<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 1997
REGISTRATION NO. 333-29873
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CTB INTERNATIONAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 3523 35-1970751
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
STATE ROAD 15 NORTH
P.O. BOX 2000
MILFORD, INDIANA 46542-2000
(219) 658-4191
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL J. KISSANE
STATE ROAD 15 NORTH
P.O. BOX 2000
MILFORD, INDIANA 46542-2000
(219) 658-4191
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
GARY I. HOROWITZ, ESQ. EMANUEL S. CHERNEY, ESQ.
SIMPSON THACHER & BARTLETT KAYE, SCHOLER, FIERMAN, HAYS & HANDLER, LLP
425 LEXINGTON AVENUE 425 PARK AVENUE
NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10022
(212) 455-7113 (212) 836-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES 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, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, please check the following box. [ ]
------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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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.
SUBJECT TO COMPLETION, DATED AUGUST 11, 1997
PROSPECTUS
, 1997
5,000,000 SHARES
[CHORE-TIME(R) LOGO] CTB INTERNATIONAL CORP. [BROCK(R) LOGO]
COMMON STOCK
All of the 5,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of CTB International Corp. (the "Company") offered hereby (the
"Offering") are being sold by the Company.
Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $14.00 and $16.00 per share. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price of the Common Stock. The Company's application to quote the
Common Stock on the Nasdaq National Market under the symbol "CTBC" has been
approved.
After the Offering (assuming the over-allotment option is not exercised),
affiliates of American Securities Capital Partners, L.P. and directors and
executive officers of the Company will own in the aggregate approximately 60% of
the outstanding shares of Common Stock and will continue to control the outcome
of all matters affecting the management of the Company, including the election
of members of the Company's Board of Directors. In connection with the Offering,
$15 million of the proceeds will be used to redeem shares of 6% Series A
Preferred Stock of the Company held by certain directors, officers and
controlling stockholders of the Company.
Up to an aggregate of 125,000 shares of Common Stock, or approximately 2.5%
of the shares offered hereby, have been reserved for sale to certain employees
of the Company. The price per share of Common Stock to be sold to these persons
is equal to the initial public offering price. See "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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.
- --------------------------------------------------------------------------------
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Per Share................................. $ $ $
Total(3).................................. $ $ $
- -----------------------------------------------------------------------------------------------------
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted the Underwriters a 30-day option to purchase up to an additional
750,000 shares of Common Stock, at the Price to the Public, less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to the Public and
Underwriting Discounts and Commissions will be $ and $ ,
respectively, and the Proceeds to the Selling Stockholders will be
$ . See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the shares of Common Stock will be made in
New York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GEORGE K. BAUM & COMPANY
CHASE SECURITIES INC.
<PAGE> 3
[Company's ULTRAPAN Pullet Feeding System]
[Company's grain storage bins]
[Company's button nipple drinker]
[Company's broiler production system]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated and pro
forma financial statements and notes thereto appearing elsewhere in this
Prospectus. Unless otherwise noted, or the context otherwise requires, (i)
references to the "Company" refer to CTB International Corp. and its
subsidiaries on a consolidated basis and their respective predecessors, (ii)
references to "CTB" refer to CTB, Inc., a wholly-owned subsidiary of the
Company, and its subsidiaries on a consolidated basis, (iii) references to Old
CTB refer to CTB, Inc., the predecessor company to CTB, Inc., and references to
the Predecessor Company refer to Old CTB and its subsidiaries on a consolidated
basis, (iv) references to the Butler Acquisition refer to the acquisition by the
Company of substantially all of the assets of Butler Manufacturing Company's
grain systems division and the payment of the related fees and expenses, (v)
references to the Fancom Acquisition refer to the acquisition by the Company of
all the capital stock of Fancom Holding B.V. and the payment of the related fees
and expenses, (vi) all information in this Prospectus assumes the following
transactions are completed prior to or concurrent with the consummation of the
Offering: (1) a 12.0933 for 1 stock split of the Common Stock (the "Stock
Split"), (2) the exchange of 9,069 shares of the Existing Preferred Stock (as
defined herein) for 604,600 shares of Common Stock (at an assumed initial public
offering price of $15.00 per share), (3) the redemption of the remaining 15,000
outstanding shares of the Existing Preferred Stock and (4) the repayment of all
amounts outstanding under the Existing Credit Agreement (as defined herein) with
the proceeds of borrowings under the New Credit Agreement (as defined herein)
and a portion of the net proceeds of the Offering, and (vii) the information
contained in this Prospectus assumes that the Underwriters' overallotment option
is not exercised. Unless otherwise defined herein, capitalized terms used in
this summary have the respective meanings ascribed to them elsewhere in this
Prospectus.
THE COMPANY
The Company is a leading manufacturer and marketer of automated feeding,
watering and ventilation systems, feed bins, grain storage bins and integrated
commercial egg laying and handling systems for the poultry, swine, grain and egg
production industries. The Company believes that it has more than 50% of the
domestic market for (i) broiler chicken, swine and turkey feeding systems, (ii)
integrated commercial egg laying and handling systems and (iii) poultry and
swine feed storage and delivery systems. With the Butler Acquisition, the
Company is the leading domestic producer of grain storage bins. The Company
markets its agricultural products on a worldwide basis primarily under the
CHORE-TIME(R) and BROCK(R) brand names through a network of over 500 U.S. and
international independent distributors and dealers, which network the Company
believes is one of the strongest in the industry. The Company believes that its
strong brand names and market positions reflect its 45-year history as the
leading innovator in its core markets. The Company recorded net sales and
operating income of $148.9 million and $19.3 million, respectively, in 1996. Pro
forma for the Butler and Fancom acquisitions, the Company's net sales and
operating income would have been $217.4 million and $26.8 million, respectively,
for 1996.
The Company's feeding, watering and ventilation products are used primarily
by growers that raise poultry and swine, typically on a contract basis, for
large integrators such as Tyson Foods, Inc. Because growers are partially
compensated by integrators based on the efficiency with which they convert feed
to meat (the "feed-to-meat ratio"), they seek to purchase systems which minimize
the feed-to-meat ratio. The Company believes that its systems are among the most
cost-efficient in the industry and that it is currently the only provider of a
complete line of poultry feeding, watering and ventilation systems which have
been widely approved by integrators for use by their growers. The Company's egg
laying and handling products are similarly used by egg producers for whom a key
determinant of profitability is the ability to maximize the ratio of eggs
produced to feed and other costs of production. The Company believes that its
egg product lines are also among the most cost-effective in the industry. The
Company's grain storage products are primarily used by farm users or commercial
businesses such as feed mills, grain elevators, port storage facilities or
commercial grain processors. The Company believes that its grain storage and
handling systems are of the
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highest quality due to their strength and durability, facilitation of efficient
handling and minimization of grain spoilage.
