AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JANUARY 14, 1997
REGISTRATION NO. 333-15477
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GENERAL BEARING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 3562 13-2796245
--------------------- ----------------------- -------------------
(State of other (Primary Standard Industrial (I.R.S.
jurisdiction of Classification Code Number) Employer
of incorporation or Identification
organization) Number)
44 High Street
West Nyack, New York 10994
(914) 358-6000
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
--------------------------------------------------------------
DAVID L. GUSSACK
President
General Bearing Corporation
44 High Street
West Nyack, New York 10994
(914) 358-6000
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
-------------------------------------------------------------
Please address a copy of all communications to:
STEVEN L. WASSERMAN, ESQ. JAMES M. JENKINS, ESQ.
Reid & Priest LLP Harter, Secrest & Emery
40 West 57th Street 700 Midtown Tower
New York, New York 10019 Rochester, New York
(212) 603-2000 14604
(716) 232-6500
--------------------------------------------
Approximate date of commencement of proposed sale to the public: as
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------
TITLE OF EACH PROPOSED PROPOSED
EACH CLASS OF AMOUNT MAXIMUM MAXIMUM
SECURITIES TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED PRICE OFFERING REGISTRATION
REGISTERED (1) PER SHARE(2) PRICE(2) FEE
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Common Stock,
par value
$.01 per
share ......... 1,380,000 $9.00 $12,420,000 $3,764
--------------------------------------------------------------------------
Common Stock,
$0.01 par
value,
issuable upon
exercise of
Representative's
Warrant ....... 120,000(4) $12.60 $1,512,000 $458
-------------------------------------------------------------------------
Total .... 1,500,000 $13,932,000 $4,222(3)
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(1) Includes 180,000 shares of Common Stock which the Underwriters have
the option to purchase to cover over-allotments, if any, and 120,000
shares underlying the Representative's Warrant. See "Underwriting."
(2) Estimated pursuant to Rule 457(a) solely for the purpose of
calculating the registration fee.
(3) Including $3,849 previously paid.
(4) Pursuant to Rule 416(a) under the Securities Act of 1933, there also
are being registered such additional securities as may be issued
pursuant to the antidilution provisions of the Representative's
Warrant.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the
Securities and Exchange Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS Subject to Completion
Preliminary Prospectus dated January 14, 1997
1,200,000 SHARES
GENERAL BEARING CORPORATION
COMMON STOCK
All of the shares of common stock, $.01 par value per share ("Common
Stock"), offered hereby are being sold by General Bearing Corporation, a
Delaware corporation ("Company"). Prior to this offering ("Offering"),
there has been no public market for the Common Stock, and there can be no
assurance that an active market will develop. It is currently estimated
that the initial public offering price will be between $7.00 and $9.00 per
share. The offering price of the Common Stock will be determined by
negotiation between the Company and H.J. Meyers & Co., Inc., the
representative ("Representative") of the several underwriters
("Underwriters"), and is not necessarily related to the Company's asset
value or any other established criterion of value. For the method of
determining the initial public offering price of the Common Stock see "Risk
Factors" and "Underwriting." The Company has applied for listing of the
Common Stock on the NASDAQ SmallCap Market and the Pacific Stock Exchange
under the symbols "GNRL" and "GNB," respectively.
------------------------------------------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. PERSONS WHO PURCHASE
THESE SECURITIES WILL INCUR SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================
Underwriting Proceeds
Price to Discounts and to
Public Commissions(1) Company(2)
---------------------------------------------------------------
Per Share . . . . . . $ $ $
---------------------------------------------------------------
Total(3) . . . . . . $ $ $
===============================================================
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance
of $ (or $ if the Underwriters' over-allotment option
described in footnote (3) is exercised in full); and (ii) warrants to
purchase up to 120,000 shares of Common Stock at $ per share (that
being 140% of the initial public offering price), exercisable over a
period of four years, commencing one year from the date of this
Prospectus ("Representative's Warrants"). In addition, the Company
has agreed to indemnify the Underwriters against certain civil
liabilities under the Securities Act of 1933, as amended ("Act"). See
"Underwriting."
(2) Before deducting expenses of this Offering payable by the Company,
estimated at $ , including the Representative's non-accountable
expense allowance.
(3) The Company has granted the Underwriters an option, exercisable within
45 business days of the date of this Prospectus, to purchase up to
180,000 additional shares of Common Stock on the same terms and
conditions as set forth above to cover over-allotments, if any. If
all such additional shares of Common Stock are purchased, the total
price to public, underwriting discounts and commissions and proceeds
to Company will be increased to $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock are offered on a "firm commitment" basis by
the Underwriters when, as and if delivered to and accepted by the
Underwriters, and subject to prior sale, withdrawal or cancellation of the
offer without notice. It is expected that delivery of the certificates
representing the shares of Common Stock will be made at the offices of H.J.
Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620 on or
about , 1997.
-------------------------
H.J. MEYERS & CO., INC.
The date of this Prospectus is , 1997
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<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
The General(R) is a trademark of, and Hyatt(R) is a trademark licensed
to, the Company. This Prospectus also includes names, tradenames and
trademarks of other companies.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and must be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Investors should consider carefully the information set forth under "Risk
Factors." Unless otherwise indicated, (i) the information set forth in
this Prospectus assumes no exercise of the Underwriters' over-allotment
option and (ii) all share and per share data gives effect to a 3,000-for-
one stock split effective as of October 10, 1996. Certain of the
information contained in this Prospectus Summary and elsewhere in this
Prospectus, including information with regard to the Company's strategy for
expanding operations and market share and related financing requirements,
are forward looking statements. For a discussion of important factors that
could affect such matters, see "Risk Factors." All references to the
Company's operations for a particular fiscal year refer to the 52-53 week
period ended on the last Saturday in December of such year. The 39 week
periods ended September 30, 1995 and September 28, 1996 are referred to
herein as the "1995 Interim Period" and the "1996 Interim Period,"
respectively.
THE COMPANY
General Bearing Corporation ("Company") manufactures,
sources, assembles and distributes a variety of bearing components and
bearing products, including ball bearings, tapered roller bearings,
spherical roller bearings and cylindrical roller bearings under the
Hyatt(R) and The General(R) trademarks. The Company supplies original
equipment manufacturers ("OEMs") and the industrial aftermarket
principally in the United States ("U.S.") and Canada. The Company's
products are used in a broad range of applications, including automobiles,
railroad cars, locomotives, trucks, office equipment, machinery and
appliances.
The Company operates in two divisions: the OEM Division, which
supplies OEMs, and the Distribution Division, which serves distributors
that supply the repair and maintenance aftermarket and small OEMs. Current
OEM Division customers include automotive and locomotive divisions of
General Motors Corporation ("GM"), Gunite Corporation ("Gunite"), Strick
Corporation ("Strick"), Trinity Industries, Inc. ("Trinity"), Burlington
Northern Railroad Co. ("Burlington Northern") and Xerox Corporation
("Xerox"). The Distribution Division has customers ranging in size from
Motion Industries Inc. ("Motion Industries") and Bearings, Inc., each of
which has more than 400 outlets, to independent single outlet operations.
The Distribution Division's individual shipments are typically smaller in
volume but have higher gross margins.
Through flexibility in manufacturing and sourcing, as well as
attentive customer service, the Company strives to be a reliable,
innovative and cost effective provider of bearing components and products
to the approximately $5 billion per year U.S. bearing market. The
Company's strategy to accomplish this objective includes the following:
. PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. The
Company maintains a detailed and extensive Quality Assurance Program
and has been certified to the M 1003 standard by the Association of
American Railroads ("AAR") and the MIL-I-45208 standard by General
Dynamics, a military contractor. The Company currently is taking
steps to obtain ISO 9001 and QS 9000 registrations from the
International Standards Organization ("ISO"). The Company also
requires that both its affiliated and unaffiliated suppliers conform
to Company and customer quality and engineering standards. Certain of
the Company's products also have been specifically certified by the
AAR for use in locomotives and railroad cars. In addition, the
Company has been qualified as an authorized supplier by leading
automobile and truck trailer manufacturers (including GM, Fruehauf,
Gunite, Stoughton Trailers, Inc. ("Stoughton"), and Strick), railroads
(including Burlington Northern, the Atchison, Topeka and Santa Fe
Railway ("Santa Fe"), Missouri Pacific Railroad Company ("Missouri
Pacific"), Southern Pacific Rail Corporation ("Southern Pacific") and
Norfolk Southern Corp. ("Norfolk Southern")) and national distributors
of bearings, including Motion Industries and Bearings, Inc.. These
certifications and qualifications, which often take significant time
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to obtain because of testing and other requirements, enable the
Company to supply large markets currently served by a limited number
of competitors and to which the Company's access had been limited
previously.
. PRESENCE IN CHINA. In 1987, the Company formed a joint venture,
Shanghai General Bearing Co. Ltd. ("SGBC"), in the People's Republic
of China ("PRC") to establish a low cost, quality controlled source
for bearings and bearing components. The Company has formed other
joint ventures in the PRC, and it continues to investigate joint
venture opportunities. The Company believes that potential customers
in the U.S. intending to establish or expand manufacturing and other
facilities in the PRC have, and will continue to have, an incentive to
purchase bearings from the Company in order to satisfy Chinese
counterpurchasing and local content requirements. In addition, the
U.S. Department of Commerce ("Commerce") has granted a preliminary
order with respect to SGBC revoking the applicability to it of an
antidumping order covering tapered roller bearings ("TRBs") issued in
1987. A final determination revoking the antidumping order as it
applies to SGBC would result in a direct benefit to the Company and
SGBC by eliminating costs associated with antidumping duties, yearly
antidumping investigations and other compliance requirements related
thereto. There cannot be any assurance that Commerce will determine
to revoke the antidumping order as it applies to SGBC. However, in
each of the four annual reviews of the antidumping order in which
SGBC was a respondent and Commerce issued a final order, Commerce
imposed no antidumping margin on SGBC. The Company knows of no such
revocations pending for other companies and believes its own
revocation, if granted, will provide it with a competitive advantage.
. MANUFACTURING AND SOURCING FLEXIBILITY. The Company operates on the
principle that a flexible method of combining product and component
purchasing with its own manufacturing and assembly capabilities can
provide customers with high quality products and cost advantages. The
Company uses its manufacturing, engineering and purchasing expertise
to determine the highest quality and most cost effective methods of
production. The Company currently sources bearing components and
products from over 20 factories outside the U.S. In order to maintain
the Company's flexibility to change with the market, the Company
typically limits the term of its supply contracts to one year.
. NICHE MARKET PRODUCTS. Since 1992, the Company increasingly has
emphasized the sale of special and niche market bearings. Special
bearings are manufactured according to the design specifications of a
particular customer, often in cooperation with the Company's
engineering staff. Niche market bearings are used in specific
industries served by a limited number of manufacturers and are often
sold at higher profit margins than standard bearings. Sales of
special and niche market bearings by the Company have increased by
approximately 40% from fiscal 1993 to fiscal 1995.
. IMPROVED FINANCIAL POSITION AND CUSTOMER CONFIDENCE. In September
1991, the Company filed for bankruptcy protection as a result of its
inability to meet its obligations under a loan it incurred to acquire
the assets of Hyatt Clark Industries ("Hyatt"), formerly a division of
GM. In connection with the Company's reorganization, the Company took
significant steps to improve its operations and financial position and
reestablish the well-known Hyatt(R) brand. As a result of these
efforts, the Company increased its sales from approximately $27.3
million in fiscal 1993, the last year in which the Company operated in
bankruptcy, to approximately $42.1 million in fiscal 1995, and
reported operating income of $354,000 for fiscal 1995 compared to an
operating loss of $387,000 for fiscal 1993. Primarily as a result of
a charge due to customer damage claims connected with a product recall
of certain tapered journal bearings, the Company incurred a loss of
approximately $1.7 million for fiscal 1995. However, during the 1996
Interim Period, the Company recorded operating income of approximately
$2.4 million. During the bankruptcy, the Company lost its status as
an approved vendor to certain distributors of bearings and bearing
products. Although there cannot be any assurance that it will be the
case, and while the Company has no formal basis for determining the
effect of the product recall on customer confidence, the Company
believes that as a result of this Offering it may be redesignated as
an approved vendor by certain of such distributors, enabling the
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Company to increase its distribution sales, and this Offering may
enhance customer confidence in the Company's ability to undertake
projects requiring greater capital commitments by the Company.
As a result of the Company's improved financial condition,
certifications and qualifications, a favorable operating environment for
its Chinese joint ventures, its manufacturing and sourcing expertise and
focus on niche markets, the Company believes it is well positioned to
increase sales and profitability.
The Company was incorporated in 1958 by Seymour I. Gussack, its
current Chairman of the Board of Directors. The Company's principal
executive offices are located at 44 High Street, West Nyack, New York
10994, and its telephone number is (914) 358-6000.
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<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
YEAR ENDED NINE MONTHS ENDED
------------------------------ ---------------------
DECEMBER DECEMBER DECEMBER SEPTEMBER SEPTEMBER
25, 31, 30, 30, 28,
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Sales . . . . . . $27,254 $37,032 $42,070 $31,963 $29,800
Gross profit . . 6,529 8,548 10,001 7,817 7,861
Provision
(recovery) -
customer damage
claims . . . . . -- -- 2,152(2) 2,152(2) (101)
Operating income
(loss) . . . . . (387) 874 354 117 2,394
Income (loss)
before income tax
(benefit)
and extraordinary
item . . . . . . (365) 255 (2,229) (1,983) 1,425
Income tax
(benefit) . . . . -- -- (500) -- 500
Income (loss)
before
extraordinary
income . . . . . (365) 255 (1,729) (1,983) 925
Extraordinary item 15,836(1) 108 -- -- --
Net income (loss) $15,471 $ 363 $ (1,729) $(1,983) $ 925
Net income (loss)
per common share
(before
extraordinary
item) . . . . . . $ (.01) $ .08 $ (.58) $ (.66) $ .31
Net income (loss)
per share . . . . $ .67 $ .12 $ (.58) $ (.66) $ .31
Shares used in
calculating net
income (loss) per
share(3) . . . . 23,125,000 3,000,000 3,000,000 3,000,000 3,000,000
SEPTEMBER 28, 1996
----------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(4)
----------- --------------
Working capital . . . . . . . . . . . . $3,740 $11,940
Total assets . . . . . . . . . . . . . 24,399 27,199
Current liabilities . . . . . . . . . . 16,866 11,666
Long-term debt
(less current maturities) . . . . . . 4,668 4,668
Stockholders' equity . . . . . . . . . 2,865 10,865
(1) In December 1993, the Company emerged from a bankruptcy reorganization
which commenced in September 1991. In connection with its Plan of
Reorganization, the Company issued to World Machinery Company
("World"), which prior to this Offering owned all of the Common Stock:
(i) a 6% Secured Promissory Note due 1998 in the original principal
amount of $2.5 million ("Secured Note"), (ii) a non-interest bearing,
Unsecured Promissory Note in the principal amount of $750,142 payable
in annual installments of $125,000 commencing December 1993
("Installment Note") and (iii) 1,000 shares of Common Stock (3,000,000
shares after giving effect to the 3000-for-one stock split effective
October 10, 1996). The Secured Note, Installment Note and 1,000
shares of Common Stock were issued in exchange for a note in the
original principal amount of $12.0 million, together with accrued
interest thereon in the amount of $2,701,416 ("Discharged
Obligation"). World acquired the Discharged Obligation from Wells
Fargo Bank N.A.("Wells Fargo"), which provided financing for the
Company's purchase of Hyatt in March 1987 and for working capital.
The difference between the amount of the Discharged Obligation and the
principal amounts of the notes and the value attributed to the Common
Stock issued to World in exchange for the Discharged Obligation,
$11,451,174, has been recorded as "Extraordinary Income - settlement
of debts at a discount." In addition, unsecured creditors of the
Company were offered a cash settlement equal to 5% of their
outstanding pre-petition claims or, in the alternative, 10% of such
claims, payable 2% per year for five years, which resulted in an
additional reduction in obligations of $3,974,480. See "Risk Factors
- Bankruptcy Reorganization," "Company History," "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" and Notes to Consolidated Financial Statements.
(2) In April 1995, three railroads reported to the AAR problems with a
total of eight bearings which had overheated due to friction that was
attributed to misplaced seals on the Company's tapered journal
bearings. The Company agreed with the AAR to recall and replace all
Company tapered journal bearings that had been shipped. In
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anticipation of the expenses related to the reimbursement, recall and
rework, the Company accrued a one-time charge of approximately $2.2
million in fiscal 1995. See "Risk Factors - Product Recall."
(3) For an explanation of the number of shares used to calculate net
income (loss) per share, see "Consolidated financial statements -
Summary of significant accounting policies."
(4) Adjusted to reflect the application of the estimated net proceeds of
this Offering, after deducting underwriting discounts and commissions
and estimated Offering expenses. Pending the application of the net
proceeds, the Company intends to use such proceeds to repay
outstanding borrowings with the proceeds of this Offering. The
Revolving Credit Facility currently terminates in June 1998 and will
remain available through that date, with or without repayment of
outstanding borrowings under the Revolving Credit Facility. The
Revolving Credit Facility allows for borrowings, from time to time,
not to exceed the lesser of $15.0 million or an amount equal to the
sum of (i) 85% of receivables, as defined, (ii) 50% of eligible
inventory, as defined, consisting of raw materials, (iii) 50% of
eligible inventory, as defined, consisting of finished goods, and
(iv) 50% of eligible inventory, as defined, in transit under letters
of credit less the sum of (x) the aggregate amount of outstanding
letters of credit and (y) such reserves as the lender may reasonably
deem proper and necessary from time. See "Use of Proceeds,"
"Capitalization" and "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
THIS OFFERING
Common Stock Offered by
the Company . . . . . . . . . . . . . . 1,200,000 shares
Common Stock to be Outstanding
after this Offering(1) . . . . . . . . . 4,200,000 shares
Use of Proceeds . . . . . . . . . . . . Expansion of manufacturing
capacity, marketing and
research and development;
working capital
Proposed NASDAQ SmallCap Market and
Pacific Stock Exchange Symbols . . . . . "GNRL" and"GNB,"
respectively
--------------------------------
(1) Excludes: (i) 500,000 shares reserved for issuance pursuant to the
Company's 1996 Stock Option and Performance Award Plan ("1996 Option
Plan"), of which options to purchase 257,500 shares of Common Stock at
the price offered to the public in this Offering have been granted
subject to certain vesting periods; and (ii) 120,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants.
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RISK FACTORS
An investment in the Common Stock offered hereby involves a high
degree of risk and should not be made by persons who cannot afford the loss
of their entire investment. Prospective investors, prior to making an
investment decision, should consider carefully, in addition to the other
information contained in this Prospectus (including the financial
statements and notes thereto), the following factors. This Prospectus
contains, in addition to historical information, forward-looking statements
that involve risks and uncertainties. The Company's actual results could
differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well
as those discussed elsewhere in this Prospectus.
BANKRUPTCY REORGANIZATION
In 1987, the Company purchased the assets of Hyatt, a manufacturer of
TRBs for automotive OEM and railway markets and cylindrical roller bearings
for locomotive applications. In order to finance the purchase and related
working capital requirements, the Company borrowed $12.0 million from Wells
Fargo. As a result of a number of factors, including litigation between
local residents and the Town of Orangetown, New York challenging the
establishment of a Company production facility, the Company was delayed in
reestablishing the production of Hyatt products. During the litigation,
the Company continued to maintain the Hyatt assets and related executive,
maintenance and production staff at the facility in New Jersey at which
they had been located. However, the Company could not operate the
facilities without potentially incurring liability as an operator under
applicable environmental laws. The expenses incurred to maintain the
assets and staff before production commenced at another location
materially and adversely affected the Company's financial position. In
addition, the delays adversely affected the Company's efforts to regain
Hyatt's market share for journal boxes (locomotive axle bearings),
traction motor bearings (part of the drive motor of a locomotive) and
TRBs. Sales of journal boxes and traction motor bearings by the Company
were limited to $776,000 in 1987 and approximately $2.0 million in 1988,
compared to sales by Hyatt of approximately $11.0 million in 1986. In
addition, Hyatt sales of TRBs aggregated approximately $70.3 million in
1985 and the Company did not have any sales of such Hyatt products for
1987 or 1988. As a result of a lack of sales, the Company became unable
to meet its obligations under its loan agreement with Wells Fargo, and
filed for protection under Chapter 11 of the U.S. Bankruptcy Code in
September 1991. In connection with its reorganization in bankruptcy, the
Company took significant steps to improve its operations and financial
position, leading to profitability in 1994. The Company's long-term
viability, however, will depend upon its ability to sustain profitable
results of operations. There can be no assurance that such results can
or will be sustained. See "Company History."
PRODUCT RECALL
In January 1995, the Company initiated shipments of Hyatt tapered
journal bearings (a type of TRB), which are used in the manufacture and
maintenance of railroad freight cars. Through April 1995, the Company
shipped approximately 10,000 tapered journal bearings to five railroad car
manufacturing customers: Trinity, National Steel Car Company, Thrall Car
Manufacturing, TTX Company and American Allied Railway Equipment Company.
During April 1995, three railroads, CSX, Burlington Northern and Southern
Pacific, reported to the AAR problems with a total of eight bearings, which
had overheated due to friction that was attributed to misplaced seals. The
AAR and the Company investigated the reports and the AAR issued a warning
notice to all railroads. The Company agreed with the AAR to recall and
replace all Company bearings which had been shipped. Claims were submitted
to the Company by railroad car manufacturers and railroads for replacement
bearings and damages, including incidental damages, related to the recall.
In anticipation of the expenses related to the reimbursement, recall and
rework, the Company accrued a one-time charge of approximately $2.2 million
in fiscal 1995, which resulted in the Company incurring a net loss of
approximately $1.7 million for fiscal 1995. As of September 28, 1996, the
Company had resolved more than 95% of the claims to the customers'
satisfaction. The Company satisfied approximately 83% of the claims by
shipping new tapered journal bearings. The Company's liability insurance
carrier agreed to reimburse the Company approximately $450,000 for certain
claims attributable to incidental damages, of which approximately $442,000
has been received by the Company through November 1996. After completing
its investigation, in September 1995, the AAR approved the Company's
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tapered journal bearings for use in railroad freight cars, conditioned upon
the Company providing information to the AAR about the number of bearings
returned from service, submitting a written proposal for further handling
of roller bearing components that were returned and making arrangements for
an AAR representative to witness the teardown of a sample of the recalled
roller bearings. The Company satisfied these conditions and, in addition
to shipping bearings to replace those removed from railroad freight cars,
has received orders for new tapered journal bearings from various
customers. The Company has not received any additional claims relating to
the recall since August 1996 and believes that no additional claims will
be made. The Company further believes that its Quality Assurance system
(See "Business - Quality and Customer Service Programs") has reduced the
possibility of future recalls. However, any additional recalls could have
a material adverse effect on the Company's reputation, business, results of
operations and financial condition. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and "Business."
MANAGEMENT'S BROAD DISCRETION IN USE OF PROCEEDS; UNSPECIFIED ACQUISITIONS
Approximately $5.0 million (62.5%) of the estimated $8.0 million of
net proceeds from this Offering (along with any net proceeds derived from
the exercise of the Underwriters' over-allotment option) will be used by
the Company for working capital and applied to general corporate purposes,
including the possible acquisition of the business or assets of other
bearing manufacturers. In the event the proceeds from this Offering are
used to acquire such business or assets, the stockholders purchasing in
this Offering may not have the opportunity to review the financial
statements of such businesses or to vote on such acquisitions.
Accordingly, the Company's management will have broad discretion as to the
application of such proceeds. See "Use of Proceeds."
LOSS OF CERTIFICATIONS AND QUALIFICATIONS
In order to supply certain OEMs, particularly automotive manufacturers
and manufacturers of railroad freight cars and locomotives, the Company is
required to qualify with such customers and may have to obtain
certifications and registrations from the ISO, as well as other certifying
organizations. There can be no assurance that the Company will be
successful in maintaining its certifications or qualifications in the
future. From time to time, the Company also may be subject to requirements
by customers to obtain certifications and qualifications which it does not
currently possess. For example, GM has requested that by December 1997 the
Company meet the QS 9000 standard, a standard jointly developed by GM, Ford
Motor Company ("Ford") and Chrysler Corporation ("Chrysler") that has all
the basic systems of ISO 9001 with additional requirements specific to the
automotive industry. The Company believes that it will meet such
registrations by such date and that, if it cannot, GM will extend the date
for obtaining registrations. However, the Company is unable to anticipate
or predict changes in the requirements to maintain existing certifications
or qualifications, and there can be no assurance that the Company will be
successful in obtaining any new certifications or qualifications. A
failure to meet existing or additional certifications or qualifications
requirements may have a material adverse effect on the business and results
of operations of the Company. See "Business - Quality and Customer Service
Programs."
OPERATING RESULTS
The Company's industry is characterized by relatively narrow profit
margins and the Company's earnings depend significantly on its ability to
manufacture and distribute products efficiently and to source products and
components on favorable terms. Operating results between 1987 and 1991
were adversely affected by the Company's inability to service debt incurred
in connection with its acquisition of Hyatt, resulting in the Company's
filing in 1991 for protection under the federal bankruptcy laws. As of
September 28, 1996, the Company had an accumulated deficit of approximately
$9,368,000. The Company's performance has been, and future performance
will be, subject to a number of factors, including those beyond its
control. Such factors include, but are not limited to, economic downturns,
increased competition and price increases of components, raw materials and
finished products that the Company distributes. During periods of economic
expansion, when industrial production is increasing, the demand for
bearings normally increases. Likewise, during recessionary times, the
bearing industry is affected adversely by declines in demand and possible
increases in delinquent accounts receivable. In addition, operating
results may be adversely affected by losses incurred at Company joint
ventures, for which the Company accounts using the equity method. See
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"Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Consolidated financial statements Summary of
significant accounting policies."
SUBSTANTIAL INDEBTEDNESS
The Company has incurred substantial indebtedness to finance its needs
for working capital in the form of a $15.0 million revolving credit
facility ("Revolving Credit Facility") from the Bank of New York Commercial
Corporation ("BNYCC"). At December 11, 1996, the Company had indebtedness
under the Revolving Credit Facility of approximately $9,450,000,
representing approximately 330% of stockholders' equity as of September 28,
1996. The Company's high level of indebtedness has the following important
consequences: (i) significant interest expense resulting in substantial
annual fixed charges; (ii) significant limitations on the Company's ability
to obtain financing, fund working capital requirements, make capital
expenditures and acquisitions and take advantage of other significant
business opportunities that may arise; and (iii) increased vulnerability to
adverse general economic and industry conditions. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
RELIANCE ON BORROWINGS UNDER REVOLVING CREDIT FACILITY
Borrowings under the Revolving Credit Facility are secured by the
Company's accounts receivable, inventory and various other assets, based on
certain coverage ratios. The Revolving Credit Facility contains covenants
which, among other things, limit the Company's ability to incur additional
indebtedness and require the Company to maintain certain levels of working
capital and satisfy other financial tests. The Company has obtained
several amendments to the Revolving Credit Facility to increase the maximum
amount permitted to be borrowed and to increase the percentage of
receivables or inventory used to determine the amount available to be
borrowed at any time. Since the beginning of fiscal 1994, BNYCC has agreed
on two occasions to increase the amount available to be borrowed from the
amount otherwise permitted by the applicable percentages of receivables and
inventory ("Overadvances"). In each case, the increase in availability was
based, in part, upon the agreement of David L. Gussack, the Company's
President, to personally guarantee payment of the Overadvances. In
addition, BNYCC may require the establishment of such reserves as it may
reasonably deem proper and necessary from time to time, thus reducing the
amounts that may otherwise be borrowed under the Revolving Credit Facility.
There can be no assurances that BNYCC will agree to any future
Overadvances, that David L. Gussack will provide, if needed, additional
personal guarantees or that BNYCC will not require additional reserves. As
a result of the effects of the recall of tapered journal bearings, as of
December 31, 1995, the Company was not in compliance with covenants
requiring the maintenance of minimum tangible net worth and of fixed charge
coverage rates. BNYCC agreed to waive such noncompliance and amended such
covenants. There can be no assurances, however, that BNYCC will grant any
such waivers or amendments in the future. As of September 28, 1996, the
Company was required to maintain a tangible net worth, as defined, of
$2,835,000, a fixed charge ratio of 1.3 to 1.0 and a ratio of current
assets to current liabilities of .90 to 1.0. The Company's actual results
as of September 28, 1996 reflected a tangible net worth of $4,511,000, a
fixed charge ratio of 1.85 to 1.0 and a ratio of current assets to current
liabilities of 1.22 to 1.0. As of September 28, 1996, the Company was in
compliance with all other covenants under the Revolving Credit Facility and
all Overadvances due had been repaid. The Revolving Credit Facility
expires in June 1998. Based upon the Company's performance and 20 year
relationship with BNYCC, the Company intends to request and believes it may
be able to obtain more favorable terms on the Revolving Credit Facility
upon the completion of this Offering, although there can be no assurance
that it will be able to do so. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition."
COMPETITION
The ball and roller bearing industry is highly competitive. The
Company believes that competition in the industry is based principally on
engineering, experience, quality, price and the ability to meet customer
delivery requirements. Price competition in the industry affects the
Company's ability to increase prices on certain products and, in some
cases, subjects the Company to pressure from its customers to reduce
prices. While efforts to improve its manufacturing and assembly processes
have permitted the Company to reduce costs through operating efficiencies,
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thereby improving profitability, there can be no assurance that continued
pricing pressure will not have a material adverse effect on the Company's
operations. The Company does not own any U.S. or foreign patents or
proprietary protection that is material to its business. Additionally,
many of the Company's competitors have greater financial resources than the
Company and there can be no assurance that the Company will continue to be
able to compete effectively with these larger manufacturers. The Company's
ability to compete with foreign based competitors also may be adversely
affected by an increase in the value of the U.S. dollar relative to foreign
currencies. See "Business - Competition."
RELIANCE ON UNAFFILIATED MANUFACTURERS
The Company produces approximately 37% of the bearings that it sells
and obtains another 24% of components and finished products from joint
ventures in which it participates. The Company currently relies on
approximately 82 unaffiliated manufacturers to produce the remaining 39% of
the bearings that it distributes. The Company maintains long term
relationships with its unaffiliated manufacturing sources, but does not
have long term supply contracts with any of them. In the event any of the
Company's key unaffiliated manufacturers become unable or unwilling to
continue to manufacture the Company's products, the Company would have to
rely on other current manufacturing sources or identify and qualify new
unaffiliated manufacturers. In such event, there can be no assurance that
the Company would be able to qualify such manufacturers for existing or new
products in a timely manner or that such manufacturers would allocate
sufficient capacity to the Company in order to meet the Company's
requirements. Any significant delay in the Company's ability to obtain
adequate supplies of its products from its current or alternative sources
could materially and adversely affect the Company's business and results of
operations. See "Business - Manufacturing and Sourcing."
RELIANCE ON QUALITY CONTROL OF UNAFFILIATED MANUFACTURERS
Although the Company believes that it maintains good control with
respect to product specifications and quality, there can be no assurance
that unaffiliated manufacturers will continue to produce products that are
consistent with the Company's quality and performance standards. In this
regard, the Company has occasionally received, and may in the future
continue to receive, shipments of product from unaffiliated manufacturers
that fail to conform to the Company's quality control standards. In such
event, unless the Company is able to obtain replacement products in a
timely manner, the Company risks the loss of revenue resulting from the
sale of such products. Although, in the past, shipments from unaffiliated
manufacturers of products that failed to conform to the Company's standards
have not materially affected the Company's operations, there cannot be any
assurance that any failure in the future would not materially and adversely
affect the Company's results of operations and its reputation in the
marketplace. See "Business Sourcing and Manufacturing."
INTERNATIONAL OPERATIONS
The Company imports over half of its raw materials, components and
finished products from manufacturers, including joint ventures in which the
Company participates, located outside of the U.S., primarily in the PRC.
As a result, the Company's business is subject to the risks generally
associated with doing business abroad, such as foreign governmental
regulations, political unrest, disruptions or delays in shipments and
changes in economic conditions in countries in which the Company's
manufacturing sources, including both joint ventures and unaffiliated
manufacturers are located. These factors, among others, could influence
the Company's ability to manufacture its products or procure certain
materials. If any such factors were to render the conduct of business in a
particular country, including through joint ventures in which the Company
participates, undesirable or impractical, there could be a material adverse
effect on the Company's results of operations and financial condition. The
Company's inventory purchases from manufacturers in the PRC, including both
joint venture partners and unaffiliated manufacturers, generally are
denominated in U.S. dollars. Unanticipated changes in the value of the
U.S. dollar relative to the value of certain foreign currencies could have
a material adverse effect on the Company's results of operations and
financial condition. Additionally, the Company's business is subject to
the risks associated with the imposition of additional U.S. legislation and
regulations relating to the manufacture and importation of foreign
manufactured products, including duties, tariffs, taxes and other charges
or restrictions. The Company cannot predict whether additional U.S.
duties, tariffs, taxes or other charges or restrictions will be imposed
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upon the importation of its products in the future, or what effect any such
actions would have on its business, financial condition and results of
operations. A significant portion of the Company's products is produced in
the PRC. From time to time, the U.S. government has considered imposing
punitive tariffs on certain exports from the PRC. Such sanctions, if
implemented, could have a material adverse effect on the Company's results
of operations and financial condition. See "Management's Discussion and
Analysis of Results of Operation and Financial Condition" and "Business -
Sourcing and Manufacturing."
LACK OF CONTROL OF JOINT VENTURES
The Company currently obtains approximately 24% of the bearings that
it sells from joint ventures in which it participates. Although the
Company believes that its participation in joint ventures improves its
ability to monitor and control production and quality, the Company does not
exercise complete control over any such joint venture and may be limited
from exercising such control by local law. The Company accounts for its
investments in the joint ventures using the equity method, which would
result in it recognizing a portion of any net losses incurred by a joint
venture. Moreover, changes in foreign government regulations, political
unrest or other disruptions could threaten or result in the forfeiture of
the Company's investments in joint ventures or further limit the Company's
involvement in their governance or access to their products. See
"Business-Chinese Joint Ventures."
EFFECT OF ANTIDUMPING CLAIMS
In May 1987, Commerce found that TRBs from certain countries,
including the PRC, were being sold in the U.S. at less than fair value.
Commerce subsequently issued antidumping orders imposing duties on the
unfairly traded TRBs equal to the percentage difference between the selling
prices in the U.S. and the foreign market value of the imported TRBs during
specified review periods. The order applied to the Company's joint
venture, SGBC, as a result of its exports to the Company from the PRC,
although SGBC has never itself been found to have dumped any bearings, and
in each of four annual reviews of the antidumping order in which SGBC was a
respondent and Commerce issued a final determination, Commerce imposed no
antidumping margin on SGBC. In June 1995, SGBC requested a revocation of
the antidumping order with respect to its products. Commerce issued a
preliminary order granting such revocation based upon, among other factors,
SGBC not having sold TRBs at less than foreign market value for three
consecutive years. A final determination revoking the antidumping order
as it applies to SGBC would result in a direct benefit to the Company and
SGBC by eliminating costs associated with antidumping duties, yearly
antidumping investigations and other compliance requirements. However,
there can be no assurance that there will be a final determination
revoking the antidumping order as it applies to SGBC or that the Company
or any of its sources and affiliated manufacturers will not be subject to
future antidumping claims. See "Business - Manufacturing and Sourcing."
PENDING LEGAL PROCEEDINGS
In 1986 the Company entered into a joint venture with a former East
German trade agency pursuant to which the parties jointly owned, through a
holding company called Alurop Trading Corp. ("Alurop"), WMW Machinery,
Inc., a New Jersey corporation ("WMW"). Pursuant to the joint venture
agreement, WMW was, by separate agency contract, granted the exclusive
right to distribute certain East German machine tools in the United States.
After the reunification of Germany in 1990, the Company's joint venture
partner and its successors, including Werkzeugmaschinenhandel GmbH im
Aufbau ("WEMEX"), breached the joint venture agreement and the exclusive
agency contract, causing damage to WMW by frustrating WMW's ability to sell
machine tools and causing the rapid devaluation of its inventory. WMW
could not ensure its customers that service and parts could be supplied, or
that terms of the warranties could be met, causing its business to decline
dramatically. The Company attempted unsuccessfully for a period of several
years to amicably resolve the dispute.
In February 1995, however, WMW commenced an action in the U.S.
District Court for the Southern District of New York against WEMEX, Werner
P. Muender, Treuhandanstalt and Bundesanstalt fuer Vereinigungsbedingte
Sonderaufgaben (collectively, "Defendants") alleging, among other things,
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that: (i) WEMEX breached a joint venture agreement with the Company and a
commercial sales agency agreement with WMW and violated its duties to the
Company and WMW arising under such agreements; (ii) the Company relied to
its detriment upon promises made by WEMEX to support WMW's marketing
efforts; and (iii) Werner P. Muender, the liquidator of WEMEX, wrongfully
converted property of WMW to his benefit. WMW also is seeking a
declaratory judgment that any indebtedness it may owe to WEMEX be
extinguished or diminished to the extent of existing value of machine tools
purchased by WMW from or through WEMEX or its predecessor. Defendants
answered the complaint, denying the allegations therein, and WEMEX asserted
counterclaims against: (i) WMW for invoiced goods sold and delivered in
the amount of $9,507,337; (ii) Seymour I. Gussack and WMW Machinery
Company, Inc. ("WMW Machinery Co.") in the amount of $9,507,337, alleging
that Seymour I. Gussack improperly caused the sale of WMW's assets to WMW
Machinery Co.; and (iii) the Company in the amount of $9,507,337, alleging
that the Company breached its fiduciary duty to WEMEX by failing to provide
the working capital requirements of WMW. WMW, the Company, WMW Machinery
Co. and Seymour I. Gussack have denied any liability to WEMEX and believe
its counterclaims to be without merit. However, there can be no assurance
the case will be resolved in a timely manner or settled to the satisfaction
of the Company. Furthermore, the enforcement of an award favorable to the
Company may be subject to further review by German courts. Defendants also
have moved to dismiss the action based on various grounds including, among
others, the Foreign Sovereign Immunities Act of 1976, the Act of State
Doctrine, forum non conveniens, legal insufficiency of certain claims and
improper venue. WMW, the Company, WMW Machinery Co. and Seymour I. Gussack
have opposed Defendants' motion for dismissal, and argued that, if the
Court dismisses the Company's claims, it also should dismiss the
Defendants' counterclaims. There can be no assurance, however, that if
the court dismisses the action in its entirety, the Defendants will not
institute an action in Germany, which may be a less favorable forum for
the Company. In addition, if the Defendants prevail in their counterclaim
against the Company for the amount claimed and the Company is unsuccessful
in its claims against the Defendants, there would be a material adverse
effect on the Company's financial condition. See "Business Legal
Proceedings."
ENVIRONMENTAL COMPLIANCE
The Company's operations involve the handling and use of substances,
such as various cleaning fluids used to remove grease from metal, that are
subject to federal, state and local environmental laws and regulations that
impose limitations on the discharge of pollutants into the soil, air and
water and establish standards for their storage and disposal. Based on
information compiled to date, management believes that the Company's
current operations are in material compliance with applicable environmental
laws and regulations, the violation of which would have a material adverse
effect on the Company. There can be no assurance, however, that currently
unknown matters, new laws and regulations, or stricter interpretations of
existing laws and regulations will not materially affect the Company's
business or operations in the future. The Company and Gussack Realty
Company ("Realty") are pursuing claims against Xerox (in the United States
District Court for the Southern District of New York) related to the
discharge by Xerox of contaminants into the subsurface at a property in the
vicinity of property formerly leased by the Company and owned by Realty in
Blauvelt, New York ("Blauvelt Property"). Realty and the Company, among
other things, allege that the subsurface discharge by Xerox has adversely
affected the Blauvelt Property. The New York State Department of
Environmental Conservation ("DEC") has held Xerox responsible for such
discharges and Xerox has entered into several consent orders with DEC since
1984 agreeing, among other things, to investigate and remediate the impact
of the discharges. Neither DEC nor any other party has sought to impose
liability on the Company or Realty for the discharges or the costs of
investigation or remediation. The Company believes that it and Realty have
meritorious claims against Xerox. However, there can be no assurance that
the Company and Realty will be successful in their claims. See "Business -
Environmental Compliance."
DEPENDENCE ON EXISTING MANAGEMENT AND KEY PERSONNEL
Seymour I. Gussack, Chairman of the Board of Directors of the Company,
has been instrumental in the development and implementation of the
Company's business strategy since the Company's inception in 1958. David
L. Gussack, the Company's President, has been responsible for the daily
operations of the Company since 1991 and has participated in the
development of the Company's business strategy since 1987. Seymour I.
Gussack currently devotes his time and attention primarily to matters of
business strategy rather than to the daily operations of the Company. The
loss or interruption of the continued services of either Seymour I. Gussack
or David L. Gussack could have a material adverse effect on the Company.
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The Company has key man life insurance on Seymour I. Gussack and David L.
Gussack. See "Management."
TAX LOSS CARRYFORWARD
At December 30, 1995, the Company had net operating loss carry
forwards ("NOLs") aggregating approximately $13.2 million, which expire in
various years through 2010. Under Section 382 of the Internal Revenue Code
of 1986, as amended, ("Code"), the amount of NOLs that can be used in any
year is subject to restriction if an ownership change occurs. Under
Section 382 of the Code, an "ownership change" occurs if the percentage of
stock of the corporation owned actually or constructively by one or more
"5-percent Shareholders" increases by more than 50 percentage points
relative to the lowest percentage of stock of the corporation owned by such
5-percent Shareholders at any time during the statutory "testing period"
(generally, the past three years). An ownership change will not occur as a
result of this Offering. A "5-percent Shareholder" is a person who, at any
time during the testing period, owns at least five percent of the stock of
the corporation (not including certain nonvoting, nonparticipating
preferred stock), and all stock owned by shareholders who are not 5-percent
Shareholders is generally treated as being owned by one 5-percent
Shareholder. Accordingly, future equity offerings by the Company or sales
by its principal stockholder could limit the use of NOLs. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this Offering, World will hold approximately 71.4%
of the Common Stock of the Company (68.5% if the Underwriters' over-
allotment option is exercised in full). As a result, World will be in a
position to control the management and policies of the Company, including,
but not limited to, electing or removing the Company's Board of Directors,
changing the core business of the Company, causing or restricting the sale
of the Company, causing the Company to engage in transactions with
affiliated companies and controlling the Company's dividend policy.
World's two directors are Seymour I. Gussack and David L. Gussack, who own
19.6% and 17.6%, respectively, of the Common Stock of World. In addition,
two other director designees of the Company, Harold S. Geneen and Nina M.
Gussack, own 19.6% and 17.6% of the Common Stock of World respectively.
See "Principal Stockholder."
