearing note with a present value of $1.6 million. The note is being accreted to the face value of $2.0 million using the effective interest method and is reflected as interest expense. Minimum payments on the note are $199,000 in 2004 and 2005, $397,000 in 2006 and 2007, and $795,000 in 2008. Payments may be accelerated if certain revenue targets are met. Our other long-term debt at December 31, 2003 consisted of $1.1 million of 9.1% junior subordinated debentures previously held by the Dayton Superior Capital Trust with an estimated fair value of $1.7 million, and a $0.1 million, 7% loan due in annual installments of $31,500 per year with an estimated fair value as of December 31, 2003 of $0.1 million. In the ordinary course of our business, we also are exposed to price changes in raw materials (particularly steel rod and steel bar) 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, however, use financial instruments to manage our exposure to changes in commodity prices. 36 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Dayton Superior Corporation We have audited the accompanying consolidated balance sheets of Dayton Superior Corporation (an Ohio corporation) and Subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related statements of operations, shareholders' deficit, cash flows, and comprehensive loss for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed at item 15(a)(2). These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to adopt Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." DELOITTE & TOUCHE LLP Dayton, Ohio March 26, 2004 37 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2003 2002 ---------- ---------- ASSETS Current assets: Cash $ 1,995 $ 2,404 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $4,939 and $4,861 64,849 61,165 Inventories (Note 3) 49,437 47,911 Prepaid expenses and other current assets 4,610 7,054 Prepaid income taxes 956 4,009 Deferred income taxes (Note 7) 5,368 6,194 ---------- ---------- Total current assets 127,215 128,737 ---------- ---------- Rental equipment, net of accumulated depreciation of $27,794 and $24,181 78,042 63,160 ---------- ---------- Property, plant and equipment (Note 3) Land and improvements 5,457 5,536 Building and improvements 30,621 26,268 Machinery and equipment 77,288 72,042 ---------- ---------- 113,366 103,846 Less accumulated depreciation (51,128) (42,600) ---------- ---------- Net property, plant and equipment 62,238 61,246 ---------- ---------- Goodwill 110,308 107,328 Intangible assets, net of accumulated amortization (Note 3) 10,532 8,405 Other assets 5,049 5,095 ---------- ---------- Total assets $ 393,384 $ 373,971 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Current portion of long-term debt (Note 4) $ 3,067 $ 6,991 Accounts payable 20,526 25,667 Accrued compensation and benefits 19,704 20,948 Other accrued liabilities 12,324 9,380 ---------- ---------- Total current liabilities 55,621 62,986 Long-term debt (Note 4) 338,823 292,545 Deferred income taxes (Note 7) - 11,919 Other long-term liabilities 6,207 10,762 ---------- ---------- Total liabilities 400,651 378,212 ---------- ---------- Commitments and contingencies (Note 9) Shareholders' equity (deficit) Class A common shares; no par value; 5,000,000 shares authorized; 4,591,016 and 4,046,907 shares issued and 4,554,269 and 4,010,160 shares outstanding 115,951 102,525 Loans to shareholders (2,729) (2,878) Class A treasury shares, at cost, 36,747 shares (1,184) (1,184) Other comprehensive loss (1,209) (1,716) Accumulated deficit (118,096) (100,988) ---------- ---------- Total shareholders' equity (deficit) (7,267) (4,241) ---------- ---------- Total liabilities and shareholders' deficit $ 393,384 $ 373,971 ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 38 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
2003 2002 2001 ---------- ---------- ---------- Product sales $ 301,837 $ 318,016 $ 335,550 Rental revenue 36,294 45,080 57,199 Used rental equipment sales 39,723 35,641 22,742 ---------- ---------- ---------- Net sales 377,854 398,737 415,491 ---------- ---------- ---------- Product cost of sales 237,032 236,782 249,391 Rental cost of sales 23,775 19,404 18,265 Used rental equipment cost of sales 12,791 13,675 8,565 ---------- ---------- ---------- Cost of sales 273,598 269,861 276,221 ---------- ---------- ---------- Product gross profit 64,805 81,234 86,158 Rental gross profit 12,519 25,676 38,935 Used rental equipment gross profit 26,932 21,966 14,177 ---------- ---------- ---------- Gross profit 104,256 128,876 139,270 Selling, general and administrative expenses 87,020 91,221 97,532 Facility closing and severance expenses (Note 10) 2,294 5,399 7,360 Amortization of goodwill and intangibles 944 603 3,912 ---------- ---------- ---------- Income from operations 13,998 31,653 30,466 Other expenses Interest expense 39,955 33,967 35,024 Loss on early extinguishment of long-term debt (Note 4) 2,480 - - Loss (gain) on disposals of property, plant and equipment (636) 1,115 (7) Other expense 20 80 102 ---------- ---------- ---------- Loss before benefit for income taxes, and cumulative effect of change in accounting principle (27,821) (3,509) (4,653) Benefit for income taxes (Note 7) (10,713) (386) (1,179) ---------- ---------- ---------- Loss before cumulative effect of change in accounting principle (17,108) (3,123) (3,474) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 (Note 3d) - (17,140) - ---------- ---------- ---------- Net loss $ (17,108) $ (20,263) $ (3,474) ========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 39 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Class A Class A Retained Common Shares Treasury Shares Other Earnings --------------------- Loans to ----------------- Comprehensive (Accumulated Shares Amount Shareholders Shares Amount Loss Deficit) Total --------- --------- ------------ ------ -------- ------------- ------------ -------- Balances at January 1, 2001 3,693,990 $ 92,826 $ (2,039) - $ - $ (340) $ (77,251) $ 13,196 Net loss (3,474) (3,474) Foreign currency translation adjustment (249) (249) Issuance of Class A common shares 323,278 8,986 (909) 8,077 Purchase of Class A treasury shares 51 29,288 (979) (928) Exercise of stock options, net 9,134 232 (133) 99 --------- --------- --------- ------ -------- --------- --------- -------- Balances at December 31, 2001 4,026,402 102,044 (3,030) 29,288 (979) (589) (80,725) 16,721 Net loss (20,263) (20,263) Foreign currency translation adjustment 92 92 Change in minimum pension liability (net of income tax benefit of $151) (1,219) (1,219) Issuance of Class A common shares 20,505 481 (350) 131 Purchase of Class A common shares 7,459 (205) (205) Repayments of loans to shareholders 502 502 --------- --------- --------- ------ -------- --------- --------- -------- Balance at December 31, 2002 4,046,907 102,525 (2,878) 36,747 (1,184) (1,716) (100,988) (4,241) Net loss (17,108) (17,108) Foreign currency translation adjustment 613 613 Change in minimum pension liability (net of income tax benefit of $657) (106) (106) Issuance of Class A common shares 544,109 13,059 13,059 Repayments of loans to shareholders 149 149 Additional tax benefit from 2000 recapitalization 367 367 --------- --------- --------- ------ -------- --------- --------- -------- Balances at December 31, 2003 4,591,016 $ 115,951 $ (2,729) 36,747 $ (1,184) $ (1,209) $(118,096) $ (7,267) ========= ========= ========= ====== ======== ========= ========= ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 40 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
2003 2002 2001 ---------- ---------- ---------- Cash Flows From Operating Activities: Net loss $ (17,108) $ (20,263) $ (3,474) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Cumulative effect of change in accounting principle (Note 3d) - 17,140 - Loss on the early extinguishment of long-term debt 2,480 Depreciation 25,934 20,850 18,290 Amortization of goodwill and intangibles 944 603 3,912 Deferred income taxes (10,436) 3,228 (2,972) Amortization of deferred financing costs, debt discount, and issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 3,371 2,335 2,251 Net gain on sale of rental equipment (26,932) (21,966) (14,177) Net (gain) loss on sale of property, plant, and equipment (636) 1,115 (7) Change in assets and liabilities, net of effects of acquisitions: Accounts receivable (3,684) (9,537) 7,348 Inventories (1,526) (11) (1,410) Prepaid expenses and other assets 2,013 2,119 (8,533) Prepaid income taxes 3,420 (2,784) 2,710 Accounts payable (5,140) (1,673) 671 Accrued liabilities and other long-term liabilities (5,188) (8,406) 3,614 ---------- ---------- ---------- Net cash provided by (used in) operating activities (32,488) (17,250) 8,223 ---------- ---------- ---------- Cash Flows From Investing Activities: Property, plant and equipment additions (7,829) (11,277) (9,924) Proceeds from sale of property, plant, and equipment 894 2,010 169 Rental equipment additions (27,571) (18,411) (25,933) Proceeds from sales of rental equipment 39,723 35,641 22,742 Acquisitions (Note 2) (13,668) - (40,850) Refund of purchase price on acquisitions - - 143 ---------- ---------- ---------- Net cash provided by (used in) investing activities (8,451) 7,963 (53,653) ---------- ---------- ---------- Cash Flows From Financing Activities: Repayments of long-term debt (177,873) (4,141) (48,532) Issuance of long-term debt 206,442 8,050 93,751 Proceeds from sale/leaseback transaction - 2,258 - Issuance of common shares, net of issuance costs 13,059 131 5,334 Purchase of treasury shares - (205) (928) Repayments of loans to shareholders, net 149 502 - Financing costs incurred (1,860) - (791) ---------- ---------- ---------- Net cash provided by financing activities 39,917 6,595 48,834 ---------- ---------- ---------- Effect of Exchange Rate Changes on Cash 613 107 (197) ---------- ---------- ---------- Net increase (decrease) in cash (409) (2,585) 3,207 Cash, beginning of year 2,404 4,989 1,782 ---------- ---------- ---------- Cash, end of year $ 1,995 $ 2,404 $ 4,989 ========== ========== ========== Supplemental Disclosures: Cash refunded for income taxes $ (3,909) $ (1,149) $ (1,532) Cash paid for interest 32,690 31,862 32,348 Purchase of equipment on capital lease 3,183 2,758 - Issuance of Class A common shares and loans to shareholders - 350 909 Issuance of Class A common shares in conjunction with acquisition - - 2,842 Issuance of long-term debt in conjunction with acquisition 8,572 - -
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 41 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS YEARS ENDED DECEMBER 31 (AMOUNTS IN THOUSANDS)
2003 2002 2001 -------- -------- -------- Net loss $(17,108) $(20,263) $ (3,474) Other comprehensive income Foreign currency translation adjustment 613 92 (249) Change in minimum pension liability (net of income tax benefit of $657 and $151) (106) (1,219) - -------- -------- -------- Comprehensive loss $(16,601) $(21,390) $ (3,723) ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003, 2002 AND 2001 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) THE COMPANY The accompanying consolidated financial statements include the accounts of Dayton Superior Corporation and its wholly-owned subsidiaries (collectively referred to as the "Company"). All intercompany transactions have been eliminated. The Company believes it is the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. The Company has a distribution network consisting of 18 manufacturing/distribution plants and 26 service/distribution centers in the United States and Canada. The Company employs approximately 700 salaried and 1,200 hourly personnel, of whom approximately 800 of the hourly personnel and 7 of the salaried personnel are represented by labor unions. There are five collective bargaining agreement expiring in 2004, covering hourly employees at the Parsons, Kansas; Miamisburg, Ohio; Aurora, Illinois; Atlanta, Georgia; and Santa Fe Springs, California facilities. (2) ACQUISITIONS (a) SAFWAY FORMWORK SYSTEMS, L.L.C. -- 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 $20,000. Safway Formwork is a subsidiary of Safway Services, Inc., whose ultimate parent is ThyssenKrupp AG, or TK, a publicly traded company in Germany. 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 with a present value of $6,965 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 book value of the note at December 31, 2003 was $6,392. The face value of the note is $12,000. The first $250 installment payment on the note was paid on September 30, 2003, and an additional $750 installment payment was due on December 31, 2003. The settlement of normal purchase price adjustments resulted in a $417 reduction in the December payment to $333. A subsequent purchase price adjustment of $240 was paid in March 2004. 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 assumed an interest rate of 14.5%. The $13,000 of cash was funded through the issuance of 541,667 common shares valued at $13,000 to the Company's majority shareholder. The common shares were valued at $24.00 per share in an independent third party appraisal completed in December 2002. The Company exercised its option to acquire additional rental equipment from Safway. The Company issued a non-interest bearing note with a present value of $1,607. The note is being accreted to the face value of $2.0 using the effective interest method and is reflected as interest expense. Minimum payments on the note are $199 in 2004 and 2005, $397 in 2006 and 2007, and $795 in 2008. Payments may be accelerated if certain revenue targets are met. 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 preliminary estimated fair value of the assets acquired, as follows: Rental equipment $ 13,994 Property, plant and equipment 798 Goodwill 2,537 Intangible assets 5,115 Accrued liabilities (1,571) -------- Purchase price, including acquisition costs of $1,085 $ 20,873 ========
43 The allocation of the purchase price may change on receipt of the final appraisals. Components of the purchase price are as follows: Cash paid at closing $ 13,000 Acquisition costs 1,085 Initial purchase price adjustment (417) 2003 Cash portion of acquisition 13,668 Present value of seller note 6,965 2004 purchase price adjustment 240 -------- Total purchase price $ 20,873 ========
The following pro forma information sets forth the consolidated results of operations for the twelve months ended December 31, 2003 and December 31, 2002 as though the acquisition had been completed as of the beginning of each period presented:
Pro Forma Twelve fiscal months ended -------------------------------------- December 31, 2003 December 31, 2002 ----------------- ----------------- Net Sales $ 390,449 $ 425,955 Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle (6,961) (30,830) Income (loss) before cumulative effect of change in accounting principle $ (19,094) $ (5,263)
In accordance with SEC rules and regulations, pro forma information does not exclude costs that are expected to be eliminated under the company's ownership. (b) ANCONCCL INC.-- On June 19, 2001, the Company acquired the stock of AnconCCL Inc., dba BarLock ("BarLock") for approximately $9,900 in cash, including acquisition costs. The payment was funded through the Company's credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of BarLock have been included in the accompanying financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $10,800, including goodwill of $7,100) and liabilities assumed (approximately $900). Pro forma financial information is not required as this was not a significant acquisition. (c) AZTEC CONCRETE ACCESSORIES, INC.-- On January 4, 2001, the Company acquired the stock of Aztec Concrete Accessories, Inc. ("Aztec") for approximately $32,800, including acquisition costs. The payment of the purchase price consisted of cash of approximately $29,900 and 105,263 common shares valued at approximately $2,900. The cash portion was funded through the issuance of 189,629 common shares valued at approximately $5,100 to Odyssey Investment Partners Fund, LP and an increase of approximately $24,800 to the credit facility. The business is being operated as part of the Company's concrete accessories business. The acquisition has been accounted for as a purchase, and the results of Aztec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the fair values of the assets acquired (approximately $44,000, including goodwill of $35,400) and liabilities assumed (approximately $11,200, including a deferred compensation liability of approximately $7,700). Pro forma financial information is not required as this was not a significant acquisition. 44 (3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) INVENTORIES-- The Company values all inventories at the lower of first-in, first-out ("FIFO") cost or market. The Company provides net realizable value reserves which reflect the Company's best estimate of the excess of the cost of potential obsolete and slow moving inventory over the expected net realizable value. Following is a summary of the components of inventories as of December 31, 2003 and 2002:
December 31, December 31, 2003 2002 ----------- ----------- Raw materials $ 9,588 $ 15,984 Work in progress 2,742 3,069 Finished goods 37,107 28,858 --------- -------- Total Inventory $ 49,437 $ 47,911 ========= ========
(b) RENTAL EQUIPMENT-- Rental equipment is manufactured 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 method. Effective January 1, 2002, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. The change was based upon a study performed by the Company that showed that the useful life of certain items within the rental fleet was shorter than the fifteen-year life previously assigned. The study showed that a three-year life was more appropriate based upon the nature of these products. These products include smaller hardware and accessories that accompany steel forms and the recently introduced European forming systems. As a result of the change, the Company recorded incremental depreciation of approximately $4,000 in 2002, which is reflected in cost of goods sold in the accompanying December 31, 2002 consolidated statement of operations. Effective January 1, 2001, the Company changed its accounting estimates relating to the depreciable life of a portion of its rental fleet. As a result of the change, the Company recorded incremental depreciation of approximately $2,300 in 2001, which is reflected in cost of goods sold in the accompanying December 31, 2001 consolidated statement of operations. (c) PROPERTY, PLANT AND EQUIPMENT-- Property, plant and equipment are valued at cost and depreciated using straight-line methods over their estimated useful lives of 10-30 years for buildings and improvements and 3-10 years for machinery and equipment. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful life of the improvement. Improvements and replacements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Included in the cost of property, plant and equipment are assets obtained through capital leases, all included in machinery and equipment. As of December 31, 2003 the cost of assets under capital lease is $5,941, net of accumulated amortization of $904. Amortization expense related to machinery and equipment under capital lease was $648 for the period ended December 31, 2003. As of December 31, 2002 the cost of assets under capital lease is $2,758, net of accumulated depreciation of $256. Depreciation expense related to machinery and equipment under capital lease was $256 for the period ended December 31, 2002. 45 (d) GOODWILL AND INTANGIBLE ASSETS-- Amortization is provided over the term of the loan (3 to 9 years) for deferred financing costs, the term of the agreement (17 months-5 years) for non-compete agreements, over the estimated useful life (1-15 years) for intellectual property, customer lists, and dealer network. Amortization of non-compete agreements, intellectual property, customer lists, and dealer network is reflected as "Amortization of goodwill and intangibles" in the accompanying consolidated statements of operations. The estimated aggregate amortization expense for each of the next five years is as follows: $1,383 in 2004, $713 in 2005, $626 in 2006, $255 in 2007, and $255 in 2008. 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: $1,114 in 2004, $1,113 in 2005, $1,013 in 2006, $911 in 2007, and $810 in 2008. Intangible assets consist of the following at December 31:
2003 2002 -------------------------------- -------------------------------- Accumulated Accumulated Gross Amortization Net Gross Amortization Net -------- ------------ -------- -------- ------------ -------- Deferred financing costs $ 8,429 $ (3,175) $ 5,254 $ 10,550 $ (3,479) $ 7,071 Non-compete agreements 2,325 (367) 1,958 1,595 (722) 873 Customer list 2,255 (63) 2,192 - - - Intellectual property 1,590 (481) 1,109 690 (229) 461 Dealer Network 33 (14) 19 - - - -------- -------- -------- -------- -------- -------- $ 14,632 $ (4,100) $ 10,532 $ 12,835 $ (4,430) $ 8,405 ======== ======== ======== ======== ======== ========
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 revises the accounting for future business combinations to only allow the purchase method of accounting. In addition, the two statements preclude amortization of goodwill for periods beginning after December 15, 2001. Instead, an annual review of the recoverability of the goodwill and intangible assets is required. Certain other intangible assets continue to be amortized over their estimated useful lives. The Company adopted SFAS No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, the Company recorded a non-cash charge in 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 December 31, 2002 consolidated statement of operations. This amount does not affect the Company's ongoing operations. The goodwill arose from the acquisitions of Dur-O-Wal in 1995, Southern Construction Products in 1999, and Polytite in 2000, all of which manufacture and sell metal accessories used in masonry construction. The masonry products market has experienced weaker markets and significant price competition, which has had a negative impact on the product line's earnings and fair value. The following is a reconciliation from reported net loss to net loss adjusted for the amortization of goodwill:
Years Ended December 31, -------------------------------- 2003 2002 2001 -------- -------- -------- Net loss before cumulative effect of change in accounting principle, as reported $(17,108) $ (3,123) $ (3,474) Amortization of goodwill, net of tax benefit - - 3,375 -------- -------- -------- Net loss before cumulative effect of change in accounting principle, as adjusted $(17,108) $ (3,123) $ (99) ======== ======== ========
46 The following is a reconciliation of goodwill:
Symons CPG Corporate Total ---------- ---------- ---------- ---------- Balance at January 1, 2002 $ 587 $ 33,605 $ 92,618 $ 126,810 Impairment - - (19,894) (19,894) Other - - 412 412 ---------- ---------- ---------- ---------- Balance at December 31, 2002 587 33,605 73,136 107,328 Safway Acquisition 1,629 - 908 2,537 Other - - 443 443 ---------- ---------- ---------- ---------- Balance at December 31, 2003 $ 2,216 $ 33,605 $ 74,487 $ 110,308 ========== ========== ========== ==========
(e) INCOME TAXES-- Deferred income taxes are recorded for temporary differences between financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the enacted tax rates in effect for the years the differences are expected to reverse. The Company evaluates the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that it will realize its deferred tax assets in the future and records liabilities for uncertain tax matters based on its assessment of the likelihood of sustaining certain tax positions. (f) ENVIRONMENTAL REMEDIATION LIABILITIES-- The Company accounts for environmental remediation liabilities in accordance with the American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities," ("SOP 96-1"). The Company accrues for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties are recorded as assets when their receipt is deemed probable. (g) FOREIGN CURRENCY TRANSLATION ADJUSTMENT-- The financial statements of foreign subsidiaries and branches are maintained in their functional currency (Canadian dollars) and are then translated into U.S. dollars. The balance sheets are translated at end of year rates while revenues, expenses and cash flows are translated at weighted average rates throughout the year. Translation adjustments, which result from changes in exchange rates from period to period, are accumulated in a separate component of shareholders' deficit. Transactions in foreign currencies are translated into U.S. dollars at the rate in effect on the date of the transaction. Changes in foreign exchange rates from the date of the transaction to the date of the settlement of the asset or liability are recorded as income or expense. (h) REVENUE RECOGNITION-- Revenue is recognized from product sales when the product is shipped from our facilities and risk of loss and title have passed to the customer. Additionally, revenue is recognized at the customer's written request and when the customer has made a fixed commitment to purchase goods on a fixed schedule consistent with the customer's business, where risk of ownership has passed to the buyer, the goods are set-aside in storage and the Company does not retain any specific performance obligations such that the earning process is not complete. For transactions where such conditions are not satisfied, revenue is deferred until the terms of acceptance are satisfied. On rental equipment sales, revenue is recognized and recorded on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. 47 (i) 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. The Company records such rebates as a reduction of revenue in the period the related revenues are recognized. (j) ACCOUNTS RECEIVABLE ALLOWANCE-- We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be required. (k) USE OF ESTIMATES-- The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. Examples of accounts in which estimates are used include the reserve for excess and obsolete inventory, the allowance for doubtful accounts and sales returns and allowances, the accrual for self-insured employee medical claims, the self-insured product and general liability accrual, the self-insured workers' compensation accrual, accruals for litigation losses, the valuation allowance for deferred tax assets, actuarial assumptions used in determining pension benefits, and actuarial assumptions used in determining other post-retirement benefits. (l) NEW ACCOUNTING PRONOUNCEMENTS-- 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. The adoption of this pronouncement in 2003 resulted in the classification in 2003 of the loss on the early extinguishment of long-term debt as other expense. In July 2002, the FASB issued Statement of 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. Statement 146 is to be applied prospectively to exit or disposal activities initiated 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 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. The Company does not believe this pronouncement will have a material impact on its consolidated financial position, results of operations, or cash flows. 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, 48 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 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 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 2003, FASB issued a revised interpretation of FIN No. 46, "FIN No. 46-R." This supercedes Fin No. 46 and clarifies and expands current accounting guidance for variable interest entities. Fin No. 46 and Fin No. 46-R are effective immediately for all variable interest entities created after January 31, 2003, and for variable interest entities created prior to February 1, 2003, no later than the end of the first reporting period after March 15, 2004. We have not utilized such entities and therefore the adoption of Fin No. 46 and FIN No. 46-R had no effect on our consolidated financial statements. In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement revises the disclosures required for pension plans and other postretirement benefit plans. The company adopted this revised statement effective December 31, 2003. See Note 6 to the consolidated financial statements for the revised disclosures. In December 2003, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition, corrected copy". This bulletin revises or rescinds portions of the previous interpretive guidance included in Topic 13 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance related to revenue recognition. The adoption of SAB No. 104 did not have a material impact on the Company's consolidated financial statements. (m) 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. 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," the Company's net loss and net loss per share would have been increased to the pro forma amounts as follows:
2003 2002 2001 -------- -------- -------- Net loss: As Reported $(17,108) $(20,263) $ (3,474) Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effect (261) (284) (633) -------- -------- -------- Pro Forma $(17,369) $(20,547) (4,107) ======== ======== ========
49 (4) CREDIT ARRANGEMENTS Following is a summary of the Company's long-term debt as of December 31, 2003 and December 31, 2002:
December 31, December 31, 2003 2002 ------------ ------------ Revolving credit facility, weighted average interest rate of 5.2% $ 24,375 $ 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 (8,514) (10,374) Senior Second Secured Notes, interest rate of 10.75% 165,000 - Debt discount on Senior Second Secured Notes (7,454) - Senior Unsecured Notes payable to seller of Safway, non-interest bearing, accreted at 14.5% 7,999 - Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1%, due on demand 1,110 1,110 Capital lease obligations 4,590 2,507 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 55 86 ---------- ---------- Total long-term debt 341,890 299,536 Less current maturities (3,067) (6,991) ---------- ---------- Long-term portion $ 338,823 $ 292,545 ========== ==========
Scheduled maturities of long-term debt and future minimum lease payments under capital leases are:
Long-term Capital Year Debt Leases Total - ----------------------------------- --------- --------- --------- 2004 $ 1,523 $ 1,514 $ 3,037 2005 196 1,392 1,588 2006 24,763 965 25,728 2007 418 772 1,190 2008 171,639 664 172,303 Thereafter 154,729 127 154,856 --------- --------- --------- Long-Term Debt and Lease Payments 353,268 5,434 358,702 Less: Debt Discount (15,968) - (15,968) Less: Amounts Representing Interest - (844) (844) --------- --------- --------- $ 337,300 $ 4,590 $ 341,890 ========= ========= =========
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 $24,375. As a result of the transactions, the Company incurred a loss on the early extinguishment of long-term debt of $2,550, due to the expensing of deferred financing costs. The senior second secured notes are secured by substantially all assets of the Company. As of December 31, 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 50 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. As of December 31, 2003 the Company had a $50,000 revolving credit facility that was due to mature in June 2006. The credit facility is secured by substantially all assets of the company and has several interest rate options that reprice on a short-term basis. At December 31, 2003, the Company had outstanding letters of credit of $7,000 and available borrowings of $18,625 under its $50,000 revolving credit facility. The $50,000 credit facility was amended during the second quarter to remove certain of the restrictive financial covenants. As of December 31, 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 December 31, 2003. The amendment also limits the Company's borrowings to 75% of eligible accounts receivable and 50% of eligible inventories. The credit facility was secured by substantially all assets of the Company. The average borrowings, maximum borrowings and weighted average interest rates on the revolving credit facility for the periods indicated were as follows:
For the Year Ended ----------------------------------------------------------------- December 31, December 31, December 31, 2003 2002 2001 ---- ---- ---- Revolving Credit Facility: Average borrowing $ 22,578 $ 15,156 $ 8,980 Maximum borrowing 35,225 29,275 26,425 Weighted average interest rate 5.5% 6.4% 10.4%
On January 30, 2004, we established an $80 million senior secured revolving credit facility, which was used to refinance our previous $50 million revolving credit facility. The new credit facility is secured by the same assets that secured the previous credit facility. The new credit facility has no financial covenants and is subject to availability under a borrowing base calculation. Availability of borrowings is limited to 85% of eligible accounts receivable and 60% of eligible inventories and rental equipment, less $10,000. As of January 30, 2004, all $80 million was available under the calculation. The credit facility is secured by substantially all assets of the Company. 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. Pursuant to Regulation S-X, Rule 3-10(f), separate financial statements have not been presented for the guarantor subsidiaries. The wholly-owned foreign subsidiaries of the Company are not guarantors of the Notes or the Senior Notes and do not have any credit arrangements senior to the Notes or the Senior Notes. The following supplemental consolidating condensed balance sheets as of December 31, 2003 and 2002 and the supplemental consolidating condensed statements of operations and cash flows for the years ended December 31, 2003, 2002, and 2001 depict in separate columns, the parent company, those subsidiaries which are guarantors, those subsidiaries which 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. 51 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET AS OF DECEMBER 31, 2003
Dayton Non Superior Guarantor Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ASSETS Cash $ 860 $ (1,240) $ 2,375 $ - $ 1,995 Accounts receivable, net 37,123 26,500 1,226 64,849 Inventories 27,016 21,776 645 49,437 Intercompany 61,638 (61,549) (89) - Other current assets 12,901 (1,432) (535) 10,934 --------- ------------ ------------ ------------ ------------ TOTAL CURRENT ASSETS 139,538 (15,945) 3,622 127,215 Rental equipment, net 3,609 74,342 91 78,042 Property, plant and equipment, net 24,919 37,135 184 62,238 Investment in subsidiaries 123,041 - - (123,041) - Other assets 50,628 75,261 - 125,889 --------- ------------ ------------ ------------ ------------ TOTAL ASSETS $ 341,735 $ 170,793 $ 3,897 $ (123,041) $ 393,384 ========= ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 2,132 $ 935 $ - $ - $ 3,067 Accounts payable 10,722 9,537 267 20,526 Accrued liabilities 20,793 11,019 216 32,028 --------- ------------ ------------ ------------ ------------ TOTAL CURRENT LIABILITIES 33,647 21,491 483 55,621 Long-term debt 337,413 1,410 - - 338,823 Other long-term liabilities (4,341) 10,525 23 6,207 Total shareholders' equity (deficit) (24,984) 137,367 3,391 (123,041) (7,267) --------- ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 341,735 $ 170,793 $ 3,897 $ (123,041) $ 393,384 ========= ============ ============ ============ ============
52 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET AS OF DECEMBER 31, 2002
Dayton Non Superior Guarantor 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 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 ========== ========== ========== ========== ==========
53 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2003
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 175,338 $ 193,064 $ 9,452 $ 377,854 Cost of sales 126,355 140,203 7,040 273,598 ---------- ---------- ---------- ---------- Gross profit 48,983 52,861 2,412 104,256 Selling, general and administrative expenses 35,092 50,413 1,515 87,020 Facility closing and severance expenses 1,629 665 - 2,294 Management Fees (400) - 400 Amortization of goodwill and intangibles 293 651 - 944 ---------- ---------- ---------- ---------- Income from operations 12,369 1,132 497 13,998 Other expenses Interest expense 39,633 322 - 39,955 Loss on early extinguishment of long-term debt 2,480 - - 2,480 Loss (Gain) on disposals of property, plant and equipment 3 (639) - (636) Other expense (income), net 104 - (84) 20 ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes (29,851) 1,449 581 (27,821) Provision (benefit) for income taxes (11,495) 558 224 (10,713) ---------- ---------- ---------- ---------- Net income (loss) $ (18,356) $ 891 $ 357 $ (17,108) ========== ========== ========== ==========
