-----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, Hbt17/Bq8eAep9LL+kpEIaxqlR5gvrfMQOTdOq/Tw7KDRU7opUq8ypslNDM+OOpp q43zineUIlUjPfWy2OlJOg== 0000950152-01-002073.txt : 20010409 0000950152-01-002073.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950152-01-002073 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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-K405 SEC ACT: SEC FILE NUMBER: 001-11781 FILM NUMBER: 1590933 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-K405 1 l85831ae10-k405.txt DAYTON SUPERIOR CORPORATION FORM 10-K405 1 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, 2000 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(g) of the Act: TITLE OF EACH CLASS Units consisting of 13% Senior Subordinated Notes due 2009 and Warrants to purchase Common Shares 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] As of March 26, 2001, there were 4,004,584 common shares outstanding, all of which were privately held and not traded on a public market. 2 PART I 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. ITEM 1. BUSINESS. GENERAL We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. In many of our product lines, we believe we are the market leader and lowest cost manufacturer 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 and manufacturing facilities. For the year ended December 31, 2000, our net sales were $367.8 million. We derive our revenue from a profitable mix of sales of consumable products and the sale and rental of engineered equipment. We believe that the breadth of our product offerings and national distribution network allow us to maintain a large customer base that prefers a "one-stop" supplier. We manufacture the substantial majority of our 18,000 products, which we sell under a number of well-established brand names. Our national distribution system, which we believe is the largest in our industry, allows us to efficiently cross-sell and distribute newly developed and acquired product lines on a nationwide basis. Through our network of 70 service/distribution centers, we serve over 6,000 customers, comprised of independent distributors and a broad array of precast concrete manufacturers, general contractors, subcontractors and metal fabricators. This nationwide customer base provides us with a geographically diversified sales mix and reduces our dependence on the economic cycles of any one region. We currently have four principal business units, which are organized around the following product lines: Concrete Accessories (Dayton/Richmond(R)). We believe we are the leading North American manufacturer of 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. For the year ended December 31, 2000, our concrete accessories business unit had net sales to external customers of $164.1 million, or 45% of our total net sales. Concrete Forming Systems (Symons(R)). We believe we are the leading North American manufacturer 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. Sales from concrete forming systems and related accessories represented approximately 65% and rental revenue represented approximately 35% of Symons' total sales in 2000. For the year ended December 31, 2000, our concrete forming systems business unit had net sales to external customers of $130.2 million, or 35% of our total net sales. 2 3 Paving Products (American Highway Technology(R)). We believe we are the leading North American manufacturer of welded dowel assemblies and dowel baskets, which are paving products used in the construction and rehabilitation of concrete roads, highways and airport runways to extend the life of the pavement. These consumable products are used to transfer dynamic loads between adjacent slabs of concrete roadway. For the year ended December 31, 2000, our paving products business unit had net sales to external customers of $40.4 million, or 11% of our total net sales. Masonry Products (Dur-O-Wal(R)). We believe we are the leading North American manufacturer of masonry products, which are placed between layers of brick and concrete blocks and covered with mortar to provide additional strength to walls. Masonry products also include engineered products used to repair or restore brick and stone buildings. For the year ended December 31, 2000, our masonry products business unit had net sales to external customers of $33.1 million, or 9% of our total net sales. Each of our four principal business units also sells specialty construction chemicals that are used in conjunction with its other products. 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. CONCRETE ACCESSORIES. Our concrete accessories business unit manufactures and sells concrete accessories primarily under the Dayton/Richmond(R) brand name. For the year ended December 31, 2000, net sales of our concrete accessories business unit to external customers accounted for $164.1 million, or 45% of our total net sales. Concrete accessories 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. We generally manufacture these products on customized high-speed automatic equipment. - 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. 3 4 - BAR SUPPORTS. Bar supports are non-structural metal or plastic supports used to position rebar within a horizontal slab or form to be filled with concrete. Bar supports are often plastic or epoxy coated, galvanized or equipped with plastic tips to prevent creating a conduit for corrosion of the embedded rebar. - 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 our concrete accessories business unit 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. CONCRETE FORMING SYSTEMS. Our concrete forming systems business unit manufactures, sells and rents reusable modular concrete forming systems primarily under the Symons(R) name. These products include standard and specialty concrete forming systems, shoring systems and accessory products. To capitalize on the durability and relatively high unit cost of prefabricated forming equipment, we also rent forming products. For the year ended December 31, 2000, net sales of our concrete forming systems business unit to external customers accounted for $130.2 million, or 35% of our total net sales. Our concrete forming system products include: 4 5 - 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. - SHORING SYSTEMS. Shoring systems, including aluminum beams and joists, post shores and shoring frames used to support deck and other raised forms while concrete is being poured. - CONSTRUCTION CHEMICALS. Construction chemicals sold by the concrete forming systems business unit include form release agents, sealers, water repellents, grouts and epoxies and other chemicals used in the pouring, stamping and placement of concrete. PAVING PRODUCTS. Our paving products business unit sells products, primarily consisting of welded dowel assemblies and dowel baskets, used in the construction and rehabilitation of roads, highways and airport runways to extend the life of the pavement. This business unit sells paving products primarily under the American Highway Technology(R) name, but we also offer some paving products under the Dayton/Richmond(R) name. We manufacture welded dowel assemblies primarily using automated and semi-automated equipment. For the year ended December 31, 2000, net sales of paving products accounted for $40.4 million, or 11% of our total net sales. Paving products include: - WELDED DOWEL ASSEMBLIES AND DOWEL BASKETS. Welded dowel assemblies and dowel baskets 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. - CONSTRUCTION CHEMICALS. Construction chemicals sold by our paving products business unit include curing compounds used in concrete road construction. MASONRY PRODUCTS. Our masonry products business unit manufactures and sells masonry products under the Dur-O-Wal(R) name. Our masonry product line consists primarily of masonry wall reinforcement products, masonry anchors, engineered products and other accessories used in masonry construction and restoration to reinforce brick and concrete walls, anchor inner to outer walls and provide avenues for water to escape. For the year ended December 31, 2000, net sales of masonry products accounted for approximately $33.1 million, or 9% of our total net sales. 5 6 Masonry products are wire products 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. We have the in-house ability to produce hot-dipped zinc galvanized finishes on masonry wall reinforcement products. Hot-dipped galvanized finishes are considered to provide superior protection against corrosion compared to alternative finishes. In recent years, model building codes in a number of regions of the country in which masonry construction is used have been amended to require use of hot-dipped galvanized masonry wall reinforcement products. We also sell other masonry products which connect one form of masonry to another or masonry to a building structure. Masonry products are used in the restoration of existing masonry construction, for seismic retrofitting of existing brick veneer surfaces to strengthen the surfaces against earthquake damage and for moisture control applications. MANUFACTURING We manufacture the substantial majority of the products we sell. Most of our concrete accessories, paving products and masonry products are manufactured in 23 facilities throughout the United States, although a majority of our service/distribution facilities also can produce smaller lots of some products. 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 masonry products business unit's ability to "hot-dip" galvanize products provides it 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 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 generally operate our manufacturing facilities on two shifts per day, five days per week (six days per week during peak months and, in some instances, three shifts), with the number of employees increasing or decreasing as necessary to satisfy demand on a seasonal basis. 6 7 DISTRIBUTION We distribute our products through over 3,000 independent distributors, and our own network of 70 service/distribution centers located in the United States and Canada. Twenty-three of the service/distribution centers are associated with our manufacturing plants. Distribution centers by segment are as follows: Concrete Accessories 31 Concrete Forming Systems 30 Paving Products 5 Masonry Products 4 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 the concrete accessories, paving products, masonry products and specialty construction chemicals businesses, which enables our customer service representatives to identify, reserve and ship inventory quickly from any of our locations in response to telephone orders. Our system provides us with a competitive advantage since our service representatives are able to answer customer questions about availability and shipping dates while still on the telephone. We primarily use third-party common carriers to ship our products. We also use our distribution system to sell products which are manufactured by others. These products usually are sold under our brand names and often are produced for us on an exclusive basis. Sales of these products allow us to utilize our distribution network to increase sales without making significant capital investments. We believe there is an increasing trend among our distributors to consolidate into larger entities, which could result in increased price competition. SALES AND MARKETING We employ approximately 500 sales and marketing personnel, of whom approximately 75% are field sales people and 25% are customer service representatives. Sales and marketing personnel are located in all of our locations. 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. 7 8 CUSTOMERS We have over 6,000 customers, over 50% of which purchase our products for resale. Our customer base is geographically diverse, with no customer accounting for more than 4% of net sales in 2000. Our ten largest customers accounted for less than 17% of our net sales in 2000. Customers who purchase our products for resale generally do not sell our products exclusively. CONCRETE ACCESSORIES. Our concrete accessories business unit has approximately 2,500 customers, consisting of distributors, rebar fabricators and precast and prestressed concrete manufacturers. We estimate that approximately 80% of the customers of this business unit purchase our products for resale. The largest customer of the business unit accounted for 3% of the business unit's 2000 net sales. The business unit's top ten customers accounted for 20% of its 2000 net sales. Our concrete accessories business unit 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 100 certified tilt-up construction product dealers. CONCRETE FORMING SYSTEMS. Our concrete forming systems business unit has approximately 3,500 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 8% of the business unit's 2000 net sales and its ten largest customers accounted for 25% of its 2000 net sales. PAVING PRODUCTS. Our paving products business unit has approximately 400 customers, consisting primarily of distributors of construction supplies and, to a lesser extent, general contractors and subcontractors. This business unit's largest customer accounted for 21% of the business unit's 2000 net sales and its ten largest customers accounted for 73% of its 2000 net sales. MASONRY PRODUCTS. Our masonry products business unit has approximately 2,200 customers consisting of distributors, brick and concrete block manufacturers, general contractors and sub-contractors. We estimate that approximately 90% of the business unit's customers purchase its products for resale. This business unit's largest customer accounted for 4% of its 2000 net sales and its ten largest customers accounted for 20% of its 2000 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 8 9 ingredients, liquid chemicals, zinc and injection-molded plastic parts. Steel, in its various forms, constitutes approximately 35% of our cost of sales. We currently purchase materials from over 200 vendors and are not dependent on any single vendor or small group of vendors for any significant portion of our raw material purchases. COMPETITION Our industry is highly competitive in most product categories and geographic regions. We compete with a number of full-line national manufacturers of concrete accessories, concrete forming systems, masonry products 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 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), 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. We have approximately 122 trademarks and 130 patents. EMPLOYEES As of December 31, 2000, we employed approximately 900 salaried and 1,500 hourly personnel, of whom approximately 900 of the hourly personnel and seven of the salaried personnel are represented by labor unions. Employees at our Miamisburg, Ohio; Parsons, Kansas; Des Plaines, Illinois; New Braunfels, Texas; Tremont, Pennsylvania; St. Joseph, Missouri; Long Beach, California; and Aurora, Illinois manufacturing/distribution plants and our service/distribution centers in Baltimore, Maryland; Atlanta, Georgia and Santa Fe Springs, California are covered by collective bargaining agreements. We believe we have good employee and labor relations. SEASONALITY Our operations are seasonal in nature, with approximately 60% of our sales historically occurring in the second and third quarters. Working capital and borrowings fluctuate with sales volume. 9 10 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 is not representative of our actual sales for any succeeding period. 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 Location Use Principal Business Unit Owned (Sq. Ft.) - -------------------------- --------------------------------- ----------------------- ------- --------- Des Plaines, Illinois Manufacturing/Distribution and Symons Headquarters Concrete Forming Systems Owned 171,650 Miamisburg, Ohio Manufacturing/Distribution and Dayton/Richmond Headquarters Concrete Accessories Owned 146,000 Parsons, Kansas Manufacturing/Distribution Paving Products Owned 115,000 Aurora, Illinois Manufacturing/Distribution and Dur-O-Wal Headquarters Masonry Products Owned 109,000 Kankakee, Illinois Manufacturing/Distribution and American Highway Technology Headquarters Paving Products Leased 107,900 Tremont, Pennsylvania Manufacturing/Distribution Concrete Accessories Owned 102,650 New Braunfels, Texas Manufacturing/Distribution Concrete Forming Systems Owned 89,600 Parker, Arizona Manufacturing/Distribution Concrete Accessories Leased 60,000 Birmingham, Alabama Manufacturing/Distribution Concrete Accessories Leased 55,000 Modesto, California Manufacturing/Distribution Paving Products Leased 55,000 Centralia, Illinois Manufacturing/Distribution Concrete Accessories Owned 53,500 St. Joseph, Missouri Manufacturing/Distribution Concrete Accessories Owned 53,342 Atlanta, Georgia Service/Distribution Concrete Accessories Leased 49,392 Grand Prairie, Texas Service/Distribution Concrete Accessories Leased 45,000 Seattle, Washington Service/Distribution Concrete Accessories Leased 42,825 Santa Fe Springs, California Service/Distribution Concrete Accessories Leased 40,000 Toronto, Ontario Service/Distribution Concrete Accessories Leased 40,000 Oregon, Illinois Manufacturing/Distribution Concrete Accessories Owned 39,000 Kansas City, Kansas Manufacturing/Distribution Concrete Accessories Owned 33,000 Helena, Alabama Manufacturing/Distribution Paving Products Leased 32,000 Folcroft, Pennsylvania Service/Distribution Concrete Accessories Owned 32,000 Baltimore, Maryland Service/Distribution Masonry Products Owned 30,000
ITEM 3. LEGAL PROCEEDINGS. Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of 10 11 approximately $14.0 million were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $0.1 million and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14.1 million, post-judgment interest of $1.1 million, and defense costs of $0.1 million, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" under its insurance policies to recover its defense costs and for indemnification of the false advertising and the misappropriation of trade secrets portions of the EFCO judgment. Royal Insurance Co., Symons' primary commercial general liability insurance carrier, filed a lawsuit against Symons in the Superior Court in San Francisco, California, on September 11, 2000, seeking a declaration from the court of its rights and obligations under its insurance policies for Symons' claim for defense and indemnification of the EFCO lawsuit. ENVIRONMENTAL MATTERS Our businesses are subject to regulation under various and changing federal, state and local laws and regulations relating to the environment and to employee safety and health. These environmental laws and regulations govern the generation, storage, transportation, disposal and emission of various substances. Permits are required for operation of our businesses (particularly air emission permits), and these permits are subject to renewal, modification and, in certain circumstances, revocation. We believe we are in compliance with these laws and permitting requirements. Our businesses also are subject to regulation under various and changing federal, state and local laws and regulations which allow regulatory authorities to compel (or seek reimbursement for) cleanup of environmental contamination at sites now or formerly owned or operated by our businesses and at facilities where their waste is or has been disposed. We expect to incur ongoing capital and operating costs to maintain compliance with currently applicable environmental laws and regulations; however, we do not expect those costs, in the aggregate, to be material. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 11 12 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS. None. 12 13 ITEM 6. SELECTED FINANCIAL DATA. (All dollar amounts in thousands, except share data) The earnings statement data and the balance sheet data presented below have been derived from the Company's consolidated financial statements and should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto, included elsewhere herein.