The Company has benefited from favorable worldwide trends in poultry
consumption and grain production. Domestically, per capita poultry consumption
has increased approximately 78% in the past 20 years due to rising disposable
income, the increasing availability of value-added, pre-packaged poultry
products and poultry's growing appeal to consumers as a healthier source of
protein than other meat products. International poultry consumption is growing
at a significantly higher rate than U.S. consumption, primarily due to, in
addition to the factors impacting domestic demand, significant population
growth, rising international disposable income and poultry's status as a low
cost source of protein compared to other meat products. Rising worldwide poultry
consumption is resulting in increased automation of poultry production and,
therefore, significant demand for the Company's products. In China and Brazil,
the two largest consumers and producers of poultry after the United States, the
Company estimates that only 10% and 60% of poultry production is automated,
compared to nearly 100% in the U.S. Widespread economic and population growth,
with increased demand for animal protein, is driving increased demand for world
feed grain production. Furthermore, the Company believes that less functionally
sophisticated and efficient grain storage facilities outside the U.S. and
Western Europe, which experience relatively high levels of grain spoilage and
loss, are increasingly likely to be replaced by more modern equipment. The
Company believes that these factors will create significant future demand for
the Company's products.
CTB International Corp. was incorporated in Delaware on November 20, 1995
in connection with the CTB Acquisition. See "Business" and "Certain
Relationships and Related Transactions--CTB Acquisition." The Company's
principal executive office is located at State Road 15 North, P.O. Box 2000,
Milford, Indiana, 46542-2000, and its telephone number is (219) 658-4191.
BUSINESS STRATEGY
In January 1996, affiliates of American Securities Capital Partners, L.P.
("ASCP"; together with its affiliates, "American Securities"), along with senior
management and certain founding family members, acquired Old CTB (the "CTB
Acquisition"). As a result of the new ownership, management of the Company is
implementing a growth strategy designed to position the Company as the premier
worldwide provider of high quality, cost-efficient systems for poultry, egg and
swine production and integrated grain storage and handling equipment for the
agricultural equipment industry. To implement this growth strategy, the Company
intends to:
- CONTINUE TO BUILD LEADING MARKET SHARES IN ATTRACTIVE GROWTH
MARKETS. The Company believes that it has more than 50% of the domestic
market share of broiler (chicken raised for consumption), swine and
turkey feeding systems, integrated commercial egg laying and handling
systems and poultry and swine feed storage and delivery systems. With the
Butler Acquisition, the Company is the leading domestic producer of grain
storage bins. The Company intends to continue to build its market share
in these product lines and believes that it will continue to benefit from
strong growth trends in worldwide poultry and swine production, and in
demand for grain storage and handling products. The Company believes that
the diversity of its end users in the agricultural market, coupled with
its increasing international focus, will mitigate the impact of any
reduction in demand within any of its individual product lines.
- CAPITALIZE ON SIGNIFICANT INTERNATIONAL GROWTH OPPORTUNITIES. The
Company's products are marketed in over 60 countries through
approximately 180 international distributors, with international sales
representing approximately 39% of net sales in 1996, pro forma for the
Butler and Fancom acquisitions. The Company intends to leverage its
worldwide brand name recognition, leading market positions and strong
international distribution network to capture the significant demand for
its products in international markets. In Brazil, the world's third
largest consumer of poultry and swine products, the Company has recently
established a subsidiary to manufacture and market its products locally.
In China, the world's second largest consumer and producer of poultry and
swine products, the Company
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has recently appointed a master distributor, supported by a network of
subdistributors, to complement its existing direct sales and enhance its
distribution network in Southeast Asia.
- OFFER INCREASED VALUE THROUGH INTEGRATED EQUIPMENT SYSTEMS. The Company
believes it can significantly lower total production costs and help end
users achieve further productivity gains by offering integrated systems
for their total feeding, watering and ventilation needs. Integrated
equipment systems offer significant benefits to distributors, including
lower administrative and shipping costs and the ease of dealing with a
single supplier for all of their customer needs. In 1994, the Company
initiated a program to expand its product offerings of poultry watering
and poultry and swine ventilation systems and has recently begun offering
an integrated line of feeding, watering and ventilation products.
Currently, the Company believes it is the only provider of a complete
line of poultry feeding, watering and ventilation systems which have been
widely approved by integrators for use by their growers. Additionally,
with the acquisition of Fancom, the Company now manufactures its own line
of control products which increases the Company's flexibility in offering
fully integrated feeding, watering and ventilation systems.
- CONTINUE TO DEVELOP AND INTRODUCE INNOVATIVE PRODUCTS. The Company
intends to leverage its research and development expertise and its broad
distribution network to introduce additional innovative products that
meet customers' needs for enhanced productivity. To maintain and enhance
its position as a leader in product innovation and quality, the Company
has spent an average of approximately $3.8 million per year over the last
five years on research and development. The Company has introduced some
of the most innovative products in the industry including (i) the
centerless FLEX-AUGER(R) which provides for the delivery of feed to
poultry and swine in a uniform fashion, and whose design has become the
industry standard, (ii) the round, pan-type poultry feeder, which
maximizes the accessibility of feed in limited space, and whose design
has also become the industry standard, (iii) the TURBO HOUSE(R)
ventilation system which offers consistent temperatures and airflow, (iv)
the button nipple drinker, which delivers water through a patented nipple
that produces a large bead of water allowing young birds to find water
rapidly and easily, thereby facilitating weight gain, and (v) the
ULTRA-FLO(R) feeder which provides rapid and consistent feed delivery to
layers (chickens raised for egg production).
- PURSUE SELECTED PRODUCT LINE EXTENSIONS/ACQUISITIONS. The global poultry
and swine production equipment market is generally characterized by a
large number of small, niche manufacturers, many of whom lack a broad
product line, extensive marketing and distribution networks or the
financial and management resources necessary to capitalize on emerging
opportunities in domestic and international markets. The Company believes
that based on its leading brand names, broad product line and strong
distribution network, it is uniquely positioned to take advantage of
consolidation opportunities and plans to continue to pursue a selective
acquisition strategy by targeting acquisitions that broaden its product
range, leverage its distribution base, increase its geographic reach or
otherwise enhance its ability to offer its customers integrated systems
solutions. The Butler and Fancom acquisitions are intended to advance
this strategy. See "--Recent Transactions."
RECENT TRANSACTIONS
Butler Acquisition. On June 23, 1997, the Company acquired substantially
all of the assets of Butler Manufacturing Company's grain systems division
("Butler"). Based in Kansas City, Missouri, Butler manufactures grain storage
bins and markets grain storage, conditioning and handling systems for grain
producers and processors throughout the world. The Company believes that the
Butler Acquisition will contribute to the Company's competitive position in the
grain storage bin business by greatly increasing the scope of its current
distribution network, enhancing the Company's grain storage bin manufacturing
capability and adding an additional range of on-farm and commercial grain
storage bins to its existing product line, thereby making the Company the
leading U.S. manufacturer of grain storage bins. The purchase price for Butler
was $32.5 million and was financed with borrowings under the Existing Credit
Agreement. The purchase price is subject to (i) upward adjustment (not to exceed
$2.5 million) by the amount by which the
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actual net asset value of Butler at closing (to be determined by a specified
post-closing procedure) exceeds the estimated net asset value or (ii) downward
adjustment by the amount by which such actual net asset value is less than such
estimated net asset value. Butler had net sales and operating income of $41.7
million and $6.1 million, respectively, in 1996 and of $6.6 million and $0.9
million, respectively, for the three months ended March 31, 1997.