54 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 192,271 $ 197,368 $ 9,098 $ 398,737 Cost of sales 132,946 130,894 6,021 269,861 --------- --------- --------- --------- Gross profit 59,325 66,474 3,077 128,876 Selling, general and administrative expenses 40,422 49,188 1,611 91,221 Facility closing and severance expenses 3,827 1,572 - 5,399 Amortization of goodwill and intangibles 373 230 - 603 Management fees (300) - 300 - --------- --------- --------- --------- Income from operations 15,003 15,484 1,166 31,653 Other expenses Interest expense 33,101 866 - 33,967 Loss on disposals of property, plant and equipment 728 387 - 1,115 Other expense (income), net (35) 44 71 80 --------- --------- --------- --------- Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle (18,791) 14,187 1,095 (3,509) Provision (benefit) for income taxes (2,067) 1,561 120 (386) --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle (16,724) 12,626 975 (3,123) Cumulative effect of change in accounting principle, net of income tax benefit of $2,754 - (17,140) - (17,140) --------- --------- --------- --------- Net income (loss) $ (16,724) $ (4,514) $ 975 $ (20,263) ========= ========= ========= =========
55 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ Net sales $ 194,163 $ 211,918 $ 9,410 $ 415,491 Cost of sales 132,837 137,459 5,925 276,221 ----------- ----------- ----------- ----------- Gross profit 61,326 74,459 3,485 139,270 Selling, general and administrative expenses 38,006 57,983 1,543 97,532 Facility closing and severance expenses 442 6,918 - 7,360 Amortization of goodwill and intangibles 1,980 1,932 - 3,912 Management fees (300) - 300 - ----------- ----------- ----------- ----------- Income from operations 21,198 7,626 1,642 30,466 Other expenses Interest expense 34,463 561 - 35,024 Other expense (income), net - 95 - 95 ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes (13,265) 6,970 1,642 (4,653) Provision (benefit) for income taxes (3,361) 1,766 416 (1,179) ----------- ----------- ----------- ----------- Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474) =========== =========== =========== ===========
56 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2003
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (18,356) $ 891 $ 357 $ (17,108) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,697 19,499 53 30,249 Deferred income taxes (10,436) - - (10,436) Gain on sales of rental equipment and fixed assets (3,408) (24,160) - (27,568) Loss on the early extinguishment of long-term debt 2,480 - - 2,480 Change in assets and liabilities, net of the effects of acquisitions (15,141) 5,214 (178) (10,105) ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (34,164) 1,444 232 (32,488) ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (3,631) (4,191) (7) (7,829) Proceeds from sales of fixed assets 131 763 - 894 Rental equipment additions (2,472) (25,094) (5) (27,571) Proceeds from sale of rental equipment 4,352 35,320 51 39,723 Acquisitions - (13,668) - (13,668) ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities (1,620) (6,870) 39 (8,451) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (177,611) (262) - (177,873) Issuance of long-term debt 206,442 - - 206,442 Proceeds from sale/leaseback transaction - - - - Issuance of common shares, net of issuance costs 13,059 - - 13,059 Repayment of loans to shareholders, net 149 - - 149 Financing Costs incurred (1,860) - - (1,860) Intercompany (5,140) 5,135 5 - ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 35,039 4,873 5 39,917 ---------- ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 613 613 ---------- ---------- ---------- ---------- Net increase (decrease) in cash (745) (553) 889 (409) CASH, beginning of year 1,605 (687) 1,486 2,404 ---------- ---------- ---------- ---------- CASH, end of year $ 860 $ (1,240) $ 2,375 $ 1,995 ========== ========== ========== ==========
57 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2002
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (9,514) $ (11,724) $ 975 $ (20,263) Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle - 17,140 - 17,140 Depreciation and amortization 7,712 16,026 50 23,788 Deferred income taxes 3,228 - - 3,228 Gain on sales of rental equipment and fixed assets (572) (20,247) (32) (20,851) Change in assets and liabilities, net of the effects of acquisitions (5,834) (13,460) (998) (20,292) ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (4,980) (12,265) (5) (17,250) ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (6,658) (4,489) (130) (11,277) Proceeds from sales of fixed assets 1,105 877 28 2,010 Rental equipment additions (758) (17,619) (34) (18,411) Proceeds from sale of rental equipment 3,018 32,550 73 35,641 ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities (3,293) 11,319 (63) 7,963 ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (4,141) - - (4,141) Issuance of long-term debt 8,050 - - 8,050 Proceeds from sale/leaseback transaction 633 1,597 28 2,258 Issuance of common shares, net of issuance costs 131 - - 131 Redemption of common shares and purchase of treasury shares (205) - - (205) Repayment of loans to shareholders, net 502 - - 502 Intercompany 2,194 (2,170) (24) - ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 7,164 (573) 4 6,595 ---------- ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 107 107 ---------- ---------- ---------- ---------- Net increase (decrease) in cash (1,109) (1,519) 43 (2,585) CASH, beginning of year 2,714 832 1,443 4,989 ---------- ---------- ---------- ---------- CASH, end of year $ 1,605 $ (687) $ 1,486 $ 2,404 ========== ========== ========== ==========
58 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2001
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (9,904) $ 5,204 $ 1,226 $ (3,474) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 8,483 15,928 42 24,453 Deferred income taxes (2,972) - - (2,972) Gain on sales of rental equipment and fixed assets (1,062) (13,039) (83) (14,184) Change in assets and liabilities, net of the effects of acquisitions (9,109) 15,049 (1,540) 4,400 ---------- ---------- ---------- ---------- Net cash provided by (used in) operating activities (14,564) 23,142 (355) 8,223 ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (4,065) (5,679) (180) (9,924) Proceeds from sales of fixed assets 34 132 3 169 Rental equipment additions (1,565) (24,317) (51) (25,933) Proceeds from sale of rental equipment 2,193 20,390 159 22,742 Acquisitions (40,707) - - (40,707) ---------- ---------- ---------- ---------- Net cash used in investing activities (44,110) (9,474) (69) (53,653) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (48,532) - - (48,532) Issuance of long-term debt 93,751 - - 93,751 Issuance of Class A common shares 5,334 - - 5,334 Financing costs incurred (791) - - (791) Purchase of treasury shares (928) - - (928) Intercompany 10,951 (12,011) 1,060 - ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 59,785 (12,011) 1,060 48,834 ---------- ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (197) (197) ---------- ---------- ---------- ---------- Net increase in cash 1,111 1,657 439 3,207 CASH, beginning of year 1,603 (825) 1,004 1,782 ---------- ---------- ---------- ---------- CASH, end of year $ 2,714 $ 832 $ 1,443 $ 4,989 ========== ========== ========== ==========
59 (5) COMMON SHARES (a) STOCK OPTION PLAN-- Upon consummation of the recapitalization in 2000, the Company adopted the 2000 Stock Option Plan of Dayton Superior Corporation ("Stock Option Plan"). The Stock Option Plan permits the grant of stock options to purchase 719,254 common shares. Options to purchase 92,859, 147,225, and 5,506 common shares were granted during 2003, 2002, and 2001, respectively. Options that are cancelled may be reissued. The Stock Option Plan constitutes the amendment and merger into one plan of four previous option plans and governs options that remain outstanding following the recapitalization, as well as new option grants. The terms of the option grants are ten years from the date of grant. Generally, between 10% and 25% of the options have a fixed vesting period of less than three years. The remaining options are eligible to become exercisable in installments over one to five years from the date of grant based on the Company's performance, but, in any case, become exercisable no later than nine years after the grant date. These options may be subject to accelerated vesting upon certain change in control events based on Odyssey's return on investment. Under the Stock Option Plan, the option exercise price equals the stock's market price on date of grant. A summary of the status of the Company's stock option plans at December 31, 2003, 2002, and 2001, and changes during the years then ended is presented in the table and narrative below:
Weighted Average Number of Exercise Price Per Shares Share ------ ----- Outstanding at January 1, 2001 570,946 $ 24.22 Granted at a weighted average fair value of $7.65 5,506 27.50 Exercised (9,134) 21.20 Cancelled (26,060) 27.00 ------- Outstanding at December 31, 2001 541,258 24.17 Granted at a weighted average fair value of $5.43 147,225 27.50 Exercised (3,050) 2.29 Cancelled (13,749) 25.21 ------- Outstanding at December 31, 2002 671,684 25.00 Granted at a weighted average fair value of $4.78 92,859 25.42 Cancelled (120,704) 25.26 ------- Outstanding at December 31, 2003 643,839 $ 25.03 =======
Price ranges and other information for stock options outstanding at December 31, 2003 are as follows:
Outstanding Exercisable ----------- ----------- Weighted Weighted Weighted Average Average Average Exercise Remaining Exercise Range of Exercise Prices Shares Price Life Shares Price - ------------------------ ------ ----- ---- ------ ----- $ 1.96 - $ 4.00 40,887 $ 2.45 0.7 years 40,887 $ 2.45 $ 16.81 - $ 19.91 22,164 17.95 4.6 22,164 17.95 $ 24.00 - $ 27.50 580,788 26.87 7.5 97,999 27.02 ------- ------- --------- ------- ------- 643,839 $ 25.03 6.9 years 161,050 $ 19.54 ======= ======= ========= ======= =======
Shares exercisable were 188,092 and 163,573 as of December 31, 2002 and 2001, respectively. 60 The fair value of each option grant is estimated on the date of grant using the Black Scholes options pricing model with the following weighted average assumptions used for grants in 2003, 2002, and 2001, respectively:
2003 2002 2001 ---- ---- ---- Risk-free interest rates 2.98%-3.26% 3.70% 5.55% Expected dividend yield 0% 0% 0% Expected lives 6 years 6 years 6 years Expected volatility 8.44% 0.00% 0.00%
(b) TREASURY SHARES-- During 2002 and 2001, the Company repurchased common shares from former employees in conjunction with the facility closing and severance plans discussed in Note 10. There were 7,459 shares repurchased in 2002 for $205, and 29,288 shares repurchased in 2001 for $979. 61 (6) RETIREMENT PLANS (a) COMPANY-SPONSORED PENSION PLANS-- The Company's pension plans cover virtually all hourly employees not covered by multi-employer pension plans and provide benefits of stated amounts for each year of credited service. The Company funds such plans at a rate that meets or exceeds the minimum amounts required by applicable regulations. The plans' assets are primarily invested in mutual funds comprised primarily of common stocks and corporate and U.S. government obligations. The Company provides postretirement health care benefits on a contributory basis and life insurance benefits for Symons salaried and hourly employees who retired prior to May 1, 1995.
PENSION PENSION SYMONS SYMONS BENEFITS BENEFITS POSTRETIREMENT POSTRETIREMENT 2003 2002 BENEFITS 2003 BENEFITS 2002 ---- ---- ------------- ------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 8,227 $ 7,059 $ 720 $ 820 Service cost 483 428 - - Interest cost 563 502 46 57 Amendments - 120 - - Actuarial loss 1,424 479 44 27 Benefits paid (499) (361) (164) (183) ---------- ---------- ---------- ---------- Benefit obligation at end of year $ 10,198 $ 8,227 $ 648 $ 721 ========== ========== ========== ========== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 6,812 $ 6,716 $ - $ - Actual return (loss) on plan assets 1,136 (457) - - Employee contribution 109 57 Employer contribution 199 914 55 126 Benefits paid (499) (361) (164) (183) ---------- ---------- ---------- ---------- Fair value of plan assets at end of year $ 7,648 $ 6,812 $ - $ - ========== ========== ========== ========== Funded status $ (2,550) $ (1,415) $ (648) $ (720) Unrecognized prior service cost (37) (32) 168 192 Unrecognized net loss (gain) 2,170 1,402 7 (39) ---------- ---------- ---------- ---------- Net amount recognized $ (417) $ (45) $ (473) $ (567) ========== ========== ========== ========== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Accrued benefit liability $ (2,550) $ (1,415) $ (473) $ (567) Accumulated other comprehensive income 2,133 1,370 - - ---------- ---------- ---------- ---------- Net amount recognized $ (417) $ (45) $ (473) $ (567) ========== ========== ========== ========== COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 483 $ 428 $ - $ - Interest cost 563 502 46 57 Expected return on plan assets (536) (560) - - Amortization of actuarial loss 55 - - - Amortization of prior service cost 5 (5) 24 24 ---------- ---------- ---------- ---------- Net periodic pension cost $ 570 $ 365 $ 70 $ 81 ========== ========== ========== ========== ADDITIONAL INFORMATION Increase in minimum liability included in other comprehensive income (106) (1,219) - -
62 The weighted average assumptions used in the actuarial computation that derived the above funded status amounts were as follows:
Pension Pension Symons Symons Benefits Benefits Postretirement Postretirement 2003 2002 Benefits 2003 Benefits 2002 ---- ---- ------------- ------------- Discount rate 6.00% 6.75% 6.00% 6.75% Expected return on plan assets 8.00% 8.00% N/A N/A Rate of compensation increase N/A N/A N/A N/A
The weighted average assumptions used in the actuarial computation that derived net periodic benefit income (expense) were as follows:
Pension Pension Pension Symons Symons Symons Benefits Benefits Benefits Postretirement Postretirement Postretirement 2003 2002 2001 Benefits 2003 Benefits 2002 Benefits 2001 ---- ---- ---- ------------- ------------- ------------- Discount rate 6.75% 7.25% 6.75% 6.75% 7.5% 7.0% Expected return on plan assets 8.00% 8.00% 8.00% N/A N/A N/A Rate of compensation increase N/A N/A N/A N/A N/A N/A
One of the principal components of the net periodic pension cost calculation is the expected long-term rate of return on assets. The required use of an expected long-term rate of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns and therefore result in a pattern of income and expense recognition that more closely matches the pattern of the services provided by the employees. Our defined benefit pension plan's assets are invested primarily in equity and fixed income mutual funds. We use long-term historical actual return experience and estimates of future long-term investment return with consideration to the expected investment mix of the plan's assets to develop our expected rate of return assumption used in the net periodic pension cost calculation. Our postretirement healthcare benefit plan is unfunded and has no plan assets. Therefore, the expected long-term rate of return on plan assets is not a factor in accounting for this benefit plan. As of December 31, 2003 and 2002, the plan had accumulated benefit obligations equal to the projected benefit obligation of $10,198 and $8,227, respectively. Assumed health care cost trend rates:
DECEMBER 31, ---------------------- 2004 2003 ---- ---- Health care cost trend rate assumed for next year 8.0% 8.5% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.0% 5.0% Year that the rate reaches the ultimate trend rate 2010 2010
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in assumed health care cost trend rates would have the following effects:
1 Percentage Point 1 Percentage Increase Point Decrease -------- -------------- Effect on total of service and interest cost components $ 6 $ (6) Effect on the postretirement benefit obligation 105 (93)
63 Plan Assets The pension plan asset allocations at December 31, 2003 and 2002, by asset category were as follows:
PLAN ASSETS AT DECEMBER 31, --------------------------- ASSET CATEGORY 2003 2002 -------------- ---- ---- Equity Securities 55 % 66 % Fixed Income Securities 36 18 Insurance Contract 9 16 Total 100 % 100 % --- ---
The Company's pension plan asset investment strategy is to invest in a combination of equities and fixed-income investments while maintaining a moderate risk posture. The targeted asset allocation within the investment portfolio is 55% equities and 45% fixed income. The Company evaluates the performance of the pension investment program in the context of a three to five-year horizon. CASH FLOW Contributions: We expect to contribute $100 to the pension plan in 2004. Estimated Future Benefit Payments: The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
PENSION BENEFITS OTHER BENEFITS ---------------- -------------- 2004 $ 324 $ 81 2005 354 84 2006 368 86 2007 404 87 2008 445 88 Years 2009-2013 2,984 393
(b) MULTI-EMPLOYER PENSION PLAN-- Approximately 12% of the Company's employees are currently covered by collectively bargained, multi-employer pension plans. Contributions are determined in accordance with the provisions of negotiated union contracts and generally are based on the number of hours worked. The Company does not have the information available to determine its share of the accumulated plan benefits or net assets available for benefits under the multi-employer pension plans. The aggregate amount charged to expense under these plans was $321, $347, and $380, for the years ended December 31, 2003, 2002, and 2001, respectively. (c) 401(k) SAVINGS PLAN-- Most employees are eligible to participate in Company sponsored 401(k) savings plans. Company matching contributions vary from 0% to 50% according to terms of the individual plans and collective bargaining agreements. The aggregate amount charged to expense under these plans was $767, $993, and $1,000, for the years ended December 31, 2003, 2002, and 2001, respectively. (d) RETIREMENT CONTRIBUTION ACCOUNT-- The Company has a defined contribution plan for substantially all salaried employees. Employees are not permitted to contribute to the plan. The Company suspended contributions to this account for service rendered in 2003. Previously, participants earned 1.5% to 6.0% of eligible compensation, depending on the age of the employee. The amount charged to expense for the years ended December 31, 2002 and 2001 was $1,791 and $1,905, respectively. 64 (7) INCOME TAXES The following is a summary of the components of the Company's income tax provision for the years ended December 31, 2003, 2002, and 2001:
2003 2002 2001 -------- -------- -------- Currently receivable: Federal $ (98) $ (4,000) $ (671) State and local 154 (354) 555 Foreign 459 603 413 Deferred (future tax benefit) (11,228) 3,365 (1,476) -------- -------- -------- Total benefit $(10,713) $ (386) $ (1,179) ======== ======== ========
The effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 2003, 2002, and 2001 for the following reasons:
2003 2002 2001 -------- -------- -------- Statutory income tax rate 34.0% 34.0% 34.0% State income taxes (net of federal tax benefit) 4.9 (4.1) 4.0 Nondeductible goodwill amortization and other permanent differences (0.4) (8.6) (12.7) Foreign income taxes - (10.3) - -------- -------- -------- Effective income tax rate 38.5% 11.0% 25.3% ======== ======== ========
The components of the Company's deferred taxes as of December 31, 2003 and 2002 are as follows:
2003 2002 -------- -------- Current deferred taxes: Inventory reserves $ 1,100 $ 668 Accounts receivable reserves 1,123 876 Accrued liabilities 2,975 4,628 Other 170 22 -------- -------- Total 5,368 6,194 -------- -------- Long-term deferred taxes: Accelerated depreciation (19,340) (19,302) Net operating loss carryforwards 15,179 2,678 Deferred compensation 2,001 3,046 Other long-term liabilities 1,522 947 Amortization of intangibles 878 798 Other (240) (86) -------- -------- Total - (11,919) -------- -------- Net deferred taxes $ 5,368 $ (5,725) ======== ========
For federal income tax purposes, the Company has federal net operating tax loss carryforwards of approximately $39,300, which expire over a five year period beginning in 2019. The Company also has state net operating tax loss carryforwards of $49,400, which expire over a period of five to twenty years beginning in 2006. 65 (8) 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 it's 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. Corporate loss before income tax includes interest expense. 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, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. Information about the income (loss) of each segment and the reconciliations to the consolidated amounts for the years ended December 31, 2003, 2002, and 2001 is as follows:
2003 2002 2001 --------- --------- --------- Sales: Construction Products Group $ 258,051 $ 274,129 $ 282,375 Symons 119,803 124,608 133,116 --------- --------- --------- Net sales to external customers $ 377,854 $ 398,737 $ 415,491 ========= ========= ========= Construction Products Group $ 12,299 $ 13,123 $ 13,990 Symons 9,553 8,107 7,052 --------- --------- --------- Net sales to other segments $ 21,852 $ 21,230 $ 21,042 ========= ========= ========= Income (loss) before income tax: Construction Products Group $ 18,057 $ 28,265 $ 29,315 Symons 20,733 27,076 31,324 Intersegment Eliminations (11,695) (11,032) (11,187) Corporate (54,916) (47,818) (54,105) --------- --------- --------- Loss before income taxes $ (27,821) $ (3,509) $ (4,653) ========= ========= ========= Depreciation: Construction Products Group $ 6,708 $ 6,665 $ 6,455 Symons 17,457 12,417 9,936 Corporate 1,769 1,768 1,899 --------- --------- --------- Depreciation $ 25,934 $ 20,850 $ 18,290 ========= ========= ========= Amortization of goodwill and intangibles: Construction Products Group $ 185 $ 258 $ 375 Symons 651 229 16 Corporate 108 116 3,521 --------- --------- --------- Amortization of goodwill and intangibles $ 944 $ 603 $ 3,912 ========= ========= =========
66 Information regarding each segment's assets and the reconciliation to the consolidated amounts as of December 31, 2003 and 2002 are as follows:
2003 2002 --------- --------- Construction Products Group $ 154,514 $ 159,955 Symons 138,973 115,071 Corporate and Unallocated 99,897 98,945 --------- --------- Total Assets $ 393,384 $ 373,971 ========= =========
Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the years ended December 31, 2003, 2002 and 2001 is as follows:
2003 2002 2001 --------- --------- --------- Construction Products Group $ 6,313 $ 7,968 $ 6,629 Symons 521 2,520 2,320 Corporate 995 789 975 --------- --------- --------- Property, Plant, and Equipment Additions $ 7,829 $ 11,277 $ 9,924 ========= ========= ========= Construction Products Group $ 870 $ 864 $ 1,664 Symons 26,701 17,547 24,269 --------- --------- --------- Rental Equipment Additions $ 27,571 $ 18,411 $ 25,933 ========= ========= =========
(9) COMMITMENTS AND CONTINGENCIES (a) OPERATING LEASES-- Rental expense for property, plant and equipment (principally manufacturing, service/distribution, and office facilities, forklifts, and office equipment) was $6,301, $6,318, and $6,599, for the years ended December 31, 2003, 2002 and 2001, respectively. Lease terms range from one to 20 years and some contain renewal options. Aggregate minimum annual rental commitments under non-cancelable operating leases are as follows:
Operating Leases ---------------- 2004 $ 5,749 2005 5,016 2006 3,588 2007 2,460 2008 1,353 Thereafter 7,300 ----------- Total $ 25,466 ===========
(b) LITIGATION-- From time to time, the Company is involved in various legal proceedings arising out of the ordinary course of business. None of the matters in which the Company is currently involved, either individually, or in the aggregate, is expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows. (c) SELF-INSURANCE-- The Company is self-insured for certain of its group medical, workers' compensation and product and general liability claims. The Company has stop loss insurance coverage at various per occurrence and per annum levels depending on the type of claim. The Company consults with third party administrators to estimate the reserves required for these claims. No material revisions were made to the estimates for the years ended December 31, 2003, 2002 and 2001. The Company has reserved $5,116 and $6,890 as of December 31, 2003 and 2002, respectively. 67 (d) SEVERANCE OBLIGATIONS-- The Company has employment agreements with its executive management and severance agreements with certain of its key management-level personnel, with annual base compensation ranging in value from $170 to $390. The agreements generally provide for salary continuation in the event of termination without cause for periods of one to three years. The agreements also contain certain non-competition clauses. As of December 31, 2003, the remaining aggregate commitment under these severance agreements if all individuals were terminated without cause was approximately $2,800. (10) 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 years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------------ ------- (AMOUNTS IN THOUSANDS) Balance, January 1, 2001 .................... $ 738 $ 540 $ - $ 575 $ 1,853 Facility closing and severance expenses ..... - - - - - Items charged against reserve ............... (738) (50) - (398) (1,186) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2001 .................. - 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 ..... - (212) - - (212) Items charged against reserve ............... - (57) - (93) (150) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2003 .................. $ - $ - $ - $ - $ - =========== =========== ========== ============ =======
During 2001, we approved and began implementing a plan to exit certain of our manufacturing and distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the years ended December 31, 2001, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------------ ------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ..... $ 3,287 $ 685 $ - $ 786 $ 4,758 Items charged against reserve ............... (2,356) (161) - - (2,517) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2001 .................. 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 ..... - 379 - - 379 Items charged against reserve ............... - (175) - (311) (486) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2003 .................. $ - $ 414 $ - $ - $ 414 =========== =========== ========== ============ =======
The remaining lease termination costs are expected to be paid in 2004. 68 During 2002, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2002, and 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------------ ------- (AMOUNTS IN THOUSANDS) 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 ..... 202 (11) - - 191 Items charged against reserve ............... (2,414) (73) - - (2,487) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2003 .................. $ 200 $ - $ - $ - $ 200 =========== =========== ========== ============ =======
The remaining involuntary termination benefits are expected to be paid in 2004. During 2003, we approved and began implementing a plan to exit certain of our distribution facilities and to reduce overall headcount in order to keep our cost structure in alignment with net sales. Activity for this plan for the year ended December 31, 2003 was as follows:
OTHER INVOLUNTARY LEASE RELOCATION POST- TERMINATION TERMINATION OF CLOSING BENEFITS COSTS OPERATIONS COSTS TOTAL ----------- ----------- ---------- ------------ ------- (AMOUNTS IN THOUSANDS) Facility closing and severance expenses ..... $ 988 $ 27 $ - $ 921 $ 1,936 Items charged against reserve ............... (988) (27) - (921) (1,936) ----------- ----------- ---------- ------------ ------- Balance, December 31, 2003 .................. $ - $ - $ - $ - $ - =========== =========== ========== ============ =======
(11) RELATED PARTY TRANSACTIONS For the years ended December 31, 2003, 2002, and 2001, the Company reimbursed Odyssey Investment Partners, LLC, the majority shareholder, for travel, lodging, and meals of $315, $228, and $107 respectively. In conjunction with the acquisition of Aztec Concrete Accessories, Inc. ("Aztec"), the Company paid Odyssey a $350 fee. 69 (12) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2003 --------------------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year - ----------------------------------------- --------- --------- --------- --------- --------- Net sales $ 71,994 $ 105,514 $ 100,988 $ 99,358 $ 377,854 Gross profit 21,000 31,012 24,729 27,515 104,256 Income (loss) before cumulative effect of change in accounting principle (5,390) (460) (6,393) (4,865) (17,108)
2002 --------------------------------------------------------------------- First Second Third Fourth Full Quarterly Operating Data Quarter Quarter Quarter Quarter Year - ----------------------------------------- --------- --------- --------- --------- --------- Net sales $ 82,772 $ 112,214 $ 110,526 $ 93,225 $ 398,737 Gross profit 26,517 36,587 36,623 29,149 128,876 Income (loss) before cumulative effect of change in accounting principle (3,010) 2,890 2,587 (5,590) (3,123)
70 DAYTON SUPERIOR CORPORATION AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (AMOUNTS IN THOUSANDS)
Additions Deductions ---------------------------------- ----------------------- Charges Charged for Which Balance at to Costs Reserves Balance at Beginning of and Were End of Year Expenses Other Created Year ------------ --------- ----- --------- ---------- Allowances for Doubtful Accounts and Sales Returns and Allowances For the year ended December 31, 2003 $ 4,861 $ 6,521 $ - $ (6,443) $ 4,939 For the year ended December 31, 2002 7,423 1,848 - (4,410) 4,861 For the year ended December 31, 2001 $ 5,331 $ 2,156 $ 102 (1) $ (166) $ 7,423
(1) Acquisition of BarLock and Aztec Concrete Accessories, Inc. 71 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 9A. 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 period 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. 72 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the name, age and position of our executive officers and directors as of December 31, 2003.
Name Age Position - ----------------------- --- ----------------------------------------------- John A. Ciccarelli 64 Chairman of the Board of Directors Stephen R. Morrey 49 President, Chief Executive Officer and Director Peter J. Astrauskas 53 Vice President, Engineering Raymond E. Bartholomae 57 Vice President, Sales and Marketing Dennis P. Haggerty 52 Vice President, Supply Chain Management Steven C. Huston 49 Vice President, General Counsel and Secretary Mark K. Kaler 46 Vice President, Strategic Planning Edward J. Puisis 43 Vice President and Chief Financial Officer Thomas W. Roehrig 38 Vice President of Corporate Accounting Stephen Berger 64 Director William F. Hopkins 40 Director Douglas W. Rotatori 43 Director
John A. Ciccarelli has been a Director since 1994 and Chairman of our Board of Directors since 2000. Mr. Ciccarelli was President and Chief Executive Officer from 1989 until 2002. Stephen R. Morrey has been President, Chief Executive Officer and a Director since July 2002. From June 2001 to July 2002, Mr. Morrey was President of Alcoa Automotive Castings. From 1999 to June 2001, he was Vice President of Operations for the Occupant Safety Systems Division of TRW. From 1995 to 1999, Mr. Morrey served as Vice President of Operations for the Airbags Worldwide, Steering Wheels North America Division of TRW. Peter J. Astrauskas has been Vice President, Engineering since September 2003. From 2001 to 2003, he was Vice President, Engineering for Alcoa Automotive. From 1994 to 2001, he was the Director, Global Manufacturing Engineering for TRW Safety Systems. Raymond E. Bartholomae has been Vice President, Sales and Marketing since August 2003. He has been employed by Symons since January 1970 and had been Vice President and General Manager, Symons, from February 1998 to August 2003. Dennis P. Haggerty has been Vice President, Supply Chain Management since October 2002. From October 2001 to October 2002, he was Director of Business Development/Quality for Alcoa Automotive Castings. From February 2000 to October 2001, he was Executive Vice President for Ventra Plastics. From May 1999 to February 2000, Mr. Haggerty was Vice President for Ventra Plastics Europe. From 1997 to May 1999, he served as Director of Operations for TRW. Steven C. Huston has been Vice President, General Counsel and Secretary since January 2003. From January 2002 to January 2003, he was Deputy General Counsel and Assistant Secretary. Mr. Huston was in private practice from February 2001 through December 2001, and prior to that, served as Counsel--North America for Wm. Wrigley Jr. Company from March 1997 to February 2001. Mark K. Kaler has been Vice President, Strategic Planning since August 2003. He served as Vice President and General Manager, Construction Products Group from October 2002 to August 2003. From April 1996 to October 2002, Mr. Kaler was Vice President and General Manager, American Highway Technology. 73 Edward J. Puisis has been Vice President and Chief Financial Officer since August 2003. From March 1998 to August 2003 Mr. Puisis was General Manager of Finance and Administration and Chief Financial Officer of Gallatin Steel Company, a partnership owned by Dafasco and Gerdau Ameristeel. Thomas W. Roehrig has been Vice President of Corporate Accounting since February 2003 and was Treasurer from August 2003 to December 2003. From April 1998 to February 2003, Mr. Roehrig served as Corporate Controller. Stephen Berger has been chairman of Odyssey Investment Partners, LLC since 1997. Mr. Berger also served as a director of Transdigm, Inc., a supplier of highly engineered commercial and military aircraft parts from 1998 to July 2003. William F. Hopkins has been a member and Managing Principal of Odyssey Investment Partners, LLC since 1997. Mr. Hopkins also served as a director of Transdigm, Inc. from 1998 to July 2003, a supplier of highly engineered commercial and military aircraft parts. Douglas W. Rotatori has been a principal of Odyssey Investment Partners, LLC since 1998. We have five directors. Each director is elected to serve until the next annual meeting of shareholders or until a successor is elected. Our executive officers are elected by the directors to serve at the pleasure of the directors. There are no family relationships between any of our directors or executive officers. Except for Mr. Ciccarelli, our directors, all of whom are employed by us, or Odyssey, do not receive any compensation for their service as directors. The AUDIT COMMITTEE of our Board of Directors consists of Messrs. Berger, Hopkins, and Rotatori, none of who is considered independent under the rules of the national securities exchanges. The Board of Directors has determined that Mr. Rotatori is an Audit Committee financial expert, as defined in the rules of the Securities and Exchange Commission. We have adopted a CODE OF ETHICS that specifically applies to our senior financial officers, including our President and Chief Executive Officer, Chief Financial Officer, Vice President of Corporate Accounting, and Treasurer. Our Code of Ethics is filed with this annual report on Form 10-K as Exhibit 14. 74 ITEM 11. EXECUTIVE COMPENSATION The following table summarizes the 2003, 2002, and 2001 compensation for our chief executive officer and each of the other four most highly compensated executive officers who were serving as executive officers at December 31, 2003 or who had served as an executive officer during 2003.