RELATIONSHIP WITH WORLD; CONFLICTS OF INTEREST
The Company has engaged in certain transactions, and is a party to
certain arrangements, with World and its affiliates, which will continue
after the consummation of this Offering, including the purchase of bearings
from joint ventures in which World has an interest, payments for and
advances to such joint ventures by the Company and the sublease of a
portion of the Company's principal facilities. Two of the six persons
who will be members of the Company's Board of Directors also are directors
and significant stockholders of World, and two other persons who will be
directors of the Company also are significant stockholders of World.
Ownership interests of directors of the Company in World or service as a
director of both the Company and World could create, or appear to create,
potential conflicts of interest. All future transactions between the
Company and World will be approved by a majority of the Board of Directors,
including a majority of the independent outside directors. See "Certain
Relationships and Related Transactions" and "Description of Securities."
EFFECT OF CERTAIN ANTITAKEOVER PROVISIONS
It is possible that the ability of the Company to issue Preferred
Stock and certain provisions of the General Corporation Law of the State of
Delaware ("DGCL") may discourage other persons from making a tender offer
for or acquiring substantial amounts of the Company's Common Stock. This
could have the incidental effect of inhibiting changes in management and
also may prevent temporary fluctuations in the market price for the Common
Stock which can result from actual or rumored takeover attempts. In
addition, the limited liability and indemnification provisions of the
Company's COI and Amended and Restated By-laws ("By-laws") may discourage
stockholders from bringing a lawsuit against directors for breaches of
fiduciary duty and may also have the effect of reducing the likelihood of
derivative litigation against directors and officers even though such
action, if successful, might otherwise have benefitted the Company and its
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stockholders. Furthermore, a stockholder's investment in the Company may
be adversely affected to the extent that costs of settlement and damage
awards against the Company's directors and officers are paid by the Company
pursuant to the indemnification provisions of its Certificate of
Incorporation or the indemnity provisions described above. See
"Description of Securities."
EFFECT OF BLANK CHECK PREFERRED STOCK
The authorized capital stock of the Company includes 1,000,000 shares
of preferred stock, par value $.01 per share ("Preferred Stock"). The
Board of Directors is authorized to fix the rights, preferences, privileges
and restrictions of any series of Preferred Stock, including the dividend
rights, original issue price, conversion rights, voting rights, terms of
redemption, liquidation preferences and sinking fund terms thereof, and the
number of shares constituting any such series and the designation thereof
and to increase or decrease the number of shares of such series subsequent
to the issuance of shares of such series (but not below the number of
shares of such series then outstanding). Because the terms of the
Preferred Stock can be fixed by the Board of Directors without stockholder
action, the Preferred Stock could be issued quickly with terms calculated
to defeat a proposed takeover of the Company or to make the removal of
management more difficult. The Board of Directors, without stockholder
approval, could issue Preferred Stock with dividend, voting and conversion
rights which could be superior to and thereby adversely affect the rights
of the holders of Common Stock. See "Description of Securities."
DILUTION
This Offering involves immediate and substantial dilution of $5.41 per
share (or 68%) between the net tangible book value per share of Common
Stock after this Offering and the per share public offering price. Based
upon the proposed range of the initial public offering price, World will
own shares of Common Stock with a market value of between $21.0 million and
$27.0 million, and new investors in this Offering will be paying between
$8.4 million and $10.8 million for 28.6% of the shares of the Common Stock
to be outstanding after completion of this Offering, for a corporation with
a net tangible book value of approximately $10,865,000 or $2.59 per share,
after giving effect to this Offering. See "Dilution."
DIVIDEND POLICY
The Company's management expects that all of the Company's future
earnings, if any, will be retained for expansion or development of the
Company's business and that no dividends will be declared or paid for the
foreseeable future. See "Dividend Policy."
ABSENCE OF PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE
Prior to this Offering, there was no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representative and may not reflect the market
price of the Common Stock after this Offering. See "Underwriting" for
factors considered in determining the initial public offering price.
VOLATILITY OF SHARE PRICE; LACK OF ACTIVE TRADING MARKET
The trading price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results,
general trends in the Company's industry and other factors. The Company
has applied for inclusion of the Common Stock in the Nasdaq SmallCap Market
and on the Pacific Stock Exchange. There can be no assurance, however,
that an active trading market will develop in the Common Stock or that
purchasers of the shares of Common Stock will be able to resell their
shares at prices equal to or greater than the initial public offering
price. The market for the Common Stock will depend upon, among other
things, the number of holders thereof, the interest of securities dealers
in maintaining a market for the Common Stock and other factors beyond the
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control of the Company. The limited number of freely tradeable shares
available in this Offering may have a negative impact on the development of
an active trading market. The Company has been advised by the
Representative that it intends to seek market makers for the Common Stock,
as the Company understands commonly is the practice of managing
underwriters in connection with initial public offerings. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
The Company is unable to predict the effect that sales made under
Rule 144 under the Act (as defined below) or otherwise may have on the
market price of the Common Stock, but such sales could have a depressive
effect in the public market price of the Common Stock offered hereby and
may impair the Company's ability to raise additional capital by the sale of
its equity securities. In addition, as a result of its ability to control
the Board of Directors, World will have the ability to otherwise cause the
Company to register under the Act the 3,000,000 shares of the Common Stock
that it owns. The Company will enter into a registration rights agreement
with World, providing the right to cause the Company to register shares for
resale by World or its transferees commencing one year after the date of
this Offering. World has agreed for a period of 18 months from the date of
this Prospectus that it will not offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock, without the prior written consent of
the Representative. The holders of the Representative's Warrants also have
been granted registration rights with respect to the 120,000 shares of
Common Stock underlying such warrants. See "Risk Factors Exercise of
Representative's Warrants," "Shares of Common Stock Eligible for Future
Sale" and "Underwriting."
EXERCISE OF REPRESENTATIVE'S WARRANTS
The Company has sold warrants for the purchase of Common Stock to the
Representative for nominal consideration as compensation for its services
in this Offering. The Representative's Warrants are exercisable only upon
the one-year anniversary of the closing of this Offering and will continue
to be exercisable until the five-year anniversary of the closing of this
offering, at a purchase price equal to 140% of the initial public offering
price of the Common Stock. The Representative's Warrants may have certain
dilutive effects because the holders thereof will be given the opportunity
to profit from a rise in the market price of the underlying shares of
Common Stock with a resulting dilution in the interest of the Company's
other stockholders. The terms on which the Company could obtain additional
capital during the life of the Representative's Warrants may be adversely
affected because the holders of the Representative's Warrants may exercise
them at a time when the Company would otherwise be able to obtain
comparable additional capital in a new offering of securities at a price
per share greater than the exercise price of the Representative's Warrants.
The Company has agreed that, at the request of the holders of the
Representative's Warrants under certain circumstances, it will register
under federal and state securities laws the Representative's Warrants and
the shares of Common Stock issuable thereunder. Exercise of these
registration rights could involve substantial expense to the Company at a
time when the Company may not be able to afford such expenditures and may
adversely affect both the terms upon which the Company may obtain
additional funding and the market price of the Common Stock. In addition,
no prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares of Common Stock for sale
will have on the market prices prevailing from time to time. Nevertheless,
the possibility that substantial amounts of Common Stock may be sold in the
public market upon the exercise of the Representative's Warrants may
adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise capital through the sale of its
equity securities. See "Underwriting."
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COMPANY HISTORY
The Company was founded in 1958 by Seymour I. Gussack, currently the
Chairman of the Board of Directors, as an engineering-oriented supplier
which designed bearings for a variety of special industrial applications.
In 1965, using its established sales force, the Company began marketing
standard precision bearings to OEMs. Product was manufactured by the
Company and also sourced from a network of overseas producers. In 1975,
the Company formed its Distribution Division, which sold the Company's full
line of products, both manufactured and imported, to industrial
distributors throughout the U.S. In 1969, the Company built a
manufacturing facility in North Carolina and moved its domestic
manufacturing operations there. Bearings and bearing components produced
at this facility were sold primarily to the automotive industry. Sales of
such products exceeded $18.0 million per year by 1985, when the Company
sold the facility to an unrelated company, Nucor, and executed a non-
competition agreement that expired in December 1991. The Company
determined to sell the facility in view of the price to be received and its
then strategic plans, including possible acquisitions then under
consideration. In 1992, the Company initiated a marketing campaign to the
automotive industry, which yielded orders from GM beginning in 1995.
In October 1987, the Company purchased the assets of Hyatt, which was
then in bankruptcy proceedings. Hyatt was primarily a manufacturer of TRBs
for the automotive and railroad industries. The Company borrowed
$12.0 million from Wells Fargo to finance the transaction and to provide
the Company with working capital. The transaction presented to the Company
the opportunity to: (i) acquire a large amount of equipment to establish
new domestic manufacturing capabilities and to form a manufacturing joint
venture in the PRC; (ii) utilize the well-recognized Hyatt(R) trademark
and other intellectual property; (iii) gain entry into the TRB market; and
(iv) access the railroad market for locomotive bearings. In 1985, Hyatt's
last full year of production prior to filing for bankruptcy protection, its
sales were approximately $70.3 million, of which approximately $11.0
million represented railroad product sales. In 1987, portions of the
assets acquired from Hyatt were used to establish a new TRB manufacturing
facility in Union, New Jersey.
In 1987, the Company also established a joint venture, SGBC, in
Shanghai, PRC. The joint venture agreement provided for SGBC to
manufacture bearings and bearing components. The Company's initial
contribution to the joint venture was the TRB production equipment acquired
from Hyatt in 1987, including hot and cold forming equipment, heat
treating, machining, grinding and roller manufacturing equipment to be used
in a 100,000 square foot manufacturing facility in Shanghai, PRC. Until
1994, the facility operated as a captive supply source to the Company,
exporting its production solely to the Company for sales in the U.S. to
Company customers. In 1994, SGBC was certified as a supplier of bearings
to Shanghai Volkswagen. Nonetheless, for the term of the joint venture
SGBC still may only sell in the U.S. to the Company. See "Business."
As a result of a number of factors, including litigation against the
municipality that precluded the Company from establishing a production
facility in New York adjacent to a Company distribution facility, the
Company was delayed in starting production of the Hyatt product lines,
which, combined with the requirements of establishing SGBC, adversely
affected the Company's liquidity. In September 1991, as a result of its
continuing inability to meet interest payments and related obligations
under its loan agreements, principally its loan agreement with Wells
Fargo, the Company filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. In connection with its reorganization in bankruptcy,
the Company took significant steps to improve its operations and financial
position. These steps included consolidating operations and facilities,
reducing general, administrative and production costs, improving inventory
management and refocusing the Company on certain core businesses, including
the sale of higher margin TRBs of the Hyatt(R) brand. Partially as a
result of these efforts, the Company increased sales from approximately
$27.3 million for fiscal 1993, the last year in which the Company operated
in bankruptcy, to approximately $37.0 million and $42.1 million for fiscal
1994 and fiscal 1995, respectively, and had operating income of $874,000
for fiscal 1994 and of $354,000 for fiscal 1995, despite an approximately
$2.2 million charge in fiscal 1995 due to customer damage claims, compared
to an operating loss of $387,000 for fiscal 1993. During the 1996 Interim
Period, the Company recorded operating income of approximately $2.4
million. In connection with the bankruptcy reorganization, the Company
also used proceeds from the liquidation of excess inventory to
substantially reduce its obligations under its Revolving Credit Facility.
In December 1992, World, a corporation controlled by Seymour I. Gussack
and members of his family, including David L. Gussack, currently the
Company's President and Chief Executive Officer, purchased the Discharged
Obligation from Wells Fargo.
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<PAGE>
The Company's Plan of Reorganization was confirmed by the U.S. Bankruptcy
Court for the Southern District of New York in November 1993. In
connection with the Plan of Reorganization, the Company issued to World, in
exchange for the Discharged Obligation, the Secured Note, the Installment
Note and 1,000 shares of Common Stock (3,000,000 shares after giving effect
to the 3000-for-one stock split effective as of October 10, 1996),
representing all of the Company's issued and outstanding shares of capital
stock. See "Certain Relationships and Related Transactions."
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DILUTION
At September 28, 1996, the net tangible book value of the Company was
approximately $2,865,000, or $.89 per share (assuming the 3,000-for-one
stock split effective as of October 10, 1996). Net tangible book value per
share represents the Company's total tangible assets less total liabilities
divided by the total number of shares of Common Stock outstanding. Net
tangible book value dilution per share represents the difference between
the amount per share paid by the purchasers of Common Stock in this
Offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of this Offering. After giving effect
to the sale by the Company of the 1,200,000 shares of Common Stock offered
hereby, at an assumed initial public offering price of $8.00 per share, and
receipt by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company at September 28, 1996, would
have been approximately $10,865,000, or $2.59 per share. This represents
an immediate increase in net tangible book value of $1.70 per share to
existing holders of Common Stock and an immediate dilution of $5.41 per
share to purchasers of shares of Common Stock in this Offering, as
illustrated by the following:
Assumed initial public offering price
per share (1) . . . . . . . . . . . . . . . $8.00
Net tangible book value per share
at September 28, 1996 (assuming the
3,000-for-one
stock split effective as of October 10,
1996) . . . . . . . . . . . . . . . . . $ .89
Increase per share attributable to $1.70
this Offering . . . . . . . . . . . . -----
Pro forma net tangible book value per $2.59
share after this Offering . . . . . . . . . -----
$5.41
Dilution per share to new investors(2) . . . =====
-----------
(1) Before deducting the estimated underwriting discounts, commissions and
expenses of this Offering.
(2) Excludes (i) 500,000 shares reserved for issuance under the 1996
Option Plan, of which options to purchase 257,500 shares of Common
Stock at the price to the public in this Offering have been granted
subject to certain vesting periods, and (ii) 120,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants. See
Management - 1996 Stock Option and Performance Award Plan.
The following table summarizes, on a pro forma basis as of September
28, 1996, the difference between the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average
price per share paid by the existing stockholder and by new public
investors purchasing shares in this Offering (at an assumed initial public
offering price of $8.00 per share and before deduction of estimated
underwriting discounts and commissions and offering expenses payable by the
Company):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE
PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- --------- ------------ ------- -------
Existing
stock-
holder.... 3,000,000(1) 71.4% $ 1 (2) -- --
New
public 1,200,000 28.6% $9,600,000 100.0% $8.00
investors. --------- ----- ---------- -----
Total . 4,200,000 100.0% $9,600,001 100.0%
========= ===== ========== =====
----------
(1) The number of shares owned by World reflects a 3,000-for-one stock
split effective as of October 10, 1996 which was effected in
contemplation of this Offering and reflected the proposed initial
public offering price of the Common Stock offered hereby determined by
negotiation between the Company and the Representative. Such offering
price is not necessarily related to the Company's asset value, net
worth or any other established criterion of value. For the method of
determining the initial public offering price of the Common Stock, see
"Underwriting." Based upon the proposed range of the initial public
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<PAGE>
offering price, World will own shares of Common Stock with a market
value of between $21.0 million and $27.0 million, and new investors in
this Offering will be paying between $8.4 million and $10.8 million
for 28.6% of the shares of the Common Stock to be outstanding after
completion of this Offering, for a corporation with a net tangible
book value of approximately $10,865,000 or $2.59 per share, after
giving effect to this Offering. The initial public offering price may
not reflect the market price of the Common Stock after this Offering.
(2) In December 1993, the Company emerged from a bankruptcy reorganization
which commenced in September 1991. In connection with its Plan of
Reorganization, the Company issued to World, which prior to this
Offering owned all of the Common Stock: (i) the Secured Note in the
original principal amount of $2.5 million; (ii) the Installment Note
in the principal amount of $750,142; and (iii) 1,000 shares of Common
Stock (3,000,000 after giving effect to a 3,000-for-one stock split
effective as of October 10, 1996). The Secured Note, Installment Note
and 1,000 shares of Common Stock were issued in exchange for a note
in the original principal amount of $12.0 million, together with
accrued interest thereon in the amount of $2,701,416. World acquired
the Discharged Obligation from Wells Fargo, which had provided
financing for the Company's purchase of Hyatt in March 1987 and for
working capital.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 shares
of Common Stock being offered by the Company hereby, at an assumed initial
public offering price of $8.00 per share, after deducting estimated
underwriting discounts and commissions and expenses of this Offering
payable by the Company, are estimated to be approximately $8,000,000
($9,274,400 if the Underwriter's over-allotment option is exercised in
full). The Company intends to use the net proceeds approximately as
follows:
AMOUNT PERCENT
Expansion of manufacturing capacity . . $2,000,000 25.0%
Expansion of marketing and research and
development . . . . . . . . . . . . . . 1,000,000 12.5%
Working capital, including general
corporate purposes 5,000,000 62.5%
and possible acquisitions . . . . . . --------- ------
Total . . . . . . . . . . . . . . $8,000,000 100.0%
========== ======
The Company anticipates using approximately $2.0 million to expand its
manufacturing capacity, particularly for the production of TRBs and ball
bearings supplied to the automotive industry, including possible
investments in joint ventures abroad or by providing equipment to vendors
for use at their facilities under the guidelines of certain supply
agreements. As of the date hereof, the Company has not committed to enter
into any joint venture or other arrangement with vendors that would be
funded with the proceeds of this Offering. Of the remaining net proceeds,
the Company anticipates using approximately $1.0 million for expanded
marketing and research and development and approximately $5.0 million for
working capital, including general corporate purposes and possibly the
acquisition of the business or assets of other bearing manufacturers.
However, the Company at the present time has not identified any acquisition
candidates. Pending the application of the net proceeds for such purposes,
the Company intends to use such proceeds to repay outstanding borrowings
under the Revolving Credit Facility. As of December 11, 1996, the Company
had outstanding borrowings under the Revolving Credit Facility of
approximately $9,450,000. The Revolving Credit Facility currently
terminates in June 1998 and will remain available through that date, with
or without repayment of outstanding borrowings with the proceeds of this
Offering. The Revolving Credit Facility allows for borrowings, from time
to time, not to exceed the lesser of $15.0 million or an amount equal to
the sum of (i) 85% of eligible receivables, as defined, (ii) 50% of
eligible inventory, as defined, consisting of raw materials, (iii) 50% of
eligible inventory, as defined, consisting of finished goods, and (iv) 50%
of eligible inventory, as defined, in transit under letters of credit less
the sum of (x) the aggregate amount of outstanding letters of credit and
(y) such reserves as the lender may reasonably deem proper and necessary
from time to time. Based upon such formula and Overadvances, as of
December 11, 1996, the maximum amount the Company could borrow under the
Revolving Credit Facility was approximately $10,076,000. Amounts
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outstanding under the Revolving Credit Facility bear interest at the bank's
base rate (8.25% per annum at December 11, 1996) plus 2%. Based upon the
Company's performance and 20 year relationship with BNYCC, the Company
intends to seek and believes it may be able to obtain more favorable terms
on the Revolving Credit Facility upon the completion of this Offering,
although there can be no assurance it will be able to do so. See
"Management's Discussion and Analysis of Results of Operations and
Financial Condition." The foregoing represents the Company's best estimate
of the allocation of the net proceeds of this Offering based upon current
economic and industry conditions and the current state of its business
operations and plans. The application of proceeds for any particular
purpose will depend on a number of factors, including the timing of
expenditures, other business and acquisition opportunities, and the
availability of funds from operations or other sources. As a result, the
Company may find it desirable, and reserves the right, to change the
allocation of funds among the applications identified above. None of the
net proceeds of this Offering will be paid, in the aggregate, to NASD
members, affiliates, associated persons or related persons.
DIVIDEND POLICY
The Company currently expects that it will retain all future earnings
for use in the operation and expansion of its business and does not
anticipate paying any cash dividends in the foreseeable future. In
addition, the Company is subject to restrictions against the payment of
dividends under the terms of the Revolving Credit Facility. See "Risk
Factors - Substantial Indebtedness; Reliance on Borrowings under Revolving
Credit Facility."
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 28, 1996 and as adjusted to give effect to: (i) the sale by the
Company of 1,200,000 shares of Common Stock at the assumed public offering
price of $8.00 per share, less estimated underwriting discounts and
commissions and expenses of this Offering payable by the Company; and (ii)
the application of the estimated net proceeds of this Offering. See "Use
of Proceeds."
ACTUAL AS ADJUSTED
Note payable-bank and current
maturities of long-term debt . . . . . $10,521,272 $5,521,272(1)
=========== ============
Long-term debt (less current
maturities) . . . . . . . . . . . . . . $4,667,502 $4,667,502
----------- ------------
Stockholders' equity:
Preferred Stock, par value $.01
per share, 1,000,000 shares
authorized; none issued -- --
Common Stock, par value $.01 per
share, 19,000,000 shares
authorized; 3,000,000 shares
issued and outstanding;
4,200,000 shares issued and
outstanding, as adjusted (2) . . 30,000 42,000
Additional paid-in capital . . . . 12,203,250 20,191,250
Accumulated deficit . . . . . . . (9,368,083) (9,368,083)
---------- ----------
Total stockholders' equity . . . . 2,865,167 10,865,167
---------- ----------
Total capitalization . . . . $7,532,669 $15,532,669
========== ===========
----------------
(1) Pending the application of the net proceeds, the Company intends to
use such proceeds to repay outstanding borrowings under the Revolving
Credit Facility. The Revolving Credit Facility currently terminates
in June 1998 and will remain available through that date, with or
without repayment of outstanding borrowings with the proceeds of this
Offering. The Revolving Credit Facility allows for borrowings, from
time to time, not to exceed the lesser of $15.0 million or an amount
equal to the sum of (i) 85% of receivables, as defined, (ii) 50% of
eligible inventory, as defined, consisting of raw materials, (iii) 50%
of eligible inventory, as defined, consisting of finished goods, and
(iv) 50% of eligible inventory, as defined, in transit under letters
of credit less the sum of (x) the aggregate amount of outstanding
letters of credit and (y) such reserves as the lender may reasonably
deem proper and necessary from time. See "Use of Proceeds" and
"Management's Discussion and Analysis of Results of Operations and
Financial Condition."
(2) Excludes: (i) 500,000 shares of Common Stock reserved for issuance
under the 1996 Option Plan, of which options to purchase 257,500
shares of Common Stock at the price offered to the public in this
Offering have been granted subject to certain vesting periods; and
(ii) 120,000 shares of Common Stock issuable upon exercise of the
Representative's Warrants.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the financial statements and notes
thereto that appear elsewhere herein. The statement of operations and
balance sheet data for the 1991, 1992, 1993, 1994 and 1995 fiscal years
have been derived from the financial statements of the Company, which
financial statements have been compiled, but not audited, with respect to
the 1991 and 1992 fiscal years, and audited with respect to the 1993 and
1994 fiscal years by Ferro, Berdon & Company, L.L.P. independent public
accountants, as indicated in their report included elsewhere herein.
The financial statements as of and for the 1995 fiscal year have been
audited by BDO Seidman, LLP, independent public accountants, as indicated
in their report included elsewhere herein. The selected financial data
as of and for the 1995 and 1996 Interim Periods have been derived without
audit from the Company's interim financial statements. In the opinion of
Management, the unaudited financial statements include all adjustments,
consisting of only normal, recurring adjustments, necessary for a fair
presentation of the results of operations for the periods. The results
for the 1996 Interim Period are not necessarily indicative of the results
that may be expected for 1996 fiscal year or in any other future period.
YEAR ENDED
IN THOUSANDS EXCEPT
DECEMBER 28, DECEMBER 26, DECEMBER 25,
FOR SHARE AND 1991 1992 1993
PER SHARE DATA ---- ---- ----
STATEMENT OF
OPERATIONS DATA:
Sales $ 32,146 $ 27,155 $ 27,254
24,289 20,738 20,725
Cost of sales ------ ------ ------
7,857 6,417 6,529
Gross profit ------ ------ ------
Selling, general
and administra-
tive expenses 8,806 6,762 6,916
Provision (recovery)
for customer -- -- --
damage claims(3) ------ ------ ------
Operating income (949) (345) (387)
(loss) ------ ------ ------
Interest expense (2,517) (671) (513)
Equity in income
(loss) of affiliate (390) (662) (183)
98 (76) 718
Other (expense) income ------ ------ ------
Income (loss) before
reorganization items,
income tax (benefit) (3,758) (1,754) (365)
and extraordinary item ------ ------ ------
Reorganization items(1) (1,537) (7,715) --
-- -- --
Income tax (benefit) ------ ------ ------
Income (loss)
before
extraordinary
item (5,295) (9,469) (365)
Extraordinary -- -- 15,836
item (2) ------ ------ ------
$ (5,295) $ (9,469) $ 15,471
Net income (loss) ======= ======= =======
Net income (loss) per
share (before
extraordinary item) $ (.22) $ (.39) $ (.01)
Net income (loss) $ (.22) $ (.39) $ .67
per share ====== ======= =======
Shares used in
calculating net 24,000,000 24,000,000 23,125,000
income per share ========== ========== ==========
YEAR ENDED
IN THOUSANDS EXCEPT
DECEMBER 31, DECEMBER 30,
FOR SHARE AND 1994 1995
PER SHARE DATA ---- ----
STATEMENT OF
OPERATIONS DATA:
Sales $ 37,032 $ 42,070
28,484 32,069
Cost of sales ------ ------
8,548 10,001
Gross profit ------ ------
Selling, general
and administra-
tive expenses 7,674 7,495
Provision (recovery)
for customer -- 2,152
damage claims(3) ------ ------
Operating income 874 354
(loss) ------ ------
Interest expense (990) (1,428)
Equity in income
(loss) of affiliate 403 78
(32) (1,233)
Other (expense) income ------ ------
Income (loss) before
reorganization items,
income tax (benefit) 255 (2,229)
and extraordinary item ------ ------
Reorganization items(1) -- --
-- (500)
Income tax (benefit) ------ ------
Income (loss)
before
extraordinary
item 255 (1,729)
Extraordinary 108 --
item (2) ------ ------
Net income (loss) $ 363 $ (1,729)
======= ==========
Net income (loss) per
share (before
extraordinary item) $ .08 $ (.58)
Net income (loss)
per share $ .12 $ (.58)
======== ==========
Shares used in
calculating net
income per share 3,000,000 3,000,000
========= =========
NINE MONTHS ENDED
IN THOUSANDS EXCEPT
SEPTEMBER 30, SEPTEMBER 28,
FOR SHARE AND 1995 1996
PER SHARE DATA ---- ----
STATEMENT OF
OPERATIONS DATA:
Sales $ 31,963 $ 29,800
24,146 21,939
Cost of sales ------ ------
7,817 7,861
Gross profit ------ ------
Selling, general
and administra-
tive expenses 5,548 5,568
Provision (recovery)
for customer 2,152 (101)
damage claims(3) ------ ------
Operating income 117 2,394
(loss) ------ ------
Interest expense (1,036) (969)
Equity in income
(loss) of affiliate 54 --
(1,118) --
Other (expense) income ------ ------
Income (loss) before
reorganization items,
income tax (benefit) (1,983) 1,425
and extraordinary item ------ ------
Reorganization items(1) -- --
-- 500
Income tax (benefit) ------ ------
Income (loss)
before
extraordinary
item (1,983) 925
Extraordinary -- --
item (2) ------ ------
$ (1,983) $ 925
Net income (loss) ========= ======
Net income (loss) per
share (before
extraordinary item) $ (.66) $ .31
Net income (loss) $ (.66) $ .31
per share ====== ======
Shares used in
calculating net 3,000,000 3,000,000
income per share ========= =========
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YEAR ENDED
IN THOUSANDS
DECEMBER 28, DECEMBER 26, DECEMBER 25,
1991 1992 1993
---- ---- ----
BALANCE SHEET DATA:
Working capital $ 3,353 $ 3,091 $ 3,842
Total assets 28,319 15,913 17,618
Long-term debt
(excluding current
portion) 14,850 14,920 4,512
Stockholders'
equity (5,969) (15,265) 3,306
YEAR ENDED NINE MONTHS ENDED
IN THOUSANDS
DECEMBER 31, DECEMBER 30, SEPTEMBER 28,
1994 1995 1996
---- ---- ----
BALANCE SHEET DATA:
Working capital $ 4,686 $ 2,793 $ 3,740
Total assets 24,143 27,086 24,399
Long-term debt
(excluding current
portion) 5,218 4,817 4,668
Stockholder's
equity 3,670 1,941 2,865
(1) On September 16, 1991, the Company filed for bankruptcy protection
under Chapter 11 of the U.S. Bankruptcy Code. As part of its
bankruptcy reorganization, the Company incurred losses on: (i) the
liquidation of inventory of approximately $4.9 million; (ii) the
write-down of plant and equipment of approximately $3.0 million;
(iii) the write down of intangible assets of $1.0 million; and
(iv) bankruptcy costs of approximately $360,000 in fiscal 1991 and
1992.
(2) In December 1993, the Company emerged from a bankruptcy reorganization
which commenced in September 1991. In connection with the Plan of
Reorganization, the Company issued to World, which prior to this
Offering owned all of the Company's Common Stock, the Secured Note,
the Installment Note and 1,000 shares of Common Stock (3,000,000
shares after giving effect to the 3000-for-one stock split effective
as of October 10, 1996) in exchange for the Discharged Obligation.
World acquired the Discharged Obligation from Wells Fargo, which
provided financing for the Company's purchase of Hyatt in March 1987
and for working capital. The difference between the amount of the
Discharged Obligation and the principal amounts of the notes and the
value attributed to the Common Stock issued to World in exchange for
the Discharged Obligation, $11,451,174, has been recorded as
"Extraordinary Item - settlement of debts at a discount." In
addition, unsecured creditors were offered a cash settlement equal to
5% of their outstanding pre-petition claims or, in the alternative,
10% of such claims, payable 2% per year for five years resulting in a
reduction in obligations of $3,974,480. See "Risk Factors -
Bankruptcy Reorganization," "Company History," "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" and Note 14 of Notes to Consolidated Financial Statements.
(3) In April 1995, three railroads reported to the AAR problems with a
total of eight bearing assemblies which had overheated due to friction
that was attributed to misplaced seals on the Company's tapered
journal bearings. The Company agreed with AAR to recall and replace
all Company tapered journal bearings that had been shipped. In
anticipation of the expenses related to the reimbursement, recall and
rework, the Company accrued a one-time charge of approximately $2.2
million in fiscal 1995. See "Risk Factors - Product Recall."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with, and
is qualified in its entirety by, the Financial Statements and the Notes
thereto and Selected Financial Data included elsewhere in this Prospectus.
Historical operating results and percentage relationships among any amounts
included in the Financial Statements are not necessarily indicative of
trends in operating results.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the
percentage of the Company's sales represented by each income statement line
item presented.
AS A PERCENTAGE OF SALES
-----------------------------------------------
NINE MONTHS ENDED YEARS ENDED
------------------- --------------------------
SEPTEMBER SEPTEMBER DECEMBER DECEMBER DECEMBER
30, 28, 25, 31, 30,
1995 1996 1993 1994 1995
-------- --------- -------- -------- --------
Sales . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales . . . . . 75.5 73.6 76.0 76.9 76.2
Gross profit . . . . . 24.5 26.4 24.0 23.1 23.8
Selling, general and
administrative expenses 17.4 18.7 25.4 20.7 17.8
Operating income (loss) 0.4 8.0 (1.4) 2.4 0.8
Other (income) expense 6.6 3.3 (0.1) 1.7 6.1
Income (loss) before
extraordinary item . . (6.2) 3.1 (1.3) 0.7 (4.1)
(6.2) 3.1 56.8 1.0 (4.1)
Net income (loss) . . . ==== ==== ==== ==== ====
1996 INTERIM PERIOD COMPARED TO 1995 INTERIM PERIOD (UNAUDITED)
Sales.
----- The Company's sales decreased 6.8% from approximately $32.0 million
for the 1995 Interim Period to approximately $29.8 million for the 1996
Interim Period. Sales of the OEM Division and the Distribution Division
represented 64% and 36% of total sales for 1996 Interim Period,
respectively, as compared to 65% and 35% of total sales for the 1995
Interim Period. The decrease in sales between the two periods reflected a
28% to 30% decline in the production of truck trailers, which resulted in a
reduction of truck trailer bearing sales of approximately $2.5 million,
despite an increase in the Company's market share for such bearings. The
Company expects that sales of bearings for truck trailers for the remainder
of fiscal 1996 will decrease in part as the result of the filing for
bankruptcy protection by two leading truck trailer manufacturers. In
addition, a $300,000 reduction in sales of OEM ball bearings for various
commodity applications was attributable to the Company's strategy to de-
emphasize sales of low margin commodity bearings. These decreases in sales
were partially offset by an increase of approximately $1.1 million in sales
of tapered journal bearings used in railroad freight cars.
Cost of Sales.
------------- The Company's cost of sales as a percentage of sales
decreased from 75.5% for the 1995 Interim Period to 73.6% for the 1996
Interim Period. The decrease was partially the result of the commencement
of a program to increase efficiency in plant operations. This program
entails the consolidation of operations between the Company's Union, New
Jersey and West Nyack, New York facilities, which will simplify tooling,
personnel and quality control functions. The consolidation of operations
began in the first quarter of 1996 and is not completed as of the date of
this Prospectus. To date, the cost of consolidation has not been material
and has been expensed as a component of cost of sales as incurred. The
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<PAGE>
decrease of cost of sales as a percentage of sales also reflects the
Company's strategy to de-emphasize sales of low margin commodity bearings.
The Company operates on the principle that a flexible method of combining
product and component purchasing with its own manufacturing and assembly
capabilities can provide high-quality products and cost advantages. In the
last several years, the Company has increased its sourcing from joint
venture partners and unaffiliated suppliers, and the Company believes that
improvements in cost of sales and gross margins reflect in part cost
savings associated with increased sourcing. The improvement in cost of
sales as a percentage of sales also reflected the settlement with one of
the Company's suppliers related to the tapered journal bearings recall
which resulted in the cancellation of a Company payable to such supplier of
approximately $220,000.
Selling, General and Administrative Expenses.
-------------------------------------------- Selling, general and
administrative expenses remained constant at approximately $5.6 million for
each of the 1995 and 1996 Interim Periods, although, as a percentage of
sales, such expenses increased from 17.4% to 18.7%, respectively, due to a
decrease in sales.
Provision for Customer Damage Claims.
------------------------------------- In April 1995, three railroads
reported to the AAR problems with eight of the Company's bearings that were
attributed to misplaced seals. The Company agreed to recall approximately
10,000 tapered journal bearings. As a result, the Company recorded a
special provision of approximately $2.2 million during the 1995 Interim
Period representing estimated liability for rework costs and customer
damage claims. In comparison, during the 1996 Interim Period, the Company
recorded a credit of approximately $101,000, representing recovery for
customer damage claims. Since the recall and the conditional reapproval in
September 1995 of the Company's sale of tapered journal bearings, the
Company's sales of the product have not attained previous levels, however,
the recall is not expected to affect the future operations and financial
position of the Company. See "Risk Factors Product Recall."
Operating Income.
----------------- Operating income increased to approximately $2.2 million
for the 1996 Interim Period from approximately $117,000 for the 1995
Interim Period, which was the result of a customer damage claim of
approximately $2.2 million recorded in fiscal 1995.
Other Income (Expense).
---------------------- Other expenses decreased by 54% from approximately
$2.1 million for the 1995 Interim Period to $969,000 for the 1996 Interim
Period. The 1995 Interim Period included write-offs of the balance of the
Company's (i) equity investment in a subsidiary ($960,000) and (ii)
goodwill ($93,333) due to the uncertainty surrounding the future recovery
of cash flows against these assets.
Income Tax (benefit).
-------------------- The Company accrued $500,000 for federal, state and
local taxes on income during the 1996 Interim Period compared to no
provision for taxes for the 1995 Interim Period, during which the Company
had a loss. The Company will be able to use its past net operating losses
to offset its tax liability for fiscal 1996.
Net Income (Loss).
----------------- As a result of the factors discussed above, net income
increased to $924,000 for the 1996 Interim Period from a net loss of
approximately $2.0 million for the 1995 Interim Period.
FISCAL 1995 COMPARED TO FISCAL 1994
Sales.
----- The Company's sales increased 13.6% to approximately $42.1 million
in fiscal 1995 from approximately $37.0 million in fiscal 1994. This
increase in sales was attributable to increased penetration into the truck
trailer bearing market, as well as the market for special bearings,
locomotive journal boxes and ball bearings. Sales of the OEM Division
increased 16.5% from approximately $23.8 million in fiscal 1994 to
approximately $27.7 million in fiscal 1995 and represented 66% of total
sales in fiscal 1995 as compared to 64% of total sales in fiscal 1994.
Sales of the Distribution Division increased 8.5% to approximately $14.4
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million in fiscal 1995 from approximately $13.3 million in fiscal 1994 and
represented 34% of sales in fiscal 1995 as compared to 36% of sales in
fiscal 1994.
Cost of Sales.
-------------- Cost of sales increased by 12.6% to approximately $32.1
million in fiscal 1995 from approximately $28.5 million in fiscal 1994,
reflecting increased sales. However, cost of sales as a percentage of net
sales declined from 76.9% in fiscal 1994 to 76.2% in fiscal 1995.
Selling, General and Administrative Expenses.
-------------------------------------------- Selling, general and
administrative expenses remained stable at approximately $7.5 million in
fiscal 1995 compared to approximately $7.7 million in fiscal 1994.
However, such expenses decreased as a percentage of sales to 17.8% in
fiscal 1995 from 20.7% in fiscal 1994, reflecting the increase in sales and
measures to control selling, general and administrative expenses.
Provision for Customer Damage Claims.
------------------------------------- In April 1995, three railroads
reported to the AAR problems with eight of the Company's bearings that were
attributed to misplaced seals. The Company agreed to recall approximately
10,000 tapered journal bearings. As a result, the Company recorded a
special provision of approximately $2.2 million in fiscal 1995 representing
estimated liability for rework costs and customer damage claims. See "Risk
Factors Product Recall."
Operating Income.
----------------- As a result of the factors described above, operating
income decreased 59.5% to approximately $354,000 in fiscal 1995 from
approximately $874,000 in fiscal 1994.
Other Income (Expense).
---------------------- Other expenses increased 317% to approximately $2.6
million in fiscal 1995 from approximately $0.6 million in fiscal 1994.
This increase reflected a 44.2% increase in interest expense to $1.4
million in fiscal 1995 from $1.0 million in fiscal 1994, primarily as a
result of an increase in average borrowings under the Revolving Credit
Facility to fund working capital requirements related to the increase in
sales. Interest expense during fiscal 1995 also included $180,000 of
interest accrued with respect to the Secured Note and 6% loans due December
1995 in the aggregate principal amount of $1,000,000 owed to World. In
fiscal 1995, the Company had equity in income of an affiliate of
approximately $79,000 compared to equity in the income of affiliates of
approximately $403,000 during fiscal 1994. During fiscal 1995 the Company
had other expenses of approximately $1.2 million compared to other expenses
of approximately $32,000 in fiscal 1994 due to the write down of an
investment in its Alurop subsidiary.
Income Tax (benefit).
-------------------- For fiscal 1995, the Company accrued a $500,000
benefit for anticipated use of net-operating loss carry-forwards, compared
to no provision for income tax in fiscal 1994.
Net Income (Loss).
----------------- Due to the provision for customer damage claims and the
write down of an investment in a subsidiary, the Company had a net loss in
fiscal 1995 of approximately $1.7 million. For fiscal 1994, the Company
had net income of $363,237.
FISCAL 1994 COMPARED TO FISCAL 1993
Sales.
------ The Company's sales increased by 35.9% to approximately $37.0
million for fiscal 1994 from approximately $27.3 million for fiscal 1993.
The increase was attributable to overall increases in orders from existing
customers, particularly sales in the Truck Trailer market, following the
Company's emergence from bankruptcy proceedings. Sales of the OEM Division
increased 59.7% to approximately $23.8 million in fiscal 1994 from
approximately $14.9 million in fiscal 1993 and represented 64% of total
sales in fiscal 1994 compared to 55% of total sales in fiscal 1993. This
increase included increased ball bearings sales of approximately $2.3
million, increased tapered roller bearings sales of approximately
$4.9 million, and increased bearing component sales of approximately
$1.4 million. Sales of the Distribution Division increased 6.7% to
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approximately $13.3 million in fiscal 1994 from approximately $12.4 million
in fiscal 1993 and represented 36% of total sales in fiscal 1994 compared
to 45% of total sales in fiscal 1993.
Cost of Sales.
-------------- Cost of sales increased by 37.4% to approximately $28.5
million for fiscal 1994 from approximately $20.7 million for fiscal 1993.
Cost of sales as a percentage of sales increased to 76.9% in fiscal 1994
from 76.0% in fiscal 1993 due to cost increases from certain component and
raw material vendors, which the Company could not completely pass through
to customers.
Selling, General and Administrative Expenses.
--------------------------------------------- Selling, general and
administrative expenses increased by 11% to approximately $7.7 million from
approximately $6.9 million in fiscal 1993. However, such expenses
decreased as a percentage of sales to 20.7% in fiscal 1994 from 25.4% in
fiscal 1993 due to increasing sales while controlling costs.
Operating Income.
---------------- As a result of the factors discussed above, operating
income was approximately $874,000 for fiscal 1994, compared to an operating
loss of approximately $387,000 for fiscal 1993.
Other Income (Expense).
---------------------- Other expense increased to approximately $619,000
for fiscal 1994 compared to other income of approximately $22,000 for
fiscal 1993. The increase reflected a 93% increase in interest expense to
approximately $1.0 million, for fiscal 1994 from approximately $513,000
primarily as a result of increased borrowings required to finance increases
in sales, offset in part by decreased average interest rates during fiscal
1994. Interest expense during fiscal 1994 also included $210,000 accrued
with respect to the Secured Note and 6% loans due December 1995 in the
aggregate principal amount of $1.0 million, each owed to World. In fiscal
1994, the Company also recognized equity in the income of an affiliate of
approximately $403,000 compared to equity in the loss of an affiliate and
other unconsolidated subsidiaries of approximately $183,000 during fiscal
1993. During fiscal 1994, the Company also had other expense of
approximately $32,000, compared to other income of $717,355 during fiscal
1993 due, in part, to a recovery of legal fees from a settled lawsuit and
the refund of a cash deposit and interest thereon from the U.S. Customs
Service.
Net Income.
----------- The Company had net income of approximately $363,000 for
fiscal 1994, reflecting increased sales and operating income, partially
offset by increased interest expense. For fiscal 1993, the Company had net
income of approximately $15.5 million as a result of extraordinary income
of $15.8 resulting from the settlement of debts at a discount in the
Company's bankruptcy reorganization. Before giving effect to extraordinary
income and minority interest, the Company had a loss for fiscal 1993 of
approximately $365,000.
LIQUIDITY AND CAPITAL RESOURCES
During the three years ended December 30, 1995, the Company's primary
sources of capital have been net cash provided by operating activities,
bank borrowings and financing from affiliates. Working capital
requirements also have been financed through revolving credit borrowings.
The primary demands on the Company's capital resources have been the need
to fund inventory and receivables growth created in normal business
expansion. In 1996 there was an additional requirement for capital to fund
expenses associated with the tapered journal bearing recall, as well as the
absorption of the carrying costs of the build-up of inventory as the result
of temporarily being prohibited from shipping tapered journal bearings
during the recall until the conditional reapproval by the AAR in September
1995. Since the recall, sales of tapered journal bearings have not
attained previous levels. These demands have been met through cash from
operations and borrowings under the Revolving Credit Facility.