Year Ended December 31, ---------------------------------------------------------------- 1996 1997 1998 1999 2000 --------- --------- --------- --------- ---------- EARNINGS STATEMENT DATA: Net sales $ 124,486 $ 167,412 $ 282,849 $ 322,170 $ 367,845 Cost of sales 86,021 111,044 175,290 197,790 225,349 --------- --------- --------- --------- --------- Gross profit 38,465 56,368 107,559 124,380 142,496 Selling, general and administrative expenses 23,637 36,761 75,525 83,474 97,115 Facility closing reserve -- -- -- -- 2,517(1) Amortization of goodwill and intangibles 1,749 1,885 2,213 2,369 2,508 --------- --------- --------- --------- --------- Income from operations 13,079 17,722 29,821 38,537 40,356 Interest expense, net 4,829 5,556 11,703 11,661 22,574 Lawsuit judgment -- -- -- -- 15,341(2) Other expense (income), net 96 (64) (202) 230 293 --------- --------- --------- --------- --------- Income before provision for income taxes and extraordinary item 8,154 12,230 18,320 26,646 2,148 Provision for income taxes 3,538 5,277 8,244 11,991 1,471 --------- --------- --------- --------- --------- Income before extraordinary item 4,616 6,953 10,076 14,655 677 Extraordinary item, net of tax (2,314)(3) -- -- -- (4,812)(4) --------- --------- --------- --------- --------- Net income (loss) 2,302 6,953 10,076 14,655 (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit -- -- -- 320 583 --------- --------- --------- --------- --------- Net income (loss) available to common shareholders $ 2,302 $ 6,953 $ 10,076 $ 14,335 $ (4,718) ========= ========= ========= ========= =========
Year Ended December 31, ---------------------------------------------------------------- 1996 1997 1998 1999 2000 --------- --------- --------- --------- --------- BALANCE SHEET: Working capital $ 10,874 $ 40,365 $ 39,727 $ 50,469 $ 60,868 Total assets 107,835 226,930 253,620 278,679 335,418 Long-term debt (including current portion) 34,769 120,236 118,205 105,173 245,925 Company-obligated mandatorily redeemable convertible trust preferred securities -- -- -- 19,556 -- Shareholders' equity 52,872 60,529 74,588 88,772 13,196
(1) As a result of the acquisition of Conspec, the Company has decided to consolidate certain of the Company's existing operations. One facility has been closed and a second facility has reduced its operations. Accordingly, a facility closing reserve of $2,517 has been recorded, of which $432 relates to idle machinery and equipment write-offs, and $2,085 relates to future lease payments, employee severance and relocation, and other exit costs. 13 14 (2) Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14.0 million were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $0.1 million and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14.1 million, post-judgment interest of $1.1 million, and defense costs of $0.1 million, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. (3) During June 1996, the Company prepaid its $40,000 unsecured senior promissory notes. In conjunction therewith, the Company paid a prepayment premium of $2,400 and expensed unamortized financing costs and debt discount of $795 and $538, respectively. The Company recorded an extraordinary loss of $2,314, net of an income tax effect of $1,419. The Company funded this repayment with $23,041 in proceeds from its public stock offering and $19,359 from its credit facility. (4) During June 2000, in connection with the recapitalization, the Company refinanced its 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 the Company recorded an extraordinary loss of $4,812, comprised of the following: Expense deferred financing costs on previous long-term debt $2,719 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 476 Expense issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 1,691 Prepayment premium on conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into debentures 2,125 Financing cost for unused long-term debt commitment 750 ------ 7,761 Income tax benefit (2,949) ------ Extraordinary loss $4,812 ======
14 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW We believe we are the largest North American manufacturer and distributor of metal accessories and forms used in concrete construction and of metal accessories used in masonry construction. Although almost all of our products are used in concrete or masonry construction, the function and nature of the products differ widely. We have four principal business units, which are organized around the following product lines: - Concrete Accessories (Dayton/Richmond(R)); - Concrete Forming Systems (Symons(R)); - Paving Products (American Highway Technology(R)); and - Masonry Products (Dur-O-Wal(R)). Through our business units, we design, manufacture and distribute metal accessories and forms to independent distributors for resale to contractors, brokers and other manufacturers. In some of our product lines, we also may sell directly to end users and may provide equipment for rental. When our business was started in 1924, it consisted primarily of the concrete accessories business and operated primarily in the eastern United States. In 1982, we acquired Superior Concrete Accessories, Inc., which expanded our geographic reach to include the rest of the continental United States and doubled the size of our company. In 1995, we acquired our masonry products business unit through the acquisition of Dur-O-Wal, which we believe is the leading North American manufacturer of masonry wall reinforcement products and other metal masonry accessories. In 1996, we created a separate paving products business unit to operate a business that was previously a part of our concrete accessories business unit. In 1997, we again almost doubled our size when we acquired our concrete forming systems business unit and added to our concrete accessories business unit through the acquisition of Symons Corporation. With the addition of Symons, we also approximately doubled the number of our distribution and manufacturing locations. We believe that Symons is the leading North American manufacturer of concrete forming systems. We also have expanded some of our business units through additional smaller acquisitions. In June 1998, The Transportation Equity Act for the 21st Century, known as "TEA-21" was enacted. TEA-21 authorizes $218 billion in federal spending on highway and infrastructure projects through the year 2003 and represents a 44% increase over the 1991 Intermodal Surface Transportation Act, the previous six-year federal program. At a minimum, $162 billion of the $218 billion has been allocated to highway and bridge programs. Our paving products business unit began to benefit from TEA-21 during the second half of 1999. Unless otherwise indicated, the discussion of our results of operations that follows includes information for Symons, Dur-O-Wal and the other acquisitions only from the dates that we acquired each of those companies. 15 16 CONCRETE ACCESSORIES (DAYTON/RICHMOND(R)) Our concrete accessories business unit derives its revenues from the sale of products primarily to independent distributors. We also provide some equipment on a rental basis. Our concrete accessories business unit manufactures substantially all of the products it sells, which are shipped to customers based on orders. 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, enable this business unit to deliver many of its products within 24 hours of a customer order. Therefore, product inventories are maintained at relatively low levels. Cost of sales for our concrete accessories business unit consists primarily of purchased steel and other raw materials, as well as the costs associated with manufacturing, assembly, testing, internal shipping and associated overhead. CONCRETE FORMING SYSTEMS (SYMONS(R)) Our concrete forming systems business unit derives its revenues from the sale and rental of engineered, reusable modular systems and related accessories to independent distributors and contractors. Sales of 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. Sales of concrete forming systems generally are more sensitive to economic cycles than rentals. Rental equipment also can be sold as used equipment. The 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. All-steel forming systems are characterized by larger, project-driven orders, which increases backlog relative to the Steel-Ply(R) forms which are held in inventory for rental and sale. Our concrete forming systems business unit manufactures and assembles Steel-Ply(R) forms and outsources some of the manufacturing involved in all-steel forms. This outsourcing strategy allows us to fulfill larger orders without increased overhead. Cost of sales for our concrete forming systems business unit consists primarily of purchased steel, specialty plywood, and other raw materials; depreciation and maintenance of rental equipment, and the costs associated with manufacturing, assembly and overhead. PAVING PRODUCTS (AMERICAN HIGHWAY TECHNOLOGY(R)) Our paving products business unit derives its revenues from sales to independent distributors and contractors. Orders from customers are affected by state and local governmental infrastructure expenditures and their related bid processes. This is our business unit most affected by the demand expected to be generated as a consequence of TEA-21. Due to the project-oriented nature of paving jobs, these products generally are made to order. This serves to keep inventories low but increases the importance of backlog in this business unit. Our paving products division manufactures nearly all of its products. Cost of sales for our paving products business unit consists primarily of steel, as well as the costs associated with manufacturing and overhead. 16 17 MASONRY PRODUCTS (DUR-O-WAL(R)) Our masonry products business unit derives its revenues from sales to independent distributors and brick and concrete block manufacturers who package our products with other products for resale to customers. Our masonry products business unit sells two principal categories of products: new construction products and restoration and repair products. New construction products are used to strengthen masonry walls or the connection between masonry and other portions of the wall at the time a building is constructed. Restoration and repair products are used to refurbish masonry and brick buildings and strengthen connections between masonry and the interior portions of the wall and are more engineered and generally generate higher margins than new construction products. The masonry products business unit manufactures and assembles the majority of its products before shipping to customers based on orders. Cost of sales for the masonry products business unit consists primarily of steel, as well as costs associated with manufacturing and overhead. ACQUISITIONS We have completed 8 acquisitions since the beginning of 1998. These are summarized in the following table:
Purchase Price Date Business Acquired Business Unit (in millions) ---- ----------------- ------------- -------------- May 1998 Symons Concrete Forms Concrete Forming Systems $ 6.7 May 1998 Northwoods Concrete Forming Systems 0.8 June 1998 Secure Paving Products 0.6 January 1999 Cempro Concrete Accessories 5.4 October 1999 Southern Construction Products Masonry Products and 8.3 Concrete Accessories February 2000 Polytite Masonry Products 1.6 July 2000 Conspec Concrete Accessories 23.2 January 2001 Aztec Concrete Accessories 32.6
17 18 RESULTS OF OPERATIONS The following table summarizes the Company's results of operations as a percentage of net sales for the periods indicated.
2000 1999 1998 ------- ------- ------- Net sales 100.0% 100.0% 100.0% Cost of goods sold 61.3 61.4 62.0 ----- ----- ----- Gross profit 38.7 38.6 38.0 Selling, general and administrative expenses 26.3 25.9 26.7 Facility closing reserve 0.7 - - Amortization of goodwill and intangibles 0.7 0.7 0.8 ----- ----- ----- Total operating expenses 27.7 26.6 27.5 ----- ----- ----- Income from operations 11.0 12.0 10.5 Interest expense, net 6.1 3.6 4.1 Lawsuit judgment 4.2 - - Other expense (income), net 0.1 0.1 (0.1) ----- ----- ----- Income before provision for income taxes and extraordinary item 0.6 8.3 6.5 Provision for income taxes 0.4 3.8 2.9 ----- ----- ----- Income (loss) before extraordinary item 0.2 4.5 3.6 Extraordinary loss, net of income tax benefit (1.3) - - ----- ----- ----- Net income (loss) (1.1) 4.5 3.6 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit 0.2 0.1 - ----- ----- ----- Net income (loss) available to common shareholders (1.3)% 4.4% 3.6% ===== ===== =====
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999 Net Sales Our 2000 net sales reached a record $367.8 million, a 14.2% increase from $322.2 million in 1999. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, --------------------------------------------- 2000 1999 --------------------- ------------------ (IN THOUSANDS) NET SALES % NET SALES % % CHANGE ---------- ------- ----------- ------- -------- Concrete accessories ..... $ 169,039 46.0% $ 144,722 44.9% 16.8% Concrete forming systems . 136,688 37.2 122,720 38.1 11.4 Paving products .......... 42,985 11.7 36,695 11.4 17.1 Masonry products ......... 33,854 9.1 28,265 8.8 19.8 Intersegment eliminations (14,721) (4.0) (10,232) (3.2) 43.9 --------- ------ --------- ----- Net sales ....... $ 367,845 100.0% $ 322,170 100.0% 14.2% ========= ====== ========= =====
18 19 Net sales of concrete accessories increased by 16.8% to $169.0 million in 2000 from $144.7 million in 1999. Approximately half of the increase was due to the acquisition of Conspec, with the balance due to increases in volume from specific marketing initiatives. Net sales of concrete forming systems increased by 11.4% to $136.7 million in 2000 from $122.7 million in 1999 due to the introduction of two European forming systems through our distribution channels, increased volume in highly engineered forms and increased Steel-Ply(R) rental revenue. Net sales of paving products increased by 17.1% to $43.0 million in 2000 from $36.7 million in 1999 due to an increase in volume as a result of TEA-21, marketing initiatives, and a new facility in California. Net sales of masonry products increased by 19.8% to $33.9 million in 2000 from $28.3 million in 1999, due to the acquisition of Southern Construction Products. Gross Profit Gross profit for 2000 was $142.5 million, a 14.5% increase over $124.4 million for 1999. Gross margin was 38.7% in 2000 compared to 38.6% in 1999. Despite the lower mix of rental revenue and the higher mix of lower gross margin businesses - paving products and masonry products - gross margin increased primarily due to improved efficiencies in manufacturing and freight. Operating Expenses Our selling, general, and administrative expenses ("SG&A expenses") increased to $97.1 million in 2000 from $83.5 million in 1999. A non-recurring pension plan termination gain reduced 1999 SG&A expenses by $0.7 million. The remaining increase is due to the effect of 1999 and 2000 acquisitions, higher distribution costs associated with the higher net sales and increases in new product development and sales personnel. SG&A expenses were higher as a percent of sales to 26.3% in 2000 from 25.9% in 1999, due to the non-recurring pension plan termination gain in 1999 and a build in our specialty construction chemicals product line infrastructure. A facility closing reserve of $2.5 million was recorded in 2000 to cover the closing or downsizing of three existing facilities as a result of the acquisition of Conspec. Amortization of goodwill and intangibles increased slightly to $2.5 million in 2000 from $2.4 million in 1999. Other Expenses Interest expense increased to $22.6 million in 2000 from $11.7 million in 1999 due to increased long-term debt and higher interest rates resulting from the recapitalization. Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14.0 million were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference 19 20 with contractual relations, but increased the damages awarded to EFCO by $0.1 million and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14.1 million, post-judgment interest of $1.1 million, and defense costs of $0.1 million, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" under its insurance policies to recover its defense costs and for indemnification of the false advertising and the misappropriation of trade secrets portions of the EFCO judgment. Royal Insurance Co., Symons' primary commercial general liability insurance carrier, filed a lawsuit against Symons in the Superior Court in San Francisco, California, on September 11, 2000, seeking a declaration from the court of its rights and obligations under its insurance policies for Symons' claim for defense and indemnification of the EFCO lawsuit. Income Before Provision for Income Taxes and Extraordinary Item Income before provision for income taxes and extraordinary item in 2000 decreased to $2.1 million from $26.6 million in 1999, and was comprised of the following:
YEARS ENDED DECEMBER 31, --------------------- 2000 1999 --------- --------- (IN THOUSANDS) Concrete accessories ................................... $ 21,724 $ 22,964 Concrete forming systems ............................... (5,546) 10,876 Paving products ........................................ 2,363 1,569 Masonry products ....................................... (2,833) 1,058 Intersegment eliminations .............................. (7,763) (4,903) Corporate .............................................. (5,797) (4,918) -------- -------- Income before provision for income taxes and extraordinary item $ 2,148 $ 26,646 ======== ========
Concrete accessories' income before provision for income taxes of $21.7 million in 2000 decreased from $23.0 million in 1999, due primarily to higher interest expense of $2.9 million, offset by contribution of the higher net sales. Concrete forming systems' income (loss) before income taxes of $(5.5) million in 2000 decreased from $10.9 million in 1999, due primarily to the EFCO lawsuit judgment of $15.3 million. Additionally, higher interest expense of $6.2 million was mostly offset by the contribution of higher net sales. Income before provision for income taxes from paving products increased to $2.4 million in 2000 from $1.6 million in 1999, due to the increase in net sales and manufacturing efficiencies and absorption from higher volume that more than offset the $0.8 million in higher interest 20 21 expense. Income (loss) before income taxes from masonry products decreased to $(2.8) million in 2000 from $1.1 million in 1999, due to higher interest expense of $1.1 million from the recapitalization and the acquisition of Southern Construction Products, and competitive pricing pressures in the markets we serve, which have lowered both volume and operating margins in this segment. Corporate expenses increased to $5.8 million from $4.9 million primarily due to the non-recurring pension plan termination gain of $0.7 million in 1999. Elimination of gross profit on intersegment sales increased to $7.8 million in 2000 from $4.9 million in 1999 due to higher intersegment sales. Net Income (Loss) Our effective tax rate increased to 68.5% in 2000 from 45.0% in 1999 due to the effect of permanent non-deductible items on lower income before income taxes. Income before extraordinary item decreased to $0.7 million in 2000 from $14.7 million in 1999 due to the factors described above. As described in footnote 1 to the consolidated financial statements, the Company's recapitalization resulted in an extraordinary loss of $4.8 million in 2000. 21 22 COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998 Net Sales Our 1999 net sales reached $322.2 million, a 13.9% increase from $282.8 million in 1998. The following table summarizes our net sales by segment for the periods indicated:
YEARS ENDED DECEMBER 31, -------------------------------------------- 1999 1998 --------------------- --------------------- (IN THOUSANDS) NET NET % SALES % SALES % CHANGE --------- ------ --------- ------- ------ Concrete accessories ..... $ 144,722 44.9% $ 131,467 46.5% 10.1% Concrete forming systems.. 122,720 38.1 104,711 37.0 17.2 Paving products .......... 36,695 11.4 30,967 10.9 18.5 Masonry products ......... 28,265 8.8 24,292 8.6 16.4 Intersegment eliminations. (10,232) (3.2) (8,588) (3.0) 19.1 --------- ------ --------- ------ Net sales ...... $ 322,170 100.0% $ 282,849 100.0% 13.9% ========= ====== ========= ======