Fancom Acquisition. On May 1, 1997, the Company acquired all of the
capital stock of Fancom Holding B.V. ("Fancom"). Fancom, based in The
Netherlands, is a manufacturer of climate control systems and software
applications for the agricultural equipment business. These systems permit the
simultaneous remote monitoring and operation of multiple poultry and swine
locations and the complete control of all critical processes within facilities
where poultry and swine are raised and eggs are produced, including climate,
feeding, watering, weighing and storage. The Company believes that the Fancom
Acquisition strengthens the Company's ability to offer integrated equipment
solutions and to further access the European market where 90% of Fancom's sales
are currently made through approximately 100 distributors and dealers. To date,
Fancom's distribution and product development efforts have been limited in
regions such as the U.S., China and Brazil where the Company has been active.
The Company intends to utilize its extensive distribution network with Fancom's
expertise in product development and design to market existing and new products
in these markets. The purchase price for Fancom was 35.1 million Dutch Guilders
("NLG") ($18.1 million at the May 1 Rate, as defined herein), including the
assumption of NLG 11.4 million ($5.9 million at the May 1 Rate) of Fancom's
indebtedness. The purchase price is subject to upward adjustment by the amount
of Fancom's net income for the two months ended April 30, 1997. The purchase
price was financed with borrowings under the Existing Credit Agreement. Fancom
had net sales and operating income of $27.2 million and $2.8 million,
respectively, in 1996 based on an average exchange rate of NLG 1.691 per U.S.
dollar for 1996 (the "1996 Exchange Rate") and of $7.0 million and $0.8 million,
respectively, for the three months ended March 31, 1997 based on the average
exchange rate for such period. See "Business--Recent Transactions--Fancom
Acquisition."
Vinyl Division Divestiture. On May 29, 1997, the Company sold
substantially all assets (other than accounts receivable) relating to its PVC
deck, dock and fence business for approximately $8.2 million to a subsidiary of
Royal Group Technologies Limited (the "Vinyl Division Divestiture"). In
conjunction with the sale, the Company entered into a joint venture with the
acquirer to produce certain extruded PVC agricultural equipment component parts
for the Company for a period of five years. In 1996, the Vinyl Division
contributed net sales and operating income of approximately $8.9 million and
$0.8 million, respectively. For the three months ended March 31, 1996 and March
31, 1997, the Vinyl Division contributed net sales and operating income of
approximately $1.7 million and $0.1 million, and approximately $2.2 million and
$0.1 million, respectively.
RECENT DEVELOPMENTS
The following summarizes certain operating results of the Company for the
three month and six month periods ended June 30, 1997.
For the three months ended June 30, 1997, net sales increased approximately
33.1% to approximately $50.6 million compared to approximately $38.1 million in
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, net sales increased approximately 14.8%
to approximately $63.4 million for the three months ended June 30, 1997 compared
to approximately $55.2 million for the corresponding period in 1996.
Operating income for the three months ended June 30, 1997 was approximately
$7.0 million or approximately 22.9% higher than approximately $5.7 million for
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, operating income for the three months
ended June 30, 1997 was
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approximately $9.0 million which was approximately 9.4% higher than
approximately $8.2 million for the corresponding period in 1996.
Net income for the three months ended June 30, 1997 was approximately $4.7
million or approximately 75.7% higher than approximately $2.7 million for the
corresponding period in 1996. The increase was primarily due to a $1.3 million
gain on sale, net of tax, of the Vinyl Division. On a pro forma basis, giving
effect to the Butler Acquisition, the Fancom Acquisition and the Vinyl Division
Divestiture as if they had occurred on January 1, 1996, net income for the three
months ended June 30, 1997 was approximately $4.9 million which was
approximately 11.6% higher than approximately $4.4 million for the corresponding
period in 1996.
For the six months ended June 30, 1997, net sales increased approximately
18.0% to approximately $82.2 million compared to approximately $69.6 million in
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, net sales increased approximately 11.0%
to approximately $106.3 million for the six months ended June 30, 1997 compared
to approximately $95.7 million for the corresponding period in 1996.
Operating income for the six months ended June 30, 1997 was approximately
$9.8 million or approximately 28.2% higher than approximately $7.7 million for
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, operating income for the six months
ended June 30, 1997 was approximately $13.1 million which was approximately
24.6% higher than approximately $10.5 million for the corresponding period in
1996.
Net income for the six months ended June 30, 1997 was approximately $5.6
million or approximately 85.3% higher than approximately $3.0 million for the
corresponding period in 1996. The increase was primarily due to a $1.3 million
gain on sale, net of tax, of the Vinyl Division. On a pro forma basis, giving
effect to the Butler Acquisition, the Fancom Acquisition and the Vinyl Division
Divestiture as if they had occurred on January 1, 1996, net income for the six
months ended June 30, 1997 was approximately $6.9 million which was
approximately 32.3% higher than approximately $5.2 million for the corresponding
period in 1996.
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THE OFFERING
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Common Stock Offered................................... 5,000,000 shares
Common Stock to be outstanding after the Offering(1)... 12,881,804 shares
Use of Proceeds(2)..................................... The net proceeds from the Offering will
be used as follows:
(i) approximately $34 million to repay
indebtedness incurred under the Existing
Credit Agreement to pay the purchase
price and the related fees and expenses
of the Butler Acquisition;
(ii) approximately $13 million to repay a
portion of the indebtedness incurred
under the Existing Credit Agreement to
pay the purchase price and the related
fees and expenses of the Fancom
Acquisition;
(iii) $15 million to redeem 15,000 shares
of the outstanding Existing Preferred
Stock held by certain directors, officers
and controlling stockholders of the
Company;
(iv) approximately $6 million to repay
outstanding revolving credit loans under
the Existing Credit Agreement; and
(v) the remainder, if any, to finance
general working capital needs.
Nasdaq National Market Symbol.......................... CTBC
</TABLE>
- ------------------------------
(1) Excludes 858,624 shares of Common Stock subject to outstanding options. See
"Management--Compensation Pursuant to Benefit Plans and
Arrangements--Non-Qualified Stock Option Agreements."
(2) See "Use of Proceeds" for a description of indebtedness to be repaid with
the proceeds of the Offering.
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SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following summary historical financial data for each of the years in
the five year period ended December 31, 1996 has been derived from the audited
consolidated financial statements of the Company and the Predecessor Company.