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The Company's arrangements with its North American customers typically
provide that payments are due within 30 days following the date of the
Company's shipment of goods, while arrangements with foreign customers are
generally on a letter of credit basis. Due to the continuing expansion of
the Company's sales, management believes that the Company's working capital
requirements will increase. The Company expects to fulfill this need with
a portion of the proceeds of this Offering.
At December 31, 1994, December 30, 1995, and September 28, 1996, the
Company had working capital of approximately $4.7 million, $2.8 million and
$3.7 million, respectively. Cash flow from operations for 1995 was
$194,000 as compared to cash outflow of $4.7 million during 1994. The
improvement in the Company's cash flow from operations primarily reflects
an increase in results of operations in 1995, offset by the effects of the
tapered journal bearing recall.
Historically, the Company has used cash provided by operations to fund
a portion of its operating requirements and capital expenditures. The
Company also has relied on borrowings under its $15.0 million Revolving
Credit Facility to fund operations. As of December 11, 1996, $9,450,000
was outstanding under the Revolving Credit Facility, which sums are secured
by the Company's accounts receivable, inventory and various other assets.
The Revolving Credit Facility currently terminates in June 1998 and will
remain available through that date, with or without payment of outstanding
borrowings with the proceeds of this Offering. The Revolving Credit
Facility allows for borrowings, from time to time, not to exceed the lesser
of $15.0 million or an amount equal to the sum of (i) 85% of eligible
receivables, as defined, (ii) 50% of eligible inventory, as defined,
consisting of raw materials, (iii) 50% of eligible inventory, as defined,
consisting of finished goods, and (iv) 50% of eligible inventory, as
defined, in transit under letters of credit less the sum of the (x) the
aggregate amount of outstanding letters of credit and (y) such reserves as
the lender may reasonably deem proper and necessary from time to time.
Based upon such formula and Overadvances, as of December 11, 1996, the
maximum amount the Company could borrow under the Revolving Credit Facility
was approximately $10,076,000. Amounts outstanding under the Revolving
Credit Facility bear interest at the bank's base rate from time to time
(8.25% per annum at December 11, 1996), plus 2%. Based upon the Company's
performance and 20 year relationship with BNYCC, The Company intends to
request and believes it may be able to obtain more favorable terms on the
Revolving Credit Facility upon completion of this Offering, although there
can be no assurances it will be able to do so. The Revolving Credit
Facility contains covenants that, among other things, limit the Company's
ability to incur additional indebtedness and requires the Company to
maintain certain levels of working capital and satisfy other financial
tests. As of September 28, 1996, the Company was required to maintain a
tangible net worth, as defined, of $2,835,000, a fixed charge ratio of 1.3
to 1.0 and a ratio of current assets to current liabilities of .90 to 1.0.
The Company's actual results as of September 28, 1996 reflected a tangible
net worth of $4,511,000, a fixed charge ratio of 1.85 to 1.0 and a ratio of
current assets to current liabilities of 1.22 to 1.0. As of September 28,
1996, the Company was in compliance with all other covenants under the
Revolving Credit Facility.
The Company anticipates that capital expenditures for the current
fiscal year and the foreseeable future will be approximately $750,000 to
$1.0 million per year. However, the Company, from time to time, may
consider the implementation of programs to expand its operations, which
could increase capital expenditures above such level.
In June 1995, the Company obtained $1.56 million in term financing
from BNYCC, bearing interest at the bank's base rate from time to time
(8.25% at December 11, 1996) plus 2%. The term loan provides for 35
consecutive monthly payments of principal of $18,570, with the final
payment due on July 1, 1998. Proceeds of the term loan were primarily used
to reduce debt owed to World.
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In connection with the Company's bankruptcy reorganization, the
Company issued the Secured Note and the Installment Note to World. The
Installment Note does not bear interest. Interest on the Secured Note
accrues annually on the initial principal amount but only is payable to the
extent of net income in excess of $400,000. The Company has accrued
$412,500 in unpaid interest under the Secured Note as of September 28,
1996. The Secured Note is subordinated in right of payment to all other
creditors of the Company but is secured by a second lien on certain
machines and equipment of the Company with an aggregate value of
approximately $1.4 million. See "Certain Relationships and Related
Transactions."
The Company believes that funds generated from continuing operations,
the net proceeds of this Offering and borrowings under the Revolving Credit
Facility will be sufficient to finance the Company's anticipated working
capital needs and capital expenditure requirements for the next 24 months.
INFLATION
The effect of inflation on the Company has not been significant during
the last two fiscal years.
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BUSINESS
The Company manufactures, sources, assembles and distributes a variety
of bearing components and bearing products, including ball bearings,
tapered roller bearings, spherical roller bearings and cylindrical roller
bearings under the Hyatt(R) and The General(R) trademarks. The Company
supplies OEMs and the industrial aftermarket principally in the U.S. and
Canada. The Company's products are used in a broad range of applications,
including automobiles, railroad cars, locomotives, trucks, machinery and
appliances.
The Company operates in two divisions: the OEM Division, which
supplies OEMs, and the Distribution Division, which serves distributors
that supply the repair and maintenance aftermarket and small OEMs. Current
OEM Division customers include automotive and locomotive divisions of GM,
Gunite, Strick, Trinity, Burlington Northern and Xerox. The Distribution
Division has customers ranging in size from Motion Industries and Bearings,
Inc., each of which has over 400 outlets, to independent single outlet
operations. The Distribution Division's individual shipments are typically
smaller in volume but have higher gross margins.
Through flexibility in manufacturing and sourcing, as well as
attentive customer service, the Company strives to be a reliable,
innovative and cost effective provider of bearing component products to the
approximately $5 billion per year U.S. bearing market. The Company's
strategy to accomplish this objective includes the following:
. PROVIDE HIGH QUALITY PRODUCTS AND SUPERIOR CUSTOMER SERVICE. The
Company maintains a detailed and extensive Quality Assurance Program
and has been certified to the M 1003 standard by the AAR and the MIL-
I-45208 standard by General Dynamics, a military contractor. The
Company currently is taking steps to obtain IS0 9001 and QS 9000
registrations from the ISO. The Company also requires that both its
affiliated and unaffiliated suppliers conform to Company and customer
quality and engineering standards. Certain of the Company's products
also have been specifically certified by the AAR for use in
locomotives and railroad cars. In addition, the Company has been
qualified as an authorized supplier by leading automobile and truck
trailer manufacturers (including GM, Freuhauf, Gunite, Stoughton and
Strick), railroads (including Burlington Northern, Santa Fe, Missouri
Pacific, Southern Pacific and Norfolk Southern) and national
distributors of bearings (including Motion Industries and Bearings,
Inc.). These certifications and qualifications, which take
significant time to obtain because of testing and other requirements,
enable the Company to supply large markets currently served by a
limited number of competitors and to which the Company's access had
been limited previously.
. PRESENCE IN CHINA. In 1987, the Company formed a joint venture,
SGBC, in the PRC to establish a low cost, quality controlled source
for bearings and bearing components. The Company has formed other
joint ventures in the PRC, and it continues to investigate joint
venture opportunities. The Company believes that potential customers
in the U.S. intending to establish or expand manufacturing and other
facilities in the PRC have, and will continue to have, an incentive to
purchase bearings from the Company in order to satisfy Chinese
counterpurchasing and local content requirements. In addition,
Commerce has granted a preliminary order with respect to SGBC revoking
the applicability to it of an antidumping order covering TRBs issued
in 1987. A final determination revoking the antidumping order as it
applies to SGBC would result in a direct benefit to the Company and
SGBC by eliminating costs associated with antidumping duties,
yearly antidumping investigations and other compliance requirements
related thereto. There cannot be any assurance that Commerce
finally will determine to revoke the antidumping order as it
applies to SGBC. However, in each of the four annual reviews of
the antidumping order in which SGBC was a
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respondent and Commerce made a final determination, Commerce imposed
no antidumping margin on SGBC. The Company knows of no such
revocations pending for other companies and believes its own
revocation, if granted, will provide it with a competitive advantage.
. MANUFACTURING AND SOURCING FLEXIBILITY. The Company operates on the
principle that a flexible method of combining product and component
purchasing with its own manufacturing and assembly capabilities can
provide customers with high quality products and cost advantages. The
Company uses its manufacturing, engineering and purchasing expertise
to determine the highest quality and most cost effective methods of
production. The Company currently sources bearing components and
products from over 20 factories outside the U.S. In order to maintain
the Company's flexibility to change with the marketplace, the Company
typically limits the term of its supply contracts to one year.
. NICHE MARKET PRODUCTS. Since 1992, the Company increasingly has
emphasized the sale of special and niche market bearings. Special
bearings are manufactured according to the design specifications of a
particular customer, often in cooperation with the Company's
engineering staff. Niche market bearings are used in specific
industries, served by a limited number of manufacturers and are often
sold at higher profit margins than standard bearings. Sales of
special and niche market bearings by the Company have increased by
approximately 40% from fiscal 1993 to fiscal 1995.
. IMPROVED FINANCIAL POSITION AND CUSTOMER CONFIDENCE. In September
1991, the Company filed for bankruptcy protection as a result of its
inability to meet its obligations under a loan it incurred to acquire
the assets of Hyatt, formerly a division of GM. In connection with
the Company's reorganization, the Company took significant steps to
improve its operations and financial position and reestablish the
well-known Hyatt(R) brand. As a result of these efforts, the Company
increased its sales from approximately $27.3 million in fiscal 1993,
the last year in which the Company operated in bankruptcy, to
approximately $42.1 million in fiscal 1995, and reported operating
income of $354,000 for fiscal 1995, compared to an operating loss of
$387,000 for fiscal 1993. Primarily as a result of a charge due to
customer damage claims connected with a product recall of certain
tapered journal bearings, the Company incurred a loss of approximately
$1.7 million for fiscal 1995. However, during the 1996 Interim
Period, the Company recorded operating income of approximately $2.4
million. During the bankruptcy, the Company lost its status as an
approved vendor to certain distributors of bearings and bearing
products. Although there cannot be any assurance that it will be the
case, and while the Company has no basis for determining the effect of
the product recall on customer confidence, the Company believes that
as a result of this Offering it may be redesignated as an approved
vendor by certain of such distributors, enabling the Company to
increase its distribution sales and this Offering may enhance
customer confidence in the Company's ability to undertake projects
requiring greater capital commitments by the Company.
As a result of the Company's improved financial condition,
certifications and qualifications, a favorable operating environment for
its Chinese joint ventures, its manufacturing and sourcing expertise and
focus on niche markets, the Company believes it is well positioned to
increase sales and profitability.
INDUSTRY OVERVIEW
Based upon statistics published by Commerce, shipments of antifriction
bearings and components in the U.S. exceeded $5.2 billion for 1995, an
increase of 11% over 1994. There has been an approximately 5% annual rate
of growth for antifriction bearings and components in the U.S. for the past
10 years. The industry's 1995 shipments included approximately
$1.9 billion of ball bearings, $1.3 billion of TRBs, $900 million of other
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types of roller bearings, $450 million of mounted units and $589 million of
bearing components. Timken dominates the TRB market with estimated sales
in excess of $1 billion. The Company competes in segments of each of these
bearing classifications. The antifriction bearings industry historically
has been cyclical in nature. However, long-term growth prospects are
expected to continue as the demand for application products requiring
antifriction bearings increases. Antifriction bearings are used in
practically every industrial and consumer product requiring reliable,
continuous circular motion.
PRODUCTS
The Company and its joint ventures manufacture and market high
quality, precision ball and roller bearings used in a broad range of
applications including automotive and trucking (e.g., steering columns,
drive trains and transmissions), railcar and locomotive (e.g., wheel and
axle assemblies), appliances (e.g., washing machines, fans and vacuum
cleaners), lawn and garden implements (e.g., lawn mowers), office equipment
(e.g., copiers), consumer products (e.g., bicycles), medical equipment
(e.g., wheelchairs), material handling (e.g., conveyor assemblies and hand
trucks), power tools (e.g., drills and lathes), chemical processing and the
oil industry (e.g., drilling rigs).
The Company sells approximately 2,000 products. The Company's product
line includes standard and metric precision ball bearings, double row ball
bearings, unground bearings, and special ball bearings. The Company offers
its products in standard, modified, and custom designs where appropriate.
The Company produces both special and niche market bearings. Special
bearings are specifically manufactured to the requirements of a customer,
as determined in cooperation with the Company's engineering staff.
Examples of these products include bearings for copier machines, automotive
steering columns, postal equipment and wheelchairs. Niche bearings are
bearings used in specific industries, and are produced by a limited number
of manufacturers. The Company produces, under the Hyatt(R) brand, selected
TRBs, spherical roller bearings and cylindrical roller bearings which are
used in railroad, truck trailer, automotive and other industrial
applications.
MANUFACTURING AND SOURCING
The Company primarily manufactures and assembles bearings at its
facilities in New York and New Jersey, and, since 1987, at the Company's
joint venture facility, SGBC, in Shanghai, PRC. Although certain imports
from various locations have been subject to antidumping duties since 1987,
requiring importing companies to post cash deposits, SGBC, the Company's
Chinese joint venture and principal source of imported product, has not
been required to pay cash deposits for antidumping duties on TRBs imported
from the PRC since 1991, based upon Commerce's final determination as to
the fairness of SGBC's pricing that year. Based on such determination and
preliminary determinations for subsequent years, SGBC recently requested a
revocation of the applicability of the antidumping order to it. The
Company believes that of the approximately 400 bearing factories in the
PRC, SGBC is the only factory that Commerce has found to have had at least
three consecutive years of sales at not less than foreign market value.
Additionally, as of October 1996, the Company believes SGBC is the only TRB
producer in the PRC to have received a preliminary revocation of an
antidumping duty order.
The Company produces approximately 37% of the bearings that it sells
and obtains an additional 24% from joint ventures in which it participates.
The Company currently relies on approximately 82 unaffiliated manufacturers
to produce the remaining 39% of the bearings and components that it
distributes. The Company has no long-term contracts with its unaffiliated
manufacturing sources. The Company attempts to maintain sourcing
flexibility by not engaging in any purchasing contracts that exceed one
year.
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CHINESE JOINT VENTURES
The Company has entered into joint ventures with factories in the PRC
to enable it to secure a reliable source of high quality low cost bearings
and bearing components. By entering into joint ventures, rather than long
term manufacturing contracts, the Company is better able to monitor and
control production and quality assurance by having access to the factories
at both management and production levels. Furthermore, by sourcing from
joint ventures, the Company is not required to incur inventory carrying
costs, since the joint ventures typically hold all inventory until needed
by the Company. The joint ventures also provide a far less capital
intensive alternative to building Company-owned facilities.
SGBC was established by the Company and SRBF in June 1987 as a joint
venture limited liability company in accordance with PRC law for an initial
term of ten years, which was recently extended to June 2008. SGBC produces
tapered roller and ball bearings, which the Company imports into the U.S.
for further assembly, inspection, testing and distribution. The Company
contributed 25% of the initial capital of SGBC in the form of capital
equipment valued by the parties at $750,000 and the Company's joint venture
partner, SRBF, contributed 75% of the initial capital of SGBC in the form
of facilities and equipment, valued by the parties at $1,500,000 and
$750,000, respectively. Subsequently, SGBC's capital was increased by
$2,500,000, with the Company contributing 25% of such amount in the form of
capital equipment and SRBF contributing 75% of such amount in the form of
additional facilities, equipment and cash. The Company is not required,
however, to contribute additional capital.
The Company has the exclusive right to sell the products of SGBC in
the U.S. In 1994 and 1995, the Company imported $4,900,000 and $5,500,000,
respectively, in bearings from SGBC. Purchases are made upon terms and
conditions established periodically by negotiation between the Company and
SGBC and are subject to adjustment based upon certain events, including
increases in the prices of raw materials. The Company is responsible for
selecting and purchasing equipment and materials outside of the PRC.
Governance, operations, distributions and the dissolution of SGBC are
governed by PRC law and by SGBC's joint venture contract and articles of
association. SGBC's eight-member Board of Directors, which consists of
five directors chosen by SRBF and three directors chosen by the Company,
exercises authority over the joint venture by majority vote. Certain
decisions involving annual strategy, budgeting and production plans require
the vote of at least one Director chosen by the Company. Unanimous consent
of the Board of Directors is required for all fundamental corporate
changes.
Subject to PRC law and regulations providing for the payment of taxes,
allocations to cover losses of prior years, and contributions to special
funds for enterprise expansion, employee welfare and bonuses and general
reserves, the profits of SGBC may be distributed, at the discretion of its
Board of Directors, to the Company and SRBF in proportion to their
registered capital contributions. A distribution of 450,000 Renminbi (the
legal currency of the PRC) ("RMB") (approximately $51,967 at then current
exchange rates) from 1993 operating profits was made by SGBC to the Company
in February 1994. A distribution of another 740,000 RMB (approximately
$89,156 at then current exchange rates) from 1994 operating profits, was
declared in December 1995. The Company has agreed that this distribution
will be invested in the Kong Qiao General Bearing Company ("KQGBC") subject
to its formation. KQGBC is a proposed new joint venture between the
Company and Shanghai Xinhua Industrial Corp. A distribution of 650,000 RMB
($78,313 at current exchange rates) from 1995 operating profits has been
proposed by SGBC management for approval by the Board of Directors of SGBC.
The joint venture contract and articles of association of SGBC provide
that after the Company receives $1,375,000 in profits, its right to receive
any additional dividends will terminate and all profits after that time
will be distributed exclusively to SRBF. Furthermore, after termination of
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the joint venture, all equipment and machinery contributed by the Company
will be turned over to SRBF without compensation to the Company.
Wafangdian-Hyatt Bearing Manufacturing Co. Ltd. and Hyatt-ZWZ Bearing
Corporation
("Wafangdian-Hyatt" and "Hyatt-ZWZ," respectively) were established
pursuant to a Joint Venture Contract dated as of October 9, 1990, by and
between the Company and Wafangdian Bearing Factory ("WBF"), a corporation
organized under the laws of the PRC.
Wafangdian-Hyatt is a joint venture limited liability company formed
in accordance with PRC law by the Company and WBF for an initial term of
ten years. Wafangdian-Hyatt is situated in Wafangdian, PRC and
manufacturers journal boxes, traction motor bearings and components for
exclusive shipment to Hyatt-ZWZ, which prepares them for distribution by
the Company. The Company contributed 25% of the initial registered capital
of Wafangdian-Hyatt in the form of capital equipment valued by the parties
at $250,000 and WBF contributed 75% of the initial registered capital of
Wafangdian-Hyatt in the form of facilities and capital equipment valued by
the parties at $750,000. Provisions with respect to pricing, governance,
administration and distributions are substantially similar in all material
aspects to those of SGBC.
Wafangdian-Hyatt was terminated by the end of 1996 and all of its
operations will be assumed by Wafangdian General Bearing Co., Ltd.
("WGBC"), a new joint venture between World and Wafangdian Bearing Company.
In its initial stage, WGBC will produce rear wheel automotive bearings in
the PRC with machinery purchased from GM's Delphi plant in Bristol,
Connecticut. The Company will sell the WGBC bearings in the U.S. In its
second stage, WGBC will produce railroad bearings for sale in U.S. by the
Company.
Hyatt-ZWZ is a New York corporation whose share capital is owned 65%
by the Company and 35% by WBF. The Company initially contributed $130,000
in capital equipment and cash to Hyatt-ZWZ. Hyatt-ZWZ purchases (from
Wafangdian-Hyatt and others) and manufactures components for railroad
bearing products exclusively for worldwide distribution by the Company. In
1994 and 1995, the Company purchased $1,263,012 and $965,159 of bearings,
respectively, from Hyatt-ZWZ.
Governance, operations, distributions and dissolution of Hyatt-ZWZ are
governed by New York law and by the terms of the joint venture contract.
Hyatt-ZWZ's seven-member Board of Directors, which consists of three
directors (including its Chairman) chosen by WBF and four directors
(including its Vice-Chairman) chosen by the Company, must unanimously
approve all significant corporate actions.
World has also granted to the Company options, exercisable prior to
December 31, 1999, to purchase from World its interest in two joint
ventures, Rockland Manufacturing Company ("Rockland") and Wafandgian
General Bearing Company, Ltd. ("WGBC"), for $400,000 and $912,896 (subject
to adjustment based on change in accounts payable by WGBC to World),
respectively, representing the estimated capital contributions, advances
for administrative expenses and other costs paid by World with respect to
such ventures; provided, however, that if any such option is exercised
after December 31, 1997, the applicable purchase price will be adjusted, to
include any additional capital contributions made and administrative
expenses incurred on behalf of the joint venture by World after such date.
QUALITY AND CUSTOMER SERVICE PROGRAMS
In order to meet the need for quality products, the Company has
focused on the development and implementation of appropriate systems and
controls to ensure that proper levels of quality are established and
consistently maintained. These systems are documented in the Company's
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Quality Assurance Manual, which is also used as part of the operating
standard of the Company's joint ventures and certain other suppliers. The
systems were designed with special requirements to meet customers'
specifications. Over the years, the Quality Assurance Manual has been
revised to keep abreast with new and revised customer and industry
requirements. The systems control not only the activities of the Quality
Assurance Department, but also receiving inspection, in-process inspection,
final audit procedures, and certain activities of other departments of the
Company. These include procedures for design engineering, procurement,
manufacturing, assembly and distribution. The system has been audited by
certain of the Company's customers and the Company has been certified to
the M1003 standard by the AAR and the MIL-I-45208-A standard by General
Dynamics, a military contractor.
The Company is seeking to obtain ISO 9001 and QS 9000 registrations by
December 1997. Both of these are comprehensive industry-wide quality
control systems. ISO 9001 is similar to ISO 9002, a quality standard
applicable to manufacturing companies promulgated by the ISO, but contains
specifications regarding engineering and design as well as manufacturing.
QS 9000, a standard jointly developed by GM, Ford and Chrysler, has all the
basic systems of ISO 9001 with certain additional requirements specific to
the automotive industry. GM has requested that the Company meet the
QS 9000 certification by December 1997. The Company believes that it will
meet such registrations by such date and that, if it cannot, GM will extend
the date for obtaining registrations.
In order to obtain QS 9000 registration (which includes the
requirements for ISO 9001) the Company has retained a full time consultant
who has developed a 28 step program, which the Company believes should
result in registration by November 1997. The benchmarking of the Company's
current Quality Assurance system disclosed the need for re-writing of
certain procedures, including the Management Responsibility section which
has already been completed. In addition, the benchmarking revealed the
need to supplement the Quality Assurance and Design Control documentation
and this has also been instituted. The next step in the registration
process is the implementation of systems which will be accomplished when
and as each respective system is developed.
SALES, MARKETING AND CUSTOMERS
The Company markets its products in the U.S. and abroad through nine
salaried sales employees as well as 33 commissioned independent sales
representative organizations, aggregating 92 sales persons. In addition,
the Company has seven customer service representatives responsible for
handling orders and providing sales support. Products sold through the OEM
Division bear The General(R) label for ball bearings and the Hyatt(R) brand
for all types of roller bearings.
The Company participates in trade shows sponsored by the Truck
Maintenance Council, Society of Automotive Engineers and the Railway Supply
Association. The Company's advertising budget for fiscal 1996 is $50,000
and it anticipates that its advertising budget for fiscal 1997 will be
between $100,000 and $150,000.
Current OEM customers include automotive and locomotive divisions of
GM, Gunite (manufacturer of wheels and hubs for trucks and trailers),
Strick (truck trailer manufacturer), Trinity (freight car manufacturer),
Burlington Northern (railroad) and Xerox (office equipment manufacturer).
The OEM Division has over 150 customers. The Distribution Division
markets the same broad line of bearing products as the OEM division.
The Distribution Division has over 1,200 customers, ranging in size
from Motion Industries and Bearings, Inc., each of which has
approximately 400 stores in the U.S., to independent single outlet
operations. Since 1992, the Company increasingly has emphasized
the sale of special and niche market bearings including
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certain TRBs. The OEM Division focuses on the transportation industry,
specialty truck trailer manufacturers (to which the Company was the leading
supplier in 1995), railroad locomotive and freight car manufacturers and
automotive manufacturers. No customer accounted for more than 10% of the
Company's consolidated revenues for fiscal 1995.
The Distribution Division generally ships product within 24 hours of
the time an order is placed. The OEM Division ships products within one to
365 days from the date an order is placed. Actual shipments are dependent
upon production schedules of the Company's customers. The Company's
arrangements with its North American customers typically provide that
payments are due within 30 days following the date of shipment of goods.
Foreign customers are generally required to pay by letter of credit. At
September 28, 1996, in excess of 90% of accounts receivable were current or
less than 30 days past due. Approximately 3.7% of accounts receivable were
over 90 days old as of September 28, 1996.
EMPLOYEES
As of August 31, 1996, the Company had 172 full-time employees, of
whom 122 were engaged in production, shipping and receiving and
maintenance, and 16 of whom were engaged in sales and marketing. 110 of
the Company's employees engaged in production, shipping and receiving, and
maintenance, are subject to collective bargaining and are represented by
the United Brotherhood of Carpenters and Joiners of America, AFL-CIO, Local
3127 ("Union"). The current collective bargaining agreement with the Union
expires on April 30, 1997. The Company believes that relations with its
employees, including those subject to collective bargaining, are good. The
Company has a 20 year relationship with the Union and has never experienced
a Union work stoppage.
COMPETITION
The ball and roller bearing industry is highly competitive. The
Company believes that competition within the precision ball and roller
bearing market is based principally on quality, price and the ability to
meet customer delivery requirements. The Company's primary domestic and
foreign competitors are Timken, SKF USA Inc., NSK Corporation, NTN Bearing
Corporation of America, The Torrington Company and FAG Holding Corporation.
Many of the Company's competitors have substantially greater financial
resources than the Company. Management believes that the Company's
manufacturing and sourcing capabilities and its reputation for consistent
quality and reliability have positioned the Company for continued growth in
both market share and sales.
PATENTS, TRADEMARKS AND LICENSES
Except for The General(R) trademark and the license from GM with
respect to the Hyatt(R) trademark ("Hyatt License"), the Company does not
own any U.S. or foreign patents, trademarks or licenses that are material
to its business. The Company does rely on certain data, including costing
and customer lists, and the success of its business depends, to some
extent, on such information remaining confidential. Each employee who
may have access to confidential information is subject to a confidentiality
agreement.
Under the Hyatt License, the Company has exclusive use of the terms
"Hyatt," "Hyatt Railway," "Hyatt Railway Products," "Hyatt Manufacturing,"
"Hyatt General" and most derivatives of "Hyatt" in connection with
locomotive journal boxes, traction motor bearings and component parts
thereof, and non-exclusive rights to such trademarks with respect to other
products. The term of the Hyatt License extends until January 1, 2000, and
may be renewed at the option of the Company for an additional ten year
term. The Company paid GM an initial fee of $30,000 upon execution of the
Hyatt License and has paid or will pay an annual licensing fee to GM in an
amount increasing from $20,000 in 1990 to $35,000 in 1999. The fee payable
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by the Company upon the exercise of its option to renew the Hyatt License
is based upon a benchmark of $27,500 indexed for inflation as of 1999.
PROPERTIES
The Company leases facilities located in Union, New Jersey and West
Nyack, New York, which have approximately 72,000 and 190,000 square feet of
space, respectively. Management believes that the plants are adequate for
the Company's present needs and anticipated expansion. The West Nyack
facility, which is used principally for administrative, assembly, and
distribution purposes, is owned by Realty and from January 1 to November 1,
1996 the Company held a month-to-month tenancy for the premises at a
monthly rent of $61,885. Effective November 1, 1996, the Company and
Realty entered into a lease for the West Nyack facility ("Lease"), which
provides for an initial term expiring on October 31, 2003, and is renewable
at the option of the Company for an additional six year term. The Company
pays rent of $4.81 per square foot (or $912,840) annually, payable in
monthly rent payments of $76,070. The Lease provides for an increase in
the rent every other year, commencing in 1998, to the greater of (i) 106%
of the next preceding year's rent or (ii) the preceding years rent
multiplied by a fraction the numerator of which is the Consumer Price Index
for the area including Rockland County or, if no such index is published,
for Northern Jersey ("CPI") in effect 90 days prior to November 1 of the
new rent year and the denominator of which is the CPI in effect 90 days
prior to November 1 of the preceding year. Simultaneously, the Company
entered into a sublease with WMW Machinery Co. and World for approximately
31,000 and 5,500 square feet of the West Nyack facility, respectively. See
"Certain Relationships and Related Transactions." The lease for the Union
facility, which is used principally for assembly, manufacturing and
distribution purposes, expires on April 1, 1998, renewable at the option of
the Company for an additional five year term. Rent expense for the Union
location was approximately $238,000, $204,000 and $204,000 in 1993, 1994
and 1995, respectively. Rent expense was approximately $153,000 and
$162,000 for each of the 1995 and 1996 Interim Periods, respectively.
ENVIRONMENTAL COMPLIANCE
The Company's operations and products are subject to extensive
federal, state and local regulatory requirements relating to pollution
control and protection of the environment. Based on information compiled
to date, management believes that the Company's current operations are in
material compliance with applicable environmental laws and regulations, the
violation of which would have a material adverse effect on the Company.
There can be no assurance, however, that currently unknown matters, new
laws and regulations, or stricter interpretations of existing laws and
regulations will not materially affect the Company's business or operations
in the future. The Company and Realty are pursuing claims against Xerox in
the United States District Court for the Southern District of New York
related to the discharge by Xerox of contaminants into the subsurface at a
property in the vicinity of the Blauvelt Property. Realty and the Company,
among other things, allege that the subsurface discharge by Xerox has
adversely affected the Blauvelt Property. The DEC has held Xerox
responsible for such discharges and Xerox has entered into several consent
orders with DEC agreeing, among other things, to investigate and remediate
the impact of the discharges. Neither DEC nor any other party has sought
to impose liability on the Company or Realty for the discharges or the
costs of investigation or remediation. The Company believes that it and
Realty have meritorious claims against Xerox. However, there can be no
assurance that the Company and Realty will be successful in their claims.
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LEGAL PROCEEDINGS
On August 25, 1986, Timken, a U.S. producer of TRBs, filed a petition
on behalf of the U.S. TRB industry with both the ITC and Commerce seeking
the imposition of antidumping duties on imports of TRBs from Japan, Italy,
the former Yugoslavia, Romania, Hungary and the PRC. In May 1987, Commerce
found that TRBs from each of the aforementioned countries were being sold
in the U.S. at less than fair value, as determined by Commerce based upon
an estimate of the foreign market value of TRBs (i.e. the price at which
the same or similar merchandise is sold or offered for sale in the
principal markets of the home market country). Commerce subsequently
issued an antidumping order imposing duties on the unfairly traded TRBs
equal to the percentage difference between the selling prices in the U.S.
and the foreign market value of the imported TRBs during specified review
periods. Among others, the order named SGBC, the Company's joint venture
in the PRC. Importers subject to the antidumping order are required to
post a cash deposit with the U.S. Customs Service equal to the antidumping
margin percentage multiplied by the export price of any imported product
covered by the dumping petition. The Company, as an importer of TRBs from
SGBC, has not been required to post cash deposits since 1991, when Commerce
allotted a 0% dumping margin to SGBC. In June 1995, SGBC requested a
revocation of the order imposing antidumping duties on it with respect to
its products. Commerce issued a preliminary order granting such revocation
based upon, among other factors, the fact that SGBC had not sold TRBs at
less than foreign market value for three consecutive years.
In 1986 the Company entered into a joint venture with a former East
German trade agency pursuant to which the parties jointly owned, through a
holding company called Alurop, WMW. Pursuant to the joint venture
agreement, WMW was, by separate agency contract, granted the exclusive
right to distribute certain East German machine tools in the United States.
After the reunification of Germany in 1990, the Company's joint venture
partner and its successors, including WEMEX, breached the joint venture
agreement and the exclusive agency contract, causing damage to WMW by
frustrating WMW's ability to sell machine tools and causing the rapid
devaluation of its inventory. WMW could not ensure its customers that
service and parts could be supplied, or that terms of the warranties
could be met, causing its business to decline dramatically. The Company
attempted unsuccessfully for a period of several years to amicably
resolve the WMW dispute.
In February 1995, however, WMW and the Company commenced an action
in the U.S. District Court for the Southern District of New York against
WEMEX, Werner P. Muender, Treuhandanstalt and Bundesanstalt fuer
Vereinigungsbedingte Sonderaufgaben alleging, among other things, that:
(i) WEMEX breached a joint venture agreement with the Company and a
commercial sales agency agreement with WMW and violated its duties to
the Company and WMW arising under such agreements; (ii) the Company relied
to its detriment upon promises made by WEMEX to support WMW's marketing
efforts; and (iii) Werner P. Muender, the liquidator of WEMEX, wrongfully
converted property of WMW to his benefit. WMW also is seeking a
declaratory judgment that any indebtedness it may owe to WEMEX be
extinguished or diminished to the extent of existing value of machine
tools purchased by WMW from or through WEMEX. Defendants answered the
complaint, denying the allegations therein, and WEMEX asserted
counterclaims against: (i) WMW for goods sold and delivered in the
amount of $9,507,337; (ii) Seymour I. Gussack and WMW Machinery Co. in
the amount of $9,507,337, alleging that Seymour I. Gussack improperly
caused the sale of WMW's assets to WMW Machinery Co.; and (iii) the
Company in the amount of $9,507,337, alleging that the Company breached
its fiduciary duty to WEMEX by failing to provide the working capital
requirements of WMW. WMW, the Company, WMW Machinery Co. and Seymour
I. Gussack have denied any liability to WEMEX and believe its counterclaims
to be without merit. However, there can be no assurance the case will
be resolved in a timely manner or settled to the satisfaction of
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the Company. Furthermore, the enforcement of an award favorable to the
Company may be subject to further review by German courts. Defendants also
have moved to dismiss the action based on various grounds including, among
others, the Foreign Sovereign Immunities Act of 1976, the Act of State
Doctrine, forum non conveniens, legal insufficiency of certain claims and
improper venue. WMW, the Company, WMW Machinery Co. and Seymour I. Gussack
have opposed Defendants' motion for dismissal and agrued that, if the Court
dismisses the Company's claims, it should also dismiss the Defendants'
counterclaims. There can be no assurance, however, that if the court
dismisses the action in its entirety, the Defendants will not institute an
action in Germany, which may be a less favorable forum for the Company. In
addition, if the Defendants prevail in their counterclaim against the
Company for the amount claimed and the Company is unsuccessful in its
claims against the Defendants, there would be a material adverse effect on
the Company's financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
Name Age Position
--------- --- ----------
Seymour I. Gussack 73 Chairman of the Board of
Directors
David L. Gussack 39 President and Director
Jerome Johnson 85 Director
Robert E. Baruc 45 Director Designee
Harold S. Geneen 86 Director Designee
Nina M. Gussack 41 Director Designee
Lester M. White 37 Vice President
Administration/MIS
Eugene Passariello 65 Vice President
Manufacturing
William F. Kurtz 38 Vice President Technical
Services
Christopher Moore 40 Vice President Finance,
Secretary and Treasurer
Joseph J. Hoo 62 Vice President Advanced
Technology and
China Affairs
===========================================================================
Set forth below is certain additional information with respect to the
Directors, executive officers and Director Designees of the Company.
Robert E. Baruc, Harold S. Geneen and Nina M. Gussack will be appointed as
Directors upon completion of this Offering.
Seymour I. Gussack founded the Company in 1958 and has served as
Chairman of the Board of Directors and a Director of the Company since its
formation. Seymour I. Gussack is also the Chairman of the Board of
Directors and a Director of World and a partner of Realty. See "Certain
Relationships and Related Transactions" and "Principal Stockholder."
Seymour I. Gussack's son is David L. Gussack, President of the Company and
a Director.
David L. Gussack became President of the Company in 1993 and has been
a Director of the Company since 1987. David L. Gussack has held various
positions with the Company since 1983, including Executive Vice President
from 1991 to 1992, General Manager of the OEM Division from 1988 to 1990,
Supervisor and Coordinator, Hyatt Absorption Project from 1987 to 1988,
Plant Manager from 1986 to 1987, Office Facilities Manager from 1985 to
1986, and Manager of Special Projects from 1983 to 1985. David L. Gussack
is a Secretary and a Director of SGBC and Hyatt-ZWZ, respectively. He also
is a partner of Realty. See "Certain Relationships and Related
Transactions." David L. Gussack is a graduate of the University of
Pennsylvania. David L. Gussack's father is Seymour I. Gussack, Chairman of
the Board of Directors of the Company.
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Lester M. White has served as Vice President Administration/Management
Information Systems of the Company since 1989. Mr. White is a graduate of
University of Massachusetts, Boston (B.S. in Management and Economics).
Eugene Passariello has served as Vice President Manufacturing of the
Company since 1989. Mr. Passariello was a Plant Manager of the Company
from 1989 to 1991. He is a graduate of Fairleigh Dickenson University
(B.S. in Industrial Engineering), Brooklyn Technical College (M.S. in
Metallurgy), and Rockland College (M.A. in Business Administration).
William F. Kurtz has served as Vice President Technical Services of
the Company since 1993. Mr. Kurtz was also a Chief Engineer of the Company
from 1989 to 1993 and Senior Project Engineer of the Company from 1988-89.
He is a graduate of Manhattan College (B.E. and M.E. in Mechanical
Engineering).
Christopher Moore has served as Vice President Finance of the Company
since 1995 and as Secretary and Treasurer since 1993. Prior to that time,
Mr. Moore held various positions in the Company, including Controller from
1986 to 1995 and Assistant Controller from 1984 to 1986. Mr. Moore is a
graduate of Seton Hall University (B.S. in Accounting) and has been a
certified public accountant since 1982.
Joseph I. Hoo has served as Vice President Advanced Technology and
China Affairs of the Company since August 1995. Mr. Hoo served as General
Manager, Industrial Products Division, from 1991 to 1995 and as Chief
Metallurgist from 1987 to 1991. Mr. Hoo is a graduate of the National
University of Japan (B.S. in Engineering) and University of Michigan
(M.S.E. in Metallurgy and Engineering).
Jerome Johnson has been a director of the Company since September
1987. Mr. Johnson has been an attorney in private practice for more than
50 years. He also serves on the Board of Directors of Presidential Life
Insurance Company. Mr. Johnson is a graduate of DePaul University (J.D.
and L.L.B) and is a member of the Illinois and New York bars.
Robert E. Baruc has agreed to serve as a Director of the Company upon
the completion of this Offering. Since April 1994, Mr. Baruc has been an
Executive Vice President of Unapix Entertainment, Inc., an independent
distributor of film and television programming. Since August 1993, he has
been the President and Chief Executive Officer of A Pix Entertainment, Inc.
From December 1992 to August 1993, Mr. Baruc was President of Triboro
Entertainment Group, a company engaged principally in home video
distribution. From January 1991 to December 1992, Mr. Baruc primarily
acted as an independent consultant to the entertainment industry. He is
the son-in-law of Seymour I. Gussack and the brother-in-law of David L.
Gussack and Nina M. Gussack.
Harold S. Geneen has agreed to serve as a Director of the Company upon
the completion of this Offering. Mr. Geneen served as Chief Executive
Officer of ITT Corporation ("ITT") from 1959 until 1977, and as Chairman of
the Board of Directors of ITT from 1965 until 1979. He has been Chairman
Emeritus of ITT since 1983. Mr. Geneen is also a Director of IVAX
Corporation, a pharmaceutical company and Gunther International, Ltd., a
document assembly company.
Nina M. Gussack has agreed to serve as a Director of the Company upon
the completion of this Offering. Ms. Gussack has been litigation partner
at the law firm of Pepper, Hamilton, & Scheetz in Philadelphia,
Pennsylvania since 1986. She is a graduate of the University of
Pennsylvania (B.S. in History and M.S. in Secondary Education) and
Villanova University School of Law (J.D.). She is a member of the
Pennsylvania bar. She is the daughter of Seymour I. Gussack and the sister
of David L. Gussack.
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Seymour I. Gussack, David L. Gussack and Eugene Passariello were each
officers of the Company at the time the Company filed for protection from
creditors under Chapter 11 of the U.S. Bankruptcy Code in 1991. See
"Company History."
Directors hold office until the next annual meeting of stockholders
following their election, or until their successors are elected and
qualified. Officers are elected annually by the Board of Directors and
serve at the discretion of the Board of Directors.
The standing committees of the Board of Directors are the Audit
Committee and the Compensation/Stock Option Committee.
The Audit Committee of the Board of Directors will consist of three
directors, David L. Gussack, Robert E. Baruc and Jerome Johnson. The Audit
Committee's function is to review and report to the Board of Directors with
respect to the selection and the terms of engagement of the Company's
independent public accountants, and to maintain communications among the
Board of Directors, such independent public accountants, and the Company's
internal accounting staff with respect to accounting and audit procedures,
the implementation of recommendations by such independent public
accountants, the adequacy of the Company's internal controls and related
matters. The Audit Committee also reviews certain related party
transactions and any potential conflict of interest situations involving
officers, directors or stockholders beneficially owning more than 10% of an
equity security of the Company.
The Compensation/Stock Option Committee will consist of Messrs. Harold
S. Geneen and Robert E. Baruc, each of whom is an independent Director.
The Compensation/Stock Option Committee's function is to review and approve
annual salaries and bonuses for all employees with salaries in excess of
$100,000 and review, approve and recommend to the Board of Directors the
terms and conditions of all employee benefit plans or changes thereto,
including the granting of stock options pursuant to the Company's 1996
Option Plan.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid for
services rendered in all capacities to the Company's executive officer who
received compensation of $100,000 or more during the fiscal year ended
December 30, 1995:
ANNUAL COMPENSATION LONG-TERM
(1) COMPENSATION
------------------- ------------
NAME AND RESTRICTED STOCK ALL
PRINCIPAL FISCAL STOCK OPTIONS OTHER
POSITION YEAR SALARY BONUS AWARDS # COMPENSATION
-------------- ----- ------- ------ -------- ------- ------------
David L.Gussack, 1995 $155,232 $5,000 0 0 $28,000 (2)
President
--------------------
(1) Perquisites and other personal benefits are not included because
they do not exceed the lesser
of $50,000 or 10% of the total base salary and annual bonus for
the named executive officer.
(2) Represents deferred compensation.
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1996 STOCK OPTION AND PERFORMANCE AWARD PLAN
Upon the successful completion of this Offering, the Company will
adopt the 1996 Option Plan, which authorizes the grant to directors,
officers and key employees of the Company and any parent or subsidiary of
the Company, of incentive or non-qualified stock options, performance
shares, restricted shares and performance units. The 1996 Option Plan
covers up to 500,000 shares of the Company's Common Stock. Options to
purchase 257,500 shares at this Offering price per share were granted
certain officers, directors and other key employees, subject to the closing
of this Offering.
The 1996 Option Plan will be administered by a committee ("Stock
Option Committee") consisting of Messrs. Harold S. Geneen and Robert E.