Net sales of concrete accessories increased by 10.1% to $144.7 million in 1999 from $131.5 million in 1998, due primarily to increases in volume, new product initiatives, and the contribution of the acquired Cempro business. Net sales of concrete forming systems increased by 17.2% to $122.7 million in 1999 from $104.7 million in 1998 due to a full year's sales from the 1998 acquisitions of Symons Concrete Forms and Northwoods and the expansion and introduction of new products, including exclusive distribution rights to two European forming systems. Net sales of paving products increased by 18.5% to $36.7 million in 1999 from $31.0 million in 1998 due to an increase in volume as a result of TEA-21 and marketing initiatives. Net sales of masonry products increased by 16.4% to $28.3 million in 1999 from $24.3 million in 1998, due to the acquisition of Southern Construction Products, higher existing volume, and strategic pricing initiatives. Gross Profit Gross profit for 1999 was $124.4 million, a 15.6% increase over $107.6 million for 1998. Gross margin was 38.6% in 1999 compared to 38.0% in 1998. Gross margin increased primarily due to higher volume absorbing fixed costs in all business units, and a better mix of higher gross margin rental revenue in the concrete forming systems business. This more than offset the effects of the lower gross margin Cempro and Southern Construction Products businesses. Operating Expenses Our SG&A expenses increased to $83.5 million in 1999 from $75.5 million in 1998. The increase is due to the effect of 1998 and 1999 acquisitions, higher distribution costs associated with the higher net sales volume, increases in new product development and sales personnel, and legal fees to defend ourselves in the EFCO litigation. These were partially 22 23 offset by a $0.7 million non-recurring pension plan termination gain in the second quarter of 1999. SG&A expenses were lower as a percent of sales to 25.9% in 1999 from 26.7% in 1998, due to the effect of higher net sales on fixed costs. Other Expenses Interest expense remained flat at $11.7 million in 1999 and 1998. Interest expense initially increased due to higher debt from the acquisition of Cempro. However, this was offset by the lower debt as a result of increased operating cash flow and the fourth quarter issuance of our mandatorily redeemable convertible trust preferred securities. Income Before Provision for Income Taxes Income before provision for income taxes in 1999 increased 45.4% to a record $26.6 million from $18.3 million in 1998, and was comprised of the following: YEARS ENDED DECEMBER 31, ---------------------- 1999 1998 --------- -------- (IN THOUSANDS) Concrete accessories ....................... $ 22,964 $ 19,387 Concrete forming systems ................... 10,876 6,133 Paving products ............................ 1,569 1,677 Masonry products ........................... 1,058 487 Intersegment eliminations .................. (4,903) (4,153) Corporate .................................. (4,918) (5,211) -------- -------- Income before provision for income taxes $ 26,646 $ 18,320 ======== ======== Concrete accessories' income before provision for income taxes of $23.0 million, or 15.9% of net sales, in 1999 increased from $19.4 million, or 14.7% of net sales, in 1998, due primarily to the increase in net sales of concrete accessories. Concrete forming systems' income before provision for income taxes of $10.9 million, or 8.9% of net sales, in 1999 increased from $6.1 million, or 5.9% of net sales, in 1998, due primarily to the full year effect of the 1998 acquisition of Symons Concrete Forms, and increased sales from the existing business. Income before provision for income taxes from paving products decreased to $1.6 million, or 4.3% of net sales, in 1999 from $1.7 million, or 5.4% of net sales, in 1998, due to personnel increases made in anticipation of the growth of the business as a result of TEA-21. Income before provision for income taxes from masonry products increased to $1.1 million, or 3.7% of net sales, in 1999 from $0.5 million, or 2.0% of net sales, in 1998, due to the acquisition of Southern Construction Products and a shift to higher margin engineered products. Corporate expenses decreased to $4.9 million from $5.2 million due to the non-recurring pension gain which was offset by the addition of personnel in 1998 and 1999. Elimination of gross profit on intersegment sales increased to $4.9 million in 1999 from $4.2 million in 1998 due to higher intersegment sales. Net Income Our effective tax rate was 45.0% in both 1999 and 1998. Net income increased $4.6 million to $14.7 million in 1999 from $10.1 million in 1998 due to the factors described above. 23 24 LIQUIDITY AND CAPITAL RESOURCES Our key statistics for measuring liquidity and capital resources are net cash provided by operating activities, capital expenditures, amounts available under our revolving credit facility, and cash gap. We define cash gap as the number of days our accounts receivable are outstanding plus the number of days of inventory we have, less the number of days our accounts payable are outstanding. 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 2000 was $(2.1) million and was comprised of: - $(4.1) million in net loss, and - $10.5 million in non-cash adjustments to net loss, less - $(8.5) million of working capital changes. Net cash used in investing activities was comprised of: - net capital expenditures of $12.3 million, and - acquisitions of $22.9 million. Capital expenditures in 2000 included additions to the rental equipment fleet of $18.1 million, $17.3 million of proceeds from sales of rental equipment and net property, plant, and equipment additions of $11.5 million. Net additions to the rental equipment fleet of $0.8 million in 2000 decreased from $4.1 million in 1999 as gains in utilization were achieved. We also continued to focus on cost improvement programs in our property, plant, and equipment additions. We anticipate that our net capital expenditures in each of 2001 and 2002 will be comparable to 2000. At December 31, 2000, working capital was $60.9 million, compared to $50.5 million at December 31, 1999. The growth in our working capital is due to higher accounts receivable from our fourth quarter sales growth and higher prepaid income taxes from the benefit of the payment of the judgement in the EFCO litigation and the recapitalization merger. In connection with the recapitalization, the Company incurred substantial new indebtedness and refinanced certain outstanding indebtedness. The sources and uses of cash (in millions) as a result of the recapitalization were as follows: Sources - Issuance of Senior Subordinated Notes, including value assigned to warrants $160.7 - Initial borrowing on new credit facility 61.0 - Odyssey equity contribution, net of issuance costs 87.3 - Exercise of stock options, net of shareholder loans 3.1 ------ $312.1 ====== Uses - Redemption of common shares $164.3 - Repayment of existing long-term debt, including prepayment premium 116.5 - Initial redemption of Company-obligated mandatorily redeemable convertible trust preferred securities 20.8 - Financing costs, including unused commitment fee 10.5 ------ $312.1 ====== As of December 31, 2000, the Company had long-term debt of: (a) $170.0 million in principal amount of Senior Subordinated Notes, with a net book value of $157.9 million, (b) $81.7 million outstanding of a $157.0 million new credit facility, which consists of a $50.0 million revolving credit facility, a $30.0 million acquisition facility, a $23.5 million term loan under the delayed-draw tranche A facility and a $53.5 million term loan under the tranche B facility, (c) $1.2 million of debentures previously held by the Dayton Superior Capital Trust, (d) $5.0 million to one of 24 25 the former stockholders of Symons Corporation, and (e) $0.2 million to the City of Parsons, Kansas. At December 31, 2000, $6.0 million of the $50.0 million revolving credit facility was outstanding. None of the $30.0 million acquisition facility had been drawn, and $22.2 million of the delayed-draw tranche A facility had been drawn. All of the $53.5 million tranche B facility was outstanding. At December 31, 2000, we had a total of $245.9 million of long-term debt outstanding, of which $6.2 million was current. For 2000, our average net cash gap days were 70, the same as 1999. We define cash gap as the number of days our accounts receivable are outstanding plus the number of days of inventory we have, less the number of days our accounts payable are outstanding. 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. We intend to fund future acquisitions with cash, securities or a combination of cash and securities. To the extent we use cash for all or part of any future acquisitions, we expect to raise the cash primarily from our business operations, from borrowings under our credit agreement or, if feasible and attractive, by issuing long-term debt or additional common shares. SEASONALITY Our operations are seasonal, with approximately 60% of sales historically occurring in the second and third quarters of the year. Our working capital and borrowings fluctuate with the volume of our sales. INFLATION We do not believe inflation has had a significant impact on our operations over the past two years. In the past, we have been able to pass along to our customers all or a portion of increases in the price of steel (our principal raw material). We may not be able to pass on steel price increases in the future. 25 26 RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which requires companies to recognize all derivative contracts at their fair values, as either assets or liabilities on the balance sheet. In June 1999, the FASB issued Statement No. 137, which amended SFAS No. 133 such that the effective date of adoption will be for all fiscal quarters beginning after June 15, 2000. We adopted SFAS No. 133 on July 1, 2000. The adoption of SFAS No. 133 did not have an impact on the consolidated financial statements. 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 us and our management are based on estimates, projections, beliefs and assumptions of our 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; our ability to successfully identify, finance, complete and integrate acquisitions; increases in the price of steel (the principal raw material in our products) 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 of factors is not intended to be exhaustive, and additional information concerning relative risk factors can be found in our Registration Statement on Form S-4 (Reg. No. 333-41392) filed with the Securities and Exchange Commission. 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. 26 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. As of December 31, 2000, we had financial instruments which were sensitive to changes in interest rates. These financial instruments consist of: - $170.0 million of Senior Subordinated Notes; - $157.0 million credit facility, consisting of: - $50.0 million revolving credit facility, $6.0 million of which was outstanding at December 31, 2000; - $30.0 million acquisition facility, none of which was outstanding at December 31, 2000; - $23.5 million term loan tranche A, $22.2 million, of which was outstanding at December 31, 2000; and - $53.5 million term loan tranche B, all of which was outstanding at December 31, 2000; and - $6.4 million in other fixed-rate, long term debt. Our $170.0 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, 2000 was $157.9 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 $153.0 million as of December 31, 2000. Our $157.0 million credit facility has several interest rate options which reprice on a short-term basis. Accordingly, the fair value of the new credit facility approximates its $81.7 million face value. The weighted average interest rate as of December 31, 2000 was 9.7% Our other long-term debt at December 31, 2000 consisted of a $5.0 million, 10.5% note payable due in 2004 with an estimated fair value of $5.3 million, $1.2 million of 9.1% junior subordinated debentures previously held by the Dayton Superior Capital Trust with an estimated fair value of $1.3 million, and a $0.2 million, 7% loan due in installments of $31,500 per year with an estimated fair value as of December 31, 2000 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 domestic or international exposure to changes in commodity prices. 27 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Dayton Superior Corporation: We have audited the accompanying consolidated balance sheets of Dayton Superior Corporation (an Ohio corporation) and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, cash flows and comprehensive income (loss) for each of the three years in the period ended December 31, 2000. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dayton Superior Corporation and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed under Part IV, Item 14(a)(2) is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Dayton, Ohio February 14, 2001 28 29 Dayton Superior Corporation And Subsidiaries Consolidated Balance Sheets As of December 31 (Amounts in thousands, except share amounts)
2000 1999 --------- --------- ASSETS (Note 4) Current assets: Cash $ 1,782 $ 4,553 Accounts receivable, net of allowances for doubtful accounts and sales returns and allowances of $5,331 and $5,589 55,786 45,085 Inventories (Note 3) 43,316 39,340 Prepaid expenses and other current assets 5,938 5,551 Prepaid income taxes 6,742 1,038 Future income tax benefits (Notes 3 and 8) 5,841 3,998 --------- --------- Total current assets 119,405 99,565 --------- --------- Rental equipment, net (Note 3) 64,453 58,748 --------- --------- Property, plant and equipment (Note 3) Land and improvements 5,962 4,553 Building and improvements 29,996 22,478 Machinery and equipment 50,102 46,620 --------- --------- 86,060 73,651 Less accumulated depreciation (32,885) (29,741) --------- --------- Net property, plant and equipment 53,175 43,910 --------- --------- Goodwill and intangible assets, net of accumulated amortization (Notes 2 and 3) 97,044 75,522 Other assets 1,341 934 --------- --------- Total assets $ 335,418 $ 278,679 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt (Note 4) $ 6,246 $ 5,032 Accounts payable 27,189 22,802 Accrued compensation and benefits 14,536 11,302 Other accrued liabilities 10,566 9,960 --------- --------- Total current liabilities 58,537 49,096 Long-term debt (Note 4) 239,679 100,141 Deferred income taxes (Notes 3 and 8) 17,635 16,566 Other long-term liabilities (Note 7) 6,371 4,548 --------- --------- Total liabilities 322,222 170,351 --------- --------- Company-obligated mandatorily redeemable convertible trust preferred securities of Dayton Superior Capital Trust which holds solely debentures, $20 liquidation value per security; 0 and 1,062,500 securities authorized, issued and outstanding (Note 5) -- 19,556 --------- --------- Shareholders' equity (Note 6) Class A common shares; no par value; 5,000,000 and 20,539,500 shares authorized; 3,693,990 and 5,962,200 shares issued and 3,693,990 and 5,943,183 shares outstanding; 1 vote per share 92,826 47,417 Loans to shareholders (2,039) -- Class A treasury shares, at cost, 19,017 shares in 1999 -- (387) Cumulative other comprehensive income (340) (254) Retained earnings (accumulated deficit) (77,251) 41,996 --------- --------- Total shareholders' equity 13,196 88,772 --------- --------- Total liabilities and shareholders' equity $ 335,418 $ 278,679 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 29 30 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Operations Years Ended December 31 (Amounts in thousands)
2000 1999 1998 --------- --------- --------- Net sales (Note 3) $ 367,845 $ 322,170 $ 282,849 Cost of sales 225,349 197,790 175,290 --------- --------- --------- Gross profit 142,496 124,380 107,559 Selling, general and administrative expenses 97,115 83,474 75,525 Facility closing reserve (Note 2a) 2,517 -- -- Amortization of goodwill and intangibles 2,508 2,369 2,213 --------- --------- --------- Income from operations 40,356 38,537 29,821 Other expenses Interest expense 22,574 11,661 11,703 Non-recurring item - Lawsuit judgment (Note 10b) 15,341 -- -- Other expense (income), net 293 230 (202) --------- --------- --------- Income before provision for income taxes and extraordinary item 2,148 26,646 18,320 Provision for income taxes (Note 8) 1,471 11,991 8,244 --------- --------- --------- Income before extraordinary item 677 14,655 10,076 Extraordinary loss, net of income tax benefit (Note 1) (4,812) -- -- --------- --------- --------- Net income (loss) (4,135) 14,655 10,076 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit 583 320 -- --------- --------- --------- Net income (loss) available to common shareholders $ (4,718) $ 14,335 $ 10,076 ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 30 31 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity Years Ended December 31, 2000, 1999, and 1998 (Amounts in thousands, except share amounts)
Class A Class B Class A Common Shares Common Shares Treasury Shares -------------------- ------------------ Loans to --------------------- Shares Amount Shares Amount Shareholders Shares Amount --------- ------- --------- ------- ------------ --------- -------- Balances at December 31, 1997 4,261,806 $33,386 1,466,350 $ 9,749 $ - - $ - Net income Foreign currency translation adjustment Excess pension liability adjustment Issuance of Class A common stock in lieu of directors' fees 6,363 124 Issuance of Class A common shares in conjunction with acquisition 222,396 4,078 (Note 2) Exercise of stock options, net 1,026 16 Conversion of class B common share into class A common shares 708,781 4,712 (708,781) (4,712) Purchase of Class A treasury shares 7,298 (145) ---------- ------- ---------- ------- ------- ------ ------ Balances at December 31, 1998 5,200,372 42,316 757,569 5,037 - 7,298 (145) Net income Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities Foreign currency translation adjustment Excess pension liability adjustment Issuance of Class A common stock in lieu of directors' fees 7,731 153 Issuance of Class A common shares in conjunction with acquisition (6,456) (117) (Note 2) Exercise of stock options, net 2,984 28 Conversion of Class B common shares into Class A common shares 757,569 5,037 (757,569) (5,037) Purchase of Class A treasury shares 11,719 (242) ---------- ------- ---------- ------- ------- ------ ------ Balances at December 31, 1999 5,962,200 47,417 - - - 19,017 (387) Net loss Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities Foreign currency translation adjustment Exercise of stock options, net 344,353 5,106 (2,039) Retirement of Class A treasury shares (19,017) (349) (19,017) 387 Issuance of Class A common shares and warrants, net of issuance costs 3,492,205 90,477 Redemption of Class A common shares (6,085,751) (49,825) ---------- ------- ---------- ------- ------- ------ ------ Balances at December 31, 2000 3,693,990 $92,826 $ - $ - $(2,039) - $ - ========== ======= ========== ======= ======= ====== ======
Cumulative Foreign Retained Currency Excess Earnings Translation Pension (Accumulated Adjustment Liability Deficit) Total ------------ --------- ------------- ----- Balances at December 31, 1997 $(191) $ - $ 17,585 $ 60,529 Net income 10,076 10,076 Foreign currency translation adjustment (75) (75) Excess pension liability adjustment (15) (15) Issuance of Class A common stock in lieu of directors' fees 124 Issuance of Class A common shares in conjunction with acquisition 4,078 (Note 2) Exercise of stock options, net 16 Conversion of class B common share into class A common shares - Purchase of Class A treasury shares (145) ------ ------- --------- --------- Balances at December 31, 1998 (266) (15) 27,661 74,588 Net income 14,655 14,655 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities (320) (320) Foreign currency translation adjustment 12 12 Excess pension liability adjustment 15 15 Issuance of Class A common stock in lieu of directors' fees 153 Issuance of Class A common shares in conjunction with acquisition (117) (Note 2) Exercise of stock options, net 28 Conversion of Class B common shares into Class A common shares - Purchase of Class A treasury shares (242) ------ ------- --------- --------- Balances at December 31, 1999 (254) - 41,996 88,772 Net loss (4,135) (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities (583) (583) Foreign currency translation adjustment (86) (86) Exercise of stock options, net 3,067 Retirement of Class A treasury shares (38) - Issuance of Class A common shares and warrants, net of issuance costs 90,477 Redemption of Class A common shares (114,491) (164,316) ------ ------- --------- --------- Balances at December 31, 2000 $ (340) $ - $ (77,251) $ 13,196 ====== ======= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 31 32 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31 (Amounts in thousands)
2000 1999 1998 ---------- ---------- ---------- Cash Flows From Operating Activities: Net income (loss) $ (4,135) $ 14,655 $ 10,076 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss 4,812 -- -- Depreciation 12,613 11,717 10,076 Amortization of goodwill and intangibles 2,508 2,369 2,213 Deferred income taxes (975) 3,801 1,792 Amortization of deferred financing costs, debt discount, and issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 1,349 848 821 Gain on sales of rental equipment and property, plant and (9,846) (6,904) (8,236) equipment Change in assets and liabilities, net of effects of acquisitions: Accounts receivable (7,292) 37 (4,830) Inventories (1,386) (1,701) (2,110) Prepaid expenses and other current assets (707) (826) (1,332) Prepaid income taxes (2,713) (343) 1,259 Accounts payable 1,549 1,435 3,991 Accrued liabilities and other long-term liabilities 2,818 (897) 5,487 Other, net (734) (623) 518 --------- --------- --------- Net cash provided by (used in) operating activities (2,139) 23,568 19,725 --------- --------- --------- Cash Flows From Investing Activities: Property, plant and equipment additions (11,678) (7,728) (7,215) Proceeds from sale of fixed assets 195 259 1,097 Rental equipment additions (18,110) (16,029) (18,081) Proceeds from sales of rental equipment 17,309 11,977 11,298 Acquisitions (Note 2) (25,054) (13,734) (1,784) Refund of purchase price on acquisitions 2,148 -- -- Other investing activities -- (320) -- --------- --------- --------- Net cash used in investing activities (35,190) (25,575) (14,685) --------- --------- --------- Cash Flows From Financing Activities: Repayments of long-term debt (122,185) (13,032) (4,276) Issuance of long-term debt 239,171 -- -- Prepayment premium on extinguishments of long-term debt and interest rate swap agreements (Note 1) (476) -- -- Financing cost on unused long-term debt commitment (750) -- -- Issuance of Class A common shares 93,544 28 16 Redemption of Class A common shares (164,316) -- Financing costs incurred (9,761) -- -- Purchase of treasury shares -- (242) (145) Issuance of Company-obligated mandatorily redeemable convertible trust preferred securities, net of issuance costs -- 19,554 -- Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (583) (320) -- --------- --------- --------- Net cash provided by (used in) financing activities 34,644 5,988 (4,405) --------- --------- --------- Effect of Exchange Rate Changes on Cash (86) 12 (75) --------- --------- --------- Net increase (decrease) in cash (2,771) 3,993 560 Cash, beginning of year 4,553 560 -- --------- --------- --------- Cash, end of year $ 1,782 $ 4,553 $ 560 ========= ========= ========= Supplemental Disclosures: Cash paid for income taxes $ 1,494 $ 8,146 $ 5,055 Cash paid for interest 20,501 9,833 10,763 Conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into long-term debt 23,375 -- -- Issuance of warrants attached to senior subordinated notes 3,166 -- -- Issuance of Class A common shares in conjunction with acquisitions -- (117) 4,078 Issuance of Class A common shares in lieu of directors' fees -- 153 124