The following summary historical financial data for each of the three month
periods ended March 31, 1996 and March 31, 1997 and as of March 31, 1997 have
been derived from unaudited consolidated financial statements of the Company
which reflect all adjustments necessary in the opinion of the Company's
management (consisting only of normal recurring adjustments) for a fair
presentation of such data. The summary unaudited pro forma as adjusted income
statement data for the year ended December 31, 1996 and for each of the three
month periods ended March 31, 1996 and March 31, 1997 give effect to the
following transactions as if they had been completed on January 1, 1996: (i) the
Butler Acquisition, (ii) the Fancom Acquisition, (iii) the repayment of all
amounts outstanding under the Existing Credit Agreement with the proceeds of
borrowings under the New Credit Agreement and a portion of the net proceeds of
the Offering, (iv) the Stock Split, (v) the Preferred Stock Exchange, (vi) the
Preferred Stock Redemption and (vii) the Offering. The summary unaudited pro
forma as adjusted balance sheet data as of March 31, 1997 give effect to the
transactions described above as if they had been completed on such date. The
summary pro forma data do not purport to be indicative of the Company's actual
results of operations or financial position that would have been reported had
such events actually occurred on the dates specified, nor do they purport to be
indicative of the Company's future results or financial position. The following
summary consolidated historical and pro forma financial data should be read in
conjunction with "Selected Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements,
including the notes thereto, of the Company, the Predecessor Company, Butler and
Fancom appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
---------------------------------------------- ------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
---------------------------------------------- ------------------------
1992 1993 1994 1995 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................................... $105,509 $113,538 $140,505 $138,119 $148,853 $ 217,427
Gross profit...................................... 27,784 29,428 37,014 32,541 38,550 58,178
Selling, general and administrative expenses...... 18,345 19,310 20,069 20,606 18,257 29,556
Amortization of goodwill.......................... -- -- -- -- 959 1,796
Operating income.................................. 9,439 10,118 16,945 11,935 19,334 26,826
Other non-recurring expenses...................... -- -- -- 1,396(1) -- --
Interest income (expense)--net.................... 268 313 489 721 (5,332) (4,352)
Income before income taxes........................ 9,707 10,431 17,434 11,260 14,002 22,474
Net income........................................ 6,404 6,681(2) 10,769 6,530 8,502 13,642(3)
Pro forma net income per common share............. $ 0.90(4) $ 1.03(5)
Pro forma weighted average common shares
outstanding...................................... 9,405(4) 13,302(5)
OTHER FINANCIAL DATA:
EBITDA(6)......................................... $ 12,262 $ 12,866 $ 20,062 $ 14,166(7) $ 24,902 $ 34,728
Depreciation...................................... 2,823 2,748 3,117 3,627 4,609 6,106
Amortization(8)................................... -- -- -- -- 1,251 1,946
Capital expenditures.............................. 1,980 2,867 5,335 4,698 3,402 5,360
Gross profit margin............................... 26.3% 25.9% 26.3% 23.6% 25.9% 26.8%
EBITDA margin(9).................................. 11.6% 11.3% 14.3% 10.3%(10) 16.7% 16.0%
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------------
1996 1997
----------------------- ------------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
<S> <C><C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................................... $31,552 $42,167 $31,520 $45,069
Gross profit...................................... 6,936 10,273 7,604 12,127
Selling, general and administrative expenses...... 4,732 7,418 4,549 7,434
Amortization of goodwill.......................... 240 449 240 449
Operating income.................................. 1,964 2,406 2,815 4,244
Other non-recurring expenses...................... -- -- -- --
Interest income (expense)--net.................... (1,344) (1,108) (1,292) (782)
Income before income taxes........................ 620 1,298 1,523 3,462
Net income........................................ 356 756 918 2,074
Pro forma net income per common share............. $ 0.04(4) $ 0.06(5) $ 0.10(4) $ 0.16(5)
Pro forma weighted average common shares
outstanding...................................... 9,405(4) 13,302(5) 9,405(4) 13,302(5)
OTHER FINANCIAL DATA:
EBITDA(6)......................................... $ 3,425 $ 4,369 $ 4,190 $ 6,081
Depreciation...................................... 1,221 1,514 1,135 1,388
Amortization(8)................................... 312 486 312 486
Capital expenditures.............................. 487 840 897 1,240
Gross profit margin............................... 22.0% 24.4% 24.1% 26.9%
EBITDA margin(9).................................. 10.9% 10.4% 13.3% 13.5%
</TABLE>
(See footnotes on following page)
9
<PAGE> 11
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1992 1993 1994 1995 COMPANY THREE
-------------------------------------
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ---------
1996 1996
------------------------ ---------
PRO FORMA
ACTUAL AS ADJUSTED ACTUAL
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash flows from operating activities(11)...... $ 9,884 $ 5,496 $12,730 $11,263 $ 11,714 $ 16,689 $ 4,530
Net cash flows from investing activities(12)...... (1,958) (2,773) (5,278) (4,646) (106,606) (155,229) (105,208)
Net cash flows from financing activities(12)...... (5,497) (4,445) (4,757) (3,354) 95,150 139,854 101,500
<CAPTION>
1997
---------------------
PRO FORMA PRO FORMA
AS ADJUSTED ACTUAL AS ADJUSTED
<S> <C<C> <C> <C>
CASH FLOW DATA:
Net cash flows from operating activities(11)...... $ 8,258 $1,568 $ 9,313
Net cash flows from investing activities(12)...... (152,232) (860) (1,197)
Net cash flows from financing activities(12)...... 144,749 (775) (7,522)
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................................................... $ 11,214 $ 31,665
Total assets......................................................................................... 105,851 166,327
Total debt (including current portion)............................................................... 64,375 64,787
Total stockholders' equity........................................................................... 14,642 66,995
</TABLE>
- ------------------------------
(1) Non-recurring costs related to the CTB Acquisition.
(2) Includes increase in net income of $211 for cumulative effect of change in
accounting method for adopting the asset and liability method of accounting
for income taxes as prescribed by the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
(3) Excludes pro forma extraordinary charge of $647 (net of tax) for the
write-off of deferred financing costs related to the repayment of all
amounts outstanding under the Existing Credit Agreement.
(4) Pro forma net income per common share is calculated by dividing net income
by the pro forma weighted average common and common equivalent shares
outstanding, after giving effect to the following transactions as if they
had been completed on January 1, 1996: (i) the Stock Split, (ii) the
Preferred Stock Exchange, (iii) the Preferred Stock Redemption and (iv)
solely to the extent the proceeds will be used for the Preferred Stock
Redemption, the Offering (assuming an initial public offering price of
$15.00 per share). Due to the changes in the Company's capital structure
resulting from the CTB Acquisition and the planned recapitalization,
historical net income per common share is not meaningful and therefore is
not presented.
(5) Pro forma as adjusted net income per common share is calculated based upon
pro forma as adjusted net income divided by the pro forma weighted average
common and common equivalent shares outstanding.
(6) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA as presented may
not be comparable to similarly titled measures reported by other companies
since not all companies necessarily calculate EBITDA in an identical manner
and therefore is not necessarily an accurate means of comparison between
companies. EBITDA is not intended to represent cash flows for the period or
funds available for management's discretionary use nor has it been
presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles.
(7) EBITDA for the year ended December 31, 1995, excluding non-recurring costs
in the amount of $1,396 related to the CTB Acquisition, was $15,562.