Baruc. The Stock Option Committee determines the prices and terms at which
options may be granted. Options may be exercisable in installments over
the option period, but no options may be exercised after ten years from the
date of grant.
The exercise of any incentive stock option granted to an eligible
employee may not be less than 100% of the fair market value of the shares
underlying such option on the date of grant, unless such employee owns more
than 10% of the outstanding Common Stock or stock of any subsidiary or
parent of the Company, in which case the exercise price of any incentive
stock option may not be less than 110% of such fair market value. No
option may be exercisable more than ten years after the date of grant and,
in the case of an incentive stock option granted to an eligible employee
owning more than 10% of the Common Stock or stock of any subsidiary or
parent of the Company, no more than five years from its date of grant.
Options are not transferable, except upon the death of the optionee. In
general, upon termination of employment of an optionee, all options granted
to such person which are not exercisable on the date of such termination
immediately expire, and any options that are exercisable expire three
months following termination of employment, if such termination is not the
result of death or retirement, two years following such termination, if
such termination was because of death, and one year following such
termination if such termination was because of disability or retirement
under the provisions of any retirement plan that may be established by the
Company, or with the consent of the Company.
At the time each grant of shares is made, the Stock Option Committee
will determine the duration of the performance or restriction period, if
any, the performance targets, if any, and the times at which restrictions
placed on restricted shares shall lapse.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are not compensated
for their service on the Board, but are reimbursed for out-of-pocket and
travel expenses incurred in attending Board meetings. Directors will
participate in the 1996 Option Plan.
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CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
BANKRUPTCY AND RESULTING OBLIGATIONS TO WORLD
In connection with the Plan of Reorganization, the Company issued to
World, which prior to this Offering owned all of the Company's Common
Stock, the Secured Note, the Installment Note, and 1,000 shares of Common
Stock (3,000,000 shares after giving effect to the 3000-for-one stock split
effective October 10, 1996) in exchange for the Discharged Obligation.
World acquired for approximately $2.0 million the Discharged Obligation
from Wells Fargo, which provided financing for the purchase by the Company
in March 1987 of Hyatt and for working capital. The Secured Note is
secured by a subordinated lien in certain machinery and equipment having a
net book value of approximately $1.4 million at December 30, 1995.
Interest on the Secured Note accrues annually but is only payable with
respect to any fiscal year to the extent the Company's net income exceeds
$400,000. The Company has never made any payments of principal or interest
with respect to the Secured Note, and it has accrued $412,500 in interest
thereon. World agreed to defer the payment under the Installment Note for
fiscal 1993 and fiscal 1994, and received principal payments of $375,000
during fiscal 1995, which included the two installments previously
deferred. The Installment Note does not bear interest. During 1994, World
lent $1,000,000 to the Company, with interest payable quarterly at the rate
of 6% per annum. The loan was repaid in full in December 1995, and
interest payments for fiscal 1994 and fiscal 1995 were made in the amount
of $45,000 each year.
LEASES WITH REALTY
From January 1 to November 1, 1996, the Company held a month-to-month
tenancy for the premises located at West Nyack, New York comprising 189,833
square feet owned by Realty, whose partners include Seymour I. Gussack,
David L. Gussack and Nina M. Gussack, each a member or a Director designee
of the Board of Directors of the Company. The Company and Realty entered
into the Lease effective as of November 1, 1996, which provides for an
initial term expiring on October 31, 2003, renewable at the option of the
Company for an additional six year term. The Company pays rent of $4.81
per square foot (or $912,840) annually, payable in monthly rent payments of
$76,070. Although the Company has not obtained a formal appraisal, based
upon an informal survey conducted by a real estate broker, the Company
believes that the rent charged it by Realty approximates fair market rents
in the area. The Lease provides for an increase every other year,
commencing in 1998, to the greater of: (i) 106% of the next preceding
year's rent; or (ii) the preceding year's rent multiplied by a fraction the
numerator of which is the CPI for the area including Rockland County or if
no such index is published, for Northern New Jersey in effect 90 days prior
to November 1 of the new rent year and the denominator of which is the CPI
in effect 90 days prior to November 1 of the preceding year.
During 1993, 1994 and 1995, the Company leased facilities from Realty
in Blauvelt, New York at which the Company located its headquarters and
operations. The Company is the guarantor with respect to a mortgage loan
currently in the principal amount of $679,586 from the Job Development
Authority of Rockland County and a mortgage loan currently in the principal
amount of $543,750 from the Industrial Development Authority of Rockland
County on the property in Blauvelt, New York. The Company did not receive
any consideration from Realty for its guarantee of such mortgage loans.
The Company incurred rent and real estate taxes with respect to the
facilities leased from Realty in Blauvelt, New York for 1993, 1994 and 1995
of approximately $786,000, $923,000 and $861,000, respectively.
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SUBLEASES TO WMW MACHINERY CO. AND WORLD
The Company currently subleases 30,949 square feet and 5,500 square
feet at the West Nyack facility to WMW Machinery Co., a subsidiary of
World, and World, respectively, pursuant to subleases in each case
effective November 1, 1996. The subleases are coterminous with the Lease.
The sublease with WMW Machinery Co. provides for rent of $5.50 square feet
or $170,220 per year until November 1998, payable to the Company in equal
monthly installments. The sublease with World provides for rent of $33,000
per year until November 1998, payable to the Company in equal monthly
installments. Each sublease provides for an increase in rent every other
year, commencing in 1998, to the greater of: (i) 106% of the next
preceding year's rent; or (ii) the preceding year's rent multiplied by a
fraction the numerator of which is the CPI in effect 90 days prior to
November 1 of the next rent year and the denominator of which is the CPI in
effect 90 days prior to November 1 of the preceding year.
OTHER TRANSACTIONS WITH WORLD AND WORLD AFFILIATES
The Company made payments for and advances to World, World
subsidiaries and joint ventures and certain affiliates for payroll,
benefits and other expenses. Such payments aggregated approximately
$84,000, $1,708,000, $1,742,000 and $1,262,000 and $1,204,000 for 1993,
1994, 1995 and the 1995 and 1996 Interim Periods, respectively. The
advances did not bear interest through the end of fiscal 1995, however,
effective December 31, 1995, the balances bear interest at 8% which is
accrued monthly. In certain cases, the obligation to repay advances made
by the Company were satisfied by offsetting the price of bearings or
bearing products purchased from joint ventures obligated to the Company.
The Company has purchased bearings from four joint ventures and machinery
from another joint venture in which World has interests. Such purchases
aggregated $0, $600,000, $2,650,000 and $2,528,000 and $362,000 for 1993,
1994, 1995 and the 1995 and 1996 Interim Periods, respectively. Following
the completion of this Offering, the Company anticipates that it will
continue to purchase bearings from joint ventures in which World has an
interest and to make advances to or for the benefit of World and such joint
ventures for the payment of their expenses related to the supply of
products to the Company. These advances either will be repaid by World or
the joint venture or will be offset against the price of bearings purchased
by the Company.
World has also granted to the Company options, exercisable prior to
December 31, 1999, to purchase from World its interest in two joint
ventures, Rockland and WGBC, for $400,000 and $912,896 (subject to
adjustment based on change in accounts payable by WGBC to World),
respectively, representing the estimated capital contributions, advances
for administrative expenses and other costs paid by World with respect to
such ventures; provided, however, that if any such option is exercised
after December 31, 1997, the applicable purchase price shall be adjusted,
to include any additional capital contributions made and administrative
expenses incurred on behalf of the joint venture by World after such date.
TAX SHARING AGREEMENT
The Company has been, and will be, included in the consolidated
federal income tax returns filed by World during all periods in which it
has been or, will be, a wholly-owned subsidiary of World ("Affiliation
Years"). Upon the completion of this Offering, the Company will cease to
be included in the consolidated federal income tax returns filed by World,
and will file on a separate basis. As a result, the Company and World have
entered into an agreement ("Tax Sharing Agreement") providing for the
manner of determining payments with respect to federal income tax
liabilities and benefits arising during the Affiliation Years. Under the
Tax Sharing Agreement, the Company has paid, or will pay, to World an
amount equal to the Company's share of World's consolidated federal income
tax liability, generally determined on a separate return basis, for the tax
years which have ended and the portion of the tax year preceding
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consummation of this Offering, and World will pay the Company for the use
of the Company's losses, and credits arising in such periods, in each case
net of any amounts theretofore paid or credited by World or the Company to
the other with respect thereto. In the event that World's consolidated
federal income tax liability for any Affiliation Year is adjusted upon
audit or otherwise, the Company will bear any additional liability or
receive any refund which is attributable to adjustments of items of income,
deduction, gain, loss or credit of the Company. World shall permit the
Company to participate in any audits or litigation with respect to
Affiliation Years, at the Company's expense, to the extent that such audit
or litigation could result in an indemnification payment from the Company
to World.
REGISTRATION RIGHTS AGREEMENT
World has certain rights with respect to the registration under the
Act of shares of Common Stock owned by it as of the date hereof
("Registrable Shares"). Such rights will be exercisable by any person or
entity (together with World, "Holders") acquiring Registrable Shares from
World, including any options, warrant to purchase, or other security
exchangeable for or convertible into Registrable Shares other than pursuant
to an effective registration statement under the Act. If the Company
proposes to register any securities under the Act (other than a
registration on Form S-4 or Form S-8), whether or not for its own account,
the Holders are entitled to include Registrable Shares, subject to the
right of the managing underwriter of any such offering to exclude, due to
market conditions, some or all of such Registrable Shares from such
registration. In addition, commencing one year after the date of this
Prospectus, the Holders will have the right to require the Company to
prepare and file registration statements under the Act with respect to the
Registrable Shares. The right may be requested by any Holder holding
Registrable Shares aggregating at least 50,000 shares of the Company's
Common Stock outstanding at the date of this Prospectus. The Company
generally is required to bear the expenses (except underwriting discounts
and commissions and fees and expenses of separate counsel) of all such
registrations, whether or not initiated by any Holder.
FUTURE TRANSACTIONS
The Company believes, based upon an informal survey of rents in the
area, that its transactions with Realty and its sublease with World
approximate fair market value, however it has no basis upon which to
determine if the terms of other past transactions with World and its
affiliates have been at least as favorable to the Company as those that
could have been obtained from unrelated parties. However, all future
transactions between the Company and its officers, directors, principal
shareholders and affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will be on terms no less
favorable to the Company than could be obtained from unrelated third
parties.
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PRINCIPAL STOCKHOLDER
The following table sets forth, as of the date of this Prospectus, and
as adjusted to reflect the sale of the 1,200,000 shares of Common Stock
offered hereby, certain information concerning the beneficial ownership of
Common Stock as to each director and current executive officer of the
Company, and each person who, to the Company's knowledge, beneficially owns
more than 5% of the outstanding Common Stock.
PERCENTAGE OF SHARES
BENEFICIALLY
OWNED(1)(2)
--------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(3) OFFERING OFFERING
--------------------- ----------------------- --------- --------
World Machinery Company 3,000,000 100.0% 71.4%
44 High Street
West Nyack, New York 10994
------------------
(1) Pursuant to Rule 13d-3 under the U.S. Securities Exchange Act of 1934,
as amended, beneficial ownership of a security consists of sole or
shared voting power (including the power to vote or direct the voting)
and/or sole or shared investment power (including the power to dispose
or direct the disposition) with respect to a security whether through
a contract, arrangement, understanding, relationship or otherwise.
(2) Assumes the Underwriters' over-allotment option is not exercised. If
such option is exercised, the percentage of the issued and outstanding
Common Stock owned by World will be reduced to 68.5%.
(3) Seymour I. Gussack, the Company's Chairman of the Board and David L.
Gussack, the Company's President, own or control approximately 19.6%
and 17.6%, respectively, of the Common Stock of World. The remaining
children of Seymour I. Gussack and his spouse own or control an
additional approximately 41.2% of the stock of World. Harold S.
Geneen, a Director Designee of the Company, and Joseph J. Hoo, Vice
President - Advanced Technology and China Affairs of the Company, own
approximately 19.6% and 2.0% of the Common Stock of World,
respectively.
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DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 19,000,000 shares of Common Stock,
par value $.01 per share, and 1,000,000 shares of Preferred Stock, $.01 par
value per share. Upon completion of this Offering, there will be 4,200,000
shares of Common Stock and no shares of Preferred Stock issued and
outstanding.
The following summary is qualified in its entirety by reference to the
COI and By-laws, a copy of each of which has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Each holder of Common Stock is entitled to cast one vote, either in
person or by proxy, for each share of Common Stock owned of record on the
record date (as defined in the By-laws) on all matters submitted to a vote
of stockholders, including the election of directors. The holders of
Common Stock do not possess cumulative voting rights, which means that the
holders of more than 50% of the outstanding shares voting for the election
of the class of directors to be elected by the Common Stock can elect all
of such directors, and, in such event, the holders of the remaining shares
of Common Stock will be unable to elect any of the Company's directors.
Holders of outstanding shares of Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors out
of funds legally available therefor. Upon the liquidation, dissolution, or
winding up of the Company, each outstanding share of Common Stock will be
entitled to share equally in the assets of the Company legally available
for distribution to stockholders after the payment of all debts and other
liabilities, subject to any superior rights of the holders of any
outstanding shares of Preferred Stock.
Holders of the shares of Common Stock have no preemptive rights.
There are no conversion or subscription rights, and shares of Common Stock
are not subject to redemption. All of the outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby will be, when
issued and paid for in accordance with the terms thereof, duly authorized
and issued, fully paid and nonassessable.
PREFERRED STOCK
The authorized capital stock of the Company includes 1,000,000 shares
of Preferred Stock. The Board of Directors is authorized to fix the rights,
preferences, privileges and restrictions of any series of Preferred Stock,
including the dividend rights, original issue price, conversion rights,
voting rights, terms of redemption, liquidation preferences and sinking
fund terms thereof, and the number of shares constituting any such series
and the designation thereof and to increase or decrease the number of
shares of such series subsequent to the issuance of shares of such series
(but not below the number of shares of such series then outstanding).
Because the terms of the Preferred Stock can be fixed by the Board of
Directors without stockholder action, the Preferred Stock could be issued
quickly with terms calculated to defeat a proposed takeover of the Company
or to make the removal of management more difficult. The Board of
Directors, without stockholder approval, could issue Preferred Stock with
dividend, voting and conversion rights which could adversely affect the
rights of the holders of Common Stock. At present, the Company has no plans
to issue any Preferred Stock.
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CERTAIN DELAWARE LAW PROVISIONS
Section 203 of the DGCL prevents an "interested stockholder" (defined
in DGCL Section 203, generally, as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in DGCL Section 203) with a publicly held Delaware
corporation for three years following the date such person became an
interested stockholder unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with
the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (iii) following
the date on which such person became an interested stockholder, the
business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock of the
corporation not owned by the interested stockholder. DGCL Section 203 may
have a depressive effect on the market price of the Common Stock offered
hereby.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COI AND BY-LAWS
Certain provisions of the COI and By-laws of the Company summarized in
the following paragraphs will become operative prior to consummation of
this Offering and may be deemed to have an anti-takeover effect and may
delay or prevent a tender offer or takeover attempt that a stockholder
might consider in its best interest, including those attempts that might
result in a premium over the market price for the shares of Common Stock
held by such stockholders. These provisions also may have a depressive
effect on the market price of the Common Stock.
Special Meeting of Stockholders. The COI provides that special
meetings of stockholders of the Company may be called only by the Board of
Directors. This provision makes it more difficult for stockholders to take
action opposed by the Board of Directors. The approval of the holders of
two-thirds of the Company's outstanding Common Stock is necessary to amend
or repeal this provision of the Company's Certificate of Incorporation.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-laws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate
candidates for election as directors at an annual or special meeting of
stockholders, must provide timely notice thereof in writing. To be timely,
a stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company: (i) in the case of an annual
meeting that is called for a date that is within 30 days before or after
anniversary date of the immediately preceding annual meeting of
stockholders, not fewer than 60 days nor more than 90 days prior to such
anniversary date; and (ii) in the case of the annual meeting to be held
during the first complete fiscal year following the date of this Prospectus
or that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the
case of a special meeting of stockholders called for the purpose of
electing directors, no later than the close of business on the tenth day
following the day on which notice of the date of the meeting was mailed or
public disclosure of the date of the meeting was made, whichever occurs
first. The By-laws also specify certain requirements for a stockholder's
notice to be in proper written form. These provisions may preclude some
stockholders from bringing matters before the stockholders at an annual or
special meeting or from making nominations for directors at an annual or
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special meeting. As set forth below, the By-laws may not be amended or
repealed by the stockholders of the Company, except with the approval of
holders of two-thirds of the Company's outstanding Common Stock.
Adjournment of Meetings of Stockholders. The By-laws provide that
when a meeting of stockholders of the Company is convened, the presiding
officer, if directed by the Board of Directors, may adjourn the meeting if:
(i) no quorum is present for the transaction of business; or (ii) the Board
of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information the Board of
Directors determines has not been made sufficiently or timely available to
stockholders or to otherwise effectively exercise their voting rights.
This provision will, under certain circumstances, make more difficult or
delay actions by the stockholders opposed by the Board of Directors. The
effect of such provision could be to delay the timing of a stockholders'
meeting, including in cases where stockholders have brought proposals
before the stockholders that are in opposition to those brought by the
Board of Directors and therefore may provide the Board of Directors with
additional flexibility in responding to such stockholder proposals. As set
forth below, the By-laws may not be amended or repealed by the stockholders
of the Company, except with the approval of holders of two-thirds of the
Company's outstanding Common Stock.
Amendment of the By-laws. The COI provides that the By-laws may be
amended or repealed by the Board of Directors and may not be amended or
repealed by the stockholders of the Company, except with the consent of
holders of two-thirds of the Company's outstanding Common Stock. This
provision will make it more difficult for stockholders to make changes to
the By-laws that are opposed by the Board of Directors. This provision of
the COI may not be amended or repealed by the stockholders of the Company,
except with the approval of the holders of two-thirds of the Company's
outstanding Common Stock.
TRANSFER AGENT
The transfer agent for the Company's Common Stock is American Stock
Transfer & Trust Co., 40 Wall Street, New York, New York 10005.
SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
The Company has 4,200,000 shares of Common Stock issued and
outstanding. Of these shares, 1,200,000 shares of Common Stock registered
in this Offering (1,380,000 if the over-allotment option is exercised) will
be freely tradeable without restriction or further registration under the
Act, except for shares purchased by affiliates of the Company, which will
be subject to certain resale limitations of Rule 144 under the Act. The
remaining 3,000,000 shares were initially issued and sold by the Company in
December 1993 as 1000 shares which were subject to a 3000-for-one stock
split effective as of October 10, 1996.
In general, Rule 144, as currently in effect, subject to the
satisfaction of certain conditions, provides that a person, including an
affiliate of the Company, who has beneficially owned restricted shares of
Common Stock for at least two years is entitled to sell, within any three-
month period, a number of shares that does not exceed the greater of one
percent of the total number of outstanding shares of Common Stock or the
average weekly trading volume of shares of Common Stock during the four
calendar weeks preceding the sale. A person who has not been an affiliate
of the Company for at least the three month period immediately preceding
the sale and who has beneficially owned shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above.
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UNDERWRITING
The Underwriters named below have agreed, subject to the terms and
conditions of the Underwriting Agreement between the Company and H.J.
Meyers & Co., Inc., as Representative of the Underwriters, to purchase from
the Company the number of shares of Common Stock set forth opposite their
names. The 9% underwriting discount set forth on the cover page of this
Prospectus will be allowed to the Underwriters at the time of delivery to
the Underwriters of the shares of Common Stock so purchased.
NUMBER OF
NAME OF UNDERWRITER SHARES PURCHASED
------------------ ----------------
H.J. Meyers & Co., Inc. . . .
---------
Total . . . 1,200,000 1,200,000
=========
The Underwriters have advised the Company that they propose to offer
the shares of Common Stock to the public at the initial public offering
price set forth on the front cover page of this Prospectus, and at such
price less a concession not in excess of $_______ per share of Common Stock
to certain dealers who are members of the National Association of
Securities Dealers, Inc., of which the Underwriters may allow and such
dealers may reallow concessions not in excess of $______ per share of
Common Stock to certain other dealers. The public offering price and
concession and discount may be changed by the Underwriters after the
initial public offering.
The Company has granted to the Underwriters an over-allotment option
expiring at the close of business on the 45th business day subsequent to
the date of this Prospectus, to purchase up to an additional 180,000 shares
of Common Stock at the public offering price, less the underwriting
discount set forth on the cover page of this Prospectus. The Underwriters
may exercise such option only to satisfy over-allotments in the sale of the
shares of Common Stock.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to 2.5% of the total proceeds of this Offering, or
$240,000 (and 2.5% of the total proceeds from the sale of any shares of
Common Stock pursuant to the exercise of the over-allotment option, or
$36,000 if the Underwriters exercise the over-allotment option in full).
In addition to the Underwriters' commissions and the Representative's
expense allowance, the Company is required to pay the costs of qualifying
the shares of Common Stock under Federal and state securities laws,
together with legal and accounting fees, printing and other costs in
connection with this Offering.
At the closing of this Offering, the Company will issue to the
Representative, for nominal consideration, the Representative's Warrants to
purchase up to 120,000 shares of Common Stock of the Company. The shares
of Common Stock subject to the Representative's Warrants are identical to
the shares of Common Stock sold to the public, except for the purchase
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price and certain registration rights. The Representative's Warrants will
be exercisable for a four-year period commencing one year from the date of
this Prospectus, at an exercise price of $_________ per share of Common
Stock (that being 140% of the initial public offering price per share of
Common Stock). The Representative's Warrants will not be transferable
prior to their initial exercise date except to successors in interest to
the Representative and/or one or more officers of the Representative.
The Representative's Warrants will contain anti-dilution provisions
providing for appropriate adjustment in the event of any recapitalization,
reclassification, stock dividend, stock split or similar transactions. The
Representative's Warrants do not entitle the Representative to any rights
as a stockholder of the Company until such warrants are executed and the
shares of Common Stock are purchased thereunder.
The Representative's Warrants and the shares of Common Stock issuable
thereunder may not be offered for sale to the public except in compliance
with the applicable provisions of the Act. The Company has agreed that if
it causes a post-effective amendment to the Registration Statement of which
this Prospectus is a part, or a new registration statement or offering
statement under Regulation A, to be filed with the Securities and Exchange
Commission ("Commission"), the Representative shall have the right during
the life of the Representative's Warrants to include therein for
registration the Representative's Warrants and/or the shares of Common
Stock issuable upon their exercise at no expense to the Representative.
Additionally, the Company has agreed that, upon demand by the holder(s) of
at least 50% of the (i) total unexercised Representative's Warrants and
(ii) shares of Common Stock issued upon the exercise of the
Representative's Warrants, made on no more than two separate occasions
during the exercise period of the Representative's Warrants, the Company
shall use its best efforts to register the Representative's Warrants and/or
any of the shares of Common Stock issuable upon the exercise thereof,
provided that the Company has available current financial statements, the
initial such registration to be at the Company's expense and the second at
the expense of the holder(s).
For the period during which the Representative's Warrants are
exercisable, the holder(s) will have the opportunity to profit from a rise
in the market value of the Company's Common Stock, with a resulting
dilution in the interests of the other stockholders of the Company. The
holder(s) of the Representative's Warrants can be expected to exercise the
warrants at a time when the Company would, in all likelihood, be able to
obtain any needed capital from an offering of its unissued Common Stock on
terms more favorable to the Company than those provided for in the
Representative's Warrants. Such facts may materially adversely affect the
terms on which the Company can obtain additional financing. To the extent
that the Representative realizes any gain from the resale of the
Representative's Warrants or the shares of Common Stock issuable
thereunder, such gain may be deemed additional underwriting compensation
under the Act.
The Company has agreed to enter into a one year consulting agreement
with the Representative, pursuant to which the Representative will act as
financial consultant to the Company, commencing upon the closing date of
this Offering. Under the terms of this agreement, the Representative, to
the extent reasonably required in the conduct of the business of the
Company and at the prior written request of the President of the Company,
has agreed to evaluate the Company's managerial and financial requirements,
assist in the preparation of budgets and business plans, advise with regard
to sales planning and sales activities, and assist in financial
arrangements. The Representative will make available qualified personnel
for this purpose. The non-refundable consulting fee of $60,000 will be
payable, in full, on the closing date of this Offering.
The Company has agreed that it will engage a public relations firm
acceptable to the Representative and the Company. The Company also has
agreed to maintain a relationship with such public relations firm for
minimum period of two years and on such other terms as are acceptable to
the Representative.
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The Company has also agreed that, for a period of two years from the
closing of this Offering, if it participates in any merger, consolidation
or other transaction which the Representative has brought to the Company
(including an acquisition of assets or stock for which it pays, in whole or
in part, with shares of the Company's Common Stock or other securities),
which transaction is consummated within three years of the closing of this
Offering, then it will pay for the Representative's services an amount
equal to 5% of the first $1.0 million of value paid or value received in
the transaction, 4% of any consideration above $1.0 million and less than
$2.0 million and 3% of any consideration in excess of $2.0 million and less
than $3.0 million, 2% of any consideration above $3.0 million and less than
$4.0 million and 1% of any consideration exceeding $4.0 million. The
Company has also agreed that if, during this two-year period, someone other
than the Representative brings such a merger, consolidation or other
transaction to the Company, and if the Company in writing retains the
Representative for consultation or other services in connection therewith,
then upon consummation of the transaction the Company will pay to the
Representative as a fee the appropriate amount as set forth above or as
otherwise agreed to between the Company and the Representative.
The Company has agreed that for a period of one year from the date of
this Prospectus the Company will not sell or otherwise dispose of any
securities without the prior written consent of the Representative, which
consent shall not be unreasonably withheld, with the exception of shares of
Common Stock issued pursuant to the exercise of options, warrants or other
convertible securities outstanding prior to the date of this Prospectus and
described herein. The Company also has agreed that for a period of 18
months from the date of this Prospectus, the Company will not sell or issue
any securities pursuant to Regulation S under the Securities Act without
the Representative's prior written consent.
The holders of all of the shares of Common Stock outstanding
immediately prior to this Offering and the holders of all options and
warrants to purchase Common Stock outstanding on the date hereof have
agreed that for a period of 18 months from the date of this Prospectus they
will not offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock acquired prior to this Offering or purchasable under any
option, warrant or convertible debt owned by them prior to this Offering,
without the prior written consent of the Representative.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Act.
The Representative has advised the Company that the Underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.
Prior to this Offering, there has been no public market for the Common
Stock. The offering price of the securities being offered hereby was
determined by negotiation between the Company and the Representative.
Factors considered in determining such price include the history of and the
prospects for the industry in which the Company competes, the past and
present operations of the Company, the future prospects of the Company, the
ability of the Company's management, the earnings, net worth and financial
condition of the Company, the general condition of the securities markets
at the time of this Offering, and the prices of similar securities of
comparable companies.
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LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Reid & Priest LLP, New York, New York. Certain legal
matters in connection with this Offering will be passed upon for the
Representative by Harter, Secrest & Emery, Rochester, New York.
EXPERTS
The financial statements of the Company included in this Prospectus
have been audited by BDO Seidman, LLP and Ferro, Berdon & Company, L.L.P.,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said
firms as experts in giving said reports.
CHANGE IN INDEPENDENT AUDITORS
In September 1996, the Company's Board of Directors retained BDO
Seidman, LLP as its independent public accountants and replaced the
Company's former auditors Ferro, Berdon & Company, L.L.P. as its
independent public accountants. During the period Ferro, Berdon & Company,
L.L.P. was retained, there were no disagreements with the former auditors
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure with respect to the Company's
financial statements for the fiscal years ended December 25, 1993 and
December 31, 1994 or up through the time of replacement which, if not
resolved to the former auditors' satisfaction, would have caused them to
make reference to the subject matter of the disagreement in connection with
their report. For the past two fiscal years, no accountant's report
prepared by the former auditors contained an adverse opinion or disclaimer
of opinion, or was qualified or modified as to uncertainty, audit scope, or
accounting principles. Prior to retaining BDO Seidman, LLP, the Company
had not consulted with BDO Seidman, LLP regarding accounting principles.
AVAILABLE INFORMATION
The Company has filed with the Commission, a Registration Statement on
Form S-1 ("Registration Statement") under the Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, filed as a part of
the Registration Statement, does not contain certain information set forth
in or annexed as exhibits and schedules to the Registration Statement. For
further information regarding the Company and the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
and schedules filed as a part thereof, which may be inspected without
charge at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, or copied upon request to the Public Reference
Section of the Commission and payment of the prescribed fee. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information reqarding registrants that
file electronically with the Commission. The address of such Web site is
http://www.sec.gov. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
-55-
<PAGE>
Reports of independent certified public accountants F-2 - F-3
Consolidated financial statements:
Balance sheets F-4
Statements of operations F-5
Statements of changes in stockholders' equity F-6
Statements of cash flows F-7
Summary of significant accounting policies F-8 - F-11
Notes to consolidated financial statements F-12 - F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
We have audited the accompanying consolidated balance sheet of General
Bearing Corporation and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, changes in stockholder's
equity and cash flows for the years ended December 25, 1993 and
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of General
Bearing Corporation and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flows for the years ended
December 25, 1993 and December 31, 1994, in conformity with generally
accepted accounting principles.
Ferro, Berdon & Company, LLP
New York, New York
March 24, 1995
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
We have audited the accompanying consolidated balance sheet of General
Bearing Corporation and subsidiaries as of December 30, 1995, and the
related consolidated statements of operations, changes in stockholder's
equity and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of General
Bearing Corporation and subsidiaries as of December 30, 1995, and the
results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
September 13, 1996, except for Note 15(a),
which is as of October 10, 1996
F-3
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 30, September 28,
1994 1995 1996
--------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT:
Cash $66,953 $50,735 $8,551
Accounts receivable - trade,
less allowance for doubtful
accounts of $255,000, $255,000
and $294,000 5,586,661 6,044,042 4,828,985
Inventories 13,662,631 16,626,234 14,985,073
Prepaid expenses and other
current assets 210,141 184,139 149,675
Advances to parent and
affiliates 413,978 215,350 634,304
--------------------------------------------------------------------------
TOTAL CURRENT ASSETS 19,940,364 23,120,500 20,606,588
--------------------------------------------------------------------------
FIXED ASSETS, NET 2,028,075 2,480,170 2,614,398
--------------------------------------------------------------------------
INVESTMENTS AND ADVANCES
Investments in affiliates 1,568,867 687,454 687,454
Advances to affiliate 255,824 255,824 255,824
--------------------------------------------------------------------------
1,824,691 943,278 943,278
--------------------------------------------------------------------------
DEFERRED TAX ASSET - 500,000 -
-------------------------------------------------------------------------
OTHER ASSETS 349,436 42,460 234,740
--------------------------------------------------------------------------
TOTAL ASSETS $24,142,566 $27,086,408 $24,399,004
-------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT:
Note payable - bank $9,970,109 $10,862,894 $10,298,432
Accounts payable:
Trade 2,615,446 4,811,677 2,124,418
Affiliates 724,859 1,398,525 2,110,938
Accrued expenses and other
current liabilities 1,944,074 1,467,563 1,648,477
Accrued customer damage
claims - 1,564,742 461,230
Current maturities of
long-term debt - 222,840 222,840
-------------------------------------------------------------------------
TOTAL CURRENT
LIABILITIES 15,254,488 20,328,241 16,866,335
-------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT
MATURITIES:
Bank - 1,225,740 1,058,610
Parent 4,460,142 2,875,142 2,875,142
Affiliates 758,173 716,422 733,750
-------------------------------------------------------------------------
TOTAL LONG-TERM
LIABILITIES 5,218,315 4,817,304 4,667,502
-------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock par value
$.01 per share - shares
authorized 1,000,000, none
issued and outstanding - - -
Common Stock par value $.01
per share - shares authorized
19,000,000, issued and
outstanding 3,000,000 30,000 30,000 30,000
Additional paid-in capital 12,203,250 12,203,250 12,203,250
Deficit (8,563,487) (10,292,387) (9,368,083)
-------------------------------------------------------------------------
TOTAL STOCKHOLDERS'
EQUITY 3,669,763 1,940,863 2,865,167
-------------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $24,142,566 $27,086,408 $24,399,004
-------------------------------------------------------------------------
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-4
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
------------------------------------------
December 25, December 31, December 30,
1993 1994 1995
-------------------------------------------------------------------------
Sales $27,253,855 $37,031,669 $42,070,000
Cost of sales 20,724,474 28,483,348 32,068,789
-------------------------------------------------------------------------
Gross profit 6,529,381 8,548,321 10,001,211
Selling, general and
Administrative expenses 6,916,056 7,674,250 7,495,208
Provision (recovery) -
customer damage claims - - 2,152,000
-------------------------------------------------------------------------
Operating income
(loss) (386,675) 874,071 354,003
-------------------------------------------------------------------------
Other (income) expense:
Interest-net, including
$-0-, $210,000,
$180,000, $142,500 and
$46,972 to parent 512,965 989,912 1,428,451
Equity in (income) loss
of affiliate 182,802 (403,071) (78,587)
Other (717,355) 32,268 1,233,039
-------------------------------------------------------------------------
(21,588) 619,109 2,582,903
-------------------------------------------------------------------------
Income (loss) before
income tax (benefit) and
extraordinary item (365,087) 254,962 (2,228,900)
Income tax (benefit) - - (500,000)
-------------------------------------------------------------------------
Income (loss) before
extraordinary item (365,087) 254,962 (1,728,900)
Extraordinary item -
settlement of debts at a
discount 15,835,639 108,275 -
-------------------------------------------------------------------------
Net income (loss) 15,470,552 363,237 (1,728,900)
-------------------------------------------------------------------------
Income (loss) per common
share:
-------------------------------------------------------------------------
Income (loss) before
extraordinary item $(.01) $.08 $(.58)
Extraordinary item .68 .04 -
-------------------------------------------------------------------------
Net income (loss) $.67 $.12 $(.58)
-------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 23,125,000 3,000,000 3,000,000
-------------------------------------------------------------------------
Nine months ended
--------------------------------
Sept. 30, 1995 Sept. 28, 1996
-------------------------------------------------------------------------
(Unaudited)
Sales $31,962,550 $29,800,338
Cost of sales 24,145,538 21,939,282
-------------------------------------------------------------------------
Gross profit 7,817,012 7,861,056
Selling, general and administrative
expenses 5,547,965 5,568,398
Provision (recovery) - customer
damage claims 2,152,000 (100,959)
-------------------------------------------------------------------------
Operating income (loss) 117,047 2,393,617
-------------------------------------------------------------------------
Other (income) expense:
Interest-net, including $-0-,
$210,000, $180,000, $142,500 and
$46,972 to parent 1,036,461 969,313
Equity in (income) loss of affiliate (54,571) -
Other 1,118,261 -
-------------------------------------------------------------------------
2,100,151 969,313
-------------------------------------------------------------------------
Income (loss) before income tax
(benefit) and extraordinary item (1,983,104) 1,424,304
Income tax (benefit) - 500,000
-------------------------------------------------------------------------
Income (loss) before extraordinary
item (1,983,104) 924,304
Extraordinary item - settlement of
debts at a discount - -
-------------------------------------------------------------------------
Net income (loss) $(1,983,104) $924,304
-------------------------------------------------------------------------
Income (loss) per common share:
Income (loss) before
extraordinary item $(.66) $.31
Extraordinary item - -
-------------------------------------------------------------------------
Net income (loss) $(.66) $.31
-------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 3,000,000 3,000,000
-------------------------------------------------------------------------
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-5
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
10.5% cumulative, 5% cumulative, Series
Series B preferred A preferred stock, par
stock, par value $.01 value $894.50 per
per share share
-------------------- ---------------------
Shares Amount Shares Amount
Balance, December 26,
1992 1,000 $3,000,000 10,000 $8,945,000
Cancellation of
outstanding shares
pursuant to
Chapter XI
reorganization (1,000) (3,000,000) (10,000) (8,945,000)
Shares issued to
World Machinery
Company pursuant to
Chapter XI
reorganization - - - -
Contributed capital - - - -
Net income - - - -
----------------------------------------------------------------------
Balance, December 25,
1993 - - - -
Net income - - - -
----------------------------------------------------------------------
Balance, December 31,
1994 - - - -
Net loss - - - -
----------------------------------------------------------------------
Balance, December 30,
1995 - - - -
Net income
(unaudited) - - - -
----------------------------------------------------------------------
Balance, September
28, 1996 (unaudited) - $- - $-
----------------------------------------------------------------------
Preferred stock Common stock
Shares Amount Shares Amount
----------------------------------------------------------------------
Balance, December 26,
1992 - $ - 24,000,000 $0240,000
Cancellation of
outstanding shares
pursuant to
Chapter XI
reorganization - - (24,000,000) (240,000)
Shares issued to
World Machinery
Company pursuant to
Chapter XI
reorganization - - 3,000,000 30,000
Contributed capital - - - -
Net income - - - -
----------------------------------------------------------------------
Balance, December 25,
1993 - - 3,000,000 30,000
Net income - - - -
----------------------------------------------------------------------
Balance, December 31,
1994 - - 3,000,000 30,000
Net loss - - - -
----------------------------------------------------------------------
Balance, December 30,
1995 - - 3,000,000 30,000
Net income
(unaudited) - - - -
----------------------------------------------------------------------
Balance, September - $ - 3,000,000 $30,000
28, 1996 (unaudited)
Additional paid-in
capital Deficit
------------------------------------------------------------------------
Balance, December 26, 1992 $(44,650) $(24,397,276)
Cancellation of
outstanding shares
pursuant to Chapter XI
reorganization 12,177,800 -
Shares issued to World
Machinery Company pursuant
to Chapter XI
reorganization (29,900) -
Contributed capital 100,000 -
Net income - 15,470,552
------------------------------------------------------------------------
Balance, December 25, 1993 12,203,250 (8,926,724)
Net income - 363,237
------------------------------------------------------------------------
Balance, December 31, 1994 12,203,250 (8,563,487)
Net loss - (1,728,900)
------------------------------------------------------------------------
Balance, December 30, 1995 12,203,250 (10,292,387)
Net income (unaudited) - 924,304
------------------------------------------------------------------------
Balance, September 28,
1996 (unaudited) $12,203,250 $(9,368,083)
------------------------------------------------------------------------
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
-----------------------------------------
December 25,December 31,December 30,
1993 1994 1995
Cash flows from operating activities:
Net income (loss) $15,470,552 $363,237 $(1,728,900)
Add (deduct) noncash items charged
(credited) to income:
Extraordinary income (15,835,639) (108,275)
Deferred income taxes (500,000)
Depreciation and amortization 540,253 505,447 520,082
Equity in (income) loss of affiliate 182,802 (403,071) (78,587)
Revaluation of equity investment 960,000
Revaluation of goodwill 93,333
(Gain) loss on disposal of equipment
and improvements (24,073) 144,967
Other (38,172) (9,787) 64,928
Add (deduct) changes in operating
assets and liabilities:
Accounts receivable (517,949) (1,345,403) (457,381)
Inventories (523,371) (4,757,159) (2,963,603)
Prepaid expenses and other assets 13,845 (183,484) 169,234
Due to (from) affiliates (17,693) (399,601) 617,296
Accounts payable and accrued
expenses 930,688 1,665,002 1,788,263
Accrued customer damage claims 1,564,742
---------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 205,316 (4,697,167) 194,374
---------------------------------------------------------------------------
Cash flows from investing activities:
Equipment purchases (156,412) (253,892) (1,111,653)
Sale of machinery 86,000
Net cash from acquisition 291,846
---------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 135,434 (167,892) (1,111,653)
---------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 1,560,000
Repayment of long-term debt (562,210) (111,420)
Increase (decrease) in note payable -
bank 4,158,002 892,785
Proceeds from long-term debt and other
balances - parent 500,000 500,000
Repayment of long-term debt and other
balances - parent (50,918) (1,440,304)
---------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (62,210) 4,607,084 901,061
---------------------------------------------------------------------------
Net increase (decrease) in cash 278,540 (257,975) (16,218)
Cash, beginning of period 46,388 324,928 66,953
---------------------------------------------------------------------------
Cash, end of period $324,928 $66,953 $50,735
---------------------------------------------------------------------------
Nine months ended
------------------------------
Sept. 30, 1995 Sept. 28, 1996
(Unadudited)
Cash flows from operating activities:
Net income (loss) $(1,983,104) $924,304
Add (deduct) noncash items charged
(credited) to income:
Extraordinary income
Deferred income taxes 500,000
Depreciation and amortization 302,097 414,203
Equity in (income) loss of affiliate (54,571)
Revaluation of equity investment 960,000
Revaluation of goodwill 93,333
(Gain) loss on disposal of equipment and
improvements
Other 64,928
Add (deduct) changes in operating assets
and liabilities:
Accounts receivable 314,658 1,215,057
Inventories (1,541,923) 1,641,161
Prepaid expenses and other assets 221,936 (160,387)
Due to (from) affiliates (41,935) 828,869
Accounts payable and accrued expenses 1,128,547 (2,506,345)
Accrued customer damage claims 1,824,547 (1,103,512)
-------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 1,288,513 1,753,350
-------------------------------------------------------------------------
Cash flows from investing activities:
Equipment purchases (940,831) (545,860)
Sale of machinery
Net cash from acquisition
-------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (940,831) (545,860)
-------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 1,560,000
Repayment of long-term debt (55,710) (167,130)
Increase (decrease) in note payable - bank (634,601) (564,462)
Proceeds from long-term debt and other
balances - parent
Repayment of long-term debt and other
balances - parent (1,278,258) (518,082)
-------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (408,569) (1,249,674)
-------------------------------------------------------------------------
Net increase (decrease) in cash (60,887) (42,184)
Cash, beginning of period 66,953 50,735
-------------------------------------------------------------------------
Cash, end of period $6,066 $8,551
-------------------------------------------------------------------------
See accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-7
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
The Company General Bearing Corporation ("Company" or "General")
manufactures, sources, assembles and distributes
a variety of bearing components and bearing
products, including ball bearings, tapered roller
bearings, spherical roller bearings and cylindrical
roller bearings under the Hyatt(R) and The General(R)
trademarks. The Company supplies original equipment
manufacturers and the industrial aftermarket
principally in the United States and Canada.
The Company's products are used in a broad range of
applications, including automobiles, railroad cars,
locomotives, trucks, office equipment, machinery and
appliances. The Company is a wholly-owned subsidiary
of World Machinery Company ("World" or "Parent").
Principles of The accompanying consolidated financial statements
Consolidation include the accounts of General and its
majority-owned subsidiaries. Investments in 20%- to
50%-owned companies are accounted for on the equity
method.
All significant intercompany accounts and
transactions have been eliminated.
Inventories Inventories are stated at the lower of cost
(first-in, first-out method) or market.
Fixed Assets The cost of depreciable plant and equipment is
depreciated for financial reporting purposes over
the estimated useful lives using the straight-line
or declining balance methods. The estimated lives
for each property classification are as follows:
------------------------------------------------
Machinery and equipment 3 to 10 years
Furniture and fixtures 10 years
Transportation equipment 3 to 5 years
Leasehold improvements Lesser of life
of lease or
useful life
------------------------------------------------
F-8
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
Expenditures for maintenance, repairs and minor
renewals or betterments are charged against income.