LONG-TERM COMPENSATION ----------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------------------- -------------- ----------- OTHER ANNUAL SHARES LONG TERM NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING INCENTIVE ALL OTHER POSITION YEAR ($) ($) ($) OPTIONS (#)(1) PAYOUTS ($) COMPENSATION($)(2) - ---------------------- ---- --------- --------- ------------ -------------- ----------- ------------------ Stephen R. Morrey 2003 $ 375,000 $ 135,000 $ 195,709(3) - $ - $ 4,000 President and Chief 2002 173,077 235,000 77,102(3) 100,000 - - Executive Officer Dennis Haggerty 2003 $ 225,000 $ 100,000 $ 43,122(4) - $ - $ 3,500 Vice President, 2002 55,385 32,653 - 35,000 - - Supply Chain Management Raymond E. Bartholomae 2003 $ 243,942 $ 140,000 $ - 12,000 $ - $ 4,000 Vice President, 2002 210,000 120,000 - - - 16,000 Sales and Marketing 2001 206,750 90,000 - - - 13,600 Mark K. Kaler 2003 $ 227,000 $ 70,000 $ - 12,000 $ - $ 4,000 Vice President, 2002 184,077 110,000 - - - 13,000 Strategic Planning 2001 149,231 160,214 - - - 7,650 Alan F. Mcliroy(5) 2003 $ 147,692 $ 27,123 $ 24,110(6) - $ - $ 314,846 Vice President and 2002 240,000 45,000 - - - 13,000 Chief Financial 2001 236,539 96,406 - - - 11,050 Officer Edward J. Puisis 2003 $ 96,154 $ 325,000(7) $ - 55,000 $ - $ - Vice President and Chief Financial Officer
(1) Options to purchase common shares were granted under our stock option plans at an exercise price of $27.50 per share, except for Mr. Puisis' options, which have an exercise price of $24.00 per share. The options become exercisable based on a combination of service and performance factors. (2) Consists of:
Matching 401(k) Contributions Contributions to 401(k) Savings Plan Severance 2003 2002 2001 2003 2002 2001 2003 ----------------------------------------------------------------------------- Mr. Morrey $4,000 $ - $ - $ - $ - $ - $ - Mr. Haggerty 3,500 - - - - - - Mr. Bartholomae 4,000 4,000 3,400 - 12,000 10,200 - Mr. Kaler 4,000 4,000 3,400 - 9,000 4,250 - Mr. Mcliroy 4,000 4,000 3,400 - 9,000 7,650 310,846 Mr. Puisis - - - - - - -
75 (3)The amounts included in this column which represent more than 25% of the total perquisites and personal benefits received by Mr. Morrey were relocation expense paid by us of $70,402 in 2002 and $176,119 in 2003. (4)The amounts included in this column which represent more than 25% of the total perquisites and personal benefits received by Mr. Haggerty were temporary living and mileage expenses paid by us of $29,322 and a car allowance of $13,800. (5) Mr. McIlroy, the former chief financial officer, resigned effective August 8, 2003. In connection with Mr. McIlroy's severance, Mr. McIlroy received a severance payment of $207,000, 24 months of salary continuation (of which $103,846 was paid in 2003), and a prorated bonus of $27,123 for 2003. All of his unexercised options were cancelled. (6) The amounts included in this column which represent more than 25% of the total perquisites and personal benefits received by Mr. Mcliroy were imputed interest of $10,310 on an interest free loan and a car allowance of $13,800. (7) The bonus amount for Mr. Puisis reflects a signing bonus of $175,000 he received upon his employment with Dayton Superior and a $150,000 bonus under the Company's annual bonus plan. EMPLOYMENT AGREEMENTS We have entered into employment agreements with each of Messrs. Morrey, Bartholomae, Puisis, and Kaler. We do not currently have an employment agreement with Mr. Haggerty. Generally, each employment agreement provides: - Each executive officer is an "employee at will." - Each executive officer is entitled to participate in our executive annual bonus plan and in our various other employee benefit plans and arrangements which are applicable to senior officers. - If an executive officer is terminated without cause during the term of his employment agreement, he will be entitled to receive a pro rata share of his bonus for the year of termination, to continue to receive his annual base salary for a period of 12 to 36 months and to continue coverage under our medical and dental programs for from one to three years on the same basis as he was entitled to participate prior to his termination. - Each executive officer is prohibited from competing with us during the term of his employment under the employment agreement and, under certain conditions, from one to three years following termination of his employment or expiration of the term of his employment agreement. Mr. Morrey's employment agreement differs from the other agreements described above in the following respects: - His annual base salary is $375,000, which may be increased by our Board of Directors at its discretion. - He serves as a director as well as President and Chief Executive Officer. - The term of his employment is four years, beginning July 15, 2002. His agreement will automatically be extended for additional one-year periods unless either of us notifies the other of termination not later than 120 days before the end of a term. - He received in 2002 a one-time signing bonus of $100,000 and reimbursement for certain expenses he incurred in connection with his move to the Dayton, Ohio area. He also received in 2002 a loan in the amount of $350,000 (which is fully recourse to him only with respect to $175,000), which he applied toward the purchase of 14,545 of our common shares at a price of $27.50 per share. 76 - He receives an annual car allowance, payment of the annual membership fee in a country, alumni or social club of his choice and hanger fees for his personal aircraft (up to a specified maximum amount), payment for reasonable expenses incurred by him for professional assistance with taxes and financial management consistent with our current practices and reimbursement for reasonable travel and business expenses incurred by him in the use of his personal aircraft for performance of his duties, in accordance with our procedures. Pursuant to an agreement with Dayton Superior, Mr. Puisis' employment agreement differs from the other agreements described above in the following respects: - His annual base salary is $250,000, which may be increased by our Board of Directors at its discretion. - The term of his employment is two years, beginning August 11, 2003. His employment agreement will be automatically extended for additional one-year periods unless either of us notifies the other not later than 120 days before the end of a term. - He received in 2003 a one-time signing bonus of $175,000 and reimbursement for expenses he incurred in connection with his move to the Dayton, Ohio area. - He receives an annual car allowance, payment of the annual membership fee in a country, alumni or social club of his choice (up to a specified maximum amount) as well as payment of the initiation fee in that country, alumni or social club (up to a specified amount). MANAGEMENT STOCKHOLDERS' AGREEMENT We along with Odyssey and our employee stockholders, including the officers named in the Summary Compensation Table (the "Management Stockholders"), are partners to a Management Stockholders' Agreement (the "Management Stockholders' Agreement") which governs our common shares, options to purchase our common shares and shares acquired upon exercise of options. The Management Stockholders' Agreement provides that except for certain transfers to family members and family trusts, no Management Stockholder may transfer common stock except in accordance with the Management Stockholders' Agreement. The Management Stockholders' Agreement also provides that, upon termination of the employment of a Management Stockholder, the Management Stockholder has certain put rights and we have certain call rights regarding his or her common stock. If the provisions of any law, the terms of credit and financing arrangements or our financial circumstances would prevent us from making a repurchase of shares pursuant to the Management Stockholders' Agreement, we will not make the purchase until all such prohibitions lapse, and will then also pay the Management Stockholder a specified rate of interest on the repurchase price. The Management Stockholders' Agreement further provides that in the event of certain transfers of common shares by Odyssey, the Management Stockholders may participate in such transfers and/or Odyssey may require the Management Stockholders to transfer their shares in such transactions, in each case on a pro rata basis. Certain Management Stockholders are entitled to participate on a pro rata basis with, and on the same terms as, Odyssey in any future offering of common shares. 77 FISCAL 2003 STOCK OPTION GRANTS The stock options granted in 2003 to Messers. Kaler, Bartholomae and Puisis in the Summary Compensation Table are shown in the following table. The table also shows the hypothetical gains that would exist for the options at the end of their ten year terms, assuming compound rates of stock appreciation of 5% and 10%, respectively. The actual future value of the options will depend on the market or appraised value of the common shares.
Option Grants in Last Fiscal Year ------------------------------------------------------ Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Individual Grants Term ------------------------------------------------------ ----------------------------- Number of % of Total Shares Options Underlying Granted to Exercise Options Employees Price Expiration Name Granted (#) in 2003 ($/Sh) Date 5%($) 10%($) - ----------------------- ----------- ---------- -------- ---------- --------- ---------- Mark K. Kaler 12,000(1) 12.9% $ 27.50 1/1/13 $ 207,535 $ 525,935 Raymond E. Bartholomae 12,000(1) 12.9% $ 27.50 1/1/13 $ 207,535 $ 525,935 Edward J. Puisis 55,000(1) 59.2% $ 24.00 8/11/13 $ 830,141 $2,103,740
(1) Options were granted under the 2000 Stock Option Plan with an exercise price that represents the fair market value of a Common Share on the date the options were granted. The options are divided into two different parts, both of which have a different vesting schedule. All unvested options will become fully exercisable upon a change in control (as defined in the 2000 Stock Option Plan), if Odyssey receives at least a targeted return on its investment. FISCAL YEAR-END OPTION VALUES The number and value of options exercised and the number and value of all unexercised options held by each of the executive officers named in the Summary Compensation Table at December 31, 2003 are shown in the following table.
Number of Shares Value of Unexercised Underlying Unexercised In-the-Money Options at Shares Options at 12/31/03 (#) 12/31/03 ($)(1) Acquired on Value ------------------------- ------------------------- Name Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable - ----------------- ------------ ------------ ------------------------- ------------------------- Stephen R. Morrey - - 25,000/75,000 $ 0/$0 Dennis Haggerty - - 3,500/31,500 0/0 Raymond E. Bartholomae - - 12,552/49,341 15,039/0 Mark K. Kaler - - 20,775/47,417 233,063/0 Alan F. Mcliroy - - 0/0 0/0 Edward J. Puisis - - 4,582/50,418 0/0
(1) Represents the excess of $22.41, the fair market value as of December 31, 2003 based on an independent appraisal, over the aggregate option exercise price. 78 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS. The following table sets forth information with respect to the beneficial ownership of our common shares as of December 31, 2003 by: - each person known by us to beneficially own more than 5% of our common shares; - directors; - executive officers listed in the compensation table; and - directors and executive officers as a group. We have determined beneficial ownership as reported below in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Beneficial ownership generally includes sole or shared voting or investment power with respect to the shares and includes the number of common shares subject to all outstanding options. The percentages of our outstanding common shares are based on 4,554,269 shares outstanding, except for certain parties who hold options that are exercisable into common shares within 60 days. The percentages for those parties who hold options that are exercisable within 60 days are based on the sum of 4,554,269 shares outstanding plus the number of common shares subject to options exercisable within 60 days held by them and no other person, as indicated in the notes following the table. The number of common shares beneficially owned has been determined by assuming the exercise of options exercisable into common shares within 60 days. Unless otherwise indicated, voting and investment power are exercised solely by each individual and/or a member of his household.
Number of Common Shares Beneficially % of Common Name of Beneficial Owner: Owned Shares - ---------------------------- ------------------- ----------- Odyssey (1) 4,208,317 92.4 Raymond E. Bartholomae (2) 33,629 * Stephen Berger (3) 4,208,317 92.4 John A. Ciccarelli (4) 76,312 1.7 Dennis P. Haggerty (5) 5,500 * William F. Hopkins (3) 4,208,317 92.4 Mark K. Kaler (6) 48,686 1.1 Edward J. Puisis (7) 5,624 * Alan F. McIlroy 18,227 * Stephen R. Morrey (8) 39,546 * Douglas Rotatori (3) 4,208,317 92.4 Executive officers and directors as a group (9 persons) (9) 4,435,841 95.2
* Signifies less than 1%. (1) Consists of 4,208,317 common shares owned in the aggregate by Odyssey Investment Partners Fund, LP (the "Fund"), certain of its affiliates and certain co-investors (together with the Fund, "Odyssey"). Odyssey Capital Partners, LLC is the general partner of the Fund. Odyssey Investment Partners, LLC is the manager of the Fund. The principal business address for Odyssey is 280 Park Avenue, West Tower, 38th Floor, New York, New York. (2) Includes 12,552 common shares issuable upon exercise of options exercisable within 60 days. (3) Consists of 4,208,317 common shares owned in the aggregate by Odyssey. Messrs. Berger and Hopkins are managing members of the Odyssey Capital Partners, LLC and Odyssey Investment Partners, LLC and, therefore, may each be deemed to share voting and investment power with respect to the shares deemed to be beneficially owned by Odyssey. Mr. Rotatori is a member of Odyssey Investment Partners, LLC. Each of Messrs. Berger, Hopkins and Rotatori disclaim beneficial ownership of these shares. (4) Includes 37,051 common shares issuable upon exercise of options exercisable within 60 days. 79 (5) Includes 3,500 common shares issuable upon exercise of options exercisable within 60 days. (6) Includes 20,775 common shares issuable upon exercise of options exercisable within 60 days. (7) Includes 4,582 common shares issuable upon exercise of options exercisable within 60 days. (8) Includes 25,000 common shares issuable upon exercise of options exercisable within 60 days. (9) As described in note 3, Messrs. Berger and Hopkins may each be deemed to share voting and investment power with respect to the shares beneficially owned by Odyssey and Messrs. Berger, Hopkins and Rotatori disclaim beneficial ownership of the shares beneficially owned by Odyssey. Excluding the shares deemed to be owned by Odyssey, all executive officers and directors as a group beneficially own 215,841 common shares. EQUITY COMPENSATION PLAN INFORMATION
Number of securities remaining Number of securities to be available for future issuance issued upon exercise of Weighted-average exercise under equity compensation outstanding options, price of outstanding plans (excluding securities warrants and rights options, warrants and rights reflected in column (a)) Plan Category (a) (b) (c) - --------------------------------------------------------------------------------------------------------------------- Equity compensation plans approved by security holders 643,839 $ 25.03 75,415 - --------------------------------------------------------------------------------------------------------------------- Equity compensation plans not approved by security holders - - - - --------------------------------------------------------------------------------------------------------------------- Total 643,839 $ 25.03 75,415 - ---------------------------------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. EMPLOYMENT AND ROLLOVER AGREEMENTS In connection with the 2000 recapitalization, we entered into employment and other "rollover" agreements with John A. Ciccarelli, Raymond E. Bartholomae and Mark K. Kaler, each of whom is or was an executive officer, and with Alan F. Mcliroy, our former chief financial officer. Generally, the "rollover" agreements required each executive officer to retain common shares and, in most cases, stock options, with a specified aggregate value following the recapitalization. In some cases, the executive officer has agreed to exercise stock options in order to obtain some of the common shares, which he has agreed to retain, following the recapitalization. These agreements provided that if the executive officer exercised stock options in order to obtain some of the common shares he is required to retain and he so requested, we made a non-interest bearing, recourse loan to him in an amount equal to the exercise price of the options plus the estimated federal and state income tax liability he incurred in connection with the exercise. If the executive officer purchased some of the common shares he is required to retain and he so requested, we made a 6.39% interest deferred recourse loan to him. These loans are secured by a pledge of the shares issued. As of December 31, 2003, the amounts outstanding were $69,852 for Mr. Ciccarelli, $374,697 for Mr. Morrey, $556,455 for Mr. Bartholomae, $288,487 for Mr. Kaler, and $177,379 for Mr. Mcliroy. These amounts were also the largest amounts outstanding for these loans during the period January 1, 2000 through December 31, 2003, except for Mr. Mcliroy, for whom the largest amount was $289,159. 80 ODYSSEY FINANCIAL SERVICES During 2003, we reimbursed Odyssey for $315,000 of out-of-pocket expenses for travel, lodging and meals. MANAGEMENT STOCKHOLDERS' AGREEMENT We, along with Odyssey and our employee stockholders, including our executive officers, are parties to a Management Stockholders' Agreement, which is described in more detail under Item 11 above. 81 PART IV ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The services performed by Deloitte & Touche LLP in 2003 and 2002 were pre-approved by the Audit Committee. The Audit Committee requires any requests for audit, audit-related, tax, or any other services to be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted. Normally, pre-approval is provided at regularly scheduled meetings. However, the authority to grant specific pre-approval between meetings, as necessary, has been delegated to the Chairman of the Audit Committee. The Chairman must update the Audit Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval. In addition, although not required by the rules and regulations of the SEC, the Audit Committee requests a range of fees associated with each proposed service. Providing a range of fees for a service permits appropriate oversight and control of the independent auditor relationship, while permitting us to receive immediate assistance from the independent auditor when time is of the essence. We retained Deloitte & Touche LLP to audit our consolidated financial statements for the years ended 2003 and 2002. To minimize relationships that could appear to impair the objectivity of Deloitte & Touche, our audit committee has restricted the non-audit services that Deloitte & Touche may provide to us primarily to audit services and tax services. In considering the nature of the services provided by the independent auditor, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent auditor and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002. The aggregate fees billed for professional services by Deloitte & Touche LLP, the Company's independent accountants, in 2003 and 2002 for these various services were:
TYPE OF FEES 2003 2002 - ------------------ --------- -------- Audit fees (1) $ 645.9 $ 196.7 Audit-related fees 197.8 42.4 Tax fees 855.2 213.8 --------- -------- Total fees $ 1,698.9 $ 452.9 ========= ========
(1) Audit fees for 2003 include $345.7 of costs related to the 2000, 2001, and 2002 restatements as disclosed in the 2002 10-K/A. The aggregate fees billed for professional services by Arthur Andersen LLP, the Company's independent accountants for a portion of 2002, for these various services were:
TYPE OF FEES 2002 - ------------------ --------- Audit fees $ - Audit-related fees 46.5 Tax fees 356.5 --------- Total fees $ 403.0 =========
In the above tables, in accordance with new SEC definitions and rules, "audit fees" are fees we paid Deloitte & Touche and Arthur Anderson for professional services for the audit of our consolidated financial statements included in Form 10-K and review of financial statements included in Form 10-Qs, or for comfort letters, statutory and regulatory audits, consents and other services related to SEC matters; "audit-related fees" are fees billed by Deloitte & Touche and Arthur Andersen for assurance 82 and related services that are reasonably related to the performance of the audit or review of our financial statements, due diligence associated with mergers/acquisitions, financial accounting and reporting consultations, and information systems reviews; "tax fees" are fees for tax compliance, tax advice, and tax planning. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute, and obtain government approval for amounts to be included in tax filings. Tax planning and advice are services rendered with respect to proposed transactions or that alter a transaction to obtain a particular tax result. 83 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements The following consolidated financial statements of the Company and subsidiaries are incorporated by reference as part of this Report under Item 8. Independent Auditors Report. Consolidated Balance Sheets as of December 31, 2003 and 2002. Consolidated Statements of Operations for the years ended December 31, 2003, 2002, and 2001. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002, and 2001. Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, and 2001. Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2003, 2002, and 2001. Notes to Consolidated Financial Statements. (a)(2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts (at Item 8 of this Report) All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto. (a)(3) Exhibits. See Index to Exhibits following the signature pages to this Report for a list of exhibits. (b) Reports on Form 8-K. During the quarter ended December 31, 2003, we filed the following Current Reports on Form 8-K: Amendment No. 1 to Current Report on Form 8-K dated October 14, 2003 (amending our Current Report on Form 8-K dated August 13, 2003) reporting under Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements and Exhibits) the historical financial information with respect to Safway Formwork Systems, L.L.C. required under Item 7(a), which was not included in the initial filing. Current Report on Form 8-K dated October 15, 2003 reporting under Item 7 (Financial Statements and Exhibits) and Item 12 (Results of Operations and Financial Condition) that we had issued a press release announcing our release of historical audited financial information of Safway Formwork Systems, L.L.C. Current Report on Form 8-K dated November 11, 2003 reporting under Item 12 (Results of Operations and Financial Condition) that we had issued a press release announcing our summary financial results for the third quarter and first nine months of 2003. Amendment No. 2 to Current Report on Form 8-K dated December 10, 2003 (amending our Current Report on Form 8-K dated August 13, 2003) reporting under Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements and Exhibits) the pro forma financial information required under Item 7(b), which was not included in the initial filing. 84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Dayton Superior Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DAYTON SUPERIOR CORPORATION March 30, 2004 By /s/ Stephen R. Morrey ----------------------------------- Stephen R. Morrey President, Chief Executive Officer and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Dayton Superior Corporation and in the capacities and on the dates indicated.
NAME TITLE DATE /s/John A. Ciccarelli Chairman of the Board of Directors March 30, 2004 - --------------------- John A. Ciccarelli /s/Stephen R. Morrey President, Chief Executive Officer and Director March 30, 2004 - --------------------- Stephen R. Morrey /s/Edward J. Puisis Vice President and Chief Financial Officer March 30, 2004 - --------------------- (Principal Financial Officer) Edward J. Puisis /s/Thomas W. Roehrig Vice President of Corporate Accounting March 30, 2004 - --------------------- (Principal Accounting Officer) Thomas W. Roehrig /s/Stephen Berger Director March 30, 2004 - --------------------- Stephen Berger /s/William F. Hopkins Director March 30, 2004 - --------------------- William F. Hopkins /s/Douglas Rotatori Director March 30, 2004 - --------------------- Douglas Rotatori
85 INDEX OF EXHIBITS
Exhibit No. Description (2) ACQUISITION AGREEMENTS 2.1 Asset Purchase Agreement, dated as of June 30, 2003, by and among the Company and Symons Corporation, and Safway Formworks Systems L.L.C. and Safway Services, Inc. [Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K filed on August 13, 2003] + 2.1.1 Amendment One, dated as of July 15, 2003, to the Asset Purchase Agreement among the Company and Symons Corporation, and Safway Formworks Systems L.L.C. and Safway Services, Inc. [Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K filed on August 13, 2003] + 2.1.2 Amendment Two, dated as of July 29, 2003, to the Asset Purchase Agreement among the Company and Symons Corporation, and Safway Formworks Systems L.L.C. and Safway Services, Inc. [Incorporated by reference to Exhibit 2.3 to the Company's Form 8-K filed on August 13, 2003] + (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Amended Articles of Incorporation of the Company [Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Reg. No. 333-41392)] + 3.2 Code of Regulations of the Company (as amended) [Incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-4 (Reg. No. 333-41392)] + (4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES 4.1 Form of Junior Convertible Subordinated Indenture between Dayton Superior Corporation and Firstar Bank, N.A., as Indenture Trustee [Incorporated by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] + 4.1.1 First Supplemental Indenture dated January 17, 2000, between Dayton Superior Corporation and Firstar Bank, N.A., as Trustee [Incorporated by reference to Exhibit 4.6.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] + 4.1.2 Form of Junior Convertible Subordinated Debenture [Incorporated by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] +
86 4.2 Indenture dated June 16, 2000 among the Company, the Guarantors named therein, as guarantors, and United States Trust Company of New York, as trustee, relating to $170,000,000 in aggregate principal amount of 13% Senior Subordinated Notes due 2009 and registered 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.2.1 First Supplemental Indenture dated as of August 3, 2000. [Incorporated by reference to Exhibit 4.5.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] + 4.2.2 Second Supplemental Indenture dated as of January 4, 2001. [Incorporated by reference to Exhibit 4.5.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] + 4.2.3 Third Supplemental Indenture dated as of June 19, 2001. [Incorporated by reference to Exhibit 4.5.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] + 4.2.4 Fourth Supplemental Indenture dated as of September 30, 2003. ** 4.3 Specimen Certificate of 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.4 Specimen Certificate of the registered 13% Senior Subordinated Notes due 2009 [Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 4.5 Warrant Agreement dated as of June 16, 2000 between the Company and United States Trust Company of New York, as Warrant Agent ** 4.6 Warrant Shares Registration Rights Agreement dated as of June 16, 2000 among the Company and the Initial Purchasers ** 4.7 Tag-Along Sales Agreement dated as of June 16, 2000 among the Company, Odyssey Investment Partners Fund, LP and the Initial Purchasers ** 4.8 Senior Second Secured Notes Indenture with respect to the 10 3/4% Senior Second Secured Notes due 2008, among the Company, the Guarantors named therein and The Bank of New York, as Trustee, dated June 9, 2003 [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] + 4.9 Form of 10 3/4% Senior Second Secured Note due 2008 (included in Exhibit 4.5) + 4.10 Second Amended and Restated Security Agreement, among the Company, certain subsidiaries of the Company and The Bank of New York, as Collateral Agent and as Trustee, dated January 30, 2004 [Incorporated by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] +
87 4.11 Second Amended and Restated Pledge Agreement, among the Company, Trevecca Holdings, Inc. and The Bank of New York, as Collateral Agent and as Trustee, dated January 30, 2004 [Incorporated by reference to Exhibit 4.11 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] + 4.12 Credit Agreement among the Company, the other persons designated as Credit Parties, General Electric Capital Corporation, as Agent, L/C Issuer and a Lender, the other Lenders and GECC Capital Markets Group, Inc., as Lead Arranger, dated January 30, 2004 [Incorporated by reference to Exhibit 4.7 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] + 4.13 Security Agreement among the Company, certain subsidiaries of the Company and General Electric Capital Corporation, as Agent, dated January 30, 2004 [Incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] + 4.14 Pledge Agreement among the Company, Trevecca Holdings, Inc. and General Electric Capital Corporation, as Agent, dated January 30, 2004 [Incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-4 (Reg. 333-107071)] + (10) MATERIAL CONTRACTS 10.1 Management Incentive Plan [Incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998] +* 10.2 Amended and Restated Employment Agreement dated as of July 15, 2002 by and between Dayton Superior Corporation and John A. Ciccarelli [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.3 Employment Agreement dated as of January 19, 2000 between the Company and Mark K. Kaler, as amended effective June 16, 2000 [Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.3.1 Letter Agreement dated May 13, 2002 between Dayton Superior Corporation and Mark K. Kaler [Incorporated by reference to Exhibit 10.7.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002] +* 10.4 Employment Agreement dated effective June 12, 2002 by and between Dayton Superior Corporation and Stephen R. Morrey [Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 2002] +* 10.4.1 Secured Promissory Note dated July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +*
88 10.4.2 Secured Promissory Note dated July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.4.3 Repayment and Stock Pledge Agreement dated as of July 22, 2002 between Dayton Superior Corporation and Stephen R. Morrey. [Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002] +* 10.5 Employment Agreement between the Company and Edward J. Puisis [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated November 10, 2003] +* 10.6 Letter Agreement dated August 13, 2003 between Raymond Bartholomae and the Company [Incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q dated November 10, 2003] +* 10.7 Letter Agreement dated August 13, 2003 between Peter Astrauskas and the Company [Incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q dated November 10, 2003] +* 10.8 Amendment dated October 3, 2003 to Letter Agreement dated August 13, 2003 between Peter Astrauskas and the Company [Incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q dated November 10, 2003] +* 10.9 Management Stockholder's Agreement dated June 16, 2000 by and among the Company, Odyssey Investment Partners Fund, LP and the Management Stockholders named therein [Incorporated by reference to Exhibit 10.25 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.10 Dayton Superior Corporation 2000 Stock Option Plan [Incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001] +* 10.10.1 First Amendment to 2000 Stock Option Plan of Dayton Superior Corporation [Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 2001] +* 10.10.2 Second Amendment to 2000 Stock Option Plan of Dayton Superior Corporation dated July 15, 2002 [Incorporated by reference to Exhibit 10.13.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002] +* 10.10.3 Third Amendment to 2000 Stock Option Plan of Dayton Superior Corporation dated October 23, 2002[Incorporated by reference to Exhibit 10.13.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002] +* 10.10.4 Fourth Amendment to 2000 Stock Option Plan of Dayton Superior Corporation dated February 10, 2004. * **
89 10.10.5 Form of Amended and Restated Stock Option Agreement entered into between Dayton Superior Corporation and certain of its executive officers [Incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2002] +* (14) CODE OF ETHICS 14 Code of Ethics for Senior Financial Officers ** (21) SUBSIDIARIES OF THE REGISTRANT 21.1 Subsidiaries of the Company ** (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 Sarbanes-Oxley Section 1350 Certification of President and Chief Executive Officer ** 32.2 Sarbanes-Oxley Section 1350 Certification of Vice President and Chief Financial Officer **
- ---------------------------- * Compensatory plan, contract or arrangement in which one or more directors or named executive officers participate. ** Filed herewith + Previously filed 90 EX-4.2.4 3 l05622aexv4w2w4.txt EXHIBIT 4.2.4 EXHIBIT 4.2.4 FOURTH SUPPLEMENTAL INDENTURE FOURTH SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of September 30, 2003 among Southern Construction Products, Inc., an Alabama corporation ("Southern"), a subsidiary of Dayton Superior Corporation (or its permitted successor), an Ohio corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture, the First Supplemental Indenture, the Second Supplemental Indenture and the Third Supplemental Indenture referred to herein, each a "Guaranteeing Subsidiary," and collectively, the "Guaranteeing Subsidiaries") and The Bank of New York as successor in interest to United States Trust Company of New York, as trustee under the Indenture referred to herein (the "Trustee"). WITNESSETH: WHEREAS, the Company, Symons Corporation, a Delaware corporation ("Symons"), as a Guarantor, and Dur-O-Wal, Inc., a Delaware corporation ("Dur-O-Wal"), as a Guarantor, have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of June 16, 2000 providing for the issuance of an aggregate principal amount of up to $270.0 million of 13% Senior Subordinated Notes due 2009 (the "Notes"); WHEREAS, the Company and Dayton Superior Specialty Chemical Corporation, a Kansas corporation ("DSSCC"), as a Guarantor, have heretofore executed and delivered to the Trustee a supplemental indenture (the "First Supplemental Indenture"), dated as of August 3, 2000, which supplemented the Indenture and added DSSCC as guarantor under the Indenture; WHEREAS, the Company, Trevecca Holdings, Inc., a Delaware corporation ("Trevecca"), as a Guarantor, and Aztec Concrete Accessories, a California corporation ("Aztec"), as a Guarantor have heretofore executed and delivered to the Trustee a supplemental indenture (the "Second Supplemental Indenture"), dated as of January 4, 2001, which supplemented the Indenture and added Trevecca and Aztec as guarantors under the Indenture; WHEREAS, the Company, Symons, as a Guarantor, Dur-O-Wal, as a Guarantor, Trevecca, as a Guarantor, Aztec, as a Guarantor and DSSCC, as a Guarantor have heretofore executed and delivered to the Trustee a supplemental indenture (the "Third Supplemental Indenture"), dated as of June 19, 2001, which supplemented the Indenture and added certain additional subsidiaries of the Company as guarantors under the Indenture. WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which each Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows: (a) Along with all Guarantors named in the Indenture, to jointly and severally Guarantee to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of the Indenture, the Notes or the Obligations of the Company hereunder or thereunder, that: (i) the principal of, premium, if any, and interest on the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other Obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. (b) The Obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or the Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. (c) The following is hereby waived: diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever. (d) This Guarantee shall not be discharged except by complete performance of the Obligations contained in the Notes and the Indenture or pursuant to Section 6 hereof. (e) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors, or any custodian, Trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by 2 either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. (f) Each Guaranteeing Subsidiary shall not be entitled to any right of subrogation in relation to the Holders in respect of any Obligations guaranteed hereby until payment in full of all Obligations guaranteed hereby. (g) As between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 of the Indenture for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Obligations as provided in Article 6 of the Indenture, such Obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. (h) The Guarantors shall have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantee. (i) Pursuant to Section 11.03 of the Indenture, the Obligations of a Guaranteeing Subsidiary shall be limited to such a maximum amount as after giving effect to any maximum amount and any other contingent and fixed liabilities that are relevant under any applicable Bankruptcy or fraudulent conveyance laws (including, without limitation, all Senior Debt of such Guarantor), and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such other Guarantor under Article 11 of the Indenture, shall result in the Obligations of such Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance. 3. SUBORDINATION. The Obligations of each Guaranteeing Subsidiary under its Guarantee pursuant to this Supplemental Indenture shall be junior and subordinated to the Senior Debt of each Guaranteeing Subsidiary on the same basis as the Notes are junior and subordinated to the Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders shall have the right to receive and/or retain payments by each Guaranteeing Subsidiary only at such time as they may receive and/or retain payments in respect of the Notes pursuant to the Indenture, including Article 10 thereof. 4. EXECUTION AND DELIVERY. Each Guaranteeing Subsidiary agrees that the Guarantees shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Guarantee. 5. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. (a) Each Guaranteeing Subsidiary may not consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another corporation, Person or entity whether or not affiliated with such Guarantor unless: 3 (i) subject to Section 11.05 of the Indenture, the Person formed by or surviving any such consolidation or merger (if other than a Guarantor or the Company) shall be a corporation organized and validly existing under the laws of the United States or any state thereof or the District of Columbia, and unconditionally assumes all the Obligations of such Guarantor, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Notes, the Indenture and the Guarantee on the terms set forth herein or therein; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) the Company would be permitted, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.09 of the Indenture. (b) In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of the Indenture to be performed by the Guarantor, such successor Person shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Guarantees so issued shall in all respects have the same legal rank and benefit under the Indenture as the Guarantees theretofore and thereafter issued in accordance with the terms of the Indenture as though all of such Guarantees had been issued at the date of the execution hereof. (c) Except as set forth in Articles 4 and 5 of the Indenture, and notwithstanding clause (a) (iii) above, nothing contained in the Indenture or in any of the Notes shall prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or shall prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. 6. RELEASES. In the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all to the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the capital stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any Obligations under its Guarantee; provided that the Net Cash Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the applicable provisions of the Indenture, including without limitation Section 4.10 of the Indenture, the Trustee shall execute 4 any documents reasonably required in order to evidence the release of any Guarantor from its Obligations under its Guarantee. Any Guarantor not released from its Obligations under its Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other Obligations of any Guarantor under the Indenture as provided in Article 11 of the Indenture. 7. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of each Guaranteeing Subsidiary, as such, shall have any liability for any Obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such Obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 8. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Company. 5 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. DAYTON SUPERIOR CORPORATION, as Issuer By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Vice President, General Counsel and Secretary SYMONS CORPORATION, as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary DUR-O-WAL, INC., as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary TREVECCA HOLDINGS, INC., as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary AZTEC CONCRETE ACCESSORIES, INC., as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary DAYTON SUPERIOR SPECIALTY CHEMICAL CORP., as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary SOUTHERN CONSTRUCTION PRODUCTS, INC., as Guaranteeing Subsidiary By: /s/ Steven C. Huston ------------------------------------------ Name: Steven C. Huston Title: Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Cynthia Chaney ------------------------------------------ Name: Cynthia Chaney Title: Vice President EX-4.5 4 l05622aexv4w5.txt EXHIBIT 4.5 EXHIBIT 4.5 WARRANT AGREEMENT Dated as of June 16, 2000 Between DAYTON SUPERIOR CORPORATION, and UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent 170,000 Warrants to Acquire 117,276 Common Shares of DAYTON SUPERIOR CORPORATION No Par Value TABLE OF CONTENTS
Page ---- ARTICLE I ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES SECTION 1.01. Issuance of Warrants............................................................... SECTION 1.02. Form of Warrant Certificates....................................................... SECTION 1.03. Execution of Warrant Certificates.................................................. SECTION 1.04. Authentication and Delivery........................................................ SECTION 1.05. Temporary Warrant Certificates..................................................... SECTION 1.06. Separation of Warrants and Notes................................................... SECTION 1.07. Registration of Transfers and Exchanges............................................ SECTION 1.08. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates............................................................... SECTION 1.09. Offices for Exercise, etc ......................................................... ARTICLE II DURATION AND EXERCISE OF WARRANTS SECTION 2.01. Duration of Warrants .............................................................. SECTION 2.02. Exercise, Settlement and Delivery ................................................. SECTION 2.03. Cancellation of Warrant Certificates............................................... SECTION 2.04. Notice of a Triggering Event....................................................... SECTION 2.05. Transfer of Rights................................................................. ARTICLE III OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS SECTION 3.01. Enforcement of Rights.............................................................. ARTICLE IV CERTAIN COVENANTS OF THE COMPANY SECTION 4.01. Payment of Taxes................................................................... SECTION 4.02. Qualification Under the Securities Laws............................................ SECTION 4.03. Rules 144 and 144A................................................................. SECTION 4.04. Reservation of Warrant Shares...................................................... SECTION 4.05. Common Shares......................................................................