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 32 33 Dayton Superior Corporation and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31 (Amounts in thousands)
2000 1999 1998 --------- --------- ---------- Net income (loss) $ (4,135) $ 14,655 $ 10,076 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities (583) (320) -- Other comprehensive income Foreign currency translation adjustment (86) 12 (75) Excess pension liability adjustment -- 15 (15) -------- -------- -------- Comprehensive income (loss) $ (4,804) $ 14,362 $ 9,986 ======== ======== ========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 33 34 Dayton Superior Corporation and Subsidiaries Notes to Consolidated Financial Statements December 31, 2000, 1999 and 1998 (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 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 23 manufacturing/distribution plants and 47 service/distribution centers in the United States and Canada. The Company employs approximately 900 salaried and 1,500 hourly personnel, of whom approximately 900 of the hourly personnel and seven of the salaried personnel are represented by labor unions. There are 3 collective bargaining agreements expiring in 2001. The agreements cover hourly employees at the New Braunfels, Texas; Long Beach, California; and Baltimore, Maryland facilities. On January 19, 2000, the Company signed a definitive merger agreement with an affiliate of Odyssey Investment Partners, LLC ("Odyssey"), the manager of a New York based private equity investment fund, for $27.00 per share in cash. The transaction was completed on June 16, 2000 and was recorded as a recapitalization. Accordingly, the Company has not recorded any goodwill or purchase accounting adjustments. In connection with the recapitalization, the Company refinanced its 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 interest, per preferred security. As a result, the Company recorded an extraordinary loss of $4,812 from the early extinguishment of long-term debt, comprised of the following: Expense deferred financing costs on previous long-term debt $ 2,719 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements 476 Expense issuance costs on Company-obligated mandatorily redeemable convertible trust preferred securities 1,691 Prepayment premium on conversion of Company-obligated mandatorily redeemable convertible trust preferred securities into debentures 2,125 Financing cost for unused long-term debt commitment 750 ------- 7,761 Income tax benefit (2,949) ------- Extraordinary loss $4,812 ======= 34 35 (2) Acquisitions (a) CONSPEC MARKETING AND MANUFACTURING, INC. - On July 17, 2000 the Company acquired all of the stock of Conspec Marketing & Manufacturing Co., Inc., Conspec Performance Products, Inc. and Bristol Investments, Inc. (collectively "Conspec") for $23,200 in cash, including acquisitions costs, and net of a working capital reduction of approximately $100 received in 2001. 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 Conspec have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired (approximately $28,500, including goodwill of $17,500) and liabilities assumed (approximately $5,300). Certain appraisals and evaluations are preliminary and may change. Pro forma financial information is not required. As a result of the acquisition of Conspec, the Company has decided to consolidate certain of the Company's existing operations. One facility has been closed and a second facility has reduced its operations. Accordingly, a facility closing reserve of $2,517 has been recorded, of which $432 relates to idle machinery and equipment write-offs, and $2,085 relates to future lease payments and employee severance. (b) POLYTITE MANUFACTURING CORP. - On February 9, 2000, the Company acquired substantially all of the assets and assumed certain of the liabilities of Polytite Manufacturing Corp. ("Polytite") for approximately $1,600 in cash, including acquisition costs. The business is being operated as part of the Company's masonry products business. The acquisition has been accounted for as a purchase, and the results of Polytite have been included in the accompanying consolidated financial statements since the date of acquisition. The purchase price has been allocated based on the estimated fair values of the assets acquired (approximately $2,100, including goodwill of $1,500) and liabilities assumed (approximately $500). Pro forma financial information is not required. (c) SOUTHERN CONSTRUCTION PRODUCTS, INC. - Effective October 4, 1999, the Company acquired substantially all of the assets and assumed certain of the liabilities of Southern Construction Products, Inc. ("Southern") for approximately $8,300 in cash, including acquisition costs and a purchase price reduction of approximately $300 received in 2000. The business is being operated as part of the Company's masonry products and concrete accessories businesses. The acquisition has been accounted for as a purchase, and the results of Southern 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 $8,900, including goodwill of $5,600) and liabilities assumed (approximately $600). Pro forma financial information is not required. (d) CEMPRO, INC. - Effective January 1, 1999, the Company acquired substantially all of the assets and assumed certain of the liabilities of Cempro, Inc. ("Cempro") for approximately $5,400 in cash, including acquisition costs. The business is being operated as a part of the Company's concrete accessories business. 35 36 The acquisition has been accounted for as a purchase, and the results of Cempro 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 $5,500, including goodwill of $3,500) and liabilities assumed (approximately $100). Pro forma financial information is not required. (e) SECURE, INC. - In June 1998, the Company purchased substantially all of the assets of Secure, Inc. ("Secure"), a subsidiary of The Lofland Company, for approximately $700 in cash, including acquisition costs. This business is being operated as a part of the Company's paving products division. The acquisition has been accounted for as a purchase, and the results of Secure 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, including goodwill of approximately $100. Pro forma financial information is not required. (f) SYMONS CONCRETE FORMS, INC. - In May 1998, the Company purchased the stock of Symons Concrete Forms, Inc. (formerly known as CAI). The purchase price was approximately $6,600, including acquisition costs, and was paid in cash of approximately $400, assumption of long-term debt of approximately $2,200, and delivery of 215,940 Class A Common Shares valued at approximately $4,000, which is net of a purchase price reduction of approximately $100 (6,456 Class A Common Shares) in 1999. The business is being operated as a part of the Company's concrete forming systems division. The acquisition has been accounted for as a purchase, and the results of Symons Concrete Forms 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 $7,900, including goodwill of $2,400) and liabilities assumed (approximately $1,300). Pro forma financial information is not required. (g) NORTHWOODS - In May 1998, the Company purchased the assets of the Northwoods branches of Concrete Forming, Inc. ("Northwoods") for approximately $800 in cash. The Northwoods branches are being operated as a part of the Company's concrete forming systems division. The acquisition has been accounted for as a purchase, and the results of the Northwoods branches 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, including goodwill of approximately $500. Pro forma financial information is not required. (h) SYMONS CORPORATION - On September 29, 1997, the Company purchased the stock of Symons Corporation ("Symons"). The purchase agreement between the Company and the former stockholders of Symons relating to the acquisition provides for an adjustment to the purchase price under certain circumstances. In 2000, the Company received a purchase price reduction of approximately $1,800, net of professional fees, which was recorded as a reduction of goodwill. 36 37 (3) Summary of Significant Accounting Policies (a) Inventories - Substantially all inventories of the domestic concrete accessories, paving products and masonry products operations, approximately 60% of consolidated inventories, are stated at the lower of last-in, first-out ("LIFO") cost (which approximates current cost) or market. All other inventories of the Company are stated 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. The Company had no LIFO reserve as of December 31, 2000 and 1999. Following is a summary of the components of inventories as of December 31, 2000 and December 31, 1999:
December 31, December 31, 2000 1999 ------------ ------------ Raw materials $ 9,966 $ 8,787 Finished goods and work in progress 35,503 32,920 --------- ------- 45,469 41,707 Net realizable value reserve (2,153) (2,367) --------- ------- $ 43,316 $39,340 ========= =======
(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, twelve to fifteen years, on a straight-line method. The balances as of December 31, 2000 and 1999 are net of accumulated depreciation of $11,527 and $9,855, respectively. Rental revenues and cost of sales associated with rental revenue are as follows:
For the year ending -------------------------------------------------------------- December 31, December 31, December 31, 2000 1999 1998 ------------------ ----------------- ------------------- Rental revenue $55,441 $51,079 $44,242 Cost of sales 8,889 8,402 7,114
(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. (d) Goodwill and Intangible Assets - Goodwill and intangible assets are recorded at the date of acquisition at their allocated cost. Amortization is provided over the estimated 37 38 useful lives of 40 years for goodwill, the term of the loan (7 to 9 years) for deferred financing costs and the term of the agreement (5 years) for non-compete agreements. In accordance with Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the carrying value of goodwill and other long-lived assets is assessed for recoverability by management when changes in circumstances indicate that the carrying amount may not be recoverable, based on an analysis of undiscounted future expected cash flows from the use and ultimate disposition of the asset. Management believes there has been no impairment of the carrying values of the Company's long-lived assets as of December 31, 2000 and 1999. (e) Income Taxes - Deferred income taxes are determined by applying current statutory tax rates to the cumulative temporary differences between the carrying value of assets and liabilities for financial reporting and tax purposes. (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' equity. 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 - The Company recognizes revenue on product and rental equipment sales on the date of shipment. Rental revenues are recognized ratably over the terms of the rental agreements. (i) Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 38 39 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. (j) Reclassifications - Certain reclassifications have been made to prior years' amounts to conform to their 2000 classification. (4) Credit Arrangements The Company refinanced its bank indebtedness in conjunction with the recapitalization discussed in Note 1. The Company issued the Senior Subordinated Notes with principal amount of $170,000 and a maturity of June 2009. The notes were issued at a discount, which is being accreted to the face value using the effective interest method and is reflected as interest expense. The notes were issued with warrants that allow the holder to purchase 117,276 of the Company's Class A Common Shares for $0.01 per share. The Company's wholly-owned domestic subsidiaries (Conspec; Symons; Symons Concrete Forms, Inc.; and Dur-O-Wal, Inc.) have provided a guarantee of the notes. The wholly-owned foreign subsidiaries of the Company are not guarantors with respect to the Notes and do not have any credit arrangements senior to the Notes. All of the assets of the Company other than the assets of the wholly-owned foreign non guarantor subsidiaries, are pledged as collateral on the Notes. The following are the supplemental consolidated condensed balance sheets as of December 31, 2000 and 1999, the supplemental consolidated condensed statements of operations and cash flows for the years ended December 31, 2000, 1999 and 1998. 39 40 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of December 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated ----------- ------------ ------------ ------------ ------------ ASSETS Cash $ 1,603 $ (825) $ 1,004 $ - $ 1,782 Accounts receivable, net 20,912 33,648 1,226 - 55,786 Inventories 20,903 21,440 973 - 43,316 Intercompany 69,643 (70,595) 952 - - Other current assets 11,364 6,856 301 - 18,521 --------- --------- --------- --------- -------- TOTAL CURRENT ASSETS 124,425 (9,476) 4,456 - 119,405 Property, plant and equipment, net 24,169 28,824 182 - 53,175 Rental equipment, net 6,768 57,596 89 - 64,453 Investment in subsidiaries 79,598 - - (79,598) - Other assets 57,653 40,732 - - 98,385 --------- --------- --------- --------- -------- TOTAL ASSETS $ 292,613 $ 117,676 $4,727 $(79,598) $335,418 ========= ========= ========= ========= ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 6,246 $ - $ - $ - $ 6,246 Accounts payable 15,086 11,733 370 - 27,189 Accrued liabilities 16,532 8,252 318 - 25,102 --------- --------- --------- --------- -------- TOTAL CURRENT LIABILITIES 37,864 19,985 688 - 58,537 Long-term debt 239,679 - - - 239,679 Other long-term liabilities 6,301 17,504 201 - 24,006 Total shareholders' equity (deficit) 8,769 80,187 3,838 (79,598) 13,196 --------- --------- --------- --------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $292,613 $ 117,676 $ 4,727 $(79,598) $335,418 ========= ========= ========= ========= ========
40 41 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Balance Sheet As of December 31, 1999
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Eliminations Consolidated --------- -------------- ------------- ------------ ------------ ASSETS Cash $ 3,488 $ (361) $ 1,426 $ -- $ 4,553 Accounts receivable, net 17,115 26,953 1,017 -- 45,085 Inventories 18,057 20,001 1,282 -- 39,340 Intercompany 56,824 (57,274) 450 -- -- Other current assets 8,722 2,405 (540) -- 10,587 --------- --------- --------- --------- --------- TOTAL CURRENT ASSETS 104,206 (8,276) 3,635 -- 99,565 Property, plant and equipment, net 20,719 23,043 148 -- 43,910 Rental equipment, net 6,694 51,984 70 -- 58,748 Investment in subsidiaries 58,070 -- -- (58,070) -- Other assets 51,054 25,402 -- -- 76,456 --------- --------- --------- --------- --------- TOTAL ASSETS $ 240,743 $ 92,153 $ 3,853 $ (58,070) $ 278,679 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current maturities of long-term debt $ 5,032 $ -- $ -- $ -- $ 5,032 Accounts payable 13,959 8,571 272 -- 22,802 Accrued liabilities 14,744 6,332 186 -- 21,262 --------- --------- --------- --------- --------- TOTAL CURRENT LIABILITIES 33,735 14,903 458 -- 49,096 Long-term debt 100,141 -- -- -- 100,141 Other long-term liabilities 5,294 15,820 -- -- 21,114 Company-obligated mandatorily redeemable convertible trust preferred securities of Dayton Superior Capital Trust which holds solely debentures 19,556 -- -- -- 19,556 Total shareholders' equity (deficit) 82,017 61,430 3,395 (58,070) 88,772 --------- --------- --------- --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 240,743 $ 92,153 $ 3,853 $ (58,070) $ 278,679 ========= ========= ========= ========= =========
41 42 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Year Ended December 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated --------- -------------- ------------- ------------ Net sales $ 186,683 $ 171,493 $ 9,669 $ 367,845 Cost of sales 117,708 101,721 5,920 225,349 --------- --------- --------- --------- Gross profit 68,975 69,772 3,749 142,496 Selling, general and administrative expenses 41,653 53,298 2,164 97,115 Facility closing reserve 1,860 657 -- 2,517 Amortization of goodwill and intangibles 1,784 724 -- 2,508 Management fees (850) 689 161 -- --------- --------- --------- --------- Income from operations 24,528 14,404 1,424 40,356 Other expenses Interest expense 22,669 (95) -- 22,574 Non-recurring item - Lawsuit judgement -- 15,341 -- 15,341 Other expense (income), net 216 77 -- 293 --------- --------- --------- --------- Income before provision for income taxes and extraordinary item 1,643 (919) 1,424 2,148 Provision for income taxes 826 (10) 655 1,471 --------- --------- --------- --------- Income before extraordinary item 817 (909) 769 677 Extraordinary loss, net of income tax benefit (4,812) -- -- (4,812) --------- --------- --------- --------- Net income (loss) (3,995) (909) 769 (4,135) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit 583 -- -- 583 --------- --------- --------- --------- Net income (loss) available to common shareholders $ (4,578) $ (909) $ 769 $ (4,718) ========= ========= ========= =========
42 43 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Year Ended December 31, 1999
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated --------- -------------- ------------- ----------- Net sales $ 170,009 $ 143,154 $ 9,007 $ 322,170 Cost of sales 106,270 85,826 5,694 197,790 --------- --------- --------- --------- Gross profit 63,739 57,328 3,313 124,380 Selling, general and administrative expenses 37,207 44,613 1,654 83,474 Amortization of goodwill and intangibles 1,686 683 -- 2,369 Management fees (162) (95) 257 -- --------- --------- --------- --------- Income from operations 25,008 12,127 1,402 38,537 Other expenses Interest expense 11,782 (122) 1 11,661 Other expense (income), net 237 (7) -- 230 --------- --------- --------- --------- Income before provision for income taxes 12,989 12,256 1,401 26,646 Provision for income taxes 5,846 5,515 630 11,991 --------- --------- --------- --------- Net Income 7,143 6,741 771 14,655 Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit 320 -- -- 320 --------- --------- --------- --------- Net income available to common shareholders $ 6,823 $ 6,741 $ 771 $ 14,335 ========= ========= ========= =========
43 44 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Operations Year Ended December 31, 1998
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated --------- -------------- ------------- ------------ Net sales $ 153,779 $ 122,569 $ 6,501 $ 282,849 Cost of sales 95,963 74,966 4,361 175,290 --------- --------- --------- --------- Gross profit 57,816 47,603 2,140 107,559 Selling, general and administrative expenses 35,595 38,400 1,530 75,525 Amortization of goodwill and intangibles 1,487 726 -- 2,213 Management fees (161) -- 161 -- --------- --------- --------- --------- Income from operations 20,895 8,477 449 29,821 Other expenses Interest expense 11,973 (270) -- 11,703 Other expense (income), net (15) (147) (40) (202) --------- --------- --------- --------- Income before provision for income taxes 8,937 8,894 489 18,320 Provision for income taxes 4,410 3,557 277 8,244 --------- --------- --------- --------- Net Income $ 4,527 $ 5,337 $ 212 $ 10,076 ========= ========= ========= =========
44 45 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Year ended December 31, 2000
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (3,995) $ (909) $ 769 $ (4,135) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss 4,812 - - 4,812 Depreciation and amortization 7,192 9,242 36 16,470 Deferred income taxes (1,150) (104) 279 (975) Gain on sales of rental equipment and fixed assets (1,041) (8,757) (48) (9,846) Change in assets and liabilities, net of the effects of acquisitions (152) (7,500) (813) (8,465) ----- ------ --- ------ Net cash provided by (used in) operating activities 5,666 (8,028) 223 (2,139) ----- ------ --- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (7,063) (4,537) (78) (11,678) Proceeds from sales of fixed assets 32 163 - 195 Rental equipment additions (1,939) (16,106) (65) (18,110) Proceeds from sale of rental equipment 2,500 14,723 86 17,309 Acquisitions (25,054) - - (25,054) Refunds of purchase price on acquisitions 2,148 - - 2,148 ------- ------ --- ------ Net cash used in investing activities (29,376) (5,757) (57) (35,190) ------- ------ --- ------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (122,185) - - (122,185) Issuance of long-term debt 239,171 - - 239,171 Prepayment premium on extinguishments of long-term debt and interest rate swap agreements (476) - - (476) Financing cost on unused long-term debt commitment (750) - - (750) Issuance of Class A common shares 93,544 - - 93,544 Redemption of Class A common shares (164,316) - - (164,316) Financing costs incurred (9,761) - - (9,761) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (583) - - (583) Intercompany (12,819) 13,321 (502) - ------ ------ ---- ------ Net cash provided by financing activities 21,825 13,321 (502) 34,644 ------ ------ ---- ------ EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (86) (86) ------ ------ ---- ------ Net increase in cash (1,885) (464) (422) (2,771) CASH, beginning of year 3,488 (361) 1,426 4,553 ------ ------ ---- ------ CASH, end of year $ 1,603 $ (825) $ 1,004 $ 1,782 ======= ======= ======= =======
45 46 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Year Ended December 31, 1999