(8) With respect to the actual year ended December 31, 1996, comprised of
amortization of goodwill of $959 and amortization of deferred financing
costs of $292 relating to the Existing Credit Agreement, and with respect
to the pro forma year ended December 31, 1996, comprised of pro forma
amortization of goodwill of $1,796 and pro forma amortization of deferred
financing costs of $150 relating to the New Credit Agreement. With respect
to both of the actual three month periods, comprised of amortization of
goodwill of $240 and amortization of deferred financing costs of $72
relating to the Existing Credit Agreement and with respect to both of the
pro forma three month periods, comprised of pro forma amortization of
goodwill of $449 and pro forma amortization of deferred financing costs of
$37 relating to the New Credit Agreement.
(9) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(10) EBITDA margin for the year ended December 31, 1995, excluding non-recurring
costs related to the CTB Acquisition, was 11.3%.
10
<PAGE> 12
(11) With respect to the pro forma year ended December 31, 1996 and the pro
forma three month periods ended March 31, 1996 and March 31, 1997, net cash
flows from operating activities includes pro forma elimination of interest
expense on borrowings under the Existing Credit Agreement of $5,049, $1,262
and $1,262, respectively, and pro forma interest expense on borrowings
under the New Credit Agreement of $3,756, $939 and $696, respectively.
(12) With respect to the pro forma year ended December 31, 1996 and the pro
forma three month period ended March 31, 1996, net cash flows from
investing activities and financing activities give effect to the following
transactions as if they had been completed on January 1, 1996: (i) the
Butler Acquisition, (ii) the Fancom Acquisition, (iii) the repayment of all
amounts outstanding under the Existing Credit Agreement with the proceeds
of borrowings under the New Credit Agreement and a portion of the net
proceeds of the Offering, (iv) the Preferred Stock Redemption and (v) the
Offering (assuming an initial public offering price of $15.00 per share).
11
<PAGE> 13
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered in evaluating an investment in the Common Stock
offered hereby.
AGRICULTURAL INDUSTRY
Historically, the agricultural industry has been cyclical. The Company's
sales of automated feeding, watering and ventilation systems, feed bins and
integrated egg laying and handling systems have historically been affected by
the level of construction activity by poultry, swine and egg producers, which is
affected by feed prices and domestic and international demand for poultry, pork
and eggs. See "Business." The Company's sales of grain storage bins have
historically been affected by feed and grain prices, acreage planted, crop
yields, demand, government policies and government subsidies. Increases in feed
and grain prices have in the past resulted in a decline in sales of feeding,
watering and ventilation systems, although these same conditions have tended to
improve sales of grain storage bins. For example, high grain prices in 1996,
combined with a threatened Russian embargo of U.S. produced chicken, delayed the
1996 expansion plans of many U.S. poultry integrators, resulting in reduced
sales of the Company's poultry feeding products of $3.3 million in 1996.
Declines in domestic or international demand for poultry, swine or eggs would
likely have a material adverse effect on the Company's sales of poultry, swine
and egg production equipment. Future declines in grain prices may result in
decreased grain production and may have a material adverse effect on sales of
the Company's grain storage and handling products. During previous economic
downturns in the farm sector, sales have declined. Such sales are expected to be
subject to such market fluctuations in the future.
Weather conditions can also affect farmers' and other agricultural
producers' buying decisions. Severe weather can adversely impact the
agricultural industry and delay planned construction activity, resulting in
fluctuating demand for the Company's products and delayed or lost revenues. For
example, in late fiscal 1995, adverse weather conditions delayed construction
activity by purchasers of the Company's egg laying and handling systems. As a
result, the shipment of approximately $7.4 million of orders relating to egg
laying and handling systems was delayed to fiscal 1996.
Events beyond the control of the Company, such as an outbreak of disease in
poultry or swine may result in decreased production of poultry and swine in
local markets or generally. For example, a recent outbreak of hog cholera has
resulted in the destruction or scheduled destruction of approximately half of
the swine population in The Netherlands in an effort to contain the spread of
the disease. Moreover, Belgium and Spain have ordered the selective destruction
of swine for the same purpose. The public perception of health risks (such as
salmonella food poisoning) associated with poultry and swine products may result
in reduced consumption of these products. Crop diseases could affect grain
production in local markets or generally. Any of these events could have an
adverse effect on demand for the Company's products and its business, financial
condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company plans to continue to make strategic acquisitions, such as the
acquisitions of Butler and Fancom. In pursuing this acquisition strategy, the
Company faces risks commonly encountered with growth through acquisitions. These
risks include incurring significantly higher than anticipated capital
expenditures and operating expenses, failing to assimilate the operations and
personnel of acquired businesses, losing customers, entering markets in which
the Company has no or limited experience, disrupting the Company's ongoing
business and dissipating the Company's management resources. Additional risks
include possible dilution of the equity interests of the holders of Common Stock
(to the extent acquisitions are financed with issuance of new shares of Common
Stock) and increased debt levels (to the extent acquisitions are financed
through incurrence of additional indebtedness). See "-- Substantial Dilution"
and "-- Leverage." Realization of the anticipated benefits of a strategic
acquisition may take several years. There can be no assurance that the Company
will be successful in overcoming these risks or any other problems encountered
with acquisitions, including the Butler Acquisition and the Fancom Acquisition
and any future acquisitions. To the extent that
12
<PAGE> 14
the Company does not successfully avoid or overcome these risks or problems
related to acquisitions, the Company's financial condition and results of
operations could be adversely affected. Future acquisitions also may have a
significant impact on the Company's financial position and earnings, and could
cause substantial fluctuations in the Company's quarterly and yearly results of
operations. Acquisitions could include significant goodwill and intangible
assets, resulting in substantial amortization charges to the Company that would
reduce stated earnings. In addition, although the Company will continue to
evaluate potential acquisitions, there can be no assurances that the Company
will be successful in effecting any acquisitions in the future.
COMPETITION
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers, many of which offer a limited number of the products offered by the
Company and two of which (Grain Systems, Inc. and Big Dutchman Inc.) offer
products across most of the Company's product lines. Based on 1996 net sales,
the Company believes that it has more than 50% of the domestic market for (i)
broiler chicken, swine and turkey feeding systems, (ii) integrated commercial
egg laying and handling systems and (iii) poultry and swine feed storage and
delivery systems. With the Butler Acquisition, the Company is the leading
domestic producer of grain storage bins. Compared to the Company's leading
market share in these product lines, the Company believes that Grain Systems,
Inc. and Big Dutchman Inc. have the second and third largest market shares,
respectively, in these product lines in the aggregate (although these
competitors may not manufacture every product in these product lines or may have
a small market share in a particular product). Competition is based on the
price, value, reputation, quality and design of the products offered and the
customer service provided by distributors, dealers and manufacturers of the
products. Although the Company believes that it is competitive in all of these
categories, there can be no assurance that the Company will remain competitive
in general or in any particular area of its business. To the extent that the
Company's competitors provide more innovative and/or higher quality products,
better designed products, better pricing or offer better customer service
through their distributors and dealers, the Company's ability to compete and
therefore its financial condition and results of operations could be adversely
affected. Independent distributors and dealers who market, sell and install the
Company's products may also market, sell and install competing product lines.