i SECTION 4.06. Obtaining Governmental Approvals................................................... SECTION 4.07. SEC Reports and Other Information ................................................. ARTICLE V ADJUSTMENTS SECTION 5.01. Adjustment of Exercise Rate; Notices............................................... SECTION 5.02. Fractional Warrant Shares.......................................................... SECTION 5.03. Certain Distributions.............................................................. ARTICLE VI CONCERNING THE WARRANT AGENT SECTION 6.01. Warrant Agent...................................................................... SECTION 6.02. Conditions of Warrant Agent's Obligations.......................................... SECTION 6.03. Resignation and Appointment of Successor........................................... ARTICLE VII REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE COMPANY SECTION 7.01. Good Standing of the Company....................................................... SECTION 7.02. Capitalization..................................................................... SECTION 7.03. Authorization of Agreement......................................................... SECTION 7.04. Authorization of the Warrant Shares Registration Rights Agreement................................................................... SECTION 7.05. Authorization of Tag-Along Sales Agreement......................................... SECTION 7.06. No Defaults or Conflicts........................................................... SECTION 7.07. Absence of Further Requirements.................................................... ARTICLE VIII ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES OF THE HOLDERS SECTION 8.01. Acknowledgments by Holders......................................................... SECTION 8.02. Representations and Warranties of the Holders...................................... ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendment..........................................................................
ii
SECTION 9.02. Notices and Demands to the Company and Warrant Agent............................... SECTION 9.03. Addresses for Notices to Parties and for Transmission of Documents....................................................................... SECTION 9.04. Notices to Holders................................................................. SECTION 9.05. Applicable Law..................................................................... SECTION 9.06. Persons Having Rights Under Agreement.............................................. SECTION 9.07. Headings........................................................................... SECTION 9.08. Counterparts....................................................................... SECTION 9.09 Inspection of Agreement............................................................ SECTION 9.10. Availability of Equitable Remedies.................................................
EXHIBIT A - Form of Warrant Certificate EXHIBIT B - Form of Legend for Global Warrant EXHIBIT C - Certificate To Be Delivered upon Exchange or Registration of Transfer of Warrants EXHIBIT D - Form of Transferee Letter of Representation in Connection with Transfers to Institutional Accredited Investors EXHIBIT E - Form of Transferee Letter of Representation in Connection with Transfers Pursuant to Regulation S iii INDEX OF DEFINED TERMS
Defined Term - ------------ Affiliate............................................................................... 5.01(b) Agreement............................................................................... Recitals Business Day............................................................................ 2.01 Capital Stock........................................................................... 5.01(m) Cashless Exercise....................................................................... 2.02(c) Cashless Exercise Ratio................................................................. 2.02(c) Common Shares........................................................................... Recitals Company................................................................................. Recitals Convertible Securities.................................................................. 5.01(m) Current Market Value.................................................................... 5.01(m) Definitive Warrants..................................................................... 1.02 Depositary.............................................................................. 1.02 Distribution............................................................................ 5.03 Distribution Rights..................................................................... 5.03 Election to Exercise.................................................................... 2.02(b) Equivalent Shares....................................................................... 5.01(m) Exchange Act............................................................................ 5.01(m) Exercisability Date..................................................................... 2.02(a) Exercise Date........................................................................... 2.02(d) Exercise Price.......................................................................... 2.02(c) Exercise Rate........................................................................... 2.02(a) Expiration Date......................................................................... 2.01 Global Shares........................................................................... 2.02(f) Global Warrants......................................................................... 1.02 Holders................................................................................. 1.07 Independent Financial Expert............................................................ 5.01(m) Indenture............................................................................... Recitals Initial Public Offering................................................................. 1.06 Initial Purchasers...................................................................... Recitals Institutional Accredited Investor....................................................... 1.08(a) Material Adverse Effect................................................................. 7.01 Notes................................................................................... Recitals Odyssey................................................................................. Recitals Officer's Certificate................................................................... 1.08(d) Options................................................................................. 5.01(m) Parent Holding Company.................................................................. 2.05 Parent Warrant Shares................................................................... 2.05 Permitted Options....................................................................... 5.01(b) Person.................................................................................. 2.02(a) Purchase Agreement...................................................................... Recitals QIB..................................................................................... 1.08(a) Registrar............................................................................... 1.07
Related Parties......................................................................... 6.02(e) Resale Restriction Termination Date..................................................... 6.02(e) Rule 144A............................................................................... 1.08(a) Securities Act.......................................................................... 1.06 Separation.............................................................................. 1.06 Separability Date....................................................................... 1.06 Tag-Along Sales Agreement............................................................... Recitals Triggering Event........................................................................ 2.02(a) Trustee................................................................................. Recitals Units................................................................................... Recitals Warrant Agent........................................................................... Recitals Warrant Agent Office.................................................................... 1.10 Warrant Certificates.................................................................... 1.02 Warrant Exercise Office................................................................. 2.02(d) Warrant Register........................................................................ 1.07 Warrant Shares Registration Rights Agreement............................................ Recitals Warrant Shares.......................................................................... 1.01 Warrants................................................................................ Recitals
WARRANT AGREEMENT THIS WARRANT AGREEMENT (this "Agreement") is made and entered into as of June 16, 2000 between DAYTON SUPERIOR CORPORATION, an Ohio corporation (together with any successor thereto, the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, not in its individual capacity but solely as warrant agent (together with any successor Warrant Agent, the "Warrant Agent"). WHEREAS the Company has entered into a purchase agreement (the "Purchase Agreement ") dated June 9, 2000 with Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (collectively, the "Initial Purchasers") in which the Company has agreed to sell to the Initial Purchasers 170,000 units (the "Units") consisting in the aggregate of (i) $170,000,000 aggregate principal amount of 13% Senior Subordinated Notes due 2009 (the "Notes") of the Company to be issued under an indenture, dated as of June 16, 2000 (the "Indenture"), between the Company, the Guarantors named therein and United States Trust Company of New York, as trustee (in such capacity, the "Trustee"), and (ii) 170,000 warrants (the "Warrants") to purchase 117,276 common shares, no par value (the "Common Shares"), of the Company; WHEREAS each Unit will consist of one Note in the principal amount of $1,000 and one Warrant to purchase 0.68986 of a Common Share; the Notes and Warrants comprising part of the Units shall not be separately transferable until the Separability Date (as defined herein); and WHEREAS the Holders (as defined herein) will have the registration rights and other rights and obligations with respect to the Warrants and the Warrant Shares (as defined herein) as set forth in the Warrant Shares Registration Rights Agreement (the "Warrant Shares Registration Rights Agreement") dated June 16, 2000 between the Company and the Initial Purchasers, and the Tag-Along Sales Agreement (the "Tag-Along Sales Agreement") dated June 16, 2000, among the Company, the Initial Purchasers and Odyssey Investment Partners Fund, LP ("Odyssey"); and WHEREAS the Company desires the Warrant Agent as warrant agent to assist the Company in connection with the issuance, exchange, cancellation, replacement and exercise of the Warrants, and in this Agreement wishes to set forth, among other things, the terms and conditions on which the Warrants may be issued, exchanged, cancelled, replaced and exercised; NOW, THEREFORE, the parties hereto agree as follows: -7- ARTICLE I ISSUANCE, FORM, EXECUTION, DELIVERY AND REGISTRATION OF WARRANT CERTIFICATES SECTION 1.01. Issuance of Warrants. Each Warrant Certificate (as defined herein) shall evidence the number of Warrants specified therein, and each Warrant evidenced thereby shall represent the night, subject to the provisions contained herein and therein, to acquire from the Company (and the Company shall issue and sell to such holder of the Warrant) 0.68986 of a fully paid and nonassessable Common Share at an exercise price of $0.01 per share (the shares purchasable upon exercise of the Warrants being hereinafter referred to as the "Warrant Shares" and, where appropriate, such term shall also mean the other securities or property purchasable and deliverable upon exercise of the Warrants as provided in Article V), in each case subject to adjustment as provided herein and therein. Warrants comprising part of the Units shall be originally issued in connection with the issuance of the Units and shall not be separately transferable from the Notes until on and after the Separability Date as provided in Section 1.06. SECTION 1.02. Form of Warrant Certificates. The certificates evidencing the Warrants are herein referred to collectively as the "Warrant Certificates." The Warrant Certificates will initially be issued either in global form (the "Global Warrants"), substantially in the form of Exhibit A hereto, or in registered form as definitive Warrant Certificates (the "Definitive Warrants") substantially in the form of Exhibit A hereto. Any Global Warrants to be delivered pursuant to this Agreement shall bear the legend set forth in Exhibit B hereto. Such Global Warrants shall represent such of the outstanding Warrants as shall be specified therein, and each shall provide that it shall represent the aggregate amount of outstanding Warrants from time to time endorsed thereon and that the aggregate amount of outstanding Warrants represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Warrant to reflect the amount of any increase or decrease in the amount of outstanding Warrants represented thereby shall be made by the Warrant Agent and the Depositary (as defined herein) in accordance with instructions given by the holder thereof The Depository Trust Company (the "Deposit") shall act as the Depositary with respect to the Global Warrants until a successor shall be appointed by the Company and the Warrant Agent. Upon written request, a holder of Warrants may receive from the Warrant Agent or the Depository Definitive Warrants as set forth in Section 1.08. SECTION 1.03. Execution of Warrant Certificates. The Warrant Certificates shall be executed on behalf of the Company by the chairman of its Board of Directors, its president, its chief financial officer or any vice president. Such signatures may be the manual or facsimile signatures of the present or any future such officers. Typographical and other minor errors or defects in any such reproduction of any such signature shall not affect the validity or enforceability of any Warrant Certificate that has been duly countersigned and delivered by the Warrant Agent. -8- In case any officer of the Company who shall have signed any of the Warrant Certificates shall cease to be such officer before the Warrant Certificate so signed shall be countersigned and delivered by the Warrant Agent or disposed of by the Company, such Warrant Certificate nevertheless may be countersigned and delivered or disposed of as though the person who signed such Warrant Certificate had not ceased to be such officer of the Company; and any Warrant Certificate may be signed on behalf of the Company by such persons as, at the actual date of the execution of such Warrant Certificate, shall be the proper officers of the Company, although at the date of the execution and delivery of this Agreement any such person was not such an officer. SECTION 1.04. Authentication and Delivery. Subject to the immediately following paragraph, Warrant Certificates shall be authenticated by manual signature and dated the date of authentication by the Warrant Agent and shall not be valid for any purpose unless so authenticated and dated. The Warrant Certificates shall be numbered and shall be registered in the Warrant Register (as defined in Section 1.07). Upon the receipt by the Warrant Agent of a written order of the Company, which order shall be signed by the chairman of its Board of Directors, its president, its chief financial officer or any vice president, and shall specify the amount of Warrants to be authenticated, the date of such Warrants and such other information as the Warrant Agent may reasonably request, without any further action by the Company, the Warrant Agent is authorized, upon receipt from the Company of the Warrant Certificates at any time and from time to time, duly executed as provided in Section 1.03 hereof, to authenticate the Warrant Certificates and deliver them. Such authentication shall be by a duly authorized signatory of the Warrant Agent (although it shall not be necessary for the same signatory to sign all Warrant Certificates). In case any authorized signatory of the Warrant Agent who shall have authenticated any of the Warrant Certificates shall cease to be such authorized signatory before the Warrant Certificate shall be disposed of by the Company, such Warrant Certificate nevertheless may be delivered or disposed of as though the person who authenticated such Warrant Certificate had not ceased to be such authorized signatory of the Warrant Agent; and any Warrant Certificate may be authenticated on behalf of the Warrant Agent by such persons as, at the actual time of authentication of such Warrant Certificates, shall be the duly authorized signatories of the Warrant Agent, although at the time of the execution and delivery of this Agreement any such person is not such an authorized signatory. The Warrant Agent's authentication on all Warrant Certificates shall be substantially in the form attached as part of Exhibit A. SECTION 1.05. Temporary Warrant Certificates. Pending the preparation of definitive Warrant Certificates, the Company may execute, and the Warrant Agent shall authenticate and deliver, temporary Warrant Certificates, which are printed, lithographed, typewritten or otherwise produced, substantially of the tenor of the definitive Warrant Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Warrant Certificates may determine, as evidenced by their execution of such Warrant Certificates. -9- If temporary Warrant Certificates are issued, the Company will cause definitive Warrant Certificates to be prepared without unreasonable delay. After the preparation of definitive Warrant Certificates, the temporary Warrant Certificates shall be exchangeable for definitive Warrant Certificates upon surrender of the temporary Warrant Certificates at any office or agency maintained by the Company for that purpose pursuant to Section 1.10. Subject to the provisions of Section 4.01, such exchange shall be without charge to the holder. Upon surrender for cancellation of any one or more temporary Warrant Certificates, the Company shall execute, and the Warrant Agent shall authenticate and deliver in exchange therefor, one or more definitive Warrant Certificates representing in the aggregate a like number of Warrants. Until so exchanged, the holder of a temporary Warrant Certificate shall in all respects be entitled to the same benefits under this Agreement as a holder of a definitive Warrant Certificate. SECTION 1.06. Separation of Warrants and Notes. The Notes and the Warrants will not be separately transferable until the Separability Date. "Separability Date" shall mean the earliest to occur of. (1) December 18, 2000; (ii) the occurrence of a Change of Control or an Event of Default (each as defined in the Indenture); (iii) the date on which a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Notes (or the notes exchangeable therefor) pursuant to a registered exchange offer is declared effective; (iv) immediately prior to any redemption of Notes by the Company with the proceeds of any Equity Offering (as defined in the Indenture); (v) the consummation of an Initial Public Offering (as defined herein) of the Company; or (vi) such earlier date as may be determined by Deutsche Bank Securities Inc., in its sole discretion and specified to the Company, the Trustee, the Warrant Agent and the Unit Agent in writing. The separation of the Warrants and the Notes is herein referred to as the "Separation." "Initial Public Offering" means the first time a registration statement filed under the Securities Act respecting an offering, whether primary or secondary, of capital shares of the Company (or securities convertible into, or exchangeable or exercisable for, capital shares of the Company or rights to acquire capital shares of the Company or such securities, other than the Warrants) which is underwritten on a firmly committed or best efforts basis, is declared effective and the securities so registered are issued and sold. SECTION 1.07. Registration. The Company will keep, at the office or agency maintained by the Company for such purpose, a register or registers in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of, and registration of transfer and exchange of, Warrants as provided in this Article. Each person designated by the Company from time to time as a person authorized to register the transfer and exchange of the Warrants is hereinafter called, individually and collectively, the "Registrar" The Company hereby initially appoints the Warrant Agent as Registrar. Upon written notice to the Warrant Agent and any acting Registrar, the Company may appoint a successor Registrar for such purposes. The Warrant Agent shall act as repository of a master list of names and addresses of the holders of Warrants (the "Warrant Register"). The Company shall cause each Registrar to furnish to the Warrant Agent, on a current basis, such information as to all registrations of -10- transfer and exchanges effected by such Registrar, as may be necessary to enable the Warrant Agent to maintain the Warrant Register on as current a basis as is practicable. The Company and the Warrant Agent may deem and treat the registered holders (the "Holders") of the Warrant Certificates as the absolute owners thereof (notwithstanding any notation of ownership or other writing thereon made by anyone) for all purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. SECTION 1.08. Registration of Transfers and Exchanges. (a) Transfer and Exchange of Warrants. When Warrants are presented to the Warrant Agent with a request: (i) to register the transfer of the Warrants; or (ii) to exchange such definitive Warrants for an equal number of Warrants of other authorized denominations, the Warrant Agent shall register the transfer or make the exchange as requested if (and may refuse to register any transfer or exchange unless) the requirements under this Warrant Agreement as set forth in this Section 1.08 for such transactions are met; provided, however, that the Warrants presented or surrendered for registration of transfer or exchange: (x) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Company and the Warrant Agent, duly executed by the holder thereof or by his or her attorney, duly authorized in writing; and (y) in the case of Warrants the offer and sale of which have not been registered under the Securities Act, such Warrants shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable, it being understood, however, that the Warrant Agent need not determine which clause (A) through (D) below is applicable: (A) if such Warrant is being delivered to the Warrant Agent by a holder for registration in the name of such holder, without transfer, a certification from such holder to that effect (in substantially the form of Exhibit C); or (B) if such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Securities Act ("Rule 144A")) (a "QIB") in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Rule 144 or Regulation S under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect (in substantially the form of Exhibit C); or (C) if such Warrant is being transferred to an institutional accredited investor within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule -11- 501 under the Securities Act (an "Institutional Accredited Investor"), delivery of a Certificate of Transfer (in substantially the form of Exhibit D and an opinion of counsel and/or other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act; or (D) if such Warrant is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor (in substantially the form of Exhibit C, with appropriate changes to reflect the exemption relied on), and an opinion of counsel from the transferee or transferor reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. If such transfer is made specifically pursuant to Regulation S, delivery by the transferor must also deliver a Certificate for Regulation S Transfers in substantially the form of Exhibit E. (b) Restrictions on Transfer of a Definitive Warrant for a Beneficial Interest in a Global Warrant. A Definitive Warrant may not be transferred by a holder for a beneficial interest in a Global Warrant except upon satisfaction of the requirements set forth below. Upon receipt by the Warrant Agent of a Definitive Warrant, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Warrant Agent, together with: (i) certification from such holder (in substantially the form of Exhibit C) that such Definitive Warrant is being transferred to a QIB in accordance with Rule 144A under the Securities Act; and (ii) written instructions directing the Warrant Agent to make, or to direct the Depositary to make, an endorsement on the Global Warrant to reflect an increase in the aggregate amount of the Warrants represented by the Global Warrant, then the Warrant Agent shall cancel such Definitive Warrant and cause, or direct the Depositary to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the number of Shares represented by the Global Warrant to be increased accordingly. If no Global Warrant is then outstanding, the Company shall issue and the Warrant Agent shall upon written instructions from the Company authenticate a new Global Warrant in the appropriate amount. (c) Transfer or Exchange of Global Warrants. The transfer or exchange of Global Warrants or beneficial interests therein shall be effected through the Depositary, in accordance with this Section 1.08, the Private Placement Legend, this Agreement (including the restrictions on transfer set forth herein) and the procedures of the Depositary therefor. (d) Transfer or Exchange of a Beneficial Interest in a Global Warrant for a Definitive Warrant. -12- (i) Any person having a beneficial interest in a Global Warrant may transfer or exchange such beneficial interest for a Definitive Warrant upon receipt by the Warrant Agent of written instructions or such other form of instructions as is customary for the Depositary from the Depositary or its nominee on behalf of any person having a beneficial interest in a Global Warrant, including a written order containing registration instructions and the following additional information and documents: (A) if such beneficial interest is being transferred to the person designated by the Depositary as being the beneficial owner, a certification from such person to that effect (in substantially the form of Exhibit C); or (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certification from the transferor to that effect (in substantially the form of Exhibit C); or (C) if such beneficial interest is being transferred to an Institutional Accredited Investor, delivery of a Certificate of Transfer to that effect (in substantially the form of Exhibit D, and an opinion of counsel and/or other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act; or (D) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect from the transferee or transferor to that effect (in substantially in the form of Exhibit C, with appropriate changes to reflect the exemption relied on), and an opinion of counsel and/or other information reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. If such transfer is made specifically pursuant to Regulation S, the transferor must also deliver a Certificate for Regulation S Transfers in substantially the form of Exhibit E; then the Warrant Agent will cause, in accordance with the standing instructions and procedures existing between the Depositary and the Warrant Agent, the aggregate amount of the Global Warrant to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an officers' certificate (a certificate signed by two officers of such company, one of whom must be the principal executive officer, principal financial officer or principal accounting officer) (an "Officers' Certificate"), the Warrant Agent will authenticate and deliver to the transferee a Definitive Warrant. (ii) Definitive Warrants issued in exchange for a beneficial interest in a Global Warrant pursuant to this Section 1.08(d) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Warrant Agent in -13- writing. The Warrant Agent shall deliver such Definitive Warrants to the persons in whose names such Warrants are so registered and adjust the Global Warrant pursuant to paragraph (g) of this Section 1.08. (e) Restrictions on Transfer or Exchange of Global Warrants. Notwithstanding any other provisions of this Agreement (other than the provisions set forth in subsection (f) of this Section 1.08), a Global Warrant may not be transferred or exchanged as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (f) Authentication of Definitive Warrants in Absence of Depositary. If at any time: (i) the Depositary for the Global Warrants notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Warrant and a successor Depositary for the Global Warrant is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Warrant Agent in writing that it elects to cause the issuance of Definitive Warrants for all Global Warrants under this Agreement, then the Company will execute, and the Warrant Agent will, upon receipt of an Officers' Certificate requesting the authentication and delivery of Definitive Warrants, authenticate and deliver Definitive Warrants, in an aggregate number equal to the aggregate number of warrants represented by the Global Warrant, in exchange for such Global Warrant. (g) Cancellation or Adjustment of a Global Warrant. At such time as all beneficial interests in a Global Warrant have either been exchanged for Definitive Warrants, redeemed, repurchased or cancelled, such Global Warrant shall be returned to the Company or, upon written order to the Warrant Agent in the form of an Officers' Certificate from the Company, retained and cancelled by the Warrant Agent. At any time prior to such cancellation, if any beneficial interest in a Global Warrant is exchanged for Definitive Warrants, redeemed, repurchased or cancelled, the number of Warrants represented by such Global Warrant shall be reduced and an endorsement shall be made on such Global Warrant by the Warrant Agent to reflect such reduction. (h) Legends. (i) Private Placement Legend. Except as permitted by the following paragraph, each Warrant Certificate evidencing the Warrants (and all Warrant Shares issued in exchange therefor or substitution thereof) shall bear a legend substantially to the following effect: -14- "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF: (1) EACH INITIAL PURCHASER AND ITS DIRECT TRANSFEREES REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a)(1), (2),(3),OR (7) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR"), (2) EACH HOLDER AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE WARRANT AGENT A SIGNED LETTER CONTAINING, CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFF SHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) EACH HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE WARRANT AGENT AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER -15- INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT." Upon any sale or transfer of a Warrant pursuant to Rule 144 under the Securities Act in accordance with this Section 1.08 or under an effective registration statement under the Securities Act, the Warrant Agent shall permit the holder thereof to exchange such Warrant for a definitive Warrant that does not bear the legends set forth above. (ii) Tag-Along/Drag-Along Legend. Each Warrant issued shall bear a legend substantially to the following effect: "THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE ENTITLED TO THE BENEFITS OF AND SUBJECT TO THE OBLIGATIONS (INCLUDING THE DRAG-ALONG RIGHTS (AS DEFINED THEREIN)) UNDER THE TAG-ALONG SALES AGREEMENT DATED AS OF JUNE 16,2000, BY AND BETWEEN THE COMPANY, ODYSSEY INVESTMENT PARTNERS FUND, LP, DEUTSCHE BANK SECURITIES INC. AND MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED." (iii) Unit Legend. Each Warrant issued prior to the Separability bate shall bear a legend substantially to the following effect: "PRIOR TO THE SEPARABILITY DATE (AS DEFINED) THIS WARRANT CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED WITHOUT THE SIMULTANEOUS TRANSFER OR EXCHANGE OF $ 1,000 AGGREGATE PRINCIPAL AMOUNT OF THE COMPANY'S 13% SENIOR SUBORDINATED NOTES DUE 2009 (THE "NOTES") FOR EACH WARRANT BEING TRANSFERRED OR EXCHANGED. THE "SEPARABILITY DATE" SHALL MEAN THE EARLIEST OF (I) DECEMBER 18,2000; (11) THE OCCURRENCE OF A CHANGE OF CONTROL OR AN EVENT OF DEFAULT (EACH AS DEFINED IN THE INDENTURE GOVERNING THE NOTES); (III) THE DATE ON WHICH A REGISTRATION STATEMENT WITH RESPECT TO THE NOTES OR THE EXCHANGE NOTES IS DECLARED EFFECTIVE; (IV) IMMEDIATELY PRIOR TO THE REDEMPTION OF ANY NOTES BY THE COMPANY WITH THE PROCEEDS OF AN EQUITY OFFERING; (V) THE CONSUMMATION OF AN INITIAL PUBLIC OFFERING (AS DEFINED IN WARRANT AGREEMENT) OF THE COMPANY; OR (VI) RUCH EARLIER DATE AS MAY BE DETERMINED BY DEUTSCHE BANK SECURITIES INC. IN ITS SOLE DISCRETION." (i) Obligations with Respect to Transfers and Exchanges of Definitive and Global Warrants. -16- (i) To permit registrations of transfers and exchanges, the Company shall execute, at the Warrant Agent's request, and the Warrant Agent shall authenticate Definitive and Global Warrants. (ii) All Definitive and Global Warrants issued upon any registration, transfer or exchange of Definitive and Global Warrants shall be the valid obligations of the Company, entitled to the same benefits under this Warrant Agreement as the Definitive and Global Warrants surrendered upon the registration of transfer or exchange. (iii) Prior to due presentment for registration of transfer of any Warrant, the Warrant Agent and the Company may deem and treat the person in whose name any Warrant is registered as the absolute owner of such Warrant, and neither the Warrant Agent nor the Company shall be affected by notice to the contrary. (j) Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of the Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrant Certificates or any certificates for the Warrant Shares in a name other than that of the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant, and the Company shall not be required to issue or deliver such Warrant Certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. SECTION 1.09. Lost, Stolen, Destroyed, Defaced or Mutilated Warrant Certificates. Upon receipt by the Company and the Warrant Agent (or any agent of the Company or the Warrant Agent, if requested by the Company) of evidence satisfactory to them of the loss, theft, destruction, defacement, or mutilation of any Warrant Certificate and of indemnity satisfactory to them and, in the case of mutilation or defacement, upon surrender thereof to the Warrant Agent for cancellation, then, in the absence of notice to the Company or the Warrant Agent that such Warrant Certificate has been acquired by a bona fide purchaser or holder in due course, the Company shall execute, and an authorized signatory of the Warrant Agent shall manually authenticate and deliver, in exchange for or in lieu of the lost, stolen, destroyed, defaced or mutilated Warrant Certificate, a new Warrant Certificate representing a like number of Warrants, bearing a number or other distinguishing symbol not contemporaneously outstanding. Upon the issuance of any new Warrant Certificate under this Section 1.09, the Company may require the payment from the holder of such Warrant Certificate of a sum sufficient to cover any tax, stamp tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Warrant Agent and the Registrar) in connection therewith. Every substitute Warrant Certificate executed and delivered pursuant to this Section in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute an additional contractual obligation of the Company, whether or not the lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of (but shall be subject to all the limitations of rights set forth in) this Agreement equally and proportionately with any and all other Warrant Certificates duly -17- executed and delivered hereunder. The provisions of this Section 1.09 are exclusive with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates and shall preclude (to the extent lawful) any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of lost, stolen, destroyed, defaced or mutilated Warrant Certificates. The Warrant Agent is hereby authorized to authenticate and deliver the new Warrant Certificates in accordance with the provisions of this Agreement as required pursuant to the provisions of this Section. SECTION 1.10. Offices for Exercise, etc. So long as any of the Warrants remain outstanding, the Company will designate and maintain in The City of New York: (a) an office or agency where the Warrant Certificates may be presented for exercise, (b) an office or agency where the Warrant Certificates may be presented for registration of transfer and for exchange (including the exchange of temporary Warrant Certificates for definitive Warrant Certificates pursuant to Section 1.05 hereof), and (c) an office or agency where notices and demands to or upon the Company in respect of the Warrants or of this Agreement may be served. The Company may from time to time change or rescind such designation, as it may deem desirable or expedient; provide , however that an office or agency shall at all times be maintained in The City of New York, as provided in the first sentence of this Section. In addition to such office or offices or agency or agencies, the Company may from time to time designate and maintain one or more additional offices, or agencies within or outside The City of New York, where Warrant Certificates may be presented for exercise or for registration of transfer or for exchange, and the Company may from time to time change or rescind such designation, as it may deem desirable or expedient. The Company will give to the Warrant Agent written notice of the location of any such office or agency and of any change of location thereof. The Company hereby designates the Warrant Agent at its principal corporate trust office in The City of New York (the "Warrant Agent Office"), as the initial agency maintained for each such purpose. In case the Company shall fail to maintain any such office or agency or shall fail to give such notice of the location or of any change in the location thereof, presentations and demands may be made and notice may be served at the Warrant Agent Office, and the Company appoints the Warrant Agent as its agent to receive all such presentations, surrenders, notices and demands. ARTICLE II DURATION AND EXERCISE OF WARRANTS SECTION 2.0 1. Duration of Warrants. Subject to the terms and conditions established herein, the Warrants shall expire at 5:00 p.m., New York City time, on June 15, 2009 (or the next Business Day, if such date is not a Business Day) (the "Expiration Date"). Each Warrant may be exercised on any Business Day (as defined) on or after the Exercisability Date (as defined below) and on or prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will give notice of expiration not less than 90 nor more than 120 days prior to the Expiration Date to the registered Holders of the then outstanding Warrants; provided that the failure to give such notice shall not affect the expiration date. Any Warrant not exercised before -18- 5:00 p.m., New York City time, on the Expiration Date shall be deemed to have been automatically exercised on the Expiration Date. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in New York, New York are required by law, regulation or executive order to remain closed. SECTION 2.02. Exercise, Settlement and Delivery. (a) Subject to the provisions of this Agreement, on or after the Exercisability Date (as defined herein) and on or prior to 5:00 p.m., New York City time, on the Expiration Date, a holder of Warrants shall have the right to exercise each Warrant for 0.68986 of a fully paid, registered and nonassessable Warrant Share, subject to adjustment in accordance with Article V hereof, at the purchase price of $0.01 for each Warrant Share purchased payable as provided in Section 2.02(c). The number and kind of Warrant Shares for which a Warrant may be exercised (the "Exercise Rate") shall be subject to adjustment from time to time as set forth in Article V hereof "Exercisability Date" means, with respect to each Warrant, the date as of which both of the following shall have occurred (whether before or on such date): (i) the Separability Date and (ii) a Triggering Event. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Triggering Event" means, with respect to each Warrant, the date of the earliest of (1) June 16, 2001, (2) the seventh day prior to the occurrence of a Change of Control (as defined in the Indenture), (3) the consummation of an Initial Public Offering, sale or merger of the Company or sale of all or substantially all of its assets, and (4) a class of equity securities of the Company is listed on a United States national securities exchange or authorized for quotation on the Nasdaq National Market or is otherwise subject to registration under the Exchange Act. (b) Warrants may be exercised on or after the Exercisability Date by surrendering at any office or agency maintained for that purpose by the Company pursuant to Section 1. 