Major renewals and replacements are capitalized.
Revenue The Company recognizes revenue when products are
Recognition shipped.
Reporting Period The reporting period for the Company is a 52-53 week
period ending on the last Saturday in December. There
were 52 weeks in the periods ended 1993 and 1995 and 53
weeks in the period ended 1994.
Income Taxes The Company files a consolidated Federal income tax
return with its Parent and separate state and local tax
returns. Federal income taxes are calculated as if the
Company filed its tax return on a separate return
basis.
Deferred income taxes reflect the net tax effect of
temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Estimated Fair Statement of Financial Accounting Standards ("SFAS")
Value of Financial No. 107, "Disclosure About Fair Value of Financial
Instruments Instruments," requires disclosures of fair value
information about financial instruments, for which it
is practicable to estimate the value, whether or not
recognized on the balance sheet.
F-9
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
The fair values of financial instruments, including
cash, accounts receivable and accounts payable,
approximate their carrying value because of the current
nature of these instruments. The carrying amounts of
the Company's note payable - bank and long-term debt -
bank approximate fair value because the interest rates
on these instruments are subject to changes with market
interest rates. It is not practical to determine the
fair value of receivables from, payables to and
long-term debt payable to the parent and affiliates
because the repayment terms are subject to management's
discretion. Effective December 31, 1995, the balances
bear interest at 8% which is accrued monthly.
Concentrations of The Company extends credit based on an evaluation of
Credit Risk the customer's financial condition, generally without
requiring collateral. Exposure to losses on receivables
is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses.
Long-Lived Assets Long-lived assets, such as goodwill and property and
equipment, are evaluated for impairment when events or
changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through the
estimated undiscounted future cash flows from the use
of these assets. When any such impairment exists, the
related assets will be written down to fair value.
This policy is in accordance with Statement of
Financial Accounting Standards No. 121 ("SFAS No.
121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of,"
which is effective for fiscal years beginning after
December 15, 1995. The Company elected early adoption
of this standard and has, accordingly, written down its
goodwill as of December 30, 1995 (Note 10).
F-10
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
RECENT ACCOUNTING
STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt
the fair value method in place of the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
No. 25"), for all arrangements under which employees receive shares of
stock or other equity instruments of the employer or the employer incurs
liabilities to employees in amounts based on the price of its stock. The
Company does not anticipate adopting the fair value method encouraged by
SFAS No. 123 and will account for such transactions in accordance with APB
No. 25.
EARNINGS PER COMMON SHARE
Earnings per common share are computed on the basis
of the weighted average number of common shares outstanding during the
year.
Supplementally, earnings (loss) per share for the year ended December 30,
1995 and the nine months ended September 28, 1996 was ($.33) and $.36,
respectively. These calculations reflect the number of shares that will
be issued in connection with the proposed initial public offering for
the purpose of paying down $5,000,000 of the Revolving Credit Facility.
DEFERRED REGISTRATION COSTS
Costs in connection with the proposed public offering have been deferred
and are included in other assets. These costs will be offset against the
proceeds of a successful offering, or expensed if the proposed offering is
not consummated.
INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated interim financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the nine-month period ended September 28, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 28, 1996.
F-11
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
------------------------------------------------------------------------
1. INVENTORIES Inventories consist of the following:
December 31, December 30, September 28,
1994 1995 1996
----------------------------------------------------------
Finished goods $8,597,545 $11,134,414 $8,938,913
Raw materials,
purchased parts
and
work-in-process 5,065,086 5,491,820 6,046,160
----------------------------------------------------------
$13,662,631 $16,626,234 $14,985,073
===========================================================
2. FIXED ASSETS Fixed assets consist of the following:
December 31, December 30,September 28,
1994 1995 1996
------------------------------------------------------
Machinery and
equipment $5,185,392 $6,071,074 $6,400,526
Furniture and
fixtures 601,303 608,468 808,459
Leasehold
improvements 821,318 389,729 431,207
Transportation
equipment 119,088 88,893 63,832
-------------------------------------------------------
6,727,101 7,158,164 7,704,024
Less: Accumulated
depreciation and
amortization 4,699,026 4,677,994 5,089,626
-------------------------------------------------------
$2,028,075 $2,480,170 $2,614,398
========================================================
F-12
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
Depreciation and amortization expense was $540,253,
$505,447 and $518,368 for the years 1993, 1994 and
1995, respectively. Depreciation and amortization
expenses for the nine months ended 1995 and 1996
were $302,097 and $411,632, respectively.
The Company purchased, through an affiliate,
$750,000 of machinery and equipment in 1995 which
has not been placed into service.
3. OTHER ASSETS Other assets consist of the following:
December 31,December 30,September 28,
1994 1995 1996
-----------------------------------------------------
Security deposits
and other $111,103 $20,174 $15,025
Deferred loan
costs - 22,286 19,715
Miscellaneous
receivables 145,000 - -
Deferred charges
relating
to the offering - - 200,000
Goodwill, net of
accumulated
amortization of
$6,667
(Note 10) 93,333 - -
-----------------------------------------------------
$349,436 $42,460 $234,740
======================================================
F-13
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
4. INVESTMENTS AND
ADVANCES
December 31, December 30,September 28,
1994 1995 1996
-------------------------------------------------------------
Investments in
affiliates:
50%-owned, at
equity -
Alurop
Trading Corp.,
a Panamanian
holding company
whose principal
asset is 100% of
the capital stock
of WMW Machinery
of New Jersey,
Inc. (a) (b) $ 977,479 $ - $ -
Less than
50%-owned - at
equity:
Shanghai
General Bearing
Company Ltd.
(25%-owned) and
Wafangdian Hyatt
Bearing
Manufacturing Co.
Ltd. (25%-owned)
(c) 591,388 687,454 687,454
-------------------------------------------------------------
$1,568,867 $687,454 $687,454
==============================================================
Advances to
Parent and
affiliates:
Current:
Parent (d) $260,918 $116,222 $634,304
Shar General
Corp.(e) 97,795 57,094 -
All others 55,265 42,034 -
-------------------------------------------------------------
$413,978 $215,350 $634,304
==============================================================
Long-term:
General IKL
Corp. (see
Note 11(e)) $255,824 $255,824 $255,824
==============================================================
F-14
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
----------
(a) Condensed financial data of WMW Machinery of
New Jersey, Inc. ("WMW") is as follows:
BALANCE SHEET
(UNAUDITED)
December 31, 1994
---------------------------------------------
ASSETS
Current assets $ 121,000
Other assets 523,000
Investment in redeemable
preferred stock -
affiliate 12,049,000
---------------------------------------------
$12,693,000
==============================================
LIABILITIES
Accounts payable $9,121,000
Other current liabilities 845,000
Notes and other payables -
affiliates 772,000
---------------------------------------------
$10,738,000
==============================================
STOCKHOLDERS' EQUITY $ 1,955,000
==============================================
STATEMENT OF OPERATIONS
(UNAUDITED)
Year ended December 31, 1994
---------------------------------------------
Net sales $146,000
Operating loss (57,000)
Net income 578,000
==============================================
F-15
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
----------
(b) On January 27, 1988, the Company invested
$15,000 in Alurop Trading Corp. The Company was
obligated to advance working capital to fund
operating expenses, including payroll,
advertising, administration and sales costs of
the joint venture as required.
During 1995, the Company revalued its equity
investment in Alurop Trading Corp. to properly
reflect its share of equity to be realized from
the investment. The Company determined that due
to WMW being Alurop's only asset, the limited
operations of WMW and the uncertain value of
WMW's investment in preferred stock, the
Company has written off its investment
(Note 10).
(c) At December 30, 1995, the Company's investment
in Shanghai General Bearing Company Ltd.
("SGBC") was $687,454. SGBC was formed in June
1987 for an initial term of ten years. During
1996, the Company extended the term to June
2008 and can further extend the term for an
additional ten year interval upon six months
notice and unanimous consent of SGBC's board of
directors. The Company is not required to
contribute additional capital. Upon receipt of
$1,375,000 in dividends, the Company will cease
to receive any further dividends. Furthermore,
after termination of the joint venture, all
equipment and machinery contributed by the
Company will be turned over to the joint
venture partner without compensation to the
Company. Condensed financial data of SGBC are
as follows:
BALANCE SHEETS
December 31, December 30,
1994 1995
-------------------------------------------------
Current assets $2,663,000 $2,585,000
Total assets 6,512,000 6,293,000
Current liabilities 3,318,000 3,319,000
Total liabilities 3,318,000 3,336,000
Stockholders' equity 3,194,000 2,957,000
==================================================
F-16
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
Year ended
--------------------------------------
December 25, December 31,December 30,
1993 1994 1995
----------------------------------------------------
Net sales $2,947,000 $5,875,000 $7,321,000
Gross profit 59,000 1,352,000 1,586,000
Operating
income 261,000 521,000 438,000
Net income 260,000 456,000 384,000
=====================================================
At December 30, 1995, the Company's investment
in Wafangdian-Hyatt Bearing Manufacturing Co.
Ltd. ("Wafangdian-Hyatt") had no value.
Wafangdian-Hyatt was formed in October 1990 for
an initial term of ten years, however, this
joint venture will be terminated by the end of
1996. Provisions with respect to distributions
and termination are substantially similar in
all material aspects to those of SGBC.
(d) Includes accrued interest payable to the parent
of $150,000, $300,000 and $412,500 as of
December 31, 1994, December 30, 1995 and
September 28, 1996, respectively, relating to
the subordinated note (Note 7).
(e) The Company made advances on behalf of World's
50% owned joint venture affiliate. The amounts
due do not bear interest.
F-17
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
5. NOTE PAYABLE - The Company is obligated to a bank under a
BANK revolving line of credit which expires on July
1, 1998 and a term loan (see Note 7). The loan
and security agreement provide the Company with
a secured line of credit of up to $15 million
for working capital, acceptances and letters of
credit.
Borrowings under the credit line are based upon
percentage formulas relating to accounts
receivable and inventories. The maximum amount
available is reduced by the term loan balance
outstanding. Interest on the outstanding
obligation is payable at the bank's prime rate
plus 2%, or 10.25% at September 28, 1996. The
loan is secured by all of the Company's
inventories, accounts receivable, general
intangibles, and certain machinery and
equipment. The loan and security agreement also
contains certain restrictive covenants which
include, among others, the maintenance of
financial ratios relating to working capital
and net worth, limitations on capital
expenditures and payment of dividends, and
prepayment penalties. At December 30, 1995, the
Company was in violation of certain loan
covenants; however, the bank agreed to waive
those violations and amended the covenants
going forward.
Commitments under letters of credit amounted to
approximately $470,000 at September 28, 1996.
6. TAXES ON INCOME Provisions for Federal, state and local income
taxes consist of the following:
Year ended Nine months ended
------------------------------------- --------------------
December 25,December 31, December 30, Sept. 30, Sept. 28,
1993 1994 1995 1995 1996
----------------------------------------------------------------------
Deferred
(benefit):
Federal $ - $ - $(473,000) $ - $473,000
State and
local - - (27,000) - 27,000
----------------------------------------------------------------------
$ - $ - $(500,000) $ - $500,000
=======================================================================
F-18
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
The major elements contributing to the difference
between the Federal statutory rate and the
Company's effective tax rate are as follows:
Year ended Nine months ended
------------------------------------- ------------------
December 25,December 31, December 30, Sept. 30, Sept. 28,
1993 1994 1995 1995 1996
------------------------------------------------------------------
Statutory
rate 34.0% 34.0% (34.0%) (34.0%) 34.0%
Increase
(decrease)
in
valuation
allowance
(due primar
ily to non-
utilization
of net
operating
loss) (35.8) (41.8) 9.1 33.0 (1.3)
Permanent
and
differences 1.8 7.8 (1.0) 1.0 2.4
-------------------------------------------------------------------
-% -% (25.9)% -% 35.1%
====================================================================
Temporary differences which give rise to a
significant portion of deferred tax assets and
liabilities are as follows:
December 31,December 30,September 28,
1994 1995 1996
-----------------------------------------------------
Gross deferred
tax assets:
Accounts
receivable
allowances $90,000 $90,000 $0,088,000
Net operating
loss
carryforwards 4,230,000 4,693,000 4,282,000
Other 189,000 336,000 104,000
4,509,000 5,119,000 4,474,000
-----------------------------------------------------
Gross deferred
tax liabilities:
Plant and
equipment,
depreciation
differences (514,000) (351,000) (280,000)
-----------------------------------------------------
3,995,000 4,768,000 4,194,000
Valuation
allowance (3,995,000) (4,268,000) (4,194,000)
-----------------------------------------------------
$ - $500,000 $-
======================================================
F-19
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
Management believes that the remaining portion of
the deferred tax asset will more likely than not be
fully realized based on the Company's historical
earnings and future expectations of adjusted
taxable income.
As of December 30, 1995, the Company has Federal
tax loss carryovers of approximately $13.2 million
expiring at various dates through the year 2010.
7. LONG-TERM DEBT
December 31, December 30,September 28,
1994 1995 1996
-----------------------------------------------------
Bank:
$1,560,000 three
year loan from
the same bank
referred to in
Note 5. Interest
is calculated at
the bank's prime
rate plus 2%;
10.25% at
September 28,
1996; principal
of $18,570 plus
interest is
payable monthly,
through June 1,
1998 with final
payment of
$910,050 due
July 1, 1998. $ - $1,448,580 $1,281,450
Less: Current
maturities - 222,840 222,840
-----------------------------------------------------
- 1,225,740 1,058,610
-----------------------------------------------------
======================================================
F-20
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
December 31, December 30, September 28,
1994 1995 1996
-----------------------------------------------------
Parent:
6% subordinated
promissory note
due December
1998. Interest
is accruable but
is to be paid
annually only
out of net
income in excess
of $400,000. The
note is
subordinated to
the rights of
all creditors
and is secured
by machinery and
equipment having
a net book value
of approximately
$1,400,000 at
December 30,
1995 $2,500,000 $2,500,000 $2,500,000
Noninterest-bear
ing promissory
note, payable in
annual
installments of
$125,000
commencing
December 1993.
The 1993
and 1994
installments
were deferred
until, and paid
in, 1995.
Repayment is
subject to
management
discretion. 750,142 375,142 375,142
6% loan payable
due December
1995, interest
payable
quarterly 1,000,000 - -
Accrued interest 210,000 - -
-----------------------------------------------------
4,460,142 2,875,142 2,875,142
-----------------------------------------------------
======================================================
F-21
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
December 31, December 30, September 28,
1994 1995 1996
----------------------------------------------------------
Affiliates:
General-IKL Corp.
(see Note 11(e)) $758,173 $716,422 $733,750
-----------------------------------------------------------
$5,218,315 $4,817,304 $4,667,502
============================================================
At December 30, 1995, aggregate principal payments
for the long-term bank debt agreements are $222,840
in 1996, $222,840 in 1997 and $1,000,900 in 1998.
The repayment terms of the long-term debt - parent
and affiliates are stated above or are at the
discretion of management.
8. DISCRETIONARY The Company and certain of its affiliates maintain
PROFIT SHARING profit sharing plans covering eligible salaried and
PLAN nonunion employees. Contributions are made to the
plans at the discretion of the management of the
companies. The Company made contributions of
$30,000 and $60,000 for 1993 and 1994. There were
no contributions recorded in 1995. For the nine
months ended 1996, the Company recorded accrued
contributions of $30,000.
9. PROVISION FOR In 1995, the Company was notified that certain
CUSTOMER DAMAGE wheel bearings supplied to the railroad industry
CLAIMS did not meet specifications. As a result,
substantially all these bearings previously sold,
were recalled to be reworked. In connection with
this recall, the Company made a special provision
against earnings of $2,152,000, in the year ended
December 30, 1995, representing the estimated
liability for rework costs and customer damage
claims.
F-22
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
10. OTHER (INCOME) Other (income) expense consists of:
EXPENSE
December December December September September
25, 31, 30, 30, 28,
1993 1994 1995 1996 1996
--------------------------------------------------------------------------
Revaluation of
equity
investment
(Note 4) (b) $ - $ - $960,000 $960,000 $-
Revaluation of
goodwill
(Note 3) - - 93,333 93,333 -
Interest income (436,244) - - - -
Litigation
settlement (235,013) - - - -
Other (46,098) (32,268) 179,706 64,928 -
--------------------------------------------------------------------------
$(717,355) $(32,268) $1,233,039 $1,118,261 $-
===========================================================================
The Company incurred interest expense of $512,965,
989,912 and $1,428,451 in 1993, 1994 and 1995,
respectively. For the nine months ended 1995 and
1996, the Company incurred interest expense of
$1,036,461 and $1,034,841, respectively.
11. TRANSACTIONS (a) The Company made purchases of approximately
WITH AFFILIATES $5.3 million, $6.9 million and $9.1 million
from affiliates in 1993, 1994 and 1995,
respectively. For the nine months ended 1995
and 1996, the Company made purchases of
approximately $6.7 million and $6.4 million,
respectively. Accounts payable - affiliates
relate primarily to these purchases.
(b) General shares office facilities and provides
services for several affiliates. General
charged these affiliates $108,000, $115,000 and
$120,000 in 1993, 1994 and 1995, respectively.
General charged these affiliates $90,000 for
each of the nine months ended 1995 and 1996.
F-23
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
(c) General leases property, including its
corporate headquarters, from Gussack Realty
Company ("Realty"), which is owned by
shareholders of World. Rent and real estate
taxes paid to Realty were approximately
$786,000, $923,000 and $861,000 in 1993, 1994
and 1995, respectively (see Note 12). For the
nine months ended 1995 and 1996, the Company
paid rent and real estate taxes of
approximately $786,000 and $725,000
respectively (Note 15(c)).
(d) The Company made payments for and advances to
World, World subsidiaries and joint ventures
and certain affiliates for payroll, benefits,
and other expenses. Such payments aggregated
approximately $84,000, $1,708,000 and
$1,742,000 for the fiscal years ended 1993,
1994 and 1995, respectively. For the nine
months ended 1995 and 1996, such payments
amounted to approximately $1,262,000 and
$1,204,000, respectively.
(e) The amounts receivable from and payable to
General-IKL Corp., a corporate joint venture
with a manufacturer located in the former
Republic of Yugoslavia, are restricted due to
the suspension of economic activity with that
country. The Company believes that it will have
the right to offset amounts due from General-
IKL Corp. against amounts due to General-IKL
Corp., when the restrictions are removed.
12. COMMITMENTS AND (a) Effective January 1996, the Company completed a
CONTINGENCIES move to new facilities owned by Realty.
Existing obligations under a long-term lease
for the previous facilities, also owned by
Realty, were waived. The facilities are
currently leased on a month-to-month basis.
F-24
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
Rent expense consists of the following:
Year ended Nine months ended
---------------------------------- -----------------------
December 25, December 31,December 30, Sept. 30, Sept. 28,
1993 1994 1995 1995 1996
--------------------------------------------------------------------------
Gross rent
paid
(excluding
taxes) $596,016 $756,555 $748,320 $556,965 $556,965
Less:
Reimbursed
from related
companies (108,000) (123,791) (224,820) (168,615) (19,500)
--------------------------------------------------------------------------
$488,016 $632,764 $523,500 $388,350 $537,465
===========================================================================
(b) The Company is obligated under an operating
lease for manufacturing facilities in New
Jersey through May 1999. The lease requires
payment of real estate taxes, insurance and
maintenance. Rent expense was $238,000,
$204,000 and $204,000 in 1993, 1994 and 1995,
respectively. Rent expense for each of the
nine-month periods ended 1995 and 1996 was
$153,000 and $162,000, respectively.
Minimum annual rentals as of December 30, 1995,
under this lease, are as follows:
Year Amount
---------------------------------------------
1996 $216,000
1997 219,500
1998 239,500
1999 105,000
---------------------------------------------
$780,000
==============================================
F-25
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
(c) The Company has a management consulting and
noncompetition agreement with a former officer
and stockholder. The agreement, which commenced
as of July 1, 1980, provides for quarterly
payments aggregating $35,000 per annum for
twenty years. As of December 30, 1995, future
payments required under the agreement total
$157,500.
(d) In 1995, General and WMW Machinery of New
Jersey, Inc. (formerly WMW Machinery, Inc.)
commenced an action for damages in the United
States District Court for the Southern District
of New York against the successor to a former
East German Foreign Trade Organization and
certain other German parties.
The defendants filed an answer and counterclaim
which included a claim against General in
the amount of $9,507,337 for allegedly failing
to provide the working capital requirements
of WMW Machinery of New Jersey, Inc.
Management believes the claim against the
Company to be entirely without merit and
anticipates that the claim will have no
material impact on the Company.
The Company is subject to other proceedings and
claims in the normal course of business.
Management presently believes that the
disposition of all such known proceedings and
claims, individually or in the aggregate, will
not have a material adverse effect on the
Company's financial position, operations or
liquidity.
(e) General is party to a trademark license
agreement which provides for increasing annual
fees of between $25,000 and $35,000 through
1999, and $35,000 per year plus an inflation
factor thereafter until 2009. The agreement
contains an acceleration clause which provides
for immediate payment of all remaining fees in
the event of breach of contract.
(f) The Company has guaranteed certain of Realty's
outstanding obligations of approximately
$1.2 million to a bank and other parties.
F-26
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
13. SUPPLEMENTAL For the periods ended December 25, 1993,
CASH FLOW December 31, 1994 and December 30, 1995, the
INFORMATION Company paid interest of approximately
$518,000, $745,000, and $1,257,000,
respectively. For the nine months ended 1995
and 1996, the Company paid interest of
approximately $1,031,000 and $1,043,000,
respectively.
14. DISCHARGE FROM In December 1993, General successfully emerged
CHAPTER XI - from a Chapter XI bankruptcy proceeding which
PLAN OF commenced in September 1991. Prior to the
REORGANIZATION reorganization the Company's common stock was
owned 75% by Faiga Tuba Corporation, 18.75% by
Harold Geneen and 6.25% by Robert Duncan. The
Series A Preferred Stock was owned 100% by
Faiga Tuba Corporation. Faiga Tuba Corporation
was owned 100% by Seymour Gussack, his wife and
children. World Machinery Company immediately
subsequent to the reorganization was owned
approximately 80% by Seymour Gussack, his wife
and children and 20% by Harold Geneen. In
connection with the plan of reorganization,
the following significant transactions occurred:
(a) 100% of the common stock of General was
acquired by World (see (b) below). (The
shareholders of World, while not identical,
were similar to the former owners of General).
(b) General was obligated to World for $14,701,416
(the "Obligation") resulting from World's
purchase of a General obligation from the Wells
Fargo Bank. The Obligation was satisfied by the
issuance of a 6% secured promissory note in the
amount of $2,500,000, a $750,142 unsecured
promissory note and the issuance of 1,000
shares of Common Stock (3,000,000 as adjusted
for a 3000-for-one stock split as of October
10, 1996). The difference between the face
value of the Obligation and the settled
amounts ($11,451,174) has been recorded in the
accounts as "Extraordinary item - settlement of
debts at a discount."
(c) To assist General with its plan of
reorganization, World agreed to make advances
of up to $1,200,000; $500,000 was advanced on
December 25, 1993, and $500,000 was advanced
in January 1994 (see Note 7).
F-27
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
(d) Unsecured creditors were offered a cash
settlement equal to 5% of their outstanding
pre-petition claims or in the alternative, 10%
of such claims payable 2% per year for five
years. Substantially all of the creditors opted
for the cash settlement; the discount
applicable to the five year settlements were
immaterial.
(e) The holders of the Company's redeemable Series
B preferred stock, its Series A preferred stock
and its common stock received no consideration.
(f) The Company entered into a financing agreement
with the Bank of New York Commercial
Corporation ("BNYCC") replacing its existing
arrangement with BNYCC.
In connection with the plan of reorganization,
the Company settled its pre-petition
obligations at a discount. A summary of the
income arising from this settlement follows:
----------------------------------------------------
Reduction in obligations owing to:
World $11,451,174
Unsecured creditors and reversals
of accruals 3,974,480
Affiliates and shareholders 409,985
----------------------------------------------------
$15,835,639
=====================================================
F-28
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
15. SUBSEQUENT (a) In connection with a proposed initial public
EVENTS offering of its common stock, the Company, on
October 10, 1996, filed an amendment to its
Certificate of Incorporation, increasing the
authorized common shares from 10,600 to
19,000,000 and changing its $.10 par value per
common share to $.01 par value, and effected a
3,000-for-one stock split. Additionally, the
amendment authorizes 1,000,000 shares of
preferred stock $.01 par value per share. The
Board of Directors is authorized to fix the
rights, preferences, privileges and
restrictions of any series of preferred stock,
including the dividend rights, original issue
price, conversion rights, voting rights, terms
of redemption, liquidation preferences and
sinking fund terms thereof, and the number of
shares constituting any such series and the
designation thereof and to increase or decrease
the number of shares of such series subsequent
to the issuance of shares of such series (but
not below the number of shares of such series
then outstanding). All share and per share data
in the consolidated financial statements have
been adjusted to give retroactive effect to the
stock split.
(b) Upon the successful completion of the Offering,
the Company will adopt the 1996 Stock Option
and Performance Award Plan ("1996 Plan"), which
authorizes the granting to directors, officers
and key employees of the Company of incentive
or nonqualified stock options, performance
shares, restricted shares and performance
units. The 1996 Plan covers up to 500,000
shares of common stock. Subject to the
completion of the proposed offering, 257,500
options at the offering price were granted.
F-29
<PAGE>
GENERAL BEARING CORPORATION
AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(INFORMATION RELATED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995
AND SEPTEMBER 28, 1996 IS UNAUDITED)
========================================================================
The exercise of any incentive stock option
granted to an eligible employee may not be less
than 100% of the fair market value of the
shares underlying such option on the date of
grant, unless such employee owns more than 10%
of the outstanding common stock or stock of any
subsidiary or parent of the Company, in which
case the exercise price of any incentive stock
option may not be less than 110% of such fair
market value. No option may be exercisable more
than ten years after the date of grant and, in
the case of an incentive stock option granted
to an eligible employee owning more than 10% of
the common stock or stock of any subsidiary or
parent of the Company, no more than five years
from its date of grant. Options are not
transferable, except upon the death of the
optionee. In general, upon termination of
employment of an optionee, all options granted
to such person which are not exercisable on the
date of such termination immediately expire,
and any options that are exercisable expire
three months following termination of
employment, if such termination is not the
result of death or retirement, two years
following such termination if such termination
was because of death and one year following
such termination if such termination was
because of disability or retirement under the
provisions of any retirement plan that may be
established by the Company, or with the consent
of the Company.
(c) On November, 1996, the Company entered into a
seven year lease expiring on October 31, 2003,
with Realty, which provides for minimum annual
lease payments of $912,840 plus rent increases
beginning in 1998 of at least 106% of the next
preceding year's rent. Additionally, the
Company signed sublease agreements with World
and an affiliate of World, to sublease a
portion of the Company's space. The subleases
run concurrent with the lease noted above and
provide for aggregate minimum annual rents of
$170,220 plus rent increases beginning in 1998
of at least 106% of the next preceding year's
rent.
F-30
<PAGE>
==========================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . 3
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
COMPANY HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . 19
DIVIDEND POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . 24
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . 43
PRINCIPAL STOCKHOLDER . . . . . . . . . . . . . . . . . . . . . . . 46
DESCRIPTION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . 47
SHARES OF COMMON STOCK ELIGIBLE
FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . . . . . . 49
UNDERWRITING . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CHANGE IN INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . 53
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 53
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . F-1
===========================================================================
===========================================================================
1,200,000 SHARES
GENERAL BEARING
CORPORATION
COMMON STOCK
-------------------
PROSPECTUS
-------------------
H.J. MEYERS & CO., INC.
___________, 1997
==========================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses expected to be incurred in
connection with this Offering described in this Registration Statement.
All amounts are estimated except the Registration Fee.
Registration fee .................... $ 4,222.00
NASD filing fee .................... 1,893.00
Nasdaq listing fee .................. 7,000.00
PSE listing fee ..................... 20,000.00
Underwriters' nonaccountable expense allowance 240,000.00
Accounting fees and expenses ........ 180,000.00
Legal fees and expenses ............. 175,000.00
Blue Sky fees and expenses .......... 25,000.00
Transfer agent fee .................. 3,000.00
Printing and engraving .............. 75,000.00
Miscellaneous ....................... 4,885.00
-----------
Total ............... $736,000.00
===========
----------------------
All of the above expenses of this Offering will be paid by the
Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ARTICLE IX OF THE COI PROVIDES THAT:
"The corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or complete
action, suit or proceeding, whether civil, criminal, administrative or
investigative, or by or in the right of the corporation to procure judgment
in its favor, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, in accordance with and to the full extent permitted by
statute. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized by the Board
of Directors in the specific case upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this section. The
indemnification provided by this section shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled
under this Certificate of Incorporation or any agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding
II-1
<PAGE>
such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
ARTICLE X OF THE COMPANY'S BY-LAWS PROVIDES THAT:
"Any person made or threatened to be made a party to or involved in
any action, suit or proceeding, whether civil or criminal, administrative
or investigative (hereinafter, "proceeding") by reason of the fact that he,
his testator or intestate, is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended (but in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment) against all expense, loss and liability
(including, without limitation, judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees), actually
and necessarily incurred or suffered by him in connection with the defense
of or as a result of such proceeding, or in connection with any appeal
therein. The Corporation shall have the power to purchase and maintain
insurance for the indemnification of such directors, officers and employees
to the full extent permitted under the laws of the State of Delaware from
time to time in effect. Such right of indemnification shall not be deemed
exclusive of any other rights of indemnification to which such director,
officer or employee may be entitled.
The right to indemnification conferred in this By-Law shall be a
contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that if the General Corporation Law
-------- -------
of the State of Delaware requires, the payment of such expenses incurred by
a director or officer in his or her capacity as a director or officer (and
not in any other capacity in which services were or are rendered by such
person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a
proceeding, shall be made only upon delivery to the Corporation of an
undertaking by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this By-Law or
otherwise."
STATUTORY:
Generally, DGCL Section 145 authorizes Delaware corporations, under
certain circumstances, to indemnify their officers and directors against
all expenses and liabilities (including attorneys' fees) incurred by them
as a result of any suit brought against them in their capacity as a
director or an officer, if they acted in good faith and in manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if
they had no reasonable cause to believe their conduct was unlawful. A
director or officer may also be indemnified against expenses incurred in
connection with a suit by or in the right of the corporation if such
director or officer acted in good faith and in a manner reasonably believed
by him to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made without court approval if such
person was adjudged liable to the corporation.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriters against certain liabilities in
connection with the Registration Statement, including liabilities under the
Act.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In December 1993, the Company emerged from a bankruptcy reorganization
which commenced in September 1991. In connection with its Plan of
Reorganization, the Company issued to World: (i) a 6% Secured Promissory
Note due 1998 in the original principal amount of $2.5 million (the
"Secured Note"); (ii) a non-interest bearing, Unsecured Promissory Note in
the principal amount of $750,142 payable in annual installments of $125,000
commencing December 1993 (the "Installment Note"); and (iii) 1,000 shares
of Common Stock. The Secured Note, the Installment Note and the shares of
Common Stock were issued in exchange for a note in the original principal
amount of $12.0 million, together with accrued interest thereon in the
amount of $2,701,416 that World had acquired from Wells Fargo Bank, N.A.,
one of the Company's lenders. The Secured Note, Installment Note and
Common Stock were issued in a transaction exempt from registration under
the Act pursuant to Section 1145 of Chapter 11 of the United States
Bankruptcy Code (11 U.S. Code Section 1145). In connection with the
issuance of such securities, no commissions or fees were paid.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
Exhibit No. Description of Exhibit
----------- ----------------------
1.1 Form of Underwriting Agreement
3.1 Second Restated Certificate of Incorporation*
3.2 By-Laws of the Company*
4.1 Specimen Stock Certificate+
5 Opinion of Reid & Priest LLP+
10.1 Loan and Security Agreement dated December 20, 1993 by
and among the Bank of New York Commercial Corporation,
the Company and Hyatt Railway Products Corp., including
amendments 1 through 8 thereto*
10.2 Contract dated June 1988 by and between Shanghai
Rolling Bearing Factory and the Company, including
Agreement for the Revision and Amendment to the
Contract*
10.3 Lease Agreement dated November 1, 1996 by and between
Gussack Realty Company and the Company relating to West
Nyack, New York premises*
10.4 Lease dated March 15, 1988 by and between Lamington
Associates II and the Company relating to the Union,
New Jersey premises*
10.5 Sublease Agreement dated November 1, 1996 between the
Company and World Machinery Company*
10.6 Sublease Agreement dated November 1, 1996 between the
Company and WMW Machinery Co.*
II-3
<PAGE>
Exhibit No. Description of Exhibits
----------- -----------------------
10.9 1996 Stock Option and Performance Award Plan
10.10 Form of Representative's Warrant
10.11 Form of Registration Rights Agreement between the
Company and World (previously filed exhibit as 4.2)*
16.1 Letter re: Change in Certifying Accountant*
16.2 Letter re: Change in Certifying Accountant (updated)*
21 List of Subsidiaries of the Company*
23.1 Consent of Ferro, Berdon & Company, L.L.P. (updated)
23.2 Consent of BDO Seidman, LLP (updated)
23.3 Consent of Reid & Priest LLP (contained in Exhibit 5
hereto)+
24 Powers of Attorney*
27 Financial Data Schedule*
99.1 Consent of Harold S. Geneen pursuant to Rule 438 of the
Act*
99.2 Consent of Nina M. Gussack pursuant to Rule 438 of the
Act*
99.3 Consent of Robert E. Baruc pursuant to Rule 438 of the
Act*
* Previously filed.
+ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES:
Reports of Independent Certified Public Accountants
Schedule II Valuations and Qualifying Accounts
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) to provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt deliver to
each purchaser.
(c) Insofar as indemnification for liability arising under the Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) For determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(ii) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and this Offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Hamlet of West Nyack, State of New York, on this 14th
day of January 1997.
GENERAL BEARING CORPORATION
/s/ David L. Gussack
------------------------------
David L. Gussack
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
----------- ------- -----
/s/ Seymour I. Gussack Chairman of the January 14, 1997
--------------------------- Board of
Seymour I. Gussack Directors
/s/ David L. Gussack President and January 14, 1997
--------------------------- Director
David L. Gussack (Principal
Executive
Officer)
/s/ Christopher Moore Vice President January 14, 1997
--------------------------- Finance
Christopher Moore (Principal
Financial
and Accounting
Officer)
/s/ Jerome Johnson* Director January 14, 1997
---------------------------
Jerome Johnson
*By: /s/ David L. Gussack January 14, 1997
----------------------------
David L. Gussack
Attorney-in-Fact
II-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
The audit referred to in our report dated March 24, 1995 relating to the
consolidated financial statements of General Bearing Corporation and
Subsidiaries, which is contained in the Prospectus, included the audit of
the financial statement schedule listed in the accompanying index for the
years ended December 25, 1993 and December 24, 1994. This financial
statement schedule is the responsibility of management. Our responsibility
is to express an opinion on this financial statement schedule based upon
our audit.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
FERRO, BERDON & COMPANY, L.L.P.
New York, New York
March 24, 1995
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
The audit referred to in our report dated September 13, 1996, except for
Note 15(a) which is as of October 10, 1996 relating to the consolidated
financial statements of General Bearing Corporation and Subsidiaries, which
is contained in the Prospectus, included the audit of the financial
statement schedule listed in the accompanying index for the year ended
December 30, 1995. This financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audit.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
New York, New York
September 13, 1996
S-2
<PAGE>
(B) SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
--------- -------- -------- -------- --------
Add
---
Balance at Charged to Balance at
beginning of period Deductions end of
Description period expenses (1) period
----------- ------------ --------- ---------- ----------
Year ended December 25, 1993
Allowance for
doubtful $250,000 $5,119 $119 $255,000
accounts . . . . ----------- ------- ------ ------------
$250,000 $5,119 $119 $255,000
======== ======= ====== ========
Year ended December 31, 1994
Allowance for
doubtful $255,000 -- -- $255,000
accounts . . . . --------- -------- -------- --------
$255,000 -- -- $255,000
======== ======= ====== ========
Year ended December 30, 1995
Allowance for
doubtful $255,000 $17,050 $17,050 $255,000
accounts . . . . -------- -------- -------- --------
$255,000 $17,050 $17,050 $255,000
======== ======== ======== ========
(1)Uncollectible accounts written
off net of recoveries
S-3
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
1.1 Form of Underwriting Agreement
3.1 Second Restated Certificate of Incorporation*
3.2 By-Laws of the Company*
4.1 Specimen Stock Certificate+
5 Opinion of Reid & Priest LLP+
10.1 Loan and Security Agreement dated December 20, 1993 by
and among the Bank of New York Commercial Corporation,
the Company and Hyatt Railway Products Corp., including
amendments 1 through 8 thereto*
10.2 Contract dated June 1988 by and between Shanghai Roll-
ing Bearing Factory and the Company, including Agree-
ment for the Revision and Amendment to the Contract*
10.3 Lease Agreement dated November 1, 1996 by and between
Gussack Realty Company and the Company relating to West
Nyack, New York premises*
10.4 Lease dated March 15, 1988 by and between Lamington
Associates II and the Company relating to the Union,
New Jersey premises*
10.5 Sublease Agreement dated November 1, 1996 between the
Company and World Machinery Company*
10.6 Sublease Agreement dated November 1, 1996 between the
Company and WMW Machinery Co.*
10.9 1996 Stock Option and Performance Award Plan
10.10 Form of Representative's Warrant
10.11 Form of Registration Rights Agreement between the
Company and World (previously filed exhibit as
4.2)*
16.1 Letter re: Change in Certifying Accountant*
16.2 Letter re: Change in Certifying Accountant (updated)*
21 List of Subsidiaries of the Company*
23.1 Consent of Ferro, Berdon & Company, L.L.P. (updated)
23.2 Consent of BDO Seidman, LLP (updated)
23.3 Consent of Reid & Priest LLP (contained in Exhibit 5
hereto)+
<PAGE>
24 Powers of Attorney*
27 Financial Data Schedule*
99.1 Consent of Harold S. Geneen pursuant to Rule 438 of the
Act*
99.2 Consent of Nina M. Gussack pursuant to Rule 438 of the
Act*
99.3 Consent of Robert E. Baruc pursuant to Rule 438 of the
Act*
* Previously filed.
+ To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES:
Reports of Independent Certified Public Accountants
Schedule II - Valuations and Qualifying Accounts
Exhibit 1.1
UNDERWRITING AGREEMENT
Dated: [EFFECTIVE DATE]
H.J. MEYERS & CO., INC.
AS REPRESENTATIVE OF THE
UNDERWRITERS NAMED IN
SCHEDULE I HERETO
1895 Mt. Hope Avenue
Rochester, New York 14620
Ladies and Gentlemen:
GENERAL BEARING CORPORATION, a Delaware corporation (the
"Company"), proposes to issue and sell to the one or more
Underwriters named in Schedule I hereto (the "Underwriters"),
including H.J. Meyers & Co., Inc. (the "Representative" or
"you"), the Representative of the several Underwriters, pursuant
to this Underwriting Agreement (this "Agreement"), 1,200,000
shares of the Common Stock, $.01 par value, of the Company (the
"Common Stock"). In addition, the Company proposes to grant to
the Underwriters the Over-Allotment Option, referred to and
defined in Section 2(c), to purchase all or any part of an
aggregate of 180,000 additional shares of Common Stock, and to
issue to you the Representative's Warrant, referred to and
defined in Section 12, to purchase certain further additional
shares of Common Stock.
The 1,200,000 shares of Common Stock to be sold by the
Company, together with the 180,000 additional shares of Common
Stock that are the subject of the Over-Allotment Option, are
herein collectively called the "Shares." The Shares and the
shares of Common Stock issuable upon exercise of the
Representative's Warrant, are herein collectively called the
"Securities." The term "Representative's Counsel" shall mean the
firm of Harter, Secrest & Emery, counsel to the Representative,
and the term "Company Counsel" shall mean the firm of Reid &
Priest, LLP, counsel to the Company. Unless the context
otherwise requires, all references herein to a "Section" shall
mean the appropriate Section of this Agreement.
You have advised the Company that the Underwriters desire to
purchase the Shares as herein provided, and that you have been
authorized to execute this Agreement as representative of the
Underwriters. The Company confirms the agreements made by it
with respect to the purchase of the Shares by the Underwriters,
as follows:
1. REPRESENTATIONS AND WARRANTIES.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, each Underwriter
that:
(A) REGISTRATION STATEMENT; PROSPECTUS. A
registration statement (File No. 333-15477) on Form S-1 relating
to the public offering of the Shares (the "Offering"), including
a preliminary form of prospectus, copies of which have heretofore
been delivered to you, has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933,
as amended (the "Act"), and the rules and regulations of the
Securities and Exchange Commission (the "Commission") promulgated
thereunder (the "Rules and Regulations"), and has been filed with
the Commission under the Act. As used herein, the term
"Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations.
The Preliminary Prospectus bore the legend required by Item 501
of Regulation S-K under the Act and the Rules and Regulations.
Such registration statement (including all financial statements,
schedules and exhibits) as amended at the time it becomes
effective and the final prospectus included therein are herein
respectively called the "Registration Statement" and the
"Prospectus," except that (i) if the prospectus first filed by
the Company pursuant to Rule 424(b) or Rule 430A of the Rules and
Regulations shall differ from such final prospectus as then
amended, then the term "Prospectus" shall instead mean the
prospectus first filed pursuant to said Rule 424(b) or Rule 430A,
and (ii) if such registration statement is amended or such
prospectus is amended or supplemented after the effective date of
such registration statement and prior to the Option Closing Date
(as defined in Section 2(c)), then (unless the context
necessarily requires otherwise) the term "Registration Statement"
shall include such registration statement as so amended, and the
term "Prospectus" shall include such prospectus as so amended or
supplemented, as the case may be.
(B) CONTENTS OF REGISTRATION STATEMENT. On the
Effective Date, and at all times subsequent thereto for so long
as the delivery of a prospectus is required in connection with
the offering or sale of any of the Securities, (i) the
Registration Statement and the Prospectus shall in all material
respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the
Prospectus shall include any untrue statement of a material fact
or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided,
however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the
Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by
or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set
forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," and the
identity of counsel to the Representative under the caption
"LEGAL MATTERS," constitute the only information furnished in
writing by or on behalf of the Underwriters for inclusion in the
Registration Statement and Prospectus, as the case may be.
(C) ORGANIZATION, STANDING, ETC. The Company and each
subsidiary of the Company (a "Subsidiary") has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, with full power
and corporate authority to own its properties and conduct its
business as described in the Prospectus, and is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature of its
business or the character or location of its properties requires
such qualification, except where failure so to qualify will not
materially affect the business, properties or financial condition
of the Company or such Subsidiary, as the case may be.