There can be no assurance that distributors and dealers will continue to give a
high priority to the Company's products. See "Business--Competition."
INTERNATIONAL OPERATIONS; EXPOSURE TO FOREIGN CURRENCY RISK
International operations are generally subject to various risks that are
not present in domestic operations, including restrictions on dividends,
restrictions on repatriation of funds, unexpected changes in tariffs and other
trade barriers, difficulties in staffing and managing foreign operations,
political instability, fluctuations in currency exchange rates, reduced
protection for intellectual property rights in some countries, seasonal
reductions in business activity and potentially adverse tax consequences, any of
which could adversely impact the Company's international operations. The two
largest consumers and producers of poultry after the United States are China and
Brazil. Operations in China are subject to many of the foregoing difficulties,
particularly difficulties arising from political instability, trade barriers,
currency restrictions and relatively undeveloped distribution channels,
infrastructure and transportation. Operations in Brazil are also subject to many
of the foregoing difficulties, particularly difficulties arising from
fluctuations in currency exchange rates and inflation. There can be no assurance
that one or more of such factors will not have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, financial condition and results of operations. See "Business--Product
Distribution."
The Company currently manufactures or purchases substantially all of its
products in the U.S. and, pro forma for the Butler and Fancom acquisitions,
derived approximately 39% of its net sales in 1996 from foreign countries
(including Canada). The production costs, profit margins and competitive
position of the Company are affected by the strength of the U.S. dollar relative
to the strength of the currencies in countries where its products are sold. The
Company's results of operations and financial condition may be adversely
affected by fluctuations in foreign currencies because, for example, such
fluctuations may negatively impact the
13
<PAGE> 15
purchasing power of the Company's foreign customers and make the Company's
products less competitive compared to locally-produced products. In addition,
the Company's results of operations and financial condition may also be
negatively impacted by translations of the financial statements of the Company's
foreign subsidiaries from local currencies into U.S. dollars. As a result of the
Fancom Acquisition and the recent establishment of a subsidiary in Brazil, the
Company will be exposed to additional risk with respect to these fluctuations
and translations in the future.
The Company enters into foreign currency forward exchange contracts on a
limited basis. Such contracts generally are entered into with respect to
significant outstanding accounts receivable denominated in foreign currencies
for which timing of the receipt of payment can be reasonably estimated. Such
hedging activities are intended to reduce the risk that eventual net dollar
inflows resulting from the sale of products to foreign customers will be
adversely affected by changes in foreign currency exchange rates. Although the
Company seeks to enter into foreign exchange contracts which generally offset
gains and losses on the assets and liabilities being hedged, no assurances can
be given that such hedging activities will not result in losses which will have
an adverse effect on the Company's financial condition or results of operations.
SEASONALITY
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the harvesting season. The Company's net
sales and net income have historically been lower during the first and fourth
fiscal quarters as compared to the second and third quarters. For example, in
fiscal 1996, the Company generated approximately 56% and 70% of its net sales
and operating income, respectively, in the second and third fiscal quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
REGULATION AND GOVERNMENT POLICY
Domestic and foreign political developments and government regulations and
policies, including, without limitation, import/export quotas, government
subsidies and reserve programs directly affect the agricultural industry in the
United States and abroad and thereby indirectly affect the Company's business.
Foreign trade embargoes and import quotas have in the past reduced U.S. exports
of poultry and grain, adversely affecting the Company's sales. The application
or modification of existing laws, regulations or policies or the adoption of new
laws, regulations or policies could have an adverse effect on the Company's
business. A recent dispute between the U.S. and the European Union over health
and safety inspection standards at U.S. poultry-processing plants has resulted
in a ban on the import of U.S. poultry into European Union countries. This
dispute may have an adverse effect on the Company's business, financial
condition and results of operations.
REGULATORY AND ENVIRONMENTAL MATTERS
Like other manufacturers, the Company is subject to a broad range of
federal, state, local and foreign laws and requirements, including those
governing discharges to the air and water, the handling and disposal of solid
and hazardous substances and wastes, the remediation of contamination associated
with releases of hazardous substances at the Company's facilities and offsite
disposal locations, workplace safety and equal employment opportunities. The
Company has made, and will continue to make, expenditures to comply with such
laws and requirements. The Company believes, based upon information currently
available to management, that it is in compliance with applicable environmental
and other legal requirements and that it will not require material capital
expenditures to maintain compliance with such environmental and other legal
requirements in the foreseeable future.
Governmental authorities have the power to enforce compliance with such
laws and regulations and violators may be subject to penalties, injunctions or
both. Third parties may also have the right to enforce compliance with such laws
and regulations. Like most other industrial concerns, the Company's
manufacturing operations entail some risk of future noncompliance with
environmental regulations and there can be no
14
<PAGE> 16
assurance that material costs or liabilities will not be incurred by the Company
as a result thereof. It is also possible that other developments, such as
additional or increasingly strict requirements of laws and regulations of these
types and enforcement policies thereunder could significantly increase the
Company's costs of operations. See "Business--Regulatory and Environmental
Matters."
RESTRICTIONS IMPOSED BY TERMS OF THE NEW CREDIT AGREEMENT
The New Credit Agreement (as defined herein), will contain covenants which,
among other things, restrict the ability of CTB to pay dividends to the Company
(which will limit the Company's ability to pay dividends on the Common Stock),
incur additional indebtedness, repay certain other indebtedness, consummate
certain asset sales, enter into certain transactions with affiliates, enter into
sale and leaseback transactions, incur liens, merge or consolidate with any
other person or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of CTB and also requires CTB to maintain
specified financial ratios and satisfy certain other financial condition tests.
Depending upon CTB's leverage ratio, obligations under the New Credit Agreement
may be secured by a lien on substantially all of the assets of CTB. See
"Description of Credit Agreement" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
CTB's ability to comply with the covenants contained in the New Credit
Agreement may be affected by events beyond its control, including prevailing
economic, financial and industry conditions. The breach of any of such covenants
or restrictions could result in a default under the New Credit Agreement which
would permit the lenders to declare all amounts borrowed thereunder to be due
and payable, together with accrued and unpaid interest, and the commitments of
the lenders to make further extensions of credit under the New Credit Agreement
could be terminated.
LEVERAGE
As a result of the CTB Acquisition, the Company is more leveraged than it
had been prior thereto. At March 31, 1997, on a pro forma as adjusted basis, the
Company's total consolidated indebtedness would have been approximately $64.8
million, and the Company's ratio of total debt to total capitalization on a
consolidated basis would have been approximately 50%. See "Capitalization."
The degree to which the Company is leveraged could have important
consequences to the Company, including the following: (i) the Company's ability
to obtain additional financing for working capital, capital expenditures,
acquisitions or other purposes may be impaired; (ii) a portion of the Company's
cash flow from operations will be required for the payment of interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations and other purposes; (iii) the Company may be substantially more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (iv) the Company's substantial degree of leverage
may hinder its ability to adjust rapidly to changing market conditions and could
make it more vulnerable in the event of a downturn in general economic
conditions or its business. In addition, certain of the Company's borrowings
are, and will continue to be, at variable rates of interest, which exposes the
Company to the risk of increased interest rates. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Description
of Credit Agreement."