10 (each a "Warrant Exercise Office") the Warrant Certificate evidencing such Warrants with the form of election to exercise set forth on the reverse side of the Warrant Certificate (the "Election to Exercise") duly completed and signed by the registered holder or holders thereof or by the duly appointed legal representative thereof or by a duly authorized attorney and, in the case of a transfer, with such signature guaranteed by an Eligible Guarantor Institution and paying in full the Exercise Price for each Warrant Share issuable upon exercise of such Warrants as described in paragraph (c). Each Warrant may be exercised only in whole. (c) A Warrant may be exercised solely by the surrender of the Warrant Certificate evidencing such Warrant, and without the payment of the Exercise Price in cash (a "Cashless Exercise"), for the number of Warrant Shares equal to the product of (1) the number of Warrant Shares for which such Warrant is exercisable with payment of the Exercise price as of the Exercise Date (if the Exercise Price were being paid in cash) and (2) the Cashless Exercise Ratio. -19- For purposes of this Agreement, the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the excess of the Current Market Value (calculated as set forth in Section 5.01 (in) hereof) per Common Share on the Exercise Date (as defined) over the Exercise Price as of the Exercise Date, and the denominator of which is the Current Market Value per Common Share on the Exercise Date. Upon surrender of a Warrant Certificate representing more than one Warrant, the number of Warrant Shares deliverable upon a Cashless Exercise shall equal the product of (1) the number of Warrants Shares issuable in respect of those Warrants that the holder specifies are to be exercised pursuant to a Cashless Exercise (without giving effect to such Cashless Exercise) multiplied by (2) the Cashless Exercise Ratio. All provisions of this Agreement shall be applicable with respect to an exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. It is the intention of the Company that the exercise of Warrants will be exempt from the registration provisions of the Securities Act by virtue of Section 3(a)(9) thereof. "Exercise Price" means a purchase price of $0.01 per Warrant Share. (d) Upon such surrender of a Warrant Certificate at any Warrant Exercise Office (other than any Warrant Exercise Office that also is an office of the Warrant Agent), such Warrant Certificate shall be promptly delivered to the Warrant Agent. The "Exercise Date" for a Warrant shall be the date when all of the items referred to in the first sentence of paragraph (b) of this Section 2.02 are received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business Day, and the exercise of the Warrants will be effective as of such Exercise Date. If any items referred to in the first sentence of paragraph (b) are received after 11:00 a.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be effective on the next succeeding Business Day. Notwithstanding the foregoing, if all of the items referred to in the first sentence of paragraph (b) are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date (as defined in Section 2.01), the exercise of the Warrants to which such items relate will be effective on the Expiration Date. (e) Upon the exercise of a Warrant in accordance with the terms hereof, the Warrant Agent shall, as soon as practicable, advise the Company in writing of the number of Warrants exercised in accordance with the terms and conditions of this Agreement and the Warrant Certificates, the instructions of each exercising holder of the Warrant Certificates with respect to delivery of the Warrant Shares to which such Holder is entitled upon such exercise, and such other information as the Company shall reasonably request. (f) Subject to Section 5.02 hereof, as soon as practicable after the exercise of any Warrant or Warrants in accordance with the terms hereof, the Company shall issue or cause to be issued to or upon the written order of the registered Holder of the Warrant Certificate evidencing such exercised Warrant or Warrants, a certificate or certificates evidencing the Warrant Shares to which such Holder is entitled, in fully registered form, registered in such name or names as may be directed by such Holder pursuant to the Election to Exercise, as set forth on the reverse of the Warrant Certificate. Such certificate or certificates evidencing the Warrant Shares shall be deemed to have been issued and any persons who are designated to be named therein shall be deemed to have become the holder of record of such Warrant Shares as of the close of business on the Exercise Date. The Warrant Shares may initially be issued in global form (the "Global -20- Shares"). Such Global Shares shall represent such of the outstanding Warrant Shares as shall be specified therein and each shall provide that it shall represent the aggregate amount of outstanding Warrant Shares from time to time endorsed thereon and that the aggregate amount of outstanding Warrant Shares represented thereby may from time to time be reduced or increased, as appropriate. Any endorsement of a Global Share to reflect the amount of any increase or decrease in the amount of outstanding Warrant Shares represented thereby shall be made by the registrar for the Warrant Shares and the Depositary (referred to below) in accordance with instructions given by the holder thereof. The Depository Trust Company shall (if possible) act as the Depositary with respect to the Global Shares until a successor shall be appointed by the Company and the registrar for the Shares. After such exercise of any Warrant or Warrant Shares, the Company shall also issue or cause to be issued to or upon the written order of the registered holder of such Warrant Certificate, a new Warrant Certificate, countersigned by the Warrant Agent pursuant to written instruction, evidencing the number of Warrants, if any, remaining unexercised unless such Warrants shall have expired. SECTION 2.03. Cancellation of Warrant Certificates. In the event the Company shall purchase or otherwise acquire Warrants, the Warrant Certificates evidencing such Warrants may thereupon be delivered to the Warrant Agent, and if so delivered, shall at the Company's written instruction be canceled by it and retired. The Warrant Agent shall cancel all War-rant Certificates properly surrendered for exchange, substitution, transfer or exercise. The Warrant Agent shall deliver such canceled Warrant Certificates to the Company. SECTION 2.04. Notice of a Triggering Event. The Company shall, to the extent reasonably practicable, not fewer than 30 days nor more than 60 days prior to the occurrence of a Triggering Event, send to the Warrant Agent and to each holder of Warrants, by first-class mail, at the addresses appearing on the Warrant Register, a notice of the Triggering Event to occur, which notice shall describe the type of Triggering Event and the date of the proposed occurrence thereof and the date of expiration of the right to exercise the Warrants prominently set forth in the face of such notice. SECTION 2.05. Transfer of Rights. In the event that holders of more than 90% of the Common Shares exchange their Common Shares for shares in a Parent Holding Company (as defined), the Warrants will automatically become exercisable under the same terms and conditions as stated herein for shares of common stock in that Parent Holding Company (the "Parent Warrant Shares") in the same proportion to the total number of common shares of the Parent Holding Company that the Warrant Shares bear to the total number of Common Shares of the Company; provide that the Parent Holding Company assumes all the obligations of the Company under this Agreement, the Warrant Shares Registration Rights Agreement and the Tag-Along Sales Agreement. Thereafter, all references in this Agreement to the Warrant Shares shall mean the Parent Warrant Shares and all references to the Company shall mean the Parent Holding Company. "Parent Holding Company" shall mean any Person that owns 90% or more of the capital shares of the Company. -21- ARTICLE III OTHER PROVISIONS RELATING TO RIGHTS OF HOLDERS OF WARRANTS SECTION 3.01. Enforcement of Rights. (a) Notwithstanding any other provision of this Agreement, any holder of any Warrant Certificate, without the consent of the Warrant Agent, the holder of any Warrant Shares or the holder of any other Warrant Certificate, may, in and for his own behalf, enforce, and may institute and maintain any suit, action or proceeding against the Company suitable to enforce, his right to exercise the Warrant or Warrants evidenced by his Warrant Certificate in the manner provided in such Warrant Certificate and in this Agreement. (b) Neither the Warrants nor any Warrant Certificate shall entitle the holders thereof to any of the rights of a holder of Warrant Shares, including, without limitation, the right to vote, to consent, to exercise any preemptive rights or to receive notice as shareholders in respect of the meetings of shareholders for the election of directors of the Company or any other matter, or any rights whatsoever as shareholders of the Company. ARTICLE IV CERTAIN COVENANTS OF THE COMPANY SECTION 4.01. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the initial issuance of Warrants and of the Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or other governmental charge which may be payable in respect of any transfer or exchange of any Warrant Certificates or any certificates for Warrant Shares in a name other than the registered holder of a Warrant Certificate surrendered upon the exercise of a Warrant. In any such case, no transfer or exchange shall be made unless or until the person or persons requesting issuance thereof shall have paid to the Company the amount of such tax or other governmental charge or shall have established to the satisfaction of the Company that such tax or other governmental charge has been paid or an exemption is available therefrom. SECTION 4.02. Qualification Under the Securities Laws. The obligations of the Company with respect to registration of the Warrants and the Warrant Shares are set forth in the Warrant Shares Registration Rights Agreement. SECTION 4.03. Rules 144 and 144A. The Company covenants that it will use its reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Company is not required to file such reports, it will, upon the request of any holder or beneficial owner of Warrants, make available such information necessary to permit sales pursuant to Rule 144A. The Company further covenants that it will take such further action as any holder or beneficial owner of Warrants may reasonably request, all to -22- the extent required from time to time to enable such holder or beneficial owner to sell Warrants without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) under the Securities Act and Rule 144A, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Securities and Exchange Commission (it being expressly understood that the foregoing shall not create any obligation on the part of the Company to file periodic or other reports under the Exchange Act at any time that it is not then required to file such reports pursuant to the Exchange Act). SECTION 4.04. Reservation of Warrant Shares. The Company shall at all times reserve and keep available for issuance upon exercise of the Warrants such number of its duly authorized but unissued Common Shares or other securities of the Company purchasable upon exercise of the Warrants as will be sufficient to permit the exercise in full of all outstanding Warrants, and will cause appropriate evidence of ownership of such Common Shares or other securities to be delivered to the Warrant Agent upon its request for delivery of such, and all such Common Shares or other securities shall, at all times, be duly approved for listing, subject to official notice of issuance, on each securities exchange, if any, on which such Common Shares of the Company or other securities are then listed. SECTION 4.05. Common Shares. The Company covenants that all of the Common Shares or other securities of the Company that may be issued upon the exercise of the Warrants will, upon issuance, be (1) duly authorized, validly issued, fully paid and nonassessable, (ii) free from preemptive and any other similar rights, (iii) free from any taxes, liens, charges or security interests with respect thereto and (iv) included for trading on each securities exchange or market, if any, on which such Common Shares or other securities are then listed. SECTION 4.06. Obtaining Governmental Approvals. The Company will from time to time use its reasonable best efforts to take all action required to be taken by it which may be necessary to obtain and keep effective any and all permits, consents and approvals of governmental agencies and authorities and securities acts filings under United States federal and state laws, and the rules and regulations of any stock exchange or market on which the Warrants or the Warrant Shares are listed, if any, which may be or become requisite in connection with the issuance, sale, transfer, and delivery of the Warrant Certificates, the exercise of the Warrants or the issuance, sale, transfer and delivery of the Warrant Shares issued upon exercise of the Warrants. SECTION 4.07. SEC Reports and Other Information. The Company shall at all times provide the Warrant Agent and holders of Warrants with such annual reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of documents and other reports to be so provided at the times specified for the filing of such information, documents and reports under such Sections. In addition, for so long as any Warrants remain outstanding, the Company will furnish to the holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to beneficial holders of Warrants, if not obtainable from the SEC, information of the type that would be filed with the SEC pursuant to the foregoing provisions, upon the request of any such holder. -23- ARTICLE V ADJUSTMENTS SECTION 5.01. Adjustment of Exercise Rate; Notices. The Exercise Rate is subject to adjustment from time to time as provided in this Section. (a) Adjustment for Change in Capital Shares. If, after the date hereof, the Company: (1) pays a dividend or makes a distribution on its Common Shares payable in shares of such Common Shares or other capital shares of the Company; (2) subdivides its outstanding Common Shares into a greater number of shares; (3) combines its outstanding Common Shares into a smaller number of shares; (4) pays a dividend or makes a distribution to all holders of Common Shares of any of the Company's assets (including cash), debt securities, preferred shares or any rights or warrants to purchase securities; and (5) issues by reclassification of its Common Shares any capital shares of the Company (other than in a transaction covered by Section 5.03), then the Exercise Rate in effect immediately prior to such action shall be adjusted so that the holder of a Warrant thereafter exercised may receive the number of capital shares of the Company that such holder would have owned immediately following such action if such holder had exercised the Warrant immediately prior to such action or immediately prior to the record date applicable thereto, if any (regardless of whether the Warrants are then exercisable). The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. In the event that such dividend or distribution is not so paid or made or such subdivision, combination or reclassification is not effected, the Exercise Rate shall again be adjusted to be the Exercise Rate which would then be in effect if such record date or effective date had not been so fixed. If after an adjustment a holder of a Warrant upon exercise of such Warrant may receive shares of two or more classes of capital shares of the Company, the Exercise Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class of capital shares as is contemplated by this Article V with respect to the Common Shares, on terms comparable to those applicable to Common Shares in this Article V. -24- (b) Adjustment for Sale of Common Shares Below Current Market Value. If, after the date hereof, the Company issues or sells to an Affiliate of the Company any Common Shares or any securities convertible into or exchangeable or exercisable for Common Shares at a price per share less than the Current Market Value (other than (1) pursuant to the exercise of the Warrants, (2) the issuance of Common Shares pursuant to any convertible, exchangeable or exercisable securities of the Company as to which the issuance thereof has previously been the subject of any required adjustment pursuant to this Article V, (3) the issuance of Common Shares or preferred shares (or adjustments to exercise or conversion prices) upon the conversion, exchange or exercise of convertible, exchangeable or exercisable securities of the Company outstanding on the date of this Agreement or that have been reserved for issuance pursuant to plans in existence on the date of this Agreement (in each case, to the extent in accordance with the terms of such securities and plans as in effect on the date of this Agreement), (4) the issuance of options (the "Permitted Options") to purchase Common Shares to members of management of the Company up to an amount equal to 10.0% of the capital shares of the Company on a fully diluted basis, or the issuance of Common Shares upon exercise of Permitted Options and (5) Common Shares issued in a bona fide registered public offering pursuant to a firm commitment underwriting), then the Exercise Rate shall be adjusted in accordance with the formula: E' = Ex (O+N) --------------- (O + (N x P/M)) where: E' = the adjusted Exercise Rate for each Warrant then outstanding; E = the current Exercise Rate for each Warrant then outstanding; O = the number of Common Shares (including Equivalent Shares (other than those related to the Warrants)) outstanding immediately prior to the transaction to which this para graph (b) applies; N = the number of Common Shares sold in the transaction to which this paragraph (b) applies or the maximum stated number of Common Shares issuable upon the conversion, exchange, or exercise of the convertible, exchangeable or exercisable securities issued in the transaction to which this paragraph (b) applies, as the case may be; P = the offering price per share sold in the transaction (including, without duplication, the price paid upon issuance and all consideration payable upon exercise) of the convertible, exchangeable or exercisable securities sold in the transaction, as the case may be; and M = the Current Market Value at the time of sale. The adjustment shall become effective immediately after the closing of the transaction to which this paragraph (b) applies or upon consummation of the sale of Common Shares, as the case may be. To the extent that Common Shares are not delivered after the expiration of the securities issued in the transaction, the Exercise Rate shall be readjusted to the -25- Exercise Rate that would otherwise be in effect had the adjustment made upon the issuance of only the number of Common Shares actually been delivered. No adjustment shall be made under this paragraph (b) if the application of the formula stated above in this paragraph (b) would result in a value of E' that is lower than the value of E. No adjustment shall be made under this paragraph (b) for any adjustment which is the subject of paragraph (c) of this Section 5.01. "Affiliate" of any Person means any Person (i) which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person, (ii) which beneficially owns or holds 10% or more of any class of the voting stock of the referent Person or (iii) of which 10% or more of the voting stock (or, in the case of a Person which is not a corporation,. 10% or more of the equity interest) is beneficially owned or held by the referent Person. For purposes of this definition, control of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. (c) Notice of Adjustment. Whenever the Exercise Rate is adjusted, the Company shall promptly mail to holders of Warrants then outstanding at the addresses appearing on the Warrant Register a notice of the adjustment. The Company shall file with the Warrant Agent and any other Registrar such notice and a certificate briefly stating the facts requiring the adjustment and the manner of computing it. The notice shall be conclusive evidence that the adjustment is correct. Neither the Warrant Agent nor any such Registrar shall be under any duty or responsibility with respect to any such notice except to exhibit the same during normal business hours to any holder of Warrants desiring inspection thereof (d) Reorganization of Company; Special Distributions. (i) If the Company, in a single transaction or through a series of related transactions, consolidates with or merges with or into any other person or transfers (by lease, assignment, sale or otherwise) all or substantially all of its properties and assets to another person or group of affiliated persons (other than a sale of all or substantially all of the assets of the Company in a transaction in which the holders of Common Shares immediately prior to such transaction do not receive securities, cash, or other assets of the Company or any other person) or is a party to a merger or binding share exchange which reclassifies or changes its outstanding Common Shares, the person obligated to deliver securities, cash or other assets upon exercise of Warrants shall enter into a supplemental warrant agreement. If the issuer of securities deliverable upon exercise of Warrants is an affiliate of the successor Company, that issuer shall join in the supplemental warrant agreement. The supplemental warrant agreement shall provide that the holder of a Warrant may exercise it for the kind and amount of securities, cash or other assets which such holder would have received immediately after the consolidation, merger, binding shares exchange or transfer if such holder had exercised the Warrant immediately before the effective date of the transaction (whether or not the Warrants were then exercisable and without giving effect to the Cashless Exercise option), assuming (to the extent applicable) that such holder (i) was not a -26- constituent person or an affiliate of a constituent person to such transaction; (ii) made no election with respect thereto; and (iii) was treated alike with the plurality of non-electing holders. The supplemental warrant agreement shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article V. The successor Company shall mail to holders of Warrants at the addresses appearing on the Warrant Register a notice briefly describing the supplemental warrant agreement. (ii) Notwithstanding the foregoing, if the Company (i) consolidates with, merges with or into, or sells all or substantially all its assets to, another Person and, in connection therewith, the consideration payable to the holders of Common Shares in exchange for their shares is payable solely in cash, or (ii) there is a dissolution, liquidation or winding-up of the Company, then the holders of Warrants shall be entitled to receive distributions on the date of such event on an equal basis with holders of Common Shares (or other securities issuable upon exercise of the Warrants) as if the Warrants had been exercised immediately prior to such event, less the Exercise Price therefor. Upon receipt of such payment, if any, the rights of a holder of such a Warrant shall terminate and cease and such holder's Warrants shall expire. In case of any such consolidation, merger or sale of assets, the surviving or acquiring Person and, in the event of any dissolution, liquidation or winding-up of the Company, the Company must deposit promptly with the Warrant Agent the funds, if any, required to pay to the holders of the Warrants. After such funds and the surrendered Warrant Certificates are received, the Warrant Agent is required to deliver a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such Persons as it may be directed in writing by the holders surrendering such Warrants. If this paragraph (d) applies, paragraph (a) shall not apply. (e) Adjustment by Board of Directors. If any event occurs as to which, in the opinion of the Board of Directors of the Company, the provisions of this Article V are not strictly applicable or if strictly applicable would not fairly protect the rights of the holder of the Warrant in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company may, but shall not be obligated to, make an adjustment in the application of such provisions, in accordance with such essential intent and principles, so as to protect such rights as aforesaid; provided, however, that in no event shall any such adjustment have the effect of decreasing the Exercise Rate as otherwise determined pursuant to any of the provisions of this Article V except in the case of a combination of shares of a type contemplated in clause (iii) of paragraph (a) above and then in no event to an amount less than the Exercise Rate as adjusted pursuant to clause (iii) of paragraph (a) above. The Company may make such increases in the Exercise Rate, in addition to those otherwise required by this Section, as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend of shares or share rights shall not be taxable to the recipients. (f) Company Determination Final. Any determination that the Company or the Board of Directors of the Company must make pursuant to this Article V shall be conclusive absent manifest error. -27- (g) Warrant Agent's Adjustment Disclaimer. The Warrant Agent has no duty to determine whether a supplemental warrant agreement under paragraph (d) need be entered into or whether any provisions of any supplemental warrant agreement are correct. (h) Specificity of Adjustment, De Minimis Adjustments. Irrespective of any adjustments in the number or kind of shares purchasable upon the exercise of the Warrants, Warrant Certificates theretofore or thereafter issued may continue to express the same number and kind of Warrant Shares per Warrant as are stated on the Warrant Certificates initially issuable pursuant to this Agreement. No adjustment in the Exercise Rate need be made unless the adjustment would require an increase of at least 1% in the Exercise Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustments. All calculations under this Section 5 shall be made to the nearest 1/1000th of a share, as the case may be. (i) Adjustments to Par Value. The Company shall make such adjustments to the par value of the Common Shares in order that, upon exercise of the Warrants, the Warrant Shares will be fully paid and non-assessable. (j) Voluntary Adjustment. The Company from time to time may increase the Exercise Rate by any number and for any period of time (provided that such period is not less than 20 Business Days). Whenever the Exercise Rate is so increased, the Company shall mail to holders at the addresses appearing on the Warrant Register and file with the Warrant Agent a notice of the increase. The Company shall give the notice at least 15 days before the date the increased Exercise Rate takes effect. The notice shall state the increased Exercise Rate and the period it will be in effect. A voluntary increase in the Exercise Rate does not change or adjust the Exercise Rate otherwise in effect as determined by this Section 5.01. (k) No Other Adjustment for Dividends. Except as provided in this Article V, no payment or adjustment will be made for dividends on any Common Shares. (l) Multiple Adjustments. After an adjustment to the Exercise Rate under this Article V, any subsequent event requiring an adjustment under this Article V shall cause an adjustment to the Exercise Rate as so adjusted. (m) Definitions. "Capital Stock" means, with respect to any corporation, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests (however designated) in stock issued by that corporation. "Convertible Securities" means any evidence of indebtedness, shares of stock (other than Common Shares) or other securities directly or indirectly convertible into or exchangeable or exercisable for Common Shares. "Current Market Value" per Common Share or any other security at any date means (i) if the security is not registered under the Securities Exchange Act of 1934, as amended -28- (the "Exchange Act"), the value of the security, determined in good faith by the Board of Directors of the Company and certified in a board resolution delivered to the Warrant Agent and, if applicable, based on the most recently completed arm's-length transaction between the Company and a Person other than an Affiliate of the Company and the closing of which occurs on such date or shall have occurred within the three month period preceding such date, or (ii) if the security is registered under the Exchange Act, the average of the daily closing bid prices for each Business Day during the period commencing 15 Business Days before such date and ending on the date one day prior to such date, or if the security has been registered under the Exchange Act for less than 15 consecutive Business Days before such date, then the average of the daily closing bid prices for all of the Business Days before such date for which daily closing bid prices are available; provided, however, that if the closing bid price is not determinable for at least ten Business Days in such period, the "Current Market Value" of the security shall be determined as if the security were not registered under the Exchange Act. "Equivalent Shares" means as to any outstanding Options or any outstanding Convertible Securities, the maximum number of Common Shares for which or into which such Options or Convertible Securities may be then exercised or converted. "Options" means any options or warrants to subscribe for, purchase or otherwise acquire Common Shares or Convertible Securities. SECTION 5.02. Fractional Warrant Shares. The Company will not be required to issue fractional Warrant Shares upon exercise of the Warrants or distribute Share certificates that evidence fractional Warrant Shares. In lieu of fractional Warrant Shares, there shall be paid to the registered holders of Warrant Certificates at the time Warrants evidenced thereby are exercised as herein provided an amount in cash equal to (A) the same fraction of the Current Market Value, as defined in Section 5.01(m), on the Business Day preceding the date the Warrant Certificates evidencing such Warrants are surrendered for exercise less (B) a corresponding fraction of the Exercise Price. Such payments will be made by check or by transfer to an account maintained by such registered holder with a bank in The City of New York. If any holder surrenders for exercise more than one Warrant Certificate, the number of Warrant Shares deliverable to such holder will be computed on the basis of the aggregate amount of all the Warrants exercised by such holder. SECTION 5.03. Certain Distributions. If at any time the Company grants, issues or sells Options, Convertible Securities, or rights to purchase capital shares, warrants or other securities pro rata to the record holders of the Common Shares (the "Distribution Rights") or, without duplication, makes any dividend or otherwise makes any distribution, including, subject to applicable law, pursuant to any plan of liquidation ("Distribution") on Common Shares (whether in cash, property, evidences of indebtedness or otherwise), in any such case in a transaction that is not covered by Section 5.0 1, then the Company shall grant, issue, sell or make to each registered holder of Warrants the aggregate Distribution Rights or Distribution, as the case may be, which such holder would have acquired if such holder had held the maximum number of Warrant Shares acquirable upon complete exercise of such holder's Warrants (regardless of whether the Warrants are then exercisable and without giving effect to the Cashless Exercise option) immediately before the record date for the grant, issuance or sale of -29- such Distribution Rights or Distribution, as the case may be, or, if there is no such record date, the date as of which the record holders of Common Shares are to be determined for the grant, issue or sale of such Distribution Rights or Distribution, as the case may be. To the extent that the Company grants, issues or sells any Distribution Rights or Distribution to the Holders pursuant to this Section 5.03, then no adjustment with respect to such Distribution Rights or Distribution shall be made to the Exercise Rate pursuant to Section 5.01. ARTICLE VI CONCERNING THE WARRANT AGENT SECTION 6.01. Warrant Agent. The Company hereby appoints United States Trust Company of New York as Warrant Agent of the Company in respect of the Warrants and the Warrant Certificates upon the terms and subject to the conditions herein and in the Warrant Certificates set forth; and United States Trust Company of New York hereby accepts such appointment. The Company hereby agrees that at any time prior to the Separability Date the Warrant Agent may appoint the Unit Agent to act as its agent with respect to its duties hereunder. The Warrant Agent shall have the powers and authority specifically granted to and conferred upon it in the Warrant Certificates and hereby and such further powers and authority to act on behalf of the Company as the Company may hereafter grant to or confer upon it and it shall accept in writing. All of the terms and provisions with respect to such powers and authority contained in the Warrant Certificates are subject to and governed by the terms and provisions hereof SECTION 6.02. Conditions of Warrant Agent's Obligations. The Warrant Agent accepts its obligations herein set forth upon the terms and conditions hereof and in the Warrant Certificates, including the following, to all of which the Company agrees and to all of which the rights hereunder of the holders from time to time of the Warrant Certificates shall be subject: (a) The Warrant Agent shall be entitled to such compensation as the Company and the Warrant Agent shall from time to time agree upon in writing for all services rendered by it and the Company agrees promptly to pay such compensation and to reimburse the Warrant Agent for its reasonable out-of-pocket expenses (including reasonable fees and expenses of counsel) incurred without gross negligence or willful misconduct on its part in connection with the services rendered by it hereunder. The Company also agrees to indemnify the Warrant Agent and any predecessor Warrant Agent, their directors, officers, affiliates, agents and employees for, and to hold them and their directors, officers, affiliates, agents and employees harmless against, any loss, liability or expense of any nature whatsoever (including, without limitation, fees and expenses of counsel) incurred without gross negligence or willful misconduct on the part of the Warrant Agent, arising out of or in connection with its acting as such Warrant Agent hereunder and its exercise of its rights and performance of its obligations hereunder. The obligations of the Company under this Section 6.02 shall survive the exercise and the expiration of the Warrant Certificates and the resignation and removal of the Warrant Agent. -30- (b) In acting under this Agreement and in connection with the Warrant Certificates, the Warrant Agent is acting solely as agent of the Company and does not assume any obligation or relationship of agency or trust for or with any of the owners or holders of the Warrant Certificates. The Warrant Agent shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon exercise of Warrants. (c) The Warrant Agent may consult with counsel of its selection (who may be counsel for the Company) and any advice or written opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. (d) The Warrant Agent shall be fully protected and shall incur no liability for or in respect of any action taken or omitted to be taken or thing suffered by it in reliance upon any Warrant Certificate, notice, direction, consent, certificate, affidavit, opinion of counsel, instruction, statement or other paper or document reasonably believed by it to be genuine and to have been presented or signed by the proper parties. (e) The Warrant Agent, and its officers, directors, affiliates and employees ("Related Parties"), may become the owners of, or acquire any interest in, Warrant Certificates, shares or other obligations of the Company with the same rights that it or they would have it if were not the Warrant Agent hereunder and, to the extent permitted by applicable law, it or they may engage or be interested in any financial or other transaction with the Company and may act on, or as depositary, trustee or agent for, any committee or body of holders of shares or other obligations of the Company as freely as if it were not the Warrant Agent hereunder. Nothing in this Agreement shall be deemed to prevent the Warrant Agent or such Related Parties from acting in any other capacity for the Company. (f) The Warrant Agent shall not be under any liability for interest on, and shall not be required to invest, any monies at any time received by it pursuant to any of the provisions of this Agreement or of the Warrant Certificates. (g) The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement (or any term or provision hereof) or the execution and delivery hereof (except the due execution and delivery hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant, Certificate (except its authentication thereof). (h) The recitals and other statements contained herein and in the Warrant Certificates (except as to the Warrant Agent's authentication thereon) shall be taken as the statements of the Company and the Warrant Agent assumes no responsibility for the correctness of the same. The Warrant Agent does not make any representation as to the validity or sufficiency of this Agreement or the Warrant Certificates, except for its due execution and delivery of this Agreement; provided, however, that the Warrant Agent shall not be relieved of its duty to authenticate the Warrant Certificates as authorized by -31- this Agreement. The Warrant Agent shall not be accountable for the use or application by the Company of the proceeds of the exercise of any Warrant. (i) Before the Warrant Agent acts or refrains from acting with respect to any matter contemplated by this Warrant Agreement, it may require: (1) an Officers' Certificate stating on behalf of the Company that, in the opinion of the signers, all conditions precedent, if any, provided for in this Warrant Agreement relating to the proposed action have been complied with; and (2) if reasonably necessary in the judgment of the Warrant Agent, an opinion of counsel for the Company stating that, in the opinion of such counsel, all such conditions precedent have been complied with provided that such matter is one customarily opined on by counsel. Each Officers' Certificate or, if requested, an opinion of counsel with respect to compliance with a condition or covenant provided for in this Warrant Agreement shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. (j) The Warrant Agent shall be obligated to perform such duties as are herein and in the Warrant Certificates specifically set forth and no implied duties or obligations shall be read into this Agreement or the Warrant Certificates against the Warrant Agent. The Warrant Agent shall not be accountable or under any duty or responsibility for the use by the Company of any of the Warrant Certificates authenticated by the Warrant Agent and delivered by it to the Company pursuant to this Agreement. The Warrant Agent shall have no duty or responsibility in case of any default by the Company in the performance of its covenants or agreements contained in the Warrant Certificates or in the case of the receipt of any written demand from a holder of a Warrant Certificate with respect to such default, including, without limiting the generality of the foregoing, any duty or responsibility to initiate or attempt to initiate any proceedings at law or otherwise or, except as provided in Section 7.02, to make any demand upon the Company. -32- (k) Unless otherwise specifically provided herein, any order, certificate, notice, request, direction or other communication from the Company made or given under any provision of this Agreement shall be sufficient if signed by its chairman of the Board of Director its president, its treasurer, its controller or any vice president or its secretary or any assistant secretary. (l) The Warrant Agent shall have no responsibility in respect of any adjustment pursuant to Article V hereof. The Warrant Agent shall not be responsible for the Company's failure to comply with this Article V. (m) The Company agrees that it will perform, execute, acknowledge and deliver, o cause to be performed, executed, acknowledged and delivered, all such further and other act instruments and assurances as may reasonably be required by the Warrant Agent for the carrying out or performing by the Warrant Agent of the provisions of this Agreement. (n) The Warrant Agent is hereby authorized and directed to accept written instructions with respect to the performance of its duties hereunder from any one of the chairman c the Board of Directors, the president, the treasurer, the controller, an vice president or the secretary of the Company or any other officer or official of the Company reasonably believe to be authorized to give such instructions and to apply to such officers or officials for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions with respect to any matter arising in connection with the Warrant Agent's duties and obligations arising under this Agreement. Such application by the Warrant Agent for written instructions from the Company may, at the option of the Warrant Agent, set forth in writing any action proposed be taken or omitted by the Warrant Agent with respect to its duties or obligations under this Agreement and the date on or after which such action shall be taken and the Warrant Agent shall not be liable for any action taken or omitted in accordance with a proposal included in any such application on or after the date specified therein (which date shall be not less than 10 Business Days after the Company receives such application unless the Company consent to a shorter period), provided that (i) such application includes a statement to the effect that is being made pursuant to this paragraph (n) and that unless objected to prior to such date specified in the application, the Warrant Agent will not be liable for any such action or omission to the extent set forth in such paragraph (n) and (ii) prior to taking or omitting any such action, the Warrant Agent has not received written instructions objecting to such proposed action or omission. (o) Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed on behalf of the Company by any one of the chairman of the Board of Directors, the president, the treasurer, the controller, any vice president or the secretary of the Company or any other officer or -33- official of the Company reasonably believed to be authorized to give such instructions and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (p) The Warrant Agent shall not be required to risk or expend its own funds in the performance of its obligations and duties hereunder. SECTION 6.03. Resignation and Appointment of Successor. (a) The Company agrees, for the benefit of the holders from time to time of the Warrant Certificates, that there shall at all times be a Warrant Agent hereunder. (b) The Warrant Agent may at any time resign as Warrant Agent by giving written notice to the Company of such intention on its part, specifying the date on which it desired resignation shall become effective; provided, however, that such date shall be at least 60 days after the date on which such notice is given unless the Company agrees to accept less notice. Upon receiving such notice of resignation, the Company shall promptly appoint a successor Warrant Agent, qualified as provided in Section 6.03(d), by written instrument in duplicate signed on behalf of the Company, one copy of which shall be delivered to the resigning Warrant Agent and one copy to the successor Warrant Agent. As provided in Section 6.03(d), such resignation shall become effective upon the earlier of (x) the acceptance of the appointment by the successor Warrant Agent or (y) 60 days after receipt by the Company of notice of such resignation. The Company may, at any time and for any reason, and shall, upon obtaining knowledge of any event set forth in the next succeeding sentence, remove the Warrant Agent and appoint a successor Warrant Agent by written instrument in duplicate, specifying such removal and the date on which it is intended to become effective, signed on behalf of the Company, one copy of which shall be delivered to the Warrant Agent being removed and one copy to the successor Warrant Agent. The Warrant Agent shall be removed as aforesaid if it shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Warrant Agent or of its property shall be appointed, or any public officer shall take charge or control of it or of its property or affairs for the purpose of rehabilitation, conservation or liquidation. Any removal of the Warrant Agent and any appointment of a successor Warrant Agent shall become effective upon acceptance of appointment by the successor Warrant Agent as provided in Section 6.03(d). As soon as practicable after appointment of the successor Warrant Agent, the Company shall cause written notice of the change in the Warrant Agent to be given to each of the registered holders of the Warrants in the manner provided for in Section 9.04. (c) Upon resignation or removal of the Warrant Agent, if the Company shall fail to appoint a successor Warrant Agent within a period of 60 days after receipt of such notice of resignation or removal, then the holder of any Warrant Certificate or the retiring Warrant Agent may apply to a court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Pending appointment of a successor to the Warrant Agent, either by the Company or by such a court, the duties of the Warrant Agent shall be carried out by the Company. (d) Any successor Warrant Agent, whether appointed by the Company or by a court, shall be a bank or trust company in good standing, incorporated under the laws of the -34- United States of America or any State thereof and having, at the time of its appointment, a combined capital surplus of at least $50 million. Such successor Warrant Agent shall execute and deliver to its predecessor and to the Company an instrument accepting such appointment hereunder and all the provisions of this Agreement, and thereupon such successor Warrant Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Warrant Agent hereunder, and such predecessor shall thereupon become obligated to (i) transfer and deliver, and such successor Warrant Agent shall be entitled to receive, all securities, records or other property on deposit with or held by such predecessor as Warrant Agent hereunder and (ii) upon payment of the amounts then due it pursuant to Section 6.02(a) hereof, pay over, and such successor Warrant Agent shall be entitled to receive, all monies deposited with or held by any predecessor Warrant Agent hereunder. (e) Any corporation or bank into which the Warrant Agent hereunder may be merged or converted, or any corporation or bank with which the Warrant Agent may be consolidated, or any corporation or bank resulting from any merger, conversion or consolidation to which the Warrant Agent shall be a party, or any corporation or bank to which the Warrant Agent shall sell or otherwise transfer all or substantially all of its corporate trust business, shall be the successor to the Warrant Agent under this Agreement (provided that such corporation or bank shall be qualified as aforesaid) without the execution or filing of any document or any further act on the part of any of the parties hereto. (f) No Warrant Agent under this Warrant Agreement shall be personally liable for any action or omission of any successor Warrant Agent. ARTICLE VII REPRESENTATIONS AND WARRANTIES AND COVENANTS OF THE COMPANY The Company hereby represents and warrants and covenants to the Warrant Agent and the Holders that at the date hereof and at the date of each issuance of Warrant Shares: SECTION 7.0 1. Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Ohio and has all requisite corporate power and authority to own its properties and conduct its business as now conducted and described in the offering memorandum prepared by the Company in connection with the sale of the Units, dated June 9, 2000; the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its property or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or other), prospects or results of operations of the Company, taken as a whole. SECTION 7.02. Capitalization. The authorized, issued and outstanding capital shares of the Company is reflected accurately in Schedule 7.02 hereto. All of the issued and -35- outstanding capital shares of the Company have been duly authorized and validly issued and, except for any shares issued by the Company the consideration for which was a promissory note that remains outstanding, are fully paid and non-assessable; none of the outstanding capital shares of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. The Warrant Shares are accurately represented on Schedule 7.02 hereto. SECTION 7.03. Authorization of Agreement. This Agreement has been duly authorized, executed and delivered by the Company and, when executed and delivered by the Warrant Agent, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). SECTION 7.04. Authorization of the Warrant Shares Registration Rights Agreement. Warrant Shares Registration Rights Agreement has been duly authorized, executed and delivered by the Company and, when executed and delivered by the Initial Purchasers~, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). SECTION 7.05. Authorization of Tag-Along Sales Agreement. The Tag-Along Sales Agreement has been duly authorized, executed and delivered by the Company and, when executed and delivered by the other parties thereto, will constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting enforcement of creditors' rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law). SECTION 7.06. No Defaults or Conflicts. The execution, delivery and performance of this Agreement, the Warrant Shares Registration Rights Agreement and the Tag-Along Sales Agreement and any other agreement or instrument entered into or issued or to be entered into or issued by the Company in connection with the transactions contemplated hereby or thereby and the consummation of the transactions contemplated herein or therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default under, or a violation of or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or -36- instrument to which the Company or any of its subsidiaries is a party or by which any of them may be bound, or to which any of the property or assets of the Company or its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or by-laws, limited liability company agreement or limited partnership agreement, as the case may be, of the Company or any of its subsidiaries or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their respective assets or properties. SECTION 7.07. Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required in connection with the offering, issuance or sale of the Warrants, for the performance by the Company of its obligations hereunder or under the Warrant Shares Registration Rights Agreement or the Tag-Along Sales Agreement or the consummation of the transactions contemplated hereby or thereby (except for any requirements imposed by federal or state securities laws) or for the due execution or delivery by the Company of this Agreement or the Warrant Shares Registration Rights Agreement or the Tag-Along Sales Agreement. ARTICLE VIII ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES OF THE HOLDERS SECTION 8.01. Acknowledgments by Holders. Each Holder and each subsequent transferee of the Warrants understands and acknowledges to the Company that: (a) the offering and sale of the Warrants and Common Shares are not being registered under the Securities Act and are intended to be exempt from registration under the Securities Act by virtue of the provisions of Section 4(2) of the Securities Act; (b) there is no existing public or other market for the Warrants and the Common Shares and there can be no assurance that such Holder will be able to sell or dispose of such Holder's Warrants or Common Shares; (c) the Warrants and the Common Shares have not been registered under the Securities Act and must be held indefinitely unless they are subsequently registered under the Securities Act, the Securities Act permits such sale or such sale is permitted pursuant to an available exemption from such registration requirement; (d) if any transfer of the Warrants and the Common Shares is to be made in reliance on an exemption under the Securities Act, the Company may require an opinion of counsel reasonably satisfactory to it that such transfer may be made pursuant to an exemption under the Securities Act; -37- (e) the Warrants will have the legends contained on the forms thereof attached as exhibits thereto; and (f) the Warrants will be entitled to the benefits and subject to the obligations under the Warrant Shares Registration Rights Agreement and the Tag-Along Sales Agreement. SECTION 8.02. Representations and Warranties of the Holders. Each Holder, severally and not jointly, represents and warrants to the Company that: (a) the Warrants and the Common Shares to be acquired by it pursuant to the Warrant Agreement are being acquired for its own account, not as a nominee or agent for any other Person, and without a view to the distribution of such Warrants or Common Shares or any interest therein in violation of the Securities Act or any applicable state securities laws and it has not acquired the Warrants and will not acquire the Warrant Shares with a view towards a distribution in violation of the Securities Act and will not offer or sell any Warrants or Warrant Shares except pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act; (b) it is acquiring the Warrants in a transaction pursuant to a registration statement that has been declared effective under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act and has such knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of its investment in the Warrants and the Common Shares, and it is capable of bearing the economic risks of such investment and is able to bear a complete loss of its investment in the Warrants and the Common Shares; (c) it has been provided, to its satisfaction, the opportunity to ask questions concerning the terms and conditions of the issuance of the Warrants and the Common Shares, has had all such questions answered to its satisfaction and has been supplied all additional information as it has requested; and (d) the execution, delivery, and performance of this Agreement are within such Holder's powers (corporate or otherwise) and have been duly authorized by all requisite action (corporate or otherwise). ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendment. This Agreement and the terms of the Warrants may be amended by the Company and the Warrant Agent, without the consent of the holder of any Warrant Certificate, for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective or inconsistent provision contained herein or therein, or to effect any assumptions of the Company's obligations hereunder and thereunder by a successor -38- corporation under the circumstances described in Section 5.0 1 (d) hereof or in any other manner that the Company may deem necessary or desirable and that shall not materially adversely affect the interests of the holders of the Warrant Certificates. The Company and the Warrant Agent may modify this Agreement and the terms of the Warrants with the written consent of the Holders of not less than a majority in number of the then outstanding Warrants (excluding Warrants held by the Company or any of its Affiliates) for the purpose of adding any provision to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the holders of the outstanding Warrants; provided, however, that no such modification that increases the Exercise Price, decreases the Exercise Rate (other than pursuant to Section 5), reduces the period of time during which the Warrants are exercisable hereunder, otherwise materially and adversely affects the exercise rights of the holders of the Warrants, reduces the percentage required for modification, or effects any change to this Section 9.01 may be made with respect to an outstanding Warrant without the consent of the Holder of such Warrant. Notwithstanding any other provision of this Agreement, the Warrant Agent's consent must be obtained regarding any supplement or amendment which alters the Warrant Agent's rights or duties (it being expressly understood that the foregoing shall not be in derogation of the right of the Company to remove the Warrant Agent in accordance with Section 6.03 hereof). Any modification or amendment made in accordance with this Agreement will be conclusive and binding on all present and future holders of Warrant Certificates whether or not they have consented to such modification or amendment or waiver and whether or not notation of such modification or amendment is made upon such Warrant Certificates. Any instrument given by or on behalf of any holder of a Warrant Certificate in connection with any consent to any modification or amendment will be conclusive and binding on all subsequent holders of such Warrant Certificate. SECTION 9.02. Notices and Demands to the Company and Warrant Agent. If the Warrant Agent shall receive any notice or demand addressed to the Company by the holder of a Warrant Certificate pursuant to the provisions hereof or of the Warrant Certificates, the Warrant Agent shall promptly forward such notice or demand to the Company. SECTION 9.03. Addresses for Notices to Parties and for Transmission of Documents. All notices hereunder to the parties hereto shall be deemed to have been given when sent by certified or registered mail, postage prepaid, or by facsimile transmission, confined by first class mail, postage prepaid, addressed to any party hereto as follows: To the Company: Dayton Superior Corporation 7777 Washington Village Drive, Suite 130 Dayton, Ohio 45459 Facsimile No.: (937) 428-9115 Attention: General Counsel -39- with copies to: Latham & Watkins 885 Third Avenue New York, NY 10022-4802 Facsimile No.: (212) 751-4864 Attention: Kirk A. Davenport, Esq. To the Warrant Agent: United States Trust Company of New York 114 West 47th Street New York, NY 10036 Facsimile No.: (212) 852-1626 Attention: Corporate Trust Administration or at any other address of which either of the foregoing shall have notified the other in writing. SECTION 9.04. Notices to Holders. Notices to Holders of Warrants shall be mailed to such Holders at the addresses of such holders as they appear in the Warrant Register. Any such notice shall be sufficiently given if sent by first-class mail, postage prepaid. SECTION 9.05. APPLICABLE LAW. THE VALIDITYJNTERPRETATION AND PERFORMANCE OF THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER AND OF THE RESPECTIVE TERMS AND PROVISIONS THEREOF SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF TIJE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. SECTION 9.06. Persons Having Rights Under Agreement. Nothing in this Agreement expressed or implied and nothing that may be inferred from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the Company, the Warrant Agent and the holders of the Warrant Certificates and, with respect to Sections 4.04 and 4.05, the holders of Warrant Shares issued pursuant to Warrants, any right, remedy or claim under or by reason of this Agreement or of any covenant, condition, stipulation, promise or agreement hereof; and all covenants, conditions, stipulations, promises and agreements in this Agreement contained shall be for the sole and exclusive benefit of the Company and the Warrant Agent and their successors and of the holders of the Warrant Certificates. SECTION 9.07. Headings. The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -40- SECTION 9.08. Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. SECTION 9.09. Inspection of Agreement. A copy of this Agreement shall be available during regular business hours at the principal corporate trust office of the Warrant Agent, for inspection by the holder of any Warrant Certificate. The Warrant Agent may require such holder to submit his Warrant Certificate for inspection by it. SECTION 9.10. Availability of Equitable Remedies. Since a breach of the provisions of this Agreement could not adequately be compensated by money damages, holders of Warrants shall be entitled, in addition to any other right or remedy available to them, to an injunction restraining such breach or a threatened breach and to specific performance of any such provision of this Agreement, and in either case no bond or other security shall be required in connection therewith, and the parties hereby consent to such injunction and to the ordering of specific performance. [Signature Pages Follow] IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the parties hereto as of the day and year first above written. DAYTON SUPERIOR CORPORATION By: /s/ John A. Ciccarelli ---------------------------- Name: John A. Ciccarelli Title: President and CEO UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent By: /s/ Glenn E. Mitchell ---------------------------- Name: Glenn E. Mitchell Title: Vice President -41- EXHIBIT A [FORM OF WARRANT CERTIFICATE] [FACE] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF: (1) EACH INITIAL PURCHASER AND ITS DIRECT TRANSFEREES REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THE SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501 (a)(1), (2),(3), OR (7) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR"), (2) EACH HOLDER AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE WARRANT AGENT A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE WARRANT AGENT FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM TTIE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) EACH HOLDER AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, -42- THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE WARRANT AGENT AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. PRIOR TO THE SEPARABILITY DATE (AS DEFINED) THIS WARRANT CERTIFICATE MAY NOT BE TRANSFERRED OR EXCHANGED WITHOUT THE SIMULTANEOUS TRANSFER OR EXCHANGE OF $ 1,000 AGGREGATE PRINCIPAL AMOUNT OF THE COMPANY'S 13% SENIOR SUBORDINATED NOTES DUE 2009 (THE "NOTES") FOR EACH WARRANT BEING TRANSFERRED OR EXCHANGED. THE "SEPARABILITY DATE" SHALL MEAN THE EARLIEST OF (1) DECEMBER 18, 2000; (11) THE OCCURRENCE OF A CHANGE OF CONTROL OR AN EVENT OF DEFAULT; (111) THE DATE ON WHICH A REGISTRATION STATEMENT WITH RESPECT TO THE NOTES OR THE NEW NOTES IS DECLARED EFFECTIVE; (IV) IMMEDIATELY PRIOR TO THE REDEMPTION OF NOTES BY THE COMPANY WITH THE PROCEEDS OF AN EQUITY OFFERING; (V) THE CONSUMMATION OF AN INITIAL PUBLIC OFFERING OF THE COMPANY; OR (VI) SUCH EARLIER DATE AS MAY BE DETERMINED BY DEUTSCHE BANK SECURITIES INC. IN ITS SOLE DISCRETION. THE WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE ARE ENTITLED TO THE BENEFITS OF AND SUBJECT TO THE OBLIGATIONS (INCLUDING THE DRAG-ALONG RIGHTS) UNDER THE TAG-ALONG SALES AGREEMENT DATED AS OF JUNE 16,2000, BY AND BETWEEN THE COMPANY, ODYSSEY INVESTMENT PARTNERS FUND, LP, DEUTSCHE BANK SECURITIES INC. AND MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED. -43- CUSIP # No. [ ] [ ] Warrants WARRANT CERTIFICATE DAYTON SUPERIOR CORPORATION This Warrant Certificate certifies that [ ], or registered assigns, is the registered holder of [ ] Warrants (the "Warrants") to purchase Common Shares, no par value (the "Common Shares"), of DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "Company"). The Warrants are governed by the terms of the warrant agreement (the "Warrant Agreement") dated as of June 16, 2000 between the Company and the United States Trust Company of New York, as Warrant Agent. Subject to the provisions set forth herein and in the Warrant Agreement, at any time from 9:00 a.m., New York City time, on or after the occurrence of the Exercisability Date until 5:00 p.m., New York City time, on June 15, 2009 (or the next Business Day, if such date is not a Business Day) (the "Expiration Date"), a holder of Warrants shall have the right to exercise each Warrant for 0.68986 of a fully paid and nonassessable Common Share (together, in the aggregate, the "Warrant Shares", which may also include any other securities or property, such adjustment and inclusion each as provided in the Warrant Agreement) upon surrender of this Warrant Certificate at any office or agency maintained for that purpose by the Company (the "Warrant Agent Office"). A Warrant may be exercised solely by the surrender of the Warrant, and without the payment of the Exercise Price in cash (a "Cashless Exercise"), for such number of Warrant Shares equal to the product of (1) the number of Warrant Shares for which such Warrant is exercisable with payment of the Exercise Price as of the Exercise Date and (2) the Cashless Exercise Ratio. For purposes of this Warrant, the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is the excess of the Current Market Value (calculated as set forth in Section 5.01 (m) of the Warrant Agreement) per Common Share on the Exercise Date (as defined) over the Exercise Price on the Exercise Date and the denominator of which is the Current Market Value per Common Share on the Exercise Date. Upon surrender of a Warrant Certificate representing more than one Warrant, the number of Warrant Shares deliverable upon a Cashless Exercise shall equal the product of (1) the number of Warrant Shares issuable in respect of those Warrants that the Holder specifies are to be exercised multiplied by (2) the Cashless Exercise ratio. All provisions of the Warrant Agreement shall be applicable with respect to an exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than the full number of Warrants represented thereby. The Company has initially designated the principal corporate trust office of the Warrant Agent in The City of New York, as the initial Warrant Agent Office. The number of Warrant Shares issuable upon exercise of the Warrants ("Exercise Rate") is subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement. Any Warrant not exercised before 5:00 p.m., New York City time, on the Expiration Date shall be deemed to have been automatically exercised on the Expiration Date. -44- Reference is hereby made to the further provisions on the reverse hereof which provisions shall for all purposes have the same effect as though fully set forth at this place. This Warrant Certificate shall not be valid unless authenticated by the Warrant Agent, as such ten-n is used in the Warrant Agreement. All terms used herein but not defined herein have the meanings ascribed to such terms in the Warrant Agreement. In the event of a conflict between the terms of this Warrant Certificate and the Warrant Agreement, the terms of the Warrant Agreement will govern. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. WITNESS the seal of the Company and signatures of its duly authorized officers. Dated: June 16, 2000 DAYTON SUPERIOR CORPORATION By: ____________________________ Name: Title: Attest: By: _______________________ Name: Title: Certificate of Authentication: This is one of the Warrants referred to in the within mentioned Warrant Agreement: UNITED STATES TRUST COMPANY OF NEW YORK, as Warrant Agent By:____________________________ Authorized Signatory I EXHIBIT A FORM OF WARRANT CERTIFICATE [REVERSE] DAYTON SUPERIOR CORPORATION The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants expiring at 5:00 p.m., New York City time, on June 15, 2009 (or the next Business Day, if such date is not a Business Day) (the "Expiration Date"), each of which represents the right at any time on or after the Exercisability Date (as defined in the Warrant Agreement) and on or prior to such date, to exercise such Warrant for 0.68986 of a Common Share of the Company, subject to adjustment as set forth in the Warrant Agreement. The Warrants are issued pursuant to a Warrant Agreement dated as of June 16, 2000 (the "Warrant Agreement"), duly executed and delivered by the Company to United States Trust Company of New York, as Warrant Agent (the "Warrant Agent"), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Warrant Agent, the Company and the Holders (the words "Holders" or "Holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Exercise Price and the number of Warrant Shares issuable upon the exercise of each Warrant shall, subject to certain conditions, be adjusted. Warrants may be exercised by surrendering at any Warrant Agent Office this Warrant Certificate with the form of Election to Exercise set forth hereon duly completed and executed. If all of the items referred to in the preceding paragraph are received by the Warrant Agent at or prior to 11:00 a.m., New York City time, on a Business Day, the exercise of the Warrant to which such items relate will be effective on such Business Day. If any items referred to in the preceding paragraph are received after 11:00 a.m., New York City time, on a Business Day, the exercise of the Warrants to which such item relates will be deemed to be effective on the next succeeding Business Day. Notwithstanding the foregoing, if all of the items referred to in the preceding paragraph are received by the Warrant Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, the exercise of the Warrants to which such items relate will be. effective on the Expiration Date. As soon as practicable after the exercise of any Warrant or Warrants, the Company shall issue or cause to be issued to or upon the written order of the registered holder of this Warrant Certificate, a certificate or certificates evidencing the Warrant Share or Warrant Shares to which such holder is entitled, in fully registered form, registered in such name or names as may be directed by such holder pursuant to the Election to Exercise, as set forth on the reverse of this Warrant Certificate. Such certificate or certificates evidencing the Warrant Share or Warrant Shares shall be deemed to have been issued and any persons who are designated to be named therein shall be deemed to have become the holder of record of such Warrant Share or Warrant Shares as of the close of business on the date upon which the exercise of this Warrant was deemed to be effective as provided in the preceding paragraph. The Company will not be required to issue fractional Common Shares upon exercise of the Warrants or distribute Warrant Share certificates that evidence fractional Common Shares. In lieu of fractional Common Shares, there shall be paid to the registered Holder of this Warrant Certificate at the time such Warrant Certificate is exercised an amount in cash equal to the same fraction of the Current Market Value (as defined in the Warrant Agreement) on the Business Day preceding the date this Warrant Certificate is surrendered for exercise. Warrant Certificates, when surrendered at any office or agency maintained by the Company for that purpose by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged for a new Warrant Certificate or new Warrant Certificates evidencing in the aggregate a like number of Warrants, in the manner and subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. Upon due presentment for registration of transfer of this Warrant Certificate at any office or agency maintained by the Company for that purpose, a new Warrant Certificate evidencing in the aggregate a like number of Warrants shall be issued to the transferee in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith. The Company and the Warrant Agent may deem and treat the registered holder hereof as the absolute owner of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone) for the purpose of any exercise hereof and for all other purposes, and neither the Company nor the Warrant Agent shall be affected by any notice to the contrary. (FORM OF ELECTION TO EXERCISE) (To be executed upon exercise of Warrants on the Exercise Date) The undersigned hereby irrevocably elects to exercise [ ]of the Warrants represented by this Warrant Certificate for the whole number of Warrant Shares issuable upon the exercise of such Warrants. The undersigned requests that a certificate representing such Warrant Shares be registered in the name of _____________________________whose address is _______________________ and that such certificate be delivered to ____________________ whose address is _______________________________________. Any cash payments to be paid in lieu of a fractional Warrant Share should be made to ________________________ whose address is ___________________ and the check representing payment thereof should be delivered to ________________________ whose address is ____________________. Dated: Name of holder of Warrant Certificate:_________________________________ (Please Print) Tax Identification or Social Security Number:__________________________ Address:_______________________________________________________________ _______________________________________________________________________ Signature:_____________________________________________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever and if the certificate representing the Warrant Shares or any Warrant Certificate representing Warrants not exercised is to be registered in a name other than that in which this Warrant Certificate is registered, or if any cash payment to be paid in lieu of a fractional share is to be made to a person other than the registered holder of this Warrant Certificate, the signature of the holder hereof must be guaranteed as provided in the Warrant Agreement. Dated: Signature:_____________________________________________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed:__________________________________________________ [FORM OF ASSIGNMENT] For value received __________________________hereby sells, assigns and transfers unto ______________________ the within Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint __________________ attorney, to transfer said Warrant Certificate on the books of the within-named Company, with full power of substitution in the premises. Dated: Signature:_____________________________________________________________ Note: The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed:__________________________________________________ I SCHEDULE OF EXCHANGES OF CERTIFICATED WARRANTS I The following exchanges of a part of this Global Warrant for certificated Warrants have been made:
Number of Warrants Amount of decrease Amount of Increase this Global Signature of in Number of in Number of Warrant following authorized office Date of Warrants of this Warrants of this such decrease (or of Warrant Exchange Global Warrant Global Warrant increase) Agent
This is to be included only if the Warrant is in global form. EXHIBIT B FORM OF LEGEND FOR GLOBAL WARRANT Any Global War-rant authenticated and delivered hereunder shall bear a legend in substantially the following form: THIS SECURITY IS A GLOBAL WARRANT WITHIN THE MEANING OF THE WARRANT AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE WARRANT AGREEMENT. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. EXHIBIT C CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF WARRANTS Re: Warrants to Purchase Common Shares (the "Warrants") of Dayton Superior Corporation This Certificate relates to __________ Warrants held by (the "Transferor"). The Transferor has requested the Warrant Agent by written order to exchange or register the transfer of a Warrant or Warrants. In connection with such request and in respect of each such Warrant, the Transferor hereby certifies that the Transferor is familiar with the Warrant Agreement dated as of June 16, 2000, among Dayton Superior Corporation, an Ohio corporation, and United States Trust Company of New York, as warrant agent (the "Warrant Agreement") relating to the above captioned Warrants and the restrictions on transfers thereof as provided in Section 1.08 of such Warrant Agreement, and that the transfer of this Warrant does not require registration under the Securities Act of 1933, as amended (the "Act"), because*: [ ] Such Warrant is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 1.08(a)(y)(A) of the Warrant Agreement).' [ ] Such Warrant is being transferred to a qualified institutional buyer (as defined in Rule 144A under the Act) in reliance on Rule 144A or is being transferred in accordance with Regulation S under the Act. [ ] Such Warrant is being transferred in accordance with Rule 144 under the Act. [ ] Such Warrant is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act, other than Rule 144A or Rule 144 or Regulation S under the Act. An opinion of counsel to the effect that such transfer does not require registration under the Act accompanies this Certificate. [INSERT NAME OF TRANSFEROR] By:_____________________________ Date:__________________________ *Check applicable box. C-1 EXHIBIT D [Form of Transferee Letter of Representation in Connection with Transfers to Institutional Accredited Investors] DAYTON SUPERIOR CORPORATION 7777 Washington Village Drive, Suite 130 Dayton, Ohio 45459 Attention: General Counsel Ladies and Gentlemen: In connection with our proposed purchase of warrants to purchase Common Shares, no par value (the "Securities"), of Dayton Superior Corporation (the "Company "), we confirm that: 1. We understand that the Securities have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, unless so registered, may not be offered, sold or otherwise transferred except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor Securities) (the "Resale Restriction Termination Date") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Securities are eligible for resale pursuant to Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer as defined in Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act, (e) to an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act that is acquiring the Securities for its own account or for the account of such an institutional "accredited investor", for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act, or (f) pursuant to another available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and to compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (e) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to the warrant agent under the Warrant Agreement pursuant to which the Securities were issued (the "Warrant Agent") which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of subparagraph (a)(1), (a)(2), (a)(3) or (a)(7) of Rule 501 under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. The Warrant Agent and the Company reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Securities pursuant to clause (c), (d), (e) or (f) above to require the delivery of a written opinion of counsel, certifications, and or other information satisfactory to the Company and the Warrant Agent. 2. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (a)(2), (a)(3) or (a)(7) of Regulation D under the Securities Act) purchasing for our own account or for the account of such an institutional "accredited investor", and we are acquiring the Securities for investment purposes and not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act and we have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment for an indefinite period. 3. We are acquiring the Securities purchased by us for our own account or for one or more accounts as to each of which we exercise sole investment discretion. 4. You and your counsel are entitled to rely upon this letter and you are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, __________________________________ (Name of Purchaser) By:_______________________________ Date:_____________________________ Upon transfer the Securities would be registered in the name of the new beneficial owner as follows: Name:______________________________ Address:___________________________ Taxpayer ID Number:________________ EXHIBIT E [Form of Transferee Letter of Representation in Connection with Transfers Pursuant to Regulation S] UNITED STATES TRUST COMPANY OF NEW YORK 114 West 47th Street New York, NY 10036 Ladies and Gentlemen: In connection with our proposed purchase of warrants of Dayton Superior Corporation (the "Company") we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) The undersigned certifies that it is not a U.S. person and is not acquiring the Securities for the account or benefit of any U.S. person. (2) The undersigned agrees to resell the Securities only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act of 1933 or pursuant to an available exemption from registration. (3) The undersigned agrees not to engage in hedging transactions with regard to the Securities unless in compliance with the Securities Act. You and your counsel are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Defined terms used herein without definition have the respective meanings provided in Regulation S under the Securities Act. Very truly yours, (Name of Purchaser) By:________________________ E-1 Upon transfer the Securities would be registered in the name of the new beneficial owner as follows: Name:___________________________________ Address:________________________________ Taxpayer ID Number:_____________________ E-2 SCHEDULE 7.02 Capitalization (1) 5,000,000 Common Shares, no par value, authorized. (2) 3,693,990 Common Shares, no par value, issued and outstanding. (3) 170,000 Warrants to purchase 117,276 Warrant Shares at an exercise price of $0.01 per share. EX-4.6 5 l05622aexv4w6.txt EXHIBIT 4.6 EXHIBIT 4.6 =================================================================== WARRANT SHARES REGISTRATION RIGHTS AGREEMENT Dated as of June 16, 2000 By and Among DAYTON SUPERIOR CORPORATION, as Issuer, and DEUTSCHE BANK SECURITIES INC. and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as Initial Purchasers =================================================================== TABLE OF CONTENTS 1. Definitions........................................................... 2 2. Registration Rights................................................... 6 2.1. Demand Registration........................................... 6 2.2. Piggy-Back Registration....................................... 8 2.3. Reduction of Piggy-Back Registration.......................... 9 2.4. Agreement to Lock Up.......................................... 9 3. Representations, Warranties and Agreements of the Company............. 10 4. Registration Procedures............................................... 10 5. Indemnification....................................................... 15 6. Rules 144 and 144A.................................................... 18 7. Underwritten Registrations............................................ 18 8. Miscellaneous......................................................... 18 8.1. Remedies...................................................... 18 8.2. No Conflicting Agreements..................................... 19 8.3. No Piggy-back on Demand Registrations......................... 19 8.4. Amendments and Waivers........................................ 19 8.5. Notices....................................................... 19 8.6. Successors and Assigns........................................ 20 8.7. Counterparts.................................................. 20 8.8. Governing Law, Submission to Jurisdiction..................... 20 8.9. Severability.................................................. 20 8.10. Headings...................................................... 20 8.11. Securities Held by the Company or its Affiliates.............. 20 8.12. Attorneys' Fees............................................... 20 8.13. Entire Agreement.............................................. 21