(D) CAPITALIZATION. The authorized, issued and
outstanding capital stock of the Company as of the date of the
Prospectus is as set forth in the Prospectus under the caption
"CAPITALIZATION" and consists of 19,000,000 shares of Common
Stock, $.01 par value, of which no more than 3,500,000 shares,
options, and Common Stock equivalents will be issued and
outstanding or reserved for issuance immediately prior to the
First Closing Date. Except as set forth in the Prospectus,
no more than 500,000 shares of Common Stock will be reserved for
issuance under an employee stock option plan. The shares of Common
Stock issued and outstanding on the Effective Date have been duly
authorized, validly issued and are fully paid and nonassessable.
No options, warrants or other rights to purchase, agreements or
other obligations to issue, or agreements or other rights to
convert any obligation into, any shares of capital stock of the
Company or any Subsidiary. The Securities conform in all material
respects, issued by on to which the Company or any Subsidiary is
a party or bound to all statements relating thereto contained in
the Registration Statement or the Prospectus.
(E) SECURITIES. The Shares and the Representative's
Warrant have been duly authorized and, when issued and delivered
against payment therefor pursuant to this Agreement, the Shares
will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights of any security
holder of the Company and the Representative's Warrant will be a
valid and binding obligation of the Company. Neither the filing
of the Registration Statement nor the offering or sale of any of
the Shares or the Representative's Warrant as contemplated by
this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the
registration of any securities of the Company, except as
described in the Registration Statement.
(F) AUTHORITY, ETC. This Agreement, the
Representative's Warrant, the Financial Consulting Agreement, and
the M/A Agreement (each as hereinafter defined) have been duly
and validly authorized, executed and delivered by the Company
and, assuming due execution of this Agreement and such other
agreements by the other party or parties hereto and thereto,
constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their
respective terms, except as rights to indemnification hereunder
may be limited by applicable law and except as the enforcement
hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles. The Company has full right, power and lawful
authority to authorize, issue and sell the Shares and the
Representative's Warrant on the terms and conditions set forth
herein. All consents, approvals, authorizations and orders of
any court or governmental authority which are required in
connection with the authorization, execution and delivery of such
agreements, the authorization, issue and sale of the Shares and
the Representative's Warrant, and the consummation of the
transactions contemplated hereby have been obtained.
(G) NO CONFLICT. Except as described in the
Prospectus, neither the Company nor any Subsidiary is in
violation, breach or default of or under, and consummation of the
transactions hereby contemplated and fulfillment of the terms of
this Agreement will not conflict with or result in a breach of,
any of the terms or provisions of, or constitute a default under,
or result in the creation or imposition of any lien, charge or
encumbrance pursuant to the terms of, any contract, indenture,
mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company or such Subsidiary
is a party or by which the Company or such Subsidiary may be
bound or to which any of the property or assets of the Company or
such Subsidiary are subject, nor will such action result in any
violation of the provisions of the Certificate of Incorporation
or the By-laws of the Company or any Subsidiary, or any statute,
order, rule or regulation applicable to the Company or any
Subsidiary of any court or governmental authority.
(H) ASSETS. Subject to the qualifications stated in
the Prospectus: (i) the Company and each Subsidiary, as the case
may be, has good and marketable title to all properties and
assets described in the Prospectus as owned by it, including
without limitation intellectual property, free and clear of all
liens, charges, encumbrances or restrictions, except such as are
not materially significant or important in relation to its
business or described in or contemplated by the Prospectus; (ii)
all of the material leases and subleases under which the Company
or any Subsidiary is the lessor or sublessor of properties or
assets or under which the Company or any Subsidiary holds
properties or assets as lessee or sublessee, as described in the
Prospectus, are in all material respects in full force and effect
and, except as described in the Prospectus, neither the Company
nor any Subsidiary is in default in any material respect with
respect to any of the terms or provisions of any of such leases
or subleases, and, to the Company's knowledge, no claim has been
asserted in writing by any party adverse to the rights of the
Company or such Subsidiary as lessor, sublessor, lessee or
sublessee under any such lease or sublease, or affecting or
questioning the right of the Company or such Subsidiary to
continued possession of the leased or subleased premises or
assets under any such lease or sublease, except as described or
referred to in the Prospectus; and (iii) the Company and each
Subsidiary, as the case may be, owns or leases all such
properties, described in the Prospectus, as are reasonably
necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus.
(I) INDEPENDENT ACCOUNTANTS. BDO Seidman, L.L.P. and
Ferro, Berndon & Company, L.L.P., who have each given their
report on certain financial statements filed or to be filed with
the Commission as a part of the Registration Statement, and which
are included in the Prospectus, are with respect to the Company,
independent public accountants as required by the Act and the
Rules and Regulations.
(J) FINANCIAL STATEMENTS. The financial statements
and schedules, together with related notes, set forth in the
Registration Statement and the Prospectus present fairly the
financial position, results of operations and cash flows of the
Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they
apply. Such financial statements, schedules and related notes
have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout
the entire period involved, except to the extent disclosed
therein. The audited financial statements, together with the
related notes and schedules and the unaudited financial
information for each of the periods presented in the Registration
Statement and the Prospectus fairly present a true and complete
statement of the financial position of the Company and the
Predecessor at the dates indicated and the results of their
operations for the periods then ended. The Summary Financial
Information and Selected Financial Data included in the
Registration Statement and the Prospectus present fairly the
information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus.
(K) NO MATERIAL CHANGE. Except as otherwise set forth
in the Prospectus, subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, neither the Company nor any Subsidiary has:
(i) incurred any liability or obligation, direct or contingent,
or entered into any transaction, which is material to its
business; (ii) effected or experienced any change in its capital
stock; (iii) issued any options, warrants or other rights to
acquire its capital stock; (iv) declared, paid or made any
dividend or distribution of any kind on its capital stock; or (v)
effected or experienced any material adverse change, or
development involving a prospective material adverse change, in
its business, property, operations, condition (financial or
otherwise) or earnings.
(L) LITIGATION. Except as set forth in the
Prospectus, there is not now pending nor, to the best knowledge
of the Company, threatened, any action, suit or proceeding
(including any related to environmental matters or discrimination
on the basis of age, sex, religion or race), whether or not in
the ordinary course of business, to which the Company or any
Subsidiary is a party or its business or property is subject,
before or by any court or governmental authority, which might
result in any material adverse change in the business, property,
operations, condition (financial or otherwise) or earnings of the
Company or such Subsidiary; and no labor disputes involving the
employees of the Company or any Subsidiary exist which might be
expected to affect materially adversely the business, property,
operations, condition (financial or otherwise) or earnings of the
Company or such Subsidiary.
(M) NO UNLAWFUL PROSPECTUSES. The Company has not
distributed any prospectus or other offering material in
connection with the Offering contemplated herein, other than any
Preliminary Prospectus, the Prospectus or other material
permitted by the Act and the Rules and Regulations.
(N) TAXES. Except as disclosed in the Prospectus, the
Company and each Subsidiary has filed all necessary federal,
state, local and foreign income and franchise tax returns and has
paid all taxes shown as due thereon or has requested extension
thereof, except in any case in which the failure so to file or
request an extension would not have a material adverse effect on
the Company; and there is no tax deficiency which has been or, to
the best knowledge of the Company, might be asserted against the
Company or any Subsidiary.
(O) LICENSES, ETC. The Company and each Subsidiary
has in effect all necessary and material licenses, permits and
other governmental authorizations currently required for the
conduct of its business or the ownership of its property, as
described in the Prospectus, and is in all material respects in
compliance therewith, except in any case in which the failure to
so comply would not have a material adverse effect. The Company
owns or possesses adequate rights to use all material patents,
patent applications, trademarks, mark registrations, copyrights
and licenses disclosed in the Prospectus and/or which are
necessary for the conduct of such business, and except as
disclosed in the Prospectus has not received any notice in
writing of conflict with the asserted rights of others in respect
thereof. To the best knowledge of the Company, none of the
activities or business of the Company or any Subsidiary is in
violation of, or would cause the Company or such Subsidiary to
violate, any law, rule, regulation or order of the United States,
any state, county or locality, the violation of which would have
a material adverse effect upon the business, property,
operations, condition (financial or otherwise) or earnings of the
Company or such Subsidiary.
(P) NO PROHIBITED PAYMENTS. Neither the Company nor
any Subsidiary have, directly or indirectly at any time: (i)
made any contribution to any candidate for political office, or
failed to disclose fully any such contribution in violation of
law; or (ii) made any payment to any federal, state, local or
foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments
or contributions required or allowed by applicable law. The
Company's internal accounting controls and procedures are
sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(Q) TRANSFER TAXES. On the Closing Dates (as defined
in Section 2(d)), all transfer and other taxes (including
franchise, capital stock and other tax, other than income taxes,
imposed by any jurisdiction), if any, which are required to be
paid in connection with the sale and transfer by the Company of
the Securities to the Underwriters hereunder shall have been
fully paid or provided for by the Company, and all laws imposing
such taxes shall have been fully complied with by the Company; it
being expressly understood and agreed that no representation or
warranty is made hereby as to sales or transfers by any
underwriter.
(R) EXHIBITS. All contracts and other documents of
the Company or any Subsidiary which are, under the Rules and
Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(S) SUBSIDIARIES. Except as described in the
Prospectus, the Company has no significant Subsidiaries, as
defined under Section 1-02 of Regulation S-X. All of the capital
stock of each Subsidiary is owned by the Company.
(T) SHAREHOLDER AGREEMENTS, REGISTRATION RIGHTS.
Except as described in the Prospectus, no security holder of the
Company has any rights with respect to the purchase, sale or
registration of any Securities, and all registration rights with
respect to the Offering have been effectively waived.
2. PURCHASE, DELIVERY AND SALE OF SHARES.
(A) PURCHASE PRICE FOR SHARES. The Shares of Common
Stock shall be sold to and purchased by the Underwriters
hereunder at the purchase price of $8.19 per Share (that being
the public offering price of $9.00 per Share less an
underwriting discount of 9.0 percent) (the "Purchase Price").
(B) FIRM SHARES.
(i) Subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties
and agreements herein contained the Company agrees to issue and
sell to the Underwriters, severally and not jointly, and each of
the Underwriters agrees, severally and not jointly, to buy from
the Company at the Purchase Price, the number of Shares set forth
opposite such Underwriter's name in Schedule I hereto (the "Firm
Shares").
(ii) Delivery of the Firm Shares against payment
therefor shall take place at the offices of the Representative,
1895 Mt. Hope Avenue, Rochester, New York 14620 (the
"Representative's Offices") (or at such other place as may be
designated by agreement between you and the Company) at 10:00
a.m., New York time, on January ___, 1997, or at such later time
and date, not later than ten banking days after the Effective
Date, as you may designate (such time and date of payment and
delivery for the Firm Shares being herein called the "First
Closing Date"). Time shall be of the essence and delivery of the
Firm Shares at the time and place specified in this Section
2(b)(ii) is a further condition to the obligations of the
Underwriters hereunder.
(C) OPTION SHARES.
(i) In addition, subject to the terms and
conditions of this Agreement, and on the basis of the
representations, warranties and agreements herein contained, the
Company hereby grants to the Underwriters an option (the
"Over-Allotment Option") to purchase from the Company all or any
part of an aggregate of an additional 180,000 Shares at the
Purchase Price (the "Option Shares"). In the event that the
Over-Allotment Option is exercised by the Underwriters in whole
or in part, each Underwriter shall purchase Option Shares in the
same proportion as the number of Firm Shares purchased by it bore
to the total number of Firm Shares, unless you and the other
Underwriters shall otherwise agree.
(ii) The Over-Allotment Option may be exercised by
the Underwriters, in whole or in part, within 45 days after the
Effective Date, upon notice by you to the Company advising it of
the number of Option Shares as to which the Over-Allotment Option
is being exercised, the names and denominations in which the
certificates for the Shares comprising such Option Shares are to
be registered, and the time and date when such certificates are
to be delivered. Such time and date shall be determined by you
but shall not be less than four nor more than ten banking days
after exercise of the Over-Allotment Option, nor in any event
prior to the First Closing Date (such time and date being herein
called the "Option Closing Date"). Delivery of the Option Shares
against payment therefor shall take place at the Representative's
Offices. Time shall be of the essence and delivery at the time
and place specified in this Section 2(c)(ii) is a further
condition to the obligations of the Underwriters hereunder.
(iii) The Over-Allotment Option may be
exercised only to cover over-allotments in the sale by the
Underwriters of Firm Shares.
(D) DELIVERY OF CERTIFICATES; PAYMENT.
(i) The Company shall make the certificates for
the Shares to be purchased hereunder available to you for
checking at least one banking day prior to the First Closing Date
or the Option Closing Date (each, a "Closing Date"), as the case
may be. The certificates shall be in such names and
denominations as you may request at least two banking days prior
to the relevant Closing Date. Time shall be of the essence and
the availability of the certificates at the time and place
specified in this Section 2(d)(i) is a further condition to the
obligations of the Underwriters hereunder.
(ii) On the First Closing Date: (A) the Company
shall deliver to you for the several accounts of the Underwriters
definitive engraved certificates in negotiable form representing
all of the Firm Shares to be sold by the Company, against payment
of the Purchase Price therefor by you for the several accounts of
the Underwriters, by certified or bank cashier's checks payable
in next day funds to the order of the Company, such payment to be
made not later than ten days after the Effective Date.
(iii) In addition, if and to the extent that the
Underwriters exercise the Over-Allotment Option, then on the
Option Closing Date: (A) the Company shall deliver to you for
the several accounts of the Underwriters definitive engraved
certificates in negotiable form representing the Shares
comprising the Option Shares to be sold by the Company, against
payment of the Purchase Price therefor by you for the several
accounts of the Underwriters, by certified or bank cashier's
checks payable in next day funds to the order of the Company.
(iv) It is understood that the Underwriters propose to
offer the Shares to be purchased hereunder to the public, upon
the terms and conditions set forth in the Registration Statement,
after the Registration Statement becomes effective.
3. COVENANTS.
COVENANTS OF THE COMPANY. The Company covenants and agrees
with each Underwriter that:
(A) REGISTRATION.
(i) The Company shall use its best efforts to
cause the Registration Statement to become effective and, upon
notification from the Commission that the Registration Statement
has become effective, shall so advise you and shall not at any
time, whether before or after the Effective Date, file any
amendment to the Registration Statement or any amendment or
supplement to the Prospectus of which you shall not previously
have been advised and furnished with a copy, or to which you or
Representative's Counsel shall have objected in writing, or which
is not in compliance in all material respects with the Act and
the Rules and Regulations. At any time prior to the later of (A)
the completion by the Underwriters of the distribution of the
Shares contemplated hereby (but in no event more than nine months
after the Effective Date), and (B) 25 days after the Effective
Date, the Company shall prepare and file with the Commission,
promptly upon your request, any amendments to the Registration
Statement or any amendments or supplements to the Prospectus
which, in your reasonable opinion, may be necessary or advisable
in connection with the distribution of the Shares.
(ii) Promptly after you or the Company shall have
been advised thereof, you shall advise the Company or the Company
shall advise you, as the case may be, and confirm such advice in
writing, of (A) the receipt of any comments of the Commission,
(B) the effectiveness of any post-effective amendment to the
Registration Statement, (C) the filing of any supplement to the
Prospectus or any amended Prospectus, (D) any request made by the
Commission for amendment of the Registration Statement or
amendment or supplementing of the Prospectus, or for additional
information with respect thereto, or (E) the issuance by the
Commission or any state or regulatory body of any stop order or
other order denying or suspending the effectiveness of the
Registration Statement, or preventing or suspending the use of
any Preliminary Prospectus, or suspending the qualification of
the Securities for offering in any jurisdiction, or otherwise
preventing or impairing the Offering, or the institution or
threat of any proceeding for any of such purposes. The Company
and you shall not acquiesce in such order or proceeding, and
shall instead actively defend such order or proceeding, unless
the Company and you agree in writing to such acquiescence.
(iii) The Company has caused to be delivered
to you copies of each Preliminary Prospectus, and the Company has
consented and hereby consents to the use of such copies for the
purposes permitted by the Act. The Company authorizes the
Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Shares for such period as in the
opinion of Representative's Counsel the use thereof is required
to comply with the applicable provisions of the Act and the Rules
and Regulations. In case of the happening, at any time within
such period as a prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer,
of any event of which the Company has knowledge and which
materially affects the Company or the Securities, or which in the
opinion of Company Counsel or of Representative's Counsel should
be set forth in an amendment to the Registration Statement or an
amendment or supplement to the Prospectus in order to make the
statements made therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to
be delivered to a purchaser of the Shares, or in case it shall be
necessary to amend or supplement the Prospectus to comply with
the Act or the Rules and Regulations, the Company shall notify
you promptly and forthwith prepare and furnish to the
Underwriters copies of such amended Prospectus or of such
supplement to be attached to the Prospectus, in such quantities
as you may reasonably request, in order that the Prospectus, as
so amended or supplemented, shall not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements in the Prospectus, in
the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of each such
amendment to the Registration Statement, amended Prospectus or
supplement to be attached to the Prospectus shall be without
expense to the Underwriters, except that in the case that the
Underwriters are required, in connection with the sale of the
Shares, to deliver a prospectus nine months or more after the
Effective Date, the Company shall upon your request and at the
expense of the Underwriters, amend the Registration Statement and
amend or supplement the Prospectus, or file a new registration
statement on Form SB-2 (if applicable) or Form S-1, if necessary,
and furnish the Underwriters with reasonable quantities of
prospectuses complying with section 10(a)(3) of the Act.
(iv) The Company shall comply with the Act, the
Rules and Regulations, and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder in connection with the offering and
issuance of the Securities.
(B) BLUE SKY. The Company shall, at its own expense,
use its best efforts to qualify or register the Securities for
sale under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such
applications and furnish such information to Representative's
Counsel as may be required for that purpose, and shall comply
with such laws; provided, however, that the Company shall not be
required to qualify as a foreign corporation or a dealer in
securities or to execute a general consent to service of process
in any jurisdiction in any action other than one arising out of
the offering or sale of the Shares. The Company shall bear all
of the expense of such qualifications and registrations,
including without limitation the legal fees and disbursements of
Representative's Counsel, which fees, exclusive of disbursements,
shall not exceed $25,000 (unless otherwise agreed). After each
Closing Date the Company shall, at its own expense, from time to
time prepare and file such statements and reports as may be
required to continue each such qualification in effect for so
long a period as you may reasonably request.
(C) EXCHANGE ACT REGISTRATION. The Company shall, at
its own expense, prepare and file with the Commission a
registration statement (on Form 8-A) under section 12(g) or 12(b)
of the Exchange Act and will use its best efforts to have such
registration statement declared effective by the Commission
concurrently with the Registration Statement being declared
effective. The Company shall use its best efforts to cause such
registration statement to be declared effective and maintained in
effect for at least five years from the Effective Date.
(D) PROSPECTUS COPIES. The Company shall deliver to
you on or before the First Closing Date two signed copies of the
Registration Statement including all financial statements,
schedules and exhibits filed therewith, and of all amendments
thereto. The Company shall deliver to or on the order of the
Underwriters, from time to time until the Effective Date, as many
copies of any Registration Statement, Preliminary Prospectus and
related exhibits filed with the Commission prior to the Effective
Date as the Underwriters may reasonably request. The Company
shall deliver to the Underwriters on the Effective Date, and
thereafter for so long as a prospectus is required to be
delivered under the Act, from time to time, as many copies of the
Registration Statement, Prospectus, and related exhibits in final
form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(E) AMENDMENTS AND SUPPLEMENTS. The Company shall,
promptly upon your request, prepare and file with the Commission
any amendments to the Registration Statement, and any amendments
or supplements to the Preliminary Prospectus or the Prospectus,
and take any other action which in the reasonable opinion of
Representative's Counsel may be reasonably necessary or advisable
in connection with the distribution of the Shares, and shall use
its best efforts to cause the same to become effective as
promptly as possible.
(F) CERTAIN MARKET PRACTICES. The Company has not
taken, and shall not take, directly or indirectly, any action
designed, or which might reasonably be expected, to cause or
result in, or which has constituted, the stabilization or
manipulation of the price of the Securities to facilitate the
sale or resale thereof.
(G) CERTAIN REPRESENTATIONS. Neither the Company nor
any representative of the Company has made or shall make any
written or oral representation in connection with the Offering
and sale of the Shares or the Representative's Warrant which is
not contained in the Prospectus, which is otherwise inconsistent
with or in contravention of any thing contained in the
Prospectus, or which shall constitute a violation of the Act, the
Rules and Regulations, the Exchange Act or the rules and
regulations promulgated under the Exchange Act.
(H) CONTINUING REGISTRATION OF WARRANTS AND UNDERLYING
COMMON STOCK. For so long as any portion of the Representative's
Warrant is outstanding, the Company shall, at its own expense:
(i) use its best efforts to cause post-effective amendments to
the Registration Statement, or new registration statements (which
may be on Forms SB-2, S-l, S-2 or S-3, as the case may be)
relating to the Representative's Warrant and the Common Stock
underlying the Representative's Warrants to become effective in
compliance with the Act and without any lapse of time between the
effectiveness of the Registration Statement and of any such
post-effective amendment or new registration statement; (ii)
cause a copy of each Prospectus, as then amended, to be delivered
to each holder of record of any portion of the Representative's
Warrant; (iii) furnish to the Underwriters and dealers as many
copies of each such Prospectus as the Underwriters or dealers may
reasonably request; and (iv) maintain the "blue sky"
qualification or registration of the Representative's Warrant and
the Common Stock underlying the Representative's Warrant, or have
a currently available exemption therefrom, in each jurisdiction
in which the Securities were so qualified or registered for
purposes of the Offering. In addition, for so long as the
Representative's Warrant is outstanding, the Company shall
promptly notify you of any material change in the business,
financial condition or prospects of the Company.
(I) USE OF PROCEEDS. The Company shall apply the net
proceeds from the sale of the Shares for the purposes set forth
in the Prospectus under the caption "USE OF PROCEEDS," and shall
file such reports with the Commission with respect to the sale of
the Shares and the application of the proceeds therefrom as may
be required pursuant to Rule 463 of the Rules and Regulations.
(J) TWELVE MONTHS' EARNINGS STATEMENT. The Company
shall make generally available to its security holders and
deliver to you as soon as it is practicable so to do, but in no
event later than 90 days after the end of twelve months after the
close of its current fiscal quarter, an earnings statement (which
need not be audited) covering a period of at least twelve
consecutive months beginning after the Effective Date, which
shall satisfy the requirements of section 11(a) of the Act and
may be made available in accordance with Rule 158 of the Rules
and Regulations.
(K) NASDAQ, EXCHANGE LISTINGS, ETC. The Company shall
immediately make all filings required to seek approval for the
quotation of the Securities on The Nasdaq SmallCap Market System
("NASDAQ") and shall use reasonable efforts to effect and
maintain such approval for at least five years from the Effective
Date. The Company shall also use its reasonable efforts to cause
the Shares to be accepted for listing on the Pacific Stock
Exchange, and/or such other exchange acceptable to you, prior to
the Effective Date or, failing that, as soon as is possible after
the First Closing Date, and to maintain such listings for five
years. Within 10 days after the Effective Date, the Company
shall also use its best efforts to list itself in Moody's OTC
Industrial Manual and to cause such listing to be maintained for
at least five years from the Effective Date.
(L) BOARD OF DIRECTORS. The Company shall maintain a
Board of Directors comprised of a minimum of five and a maximum
of eleven directors, at least a majority of whom shall be neither
employed by nor otherwise affiliated with the Company. The Board
of Directors shall hold at least four meetings annually.
(M) PERIODIC REPORTS. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the
Exchange Act, the Company shall, at its own expense, furnish to
its shareholders an annual report (including financial statements
audited by certified public accountants) complying with the
requirements of Section 14a-3 under the Exchange Act or any
successor provision. In addition, during the period ending five
years from the date hereof, the Company shall, at its own
expense, furnish to you: (i) within 90 days of the end of each
fiscal year, a balance sheet of the Company and its Subsidiaries
as at the end of such fiscal year, together with statements of
income, stockholders' equity and cash flows of the Company and
its Subsidiaries as at the end of such fiscal year, all in
reasonable detail and accompanied by a copy of the certificate or
report thereon of certified public accountants; (ii) as soon as
they are available, a copy of all reports (financial or
otherwise) distributed to security holders; and (iii) as soon as
they are available, a copy of all non-confidential reports and
financial statements furnished to or filed with the Commission;
and (iv) such other information as you may from time to time
reasonably request. The financial statements referred to herein
shall be on a consolidated basis to the extent the accounts of
the Company and its Subsidiaries are consolidated in reports
furnished to its shareholders generally. In addition, during the
period ending one year from the date hereof, the Company shall,
at its own expense, furnish you monthly with Depository Trust
Company stock transfer sheets.
(N) CERTAIN OPTIONS. For a period of 90 days
following the First Closing Date, the Company shall not, without
your prior written consent, grant any options, warrants or other
rights to purchase shares of Common Stock at a price less than
the initial public Offering price of the Shares.
(O) FORM S-8 REGISTRATIONS. For a period of one year
following the First Closing Date, the Company shall not register
or otherwise facilitate the registration of any of its securities
issuable upon the exercise of options, warrants (other than the
Representative's Warrant) or other rights, whether by means of a
Registration Statement on Form S-8 or otherwise, without your
prior written consent.
(P) FUTURE SALES. For a period of 12 months following
the Effective Date, the Company shall not sell or otherwise
dispose of any securities of the Company without your prior
written consent, which consent shall not be unreasonably
withheld; provided, however, that the Company may at any time
issue shares of Common Stock pursuant to the exercise of the
Representative's Warrant, and options, warrants or other
convertible securities issued and outstanding prior to the
Effective Date and described in the Prospectus, and with respect
to any acquisition or joint venture by the Company. In addition,
for a period of three years following the First Closing Date, the
Company shall not sell or otherwise dispose of any shares of
Preferred Stock without your prior written consent. Furthermore,
for a period of 18 months from the Effective Date, the Company
shall not sell or issue any securities pursuant to Regulation S
under the Act without your prior written consent.
(Q) RULE 144 SALES. The Company shall cause each of
its officers and directors to provide you the right, for a period
of three years following the First Closing Date, to purchase for
your own account, or to sell for the account of such person, all
securities of the Company sold by such person pursuant to Rule
144 of the Rules and Regulations. The Company shall use its best
efforts to cause each of the other beneficial holders as of the
date hereof of at least 5 percent of the Company's securities to
provide you the right, for a period of three years following the
First Closing Date, to purchase for your own account, or to sell
for the account of such holder, all securities of the Company
sold by such holder pursuant to said Rule 144.
(R) AVAILABLE SHARES. The Company shall reserve and
at all times keep available that maximum number of its authorized
but unissued shares of Common Stock which are issuable upon
exercise of the Representative's Warrant, taking into account the
anti-dilution provisions thereof.
(S) AGREEMENT OF MANAGEMENT AND SHAREHOLDERS. On or
before the Effective Date, the Company shall cause the parties
named therein to execute and deliver to you an agreement, in the
form previously delivered to the Company by you, regarding
certain undertakings by such parties in connection with the
Offering (the "Agreement of Management and Shareholders").
(T) FINANCIAL CONSULTING AGREEMENT. On the First
Closing Date and simultaneously with the delivery of the Firm
Shares, the Company shall execute and deliver to you an agreement
with you, in the form previously delivered to the Company by you,
regarding your services as a financial consultant to the Company
(the "Financial Consulting Agreement").
(U) M/A AGREEMENT. On the First Closing Date and
simultaneously with the delivery of the Firm Shares, the Company
shall execute and deliver to you an agreement with you, in the
form previously delivered to the Company by you, regarding
mergers, acquisitions, joint ventures and certain other forms of
transactions (the "M/A Agreement").
(V) MANAGEMENT. On each Closing Date, management of
the Company shall consist of Seymour Gussack, as Chairman of the
Board, David L. Gussack, as President, and Christopher Moore, as
Vice President-Finance. Prior to the Effective Date the Company
shall have obtained "key man" life insurance coverage on the
lives of Seymour Gussack and David L. Gussack, naming the Company
as beneficiary and having a face value of at least $1,000,000,
for terms, and with an insurance agency, mutually agreed upon by
the Company and you. The Company shall use its best efforts to
maintain such insurance during the three-year period commencing
on the First Closing Date.
(W) PUBLIC RELATIONS. Prior to the Effective Date the
Company shall have retained a public relations firm reasonably
acceptable to you, and shall continue to retain such firm, or an
alternate firm acceptable to you, for a minimum period of two
years on such terms as are acceptable to you.
(X) BOUND VOLUMES. Within 90 days from the First
Closing Date, the Company shall deliver to you, at the Company's
expense, three bound volumes in form and content acceptable to
you, containing the Registration Statement and all exhibits filed
therewith and all amendments thereto, and all other agreements,
correspondence, filings, certificates and other documents filed
and delivered in connection with the Offering.
(Y) For a period of 36 months from the Effective Date,
the Company shall allow an observer designated by you and
acceptable to the Company, to receive notice of and to attend all
meetings of the Board of Directors of the Company. Such observer
shall have no voting rights, and shall be reimbursed by the
Company for all reasonable out-of-pocket expenses incurred in
attending such meetings. The Company shall hold at least four
meetings per year and the observer will be indemnified by the
Company (to the same extent the Company provides for
indemnification of its directors) against any claims arising out
of his participation at Board meetings.
(Z) Prior to the Effective Date, the Company shall
have hired a Chief Financial Officer or have made other
arrangements satisfactory to you, and shall retain an individual
in such position for a minimum period of three years following
the Effective Date.
(AA) The Company shall supply you with DTC Stock
Transfer sheets on a weekly basis for the first six weeks
following the First Closing Date, and for six weeks following the
Option Closing Date, and on a monthly basis thereafter.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The
obligations of the several Underwriters to purchase and pay for
the Shares which they have agreed to purchase hereunder are
subject to the accuracy (as of the date hereof and as of each
Closing Date) of and compliance with the representations and
warranties of the Company contained herein, the performance by
the Company of all of its respective obligations hereunder, and
the Agreement of Management and Shareholders, and the following
further conditions:
(A) EFFECTIVE REGISTRATION STATEMENT; NO STOP ORDER.
The Registration Statement shall have become effective and you
shall have received notice thereof not later than 6:00 p.m., New
York time, on the date of this Agreement, or at such later time
or on such later date as to which you may agree in writing. In
addition, on each Closing Date (i) no stop order denying or
suspending the effectiveness of the Registration Statement shall
be in effect, and no proceedings for that or any similar purpose
shall have been instituted or shall be pending or, to your
knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and (ii) all requests on the part
of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Representative's
Counsel.
(B) OPINION OF COMPANY COUNSEL. On the First Closing
Date, you shall have received the opinion, dated as of the First
Closing Date, of Company Counsel, in form and substance
satisfactory to Representative's Counsel, to the effect that:
(i) the Company and each Subsidiary has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
State of Delaware, with full corporate power and
authority to own its properties and conduct its
business as described in the Prospectus, and, to such
counsel's knowledge, is duly qualified or licensed to
do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature
of its business or the character or location of its
properties requires such qualification, except where
failure so to qualify will not materially affect the
business, properties or financial condition of the
Company or such Subsidiary;
(ii) (A) the authorized capitalization of
the Company as of the date of the Prospectus was as is
set forth in the Prospectus under the caption
"CAPITALIZATION;" (B) all of the shares of Common Stock
now outstanding have been duly authorized and validly
issued, are fully paid and non-assessable, conform in
all material respects to the description thereof
contained in the Prospectus, have not been issued in
violation of the preemptive rights of any shareholder
and, to such counsel's knowledge, except as described
in the Prospectus, are not subject to any restrictions
upon the voting or transfer thereof under the Delaware
General Corporation Law; (C) all of the Shares have
been duly authorized and, when paid for as provided
herein, shall be validly issued, fully paid and non-
assessable, shall not have been issued in violation of
the preemptive rights of any shareholder, and no
personal liability shall attach to the ownership
thereof; (D) the shareholders of the Company do not
have any preemptive rights or other rights to subscribe
for or purchase, and there are no restrictions upon the
voting or transfer of, any of the Shares and the shares
of Common Stock underlying the Representative's
Warrant; (E) the Shares and the Representative's
Warrant conform to their respective descriptions
thereof contained in the Prospectus; (F) all prior
sales of the Company's securities have been made in
compliance with, or under an exemption from, the Act;
(G) a sufficient number of shares of Common Stock have
been reserved for issuance, upon exercise of the
Representative's Warrant is outstanding; and (H) to the
best knowledge of such counsel, neither the filing of
the Registration Statement nor the offering or sale of
the Shares as contemplated by this Agreement gives rise
to any registration rights or other rights, other than
those which have been effectively waived or satisfied,
for or relating to the registration of any securities
of the Company;
(iii) the certificates evidencing the
Shares are each in valid and proper legal form under
the Delaware General Corporation Law; and the
Representative's Warrant is exercisable for shares of
Common Stock in accordance with its terms and at the
prices therein provided for;
(iv) this Agreement, the Representative's
Warrant, the Financial Consulting Agreement and the M/A
Agreement have been duly and validly authorized,
executed and delivered by the Company and (assuming due
execution and delivery thereof by each party thereto
other than the Company all of such agreements are, or
when duly executed shall be, the valid and legally
binding obligations of the Company, enforceable in
accordance with their respective terms (except as
enforceability may be limited by bankruptcy, insolvency
or other laws affecting the rights of creditors
generally); provided, however, that no opinion need be
expressed as to the enforceability of the indemnity
provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the best knowledge of such counsel,
(A) there is no pending, threatened or contemplated
legal or governmental proceeding pending or threatened
in writing affecting the Company or any Subsidiary
which could materially and adversely affect the
business, property, operations, condition (financial or
otherwise) or earnings of the Company or such
Subsidiary, or which questions the validity of the
Offering, the Securities, this Agreement, the
Representative's Warrant, the Financial Consulting
Agreement or the M/A Agreement, or of any action taken
or to be taken by the Company pursuant thereto; and
(B) there is no legal or governmental proceeding or
regulation required to be described or referred to in
the Registration Statement which is not so described or
referred to;
(vi) to the best knowledge of such counsel,
(A) the Company is not in violation of or default under
this Agreement, the Representative's Warrant, the
Financial Consulting Agreement or the M/A Agreement;
and (B) the execution and delivery hereof and thereof
and the incurrence of the obligations herein and
therein set forth and the consummation of the
transactions herein or therein contemplated shall not
result in a violation of, or constitute a default
under, the Certificate of Incorporation or By-laws of
the Company, or, to our knowledge, any material
obligation, agreement, covenant or condition contained
in any bond, debenture, note or other evidence of
indebtedness, or in any material contract, indenture,
mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party
or by which its assets are bound, or any material
order, rule, regulation, writ, injunction or decree of
any government, governmental instrumentality or court;
(vii) the Registration Statement has become
effective under the Act, and to the best knowledge of such
counsel, no stop order denying or suspending the
effectiveness of the Registration Statement is in effect,
and no proceedings for that or any similar purpose have been
instituted or are pending before or threatened by the
Commission;
(viii) the Registration Statement and the
Prospectus (except for the financial statements, notes
thereto and other financial information and statistical data
contained therein, as to which no opinion need be rendered),
comply as to form in all material respects with the Act and
the Rules and Regulations;
(ix) all descriptions contained in the
Registration Statement or the Prospectus of contracts
and other documents are accurate and fairly present the
information required to be described in all material
respects, and such counsel is familiar with all
contracts and other documents referred to in the
Registration Statement and the Prospectus or filed as
exhibits to the Registration Statement and, to the best
knowledge of such counsel, no contract or document of a
character required to be summarized or described
therein or to be filed as an exhibit thereto is not so
summarized, described or filed;
(x) the descriptions contained in the
Registration Statement and the Prospectus which purport
to summarize the provisions of statutes, rules and
regulations are accurate summaries in all material
respects, and such descriptions fairly present in all
material respects the information shown, and the
descriptions contained in the Registration Statement
and the Prospectus that concern matters of law or legal
conclusions have been reviewed by such counsel and are
correct in all material respects;
(xi) The Agreement of Management and
Shareholders has been duly and validly executed and
delivered by each party thereto (other than American
Stock Transfer & Trust Company); and
(xii) except for registration under the
Act and registration or qualification of the Securities
under applicable state or foreign securities or blue
sky laws (as to which no opinion is rendered), no
authorization, approval, consent or license of any
governmental or regulatory authority or agency is
necessary in connection with: (A) the authorization,
issuance, sale, transfer or delivery of the Securities
by the Company; (B) the execution, delivery and
performance of this Agreement by the Company or the
taking of any action contemplated herein; (C) the
issuance of the Representative's Warrant or the Shares
of Common Stock issuable upon exercise thereof; or
(D) the execution, delivery and performance of this
Agreement by the Company or the taking of any action
contemplated herein.
We have participated in conferences with officers and other
representatives of the Company, the Representatives of the
Underwriters and their counsel and representatives of the
independent certified public accountants of the Company, at which
the contents of the Registration Statement and the Prospectus and
related matters were discussed and although we have not verified
or checked the accuracy, completeness or fairness of the
statements and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, on the basis of the
foregoing, no fact has come to our attention which causes us to
believe that, at the time the Registration Statement became
effective and at all times subsequent thereto up to and on the
Closing Date, the Registration Statement and any amendment or
supplement thereto contained or contains any untrue statement of
a material fact or omitted or omits to state any material fact
necessary to make the statements therein not misleading, or that
the Prospectus as of this date or at the Closing Date, included
or includes any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that we
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express no comment or belief with respect to the financial
statements or other financial data set forth in the Registration
Statement and in the Prospectus. Such opinion shall also cover
such matters incident to the transactions contemplated hereby as
you or Representative's Counsel shall reasonably request. In
rendering such opinion, Company Counsel may rely as to matters of
fact upon certificates of officers of the Company, and of public
officials and may rely as to all matters of law other than the
law of the United States or the States of Delaware or New York
upon opinions of counsel satisfactory to you, in which case the
opinion shall state that they have no reason to believe that you
and they are not entitled so to rely.
(C) CORPORATE PROCEEDINGS. All corporate proceedings
and other legal matters relating to this Agreement, the
Registration Statement, the Prospectus and other related matters
shall be reasonably satisfactory to or approved by
Representative's Counsel, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date,
with respect to the validity of the issuance of the Securities,
the form of the Registration Statement and Prospectus (other than
the financial statements and other financial or statistical data
contained therein), the execution of this Agreement and other
related matters as you may reasonably require. The Company shall
have furnished to Representative's Counsel such documents as they
may reasonably request for the purpose of enabling them to render
such opinion.
(D) COMFORT LETTER. Prior to the Effective Date, and
again on and as of the First Closing Date, you shall have
received letters from BDO Seidman LLP and Ferro, Berndon &
Company, L.L.P., certified public accountants for the Company,
substantially in the form approved by you with respect to the
unaudited financial statements and other financial information
and other data contained in the Registration Statement with
regard to the period from the date of the audited financial
statements to a date not more than five days prior to the
Effective Date, the First Closing Date and the Option Closing
Date, respectively.
(E) BRING DOWN. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this
Agreement shall be true and correct with the same effect as if
made on and as of such Closing Date, and the Company shall have
performed all of its respective obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such
Closing Date; (ii) the Registration Statement and the Prospectus
shall contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations,
and shall in all material respects conform to the requirements of
the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus shall contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading; (iii) there shall have
been, since the respective dates as of which information is
given, no material adverse change in the business, property,
operations, condition (financial or otherwise), earnings, capital
stock, long-term or short-term debt or general affairs of the
Company from that set forth in the Registration Statement and the
Prospectus, except changes which the Registration Statement and
Prospectus indicate might occur after the Effective Date, and the
Company shall not have incurred any material liabilities nor
entered into any material agreement other than as referred to in
the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding shall be
pending or threatened against the Company which would be required
to be disclosed in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by
any commission, board or administrative agency in the United
States or elsewhere, wherein an unfavorable decision, ruling or
finding would materially adversely affect the business, property,
operations, condition (financial or otherwise), earnings or
general affairs of the Company. In addition, you shall have
received, at the First Closing Date, a certificate signed by the
principal executive officer and by the principal financial
officer of the Company, dated as of the First Closing Date,
evidencing compliance with the provisions of this Section 4(e),
evidencing as to him compliance with the provisions of this
Section 4(e).
(F) TRANSFER AND WARRANT AGENT. On or before the
Effective Date, the Company shall have appointed American Stock
Transfer & Trust Company (or other agent mutually acceptable to
the Company and you), as its transfer agent and warrant agent to
transfer all of the Shares issued in the Offering, as well as to
transfer other shares of the Common Stock outstanding from time
to time, including those issuable upon exercise of the
Representative's Warrant.
(G) CERTAIN FURTHER MATTERS. On each Closing Date,
Representative's Counsel shall have been furnished with all such
other documents and certificates as they may reasonably request
for the purpose of enabling them to render their legal opinion to
the Underwriter and in order to evidence the accuracy and
completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company on or prior to each of the
Closing Dates in connection with the authorization, issuance and
sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to Representative's
Counsel.
(H) ADDITIONAL CONDITIONS. Upon exercise of the Over-
Allotment Option, the Underwriters' obligations to purchase and
pay for the Option Shares shall be subject (as of the date hereof
and as of the Option Closing Date) to the following additional
conditions:
(i) The Registration Statement shall remain
effective at the Option Closing Date, no stop order denying or
suspending the effectiveness thereof shall have been issued, and
no proceedings for that or any similar purpose shall have been
instituted or shall be pending or, to your knowledge or the
knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the
Commission for additional information shall have been complied
with to the satisfaction of Representative's Counsel.
(ii) On the Option Closing Date there shall have
been delivered to you the signed opinion of Company Counsel,
dated as of the Option Closing Date, in form and substance
satisfactory to Representative's Counsel, which opinion shall be
substantially the same in scope and substance as the opinion
furnished to you on the First Closing Date pursuant to
Section 4(b), except that such opinion, where appropriate, shall
cover the Option Shares rather than the Firm Shares. If the
First Closing Date is the same as the Option Closing Date, such
opinions may be combined.
(iii) All proceedings taken at or prior to the
Option Closing Date in connection with the sale and issuance of
the Option Shares shall be satisfactory in form and substance to
you, and you and Representative's Counsel shall have been
furnished with all such documents, certificates and opinions as
you may request in connection with this transaction in order to
evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained
herein.
(iv) On the Option Closing Date there shall have
been delivered to you a letter in form and substance satisfactory
to you from BDO Seidman LLP and Ferro, Berndon & Company, L.L.P.
dated the Option Closing Date and addressed to you, confirming
the information in their letter referred to in Section 4(d) as of
the date thereof and stating that, without any additional
investigation required, nothing has come to their attention
during the period from the ending date of their review referred
to in such letter to a date not more than five banking days prior
to the Option Closing Date which would require any change in such
letter if it were required to be dated the Option Closing Date.