PRODUCT LIABILITY RISK
Products sold by the Company may expose it to potential liabilities for
personal injury or property damage claims relating to the use of such products.
Although product liability claims historically have not had a material adverse
effect upon the Company, there can be no assurance that the Company will not be
subject to or incur liability for such claims in the future. While the Company
maintains third-party product liability insurance which it believes to be
adequate, there can be no assurance that the Company will not experience claims
in excess of its insurance coverage, or claims that are not ultimately covered
by insurance. There can also be no assurance that such insurance will continue
to be available on economically reasonable terms. A significant claim that is
uninsured or partially insured could result in loss or deferral of revenues,
diversion of
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<PAGE> 17
resources or damage to the Company's reputation, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business--Product Liability and Legal Proceedings."
SUBSTANTIAL DILUTION
Purchasers of shares of the Common Stock in the Offering (assuming an
initial public offering price of $15.00 per share) will incur immediate and
substantial dilution of $14.54 per share in the pro forma net tangible book
value per share from the initial public offering price. Such purchasers will be
acquiring pursuant to the Offering an aggregate of 38.8% of the outstanding
Common Stock for an aggregate of 83.1% of the total consideration paid to the
Company, while certain directors, officers and existing stockholders of the
Company acquired 61.2% of the outstanding Common Stock for 16.9% of the
aggregate consideration paid. Additional dilution will occur upon the exercise
of outstanding options. See "Dilution."
CONTROL BY AND RELATIONSHIP WITH PRINCIPAL STOCKHOLDERS
Upon consummation of the Offering, American Securities will collectively
own 39.3% of the outstanding shares of Common Stock (or 35.4% if the
Underwriters' allotment option is exercised in full). American Securities will
control the Company and, through its control of the Company, will have effective
control over the election of a majority of the members of the Board of Directors
of the Company (the "Board of Directors"), will retain the effective voting
power to determine the outcome of corporate actions requiring stockholder
approval and, consequently, will continue to have significant influence over the
affairs of the Company. For example, American Securities may influence decisions
concerning whether to sell the Company's assets and the terms, including the
price, of any such sale, whether to issue additional shares of the Company's
capital stock and the terms, including the price, of any such issuance, and
whether to acquire other businesses and the terms, including the price, of any
such acquisition. Among other things, American Securities is in a position to
prevent a takeover of the Company by one or more third parties. The effect of
American Securities' control position may be to deprive the Company's
stockholders of a control premium that might otherwise be realized by them in
connection with an acquisition of the Company. See "Principal Stockholders" and
"Certain Relationships and Related Transactions."
POTENTIAL ADVERSE MARKET EFFECT OF FUTURE SALES OF COMMON STOCK
Sales of a substantial number of shares of Common Stock in the public
market, whether by purchasers in the Offering, American Securities or other
existing stockholders of the Company could adversely affect the prevailing
market price of the Common Stock and could impair the Company's future ability
to raise capital through an offering of its equity securities. Upon completion
of the Offering, there will be 12,881,804 shares of Common Stock outstanding, of
which the 5,000,000 shares offered in the Offering will be freely tradable
without restriction or further registration. The remaining 7,881,804 shares will
be owned by American Securities and the other existing stockholders (the
"Existing Stockholders") and will be "restricted securities" for purposes of the
Securities Act of 1933, as amended (the "Securities Act"). The Existing
Stockholders and the Company have agreed with the Underwriters that they will
not sell or offer to sell any Common Stock for a period of 180 days after the
public offering without the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation. Upon the expiration of these lock-up agreements, all of
the outstanding shares of Common Stock will be eligible for sale in the public
market subject to the restrictions of Rule 144 under the Securities Act,
applicable to the shares owned by the Existing Stockholders. See "Underwriting"
and "Shares Available for Future Sale."
ABSENCE OF PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active market for the Common Stock will
develop or be sustained after the Offering. Although the Company has received
approval to quote the Common Stock on the Nasdaq National Market, no assurance
can be given that the Common Stock will continue to be included in the Nasdaq
National Market after the
16
<PAGE> 18
completion of the Offering or that an active trading market for the Common Stock
will develop or be sustained after completion of the Offering. The initial
public offering price of the Common Stock will be determined through
negotiations between the Company and the representatives of the Underwriters.
See "Underwriting." The market price of the Common Stock may be volatile and
subject to wide fluctuations in response to a variety of reasons, including
variations in operating results, announcements of new products or technological
innovations by the Company or its competitors and general industry or public
market conditions. These broad market fluctuations may adversely affect the
market price of the Common Stock and the negotiated initial public offering
price may not be indicative of future market prices of the Common Stock. See
"Underwriting."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the Restated Certificate of Incorporation of the
Company (the "Certificate") and the Company's By-laws may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in such stockholder's best interest, including attempts that might result in
a premium over the market price for the shares held by stockholders. The By-laws
provide that the number of directors shall be as fixed, from time to time, by
resolution of the Board of Directors. Further, the Certificate permits the Board
of Directors to issue up to 4,000,000 shares of Preferred Stock and establish
the powers, designations, preferences and relative participating, optional or
other special rights of such shares without any further vote or action of the
Company's stockholders. The Preferred Stock could be issued on terms that are
unfavorable to the holders of the Common Stock or that could make a takeover or
change in control of the Company more difficult. In addition, the Company is
subject to Section 203 of the Delaware General Corporation Law, which places
restrictions on certain business combinations with certain stockholders that
could render more difficult a change in control of the Company. See "Description
of Capital Stock."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under "Prospectus Summary," "Risk
Factors" and "Business," including statements concerning (i) the Company's
strategy, (ii) the Company's expansion plans for its various businesses, (iii)
the terms of certain acquisitions, (iv) the possible increases in demand for
poultry, eggs, swine and grain and for the Company's products and (v) the
effects on the Company of certain legal proceedings, contain certain
forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors."
USE OF PROCEEDS
The net proceeds to the Company from the Offering (at an assumed initial
public offering price of $15.00 per share and after the deduction of
underwriting discounts and commissions and expenses payable by the Company) are
estimated to be $68.0 million.
The Company intends to use approximately $34 million of the net proceeds of
the Offering to repay the Term C loans incurred under the Existing Credit
Agreement to pay the purchase price and the related fees and expenses with
respect to the acquisition of Butler. The Company intends to use approximately
$13 million of the net proceeds of the Offering to repay a portion of the
revolving credit loans incurred under the Existing Credit Agreement to pay the
purchase price and the related fees and expenses with respect to the acquisition
of Fancom. See "Business--Recent Transactions."