i This WARRANT SHARES REGISTRATION RIGHTS AGREEMENT (this "Agreement" is dated as of June 16, 2000, by and among DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "Company"), DEUTSCHE BANK SECURITIES INC. ("Deutsche Bank") and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch" and, together with Deutsche Bank, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of June 9, 2000, by and among the Company and the Initial Purchasers (the "Purchase Agreement"), relating to the sale by the Company to the Initial Purchasers of an aggregate of 170,000 Units, each Unit consisting of $1,000 principal amount of 13% Senior Subordinated Notes due 2009 (collectively, the "Notes") and one Warrant (collectively, the "Warrants") to purchase 0.68986 of a common share, no par value, of the Company. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide to the Holders (as defined herein) the registration rights for the Registrable Securities (as defined herein) set forth in this Agreement. The execution of this Agreement is a condition to the obligations of the Initial Purchasers to purchase the Units under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning ascribed to that term in the last paragraph of Section 4. "Additional Holders" shall have the meaning ascribed to that term in Section 2.1(a). "Affiliate" of any Person shall mean, any Person (i) which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person, (ii) which beneficially owns or holds 10% or more of any class of the voting stock of the referent Person or (iii) of which 10% or more of the voting stock (or, in case of a Person which is not a corporation, 10% or more of the equity interest) is beneficially owned or held by the referent Person. For purposes of this definition, control of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Business Day" shall mean a day that is not a Legal Holiday. "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated and whether voting and/or non-voting) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable or exchangeable for any of the foregoing. -3- "Common Shares" shall mean the common shares, no par value, of the Company and any options, warrants or securities convertible into or exercisable or exchangeable for such common shares. "Company" shall have the meaning ascribed to that term in the preamble hereto and shall also include the Company's successors. "Demand Registration" shall have the meaning ascribed to that term in Section 2.1(a). "Effectiveness Period" shall have the meaning ascribed to that term in Section 2.1(b). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Holder" shall mean the Initial Purchasers, for so long as each Initial Purchaser owns any Warrants or Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become registered owners of Warrants or Registrable Securities. "Indemnified Person" shall have the meaning ascribed to that term in Section 5(c). "Indemnifying Person" shall have the meaning ascribed to that term in Section 5(c). "Initial Public Offering" shall mean the first time a registration statement filed under the Securities Act respecting an offering, whether primary or secondary, of capital shares of the Company (or securities convertible into, or exchangeable or exercisable for, capital shares or rights to acquire capital shares or such securities, other than the Warrants) which is underwritten on a firmly committed or best efforts basis is declared effective and the securities so registered are issued and sold. "Initial Purchasers" shall have the meaning ascribed to that term in the preamble hereto. "Issue Date" means June 16, 2000, the date on which the Units, the Notes and the Warrants were issued. "Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking institutions in New York, New York are required by law, regulation or executive order to remain closed. "Loss" shall have the meaning ascribed to that term in Section 5(a). "Notes" shall have the meaning ascribed to that term in the preamble hereto. "Participant" shall have the meaning ascribed to that term in Section 5(a). -4- "Person" shall mean an individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any entity. "Piggy-Back Registration" shall have the meaning ascribed to that term in Section 2.2. "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. "Purchase Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Registrable Securities" shall mean any of the Warrant Shares; provided that such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the offering of such securities by the holder thereof shall have been declared effective under the Securities Act and such securities shall have been disposed of by such holder pursuant to such registration statement, (b) such securities have been sold to the public pursuant to Rule 144, or are eligible for sale to the public without volume or manner of sale restrictions under Rule 144(k) (or any similar provision then in force, but not Rule 144A) promulgated under the Securities Act, (c) such securities shall have been otherwise transferred and new certificates for such securities not bearing a legend restricting further transfer shall have been delivered by the Company or its transfer agent and subsequent disposition of such securities shall not require registration or qualification under the Securities Act or any similar state law then in force or (d) such securities shall have ceased to be outstanding. "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, (i) all SEC and stock exchange or National Association of Securities Dealers, Inc. registration and filing fees and expenses, (ii) fees and expenses of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of a qualified independent underwriter, if any, counsel in connection therewith, and the reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) rating agency fees, printing expenses, messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel and all independent certified public accountants for the Company, (v) fees and disbursements of any additional experts retained by the Company in connection therewith, (vi) fees and expenses of listing the Registrable Securities, if any, (vii) reasonable fees and expenses of one counsel for the Holders of Registrable Securities participating in an offering involving the exercise of registration rights hereunder not to exceed $25,000 per annum in the aggregate, and (viii) any fees and disbursements of underwriters customarily paid by issuers or sellers of -5- securities (but not including any underwriting discounts or commissions or transfer taxes, if any, attributable to the sale of Subject Equity by Holders of such Subject Equity). "Registration Statement" shall mean any registration statement of the Company which covers any of the Subject Equity pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Shares" shall mean a number of Warrants and Registrable Securities equivalent to no less than 35% of the Warrants and Registrable Securities held in the aggregate by all Holders at the time of any request for a Demand Registration (with any Warrant being deemed to be equal to the number of Warrant Shares for which such Warrant is then exercisable (without giving effect to any cashless exercise)). "Rule 144" shall mean Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. "Rule 144A" shall mean Rule 144A under the Securities Act, as such Rule may be amended from time to time. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Subject Equity" shall have the meaning ascribed to that term in Section 2.1(b). "Suspension Period" shall have the meaning ascribed to that term in Section 2.1(b). "Units" shall have the meaning ascribed to that term in the preamble hereto. "Warrant Shares" shall mean the Common Shares of the Company issued and issuable upon exercise of the Warrants and any other securities issued or issuable with respect to the Warrants or such Common Shares by way of stock dividends, stock splits or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. "Warrants" shall have the meaning ascribed to that term in the preamble hereto. "Withdrawal Election" shall have the meaning ascribed to that term in Section 2.3(b). -6- 2. Registration Rights. 2.1. Demand Registration. (a) Request for Registration. At any time after the consummation of an Initial Public Offering, on one separate occasion only, Holders owning, individually or in the aggregate, at least the Requisite Shares may require the Company to effect one registration (the "Demand Registration") under the Securities Act of their Registrable Securities. Any such request will specify the Registrable Securities proposed to be sold and will also specify the intended method of disposition thereof. The Company shall give written notice of such registration request within 10 days after the receipt thereof to all other Holders and other holders of securities of the Company that have incidental or piggy-back registration rights other than under this Agreement (the "Additional Holders"). Within 20 days after receipt of such notice by any Holder, such Holder may request in writing that its Registrable Securities be included in such registration, and the Company shall include in the Demand Registration the Registrable Securities of any such selling Holder requested to be so included. Each such request by such other selling Holders shall specify the number of Registrable Securities proposed to be sold and the intended method of disposition thereof The Holders of Warrants and Registrable Securities shall not be entitled to request and the Company shall not be obligated to file or effect any Demand Registration within (i) 180 days after the effective date of a registration statement pertaining to an Initial Public Offering and (ii) 90 days after the effective date of a registration statement pertaining to any other underwritten primary public offering of capital shares of the Company pursuant to an effective registration statement under the Securities Act. The Company shall give prompt written notice to the Holders of Warrants and Registrable Securities of any such offering, but any failure to give such notice shall not affect the rights of the Holders and the obligations of the Company set forth in the preceding sentence. (b) Effective Registration. Upon a demand, the Company will promptly prepare and file and use all commercially reasonable efforts to cause to become effective a Registration Statement in respect of all the Registrable Securities which Holders request, no later than 20 days after the date of such notice, for inclusion therein (all such included Registrable Securities, the "Subject Equity") and shall keep such Registration Statement continuously effective for the shorter of (i) six months and (ii) such period of time as all of the Subject Equity shall have been sold thereunder (the "Effectiveness Period"). For purposes of calculating the six-month period referred to in the preceding sentence, any period of time during which such Registration Statement was not effective or any Suspension Period shall be excluded. If the Board of Directors of the Company resolves that the Company has a bona fide business purpose for doing so, the Company may postpone the filing of, or suspend the effectiveness of, any registration statement or amendment thereto, suspend the use of any Prospectus and shall not be required to amend or supplement the Registration Statement, any related Prospectus or any document incorporated therein by reference (other than an effective registration statement being used for an underwritten offering) in the event that, and for a period (a "Suspension Period") expiring on the earlier to occur of (x) the date on which such business purpose ceases to interfere with the Company's ability to comply with its disclosure obligations and SEC requirements, and (y) 90 days after the Company notifies the Holders of such good faith determination. There shall not be more than 120 days of Suspension Periods during any 12-month period. The Company will give prompt written notice to each Holder of each Suspension Period. Such notice shall be -7- given as soon as practicable after the Board of Directors of the Company makes the determination referenced in this paragraph and shall state to the extent, if any, as is practicable, an estimate of the duration of such Suspension Period and shall advise the recipient thereof of the agreement of such Holder provided in the following sentence. (c) Obligation of the Company. A Registration Statement will not be deemed to have been effected as a Demand Registration unless it has been declared effective by the SEC and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after such Registration Statement has become effective, the offering of Subject Equity pursuant to such Registration Statement is or becomes the subject of any stop order, injunction or other order or requirement of the SEC or any other governmental or administrative agency, or if any court prevents or otherwise limits the sale of Subject Equity pursuant to the Registration Statement (for any reason other than the act or omissions of the Holders) for the period of time contemplated hereby, such registration will be deemed not to have been effected pursuant to Section 2.1(a). If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected or (ii) the registration requested pursuant to this Section 2.1 does not remain effective for the Effectiveness Period, then the Company shall continue to be obligated to effect a registration pursuant to this Section 2.1. The Holders of Subject Equity shall be permitted to withdraw all or any part of the Subject Equity from the Demand Registration at any time prior to the effective date of such Demand Registration. If at any time a Registration Statement is filed pursuant to a request for the Demand Registration, and subsequently a sufficient amount of the Subject Equity is withdrawn from the Demand Registration so that such Registration Statement does not cover at least the amount of Requisite Shares, the Holders who have not withdrawn their Subject Equity shall have the opportunity to include an additional amount of Subject Equity in the Demand Registration so that such Registration Statement covers at least the amount of the Requisite Shares. If an additional amount of Subject Equity is not so included, the Company may withdraw the Registration Statement. Such withdrawn Registration Statement will not count as the Demand Registration and the Company shall continue to be obligated to effect a registration pursuant to this Section 2.1. (d) Priority in Demand Registrations Pursuant to Section 2.1. If the Demand Registration involves an underwritten offering and the lead managing underwriter or underwriters advise the Company in writing that, in such underwriter's or underwriters' opinion, the number of securities requested to be included in such registration (including securities of the Company and Additional Holders which are not Subject Equity) exceeds the number which can be sold in such offering, the Company will be required to include in such registration only the Subject Equity requested to be included in such registration. In the event that the amount of Subject Equity requested to be included in such registration exceeds the number which, in the view of such lead managing underwriter or underwriters, can be sold, the amount of such Subject Equity to be included in such registration shall be allocated pro rata among all requesting Holders on the basis of the relative number of shares of Subject Equity then held by each such Holder (provided that any Subject Equity thereby allocated to any such Holder that exceed such Holder's request shall be reallocated among the remaining requesting Holders in like manner). If securities of Holders have been excluded from a registration statement pursuant to the provisions of the foregoing paragraph constituting 35% or more of the Subject Equity -8- requested to be included in such registration, then such registration shall not count towards determining whether the Company has satisfied its obligation to effect the Demand Registration pursuant to this Section 2.1. In the event that the number of Subject Equity requested to be included in such registration is less than the number which, in the view of the lead managing underwriter or underwriters, can be sold, the Company may include in such registration the securities the Company proposes to sell up to the number of securities that, in the view of the lead managing underwriter or underwriters, can be sold. (e) Expenses. The Company will pay all Registration Expenses in connection with the registrations requested pursuant to Section 2.1(a). Each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a registration statement requested pursuant to this Section 2.1. 2.2. Piggy-Back Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its securityholders covering the sale of any class of its common equity securities (other than (a) a registration statement on Form S-4 or S-8 (or any substitute form that may be adopted by the SEC), (b) a registration statement filed in connection with an offer of securities solely to the Company's existing securityholders, or (c) the Demand Registration), then the Company shall give written notice of such proposed filing to the Holders of Warrants and Registrable Securities as soon as practicable (but in no event less than 20 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request within 20 days after receipt of such written notice from the Company (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution) (a "Piggy-Back Registration"). The Company shall include the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective upon prompt written notice thereof to participating Holders. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2, and each Holder shall pay all underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of such Holder's Registrable Securities pursuant to a registration statement effected pursuant to this Section 2.2. No registration effected under this Section 2.2 and no failure to effect such a registration shall relieve the Company of its obligation to effect a registration upon the request of Holders pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2 and to complete the sale of Registrable Securities in connection therewith shall relieve the Company of any other obligation under this Agreement. -9- 2.3. Reduction of Piggy-Back Registration. (a) If the lead managing underwriter or underwriters, if any, of any offering described in Section 2.2 have informed, in writing, the Holders of the Registrable Securities requesting inclusion in such offering that it is such underwriter's or underwriters' opinion that the total number of securities which the Company, the Holders and any other Persons desiring to participate in such registration intend to include in such offering exceeds the maximum number of shares that may be distributed without materially and adversely affecting the price, timing or distribution of the shares to be sold by the Company, then the number of Registrable Securities to be offered for the account of such Holders and the number of such securities to be offered for the account of all such other Persons (including the Company) participating in such registration shall be the number of securities, if any, which such lead managing underwriter or underwriters believe may be sold without causing such adverse effect in the following order: (1) all the shares that the Company proposes to sell in such offering; (2) all the shares that are proposed to be sold by any holder of Common Shares who is exercising a demand registration right, if such offering is being made pursuant to such demand; and (3) shares of the Holders and all other shares that are proposed to be sold by any holder of Common Shares on a pro rata basis in an aggregate number which is equal to the difference between the maximum number of shares that may be distributed in such offering as determined by the lead managing underwriter or underwriters and the number of shares to be sold in such offering pursuant to clauses (1) and (2) above. (b) If, as a result of the proration provisions of this Section 2.3, any Holder shall not be entitled to include all Registrable Securities in a Piggy-Back Registration that such Holder has requested to be included, such Holder may elect to withdraw his request to include Registrable Securities in such registration (a "Withdrawal Election"); provided that a Withdrawal Election shall be irrevocable and, after making a Withdrawal Election, a Holder shall no longer have any right to include Registrable Securities in the registration as to which such Withdrawal Election was made. The Company shall be permitted to postpone or withdraw any registration statement prior to the effective date thereof without obligation to any Holder. 2.4. Agreement to Lock Up. The right of any Holder to be included in any registration or qualification (other than an Initial Public Offering) shall be conditioned on such Holder's agreeing to a lock-up on the sales of its Warrant Shares for a period commencing on the consummation date of such offering and ending on the earlier of (i) the date required by the managing underwriter or underwriters of such offering for holders of shares generally, not to exceed the date that is 90 days following the effective date of such registration or qualification, and (ii) the first date that other holders of shares selling such shares in such offering are generally allowed to sell their shares. All Holders of Warrants and Warrant Shares, whether or not participating in the Initial Public Offering, will be required to not sell or otherwise dispose of any Warrant or Warrant Shares owned by them for the period commencing on the consummation date of the Initial Public Offering and ending on the earlier of (i) the date required by the managing underwriter or underwriters of the Initial Public Offering for holders of shares generally, not to exceed the date that is 180 days following the effective date of such registration -10- or qualification, and (ii) the first date that holders of shares participating in the Initial Public Offering, if any, are generally able to sell their shares. 3. Representations, Warranties and Agreements of the Company. The Company represents, warrants to and agrees with the Holders of the Warrants and Registrable Securities as of the date of this Agreement that the Company has no agreements relating to the rights of holders of equity interests of the Company or pursuant to which any holders of securities of the Company have a right to cause the Company to register or qualify such securities under the Securities Act or any securities or blue sky laws of any jurisdiction which have not been disclosed to the Initial Purchasers or their counsel in writing. 4. Registration Procedures. In connection with the obligations of the Company with respect to any Registration Statement prepared pursuant to Sections 2.1 and 2.2 hereof, the Company shall: (a) Prepare and file with the SEC a Registration Statement with respect to such securities and use its commercially reasonable efforts to cause such Registration Statement to become effective and remain effective as provided herein. A reasonable period of time prior to the initial filing of a Registration Statement or Prospectus and a reasonable period of time prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the Initial Purchasers and the managing underwriter or underwriters, if any, copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such reasonable inquiries as shall be necessary, in the opinion of counsel to such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object on a timely basis; (b) Prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period required hereunder; cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; (c) Notify the holders of Registrable Securities to be sold and the managing underwriter or underwriters, if any, promptly, and (if requested by any such person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective -11- amendment is proposed to be filed, and (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use of a Prospectus or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (v) of the happening of any event or information becoming known that makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in such Registration Statement, Prospectus or documents so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, not misleading, and that in the case of a Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) Use its commercially reasonable efforts to avoid the issuance of or, if issued, obtain the withdrawal of any order enjoining or suspending the use of a Prospectus or the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment; (e) If requested by the managing underwriter or underwriters, if any, or if none, by the Holders of a majority of the Registrable Securities being sold pursuant to such Registration Statement, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters or such Holders reasonably believe should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment under the Securities Act as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 4(e) that would, in the opinion of counsel for the Company, violate applicable law; (f) Upon written request to the Company, famish to each Holder of Registrable Securities to be sold pursuant to a Registration Statement and each managing underwriter, if any, without charge, at least one conformed copy of such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to the extent requested (including those previously famished or incorporated by reference) as soon as practicable after the filing of such documents with the SEC; (g) Deliver to each Holder of Registrable Securities to be sold pursuant to a Registration Statement, and the underwriters, if any, without charge, as many copies of the -12- Prospectus (including each form of prospectus) and each amendment or supplement thereto as such persons reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Registrable Securities, use its commercially reasonable efforts to register or qualify or' cooperate with the Holders of the Registrable Securities to be sold, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as any such Holder or underwriter reasonably requests in writing; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective hereunder and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it is not then so qualified or (ii) take any action which would subject it to general service of process or to taxation in any jurisdiction where it is not then so subject; (i) In connection with any sale or transfer of Registrable Securities that will result in such securities no longer being Registrable Securities, cooperate with the Holders thereof and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company and to enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may request at least two Business Days prior to any sale of Registrable Securities; (j) Upon the occurrence of any event contemplated by Section 4(c)(v), as promptly as practicable, prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (k) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriter or underwriters, if any, or the Holders of a majority of the Registrable Securities being sold) in order to expedite or facilitate the disposition of such Registrable Securities, and, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities and the underwriters, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by -13- any of them), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter underwriters, if any, addressed to each selling Holder of Registrable Securities and each of the underwriters, if any), covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such underwriters; (iii) use their commercially reasonable efforts to obtain customary "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed (where reasonably possible) to each selling Holder of Registrable Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling Holders and the underwriters, if any, than those set forth in Section 5 hereof (or such other provisions and procedures acceptable to Holders of a majority of Registrable Securities covered by such Registration Statement and the managing underwriter or underwriters, if any); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold and the managing underwriter or underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (l) Make available for inspection by a representative of the Initial Purchasers selling Registrable Securities, any underwriter participating in any such disposition of Registrable Securities, and any attorney, consultant or accountant retained by such Initial Purchasers or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to businesses and assets acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration Statement; (m) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act, no later than 60 days after the end of any 12-month period (or 135 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or reasonable efforts underwritten offering, and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal -14- quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158 under the Securities Act; and (n) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. The Company may require a Holder of Registrable Securities to be included in a Registration Statement to furnish to the Company such information regarding (i) the intended method of distribution of such Registrable Securities, (ii) such Holder and (iii) the Registrable Securities held by such Holder as is required by law to be disclosed in such Registration Statement and the Company may exclude from such Registration Statement the Registrable Securities of any Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request. If any such Registration Statement refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to . be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act, the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Warrants and Registrable Securities agrees by acquisition of such Warrants and Registrable Securities that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii), 4(c)(iv) or 4(c)(v) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. If the Company shall give any such notice, the Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each Holder of Registrable Securities covered by such Registration Statement shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof or (y) the Advice, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. -15- 5. Indemnification. (a) The Company agrees to indemnify and hold harmless the Initial Purchasers, each Holder, each underwriter who participates in an offering of Registrable Securities, their respective Affiliates, each Person, if any, who controls any of such parties within the meaning of either Section 15 of the Securities Act or Section 20(a) of the Exchange Act and the agents, employees, officers and directors of any such controlling Person (each, a "Participant") from and against any and all losses and liabilities, claims, damages and expenses whatsoever (including, but not limited to, reasonable attorneys' fees and any and all reasonable expenses whatsoever incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, and any and all reasonable amounts paid in settlement of any claim or litigation) (each, individually, a "Loss" and, collectively, the "Losses") to which they or any of them may become subject under the Securities Act, the Exchange Act or otherwise insofar as such Losses (or actions in respect of thereof) arise out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, covering Registrable Securities or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of a Prospectus, in the light of the circumstances under which they were made, not misleading; provided, however that the Company will not be liable in any such case to the extent, but only to the extent, that any such Loss arises out of or is based upon any such untrue statement or alleged untrue statement or omission made therein in reliance upon and in conformity with information relating to any Participant furnished in writing to the Company by or on behalf of such Participant expressly for use therein; provided further, however, that with respect to any such untrue statement or omission made in any preliminary prospectus, the indemnity contained in this Section 5(a) (to the extent and only to the extent that such losses, claims, damages or liabilities resulted from the untrue statement or omission described in clause (B) below) shall not inure to the benefit of any Participant if it shall be established that both (A) a copy of the Prospectus was not sent or given by such Participant to the Person asserting any such losses, claims, damages or liabilities at or prior to the delivery of the Registrable Securities to such Person, and (B) the untrue statement or omission in the preliminary prospectus was corrected in the Prospectus unless, in either case, such failure to deliver the Prospectus was a result of noncompliance by the Company with Section 4 hereof. This indemnity agreement will be in addition to any liability that the Company may otherwise have, including, but not limited to, liability under this Agreement. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Company, each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, and each of its agents, employees, officers and directors and the agents, employees, officers and directors of any such controlling Person from and against any Losses to which they or any of them may become subject under the Securities Act, the Exchange Act or otherwise insofar as such Losses (or actions in respect thereof) arise out of or based -16- upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that any such Loss arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with information relating to such Participant furnished in writing to the Company by such Participant to the Company expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. (c) Promptly after receipt by an indemnified Person under Section 5(a) or 5(b) above of notice of the commencement of any action, suit or proceeding (collectively, an "action"), such indemnified Person (the "Indemnified Person") shall, if a claim in respect thereof is to be made against any indemnifying Persons under either such subsection, notify each party against whom indemnification is to be sought (the "Indemnifying Persons") in writing of the commencement of such action (but the failure so to notify any Indemnifying Person shall not relieve such Indemnifying Person from any liability that it may have under this Section 5 except to the extent that it has been prejudiced in any material respect by such failure or from any liability which it may otherwise have). In case any such action is brought against any Indemnified Person, and it notifies an Indemnifying Person of the commencement of such action, the Indemnifying Person will be entitled to participate in such action, and to the extent it may elect by written notice delivered to the Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, to assume the defense of such action with counsel satisfactory to such Indemnified Person. Notwithstanding the foregoing, the Indemnified Person or Persons shall have the right to employ their own counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person or Persons unless (i) the employment of such counsel shall have been authorized in writing by the Indemnifying Persons in connection with the defense of such action, (ii) the Indemnifying Persons shall not have employed counsel to take charge of the defense of such action within a reasonable time after notice of commencement of the action, or (iii) the named parties to such action (including any impleaded parties) include such Indemnified Person and the Indemnifying Persons (or such Indemnifying Persons have assumed the defense of such action), and such Indemnified Person or Persons shall have reasonably concluded that there may be defenses available to it or them that are different from or additional to those available to one or all of the Indemnifying Persons (in which case the Indemnifying Persons shall not have the right to direct the defense of such action on behalf of the Indemnified Person or Persons), in any of which events such reasonable fees and expenses of counsel shall be borne by the Indemnifying Persons. In no event shall the Indemnifying Persons be liable for the fees and expenses of more than one counsel (together with appropriate local counsel) at any time for all Indemnified Persons in connection with any one action or separate but substantially similar or related actions arising in the same jurisdiction out of the same general allegations or circumstances. An Indemnifying Person shall not be liable for any settlement of any claim or action effected without its written consent; provided, however, that such consent was not unreasonably withheld. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested an Indemnifying Person to reimburse the Indemnified Person for fees and expenses of counsel as contemplated by paragraph (a) or (b) of this Section 5, then the Indemnifying Person agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 business days after receipt by such Indemnifying Person of the aforesaid request, (ii) -17- such Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement and (iii) such Indemnified Person shall have given the Indemnifying Person at least 30 days prior notice of its intention to settle. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. (d) In order to provide for contribution in circumstances in which the indemnification provided for in this Section 5 is for any reason held to be unavailable from the Indemnifying Person, or is insufficient to hold harmless an Indemnified Person under this Section 5, then each Indemnifying Person shall contribute to the amount paid or payable by such Indemnified Person as a result of such aggregate Losses of the nature contemplated by such indemnification provision (but after deducting in the case of Losses suffered by the Indemnifying Person, any contribution received by the Indemnifying Person from Persons other than the Indemnified Person who may also be liable for contribution, including Persons who control the Indemnified Person within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) to which any Indemnified Person may be subject in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person or Persons, on the one hand, and the Indemnified Person or Persons, on the other hand, from the offering of the Warrant Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the Indemnifying Person not having received notice as provided in paragraph (c) and having been prejudiced in any material respect by the absence of such notice, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Indemnifying Person or Persons, on the one hand, and Indemnified Person or Persons, on the other hand, in connection with the statements or omissions that resulted in such Losses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and such Participant, on the other hand, shall be deemed to be in the same proportion as (x) the total proceeds from the offering of Warrant Shares (net of discounts and commissions but before deducting expenses) received by the Company, and (y) the total net profit received by such Participant in connection with the sale of the Warrant Shares. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Participant or such other Indemnified Person, as the case may be, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to above. Notwithstanding the provisions of this Section 5, (i) in no case shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities exceeds the amount of any damages that such Participant has otherwise been required to pay by reason of any untrue or alleged untrue statement or omission or alleged omission and (ii) no -18- Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action against such party in respect of which a claim for contribution may be made against another party or parties under this Section 5, notify such party or parties from whom contribution may be sought, but the omission to so notify such party or parties shall not relieve the party or parties from whom contribution may be sought from any obligation it or they may have under this Section 5 or otherwise, except to the extent that it has been prejudiced in any material respect by such failure; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under this Section 5 for purposes of indemnification. Anything in this section to the contrary notwithstanding, no party shall be liable for contribution with respect to any action or claim settled without its written consent, provided, however, that such written consent was not unreasonably withheld. 6. Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act, and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Warrants or Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that it will take such further action as any Holder of Warrants or Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Warrants or Registrable Securities, without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding the foregoing, nothing in this Section 6 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. Upon the request of any Holder of Warrants vr Registrable Securities, the Company will in a timely manner deliver to such Holder a written statement as to whether it has complied with such information requirements. 7. Underwritten Registrations. No Person may participate in any underwritten public offering hereunder unless such person (i) agrees to sell such Registrable Securities on the basis reasonably provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 8. Miscellaneous. 8.1. Remedies. In the event of a breach by the Company or by a Holder of any of its obligations under this Agreement, each Holder and the Company, in addition to being -19- entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. 8.2. No Conflicting Agreements. The Company will not enter into any agreement that by its terms prohibits the Company from complying with its obligations under this Agreement. 8.3. No Piggy-back on Demand Registrations. The Company shall not grant to any of its securityholders (other than the Holders in such capacity) the right to include any of their securities in any Registration Statement filed pursuant to a Demand Registration unless any such right expressly provides that such securityholders will agree to be cut-back if the lead managing underwriter with respect to such Demand Registration has informed the Holders, in writing, that it is its view that the total number of securities requested for inclusion is such as to materially and adversely affect the price, timing or distribution of any offering relating to such Demand Registration. 8.4. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be, amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given;. otherwise than with the prior written consent of the Holders of not less than the Requisite Shares. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement; provided, however that the provisions of this sentence may not be amended, modified or supplemented except in accordance with the provisions of the immediately preceding sentence. Notwithstanding the foregoing, no amendment, modification, supplement, waiver or consent with respect to Section 5 shall be made or given otherwise than with the prior written consent of each Person affected thereby. 8.5. Notices. All notices and other communications provided for herein shall be made in writing and shall be mailed, delivered or copied and confirmed in writing. (a) if to the Company, as provided in the Purchase Agreement, (b) if to the Initial Purchasers, as provided in the Purchase Agreement, or (c) if to any other Person who is then the registered Holder of Warrants or Registrable Securities, to the address of such Holder as it appears in the register therefor of the Company. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one Business Day after being timely delivered -20- to a next-day air courier; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by telecopier machine, if telecopied. 8.6. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign any of its rights hereunder without the prior written consent of each Holder. Notwithstanding the foregoing, no successor or assignee of the Company shall have any of the rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such person's acceptance of such rights and obligations. 8.7. Counterparts. This Agreement may be executed in various counterparts that together shall constitute one and the same Agreement. 8.8. Governing Law, Submission to Jurisdiction. This Agreement shall be construed in accordance with the internal laws of the State of New York. (without giving effect to any provisions thereof relating to conflicts of law). Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York and the U.S. federal courts sitting in the City of New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Holders to bring proceedings against the Company in the courts of any other jurisdiction. 8.9. Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 8.10. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. 8.11. Securities Held by the Company or its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Warrants or Registrable Securities is required hereunder, Warrants or Registrable Securities held by the Company or any of its Affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. 8.12. Attorneys' Fees. As between the parties to this Agreement, in any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof -21- is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 8.13. Entire Agreement. This Agreement, together with the Warrant Agreement and the Tag-Along Sales Agreement, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. IN WITNESS WHEREOF, the parties have caused this Warrant Shares Registration Rights Agreement to be duly executed as of the date first written above. DAYTON SUPERIOR CORPORATION By: /s/ John A. Ciccarelli ------------------------------------- Name: John A. Ciccarelli Title: President and Chief Executive Officer DEUTSCHE BANK SECURITIES INC. By: /s/ Robert Lipp ------------------------------------- Name: Robert Lipp Title: Managing Director By: /s/ Philip Saliba ------------------------------------- Name: Philip Saliba Title: Vice President MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: Christopher Birosak ------------------------------------- Name: Christopher Birosak Title: Managing Director EX-4.7 6 l05622aexv4w7.txt EXHIBIT 4.7 EXHIBIT 4.7 TAG-ALONG SALES AGREEMENT Dated as of June 16, 2000 among DAYTON SUPERIOR CORPORATION, ODYSSEY INVESTMENT PARTNERS FUND, LP and DEUTSCHE BANK SECURITIES INC. and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Initial Purchasers TABLE OF CONTENTS
Page ---- 1. Definitions ................................................... 1 2. Transfers...................................................... 4 2.1. Generally............................................ 4 2.2. Tag-Along Rights..................................... 4 2.3. Drag-Along Rights .................................... 6 3. Representations, Warranties and Agreements of Odyssey.......... 7 4. Miscellaneous.................................................. 7 4.1. Remedies ............................................. 7 4.2. Amendments and Waivers................................ 8 4.3. Notices............................................... 8 4.4. Successors and Assigns ............................... 8 4.5. Counterparts ......................................... 9 4.6. Governing Law; Submission to Jurisdiction ............ 9 4.7. Severability.......................................... 9 4.8. Headings.............................................. 9 4.9. Attorneys' Fees ...................................... 9 4.10. Entire Agreement ..................................... 9 4.11. Termination .......................................... 9
i This TAG-ALONG SALES AGREEMENT (this "Agreement") is dated as of June 16, 2000, by and among DAYTON SUPERIOR CORPORATION, an Ohio corporation (the "Company"), ODYSSEY INVESTMENT PARTNERS FUND, LP ("Odyssey"), DEUTSCHE BANK SECURITIES INC. ("Deutsche Bank") and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("Merrill Lynch" and, together with Deutsche Bank, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated as of June 9, 2000, by and among the Company, the guarantors named therein and the Initial Purchasers (the "Purchase Agreement"), relating to the sale by the Company to the Initial Purchasers of an aggregate of 170,000 Units, each Unit consisting of $1,000 principal amount of 13% Senior Subordinated Notes due 2009 (the "Notes") and one Warrant (collectively, the "Warrants") to purchase 0.68986 of a common share, no par value, of the Company. The Warrants are being issued pursuant to a warrant agreement (the "Warrant Agreement"), to be dated as of June 16, 2000, between the Company and United States Trust Company of New York, as warrant agent. In addition, the holders of Warrants and Warrant Shares will be entitled to the benefits of the registration rights agreement (the "Warrant Shares Registration Rights Agreement") between the Company and the Initial Purchasers. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company and Odyssey have agreed to provide to the Holders (as defined herein) certain rights set forth in this Agreement with respect to sales by the Principals (as defined herein) of common shares of the Company prior to the date of an Initial Public Offering (as defined herein). The execution of this Agreement is a condition to the obligations of the Initial Purchasers to purchase the Units under the Purchase Agreement. In consideration of the foregoing, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: "Advice" shall have the meaning ascribed to that term in the last paragraph of Section 4. "Affiliate" of any Person shall mean any Person (i) which directly or indirectly controls or is controlled by, or is under direct or indirect common control with, the referent Person, (ii) which beneficially owns or holds 10% or more of the voting stock of the referent Person or (iii) of which 10% or more of the voting stock (or, in the case of a Person which is not a corporation, 10% or more of the equity interest) is beneficially owned or held by the referent Person. For purposes of this definition, control of a Person shall mean the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Business Day" shall mean a day that is not a Legal Holiday. "Capital Stock" shall mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated and whether voting and/or non-voting) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable or exchangeable for any of the foregoing. "Common Shares" shall mean the common shares, no par value, of the Company. "Company" shall have the meaning ascribed to that term in the preamble hereto and shall also include the Company's successors. "Covered Equity" shall have the meaning ascribed to that term in Section 2.1 "Custody Agreement" shall have the meaning ascribed to that term in Section 2.2(e). "Drag-Along Holder" shall have the meaning ascribed to that term in Section 2.3(a). "Drag-Along Notice" shall have the meaning ascribed to that term in Section 2.3(b). "Drag-Along Purchaser" shall have the meaning ascribed to that term in Section 2.3(b). "Drag-Along Right" shall have the meaning ascribed to that term in Section 2.3(a). "Drag-Along Sale" shall have the meaning ascribed to that term in Section 2.3(a). "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. "Excluded Transfer" shall mean (1) a Transfer by any Principal to another Principal (a "transferee") so long as such transferee agrees to be bound by the transferor's obligations under this Tag-Along Sales Agreement, (2) a Transfer pursuant to a Public Offering or pursuant to Rule 144, (3) a Piggy-Back Registration (as defined in the Warrant Shares Registration Rights Agreement) and (4) any Transfer in a single transaction or series of related transactions of Common Shares which do not exceed 5% (calculated on a fully diluted basis) of the Common Shares then outstanding. "Holder" shall mean the Initial Purchasers, for so long as each Initial Purchaser owns any Warrants or Warrant Shares, and each of their successors, assigns and direct and indirect transferees who become registered owners of Warrants or Warrant Shares. "Initial Public Offering" shall mean the first time a registration statement filed under the Securities Act respecting an offering, whether primary or secondary, of capital shares of the Company (or securities convertible into, or exchangeable or exercisable for, capital shares of the Company or rights to acquire such capital shares or securities, other than the Warrants) which is underwritten on a firmly committed or best efforts basis is declared effective and the securities so registered are issued and sold. "Initial Purchasers" shall have the meaning ascribed to that term in the preamble hereto. "IPO Date" shall have the meaning ascribed to that term in Section 2.2(a). "Legal Holiday" shall mean a Saturday, a Sunday or a day on which banking institutions in New York, New York are required by law, regulation or executive order to remain closed. "Notes" shall have the meaning ascribed to that term in the preamble hereto. "Odyssey" shall have the meaning ascribed to that term in the preamble hereto. "Participating Holder" shall have the meaning ascribed to that term in Section 2.2(b). "Person" shall mean any individual, corporation, partnership, joint venture, incorporated or unincorporated association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or other entity of any kind. 2 "Principal" shall mean (a) any of Odyssey, its Affiliates and any general or limited partner of Odyssey or (b) an Affiliate of any of the entities described in clause (a). "Proposed Purchaser" shall have the meaning ascribed to that term in Section 2.2(a). "Prospectus" shall mean the prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement; with respect to the terms of the offering of any portion of the securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. "Public Offering" shall mean an underwritten primary public offering of capital shares of the Company pursuant, to an effective registration statement under the Securities Act. "Purchase Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Registration Statement" shall mean any registration statement of the Company which covers any of the Covered Equity pursuant to the provisions of this Agreement and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. "Requisite Shares" shall mean a number of Warrants and Warrant Shares equivalent to a majority of the Warrant Shares held in the aggregate by all Holders at the time of any determination (with any Warrant being deemed to be equal to the number of Warrant Shares for which such Warrant is then exercisable (without giving effect to any cashless exercise)). "Rule 144" shall mean Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. "Shareholder" shall mean, collectively, each Holder and each Principal owning Common Shares or other securities convertible or exercisable or exchangeable into Common Shares. "Tag-Along Notice" shall have the meaning ascribed to that term in Section 2.2(b). "Tag-Along Right" shall have the meaning ascribed to that term in Section 2.2(a). "Transfer" shall have the meaning ascribed to that term in Section 2.2(a). "Transfer Notice" shall have the meaning ascribed to that term in Section 2.2(b). "Warrant Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Warrant Shares" shall mean the Common Shares issued and issuable upon exercise of the Warrants and any other securities issued or issuable with respect to the Warrants by way of stock dividends, stock splits or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. 3 "Warrant Shares Registration Rights Agreement" shall have the meaning ascribed to that term in the preamble hereto. "Warrants" shall have the meaning ascribed to that term in the preamble hereto. 2. Transfers. 2.1. Generally. All Warrants and Warrant Shares (the "Covered Equity") at any time and from time to time outstanding shall be held subject to the conditions and restrictions set forth in this Section 2. All Common Shares now or hereafter held by the Principals shall be held subject to the conditions and restrictions set forth in this Section 2. Each Holder of Covered Equity and the Principals by executing this Agreement or by accepting a certificate representing Common Shares or other indicia of ownership therefor from the Company agree with the Company and with each other Shareholder to such conditions and restrictions. 2.2. Tag-Along Rights. (a) In the event of any proposed direct or indirect sale or other disposition for cash or other consideration (collectively, a "Transfer") of Common Shares (whether now or hereafter issued) to any Person or Persons (such other Person or Persons being hereinafter referred to as the "Proposed Purchaser") by any Principal or Principals in any transaction or a series of related transactions (other than an Excluded Transfer) at any time prior to the date of the consummation of an Initial Public Offering (the "IPO Date"), each of the Holders of the Warrants and the Warrant Shares shall have the right to require the Proposed Purchaser to purchase from each of them up to a number of Warrant Shares determined by multiplying the total number of Warrant Shares then held by such Holder (including Warrant Shares then obtainable upon exercise of Warrants) times a fraction, the numerator of which is the total number of Common Shares that the Proposed Purchaser is seeking to acquire in the proposed Transfer and the denominator of which is the total number of Common Shares then held by the Principals and all Persons entitled to participate in the proposed Transfer (whether pursuant to this Agreement or otherwise) measured on a fully diluted basis giving effect to the exercise or conversion of all outstanding warrants, options or convertible stock entitled to participate. (b) Each Principal and the Company shall notify, or cause to be notified, each Holder of Covered Equity in writing (a "Transfer Notice") of each such proposed Transfer at least 30 days prior to the date thereof. Such notice shall set forth: (i) the name and address of the Proposed Purchaser and the number of Common Shares and other securities, if any, proposed to be transferred, (ii) the proposed amount of consideration and terms and conditions of payment offered by such Proposed Purchaser (if the proposed consideration is not cash, the Transfer Notice shall describe the terms of the proposed consideration) and (iii) that either the Proposed Purchaser has been informed of the Tag-Along Right and has agreed to purchase Warrant Shares in accordance with the terms hereof or that a Principal or Principals will make such purchase. The Tag-Along Right may be exercised by any Holder of Covered Equity (each a "Participating Holder") by delivery of a written notice to the applicable Principal and the Company (a "Tag-Along Notice"), within the five Business Days following such Holder's receipt of the Transfer Notice, indicating its election to exercise the Tag-Along Right. The Tag-Along Notice shall state the amount of Warrant Shares that such Holder proposes to include in such Transfer to the Proposed Purchaser determined in accordance with paragraph (a) above. Failure by any Holder to provide a Tag-Along Notice within the five Business Day notice period shall be deemed to constitute an election by such Holder not to exercise its Tag-Along Right. The closing with respect to any sale to a Proposed Purchaser pursuant to this Section 2 shall be held at the time and place specified in the Transfer Notice but in any event within 60 days of the date such Transfer Notice is given; provided that if through the exercise of commercially reasonable efforts the Company is unable to cause such transaction to close within 60 days, such period may be extended for such reasonable period of time as may be necessary to close such transaction. Consummation of the sale of Common Shares by any Principal and the Company to a Proposed Purchaser shall be conditioned upon consummation of the sale by each Participating Holder that provided a timely Tag-Along Notice to such Proposed Purchaser (or the Principal) of the Warrant Shares entitled to be transferred as described above, if any. (c) In the event that the Proposed Purchaser does not purchase any Warrant Shares entitled to be transferred as described above on the same terms and conditions as purchased from the applicable Principal, then the applicable Principal shall purchase such Warrant Shares on like terms if the Transfer occurs. 4 (d) Any Warrant Shares purchased from the Participating Holders pursuant to this Section 2.2 shall be paid for in the same type of consideration and at the same price per Common Share and upon the same terms and conditions as those applicable to a proposed Transfer of Common Shares by the Principals (regardless of the class of common shares to be sold). If the Warrants and Warrant Shares to be purchased include securities or property other than common shares, the price to be paid for such securities or property shall be the same price per share or other denomination paid by the proposed purchaser for like securities purchased from the Principals or, if like securities are not purchased from the Principals, the fair market value of such securities determined by an internationally recognized investment banking firm selected by the Company. The Principal shall arrange for payment directly by the Proposed Purchaser to each Participating Holder, upon delivery of the certificate or certificates representing the Warrant Shares duly endorsed for transfer, together with such other documents as the Proposed Purchaser may reasonably request. (e) Upon delivering a Tag-Along Notice, each Participating Holder will, if requested by the applicable Principal, execute and deliver a custody agreement and power of attorney (a "Custody Agreement") in form and substance reasonably satisfactory to such Principal with respect to the Warrant Shares to be included in the Proposed Transfer pursuant to this Agreement. The Custody Agreement will provide that the Participating Holder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (which may be an employee or officer of one of the Principals) a certificate or certificates representing the applicable Warrant Shares or Warrants with the form of notice of exercise duly executed (which exercise notice may be conditioned on the consummation of the Proposed Transfer), in each case duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank, and will irrevocably appoint said custodian and attorney-in-fact as such Participating Holder's agent and attorney-in-fact with full power and authority to act under a custody agreement and power of attorney on behalf of such Participating Holder with respect to the matters specified herein. (f) Each Participating Holder agrees that he or she will execute such other agreements as the applicable Principal or the Proposed Purchaser may reasonably request in connection with the consummation of the Proposed Transfer and the transactions contemplated thereby. (g) If at the end of 60 days following the date on which a Transfer Notice was given (as such period may be extended pursuant to the provisions of Section 2.2(b)), the sale of Common Shares by the Principals and the sale of the Covered Equity entitled to be transferred as provided above have not been completed in accordance with the terms of the Proposed Purchaser's offer, all certificates representing such Covered Equity shall be returned to the Participating Holders, and all the restrictions on transfer contained in this Agreement with respect to Common Shares owned by the Principals shall remain in effect. 2.3. Drag-Along Rights. (a) If at any time prior to the IPO Date, the Board of Directors of the Company and the holders of a majority of the capital shares of the Company entitled to vote thereon approve a sale, lease, transfer, conveyance or other disposition (including, without limitation, any merger or consolidation), in a single transaction or series of related transactions, of all or substantially all of the equity interests or assets of the Company and its subsidiaries taken as a whole to a Person other than a Principal, the Company may require (the "Drag-Along Right") the Holders of Covered Equity (each a "Drag-Along Holder") to participate in such transaction in accordance with this Section 2.3 and to vote in favor of such transaction, if applicable (any transaction involving the exercise of the Drag-Along Right shall be referred to as a 'Drag-Along Sale"). (b) The Company shall notify, or cause to be notified, each Holder of Covered Equity in writing (a "Drag-Along Notice") of the proposed date of the Drag-Along Sale at least 30 days prior to the date thereof, setting forth the proposed amount of consideration and terms and conditions of payment to be offered in such Drag-Along Sale, and the other material terms thereof. Each Drag-Along Holder hereby agrees to sell to the intended purchaser (the "Drag-Along Purchaser") all Covered Equity held by such Drag-Along Holder and to vote in favor of such transaction, if applicable. (c) On the date of the Drag-Along Sale, each Drag-Along Holder shall deliver a certificate or certificates for its Covered Equity, duly endorsed for transfer with signatures guaranteed, to the Drag-Along Purchaser in the manner and at the address indicated in the Drag-Along Notice against delivery of the purchase price for such Covered Equity. 5 (d) Any Covered Equity purchased from the Drag-Along Holders pursuant to this Section 2.3 shall be paid for in the same type of consideration and at the same price per share and upon the same terms and conditions applicable to holders of the same type of securities included in the Drag-Along Sale or, if like securities are not purchased from other holders, the Fair Market Value of such securities. (e) Each Drag-Along Holder will, if requested by the Company, execute and deliver a Custody Agreement in form and substance reasonably satisfactory to the Company with respect to the Covered Equity to be included in the Drag-Along Sale pursuant to this Agreement. The Custody Agreement will provide that the Drag-Along Holder will deliver to and deposit in custody with the custodian and attorney-in-fact named therein (which may be an employee or officer of one of the Principals) a certificate or certificates representing the applicable Covered Equity (duly endorsed in blank by the registered owner or owners thereof or accompanied by duly executed stock powers in blank) and irrevocably appoint said custodian and attorney-in-fact as such Drag-Along Holder's agent and attorney-in-fact with full power and authority to act under a custody agreement and power of attorney on behalf of such Drag-Along Holder with respect to the matters specified therein relating to the proposed Drag-Along Sale. (f) Each Drag-Along Holder agrees that he or she will execute such other agreements as the Company or the Drag-Along Purchaser may reasonably request in connection with the consummation of the Drag-Along Sale and the transactions contemplated thereby. 3. Representations, Warranties and Agreements of Odyssey. Odyssey represents, warrants to and agrees with the Holders of the Warrants and Warrant Shares as of the date of this Agreement as follows: (a) Due Authorization. The execution, delivery and performance of this Agreement by Odyssey has been duly authorized by all requisite action. (b) Binding Obligation. This Agreement has been duly executed and delivered by Odyssey and constitutes the legal, valid and binding obligation of Odyssey, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general principles of equity and the discretion of the court before which any proceedings therefor may be brought. (c) No Violation. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated herein, by Odyssey does not violate any provision of law, any order of any court or other agency of government or any organizational document of Odyssey. (d) Government Action. No action has been taken and no statute, rule or regulation or order has been enacted, no injunction, restraining order or order of any nature has been issued by a federal or state court of competent jurisdiction and no action, suit or proceeding is pending against or affecting or threatened against the Company before any court or arbitrator or any governmental body, agency or official which, if adversely determined, would in any manner draw into question the validity of this Agreement. (e) No Other Agreements. Odyssey is not party to any agreement which conflicts with or is inconsistent with this Agreement. 4. Miscellaneous. 4.1. Remedies. In the event of a breach by the Company, the Principals or by a Holder of any of its obligations under this Agreement, each Holder, the Principals and the Company, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company, the Principals and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach of any of the provisions of this Agreement and each hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. 6 4.2. Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than by a written instrument signed by the Company and Odyssey, with the prior written consent of the Holders of not less than the Requisite Shares; provided, however, that, for the purposes of this Agreement, Warrants and Warrant Shares that are owned, directly or indirectly, by the Company or the Principals are not deemed outstanding. 4.3. Notices. All notices and other communications provided for herein shall be made in writing and shall be mailed, delivered or copied and confirmed in writing. (a) if to the Company, as provided in the Purchase Agreement, (b) if to Odyssey, Odyssey Investment Partners Fund, LP 280 Park Avenue West Tower, 38th Floor New York, New York 10017 Attention: William F. Hopkins Tel: (212) 351-7900 Fax: (212) 351-7925 with a copy to: Latham & Watkins 885 Third Avenue New York, New York 10022 Attention: Kirk A. Davenport, Esq. Tel: (212) 906-1200 Fax: (212) 751-4864 (c) if to the Initial Purchasers, as provided in the Purchase Agreement, or (d) if to any other Person who is then the registered Holder of Warrants or Warrant Shares, to the address of such Holder as it appears in the register therefor of the Company. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one Business Day after being timely delivered to a next-day air courier; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by telecopier machine, if telecopied. 4.4. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. Notwithstanding the foregoing, no successor or assignee of the Company or any Principal shall have any of the rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such Person's acceptance of such rights and obligations. 4.5. Counterparts. This Agreement may be executed in various counterparts that together shall constitute one and the same Agreement. 4.6. Governing Law; Submission to Jurisdiction. This Agreement shall be construed in accordance with the internal laws of the State of New York (without giving effect to any provisions thereof relating to conflicts of law). Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York and the U.S. federal courts sitting in the City of New York for the purposes of any suit, action or proceeding arising out of or relating to this Agreement. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of the Holders to bring proceedings against the Company or any Principal in the courts of any other jurisdiction. 7 4.7. Severability. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 4.8. Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. 4.9. Attorneys' Fees. As between the parties to this Agreement, in any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the successful party shall be entitled to recover reasonable attorneys' fees in addition to its costs and expenses and any other available remedy. 4.10. Entire Agreement. This Agreement, together with the Warrant Agreement and the Warrant Shares Registration Rights Agreement, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders, the Company and Odyssey, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 4.11. Termination. This Agreement shall terminate upon the consummation of an Initial Public Offering, except for Sections 4.6 and 4.9, which shall survive termination hereof. IN WITNESS WHEREOF, the parties have caused this Tag-Along Sales Agreement to be duly executed as of the date first written above. DAYTON SUPERIOR CORPORATION By: /s/ John A. Ciccarelli ----------------------------------- Name: John A. Ciccarelli Title: President and CEO ODYSSEY INVESTMENT PARTNERS FUND, LP By: ODYSSEY CAPITAL PARTNERS, LLC, its general partner By: /s/ William F. Hopkins ----------------------------------- Name: William F. Hopkins Title: Managing Member DEUTSCHE BANK SECURITIES INC. By: /s/ Robert Lipps ----------------------------------- Name: Robert Lipps Title: Managing Director 8 MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By: Christopher Bisosak ----------------------------------- Name: Christopher Bisosak Title: Managing Director 9 EX-10.10.4 7 l05622aexv10w10w4.txt EXHIBIT 10.10.4 Exhibit 10.10.4 FOURTH AMENDMENT to 2000 STOCK OPTION PLAN of DAYTON SUPERIOR CORPORATION Section 2.1 (a) of the 2000 Stock Option Plan of Dayton Superior Corporation (the "Plan") hereby is amended in its entirety, effective as of February 10, 2004, to read as follows: "2.1 Shares Subject to Plan. (a) The shares of stock subject to Options shall be shares of the Company's Common Stock. The aggregate number of such shares which may be issued upon exercise of such Options shall not exceed 769,254 as adjusted pursuant to Section 8.3. The shares of Common Stock issuable upon exercise of such Options may be either previously authorized but unissued shares or treasury shares." The foregoing amendment to the Plan was approved by the directors of Dayton Superior Corporation (the "Company") acting at a meeting duly called and held on February 10, 2004 and shall be submitted to the shareholders of the Company for approval within 12 months after the date of such meeting. Except as expressly set forth above, the Plan is not hereby modified or amended and shall remain in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the undersigned has executed this Fourth Amendment as of the date first set forth above. DAYTON SUPERIOR CORPORATION By: /s/ Stephen R. Morrey -------------------------- Name: Stephen R. Morrey Title: President and Chief Executive Officer EX-14 8 l05622aexv14.txt EXHIBIT 14 Exhibit 14 DAYTON SUPERIOR CORPORATION CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS Dayton Superior Corporation's ("Company") Senior Financial Officers must perform with integrity, honesty and sound judgment in every aspect of their professional duty. While all directors, officers and employees are required to adhere to Dayton Superior Corporation's Standards of Conduct, the professional and ethical conduct of the Senior Financial Officers is essential to the proper performance and success of Dayton Superior Corporation. This Code of Ethics shall apply to Dayton Superior Corporation's Senior Financial Officers. "Senior Financial Officers" shall include Dayton Superior Corporation's President and Chief Executive Officer, Chief Financial Officer, Vice President - Accounting, and Corporate Treasurer or persons performing similar functions. In the event of the change of an officer's title or designation as a principal officer, or the addition of an officer to the foregoing definition, any officer performing a similar function shall be included. CODE OF CONDUCT To the best of their knowledge and ability, the Senior Financial Officers shall: - act with honesty and integrity in the performance of his or her duties at the Company, shall comply with laws, rules and regulations of federal, state and local governments and other private and public regulatory agencies that affect the conduct of the Company's business and the Company's financial reporting. - be responsible for full, accurate, and timely disclosure in all periodic reports required to be filed by the Company with the Securities and Exchange Commission and in other public communications. Accordingly, it is the responsibility of the CEO, CFO and each senior financial officer to promptly bring to the attention of the Disclosure Committee of the Company (the Disclosure Committee) any material information of which he or she may become aware that affects the disclosures made by the Company in its public filings or otherwise assist the Disclosure Committee in fulfilling its responsibilities. - promptly bring to the attention of the Disclosure Committee and the Audit Committee any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect the Company's ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's financial reporting, disclosures or internal controls. - avoid actual or apparent conflicts of interest between personal and business relationships, such as holding an equity, debt, or other financial interest in any competitor, supplier or customer of the Company, or having a personal financial interest in any transaction involving the purchase or sale by the Company of any products, materials, equipment, services or property, other than through Company-sponsored programs. Any such actual or apparent conflicts of interest shall be brought to the attention of the General Counsel or the CEO. - promote the prompt internal reporting of violations of this Code of Ethics to the chair of the Audit Committee of the Board of Directors, the General Counsel, or to other appropriate person or persons identified by Dayton Superior Corporation's Board of Directors. - promptly bring to the attention of the General Counsel or the Audit Committee any information he or she may have concerning evidence of a material violation of securities or other laws, rules or regulations applicable to the Company and the operation of its business, by the Company or any agent thereof. - promote, as appropriate, contact by employees with the designated reporting official or the chair of the Audit Committee of the Board of Directors for any issues concerning improper accounting or financial reporting of Dayton Superior Corporation without fear of retaliation, and proactively promote ethical and honest behavior within Dayton Superior Corporation. The Board of Directors shall determine, or designate appropriate persons, to determine appropriate actions, to be taken in the event of violations of this Code of Ethics by the President and Chief Executive Officer, Chief Financial Officer, Vice President - Accounting, and Corporate Treasurer or persons performing similar functions. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to this Code of Ethics, and may include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits and termination of the individual's employment. All Senior Financial Officers are expected to adhere to both the Dayton Superior Corporation's Standards of Conduct and this Code of Ethics. The Board of Directors shall have the sole and absolute discretionary authority to approve any deviation or waiver from this Code of Ethics for Senior Financial Officers. Any change in or waiver from and the grounds for such change or waiver of this Code of Ethics for Senior Financial Officers shall be promptly disclosed through a filing with the Securities and Exchange Commission on Form 8-K. EX-21.1 9 l05622aexv21w1.txt EXHIBIT 21.1 . . . Exhibit 21.1 Subsidiaries of Dayton Superior Corporation
Jurisdiction of Incorporation Name or Organization - ----------------------------------------- ----------------------------- Aztec Concrete Accessories, Inc. California Dayton Superior Canada Ltd. Ontario Dayton Superior Specialty Chemical Corp. Kansas Dur-O-Wal, Inc. Delaware Symons Corporation Delaware Southern Construction Products, Inc. Alabama Trevecca Holdings, Inc. Delaware
EX-31.1 10 l05622aexv31w1.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 annual report on Form 10-K of Dayton Superior Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report based on such evaluation; and c) disclosed in this annual report any change in Dayton Superior Corporation's internal control over financial reporting that occurred during Dayton Superior Corporation's most recent fiscal year 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. March 30, 2004 /s/ Stephen R. Morrey -------------------------------------- Stephen R. Morrey President and Chief Executive Officer EX-31.2 11 l05622aexv31w2.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 annual report on Form 10-K of Dayton Superior Corporation; 2. Based on my knowledge, this annual 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 annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 annual 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 annual report based on such evaluation; and c. disclosed in this annual report any change in Dayton Superior Corporation's internal control over financial reporting that occurred during Dayton Superior Corporation's most recent fiscal year 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. March 30, 2004 /s/ Edward J. Puisis -------------------------------------- Edward J. Puisis Vice President and Chief Financial Officer EX-32.1 12 l05622aexv32w1.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 Annual Report on Form 10-K of the Company for the period ending December 31, 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: March 30, 2004 /s/ Stephen R. Morrey -------------------------------------- Stephen R. Morrey President and Chief Executive Officer EX-32.2 13 l05622aexv32w2.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 Annual Report on Form 10-K of the Company for the period ending December 31, 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: March 30, 2004 /s/ Edward J. Puisis -------------------------------------- Edward J. Puisis Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----