(v) On the Option Closing Date there shall have
been delivered to you a certificate signed by the principal
executive officer and by the principal financial or accounting
officer of the Company, dated the Option Closing Date, in form
and substance satisfactory to Representative's Counsel,
substantially the same in scope and substance as the certificate
furnished to you on the First Closing Date pursuant to
Section 4(e).
(I) CANCELLATION. If any of the conditions provided
by this Section 4 shall not have been completely fulfilled as of
the date indicated, then this Agreement and all obligations of
the Underwriters hereunder may be cancelled at, or at any time
prior to, either Closing Date by your notifying the Company of
such cancellation in writing or by telegram at or prior to the
applicable Closing Date. Any such cancellation shall be without
liability of the Underwriters to the Company, except as otherwise
provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to sell and deliver the Shares are
subject to the following conditions:
(A) EFFECTIVE REGISTRATION STATEMENT. The
Registration Statement shall have become effective not later than
6:00 p.m. New York time, on the date of this Agreement, or at
such later time or on such later date as the Company and you may
agree in writing.
(B) NO STOP ORDER. On the applicable Closing Date, no
stop order denying or suspending the effectiveness of the
Registration Statement shall have been issued under the Act or
any proceedings therefor initiated or threatened by the
Commission.
(C) PAYMENT FOR SHARES. On the applicable Closing
Date, you shall have made payment, for the several accounts of
the Underwriters, of the aggregate Purchase Price for the Shares
then being purchased, by certified or bank cashier's checks
payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided by
this Section 5 have been fulfilled on the First Closing Date but
are not fulfilled after the First Closing Date and prior to the
Option Closing Date, then only the obligation of the Company to
sell and deliver the Option Shares upon exercise of the Over-
Allotment Option shall be affected.
6. INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. As used in this
Agreement, the term "Liabilities" shall mean any and all losses,
claims, damages and liabilities, and actions and proceedings in
respect thereof (including without limitation all reasonable
costs of defense and investigation and all attorneys' fees)
including without limitation those asserted by any party to this
Agreement against any other party to this Agreement. The Company
hereby indemnifies and holds harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning
of the Act, from and against all Liabilities, joint or several,
to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such Liabilities
arise out of or are based upon: (i) any untrue statement or
alleged untrue statement of any material fact contained in
(A) the Registration Statement or any amendment thereto, or the
Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or (B) any "blue sky" application or other
document executed by the Company specifically for that purpose,
or based upon written information furnished by the Company, filed
in any state or other jurisdiction in order to qualify any or all
of the Securities under the securities laws thereof (any such
application, document or information being herein called a "Blue
Sky Application"); or (ii) the omission or alleged omission to
state in the Registration Statement or any amendment thereto, or
the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
Company shall not be liable in any such case to the extent, but
only to the extent, that any such Liabilities arise out of or are
based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company
through you by or on behalf of any Underwriter specifically for
use in the preparation of the Registration Statement or any such
amendment thereto, or the Prospectus or any such Preliminary
Prospectus, or any such amendment or supplement thereto, or any
such Blue Sky Application in or with respect to any untrue
statement or material omission in a Preliminary Prospectus to the
extent such misstatement or omission is corrected in the
Prospectus and any underwriter fails to deliver such Prospectus.
The foregoing indemnity shall be in addition to any other
liability which the Company may otherwise have.
(B) INDEMNIFICATION BY UNDERWRITERS. Each
Underwriter, severally and not jointly, hereby indemnifies and
holds harmless the Company, each of its directors, each nominee
(if any) for director named in the Prospectus, each of its
officers who have signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of
the Act, from and against all Liabilities to which the Company or
any such director, nominee, officer or controlling person may
become subject under the Act or otherwise, insofar as such
Liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto,
or the Prospectus or any Preliminary Prospectus, or any amendment
or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent,
that any such Liabilities arise out of or are based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or any
amendment thereto, or the Prospectus or any Preliminary
Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with written information furnished to the
Company through you, by or on behalf of such Underwriter,
specifically for use in the preparation thereof. In no event
shall any Underwriter be liable or responsible for any amount in
excess of the compensation received by such Underwriter, in the
form of underwriting discounts or otherwise, pursuant to this
Agreement or any other agreement contemplated hereby. The
foregoing indemnity shall be in addition to any other liability
which any Underwriter may otherwise have.
(C) PROCEDURE. Promptly after receipt by an
indemnified party under this Section 6 of notice of the
commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying
party under this Section 6, notify in writing the indemnifying
party of the commencement thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under
this Section 6. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, to assume the
defense thereof, subject to the provisions hereof, with counsel
reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof
other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such
action and to participate in the defense thereof, but the fees
and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the
indemnified party; provided, however, that if the indemnified
party is any Underwriter or a person who controls any Underwriter
within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if
(i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, or (ii) the
named parties to any such action (including any impleaded
parties) include both such Underwriter or such controlling person
and the indemnifying party and, indemnified party is advised by
counsel that it has separate defenses (in which case the
indemnifying party shall not have the right to assume the defense
of such action on behalf of such Underwriter or such controlling
person, it being understood, however, that the indemnifying party
shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one
separate firm of attorneys). No settlement of any action against
an indemnified party shall be made without the consent of the
indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
7. CONTRIBUTION. In order to provide for just and
equitable contribution under the Act in any case in which (a) any
indemnified party makes claims for indemnification pursuant to
Section 6 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right
of appeal) that such indemnification may not be enforced in such
case, notwithstanding the fact that the express provisions of
Section 6 provide for indemnification in such case, or
(b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each
indemnifying party (if more than one) shall contribute to the
aggregate Liabilities to which it may be subject, in either such
case (after contribution from others) in such proportions that
the Underwriters are responsible in the aggregate for that
portion of such Liabilities represented by the percentage that
the underwriting discount per Share plus the (i) non-accountable
expense allowance and (ii) amount of financial consulting
agreement appearing on the cover page of the Prospectus bears to
the public Offering price per Share appearing thereon, and the
Company shall be responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable
law, then the relative fault of the Company, and the Underwriters
in connection with the statements or omissions which resulted in
such Liabilities and other relevant equitable considerations
shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information
supplied by the Company or the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the
Underwriters to contribute pursuant to this Section 7 were to be
determined by pro rata or per capita allocation of the aggregate
Liabilities (even if the Underwriters were to be treated as one
entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations
referred to in the first sentence of this Section 7. In
addition, the contribution of any Underwriter shall not be in
excess of its proportionate share of the portion of such
Liabilities for which such Underwriter is responsible. No person
guilty of a fraudulent misrepresentation (within the meaning of
section 11(f) of the Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent
misrepresentation. As used in this Section 7, the term "Company"
shall include any officer, director or person who controls the
Company within the meaning of section 15 of the Act. The
Underwriters' obligations under this Section 7 to contribute are
several in proportion to their respective underwriting
obligations and not joint. If the full amount of the
contribution specified in this Section 7 is not permitted by law,
then each indemnified party and each person who controls an
indemnified party shall be entitled to contribution from each
indemnifying party to the full extent permitted by law. The
foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under
section 11 of the Act other than the Company and Underwriters.
No contribution shall be requested with regard to the settlement
of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to
such party.
8. COSTS AND EXPENSES.
(A) CERTAIN COSTS AND EXPENSES. Whether or not this
Agreement becomes effective or the sale of the Shares to the
Underwriters is consummated, the Company shall pay all costs and
expenses incident to the issuance, offering, sale and delivery of
the Shares and the performance of its obligations under this
Agreement, including without limitation: (i) all fees and
expenses of the Company's legal counsel and accountants; (ii) all
costs and expenses incident to the preparation, printing, filing
and distribution of the Registration Statement (including the
financial statements contained therein and all exhibits and
amendments thereto), each Preliminary Prospectus and the
Prospectus, each as amended or supplemented, this Agreement and
the other agreements and documents referred to herein, each in
such quantities as you shall deem necessary; (iii) all fees of
NASD required in connection with the filing required by NASD to
be made by the Representative with respect to the Offering;
(iv) all expenses, including fees (but not in excess of the
amount set forth in Section 3(b)) and disbursements of
Representative's Counsel in connection with the qualification of
the Securities under the "blue sky" laws which you shall
designate; (v) all costs and expenses of printing the respective
certificates representing the Shares; (vi) the expense of placing
one or more "tombstone" advertisements or promotional materials
as directed by you (provided, however, that the aggregate amount
thereof shall not exceed $10,000); (vii) all costs and expenses
of the Company and its employees (but not of the Representative
or its employees) associated with due diligence meetings and
presentations; (viii) all costs and expenses associated with the
preparation of a seven to ten minute professional video
presentation concerning the Company, its products and its
management for broker due diligence purposes; (ix) any and all
taxes (including without limitation any transfer, franchise,
capital stock or other tax imposed by any jurisdiction) on sales
of the Shares to the Underwriters hereunder; and (x) all costs
and expenses incident to the furnishing of any amended Prospectus
or any supplement to be attached to the Prospectus as required by
Sections 3(a) and 3(d), except as otherwise provided by said
Sections.
(B) REPRESENTATIVE'S EXPENSE ALLOWANCE. In addition
to the expenses described in Section 8(a), the Company shall on
the First Closing Date pay to you, based on the number of Firm
Shares to be sold by the Company and each SELLING SHAREHOLDER,
the balance of a non-accountable expense allowance (which shall
include fees of Representative's Counsel exclusive of the fees
referred to in Section 3(b)) of $240,000 (that being an amount
equal to 2.5 percent of the gross proceeds received upon sale of
the Firm Shares), of which $20,000 has been paid to you prior to
the date hereof. In the event that the Over-Allotment Option is
exercised, then the Company shall on the Option Closing Date pay
to you, based on the number of Option Shares to be sold by the
Company, an additional amount equal to 2.5 percent of the gross
proceeds received upon sale of any of the Option Shares. In the
event that the transactions contemplated hereby fail to be
consummated for any reason, then you shall return to the Company
that portion of the $20,000 heretofore paid by the Company to the
extent that it has not been utilized by you in connection with
the Offering for accountable out-of-pocket expenses; provided,
however, that if such failure is due to a breach by the Company
of any covenant, representation or warranty contained herein or
because any other condition to the Underwriters' obligations
hereunder required to be fulfilled by the Company is not
fulfilled, then the Company shall be liable for your accountable
out-of-pocket expenses to the full extent thereof (with credit
given to the $20,000 paid).
(C) NO FINDERS. No person is entitled either directly
or indirectly to compensation from the Company, the Underwriters
or any other person for services as a finder in connection with
the Offering, and the Company hereby indemnifies and holds
harmless the Underwriters, and the Underwriters hereby indemnify
and hold harmless the Company from and against all Liabilities,
joint or several, to which the indemnified party may become
subject insofar as such Liabilities arise out of or are based
upon the claim of any person (other than an employee of the party
claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the
indemnifying party. The Representative may compensate any of its
personnel as it shall determine in its sole discretion.
9. SUBSTITUTION OF UNDERWRITERS.
(A) SUBSTITUTION. If any Underwriter defaults in its
obligation to purchase the numbers of Shares which it has agreed
to purchase under this Agreement, you shall be obligated to
purchase all of the Shares not purchased by the defaulting
Underwriter unless such purchase shall cause you to be in
violation of the net capital requirements of Rule 15c3-1 of the
Exchange Act, in which case you, and any other Underwriters
satisfactory to you who so agree, shall have the right, but shall
not be obligated, to purchase (in such proportions as may be
agreed upon among them) all of the Shares. If you or the other
Underwriters satisfactory to you do not elect to purchase the
Shares which the defaulting Underwriter or Underwriters agreed
but failed to purchase, then this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter
or the Company, except for (i) the payment by the Company of
expenses as provided by Section 8(a), (ii) the payment by the
Company of accountable expenses as provided by Section 8(b), and
(iii) the indemnity and contribution agreements of the Company
and the Underwriters provided by Sections 6 and 7.
(B) FURTHER MATTERS. Nothing contained herein shall
relieve a defaulting Underwriter of any liability it may have for
damages caused by its default. If the other Underwriters
satisfactory to you are obligated or agree to purchase the Shares
of a defaulting Underwriter, either you or the Company may
postpone the First Closing Date for up to seven banking days in
order to effect any changes that may be necessary in the
Registration Statement, any Preliminary Prospectus or the
Prospectus or in any other document or agreement, and to file
promptly any amendments to the Registration Statement, or any
amendments or supplements to any Preliminary Prospectus or the
Prospectus, which in your opinion may thereby be made necessary.
10. EFFECTIVE DATE. The Agreement shall become effective
upon its execution, except that you may, at your option, delay
its effectiveness until 10:00 a.m., New York time, on the first
full business day following the Effective Date, or at such
earlier time after the Effective Date as you in your discretion
shall first commence the initial public Offering by the
Underwriters of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Shares, or the time
when the Shares are first generally offered by you to dealers by
letter or telegram, whichever shall first occur. This Agreement
may be terminated by you at any time before it becomes effective
as provided above, except that the provisions of Sections 6, 7,
8, 13, 14, 15 and 16 shall remain in effect notwithstanding such
termination.
11. TERMINATION.
(A) GROUNDS FOR TERMINATION. This Agreement, except
for Sections 6, 7, 8, 13, 14, 15 and 16, may be terminated at any
time prior to the First Closing Date, and the Over-Allotment
Option, if exercised, may be cancelled at any time prior to the
Option Closing Date, by you if in your sole judgment it is
impracticable to offer for sale or to enforce contracts made by
the Underwriters for the resale of the Shares agreed to be
purchased hereunder, by reason of: (i) the Company having
sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any
labor dispute or court or government action, order or decree;
(ii) trading in securities on the New York Stock Exchange or the
American Stock Exchange having been suspended or limited;
(iii) material governmental restrictions having been imposed on
trading in securities generally which are not in force and effect
on the date hereof; (iv) a banking moratorium having been
declared by federal or New York State authorities; (v) an
outbreak or significant escalation of major international
hostilities or other national or international calamity having
occurred; (vi) the passage by the Congress of the United States
or by any state legislature, of any act or measure, or the
adoption of any order, rule or regulation by any governmental
body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed by you
likely to have a material adverse effect on the business,
property, operations, condition (financial or otherwise) or
earnings of the Company; (vii) any material adverse change in the
financial or securities markets beyond normal fluctuations in the
United States having occurred since the date of this Agreement;
or (viii) any material adverse change having occurred since the
respective dates for which information is given in the
Registration Statement and Prospectus, in the business, property,
operations, condition (financial or otherwise), earnings or
business prospects of the Company, whether or not arising in the
ordinary course of business.
(B) NOTIFICATION. If you elect to prevent this
Agreement from becoming effective or to terminate this Agreement
as provided by this Section 11 or by Section 10, the Company
shall be promptly notified by you, by telephone or telegram, and
confirmed by letter.
12. REPRESENTATIVE'S WARRANT. On the First Closing Date,
the Company shall issue and sell to you, for a total purchase
price of $5.00, and upon the terms and conditions set forth in
the form of Representative's Warrant filed as an exhibit to the
Registration Statement, a warrant entitling you to purchase
120,000 Shares (the "Representative's Warrant"). In the event of
conflict in the terms of this Agreement and the Representative's
Warrant, the terms and conditions of the Representative's Warrant
shall control.
13. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements,
representations, warranties, covenants and other statements of
the Company and the Underwriters set forth in or made pursuant to
this Agreement shall remain in full force and effect regardless
of any investigation made by or on behalf of any other party, and
shall survive delivery of and payment for the Shares and the
termination of this Agreement. The Company hereby indemnifies
and holds harmless the Underwriters from and against all
Liabilities, joint or several, to which the Underwriters may
become subject insofar as such Liabilities arise out of or are
based upon the breach or failure of any representation, warranty
or covenant of the Company contained in this Agreement.
14. NOTICES. All communications hereunder shall be in
writing and, except as otherwise expressly provided herein, if
sent to you, shall be mailed, delivered or telegraphed and
confirmed to you at H.J. Meyers & Co., Inc., 1895 Mt. Hope
Avenue, Rochester, New York 14620, with a copy sent to James M.
Jenkins, Esq., Harter, Secrest & Emery, 700 Midtown Tower,
Rochester, New York 14604; or if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed to it at General
Bearing Corporation, 44 High Street, West Nyack, New York, 10994,
with a copy sent to Steven L. Wasserman, Esq., Reid & Priest,
L.L.P., 40 West 57th Street, New York, New York, 10019.
15. PARTIES IN INTEREST. This Agreement is made solely for
the benefit of the Underwriters, the Company, and to the extent
expressed, any person controlling the Company or an Underwriter,
as the case may be, and the directors of the Company, nominees
for directors of the Company (if any) named in the Prospectus,
officers of the Company who have signed the Registration
Statement, and their respective executors, administrators,
successors and assigns; and no other person shall acquire or have
any right under or by virtue of this Agreement. The term
"successors and assigns" shall not include any purchaser, as
such, from an Underwriter of the Shares.
16. APPLICABLE LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New
York applicable to agreements made and to be performed entirely
within such State, without reference to such State's principals
regarding the conflict of laws.
17. COUNTERPARTS. This Agreement may be executed in two or
more counterpart copies, each of which shall be deemed an
original but all of which together shall constitute one and the
same instrument.
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon
it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Yours very truly,
GENERAL BEARING CORPORATION
By:
----------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and
accepted as of the date first above written.
H.J. MEYERS & CO., INC.
AS REPRESENTATIVE OF THE
SEVERAL UNDERWRITERS NAMED
IN SCHEDULE I HERETO
By:
----------------------------
Name:
Title:
[page break]
SCHEDULE I
UNDERWRITING AGREEMENT DATED [EFFECTIVE DATE]
Number of
Firm Shares
Underwriter to be Purchased
H.J. Meyers & Co., Inc.
-----------
TOTAL 1,200,000
Exhibit 10.9
GENERAL BEARING CORPORATION
1996 STOCK OPTION AND PERFORMANCE AWARD PLAN
----------
EFFECTIVE AS OF [ ]. 1996
<PAGE>
GENERAL BEARING CORPORATION
1996 STOCK OPTION AND PERFORMANCE AWARD PLAN
INTRODUCTION
General Bearing Corporation, a Delaware corporation (hereinafter
referred to as the "Corporation"), hereby establishes an incentive
compensation plan to be known as the "General Bearing Corporation 1996
Stock Option and Performance Award Plan" (hereinafter referred to as the
"Plan"), as set forth in this document. The Plan permits the grant of Non-
Qualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Units and Performance Shares.
The Plan shall become effective on . However, it shall
---------
be rendered null and void and have no effect, and all Plan Awards granted
hereunder shall be canceled, if the Plan is not approved by a majority vote
of the Corporation's stockholders within twelve (12) months of such date.
The purpose of the Plan is to promote the success and enhance the
value of the Corporation by linking the personal interests of Participants
to those of the Corporation's stockholders by providing Participants with
an incentive for outstanding performance. The Plan is further intended to
assist the Corporation in its ability to motivate, and retain the services
of, Participants upon whose judgment, interest and special effort the
successful conduct of its operations is largely dependent.
The Plan also provides pay systems that support the Corporation's
business strategy and emphasizes pay-for-performance by tying reward
opportunities to carefully determined and articulated performance goals at
corporate, operating unit, business unit and/or individual levels.
DEFINITIONS
For purposes of this Plan, the following terms shall be defined
as follows unless the context clearly indicates otherwise:
(a) "Award Agreement" shall mean the written agreement, executed
---------------
by an appropriate officer of the Corporation, pursuant to which a Plan
Award is granted.
(b) "Board of Directors" shall mean the Board of Directors of
------------------
the Corporation.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended, and the rules and regulations thereunder.
(d) "Committee" shall mean the [Compensation Committee] of the
---------
Board of Directors of the Corporation.
(e) "Common Stock" shall mean the common stock, par value
------------
[$0.01] per share, of the Corporation.
(f) "Corporation" shall mean General Bearing Corporation, a
-----------
Delaware corporation.
(g) "Disability" shall have the same meaning as the term
----------
"permanent and total disability" under Section 22(e)(3) of the Code.
(h) "Employee" shall mean a common-law employee of the Company
--------
or of any Parent or Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended, and the rules and regulations thereunder.
[(j) "Executive" means an employee of the Corporation or of any
---------
Parent or Subsidiary whose compensation is subject to the deduction
limitations set forth under Code Section 162(m).]
(k) "Fair Market Value" of the Corporation's Common Stock on a
-----------------
Trading Day shall mean the last reported sale price for Common Stock or, in
case no such reported sale takes place on such Trading Day, the average of
the closing bid and asked prices for the Common Stock for such Trading Day,
in either case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or if the Common Stock is
not listed or admitted to trading on any national securities exchange, but
is traded in the over-the-counter market, the closing sale price of the
Common Stock or, if no sale is publicly reported, the average of the
closing bid and asked quotations for the Common Stock, as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") or any comparable system or, if the Common Stock is not listed
on NASDAQ or a comparable system, the closing sale price of the Common
Stock or, if no sale is publicly reported, the average of the closing bid
and asked prices, as furnished by two members of the National Association
of Securities Dealers, Inc. who make a market in the Common Stock selected
from time to time by the Corporation for that purpose. In addition, for
purposes of this definition, a "Trading Day" shall mean, if the Common
Stock is listed on any national securities exchange, a business day during
which such exchange was open for trading and at least one trade of Common
Stock was effected on such exchange on such business day, or, if the Common
Stock is not listed on any national securities exchange but is traded in
the over-the-counter market, a business day during which the
over-the-counter market was open for trading and at least one "eligible
dealer" quoted both a bid and asked price for the Common Stock. An
"eligible dealer" for any day shall include any broker-dealer who quoted
both a bid and asked price for such day, but shall not include any
broker-dealer who quoted only a bid or only an asked price for such day.
In the event the Corporation's Common Stock is not publicly traded, the
Fair Market Value of such Common Stock shall be determined by the Committee
in good faith.
(l) "Freestanding SAR" shall mean an SAR that is granted
----------------
independently of any Option.
(m) "Good Cause" shall mean (i) a Participant's willful or gross
----------
misconduct or willful or gross negligence in the performance of his duties
for the Corporation or for any Parent or Subsidiary after prior written
notice of such misconduct or negligence and the continuance thereof for a
period of 30 days after receipt by such Participant of such notice, (ii) a
Participant's intentional or habitual neglect of his duties for the
Corporation or for any Parent or Subsidiary after prior written notice of
such neglect, or (iii) a Participant's theft or misappropriation of funds
of the Corporation or of any Parent or Subsidiary or commission of a
felony.
(n) "Incentive Stock Option" shall mean a stock option
----------------------
satisfying the requirements for tax-favored treatment under Section 422 of
the Code.
(o) "Insider" shall mean an "insider" as such term is defined
-------
under Section 16.
(p) "Non-Qualified Option" shall mean a stock option which does
--------------------
not satisfy the requirements for, or which is not intended to be eligible
for, tax-favored treatment under Section 422 of the Code.
(q) "Option" shall mean an Incentive Stock Option or a Non
------
-Qualified Stock Option granted pursuant to the provisions of Section V
hereof.
(r) "Optionee" shall mean a Participant who is granted an
--------
Option under the terms of this Plan.
[(s) "Outside Directors" shall mean members of the Board of
-----------------
Directors of the Corporation who are classified as "outside directors"
under Section 162(m) of the Code.]
(t) "Parent" shall mean a parent corporation of the Corporation
------
within the meaning of Section 424(e) of the Code.
(u) "Participant" shall mean any Employee [or other person]
-----------
participating under the Plan.
(v) "Performance Share" shall mean a Plan Award granted pursuant
-----------------
to the provisions of Section VII hereof, with each such Award being
denominated in terms of one share of Common Stock and nominally being based
upon the performance of the Corporation's Common Stock, or any other factor
as determined by the Committee.
(w) "Performance Unit" shall mean a Plan Award granted pursuant
----------------
to the provisions of Section VII hereof, which Award may be based upon any
performance factor established by the Committee, as set forth under such
Section.
(x) "Plan Award" shall mean an Option, Performance Share,
----------
Performance Unit, share of Restricted Stock or Stock Appreciation Right
granted pursuant to the terms of this Plan.
(y) "Restricted Stock" shall mean a grant of one or more shares
----------------
of Common Stock subject to certain restrictions as provided under Section
VII hereof.
(z) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, and the rules and regulations thereunder.
(aa) "Stock Appreciation Right" or "SAR" shall mean a right,
------------------------ ---
granted alone or in connection with a related Option, designated as a SAR,
to receive a payment on the day the right is exercised, pursuant to the
terms of Section VI hereof. Each SAR shall be denominated in terms of one
share of Common Stock.
(ab) "Subsidiary" shall mean a subsidiary corporation of the
----------
Corporation within the meaning of Section 424(f) of the Code.
(ac) "Tandem SAR" shall mean an SAR that is granted in connection
----------
with a related Option, the exercise of which shall require forfeiture of
the right to purchase a share of Common Stock under the related Option (and
when a share of Common Stock is purchased under such Option, the Tandem SAR
being similarly canceled).
SECTION I
ADMINISTRATION
The Plan shall be administered by the Committee, which shall be
composed solely of at least two Non-Employee Directors, as defined in Rule
16b-3(b)(3) promulgated under the Exchange Act [and who also qualify as
"Outside Directors"]. Subject to the provisions of the Plan, the Committee
may establish from time to time such regulations, provisions, proceedings
and conditions of awards which, in its sole opinion, may be advisable in
the administration of the Plan. A majority of the Committee shall
constitute a quorum, and, subject to the provisions of Section IV of the
Plan, the acts of a majority of the members present at any meeting at which
a quorum is present, or acts approved in writing by a majority of the
Committee, shall be the acts of the Committee as a whole.
SECTION II
SHARES AVAILABLE
Subject to the adjustments provided in Section IX of the Plan,
the aggregate number of shares of the Common Stock which may be granted for
all purposes under the Plan shall be [ ] shares. Shares of Common
Stock underlying awards of securities (derivative or not) and shares of
Common Stock awarded hereunder (whether or not on a restricted basis) shall
be counted against the limitation set forth in the immediately preceding
sentence and may be reused to the extent that an Option or an award of
shares of Common Stock on a restricted basis under the Plan to any
individual expires, is terminated unexercised, or is forfeited. To the
extent that a Stock Appreciation Right related to an Option is exercised,
such Option shall be deemed to have been exercised. Incentive and Non-
Qualified Stock Options, Stock Appreciation Rights, Performance Shares,
Restricted Stock and Performance Units awarded under the Plan may be
fulfilled in accordance with the terms of the Plan with cash, authorized
and unissued shares of the Common Stock, issued shares of such Common Stock
held in the Corporation's treasury or shares of Common Stock acquired on
the open market.
SECTION III
ELIGIBILITY
Officers and key employees (including officers or key employees
who are also directors) of the Corporation, or of any Parent or Subsidiary,
who are regularly employed on a salaried basis as common law employees,
[and directors of the Corporation or of any Patent or Subsidiary who are
not Employees,] shall be eligible to participate in the Plan. [Where
appropriate under this Plan, directors who are not Employees shall be
referred to as "employees" and their service as directors as "employment".]
SECTION IV
AUTHORITY OF COMMITTEE
The Plan shall be administered by, or under the direction of, the
Committee, which shall administer the Plan so as to comply at all times
with Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder, to the extent such compliance is required, and
shall otherwise have plenary authority to interpret the Plan and to make
all determinations specified in or permitted by the Plan or deemed
necessary or desirable for its administration or for the conduct of the
Committee's business. Subject to the provisions of Section XIII hereof,
all interpretations and determinations of the Committee may be made on an
individual or group basis and shall be final, conclusive and binding on all
interested parties. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine the persons
to whom Plan Awards shall be granted, the times when such Plan Awards shall
be granted, the number of Plan Awards, the purchase price or exercise price
of each Plan Award (if applicable), the period(s) during which a Plan Award
shall be exercisable (whether in whole or in part), the restrictions to be
applicable to Plan Awards and the other terms and provisions thereof (which
need not be identical). In addition, the authority of the Committee shall
include, without limitation, the following:
(a) Financing. The arrangement of temporary financing for an
---------
Optionee by registered broker-dealers, under the rules and regulations of
the Federal Reserve Board, for the purpose of assisting an Optionee in the
exercise of an Option, such authority to include the payment by the
Corporation of the commissions of the broker-dealer;
(b) Procedures for Exercise of Option. The establishment of
---------------------------------
procedures for an Optionee (i) to exercise an Option by payment of cash or
any other property acceptable to the Committee, (ii) to have withheld from
the total number of shares of Common Stock to be acquired upon the exercise
of an Option that number of shares having a Fair Market Value, which,
together with such cash as shall be paid in respect of fractional shares,
shall equal the Option exercise price of the total number of shares of
Common Stock to be acquired, (iii) to exercise all or a portion of an
Option by delivering that number of shares of Common Stock already owned by
him having a Fair Market Value which shall equal the Option exercise price
for the portion exercised and, in cases where an Option is not exercised in
its entirety, and subject to the requirements of the Code, to permit the
Optionee to deliver the shares of Common Stock thus acquired by him in
payment of shares of Common Stock to be received pursuant to the exercise
of additional portions of such Option, the effect of which shall be that an
Optionee can in sequence utilize such newly acquired shares of Common Stock
in payment of the exercise price of the entire Option, together with such
cash as shall be paid in respect of fractional shares and (iv) to engage in
any form of "cashless" exercise.
(c) Withholding. The establishment of a procedure whereby a
-----------
number of shares of Common Stock or other securities may be withheld from
the total number of shares of Common Stock or other securities to be issued
upon exercise of an Option, Stock Appreciation Right or other grant or
award, as applicable, or for the tender of shares of Common Stock owned by
any Participant to meet any obligation of withholding for taxes incurred by
the Participant upon such exercise.
(d) Types of Plan Awards. The Committee may grant awards in the
--------------------
form of one or more of the following: (i) Incentive Stock Options and
Non-Qualified Stock Options (described in Section V), (ii) Stock
Appreciation Rights (described in Section VI), (iii) grants of Restricted
Stock (described in Section VII), (iv) Performance Share Awards (described
in Section VII) and (v) Performance Units (described in Section VII).
SECTION V
STOCK OPTIONS
The Committee shall have the authority, in its discretion, to
grant Incentive Stock Options or to grant Non-Qualified Stock Options or to
grant both types of Options. No Option shall be granted for a term of more
than ten (10) years. Notwithstanding anything contained herein to the
contrary, an Incentive Stock Option may be granted only to common law
employees of the Corporation or of any Parent or Subsidiary now existing or
hereafter formed or acquired, and not to any director or officer who is not
also such a common law employee. [In order for an Option grant to satisfy
the "performance-based compensation" exemption to the deduction limitation
under Code Section 162(m), the maximum number of shares of Common Stock
subject to Options which may be granted to any single Executive during any
one calendar year is .] The terms and conditions of the Options
-----------
shall be determined from time to time by the Committee; provided, however,
-------- -------
that the Options granted under the Plan shall be subject to the following:
(a) Exercise Price. The Committee shall establish the exercise
--------------
price at the time any Option is granted at such amount as the Committee
shall determine; provided, however, that the exercise price for each share
-------- -------
of Common Stock purchasable under [any Option which is intended to satisfy
the performance-based compensation exemption to the deduction limitation
under Section 162(m) of the Code or] any Incentive Stock Option granted
hereunder shall be such amount as the Committee shall, in its best
judgment, determine to be not less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock at the date the Option is
granted; and provided, further, that in the case of an Incentive Stock
Option granted to a person who, at the time such Incentive Stock Option is
granted, owns shares of stock of the Corporation or of any Parent or
Subsidiary which possess more than ten percent (10%) of the total combined
voting power of all classes of shares of stock of the Corporation or of any
Parent or Subsidiary, the exercise price for each share of Common Stock
shall be such amount as the Committee, in its best judgment, shall
determine to be not less than one hundred ten percent (110%) of the Fair
Market Value per share of Common Stock at the date the Option is granted.
The exercise price will be subject to adjustment in accordance with the
provisions of Section IX of the Plan.
(b) Payment of Exercise Price. The price per share of Common
-------------------------
Stock with respect to each Option shall be payable at the time the Option
is exercised. Such price shall be payable in cash or pursuant to any of
the methods set forth in Sections IV(a) or (b) hereof. Shares of Common
Stock delivered to the Corporation in payment of the exercise price shall
be valued at the Fair Market Value of the Common Stock on the date
preceding the date of the exercise of the Option.
(c) Exercisability of Options. Except as provided in Section
-------------------------
V(e) hereof, each Option shall be exercisable in whole or in installments,
and at such time(s), and subject to the fulfillment of any conditions on,
and to any limitations on, exercisability as may be determined by the
Committee at the time of the grant of such Options. The right to purchase
shares of Common Stock shall be cumulative so that when the right to
purchase any shares of Common Stock has accrued such shares of Common Stock
or any part thereof may be purchased at any time thereafter until the
expiration or termination of the Option.
(d) Expiration of Options. No Option by its terms shall be
---------------------
exercisable after the expiration of ten (10) years from the date of grant
of the Option; provided, however, in the case of an Incentive Stock Option
-------- -------
granted to a person who, at the time such Option is granted, owns shares of
stock of the Corporation or of any Parent or Subsidiary possessing more
than ten percent (10%) of the total combined voting power of all classes of
shares of stock of the Corporation or of any Parent or Subsidiary, such
Option shall not be exercisable after the expiration of five (5) years from
the date such Option is granted.
(e) Exercise Upon Optionee's Termination of Employment. Except
--------------------------------------------------
as provided in the following sentence, if the employment of an Optionee by
the Corporation or by any Parent or Subsidiary is terminated for any reason
other than death, any Incentive Stock Option granted to such Optionee may
not be exercised later than three (3) months (one (1) year in the case of
termination due to Disability) after the date of such termination of
employment. Furthermore, (i) if an Optionee's employment is terminated by
the Corporation or by any Parent or Subsidiary for Good Cause or (ii) if an
Optionee voluntarily terminates his employment with the Corporation or with
any Parent or Subsidiary without the written consent of the Committee, then
the Optionee shall, at the time of such termination of employment, forfeit
his rights to exercise any and all of the outstanding Option(s) theretofore
granted to him.
(f) Maximum Amount of Incentive Stock Options. Each Plan Award
-----------------------------------------
under which Incentive Stock Options are granted shall provide that to the
extent the aggregate of the (i) Fair Market Value of the shares of Common
Stock (determined as of the time of the grant of the Option) subject to
such Incentive Stock Option and (ii) the fair market values (determined as
of the date(s) of grant of the option(s) of all other shares of Common
Stock subject to incentive stock options granted to an Optionee by the
Corporation or any Parent or Subsidiary, which are exercisable for the
first time by any person during any calendar year, exceed(s) one hundred
thousand dollars ($100,000), such excess shares of Common Stock shall not
be deemed to be purchased pursuant to Incentive Stock Options. The terms
of the immediately preceding sentence shall be applied by taking all
options, whether or not granted under this Plan, into account in the order
in which they are granted.
(g) Dividend Equivalents for Outstanding Options. The Committee
--------------------------------------------
may, in its sole discretion, provide that amounts equivalent to dividends
shall be payable with respect to one or more shares of Common Stock subject
to [vested but] unexercised Option(s) granted to a Participant. Such
amounts shall be credited to a suspense account, and shall be payable to
the Participant in cash or in Common Stock, as set forth under the terms of
the Plan Award, at such time as the related Option(s) are exercised.
SECTION VI
STOCK APPRECIATION RIGHTS
(a) Tandem Stock Appreciation Rights. The Committee shall have
--------------------------------
the authority to grant Stock Appreciation Rights in tandem with an Option,
either at the time of grant of the Option or by amendment. Each such Stock
Appreciation Right shall be subject to the same terms and conditions as the
related Option, if any, and shall be exercisable only at such times and to
such extent as the related Option is exercisable; provided, however, that a
-------- -------
Stock Appreciation Right may be exercised only when the Fair Market Value
of the Common Stock exceeds the exercise price of the related Option. A
Stock Appreciation Right shall entitle the Optionee to surrender to the
Corporation unexercised the related Option, or any portion thereof, and,
except as provided below, to receive from the Corporation in exchange
therefor that number of shares of Common Stock equal in value to the excess
of the Fair Market Value of one share of the Common Stock of the
Corporation on the day preceding the surrender of such Option over the
exercise price per share of Common Stock multiplied by the number of shares
of Common Stock provided for under the Option, or portion thereof, which is
surrendered; provided, however, that no fractional shares shall be issued
-------- -------
of Common Stock (cash being delivered to the Participant in lieu of such
fractional shares). The number of shares of Common Stock which may be
received pursuant to the exercise of a Stock Appreciation Right may not
exceed the number of shares of Common Stock provided for under the Option,
or portion thereof, which is surrendered. The Committee shall have the
right, in its sole discretion, to approve an election by a Participant to
receive cash in whole or in part in settlement of the Stock Appreciation
Right. Within thirty (30) days following the receipt by the Committee of a
request to receive cash in whole or in part in settlement of a Stock
Appreciation Right, the Committee shall, in its sole discretion, either
consent to or disapprove, in whole or in part, such a request. A request
to receive cash in whole or in part in settlement of a Stock Appreciation
Right may provide that, in the event the Committee shall disapprove such
request, such request shall be deemed to be an exercise of such Stock
Appreciation Right for shares of Common Stock.
(b) Freestanding Stock Appreciation Rights. The Committee also
--------------------------------------
shall have the authority to grant Stock Appreciation Rights unrelated to
any Option that may be granted hereunder. Each such Stock Appreciation
Right shall be subject to the terms and conditions as determined by the
Committee. Freestanding Stock Appreciation Rights shall entitle the
Optionee to surrender to the Corporation a portion or all of such rights
and, except as provided below, to receive from the Corporation in exchange
therefor that number of shares of Common Stock (or cash, as provided below)
equal in value to the excess of the Fair Market Value of one share of the
Common Stock of the Corporation on the day preceding the surrender of such
Rights over the Fair Market Value per share of Common Stock (determined as
of the date the Stock Appreciation Right was granted) multiplied by the
number of Stock Appreciation Rights which are surrendered; provided,
--------
however, that no fractional shares of Common Stock shall be issued (cash
-------
being delivered to the Participant in lieu of such fractional shares). The
Committee shall have the right, in its sole discretion, to approve an
election by a Participant to receive cash in whole or in part in settlement
of a Stock Appreciation Right. Within thirty (30) days following the
receipt by the Committee of a request to receive cash in whole or in part
in settlement of a Stock Appreciation Right, the Committee shall, in its
sole discretion, either consent to or disapprove, in whole or in part, such
a request. A request to receive cash in whole or in part in settlement of
a Stock Appreciation Right may provide that, in the event the Committee
shall disapprove such request, such request shall be deemed to be an
exercise of such Stock Appreciation Right for shares of Common Stock.
(c) Exercise of Stock Appreciation Rights. The exercisability
-------------------------------------
of a Plan Award earned under Section VI(b) shall be determined as set forth
in any agreement executed by the Corporation and such Participant
hereunder. Notwithstanding the terms and the immediately preceding
sentence, however, if the Participant ceases to be an employee of the
Corporation or of any Parent or Subsidiary for Good Cause, all Plan Awards
granted under Section VI(b) shall be forfeited.
[(d) Limitation on Number of Stock Appreciation Rights. In order
-------------------------------------------------
for a grant of Stock Appreciation Rights to satisfy the "performance-based
compensation" exemption under Code Section 162(m), the maximum number of
Stock Appreciation Rights that may be granted to any Executive during one
calendar year is [ ].]
SECTION VII
PERFORMANCE SHARES, RESTRICTED STOCK AND PERFORMANCE UNITS
The Committee shall have the authority to grant Performance
Shares, Restricted Stock or Performance Units either separately or in
combination with other Plan Awards. The terms and conditions of
Performance Shares, Restricted Stock or Performance Units shall be
determined from time to time by the Committee, without limitation, except
as otherwise provided in the Plan, [provided, that in order for a grant of
--------
Restricted Stock, Performance Units or Performance Shares to satisfy the
"performance-based compensation" exemption under Code Section 162(m), (i)
the maximum number of shares of Restricted Stock which may be granted to
any single Executive during any one calendar year is [ ] and (ii) the
maximum payment to any Executive with respect to Performance Units or
Performance Shares granted in any one calendar year shall be [ ]].
Furthermore:
(a) Services Rendered. Each such Plan Award shall be granted
-----------------
for services rendered (or to be rendered) and [at no additional cost to the
Participant], provided, however, that the value of the services performed
-------- -------
must, in the opinion of counsel to the Corporation, equal or exceed the par
value of such shares of Common Stock to be granted to the Participant.
(b) Performance Account. The Corporation shall establish a
-------------------
performance account for each Participant to whom Performance Shares or
Performance Units are granted, and the Performance Shares or Performance
Units granted shall be credited to such account. Shares of Common Stock
granted in the form of Restricted Stock shall be registered in the name of
the Participant and, together with a stock power endorsed in blank,
deposited with the Corporation at the time the account is credited.
(c) Duration of Performance or Restriction Period. The duration
---------------------------------------------
of the performance or restriction period shall be determined by the
Committee at the time each such grant is made and will be set forth under
the Award Agreement. More than one grant may be outstanding at any one
time, and performance or restriction periods may be of different lengths.
(d) Restricted Stock. With respect to Restricted Stock, the
----------------
Participant shall generally have the rights and privileges of a stockholder
of the Corporation as to such shares, including the right to vote such
Restricted Stock, except that the following restrictions shall apply: (i)
the Participant shall not be entitled to delivery of a certificate until
the expiration or termination of the restriction period, (ii) none of the
shares of Restricted Stock may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of during the restriction period and (iii)
all of the shares of Restricted Stock shall be forfeited by the Participant
without further obligation on the part of the Corporation as set forth in
Section VII(i) hereof. Cash and stock dividends with respect to the
Restricted Stock will be withheld by the Corporation for the Participant's
account, and interest may be paid on the amount of cash dividends withheld
at a rate and subject to such terms as may be determined by the
Corporation. All cash or stock dividends so withheld by the Corporation
shall initially be subject to forfeiture, but shall become non-forfeitable
and payable at the same times, and at the same rate, as determined with
respect to the lapse of restrictions on Restricted Stock. Upon the
forfeiture of any Restricted Stock, such forfeited shares of Common Stock
shall be transferred to the Corporation without further action by the
Participant. Upon the expiration or termination of the restriction period,
the restrictions imposed on the appropriate Restricted Stock shall lapse
and a stock certificate for the number of shares of Restricted Stock with
respect to which the restrictions have lapsed shall be delivered, free of
all such restrictions, except any that may be imposed by law or by any
applicable stockholders' agreement, to the Participant. A Participant who
files an election with the Internal Revenue Service to include the fair
market value of any Restricted Stock in gross income while they are still
subject to restrictions shall promptly furnish the Corporation with a copy
of such election together with the amount of any federal, state, local or
other taxes that may be required to be withheld to enable the Corporation
to claim an income tax deduction with respect to such election.
(e) Payments of Performance Shares/Performance Units. Any
------------------------------------------------
Performance Shares or Performance Units earned during a performance period
shall be paid in cash or in shares of Common Stock (as set forth under the
Award Agreement, or as otherwise determined by the Committee) as soon as is
practicable after the end of the performance period to which such Plan
Award relates.