Dayton Non Superior Guarantor Guarantor Corporation Subsidiaries Subsidiaries Consolidated -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,143 $ 6,741 $ 771 $ 14,655 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,683 8,196 55 14,934 Deferred income taxes 714 3,100 (13) 3,801 Gain on sales of rental equipment and fixed assets (908) (5,944) (52) (6,904) Change in assets and liabilities, net of the effects of acquisitions (1,028) (2,020) 130 (2,918) -------- -------- -------- -------- Net cash provided by operating activities 12,604 10,073 891 23,568 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (5,078) (2,610) (40) (7,728) Proceeds from sales of fixed assets 250 9 - 259 Rental equipment additions (1,457) (14,502) (70) (16,029) Proceeds from sale of rental equipment 1,770 10,111 96 11,977 Acquisitions (5,414) (8,320) - (13,734) Other investing activities - (320) - (320) -------- -------- -------- -------- Net cash used in investing activities (9,929) (15,632) (14) (25,575) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (13,032) - - (13,032) Issuance of Class A common shares 28 - - 28 Issuance of Company-obligated mandatorily redeemable convertible trust preferred securities 19,554 - - 19,554 Purchase of treasury shares (242) (242) Dividends on Company-obligated mandatorily redeemable convertible trust preferred securities, net of income tax benefit (320) - - (320) Intercompany (6,629) 6,653 (24) - -------- -------- -------- -------- Net cash provided by financing activities (641) 6,653 (24) 5,988 -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - 12 12 -------- -------- -------- -------- Net increase in cash 2,034 1,094 865 3,993 CASH, beginning of year 1,454 (1,455) 561 560 -------- -------- -------- -------- CASH, end of year $ 3,488 $ (361) $ 1,426 $ 4,553 ======== ======== ======== ========
46 47 Dayton Superior Corporation And Subsidiaries Supplemental Consolidating Condensed Statement of Cash Flows Year Ended December 31, 1998
Dayton Superior Guarantor Non Guarantor Corporation Subsidiaries Subsidiaries Consolidated ----------- ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,527 $ 5,337 $ 212 $ 10,076 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,795 7,315 - 13,110 Deferred income taxes (449) 2,313 (72) 1,792 Gain on sales of rental equipment and fixed assets (1,280) (6,956) - (8,236) Change in assets and liabilities, net of the effects of acquisitions 1,267 1,742 (26) 2,983 -------- -------- -------- -------- Net cash provided by operating activities 9,860 9,751 114 19,725 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions (2,833) (4,365) (17) (7,215) Proceeds from sales of fixed assets 700 397 - 1,097 Rental equipment additions (2,786) (15,254) (41) (18,081) Proceeds from sale of rental equipment 1,650 9,648 - 11,298 Acquisitions (1,034) (750) - (1,784) -------- -------- -------- -------- Net cash used in investing activities (4,303) (10,324) (58) (14,685) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of long-term debt (4,276) - - (4,276) Issuance of Class A common shares 16 - - 16 Purchase of treasury shares (145) - - (145) Intercompany (1,322) 782 540 - -------- -------- -------- -------- Net cash used in financing activities (5,727) 782 540 (4,405) -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH - - (75) (75) -------- -------- -------- -------- Net increase in cash (170) 209 521 560 CASH, beginning of year 1,624 (1,664) 40 - -------- -------- -------- -------- CASH, end of year $ 1,454 $ (1,455) $ 561 $ 560 ======== ======== ======== ========
47 48 The Company has a new credit facility that consists of (i) a $50,000 revolving credit facility maturing June 2006, (ii) a $30,000 acquisition facility, converting from revolving loans into term loans three years from the closing and maturing June 2006 and (iii) term loan facilities in an aggregate principal amount of $77,000, consisting of a $23,500 delayed-draw tranche A facility maturing June 2006 and a $53,500 tranche B facility maturing June 2008. The new credit facility provides that the Company will repay (i) the tranche A facility in quarterly installments commencing March 2002, (ii) the tranche B facility in quarterly installments, commencing March 2002 and (iii) the acquisition facility, in equal quarterly installments commencing three years from the closing. The new credit facility has several interest rate options, which reprice on a short-term basis. 46 49 The average borrowings, maximum borrowings, and weighted average interest rate on the revolving credit facility and its predecessors for the periods indicated are as follows:
For the year ended ------------------------------------------------ December 31, December 31, December 31, 2000 1999 1998 ------------- ------------ ------------- Average borrowings........................... $ 5,965 $22,027 $19,679 Maximum borrowings........................... 16,420 37,140 26,620 Weighted average interest rate............... 10.6% 7.0% 7.7%
The new credit facility contains certain restrictive covenants, which require that, among other things, the Company maintain a minimum interest coverage ratio, not exceed a certain leverage ratio, maintain a minimum EBITDA, as defined and limit its capital expenditures. The Company was in compliance with its loan covenants as of December 31, 2000. The new credit facility is secured by substantially all non-real estate assets of the Company. In conjunction with the acquisition of Symons, the Company issued a $5,000, seven-year unsecured note to one of the former stockholders. The note requires monthly interest payments, with principal due in September 2004. The former stockholder has the right to put the note to the Company at any time prior to its maturity. Accordingly, this note is classified as a current liability. The Company has an Economic Development Loan from the city of Parsons, Kansas. The loan is payable in quarterly installment of $8 through July 2005. The loan is secured by real estate in Parsons. Following is a summary of the Company's long-term debt as of December 31, 2000 and 1999:
2000 1999 --------- --------- Revolving credit facility, weighted average interest rate of 10.8% $ 6,000 $ -- Term Loan Tranche A, weighted average interest rate of 9.0% 22,161 -- Term Loan Tranche B, weighted average interest rate of 9.8% 53,500 -- Senior Subordinated Notes, interest rate of 13.0% 170,000 -- Debt discount on Senior Subordinated Notes (12,100) -- Debentures previously held by Dayton Superior Capital Trust, interest rate of 9.1% 1,214 -- Old Term Loan -- 100,000 Note payable to one of the former stockholders of Symons Corporation, interest rate of 10.5% 5,000 5,000 City of Parsons, Kansas Economic Development Loan, interest rate of 7.0% 150 173 --------- --------- Total long-term debt 245,925 105,173 Less current portion (6,246) (5,032) --------- --------- Long-term portion $ 239,679 $ 100,141 ========= =========
48 50 Scheduled maturities of long-term debt are: Year Amount ------- ------------ 2000 $ 6,246 2001 3,337 2002 4,722 2003 6,107 2004 6,930 Thereafter 230,683 -------- 258,025 Debt Discount (12,100) -------- $245,925 ======== The fair value of the Senior Subordinated Notes is the last trade price, which was $153,000 at December 31, 2000. The fair market value of the Company's other fixed rate long-term debt is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements. At December 31, 2000, the estimated fair value of the note payable to the former stockholder of Symons is $5,273. The estimated fair value of the debentures previously held by Dayton Superior Capital Trust is $1,327. The estimated fair value of the City of Parsons, Kansas Economic Development Loan is $143. The estimated fair value of the new credit facility approximates its face value, as this facility has variable interest rates tied to market rates. (5) Company-obligated Mandatorily Redeemable Convertible Trust Preferred Securities In October 1999, the Company completed an underwritten public offering of 1,062,500 Company-obligated mandatorily redeemable convertible trust preferred securities at a price of $20 per security. Net proceeds to the Company after issuance costs were $19,554. The securities were issued by a limited purpose Delaware trust which used the proceeds to purchase from the Company the same principal amount of convertible junior subordinated debentures. The securities are guaranteed by the Company on a subordinated basis. As a result of the recapitalization, the trust was dissolved. The securities converted to debentures having the right to receive cash in the amount of $23,375 ($22.00 per preferred security), plus accrued interest. As of December 31, 2000, $22,161 of the debentures had been redeemed. Interest is payable on the preferred securities at the rate of 9.1%. (6) Common Shares (a) Stock Option Plan- Upon consummation of the recapitalization, 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 483,159 common shares, of which options to purchase 473,016 common shares were granted during 2000. 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 49 51 recapitalization, as well as new option grants. The terms of the new option grants are as follows: - Options to purchase 24,149 common shares were exercisable when granted. - Options to purchase 24,149 common shares will become exercisable on each of June 16, 2002 and 2003. - Options to purchase 15,174 common shares will become exercisable on each of June 16, 2004 and December 31, 2004. - The remaining options to purchase 370,221 common shares are eligible to become exercisable in installments over three to five years based on the Company's performance, but, in any case, become exercisable no later than June 16, 2009. - 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. The Company accounts for these plans under APB Opinion No. 25, under which no compensation costs have been recognized. Had compensation cost for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net income (loss) available to common shareholders would have been reduced to the following pro forma amounts:
2000 1999 1998 ---------- --------- ---------- Net income (loss) available to common shareholders: As Reported $(4,718) $14,335 $10,076 Pro Forma (5,786) 13,933 9,835
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. A summary of the status of the Company's stock option plans at December 31, 2000, 1999, and 1998, and changes during the years then ended is presented in the table and narrative below:
Number of Weighted Average Exercise Shares Price Per Share --------- ------------------------- Outstanding at December 31, 1997 276,250 $ 3.57 Granted at a weighted average fair value of $6.83 83,833 17.11 Exercised (2,050) 2.46 ------- ------ Outstanding at December 31, 1998 358,033 6.75 Granted at a weighted average fair value of $8.27 92,600 19.44 Exercised (2,984) 4.80 Cancelled (5,366) 18.04 ------- ------ Outstanding at December 31, 1999 442,283 9.28 Granted at a weighted average fair value of $7.65 473,016 27.00 Exercised (344,353) 8.85 ------- ------ Outstanding at December 31, 2000 570,946 $24.22 ======= ======
50 52 Price ranges and other information for stock options outstanding at December 31, 2000 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 43,937 $ 2.44 3.7 years 43,937 $ 2.44 $12.50 - $12.63 4,929 12.50 6.5 4,929 12.50 $16.81 - $19.91 49,064 18.13 7.6 49,064 18.13 $27.00 473,016 27.00 9.5 78,484 27.00 ------- ------ ---------- ------- ------ 570,946 $24.22 8.9 years 176,414 $18.01 ======= ====== ========== ======= ======
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 2000, 1999, and 1998, respectively:
2000 1999 1998 -------------- -------------- ------------- Risk-free interest rates 5.55% 4.68% 5.67% to 5.70% Expected dividend yield 0% 0% 0% Expected lives 6 years 6 years 6 years Expected volatility 0.00% 34.10% 27.87%
(b) Treasury Shares - The Company agreed to repurchase Class A Common Shares issued to the former shareholders of Symons Concrete Forms. As of December 31, 1999, 19,017 Class A Common Shares had been repurchased for $387 under such agreement. In conjunction with the recapitalization, all treasury shares were retired. (7) Retirement Plans (a) Company-Sponsored Pension Plans - During 1999, the Company completed its process of merging and terminating certain of its pension plans. As a result, the Company recorded a $797 non-recurring pension gain related to the termination of its pension plan for salaried employees. During 2000, the Company assumed a second plan in conjunction with the acquisition of Conspec. The Company's pension plans cover virtually all hourly employees not covered by multi-employer pension plans and provides 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. Postretirement Benefits - 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. 51 53
PENSION PENSION OTHER OTHER BENEFITS BENEFITS BENEFITS BENEFITS 2000 1999 2000 1999 -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 5,469 $ 30,481 $ 863 $ 875 Service cost 440 378 -- -- Interest cost 386 412 58 57 Amendments -- (360) -- -- Actuarial loss (gain) (293) 557 (32) (8) Benefits paid (229) (23,023) (115) (61) Terminated plan -- (2,976) -- -- -------- -------- -------- -------- Benefit obligation at end of year $ 5,773 $ 5,469 $ 774 $ 863 ======== ======== ======== ======== CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 5,780 $ 29,155 $ -- $ -- Actual return on plan assets 309 438 -- -- Employer contribution -- 194 115 61 Transfer to other Company-sponsored defined contribution plan -- (984) -- -- Benefits paid (229) (23,023) (115) (61) -------- -------- -------- -------- Fair value of plan assets at end of year $ 5,860 $ 5,780 $ -- $ -- ======== ======== ======== ======== FUNDED STATUS $ 87 $ 311 $ (774) $ (863) Unrecognized prior service cost (149) (152) 240 264 Unrecognized net gain (618) (470) (158) (130) -------- -------- -------- -------- Net amount recognized $ (680) $ (311) $ (692) $ (729) ======== ======== ======== ======== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Accrued benefit liability $ (680) $ (311) $ (774) $ (863) Intangible asset -- -- 82 134 -------- ------- ------- ------- Net amount recognized $ (680) $ (311) $ (692) $ (729) ======== ======== ======== ======== ASSUMPTIONS AS OF DECEMBER 31 Discount rate 7%-7.5% 6.75% 7.5% 7.0% Expected return on plan assets 3.5% - 8% 8% N/A N/A Rate of compensation increase N/A N/A N/A N/A COMPONENTS OF NET PERIODIC BENEFIT COST Service cost $ 440 $ 378 $ -- $ -- Interest cost 386 412 58 57 Expected return on plan assets (454) (396) -- -- Amortization of prior service cost (3) (3) 24 24 Recognized actuarial gain -- -- (4) (3) -------- ------- ------- ------- Recurring net periodic pension cost 369 391 78 78 Termination gain -- (797) -- -- -------- ------- ------- ------- Total net pension cost $ 369 $ (406) $ 78 $ 78 ======== ======= ======= =======
As of December 31, 2000, the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plan with accumulated benefit obligations in excess of plan assets were $393, $393, and $387, respectively. As of December 31, 1999, the plan's accumulated benefit obligation did not exceed its plan assets. The weighted average assumed rate of increase in the per capita cost of covered benefits is 6.5% for 2001 and subsequent years. Assumed health care cost trend rates have a 52 54 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 1 Percentage Point Increase Point Decrease -------------- -------------- Effect on total of service and interest cost components $ 3 $(3) Effect on the postretirement benefit obligation 41 (38)
(b) Multi-Employer Pension Plan- Approximately 38% 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 $274, $330, and $287, for the years ended December 31, 2000, 1999, and 1998, 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 $918, $724, and $531, for the years ended December 31, 2000, 1999, and 1998, respectively. (d) Retirement Contribution Account- The Company has a defined contribution plan for substantially all salaried employees. No contributions are permitted by the employees, and the Company contributes 1.5% to 6.0% of eligible compensation, depending on the age of the employee. The amount expensed for the years ended December 31, 2000, 1999 and 1998 was $1,559, $1,393 and $1,167, respectively. (8) Income Taxes The following is a summary of the components of the Company's income tax provision for the years ended December 31, 2000, 1999, and 1998:
2000 1999 1998 ------- ------- ------- Currently payable: Federal $ 1,782 $ 8,014 $ 5,312 State and local 475 1,444 1,398 Deferred (786) 2,533 1,534 ------- ------- ------- Total provision $ 1,471 $11,991 $ 8,244 ======= ======= =======
53 55 The effective income tax rate differs from the statutory federal income tax rate for the years ended December 31, 2000, 1999, and 1998 for the following reasons:
2000 1999 1998 ---- ---- ---- Statutory income tax rate 34.0% 35.0% 35.0% State income taxes (net of federal tax benefit) 4.3 3.9 4.8 Nondeductible goodwill amortization and other permanent differences 30.2 3.7 5.2 Other, net - 2.4 - ---- ---- ---- Effective income tax rate 68.5% 45.0% 45.0% ==== ==== ====
The components of the Company's future income tax benefits and deferred tax liabilities as of December 31, 2000 and 1999 are as follows:
2000 1999 -------- -------- Current deferred taxes: Inventory reserves $ 497 $ 432 Accounts receivable reserves 1,103 1,138 Accrued liabilities 4,221 2,406 Other 20 22 -------- -------- Total 5,841 3,998 -------- -------- Long-term deferred taxes: Accelerated depreciation (17,964) (16,261) Other long-term liabilities 2,384 1,828 Other (2,055) (2,133) -------- -------- Total (17,635) (16,566) -------- -------- Net deferred taxes $(11,794) $(12,568) ======== ========
(9) Segment Reporting The Company operates in four segments, each with a general manager: concrete accessories (Dayton/Richmond(R)), concrete forming systems (Symons(R)), paving products (American Highway Technology(R)) and masonry products (Dur-O-Wal(R)). The segments are differentiated by their products and services, all of which serve the construction industry. Sales between segments are recorded at normal selling price by the selling division and at cost for the buying division, with the profit recorded as an intersegment elimination. Segment assets include accounts receivable; inventories; property, plant, and equipment; rental equipment; and an allocation of goodwill. Corporate and unallocated assets include cash, prepaid income taxes, future tax benefits, and financing costs. Export sales and sales by non-U.S. affiliates are not significant. 54 56 Information about the profit (loss) of each segment and the reconciliations to the consolidated amounts for the years ended December 31, 2000, 1999, and 1998 is as follows:
2000 1999 1998 --------- --------- --------- Concrete Accessories $ 164,110 $ 139,844 $ 128,119 Concrete Forming Systems 130,213 117,555 99,471 Paving Products 40,424 36,506 30,967 Masonry Products 33,098 28,265 24,292 --------- --------- --------- Net sales to external customers $ 367,845 $ 322,170 $ 282,849 ========= ========= ========= Concrete Accessories $ 4,929 $ 4,878 $ 3,348 Concrete Forming Systems 6,475 5,165 5,240 Paving Products 2,561 189 -- Masonry Products 756 -- -- --------- --------- --------- Net sales to other segments $ 14,721 $ 10,232 $ 8,588 ========= ========= ========= Concrete Accessories $ 6,456 $ 3,587 $ 4,053 Concrete Forming Systems 13,058 6,899 6,543 Paving Products 1,438 629 567 Masonry Products 1,622 546 540 --------- --------- --------- Interest expense $ 22,574 $ 11,661 $ 11,703 ========= ========= ========= Concrete Accessories $ 21,724 $ 22,964 $ 19,387 Concrete Forming Systems (5,546) 10,876 6,133 Paving Products 2,363 1,569 1,677 Masonry Products (2,833) 1,058 487 Intersegment Eliminations (7,763) (4,903) (4,153) Corporate (5,797) (4,918) (5,211) --------- --------- --------- Income before income taxes $ 2,148 $ 26,646 $ 18,320 ========= ========= ========= Concrete Accessories $ 3,501 $ 3,755 $ 3,383 Concrete Forming Systems 6,696 5,735 4,992 Paving Products 967 839 379 Masonry Products 1,364 1,333 1,279 Corporate 85 55 43 --------- --------- --------- Depreciation $ 12,613 $ 11,717 $ 10,076 ========= ========= ========= Concrete Accessories $ 1,642 $ 1,437 $ 1,265 Concrete Forming Systems 148 298 341 Paving Products 153 170 177 Masonry Products 565 464 430 --------- --------- --------- Amortization of goodwill and intangibles $ 2,508 $ 2,369 $ 2,213 ========= ========= =========
55 57 Information regarding each segment's assets and the reconciliation to the consolidated amounts as of December 31, 2000 and 1999 is as follows:
2000 1999 -------- -------- Concrete Accessories $126,797 $ 97,360 Concrete Forming Systems 130,555 121,836 Paving Products 19,386 14,085 Masonry Products 34,416 33,350 Corporate and Unallocated 24,264 12,048 -------- -------- Total Assets $335,418 $278,679 ======== ========
Information regarding capital expenditures by segment and the reconciliation to the consolidated amounts for the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998 ------- ------- ------- Concrete Accessories $ 4,698 $ 3,033 $ 3,348 Concrete Forming Systems 1,951 2,199 2,044 Paving Products 1,937 2,035 1,200 Masonry Products 2,122 397 439 Corporate 970 64 184 ------- ------- ------- Property, Plant, and Equipment Additions $11,678 $ 7,728 $ 7,215 ======= ======= ======= Concrete Accessories $ 2,004 $ 1,457 $ 2,860 Concrete Forming Systems 16,069 14,449 15,221 Masonry Products 37 123 - ------- ------- ------- Rental Equipment Additions $18,110 $16,029 $18,081 ======= ======= =======