(f) Performance Targets. At the time of each grant, the
-------------------
Committee shall establish (subject to the provisions of Section VII(g)
hereof) performance targets (to be satisfied during the performance period)
and/or periods of service to which the vesting of Performance Shares,
Performance Units and/or Restricted Stock shall be conditioned. The
Committee may also establish a relationship between performance targets and
the number of Performance Shares or the number or value of Performance
Units which shall be earned. The Committee also shall establish a
relationship between performance results other than the targets and the
number of Performance Shares or Restricted Stock and the number or value of
Performance Units, if any, which shall be earned. The Committee shall
determine the measures of performance to be used in determining the extent
to which Performance Shares or Performance Units are earned or to which
restrictions on Restricted Stock or units shall lapse. Performance
measures and targets may vary among grants, but once established for a
grant may not be modified with respect to that grant except as provided in
Section IX and provided that, with respect to Performance Shares and
Performance Units, the Committee may, in its sole discretion, make such
adjustments to performance targets, the number of Performance Shares or the
number or value of Performance Units which shall be earned, or such other
changes as it may deem necessary or advisable in the event of material
changes in the criteria used for establishing performance targets which
would result in the dilution or enlargement of a Participant's award
outside the goals intended by the Committee at the time of the grant of the
Plan Award.
[(g) Performance Measures. Unless and until the Committee
--------------------
proposes for stockholder vote a change in the general performance measures
set forth below, the attainment of which shall determine the number of
Performance Shares, Performance Units or shares of Restricted Stock that
become vested under the Plan, the performance measure(s) to be used for
purposes of grants to Executives shall be as follows:
(i) Total stockholder return (measured as the sum of Common
Stock appreciation and dividends declared) in relation to the Dow
Jones [ ] Index or to the average stockholder return of those
corporations listed by the [ ].
(ii) Return on invested capital in relation to target
objectives.
(iii) Share earnings/earnings growth in relation to
target objectives.
(iv) Cash flow/cash flow growth in relation to target
objectives.
(v) Cost of [services] to consumers in relation to target
objectives.
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining stockholder approval of such changes, the Committee shall have
sole discretion to make such changes without obtaining stockholder
approval.]
(h) Dividend or Interest Equivalents for Performance Shares and
-----------------------------------------------------------
Performance Units. The Committee may provide that amounts equivalent to
------------------
dividends or interest shall be payable with respect to Performance Shares
or Performance Units held in the Participant's performance account. Such
amounts shall be credited to the performance account, and shall be payable
to the Participant in cash or in Common Stock, as set forth under the terms
of the Plan Award, at such time as the Performance Shares or Performance
Units are earned. The Committee further may provide that amounts
equivalent to interest or dividends held in the performance accounts shall
be credited to such accounts on a periodic or other basis.
(i) Termination of Employment. If the Participant (i)
-------------------------
voluntarily ceases to be an employee of the Corporation, or of any Parent
or Subsidiary, with the written consent of the Committee, (ii) dies or
becomes Disabled, (iii) terminates his employment with the Corporation or
with any Parent or Subsidiary due to Retirement or (iv) suffers an
involuntary termination of his employment with the Corporation or with any
Parent or Subsidiary for reasons other than Good Cause, the Plan Award
earned under this Section with respect to any outstanding Performance
Shares, Restricted Stock, Performance Units or interest on dividend
equivalents shall be determined as otherwise provided herein or in any
agreement executed by such Participant hereunder. If the Participant
ceases to be an employee of the Corporation or of any Parent or Subsidiary
for any other reason, all Plan Awards granted under this Section VII and
subject to restrictions shall be forfeited. In such case, the Corporation
shall have the right to complete the blank stock power with respect to
Restricted Stock and transfer the same to its treasury.
SECTION VIII
DEFERRAL OF PAYMENTS
The Committee may establish procedures by which a Participant may
elect to defer payment of a Plan Award. The Committee shall determine the
terms and conditions of such deferral. Any such deferral shall be subject
to the following:
(a) Contingent Nature of Allocation. Every allocation under the
-------------------------------
Plan to a performance account shall be considered "contingent" and unfunded
until any forfeiture restrictions under the terms of the Plan Award expire
or lapse, until all conditions contained in the Plan Award are satisfied,
and until any elective deferral period expires. Such contingent
allocations shall be considered bookkeeping entries only, notwithstanding
the crediting of deemed "dividends" or "interest." Nothing contained
herein shall be construed as creating a trust or fiduciary relationship
between the Participant and the Corporation or the Committee.
(b) Participant's Rights to Awards. Until the Plan Award vests,
------------------------------
the elective deferral period expires, and any restrictions are lifted, the
related amounts held in the Participant's performance account cannot be
sold, conveyed, transferred, pledged, hypothecated, or assigned and any
attempt to do so by the Participant shall result in the immediate
forfeiture of such Plan Award. Until the Plan Award vests and becomes
payable, such account balances shall be the property of the Corporation.
The Participant's right to such account balances shall be subject to the
claims of the general creditors of the Corporation. Receipt of the Plan
Award is conditioned upon satisfactory compliance with the terms and
conditions of the such Plan Award and other requirements of the Plan.
(c) Election to Defer Payment. If a Participant desires to
-------------------------
defer the normal receipt of Common Stock or cash due him under a Plan
Award, he must make an irrevocable election in a calendar year prior to the
calendar year or years in which he is to perform services that will entitle
him to the Plan Award. Such election shall [be made in accordance with
Rule 16b-3 to the extent required and shall provide a fixed date for the
termination of the deferral period. The Participant shall] not be
permitted to receive his Plan Award prior to the end of the elected
deferral period, except in the event of his death, Disability or
termination of employment with the Corporation or any Parent or Subsidiary.
SECTION IX
ADJUSTMENT OF SHARES; MERGER OR
CONSOLIDATION, ETC. OF THE CORPORATION
(a) Recapitalization, Etc. In the event there is any change in
----------------------
the Common Stock of the Corporation by reason of any reorganization,
recapitalization, stock split, stock dividend or otherwise, there shall be
substituted for or added to each share of Common Stock theretofore
appropriated or thereafter subject, or which may become subject, to any
Option, Stock Appreciation Right, grant of Restricted Stock, Performance
Share or Performance Unit award, the number and kind of shares of stock or
other securities into which each outstanding share of Common Stock shall be
so changed or for which each such share shall be exchanged, or to which
each such share be entitled, as the case may be, and the per share price
thereof also shall be appropriately adjusted. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Stock
Option shall comply with the rules of Section 424(a) of the Code and (ii)
in no event shall any adjustment be made which would render any Incentive
Stock Option granted hereunder to be other than an incentive stock option
for purposes of Section 422 of the Code.
(b) Merger, Consolidation or Change in Control of Corporation.
---------------------------------------------------------
Upon (i) the merger or consolidation of the Corporation with or into
another corporation (pursuant to which the stockholders of the Corporation
immediately prior to such merger or consolidation will not, as of the date
of such merger or consolidation, own a beneficial interest in shares of
voting securities of the corporation surviving such merger or consolidation
having at least a majority of the combined voting power of such
corporation's then outstanding securities), if the agreement of merger or
consolidation does not provide for (1) the continuance of the Options,
Stock Appreciation Rights and shares of Restricted Stock granted hereunder
or (2) the substitution of new options, stock appreciation rights or shares
of restricted stock for Options, Stock Appreciation Rights and shares of
Restricted Stock granted hereunder, or for the assumption of such Options,
Stock Appreciation Rights and shares of Restricted Stock by the surviving
corporation or (ii) the dissolution, liquidation, or sale of substantially
all the assets of the Corporation or (iii) the Change in Control of the
Corporation, (1) the holder of any such Option or Stock Appreciation Right
theretofore granted and still outstanding (and not otherwise expired) shall
have the right immediately prior to the effective date of such merger,
consolidation, dissolution, liquidation, sale of assets or Change in
Control of the Corporation to exercise such Option(s) or Stock Appreciation
Right(s) in whole or in part without regard to any installment provision
that may have been made part of the terms and conditions of such Option(s)
or Stock Appreciation Right(s) and (2) all restrictions regarding transfer-
ability and forfeiture on shares of Restricted Stock shall be removed as of
the effective date of such merger, consolidation, dissolution, liquidation,
sale of assets or Change in Control of the Corporation; provided that any
conditions precedent to the exercise of such Option(s) or Stock
Appreciation Right(s) and the transfer of such shares of Restricted Stock,
other than the passage of time, have occurred. The Corporation, to the
extent practicable, shall give advance notice to affected Optionees and
holders of Stock Appreciation Rights or shares of Restricted Stock of such
merger, consolidation, dissolution, liquidation, sale of assets or Change
in Control of the Corporation. All such Options and Stock Appreciation
Rights which are not so exercised shall be forfeited as of the effective
time of such merger, consolidation, dissolution, liquidation or sale of
assets (but not in the case of a Change in Control of the Corporation).
(c) Effect of Merger or Consolidation. As of the effective date
---------------------------------
of the merger, consolidation, dissolution, liquidation or sale of
substantially all of the assets of the Corporation, no Participant shall
earn any additional Performance Share or Performance Unit or dividend or
interest equivalent under this Plan. Furthermore, if the value of any
Performance Share or Performance Unit cannot be determined as of such date
because such Plan Award is conditioned upon the future financial
performance of the Corporation, such Performance Share or Performance Unit
(including any applicable dividend or interest equivalents) shall be
canceled. Any Performance Share or Performance Unit payable after the date
of the merger, consolidation, dissolution, liquidation or sale of
substantially all of the assets of the Corporation shall be paid in cash
(unless the appropriate merger or consolidation agreement provides
otherwise) as of the date such Performance Share or Performance Unit
originally was to have been paid, or as of such earlier date as may be
determined by the Corporation or its successor.
(d) Definition of Change in Control of the Corporation. As used
--------------------------------------------------
herein, a "Change in Control of the Corporation" shall be deemed to have
occurred if any person (including any individual, firm, partnership or
other entity) together with all Affiliates and Associates (as defined under
Rule 12b-2 of the General Rules and Regulations promulgated under the
Exchange Act) of such person, but excluding (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Corporation or any subsidiary of the Corporation, (ii) a corporation owned,
directly or indirectly, by the stockholders of the Corporation in
substantially the same proportions as their ownership of the Corporation,
(iii) the Corporation or any subsidiary of the Corporation or (iv) only as
provided in the immediately following sentence, a Participant together with
all Affiliates and Associates of the Participant, is or becomes the
Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Corporation representing
40% of more of the combined voting power of the Corporation's then
outstanding securities, such person being hereinafter referred to as an
Acquiring Person. The provisions of clause(iv) of the immediately
preceding sentence shall apply only with respect to the Option(s) held by
the Participant who, together with his Affiliates or Associates, if any, is
or becomes the direct or indirect Beneficial Owner of the percentage of
securities set forth in such clause.
SECTION X
MISCELLANEOUS PROVISIONS
(a) Administrative Procedures. The Committee may establish any
-------------------------
procedures determined by it to be appropriate in discharging its
responsibilities under the Plan. Subject to the provisions of Section XIII
hereof, all actions and decisions of the Committee shall be final.
(b) Assignment or Transfer. No grant or award of any Incentive
----------------------
Stock Option or any other "derivative security" (as defined by Rule
16a-l(c) promulgated under the Exchange Act) made under the Plan or any
rights or interests therein shall be assignable or transferable by a
Participant except by will or the laws of descent and distribution or
pursuant to a domestic relations order. During the lifetime of a
Participant, Options and other Plan Awards granted hereunder shall be
exercisable only by the Participant, and Plan Awards earned hereunder shall
be payable only to the Participant. Performance Shares, Restricted Stock
and Performance Units may not be sold, assigned, transferred, redeemed,
pledged or otherwise encumbered during the restriction period, except as
may be provided in Section VIII(b) hereof.
(c) Investment Representation. In the case of Plan Awards paid
-------------------------
in shares of Common Stock or other securities, or, with respect to shares
of Common Stock received pursuant to the exercise of an Option or a Stock
Appreciation Right, or upon the payment upon any Plan Award, the Committee
may require, as a condition of receiving such securities, that the
Participant furnish to the Corporation such written representations and
information as the Committee deems appropriate to permit the Corporation,
in light of the existence or nonexistence of an effective registration
statement under the Securities Act to deliver such securities in compliance
with the provisions of the Securities Act.
(d) Withholding Taxes. The Corporation shall have the right to
-----------------
deduct from all cash payments hereunder any federal, state, local or
foreign taxes required by law to be withheld with respect to such payments.
In the case of the issuance or distribution of Common Stock or other
securities hereunder, either directly or upon the exercise of or payment
upon any Plan Award, the Corporation, as a condition of such issuance or
distribution, may require the payment (through withholding from the
Participant's salary, reduction of the number of shares of Common Stock or
other securities to be issued, or otherwise) of any such taxes. Each
Participant may satisfy the withholding obligations by paying to the
Corporation a cash amount equal to the amount required to be withheld or by
tendering to the Corporation a number of shares of Common Stock having a
value equivalent to such cash amount, or by use of any available procedure
as described under Section IV(c) hereof.
(e) Costs and Expenses. The costs and expenses of administering
------------------
the Plan shall be borne by the Corporation and shall not be charged against
any award nor to any employee receiving a Plan Award.
(f) Funding of Plan. Except in the case of awards of Restricted
---------------
Stock, the Plan shall be unfunded. The Corporation shall not be required
to segregate any of its assets to assure the payment of any Plan Award
under the Plan. Neither the Participants nor any other persons shall have
any interest in any fund or in any specific asset or assets of the
Corporation or any other entity by reason of any Plan Award, except to the
extent expressly provided hereunder. The interests of each Participant and
former Participant hereunder are unsecured and shall be subject to the
general creditors of the Corporation.
(g) Other Incentive Plans. The adoption of the Plan does not
---------------------
preclude the adoption by appropriate means of any other incentive plan for
employees.
(h) Plurals and Gender. Where appearing in the Plan, masculine
------------------
gender shall include the feminine and neuter genders, and the singular
shall include the plural, and vice versa, unless the context clearly
indicates a different meaning.
(i) Headings. The headings and sub-headings in this Plan are
--------
inserted for the convenience of reference only and are to be ignored in any
construction of the provisions hereof.
(j) Severability. In case any provision of this Plan shall be
------------
held illegal or void, such illegality or invalidity shall not affect the
remaining provisions of this Plan, but shall be fully severable, and the
Plan shall be construed and enforced as if said illegal or invalid
provisions had never been inserted herein.
(k) Payments Due Missing Persons. The Corporation shall make a
----------------------------
reasonable effort to locate all persons entitled to benefits under the
Plan; however, notwithstanding any provisions of this Plan to the contrary,
if, after a period of one (1) year from the date such benefits shall be
due, any such persons entitled to benefits have not been located, their
rights under the Plan shall stand suspended. Before this provision becomes
operative, the Corporation shall send a certified letter to all such
persons at their last known addresses advising them that their rights under
the Plan shall be suspended. Subject to all applicable state laws, any
such suspended amounts shall be held by the Corporation for a period of one
(1) additional year and thereafter such amounts shall be forfeited and
thereafter remain the property of the Corporation.
(l) Liability and Indemnification. (i) Neither the Corporation
-----------------------------
nor any Parent or Subsidiary shall be responsible in any way for any action
or omission of the Committee, or any other fiduciaries in the performance
of their duties and obligations as set forth in this Plan. Furthermore,
neither the Corporation nor any Parent or Subsidiary shall be responsible
for any act or omission of any of their agents, or with respect to reliance
upon advice of their counsel provided that the Corporation and/or the
appropriate Parent or Subsidiary relied in good faith upon the action of
such agent or the advice of such counsel.
(ii) Except for their own gross negligence or willful
misconduct regarding the performance of the duties specifically
assigned to them under, or their willful breach of the terms of, this
Plan, the Corporation, each Parent and Subsidiary and the Committee
shall be held harmless by the Participants, former Participants,
beneficiaries and their representatives against liability or losses
occurring by reason of any act or omission. Neither the Corporation,
any Parent or Subsidiary, the Committee, nor any agents, employees,
officers, directors or shareholders of any of them, nor any other
person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
(m) Incapacity. If the Committee shall receive evidence
----------
satisfactory to it that a person entitled to receive payment of any Plan
Award is, at the time when such benefit becomes payable, a minor, or is
physically or mentally incompetent to receive such Plan Award and to give a
valid release thereof, and that another person or an institution is then
maintaining or has custody of such person and that no guardian, committee
or other representative of the estate of such person shall have been duly
appointed, the Committee may make payment of such Plan Award otherwise
payable to such person to such other person or institution, including a
custodian under a Uniform Gifts to Minors Act, or corresponding legislation
(who shall be an adult, a guardian of the minor or a trust company), and
the release by such other person or institution shall be a valid and
complete discharge for the payment of such Plan Award.
(n) Cooperation of Parties. All parties to this Plan and any
----------------------
person claiming any interest hereunder agree to perform any and all acts
and execute any and all documents and papers which are necessary or
desirable for carrying out this Plan or any of its provisions.
(o) Governing Law. All questions pertaining to the validity,
-------------
construction and administration of the Plan shall be determined in
accordance with the laws of the State of [ ].
(p) Nonguarantee of Employment. Nothing contained in this Plan
--------------------------
shall be construed as a contract of employment between the Corporation (or
any Parent or Subsidiary), and any employee or Participant, as a right of
any employee or Participant to be continued in the employment of the
Corporation (or any Parent or Subsidiary), or as a limitation on the right
of the Corporation or any Parent or Subsidiary to discharge any of its
employees, at any time, with or without cause.
(q) Notices. Each notice relating to this Plan shall be in
-------
writing and delivered in person or by certified mail to the proper address.
All notices to the Corporation or the Committee shall be addressed to it at
[ ], Attn: [ ]. All notices to
Participants, former Participants, beneficiaries or other persons acting
for or on behalf of such persons shall be addressed to such person at the
last address for such person maintained in the Committee's records.
(r) Written Agreements. Each Plan Award shall be evidenced by a
------------------
signed written agreement (the "Award Agreements") between the Corporation
and the Participant containing the terms and conditions of the award.
SECTION XI
AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Corporation shall have the right to
amend, suspend or terminate the Plan at any time, provided that no
amendment shall be made which shall increase the total number of shares of
the Common Stock of the Corporation which may be issued and sold pursuant
to Options or other Plan Awards, reduce the minimum exercise price in the
case of an Incentive Stock Option or modify the provisions of the Plan
relating to eligibility with respect to Incentive Stock Options unless such
amendment is made by or with the approval of the stockholders (such
approval being granted within 12 months of the effective date of such
amendment), but only if such approval is required by any applicable
provision of law. The Board of Directors of the Corporation shall also be
authorized to amend the Plan and the Options granted thereunder to maintain
qualification as "incentive stock options" within the meaning of Section
422 of the Code, if applicable. Except as otherwise provided herein, no
amendment, suspension or termination of the Plan shall alter or impair any
Plan Awards previously granted under the Plan without the consent of the
holder thereof.
SECTION XII
TERM OF PLAN
The Plan shall automatically terminate on the day immediately
preceding the tenth anniversary of the date the Plan was adopted by the
Board of Directors of the Corporation, unless sooner terminated by such
Board of Directors. No Plan Awards may be granted under the Plan
subsequent to the termination of the Plan.
SECTION XIII
CLAIMS PROCEDURES
(a) Denial. If any Participant, former Participant or
------
beneficiary is denied any vested benefit to which he is, or reasonably
believes he is, entitled under this Plan, either in total or in an amount
less than the full vested benefit to which he would normally be entitled,
the Committee shall advise such person in writing the specific reasons for
the denial. The Committee shall also furnish such person at the time with
a written notice containing (i) a specific reference to pertinent Plan
provisions, (ii) a description of any additional material or information
necessary for such person to perfect his claim, if possible, and an
explanation of why such material or information is needed and (iii) an
explanation of the Plan's claim review procedure.
(b) Written Request for Review. Within 60 days of receipt of
--------------------------
the information stated in subsection (a) above, such person shall, if he
desires further review, file a written request for reconsideration with the
Committee.
(c) Review of Document. So long as such person's request for
------------------
review is pending (including the 60 day period in subsection (b) above),
such person or his duly authorized representative may review pertinent Plan
documents and may submit issues and comments in writing to the Committee.
(d) Committee's Final and Binding Decision. A final and binding
--------------------------------------
decision shall be made by the Committee within 60 days of the filing by
such person of this request for reconsideration; provided, however, that if
-------- -------
the Committee, in its discretion, feels that a hearing with such person or
his representative is necessary or desirable, this period shall be extended
for an additional 60 days.
(e) Transmittal of Decision. The Committee's decision shall be
-----------------------
conveyed to such person in writing and shall (i) include specific reasons
for the decision, (ii) be written in a manner calculated to be understood
by such person and (iii) set forth the specific references to the pertinent
Plan provisions on which the decision is based.
(f) Limitation on Claims. Notwithstanding any provisions of
--------------------
this Plan to the contrary, no Participant (nor the estate or other
beneficiary of a Participant) shall be entitled to assert a claim against
the Corporation (or against any Parent or Subsidiary) more than three years
after the date the Participant (or his estate or other beneficiary)
initially is entitled to receive benefits hereunder.
Exhibit 10.10
WARRANT TO PURCHASE 120,000
SHARES OF COMMON STOCK
REPRESENTATIVE'S WARRANT
Dated: January 1997
THIS CERTIFIES THAT H.J. MEYERS & CO., INC. (herein
sometimes called the "Holder") is entitled to purchase from
GENERAL BEARING CORPORATION, a Delaware corporation (the
"Company"), at the respective prices and during the period
hereinafter specified, up to 120,000 shares of the Common Stock,
$.01 par value, of the Company (the "Common Stock"). This
Representative's Warrant (this "Warrant") is issued pursuant to
an Underwriting Agreement dated ___________, 1997 between the
Company and H.J. Meyers & Co., Inc. (the "Representative"), as
representative of certain underwriters, including itself (the
"Underwriters"), in connection with a public offering, through
the Underwriters (the "Offering"), of 1,200,000 shares of Common
Stock (and up to 180,000 additional shares of Common Stock
covered by an over-allotment option granted to the Underwriters),
in consideration of $5.00 received by the Company for this
Warrant. Except as otherwise expressly provided herein, the
shares of Common Stock issued upon exercise of this Warrant shall
bear the same terms and conditions described under the caption
"Description Of Securities" in the registration statement (File
No. 333-15477) on Form S-1 relating to the Offering (the
"Registration Statement"), except that (i) the Holder shall have
registration rights under the Securities Act of 1933, as amended
(the "Act"), for this Warrant and the Common Stock as more fully
described in Section 6. Each certificate evidencing the
Registrable Securities (as hereinafter defined) shall bear the
appropriate restrictive legend set forth below, except that any
such certificate shall not bear such restrictive legend if (a) it
is transferred pursuant to an effective registration statement
under the Act or in compliance with Rule 144 or Rule 144A
promulgated under the Act, or (b) the Company is provided with an
opinion of counsel to the effect that such legend is not required
in order to establish compliance with the provisions of the Act:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE
REPRESENTATIVE'S WARRANT COVERING REGISTRATION RIGHTS
PERTAINING TO THESE SECURITIES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE COMPANY AT THE OFFICE OF THE COMPANY
AT WEST NYACK, NEW YORK."
Unless the context otherwise requires, all references herein to a
"Section" shall mean the appropriate Section of this Warrant.
1. EXERCISE PRICE AND PERIOD. The rights represented by
this Warrant shall be exercised at the price and during the
periods set forth below:
(a) During the period from [EFFECTIVE DATE] to
[EFFECTIVE DATE+1 YEAR-1 DAY] (the "First Anniversary Date")
inclusive, the Holder shall have no right to purchase any
Securities hereunder, except that in the event of any merger or
consolidation of the Company into another entity, or any sale of
substantially all of the assets of the Company as an entirety,
prior to the First Anniversary Date, the Holder shall have the
right to exercise this Warrant at such tie and into such kinds
and amounts of shares of stock and other securities and property
(including cash) as would be receivable by a holder of the number
of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto.
(b) Between [EFFECTIVE DATE+1 YEAR] and [EFFECTIVE
DATE+5 YEARS-1 DAY] (the "Expiration Date") inclusive, the Holder
shall have the right to purchase hereunder: (i) shares of Common
Stock at a price of $11.26 per share (that being 140 percent of
the public offering price of the shares of Common Stock) (the
"Share Exercise Price").
(c) Notwithstanding the provisions of Section 1(b)
with respect to the Exercise Price to the contrary, the Holder
may elect to exercise this Warrant, in whole or in part, by
receiving Common Stock equal to the value (as herein determined)
of the portion of this Warrant then being exercised, in which
event the Company shall issue to the Holder the number of shares
of Common Stock determined by using the following formula:
X = Y(A-B)
------
A
where: X = the number of shares of Common Stock to be
issued to the Holder under the provisions of
this Section 1(c)
Y = the number of shares of Common Stock that
would otherwise be issued upon such exercise
A = the Current Fair Market Value (as hereinafter
defined) of one share of Common Stock
calculated as of the last trading day
immediately preceding such exercise
B = the Exercise Price
As used herein, the "Current Fair Market Value" of the Common
Stock as of a specified date shall mean with respect to each
share of Common Stock, (i) the average of the closing prices of
the Common Stock sold on all securities exchanges on which the
Common Stock may at the time be listed, or (ii) if there have
been no sales on any such exchange on such day, the average of
the highest bid and lowest asked prices on all such exchanges at
the end of such day, or (iii) if on such day the Common Stock is
not so listed, the average of the representative bid and asked
prices quoted in the NASDAQ System as of 4:00 p.m., New York
time, or (iv) if on such day the Common Stock is not quoted in
the NASDAQ System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated or any
similar successor organization, in each such case either (i)
calculated ont eh date which the form of election specified in
Section 2 herein is deemed to have been sent to the Company or
(ii) averaged over a period of 5 days consisting of the day as of
which the Current Fair Market Value is being determined and the 4
consecutive business days prior to such day. The Holder hereof
shall determine in its sole discretion which method of
calculation to use. If on the date of which Current Fair Market
Value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-
the-counter market, then Current Fair Market Value of the Common
Stock shall be the highest price per share which the Company
could then obtain from a willing buyer (not a current employee or
director) for Common Stock sold by the Company from authorized
but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company
has become subject to a merger, consolidation, reorganization,
acquisition or other similar transaction pursuant to which the
Company is not the surviving entity, in which case the Current
Fair Market Value of the Common Stock shall be deemed to be the
per share value received or to be received in such transaction by
the holders of Common Stock.
(d) After the Expiration Date, the Holder shall have
no right to purchase any shares of Common Stock hereunder.
2. EXERCISE. The rights represented by this Warrant may
be exercised, in whole or in part (with respect to shares of
Common Stock, by the Holder at any time within the periods
specified in Section 1 by: (a) surrender of this Warrant for
cancellation (with the purchase form at the end hereof properly
executed) at the principal executive office of the Company (or at
such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder
appearing on the books of the Company); (b) to the extent that
the Holder does not use the election provided by Section 1(c),
payment to the Company of the Exercise Price for the number of
shares of Common Stock specified in the such purchase form,
together with the amount of applicable stock transfer taxes, if
any; and (c) delivery to the Company of a duly executed agreement
signed by the person(s) designated in the purchase form to the
effect that such person(s) agree(s) to be bound by all of the
terms and conditions of this Warrant, including without
limitation the provisions of Section 6 and 7. This Warrant shall
be deemed to have been exercised, in whole or in part to the
extent specified immediately prior to the close of business on
the date on which all of the provisions of this Section 2 are
satisfied, and the person(s) designated in the purchase form
shall become the holder(s) of record of the shares of Common
Stock issuable upon such exercise at that time and date. The
certificates representing the shares of Common Stock so purchased
shall be delivered to the Holder within a reasonable time, not
exceeding ten business days, after this Warrant shall have been
so exercised.
3. TRANSFER OF WARRANT.
(a) During the period from [EFFECTIVE DATE] to the
First Anniversary Date inclusive, this Warrant shall not be
transferred, sold, assigned or hypothecated, except that during
such period this Warrant may be transferred (i) to successors in
interest of the Holder, or (ii) in whole or in part to any one or
more directors or officers of the Holder, in each case subject
to compliance with applicable Federal and state securities laws
and Interpretations of the Board of Governors of the National
Association of Securities Dealers, Inc.
(b) Between [EFFECTIVE DATE+1 YEAR] and the Expiration
Date inclusive, this Warrant shall be freely transferable, in
whole or in part, subject to the other terms and conditions
hereof and to compliance with applicable Federal and state
securities laws; provided, however, that this Warrant shall be
immediately exercised upon any such transfer to any person or
entity that is not a shareholder, director or officer of the
Holder and that if this Warrant is not so exercised upon a
transfer to any person or entity which is not a shareholder,
director or officer of the Holder, that this Warrant shall
immediately lapse.
(c) Any transfer of this Warrant permitted by this
Section 3 shall be effected by: (i) surrender of this Warrant
for cancellation (with the assignment form at the end hereof
properly executed) at the office or agency of the Company
referred to in Section 2; (ii) delivery of a certificate (signed,
if the Holder is a corporation or partnership, by an authorized
officer or partner thereof), stating that each transferee
designated in the assignment form is a permitted transferee under
this Section 3; and (iii) delivery of an opinion of counsel
stating that the proposed transfer may be made without
registration or qualification under applicable Federal or state
securities laws. This Warrant shall be deemed to have been
transferred, in whole or in part to the extent specified,
immediately prior to the close of business on the date the
provisions of this Section 3(c) are satisfied, and the
transferee(s) designated in the assignment form shall become the
holder(s) of record at that time and date. The Company shall
issue, in the name(s) of the designated transferee(s) (including
the Holder if this Warrant has been transferred in part) a new
Warrant or Warrants of like tenor and representing, in the
aggregate, rights to purchase the same number of shares of Common
Stock as are then purchasable under this Warrant. Such new
Warrant or Warrants shall be delivered to the record holder(s)
thereof within a reasonable time, not exceeding ten business
days, after the rights represented by this Warrant shall have
been so transferred. As used herein (unless the context
otherwise requires), the term "Holder" shall include each such
transferee, and the term "Warrant" shall include each such
transferred Warrant.
4. COVENANTS OF THE COMPANY. The Company covenants and
agrees that all shares of Common Stock which may be issued upon
exercise of this Warrant shall, upon issuance in accordance with
the terms hereof, be duly and validly issued, fully paid and non-
assessable, with no personal liability attaching to the Holder
thereof. The Company further covenants and agrees that during
the period within which this Warrant may be exercised, the
Company shall at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon
exercise of this Warrant.
5. SHAREHOLDER'S RIGHTS. This Warrant shall not entitle
the Holder to any voting rights or other rights as a shareholder
of the Company.
6. REGISTRATION RIGHTS.
(a) CERTAIN DEFINITIONS. As used herein, the term:
(i) "Registrable Securities" shall mean this
Warrant and/or the shares of Common Stock issued or issuable upon
exercise of this Warrant, as the same shall be so designated by
the Holder.
(ii) "50% Holder" shall mean the Holder(s) of at
least 50 percent of the total number of shares of Common Stock
comprising the Registrable Securities (whether or not this
Warrant has been exercised), and shall include any Holder or
combination of Holders.
(b) "PIGGYBACK" REGISTRATION. From the date hereof
until the Expiration Date, the Company shall advise the Holder,
whether the Holder holds this Warrant or has exercised this
Warrant and holds any of the Common Stock, by written notice at
least four weeks prior to the filing of any post-effective
amendment to the Registration Statement (unless the Company
determines that to comply with Federal securities law it must
file such post-effective amendment in less than four weeks' time,
in which case the Company shall give the Holder the most notice
practicable under the circumstances), or of any new registration
statement or post-effective amendment thereto under the Act
(other than a registration statement on Form S-8 or its
counterpart), or any Notification on Form 1-A under the Act,
covering any securities of the Company, whether for its own
account or for the account of others, and shall, upon the request
of the Holder, include in any such post-effective amendment or
new registration statement such information as may be required to
permit a public offering of any or all of the Registrable
Securities of the Holder, all at no expense whatsoever to the
Holder (except in the case of any post-effective amendment to the
extent as permitted by the Act or the rules and regulations
promulgated thereunder), except that each Holder whose
Registrable Securities are included in such registration shall
bear the fees of its own counsel and any underwriting discounts
or commissions applicable to the Securities sold by it.
(c) DEMAND REGISTRATION.
(i) If any 50% Holder shall give notice to the
Company, at any time after the First Anniversary Date and prior
to the Expiration Date, to the effect that such 50% Holder
desires to register under the Act any Registrable Securities
under such circumstances that a public distribution (within the
meaning of the Act) of any such securities shall be involved,
then the Company shall promptly, but no later than 30 days after
receipt of such notice, use its reasonable best efforts to file a
post-effective amendment to the Registration Statement or a new
registration statement under the Act, to the end that Registrable
Securities of such 50% Holder may be publicly sold under the Act
as promptly as practicable thereafter, and the Company shall use
its best efforts to cause such registration to become effective
as soon as possible; provided, however, that such 50% Holder
shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request in
writing; and provided further that the Company shall then have
available current financial statements (unless the unavailability
of current financial statements results from the Company's fault
or neglect). The 50% Holder may, at its option, cause
Registrable Securities to be included in such registration under
this Section 6(c) on a maximum of two occasions during the four-
year period beginning on the First Anniversary Date and ending on
the Expiration Date.
(ii) Within ten days after receiving any such
notice pursuant to this Section 6(c), the Company shall give
notice to each other Holder (whether such Holder holds a Warrant
or has exercised the Warrant and holds any of the Securities),
advising that the Company is proceeding with such post-effective
amendment or new registration statement and offering to include
therein Registrable Securities held by such other Holders,
provided that they shall furnish the Company with such
appropriate information in connection therewith as the Company
shall reasonably request in writing.
(iii) All costs and expenses (including
without limitation, legal, accounting, printing, mailing and
filing fees) of the first such registration effected under this
Section 6(c) shall be borne by the Company, except that the
Holder(s) whose Registrable Securities are included in such
registration shall bear the fees of their own counsel and any
underwriting discounts or commissions applicable to the
securities sold by them. All costs and expenses of the second
such registration effected under this Section 6(c) shall be borne
by the Holder(s) whose Registrable Securities are included in
such registration.
(iv) The Company shall cause each registration
statement or post-effective amendment filed pursuant to this
Section 6(c) to remain current under the Act (including the
taking of such steps as are necessary to obtain the removal of
any stop order) for a period of at least six months (and for up
to an additional three months if requested by the Holder(s)) from
the effective date thereof, or until all the Registrable
Securities included in such registration have been sold,
whichever is earlier.
(d) FURTHER RIGHTS. The registration rights provided
by this Section 6 may be exercised by the Holder either prior or
subsequent to its exercise of this Warrant. A 50% Holder may, at
its option, request registration pursuant to Section 6(b) and/or
pursuant to Section 6(c), and its request for registration under
one such Section shall not affect its right to request
registration under the other. The registration rights provided
by this Section 6 shall supersede and be prior in right to any
registration rights granted by the Company to other holders of
its outstanding securities.
(e) FURTHER OBLIGATIONS OF COMPANY. With respect to
all registrations under this Section 6, the Company shall: (i)
supply prospectuses and such other documents as the Holder may
reasonably request in order to facilitate the public sale or
other disposition of the Registrable Securities; (ii) use its
best efforts to register and qualify the Registrable Securities
for sale in such states as the Holder designates (provided,
however, that in no event shall the Company be required to
qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process); and (iii) do
any and all other acts and things which may be necessary or
desirable to enable the Holder to consummate the public sale or
other disposition of the Registrable Securities.
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. As used in this
Section 7, the term "Liabilities" shall mean any and all losses,
claims, damages and liabilities, and actions and proceedings in
respect thereof, including without limitation all reasonable
costs of defense and investigation and all attorneys' fees.
Whenever pursuant to Section 6 a registration statement relating
to any Registrable Securities is filed under the Act, or amended
or supplemented, the Company shall indemnify and hold harmless
each Holder of Registrable Securities included in such
registration statement, amendment or supplement (each, a
"Distributing Holder"), and each person (if any) who controls
(within the meaning of the Act) the Distributing Holder, and each
underwriter (within the meaning of the Act) of such Registrable
Securities, and each person (if any) who controls (within the
meaning of the Act) any such underwriter, from and against all
Liabilities, joint or several, to which the Distributing Holder
or any such controlling person or underwriter may become subject,
under the Act or otherwise, insofar as such Liabilities arise out
of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such registration
statement, or any preliminary prospectus or final prospectus
constituting a part thereof, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company shall not be
liable in any such case to the extent that any such Liabilities
arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement, preliminary prospectus, final prospectus,
or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished by such
Distributing Holder or by any other Distributing Holder for use
in the preparation thereof. The foregoing indemnity shall be in
addition to any other liability which the Company may otherwise
have.
(b) INDEMNIFICATION BY HOLDER. The Distributing
Holder(s) shall indemnify and hold harmless the Company, and each
of its directors, each nominee (if any) named in any preliminary
prospectus or final prospectus constituting a part of such
registration statement, each of its officers who have signed such
registration statement and such amendments or supplements
thereto, and each person (if any) who controls the Company
(within the meaning of the Act) against all Liabilities, joint or
several, to which the Company or any such director, nominee,
officer or controlling person may become subject, under the Act
or otherwise, insofar as such Liabilities arise out of or are
based upon any untrue or alleged untrue statement of any material
fact contained in such registration statement, preliminary
prospectus, final prospectus, or amendment or supplement thereto,
or arise out of or are based upon he omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent
that such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, preliminary
prospectus, final prospectus or amendment or supplement thereto
in reliance upon and in conformity with written information
furnished by such Distributing Holder(s) for use in the
preparation thereof. The foregoing indemnity shall be in
addition to any other liability which the Distributing Holder(s)
may otherwise have.
(c) PROCEDURE. Promptly after receipt by an
indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying
party, give the indemnifying party notice of the commencement
thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case
any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party shall not be entitled to participate in and,
to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense
thereof, the indemnifying party shall be liable to such
indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs
of investigation.
(d) LIMITATION. Notwithstanding the foregoing, if the
Registrable Securities are to be distributed by means of an
underwritten public offering, to the extent that the provisions
on indemnification and contribution contained in the underwriting
agreement entered into in connection with such underwriting are
in conflict with the provisions of this Section 7, the provisions
of such underwriting agreement shall be controlling, provided
that the Holder is a party to such underwriting agreement.
8. ANTI-DILUTION. In the event that the outstanding
shares of Common Stock are at any time increased or decreased in
number, or changed into or exchanged for a different number or
kind of shares or other security of the Company or of another
corporation through reorganization, merger, consolidation,
liquidation, recapitalization or, in the case of Common Stock,
stock split, reverse split, combination of shares or stock
dividends payable with respect to such Common Stock, sold at
below the exercise price of this Warrant, and for other unusual
events (other than employee benefit and stock option plans for
employees and advisors of the Company) appropriate adjustments
shall be made in the number and kind of such securities then
subject to this Warrant and in the Exercise Price of this Warrant
effective as of the date of such occurrence, so that the position
of the Holder upon exercise of this Warrant shall be the same as
it would have been had it owned immediately prior to the
occurrence of such event the Common Stock subject to this
Warrant; provided, however, that in no event shall two
adjustments be made for the same event. For example, if the
Company declares a 2-for-1 stock dividend or stock split, then
the number of shares of Common Stock then subject to this Warrant
shall each be doubled and the Share Exercise Price shall each be
reduced by 50 percent. Such adjustments shall be made
successively whenever any event described by this Section 8 shall
occur.
9. GOVERNING LAW. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York
applicable to agreements made and to be performed entirely within
such State, without reference to such State's laws regarding the
conflict of laws.
10. AMENDMENT OR WAIVER. Any provision of this Warrant may
be amended, waived or modified upon the written consent of the
Company and any 50% Holder; provided, however, that such
amendment, waiver or modification applies by its terms to each
Holder; and provided further, that a Holder may waive any of its
rights or the Company's obligations to such Holder without
obtaining the consent of any other Holder.
IN WITNESS WHEREOF, GENERAL BEARING CORPORATION has caused
this Warrant to be signed by its duly authorized officers under
its corporate seal and to be dated as of the date set forth on
the first page hereof.
GENERAL BEARING CORPORATION
By:______________________________
Name:
Title:
(Corporate Seal)
Attest:
_________________________
Secretary
<PAGE>
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the Holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by
such Warrant for, and to purchase thereunder, _________ shares of
Common Stock, $.01 par value, of GENERAL BEARING CORPORATION (the
"Company") and (i) herewith makes payment of an aggregate of
$_______________ therefor and/or (ii) pursuant to Section 1(c) of
such Warrant hereby tenders the right to exercise such Warrant to
the extent of _______ shares of Common Stock of the Company. The
undersigned requests that the certificates for the shares of such
Common Stock be issued in the name(s) of, and delivered to, the
person(s) whose name(s) and address(es) are set forth below:
Dated: ____________________
___________________________
Name:
___________________________
Address:
Signatures guaranteed by:
______________________________
Taxpayer Identification Number:
_______________________________
<PAGE>
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns,
and transfers unto _______________________________________ the
right to purchase shares of the Common Stock, $.01 par value per
share, of GENERAL BEARING CORPORATION (the "Company") represented
by the foregoing Warrant to the extent of ____ shares of Common
Stock and appoints ____________________________ attorney to
transfer such rights on the books of the Company, with full power
of substitution in the premises.
Dated: ____________________
__________________________
Name:
__________________________
Address:
Signatures guaranteed by:
______________________________
Taxpayer Identification Number:
_______________________________
Exhibit 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
We hereby consent to the use in the Prospectus constituting
a part of this Amendment No. 2 to the Registration Statement of
our report dated March 24, 1995, relating to the consolidated
financial statements of General Bearing Corporation and
Subsidiaries, which is contained in that Prospectus, and of our
report dated March 24, 1995 relating to the schedule, which is
contained in Part II of the Registration Statement.
We also consent to the reference to us under the captions
"Experts", "Selected Financial Data", and "Change in Independent
Auditors" in the Prospectus.
/s/ Ferro, Berdon & Company, L.L.P.
-------------------------------------
FERRO BERDON & COMPANY, L.L.P.
New York, NY
January 13, 1997
Exhibit 23.2
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
General Bearing Corporation
West Nyack, New York
We hereby consent to the use in the Prospectus constituting
a part of this Registration Statement of our report dated
September 13, 1996, except for Note 15(a) which is as of October
10, 1996 relating to the consolidated financial statements of
General Bearing Corporation and Subsidiaries, which is contained
in that Prospectus, and of our report dated September 13, 1996,
relating to the schedule, which is contained in Part II of the
Registration Statement.
We also consent to the reference to us under the captions
"Experts", "Selected Financial Data", and "Change in Independent
Auditors" in the Prospectus.
/s/ BDO Seidman, LLP
--------------------
BDO SEIDMAN, LLP
New York, New York
January 13, 1997