(10) Commitments and Contingencies (a) Operating Leases - Rental expense for property, plant and equipment (principally office and warehouse facilities and office equipment) was $4,731, $4,608, and $4,233, for the years ended December 31, 2000, 1999 and 1998, respectively. Lease terms generally range from one to ten years and some contain renewal options. Aggregate minimum annual rental commitments under non-cancelable operating leases are as follows: 2001 $ 4,421 2002 3,382 2003 2,172 2004 1,822 2005 1,135 Thereafter 1,095 ------- Total $18,758 ======= 56 58 (b) Litigation - Symons was a defendant in a civil suit brought by EFCO Corp., a competitor of Symons in one portion of their business. EFCO Corp. alleged that Symons engaged in false advertising, misappropriation of trade secrets, intentional interference with contractual relations, and certain other activities. After a jury trial, preliminary damages of approximately $14,000 were awarded against Symons in January 1999. In ruling on post-trial motions in April 1999, the Judge dismissed EFCO's claim of intentional interference with contractual relations, but increased the damages awarded to EFCO by $100 and enjoined both parties from engaging in certain conduct. Symons appealed the trial court's decision to the United States Court of Appeals for the Eighth Circuit. A three-judge panel issued its decision on July 18, 2000, affirming the district court's ruling in all respects. On August 1, 2000, Symons filed a petition for a rehearing before the full court of appeals. The petition for a rehearing was denied by the court of appeals on September 20, 2000. In October 2000, Symons satisfied the judgment of $14,100, post-judgment interest of $1,134, and defense costs of $107, by payment to EFCO from the Company's cash on hand and from the Company's revolving credit facility. Symons has made a claim to its primary and excess insurance carriers for "advertising injury" under its insurance policies to recover its defense costs and for indemnification of the false advertising and the misappropriation of trade secrets portions of the EFCO judgment. Royal Insurance Co., Symons' primary commercial general liability insurance carrier, filed a lawsuit against Symons in the Superior Court in San Francisco, California, on September 11, 2000, seeking a declaration from the court of its rights and obligations under its insurance policies for Symons' claim for defense and indemnification of the EFCO lawsuit. (c) Self-Insurance - The Company is self-insured for certain of its group medical, workers' compensation and product and general liability claims. The Company has stop loss insurance coverage at various per occurrence and per annum levels depending on type of claim. The Company consults with third party administrators to estimate the reserves required for these claims. Although no material revisions were made to the estimates for the years ended December 31, 2000, 1999 and 1998, during 2000, the Company changed a significant portion of its workers' compensation exposure to self-insured from a premium-based plan. The Company has reserved $5,705, and $3,844 as of December 31, 2000 and 1999, respectively. (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 $70 to $350. The agreements generally provide for salary continuation in the event of termination without cause for periods of six months to two years. The agreements also contain certain non-competition clauses. As of December 31, 2000, the remaining aggregate commitment under these severance agreements if all individuals terminated without cause was approximately $4,200. 57 59 (11) Related Party Transactions In conjunction with the recapitalization and the related financing transactions, the Company paid Odyssey a fee of $4,000, plus out-of-pocket expenses of $699. In conjunction with the acquisition of Aztec Concrete Accessories, Inc. ("Aztec"), the Company paid Odyssey a $350 fee. (12) Subsequent Event In January 2001, the Company acquired the stock of Aztec for approximately $32,600, including acquisition costs, and was paid in cash of approximately $29,800 and 105,263 common shares valued at approximately $2,800. The cash portion was funded through the issuance of 189,629 common shares valued at approximately $5,100 to Odyssey and an increase of approximately $24,700 to the new credit facility. The acquisition has been accounted for as a purchase, and the results of Aztec will be included in the accompanying consolidated financial statements from the date of acquisition. The purchase price will be allocated based on the fair values of the assets acquired and liabilities assumed. Pro forma financial information is not required. (13) Quarterly Financial Information (Unaudited)
2000 ---------------------------------------------------------------- First Second Third Fourth Full Quarter Quarter Quarter Quarter Year ---------- --------- --------- ---------- --------- Quarterly Operating Data ------------------------ Net sales $76,505 $98,000 $107,717 $85,623 $367,845 Gross profit 27,961 38,283 43,186 33,066 142,496 Income (loss) before extraordinary item 473 (2,972) 3,870 (694) 677
1999 ---------------------------------------------------------------- First Second Third Fourth Full Quarter Quarter Quarter Quarter Year ---------- --------- --------- ---------- --------- Quarterly Operating Data ------------------------ Net sales $68,196 $88,636 $93,729 $71,609 $322,170 Gross profit 24,298 32,741 38,406 28,935 124,380 Net income (loss) (355) 5,271 7,501 2,238 14,655
58 60 Dayton Superior Corporation and Subsidiaries Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 2000, 1999 and 1998 (Amounts in thousands)
Additions Deductions ----------------------------------- -------------------- Charges for Which Balance at Charged to Reserves Balance Beginning Costs and Were at End of Year Expenses Other Created Other of Year ---------- ----------- ----- ----------- ----- ------- Allowances for Doubtful Accounts and Sales Returns and Allowances For the year ended December 31, 2000 $ 5,589 $2,740 $ - $(2,998) $ - $5,331 For the year ended December 31, 1999 4,432 3,420 - (2,263) - 5,589 For the year ended December 31, 1998 5,015 3,086 - (2,422) (1,247)(1) 4,432 Inventory Net Realizable Value Reserve For the year ended December 31, 2000 $ 2,367 $2,122 $ 81(2) $(2,417) $ - $2,153 For the year ended December 31, 1999 1,623 2,195 - (1,451) - 2,367 For the year ended December 31, 1998 876 2,322 - (1,575) - 1,623 Self-Insurance Reserves For the year ended December 31, 2000 $ 3,844 $9,686 $ 250(2) $(8,075) $ - $5,705 For the year ended December 31, 1999 4,737 7,351 - (8,244) - 3,844 For the year ended December 31, 1998 4,578 6,389 - (6,230) - 4,737 Facility Closing Reserve For the year ended December 31, 2000 $ - $2,085 $ - $ (165) $ - $1,920
(1) Reduction of amount from acquisition of Symons Corporation (2) Acquisition of Conspec Marketing and Manufacturing, Inc. 59 61 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 60 62 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth the name, age and position of our executive officers and directors as of March 26, 2001.
Name Age Position - ------------------------ ------ ----------------------------------------------------------------- John A. Ciccarelli 61 Chairman of the Board, President and Chief Executive Officer Raymond E. Bartholomae 54 Vice President and General Manager, Symons Michael C. Deis, Sr. 50 Vice President and General Manager, Dayton/Richmond James W. Fennessy 57 Vice President and General Manager, Dayton Superior Canada Ltd. Mark K. Kaler 43 Vice President and General Manager, American Highway Technology Alan F. McIlroy 50 Vice President and Chief Financial Officer John R. Paine, Jr. 58 Vice President, Sales and Marketing, Dayton/Richmond Thomas W. Roehrig 35 Corporate Controller John M. Rutherford 40 Treasurer and Assistant Secretary James C. Stewart 53 Vice President, Corporate Development Jaime Taronji, Jr. 56 Vice President, General Counsel and Secretary Stephen Berger 61 Director Joshua C. Cascade 28 Director William F. Hopkins 37 Director Douglas Rotatori 40 Director
- ----------- John A. Ciccarelli has been President since 1989 and has been Chief Executive Officer and a director since 1994. After the consummation of the recapitalization, Mr. Ciccarelli became Chairman of our Board of Directors. Raymond E. Bartholomae has been Vice President and General Manager, Symons, since February 1998, and was Executive Vice President and General Manager of Symons from 1986 to February 1998. Michael C. Deis, Sr. has been Vice President and General Manager, Dayton/Richmond since February 1998. From 1987 to February 1998, Mr. Deis was Vice President, Eastern Division of Dayton/Richmond. James W. Fennessy has been Vice President and General Manager, Dayton Superior Canada, Ltd. since 1988. Mark K. Kaler has been Vice President and General Manager, American Highway Technology since April 1996. From 1990 to April 1996, Mr. Kaler was Vice President, Engineering and Product Manager, Paving Division. Alan F. McIlroy has been Vice President and Chief Financial Officer since July 1997. From January 1994 until July 1997, Mr. McIlroy was President of The Greenock Group, a private operational investment company. John R. Paine, Jr. has been Vice President, Sales and Marketing of Dayton/Richmond since 1984. 61 63 Thomas W. Roehrig has been Corporate Controller since April 1998. From 1987 until March 1998, Mr. Roehrig was employed by Arthur Andersen LLP, an international public accounting firm, most recently as a Manager in the Assurance and Business Advisory division. John M. Rutherford has been Treasurer and Assistant Secretary since February 1998. From January 1993 until January 1998, Mr. Rutherford was Director of Treasury and Risk Management for Gibson Greetings, Inc., a greeting card manufacturer. James C. Stewart has been Vice President, Corporate Development since February 1998. From 1984 to February 1998, Mr. Stewart was Vice President, Western Division of Dayton/Richmond. Jaime Taronji, Jr. joined us in August 1999 and was elected Vice President, General Counsel and Secretary in October 1999. From 1996 to 1999, Mr. Taronji was Law Vice President of NCR Corporation. Stephen Berger is currently chairman of Odyssey Investment Partners, LLC. Prior to joining Odyssey Investment Partners, LLC, Mr. Berger was a general partner of Odyssey Partners, LP. Joshua C. Cascade has been an associate of Odyssey Investment Partners, LLC since 1998. From 1994 to 1998, Mr. Cascade was employed by The Blackstone Group, LP, most recently as an associate in the restructuring and reorganization group. William F. Hopkins has been a member and Managing Principal of Odyssey Investment Partners, LLC since 1997. From 1994 to 1996, Mr. Hopkins was a principal in the private equity investing group of Odyssey Partners, LP. Douglas Rotatori has been a principal of Odyssey Investment Partners, LLC since 1998. From 1995 to 1998, Mr. Rotatori was a principal with Wellspring Capital Management, LLC. We have five directors following the recapitalization. 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. 62 64 ITEM 11. EXECUTIVE COMPENSATION. The following table summarizes the 2000, 1999, and 1998 compensation for our chief executive officer and each of the other four most highly compensated executive officers who was serving as an executive officer at December 31, 2000.
SUMMARY COMPENSATION TABLE LONG TERM COMPENSATION ------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ------------------------------------- ----------- ------------ OTHER ANNUAL SHARES LONG TERM ALL OTHER NAME AND PRINCIPAL SALARY BONUS COMPENSATION UNDERLYING INCENTIVE COMPENSATION POSITION YEAR ($) ($) ($) OPTIONS (#)(2) PAYOUTS($) ($)(1) - -------------------------- ---- ------ ----- ------------ -------------- ---------- ------------ John A. Ciccarelli 2000 $347,981 $300,000 $0 120,072 $0 $13,000 President and Chief 1999 310,961 315,000 0 15,000 0 12,800 Executive Officer 1998 293,077 275,000 0 15,000 0 12,800 Alan F. McIlroy 2000 $223,577 $130,000 $0 46,688 $0 $10,600 Vice President and 1999 197,423 150,000 10,000(3) 8,000 0 10,400 Chief Financial Officer 1998 191,151 148,000 16,202(3) 6,000 0 10,400 Raymond E. Bartholomae 2000 $197,000 $121,404 $0 46,688 $0 $10,600 Vice President and 1999 185,000 120,000 0 6,000 0 10,400 General Manager, 1998 173,000 126,000 0 6,000 0 9,515 Symons Michael C. Deis, Sr. 2000 $184,904 $120,000 $0 68,543 $0 $10,600 Vice President and 1999 151,500 120,000 0 8,000 0 10,400 General Manager, 1998 146,154 129,000 0 6,000 0 10,400 Dayton/Richmond Jaime Taronji, Jr. 2000 $176,635 $ 90,000 $0 9,438 $0 $ 0 Vice President, Secretary 1999 80,288 50,000 0 0 0 0 and General Counsel(4)
- -------------
(1) Consists of: Matching 401(k) Contributions Contributions to Savings Plan -------------------------------------- -------------------------------------- 2000 1999 1998 2000 1999 1998 ------- -------- -------- -------- -------- --------- Mr. Ciccarelli $3,400 $3,200 $3,200 $9,600 $9,600 $9,600 Mr. McIlroy 3,400 3,200 3,200 7,200 7,200 7,200 Mr. Bartholomae 3,400 3,200 2,315 7,200 7,200 7,200 Mr. Deis 3,400 3,200 3,200 7,200 7,200 7,200
63 65 (2) Options to purchase common shares were granted under our stock option plans at an exercise price of $27.00 per share (in the case of options granted in 2000), $19.44 per share (in the case of options granted in 1999), and $16.81 per share (in the case of options granted in 1998), the average of the high and low prices on the date of the grant. The 2000 options become exercisable based on a combination of service and performance factors, as described in the footnotes to the Fiscal 2000 Stock Option Grants table below. The 1999 and 1998 options had a term of ten years and become exercisable in three equal annual installments, commencing on the first anniversary of the date of grant; however, the 1999 and 1998 options became fully exercisable upon completion of our recapitalization merger. (3) Relocation expense paid by us. (4) Mr. Taronji was elected an executive officer on August 16, 1999. EMPLOYMENT AGREEMENTS We have entered into employment agreements with each of the executive officers named in the Summary Compensation Table and three other executive officers which became effective upon the consummation of the recapitalization. Generally, each employment agreement provides: - The initial term of employment is three years and automatically will be extended for additional one-year periods unless either we or the executive notifies the other of termination no later than 90 days before the end of a term. - The annual base salary, which may be increased by our Board of Directors in its discretion, is as follows: John A. Ciccarelli..................... $350,000 Alan F. McIlroy........................ 225,000 Raymond E. Bartholomae................. 197,000 Michael C. Deis, Sr.................... 190,000 Jaime Taronji, Jr...................... 176,000 - 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, 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 24 months and to continue coverage under our medical and dental programs for one year 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 and for two years following termination of his employment. Mr. Ciccarelli's employment agreement differs from the other agreements described above in the following respects: 64 66 - He serves as Chairman of the Board as well as President and Chief Executive Officer. - At the end of the initial three-year term, his employment automatically will be extended for a period of two years unless we or he notifies the other that the agreement will not be extended no later than 60 days before the end of the initial term. - We and he may agree prior to the end of the initial term that, effective at the end of initial term, he will retire as President and Chief Executive Officer but will continue as non-executive Chairman of the Board with compensation commensurate with his duties and responsibilities. - He receives an annual car allowance, payment of annual membership fees for membership in two country, alumni, or social clubs of his choice and payment for reasonable expenses incurred by him for professional assistance with taxes and financial management, consistent with our current practices. - If he elects in the future to purchase common shares pursuant to the exercise of pre-emptive rights, we or one of our affiliates will lend him up to $500,000 to pay for the shares. The loan will be secured by the shares purchased and will be on a recourse basis with interest at the applicable federal rate, although payment of the interest will be deferred until the shares are sold. - If he remains employed by us for the full initial three-year term of his employment agreement, he may during the following two years require us to purchase some of his common shares at their fair market value if our EBITDA reaches specified levels and, if he intends to exercise stock options, we or an affiliate will lend him the amount of the exercise price plus the amount of his income tax liability. This loan generally would be on the same terms as the loan to purchase shares described above. MANAGEMENT STOCKHOLDERS' AGREEMENT In connection with the consummation of the recapitalization, we along with Odyssey and our employee stockholders, including the officers named in the Summary Compensation Table (the "Management Stockholders"), entered into 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. 65 67 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. 66 68 FISCAL 2000 STOCK OPTION GRANTS The stock options granted in 2000 to each of the executive officers named 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 ----------------------------------------------------------- INDIVIDUAL GRANTS (1) ------------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED NUMBER % OF TOTAL ANNUAL RATES OF OF SHARES OPTIONS STOCK RICE UNDERLYING GRANTED APPRECIATION FOR OPTIONS TO EXERCISE OPTION TERM(3) GRANTED EMPLOYEES PRICE EXPIRATION ---------------------- NAME (#) IN 2000 ($/SH)(2) DATE 5%($) 10%($) - ---- ---------- ---------- ---------- ----------- --------- ---------- John A. Ciccarelli 26,154(4) 25.4% $27.00 6/16/10 $2,038,841 $5,164,669 78,460(5) 15,458(6) Alan F. McIlroy 9,585(4) 9.9% $27.00 6/16/10 792,769 2,009,034 28,755(7) 8,348(8) Raymond E. Bartholomae 9,585(4) 9.9% $27.00 6/16/10 792,769 2,009,034 28,755(7) 8,348(8) Michael C. Deis, Sr. 14,353(4) 14.5% $27.00 6/16/10 1,163,870 2,949,477 43,059(7) 11,131(8) Jaime Taronji, Jr. 1,896(4) 2.0% $27.00 6/16/10 160,259 406,127 5,687(7) 1,855(8)
- --------------- (1) All options were granted under the 2000 Stock Option Plan effective June 16, 2000 with an exercise price of $27.00 per share, which represents the fair market value of a Common Share on the date the options were granted. The options are divided into three different parts, each of which has 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. (2) The price per common share paid in the recapitalization. 67 69 (3) These amounts are calculated in accordance with rules adopted by the Securities and Exchange Commission assuming annual compounding at the specified rates over the term of the options and are not intended to forecast future appreciation of the price of the common shares. (4) This portion of each option becomes exercisable in three equal installments commencing on the date of grant for Mr. Ciccarelli, and in five equal installments, commencing on the date of grant for Mr. McIlroy, Mr. Bartholomae, Mr. Deis, and Mr. Taronji. (5) This portion of each option will become exercisable if the Company's earnings before interest, taxes, depreciation and amortization for calendar years 2000 through 2002 meet or exceed specified targets on an annual or cumulative basis. In addition, this portion of the option will become exercisable with respect to any remaining shares on June 16, 2007 if Mr. Ciccarelli has been employed continuously by the Company through that date. (6) This portion of each option becomes exercisable if the Company's earnings before interest, taxes, depreciation and amortization for calendar years 2000 through 2002 meet or exceed specified targets on an annual or cumulative basis (which exceed the targets referred to in footnote (5) above). In addition, this portion of the option will become exercisable with respect to any remaining shares on June 16, 2007 if Mr. Ciccarelli has been employed continuously by the Company through that date. (7) This portion of each option will become exercisable if the Company's earnings before interest, taxes, depreciation and amortization for calendar years 2000 through 2004 meet or exceed specified targets on an annual or cumulative basis. In addition, this portion of the option will become exercisable with respect to any remaining shares on June 16, 2009 if the holder has been employed continuously by the Company through that date. (8) This portion of each option becomes exercisable if the Company's earnings before interest, taxes, depreciation and amortization for calendar years 2000 through 2004 meet or exceed specified targets on an annual or cumulative basis (which exceed the targets referred to in footnote (7) above). In addition, this portion of the option will become exercisable with respect to any remaining shares on June 16, 2009 if the holder has been employed continuously by the Company through that date. 68 70 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, 2000 are shown in the following table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES 12/31/00 (#) 12/31/00 ($)(1) ACQUIRED ON VALUE -------------------------- -------------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - -------------------------- ----------------- --------------- -------------------------- -------------------------- John A. Ciccarelli 174,000 $3,790,410 28,305/91,767 $14,153/$45,884 Alan F. McIlroy 20,071 289,775 25,159/40,458 205,382/20,229 Raymond E. Bartholomae 8,795 76,755 9,435/40,458 34,468/20,229 Michael C. Deis, Sr. 22,044 323,195 19,886/59,213 267,997/29,607 Jaime Taronji, Jr. 0 0 1,232/8,206 616/4,103
- ------------ (1) Represents the excess of $27.50, the fair market value as of December 31, 2000 based on an independent appraisal, over the aggregate option exercise price. 69 71 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL SHAREHOLDERS The following table sets forth the common shares beneficially owned by each director and executive officer named in the Summary Compensation Table and all directors and executive officers as a group as of March 26, 2001:
NUMBER OF COMMON SHARES BENEFICIALLY % OF COMMON NAME OF BENEFICIAL OWNER: OWNED (1) SHARES(1) - ------------------------- ------------------- ----------- Raymond E. Bartholomae(2) 30,512 * Stephen Berger(3) 3,666,650 91.6 Joshua C. Cascade(3) 3,666,650 91.6 John A. Ciccarelli(4) 67,566 1.7 Michael C. Deis, Sr.(5) 42,723 1.1 William F. Hopkins(3) 3,666,650 91.6 Alan F. McIlroy(6) 43,386 1.1 Odyssey (as defined in footnote 3) 3,666,650 91.6 Douglas Rotatori(3) 3,666,650 91.6 Jaime Taronji, Jr.(7) 5,143 * All executive officers and directors as a group (15 persons)(8) 3,982,339 96.4
- --------------------- * Signifies less than 1%. (1) Beneficial ownership as reported above has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended and generally includes sole or shared voting or investment power with respect to the shares. Includes the number of common shares subject to all outstanding options, including those that will become exercisable as a result of the recapitalization and those that are cashed out in the recapitalization. The percentages of our outstanding common shares are based on 4,004,584 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 4,004,584 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 following notes. 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. (2) Includes 9,435 common shares issuable upon exercise of options exercisable within 60 days. (3) Consists of 3,666,650 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. 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 70 72 respect to the shares deemed to be beneficially owned by Odyssey. Mr. Rotatori is a member and Mr. Cascade is an associate of Odyssey Investment Partners, LLC. Each of Messrs. Berger, Cascade, Hopkins and Rotatori disclaim beneficial ownership of these shares. (4) Includes 28,305 common shares issuable upon exercise of options exercisable within 60 days. (5) Includes 19,886 common shares issuable upon exercise of options exercisable within 60 days. (6) Includes 25,159 common shares issuable upon exercise of options exercisable within 60 days. (7) Includes 1,232 common shares issuable upon exercise of options exercisable within 60 days. (8) 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, Cascade, 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 315,689 common shares. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. EMPLOYMENT AND ROLLOVER AGREEMENTS In connection with the recapitalization, we have entered into employment and other "rollover" agreements with John A. Ciccarelli, Raymond E. Bartholomae, Michael C. Deis, Sr., James W. Fennessy, Mark K. Kaler, Alan F. McIlroy, James C. Stewart, and Jaime Taronji, Jr., each of whom is an executive 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 March 30, 2001, the amounts outstanding (which are also the largest amount outstanding for these loans during the period January 1, 2000 through March 30, 2001 was $60,787 for Mr. Ciccarelli, $493,988 for Mr. Bartholomae, $333,585 for Mr. Deis, $64,537 for Mr. Fennessy, $279,719 for Mr. Kaler, $230,547 for Mr. McIlroy, $312,269 for Mr. Stewart, and $108,626 for Mr. Taronji. ODYSSEY FINANCIAL SERVICES In connection with the recapitalization and the related financing transactions, we paid Odyssey a fee of $4.0 million in cash, plus out of pocket expenses of approximately $0.7 million. In connection with the acquisition of Aztec Concrete Accessories, Inc., we paid Odyssey a fee of $350 thousand. 71 73 PART IV ITEM 14. 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. Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 2000 and 1999. Consolidated Statements of Operations for the years ended December 31, 2000, 1999, and 1998. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999, and 1998. Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998. Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2000, 1999, and 1998. Notes to Consolidated Financial Statements. (a)(2) FINANCIAL STATEMENT SCHEDULE 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, 2000, the Company did not file any Current Reports on Form 8-K. 72 74 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 29, 2001 By /s/John A. Ciccarelli ----------------------------------- John A. Ciccarelli Chairman, President and Chief Executive Officer 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 Director, Chairman, President and Chief March 29, 2001 - --------------------- Executive Officer John A. Ciccarelli /s/Alan F. McIlroy Vice President and Chief Financial Officer March 29, 2001 - ------------------ (Principal Financial Officer) Alan F. McIlroy /s/Thomas W. Roehrig Corporate Controller March 29, 2001 - -------------------- (Principal Accounting Officer) Thomas W. Roehrig /s/Stephen Berger Director April 2, 2001 - ----------------- Stephen Berger /s/Joshua C. Cascade Director April 2, 2001 - -------------------- Joshua C. Cascade /s/William F. Hopkins Director April 2, 2001 - --------------------- William F. Hopkins /s/Douglas Rotatori Director April 2, 2001 - ------------------- Douglas Rotatori
73 75 INDEX OF EXHIBITS
Exhibit No. Description (3) ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Amended Articles of Incorporation of the Company [Incorporated herein 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 herein 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 Senior Unsubordinated Redeemable Note of the Company in the principal amount of $5,000,000 [Incorporated herein by reference to Exhibit A to the Agreement set forth as Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 2, 1997] + 4.2 Form of Junior Convertible Subordinated Indenture between Dayton Superior Corporation and Firstar Bank, N.A., as Indenture Trustee [Incorporated herein by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] + 4.2.1 First Supplemental Indenture dated January 17, 2000, between Dayton Superior Corporation and Firstar Bank, N.A., as Trustee [Incorporated herein by reference to Exhibit 4.6.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] + 4.3 Form of Junior Convertible Subordinated Debenture [Incorporated herein by reference to Exhibit 4.2.3 to the Company's Registration Statement on Form S-3 (Reg. 333-84613)] + 4.4 Credit Agreement, dated June 16, 2000, among the Company, various lending institutions and Bankers Trust Company, as administrative agent, Deutsche Bank Securities, Inc., as lead arranger and book manager, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as syndicating agent and co-arranger. [Incorporated by reference to Exhibit 10.24 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +
74 76 4.5 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)] + 4.6 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)] + 4.7 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)] + (10) MATERIAL CONTRACTS 10.1 Agreement and Plan of Merger dated January 19, 2000 by and between the Company and Stone Acquisition Corp. [Incorporated herein by reference to Exhibit 10.13 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] + 10.2 Management Incentive Plan [Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998] + 10.3 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and John A. Ciccarelli [Incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.4 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Alan F. McIlroy [Incorporated herein by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.5 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Raymond E. Bartholomae [Incorporated herein by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +*
75 77 10.6 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and Michael C. Deis, Sr. [Incorporated herein by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.7 Employment Agreement dated January 19, 2000 by and between Dayton Superior Corporation and James C. Stewart [Incorporated herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] +* 10.8 Employment Agreement, dated as of January 19, 2000, between the Company and Mark K. Kaler, as in effect on June 16, 2000 [Incorporated by reference to Exhibit 10.20 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.9 Employment Agreement dated as of January 19, 2000, between the Company and James W. Fennessy, as in effect on June 16, 2000 [Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.10 Employment Agreement dated as of January 19, 2000, between the Company and Jaime Taronji, Jr., as in effect on June 16, 2000 [Incorporated by reference to Exhibit 10.22 to the Company's Registration Statement on Form S-4 (Reg. 333-41392)] +* 10.11 Form of Option Exercise, Cancellation and Equity Rollover Agreement dated January 19, 2000 by and among Stone Acquisition, Dayton Superior Corporation and each of John A. Ciccarelli, Alan F. McIlroy, Raymond E. Bartholomae, Michael C. Deis, Sr., James C. Stewart, Mark K. Kaler and James W. Fennessy [Incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K for the year ended December 31, 1999] + 10.12 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] + 10.13 Dayton Superior Corporation 2000 Stock Option Plan and form of Stock Option Agreement ** (21) SUBSIDIARIES OF THE REGISTRANT 21.1 Subsidiaries of the Company **
76 78 - ---------------------------- * Compensatory plan, contract or arrangement in which one or more directors or named executive officers participates. ** Filed herewith + Previously filed 77 EX-10.13 2 l85831aex10-13.txt EXHIBIT 10.13 1 EXHIBIT 10.13 THE 2000 STOCK OPTION PLAN OF DAYTON SUPERIOR CORPORATION Dayton Superior Corporation, an Ohio corporation (the "Company"), hereby adopts this 2000 Stock Option Plan of Dayton Superior Corporation (the "Plan"), effective as of June 16, 2000, for the benefit of its eligible employees and consultants. This Plan shall constitute an amendment and restatement of the Dayton Superior Corporation 1994 Stock Option Plan, the Dayton Superior Corporation 1995 Stock Option Plan, the Dayton Superior Corporation 1996 Stock Option Plan, and the Dayton Superior Corporation 1997 Stock Option and Restricted Stock Plan for purposes of all options granted under such plans outstanding as of June 16, 2000 immediately following the consummation of the merger of the Company pursuant to that certain Agreement and Plan of Merger dated as of January 19, 2000 by and between the Company and Stone Acquisition Corp., as amended (the "Merger Agreement"). The purposes of the Plan are as follows: (1) To provide an additional incentive for Employees and Consultants (as such terms are defined below) to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock; and (2) To enable the Company to obtain and retain the services of Employees and Consultants considered essential to the long range success of the Company by offering them an opportunity to own stock in the Company. ARTICLE I. DEFINITIONS Wherever the following terms are used in this Plan, they shall have the meanings specified below unless the context clearly indicates otherwise. 1.1 AWARD LIMIT. "Award Limit" shall mean 150,000 shares of Common Stock, as adjusted pursuant to Section 8.3 of the Plan. 1.2 BOARD. "Board" shall mean the Board of Directors of the Company. 1.3 CHIEF EXECUTIVE OFFICER. "Chief Executive Officer" shall mean the Chief Executive Officer of the Company. 2 1.4 CODE. "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.5 COMMITTEE. "Committee" shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, or the Board (as the case may be) appointed as provided in Section 7.1. 1.6 COMMON STOCK. "Common Stock" shall mean the Class A Common Shares of the Company, without par value. 1.7 COMPANY. "Company" shall mean Dayton Superior Corporation, an Ohio corporation. 1.8 CONSULTANT. "Consultant" shall mean any consultant or adviser if: (a) the consultant or adviser renders BONA FIDE services to the Company or a Subsidiary; (b) the services rendered by the consultant or adviser are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities; and (c) the consultant or adviser is a natural person who has contracted directly with the Company or a Subsidiary to render such services. 1.9 DIRECTOR. "Director" shall mean a member of the Board. 1.10 DRO. "DRO" shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules promulgated thereunder. 1.11 EMPLOYEE. "Employee" shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary. 1.12 EXCHANGE ACT. 2 3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 3 4 1.13 FAIR MARKET VALUE. "Fair Market Value" of a share of Common Stock as of a given date shall be: (a) the closing price of a share of Common Stock on the principal exchange on which such shares are then trading, if any (or as reported on any composite index which includes such principal exchange), on the most recent trading day prior to such determination date; or (b) if Common Stock is not traded on an exchange, the mean between the closing representative bid and asked prices for a share of Common Stock on the most recent trading day prior to such determination date as reported by NASDAQ or, if NASDAQ is not then in existence, by its successor quotation system; or (c) if Common Stock is not publicly traded on an exchange and not quoted on NASDAQ or a successor quotation system, the fair market value of a share of Common Stock as determined in good faith by the Board (which determination shall take into account the most recent appraisal of fair market value of a share of Common Stock as determined by an independent valuation consultant or appraiser). 1.14 INCENTIVE STOCK OPTION. "Incentive Stock Option" shall mean an Option which conforms to the applicable provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Committee. 1.15 INDEPENDENT DIRECTOR. "Independent Director" shall mean a member of the Board who is not an Employee of the Company. 1.16 INITIAL PUBLIC OFFERING. "Initial Public Offering" shall mean the first issuance by the Company of any class of common equity securities that is required to be registered (other than on a Form S-8) under Section 12 of the Exchange Act. 1.17 MANAGEMENT STOCKHOLDERS' AGREEMENT. "Management Stockholders' Agreement" shall mean that certain Management Stockholders' Agreement dated as of June 16, 2000 among the Company, Odyssey Investment Partners Fund, LP, and the stockholder parties thereto, as amended from time to time. 1.18 NON-QUALIFIED STOCK OPTION. "Non-Qualified Stock Option" shall mean an Option which is not designated as an Incentive Stock Option by the Committee. 4 5 1.19 OPTION. "Option" shall mean a stock Option granted under Article IV of the Plan. An Option granted under the Plan shall, as determined by the Committee, be either a Non-Qualified Stock Option or an Incentive Stock Option; PROVIDED, HOWEVER, that all Options granted to Consultants shall be Non-Qualified Stock Options. 1.20 OPTIONEE. "Optionee" shall mean a person who has been granted an Option. 1.21 PLAN. "Plan" shall mean The 2000 Stock Option Plan of Dayton Superior Corporation. 1.22 ROLL-OVER OPTION. "Roll-Over Option" shall mean an option to purchase Common Stock that was outstanding prior to the consummation of the transactions contemplated by the Merger Agreement and that remains outstanding immediately thereafter pursuant to the Merger Agreement. 1.23 RULE 16B-3. "Rule 16b-3" shall mean that certain Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time. 1.24 SECTION 162(M) PARTICIPANT. "Section 162(m) Participant" shall mean any Employee who, after an Initial Public Offering, is designated by the Committee as an Employee whose compensation for the fiscal year in which the Employee is so designated or a future fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code. 1.25 SECURITIES ACT. "Securities Act" shall mean the Securities Act of 1933, as amended. 1.26 STOCK OPTION AGREEMENT. "Stock Option Agreement" shall mean a written agreement executed by an authorized officer of the Company and the Optionee which shall contain such terms and conditions with respect to an Option as the Chief Executive Officer and the Committee shall determine, consistent with the Plan. 1.27 SUBSIDIARY. "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken 5 6 chain then owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 1.28 SUBSTITUTE OPTION. "Substitute Option" shall mean an Option granted under this Plan upon the assumption of, or in substitution for, outstanding equity options previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; PROVIDED, HOWEVER, that in no event shall the term "Substitute Option" be construed to refer to an Option made in connection with the cancellation and repricing of an Option granted under the Plan. 1.29 TERMINATION OF CONSULTANCY. "Termination of Consultancy" shall mean the time when the engagement of an Optionee as a Consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding a termination where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a Consultant's service at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in writing. 1.30 TERMINATION OF EMPLOYMENT. "Termination of Employment" shall mean the time when the employee-employer relationship between an Optionee and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement, but excluding (a) a termination where there is a simultaneous reemployment or continuing employment of an Optionee by the Company or any Subsidiary, (b) at the discretion of the Committee, a termination which results in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Committee, a termination which is followed by the simultaneous establishment of a consulting relationship between the Company or a Subsidiary and the former employee. The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment; PROVIDED, HOWEVER, that, with respect to Incentive Stock Options, unless otherwise determined by the Committee in its discretion, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section. 6 7 ARTICLE II. SHARES SUBJECT TO PLAN 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 519,254 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. (b) The maximum number of shares which may be subject to Options granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled shall continue to be counted against such limit. Notwithstanding the foregoing, Roll-Over Options shall not be counted against the Award Limit. 2.2 ADD-BACK OF OPTIONS. If any Option expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by the Plan, the number of shares subject to such Option but as to which such Option was not exercised prior to its expiration, cancellation or exercise may again be granted hereunder, subject to the limitations of Section 2.1. Furthermore, any shares subject to Options which are adjusted pursuant to Section 8.3 and become exercisable with respect to shares of stock of another corporation shall be considered canceled and may again be granted hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are delivered by the Optionee or withheld by the Company upon the exercise of any Option under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be granted hereunder, subject to the limitations of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of Common Stock may again be optioned if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code. ARTICLE III. GENERAL OPTION TERMS 3.1 STOCK OPTION AGREEMENT. Each Option shall be evidenced by a Stock Option Agreement. Stock Option Agreements evidencing Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Stock Option Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code. 3.2 PROVISIONS APPLICABLE TO SECTION 162(m) PARTICIPANTS. The Committee, in its discretion, may determine whether an Option is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code. 7 8 3.3 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS. Notwithstanding any other provision of the Plan, the Plan, and any Option granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Options granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule. 3.4 CONSIDERATION. In consideration of the granting of an Option under the Plan, the Optionee shall agree, in the Stock Option Agreement or other written agreement, to render faithful and efficient service as directed by the Company and to use his or her best efforts to promote the interests of the Company and its Subsidiaries. 3.5 AT-WILL EMPLOYMENT. Nothing in the Plan or in any Stock Option Agreement hereunder shall confer upon any Optionee any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Optionee at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Optionee and the Company or any Subsidiary. ARTICLE IV. GRANTING OF OPTIONS 4.1 ELIGIBILITY. Any Employee or Consultant selected by the Chief Executive Officer, Committee, or the Board (as the case may be) pursuant to Section 4.4 shall be eligible to be granted an Option. 4.2 DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an Incentive Stock Option under the Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any then existing Subsidiary or parent corporation (within the meaning of Section 422 of the Code) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. 4.3 QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option shall be granted to any person who is not an Employee. 8 9 4.4 GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS. (a) Prior to the occurrence of an Initial Public Offering, the Chief Executive Officer shall from time to time, in his or her discretion and with the approval of the Committee (which approval shall not unreasonably be withheld), and subject to applicable limitations of the Plan: (i) Select from among the Employees and Consultants (including Employees and Consultants who have previously received Options under the Plan) such of them as in his or her opinion should be granted Options; and (ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Employees and Consultants. (b) After the occurrence of an Initial Public Offering, the Committee (or the Board as the case may be) shall from time to time, in its discretion, and subject to applicable limitations of the Plan: (i) Select from among the Employees and Consultants (including Employees and Consultants who have previously received Options under the Plan) such of them as in its opinion should be granted Options; and (ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Employees and Consultants. (c) Upon the selection of an Employee or Consultant to be granted an Option pursuant to subsection (a) or (b) above, the Committee shall: (i) subject to Section 4.3, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; (ii) determine the terms and conditions of such Options, consistent with the Plan; PROVIDED, HOWEVER, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code; and (iii) instruct the Secretary of the Company to issue the Option. (d) Any Incentive Stock Option granted under the Plan may be modified by the Committee, with the consent of the Optionee, to disqualify such Option from treatment as an "incentive stock option" under Section 422 of the Code. 4.5 OPTIONS IN LIEU OF CASH COMPENSATION. Except as expressly provided in a written employment or other agreement between the Company and any Employee or Consultant, Options may be granted under the Plan to Employees and Consultants in lieu of cash bonuses which would otherwise be payable to such Employees and Consultants, pursuant to such policies which may be adopted by the Committee from time to time. 9 10 ARTICLE V. TERMS OF OPTIONS 5.1 OPTION PRICE. The price per share of the shares subject to each Option shall be set by the Committee; provided, however, that such price shall be no less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law, and: (a) in the case of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted; (b) in the case of Incentive Stock Options, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code); (c) in the case of Incentive Stock Options granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code), such price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code); and (d) in the case of an Option that is a Substitute Option, such price may be less than the Fair Market Value per share on the date of grant, PROVIDED, that the excess of (i) the aggregate Fair Market Value (as of the date such Substitute Option is granted) of the shares subject to the Substitute Option, over (ii) the aggregate exercise price thereof; (e) does not exceed the excess of (i) the aggregate fair market value as determined by the Committee (as of the time immediately preceding the transaction giving rise to the Substitute Option) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (ii) the aggregate exercise price of such shares. 5.2 OPTION TERM. The term of an Option shall be set by the Committee in its discretion; PROVIDED, HOWEVER, that in the case of Incentive Stock Options, the term shall not be more than ten (10) years from the date the Incentive Stock Option is granted, or five (5) years from the date the Incentive Stock Option is granted if the Incentive Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code). Except as limited by requirements of Section 422 of the Code and regulations and rulings thereunder applicable to Incentive Stock Options, the 10 11 Committee may extend the term of any outstanding Option in connection with any Termination of Employment or Termination of Consultancy of the Optionee, or amend any other term or condition of such Option relating to such a termination. 5.3 OPTION VESTING. (a) The period during which the right to exercise, in whole or in part, an Option vests in the Optionee shall be set by the Committee and the Committee may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of an Option, the Committee may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option vests. (b) No portion of an Option which is unexercisable at Termination of Employment or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise provided either in the Stock Option Agreement or by action of the Committee. (c) To the extent that the aggregate Fair Market Value of stock with respect to which "incentive stock options" (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by an Optionee during any calendar year (under the Plan and all other option plans of the Company and any parent or subsidiary corporation (within the meaning of Section 422 of the Code) of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options into account in the order in which they were granted. For purposes of this Section 5.3(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted. 5.4 TERMS OF ROLL-OVER OPTIONS. (a) All Roll-Over Options shall be fully exercisable as of June 16, 2000. (b) Each Roll-Over Option will be subject to the terms of the Plan and the Management Stockholders' Agreement. ARTICLE VI. EXERCISE OF OPTIONS 6.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Committee may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares. 6.2 MANNER OF EXERCISE. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office: (a) A written notice complying with the applicable rules established by the Committee stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Optionee or other person then entitled to exercise the Option or such portion of the Option; 11 12 (b) Such representations and documents as the Committee, in its sole discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Committee may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars; (c) In the event that the Option shall be exercised pursuant to Section 8.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option; and (d) Full cash payment to the Secretary of the Company for the shares with respect to which the Option, or portion thereof, is exercised. However, the Committee, may in its discretion (i) allow a delay in payment of up to thirty (30) days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock which have been owned by the Optionee for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Committee or the Board; (vi) allow payment, in whole or in part, through the delivery of a notice that the Optionee has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, provided that payment of such proceeds is then made to the Company upon settlement of such sale; or (vii) allow payment through any combination of the consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the Committee may also prescribe the form of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law. 6.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed; (b) The completion of any registration or other qualification of such shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Committee shall, in its sole discretion, deem necessary or advisable; 12 13 (c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable; (d) The lapse of such reasonable period of time following the exercise of the Option as the Committee may establish from time to time for reasons of administrative convenience; and (e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which in the discretion of the Committee and subject to Section 8.5 may be in the form of consideration used by the Optionee to pay for such shares under Section 6.2(d). 6.4 RIGHTS AS STOCKHOLDERS. Optionees shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such Optionees. 6.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Committee, in its sole discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate. Any such restriction shall be set forth in the respective Stock Option Agreement or other written agreement between the Company and the Optionee and may be referred to on the certificates evidencing such shares. The Optionee shall give the Company prompt notice of any disposition of shares of Common Stock acquired by exercise of an Incentive Stock Option within (a) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Optionee or (b) one year after the transfer of such shares to such Optionee. 6.6 ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Optionees may be required to comply with any timing or other restrictions with respect to the settlement or exercise of an Option, including a window-period limitation after an Initial Public Offering, as may be imposed in the good faith discretion of the Committee. ARTICLE VII. ADMINISTRATION 7.1 COMPENSATION COMMITTEE. Prior to an Initial Public Offering, the Compensation Committee (whose members shall initially include William Hopkins, as Chairman, Muzzafar Mirza and Douglas Rotatori) shall administer the Plan. Following such Initial Public Offering, if any, the full Board shall administer the Plan unless and until there is appointed a Compensation Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) that shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a "non-employee director" as defined by Rule 16b-3 and an "outside director" for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board in its sole discretion. 13 14 7.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions. The Committee shall have the power to interpret the Plan and the Stock Option Agreements, and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Stock Option Agreement provided that the rights or obligations of the Optionee of the Option that is the subject of any such Stock Option Agreement are not affected adversely. Any such grant under the Plan need not be the same with respect to each Optionee. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the sole discretion of the Committee. 7.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee. 7.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS. Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers, or other persons. The Committee, the Company and the Company's officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or the Board in good faith shall be final and binding upon all Optionees, the Company and all other interested persons. No members of the Committee or Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Options, and all members of the Committee and the Board shall be fully protected by the Company in respect of any such action, determination or interpretation. The Company shall indemnify the members of the Committee and the Board to the fullest extent permitted by Ohio law in connection with their performance of duties under the Plan. 7.5 DELEGATION OF AUTHORITY TO GRANT OPTIONS. The Committee may, but need not, delegate from time to time some or all of its authority to grant Options under the Plan to a committee consisting of one or more members of the Committee or of one or more officers of the Company; PROVIDED, HOWEVER, that the Committee may not delegate its authority to grant Options to individuals (i) who are subject on the date of the grant to the reporting rules promulgated under Section 16(a) of the Exchange Act, (ii) who are Section 162(m) Participants or (iii) who are officers of the Company who are delegated authority by the Committee hereunder. Any delegation hereunder shall be subject to the 14 15 restrictions and limits that the Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Committee. At all times, any committee appointed under this Section 7.5 shall serve in such capacity at the pleasure of the Committee. ARTICLE VIII. MISCELLANEOUS PROVISIONS 8.1 TRANSFERABILITY OF OPTIONS. (a) Except as otherwise provided in Section 8.1(b): (i) No Option may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Committee, pursuant to a DRO, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed; (ii) No Option or interest or right therein shall be liable for the debts, contracts or engagements of the Optionee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence; and (iii) During the lifetime of the Optionee, only he or she may exercise an Option (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Optionee, any exercisable portion of an Option may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Stock Option Agreement, be exercised by his or her personal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. (b) Notwithstanding Section 8.1(a), the Committee, in its sole discretion, may permit an Optionee to transfer a Non-Qualified Stock Option to any one or more Permitted Transferees (as defined below), subject to the following terms and conditions: (i) a Non-Qualified Stock Option transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution; (ii) any Non-Qualified Stock Option which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Non-Qualified Stock Option as applicable to the original Optionee (other than the ability to further transfer the Non-Qualified Stock Option); and (iii) the Optionee and the Permitted Transferee shall execute any and all documents requested by the Committee, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. For purposes of this Section 8.1(b), "Permitted Transferee" shall mean, with respect to an Optionee, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, 15 16 brother-in-law, or sister-in-law, including adoptive relationships of such Optionee, any person sharing such Optionee's household (other than a tenant or employee), a trust in which these persons (or such Optionee) control the management of assets, and any other entity in which these persons (or such Optionee) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Committee after taking into account any state or federal tax or securities laws applicable to transferable Non-Qualified Stock Options. 8.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as otherwise provided in this Section 8.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company's stockholders given within twelve months before or after the action by the Board or the Committee, no action of the Board or the Committee may, except as provided in Section 8.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted, unless the Option itself otherwise expressly so provides. No Options may be granted during any period of suspension or after termination of the Plan, and in no event may any Incentive Stock Option be granted under the Plan after the first to occur of the following events: (a) The expiration of ten years from the date the Plan is adopted by the Board; or (b) The expiration of ten years from the date the Plan is approved by the Company's stockholders under Section 8.4. 8.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR LIQUIDATION OF THE COMPANY, CHANGE IN CONTROL AND OTHER CORPORATE EVENTS. (a) Subject to Sections 8.3(d) and (e), in the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Committee's sole discretion, affects the Common Stock such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Option, then the Committee shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Options may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 2.1 on the maximum number and kind of shares which may be issued and adjustments of the Award Limit), 16 17 (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Options, (iii) the exercise price with respect to any Option, and (iv) the financial or other "targets" specified in each Stock Option Agreement for determining the exercisability of Options. (b) Subject to Sections 8.3(d) and (e), in the event of any transaction or event described in Section 8.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations, or accounting principles, the Committee, in its sole and absolute discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Stock Option Agreement or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Optionee's request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Option under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles: (i) To provide that on or following the effective time of such event the Option shall be exercisable only for (A) the aggregate consideration (whether in the form of cash or otherwise) into which shares of Common Stock issuable upon the exercise of such Option would have been converted (or for which such shares would have been exercisable) if such Option had been exercised immediately prior to the event, or (B) the amount of cash equal to the value of the consideration described in (A); (ii) To provide that the Option cannot vest or be exercised after such event; (iii) To provide that such Option shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 5.3 or 5.4 or the provisions of such Option; (iv) To provide that such Option be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; (v) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Options and/or in the terms and conditions of (including the exercise price), and the criteria included in, outstanding Options and options, rights and awards which may be granted in the future; and (c) Subject to Sections 8.3(d), 3.2 and 3.3, the Committee may, in its discretion, include such further provisions and limitations in any Stock Option Agreement, as it may deem equitable and in the best interests of the Company. 17 18 (d) (i) Except as provided in subsection (e), no provision of this Section 8.3 shall permit the Committee to delay the time as of which an Option becomes exercisable pursuant to the terms of the applicable Stock Option Agreement. (ii) With respect to Options which are granted to Section 162(m) Participants and are intended to qualify as performance-based compensation under Section 162(m)(4)(C), no adjustment or action described in this Section 8.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause such Option to fail to so qualify under Section 162(m)(4)(C), or any successor provisions thereto. No adjustment or action described in this Section 8.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Committee determines that the Option is not to comply with such exemptive conditions. The number of shares of Common Stock subject to any Option shall always be rounded to the next whole number. (e) Notwithstanding the foregoing, in the event that the Company becomes a party to a transaction that is intended to qualify for "pooling of interests" accounting treatment and, but for one or more of the provisions of this Plan or any Option Agreement would so qualify, then this Plan and any Option Agreement shall be interpreted so as to preserve such accounting treatment, and to the extent that any provision of the Plan or any Option Agreement would disqualify the transaction from pooling of interests accounting treatment (including, if applicable, an entire Option Agreement), then such provision shall be null and void. All determinations to be made in connection with the preceding sentence shall be made by the independent accounting firm whose opinion with respect to "pooling of interests" treatment is required as a condition to the Company's consummation of such transaction. (f) The existence of the Plan, the Option Agreement and the Options granted hereunder shall not affect or restrict in any way the right or power of the Company or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 8.4 APPROVAL OF PLAN BY STOCKHOLDERS. The Plan has been approved by the Company's stockholders as of the date of the Board's initial adoption of the Plan. 18 19 8.5 TAX WITHHOLDING. The Company shall be entitled to require payment in cash or deduction from other compensation payable to each Optionee of any sums required by federal, state or local tax law to be withheld with respect to the issuance, vesting, exercise or payment of any Option. The Committee may in its discretion and in satisfaction of the foregoing requirement allow such Optionee to elect to have the Company withhold shares of Common Stock otherwise issuable under such Option (or allow the return of shares of Common Stock) having a Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Common Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Option (or which may be repurchased from the Optionee within six months after such shares of Common Stock were acquired by the Optionee from the Company) in order to satisfy the Optionee's federal and state income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Option shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal and state tax income and payroll tax purposes that are applicable to such supplemental taxable income. 8.6 LOANS. The Committee may, in its discretion, extend one or more loans to Optionees in connection with the exercise of an Option granted under the Plan. The terms and conditions of any such loan shall be set by the Committee. 8.7 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. Nothing in the Plan shall be construed to limit the right of the Company (a) to establish any other forms of incentives or compensation for Employees or Consultants of the Company or any Subsidiary or (b) to grant or assume options otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association. 8.8 COMPLIANCE WITH LAWS. The Plan, the granting and vesting of Options under the Plan and the issuance and delivery of shares of Common Stock and the payment of money under the Plan or under Options granted hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, 19 20 the Plan and Options granted hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. 8.9 TITLES. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan. 8.10 GOVERNING LAW. The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Ohio without regard to conflicts of laws principles thereof. 8.11 STOCKHOLDERS AGREEMENT. As a condition precedent to the award of any Option under the Plan, or the exercise thereof or delivery of certificates for shares issued pursuant thereto, the Committee may require the Optionee (or his or her Permitted Transferee or other successor in interest, as applicable) to enter into or become a party to the Management Stockholder's Agreement or similar agreement or a voting trust agreement in such form(s) as the Committee may determine from time to time. * * * * * The foregoing 2000 Stock Option Plan of Dayton Superior Corporation was adopted by the Board of Directors of the Company on June 16, 2000. The foregoing 2000 Stock Option Plan of Dayton Superior Corporation was approved by unanimous written consent of the Company's shareholders on June 16, 2000. 20 EX-21.1 3 l85831aex21-1.txt EXHIBIT 21.1 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 FSC Corp. Barbados Dayton Superior Specialty Chemical Corp. Kansas Dur-O-Wal, Inc. Delaware JDC Holdings, Inc. Delaware Symons Corporation Delaware Trevecca Holdings, Inc. Delaware 77 -----END PRIVACY-ENHANCED MESSAGE-----