The Company intends to use approximately $6 million of the net proceeds of
the Offering to repay outstanding revolving credit loans under the Credit
Agreement, dated as of December 22, 1995, among CTB, the financial institutions
named therein and KeyBank National Association, as successor to Society National
Bank, as amended (the "Existing Credit Agreement"). Concurrently with the
consummation of the Offering, CTB will enter into a new credit agreement (the
"New Credit Agreement") with its existing group of lenders
17
<PAGE> 19
to repay all term loans and other amounts outstanding under the Existing Credit
Agreement. The revolving credit loans under the Existing Credit Agreement bear
interest at the prime rate or at the eurodollar rate plus 1.75% and mature on
December 31, 1998. The Term A loan under the Existing Credit Agreement bears
interest at the prime rate or at the eurodollar rate plus 2.00% with a final
maturity on December 31, 2001. The Term B loan under the Existing Credit
Agreement bears interest at the prime rate plus 0.25% or at the eurodollar rate
plus 2.25% and matures on December 31, 2001. The Term C loan under the Existing
Credit Agreement bears interest at the same rate as the Term A loan and matures
on October 31, 1997.
The Company intends to use $15 million of the net proceeds of the Offering
to redeem (the "Preferred Stock Redemption") 15,000 shares of the outstanding 6%
Series A Preferred Stock of the Company (the "Existing Preferred Stock") held by
certain directors, officers and controlling stockholders of the Company. In
addition, concurrently with the consummation of the Offering, the Company will
exchange 604,600 shares of Common Stock (at the assumed initial public offering
price of $15.00 per share) for the remaining 9,069 shares outstanding of the
Existing Preferred Stock (the "Preferred Stock Exchange"). See "Certain
Relationships and Related Transactions--Preferred Stock Redemption,"
"--Preferred Stock Exchange" and "Description of Capital Stock."
The remaining net proceeds of the Offering, if any, will be used to finance
working capital needs.
DIVIDEND POLICY
Following consummation of the Offering, the Board of Directors does not
anticipate paying any dividends on the Common Stock in the foreseeable future,
but intends to retain all earnings, if any, for general corporate purposes. The
declaration and payment of dividends, if any, by the Company will be dependent
upon the Company's results of operations, financial condition, cash requirements
and other relevant factors, subject to the discretion of the Board of Directors.
The Company's ability to declare and pay dividends on the Common Stock is
dependent on CTB's ability to declare and pay dividends to the Company. The New
Credit Agreement contains certain restrictions on CTB's ability to pay dividends
or make other distributions to the Company. See "Description of Credit
Agreement."
The Company paid no cash dividends to its stockholders during 1996. Old CTB
declared dividends of $1,519,000 during 1995. The dividends historically paid by
the Company are not indicative of its future dividend policy.
18
<PAGE> 20
DILUTION
The pro forma net tangible book deficit of the Company as of March 31, 1997
was $62.1 million or $7.88 per share, after giving effect to (i) the Butler
Acquisition, (ii) the Fancom Acquisition, (iii) the repayment of amounts
outstanding under the Existing Credit Agreement with the proceeds of borrowings
under the New Credit Agreement, (iv) the Stock Split, (v) the Preferred Stock
Exchange and (vi) the Preferred Stock Redemption without giving effect to the
offering. See "Unaudited Pro Forma Consolidated Financial Statements."
Net tangible book value dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in the
Offering and the pro forma net tangible book value per share immediately after
consummation of the Offering. After giving effect to the Offering (at the
assumed initial public offering price of $15.00 per share) and the application
of the estimated net proceeds therefrom, the pro forma net tangible book value
of the Company as of March 31, 1997 would have been approximately $5.9 million
or $0.46 per share. This represents an immediate increase in net tangible book
value of $8.34 per share to existing stockholders and an immediate dilution in
net tangible book value of $14.54 per share to new investors purchasing shares
in the Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share(1)................. $ 15.00
Pro forma net tangible book deficit per share before the
Offering(2).............................................. 7.88
Increase per share attributable to new investors........... 8.34
------
Pro forma net tangible book value per share after the
Offering(3).............................................. 0.46
------
Dilution per share to new investors(4)..................... $ 14.54
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1997,
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 Stockholders and to be paid by the new investors in the Offering
(at an assumed offering price of $15.00 per share and before deduction of the
underwriting discounts and commissions and estimated offering expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 7,881,804 61.2% $15,300,000 16.9% $ 1.94
New investors........................ 5,000,000 38.8 75,000,000 83.1 15.00
---------- ----- ----------- -----
Total...................... 12,881,804 100.0% $90,300,000 100.0%
========== ===== =========== =====
</TABLE>
- ------------------------------
(1) Before deduction of estimated underwriting discounts and commissions and
estimated expenses of the Offering payable by the Company.
(2) Pro forma net tangible book value per share before the Offering is
determined by dividing the net tangible book value (assets less liabilities
and intangible assets) of the Company after giving effect to the Butler
Acquisition, the Fancom Acquisition, the repayment of amounts outstanding
under the Existing Credit Agreement with the proceeds of borrowings under
the New Credit Agreement, the Preferred Stock Exchange and the Preferred
Stock Redemption by the number of shares of Common Stock outstanding after
giving effect to the Stock Split and the Preferred Stock Exchange.
(3) Gives effect to the Offering (at the assumed initial public offering price
of $15.00 per share) and the application of the estimated net proceeds
therefrom (assuming the Underwriters' over-allotment option is not exercised
and after deducting estimated underwriting discounts and commissions and
expenses of the Offering aggregating $7.0 million) as described in "Use of
Proceeds," but without taking into account any other changes in net tangible
book value subsequent to March 31, 1997.
(4) Dilution is determined by subtracting the pro forma net tangible book value
per share after the Offering (which gives effect to the Butler Acquisition,
the Fancom Acquisition, the repayment of all amounts outstanding under the
Existing Credit Agreement with the proceeds of borrowings under the New
Credit Agreement and a portion of the net proceeds of the Offering, the
Preferred Stock Exchange, the Preferred Stock Redemption and the Offering)
from the initial public offering price paid by a new investor for a share of
Common Stock.
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1997 (i) on an actual basis and (ii) on a pro forma
as adjusted basis giving effect to the Butler Acquisition, the Fancom
Acquisition, the Stock Split, the repayment of all amounts outstanding under the
Existing Credit Agreement with the proceeds of borrowings under the New Credit
Agreement and a portion of the net proceeds of the Offering, the Preferred Stock
Exchange, the Preferred Stock Redemption, the issuance of and sale by the
Company of 5,000,000 shares of Common Stock in the Offering at an assumed
initial public offering price of $15.00 per share and the application of the net
proceeds therefrom as described under "Use of Proceeds." The pro forma as
adjusted data do not purport to be indicative of the actual capitalization that
would have occurred had the transactions and events reflected occurred on the
date specified. This table should be read in conjunction with "Unaudited Pro
Forma Consolidated Financial Statements" and the consolidated financial
statements, including the notes thereto, of the Company, Butler and Fancom
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1997
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Short-term Debt:
Existing Credit Agreement........................................ $ 5,875 $ --
Debt assumed in Fancom Acquisition(1)............................ -- 2,202
-------- --------
Total Short-term Debt....................................... $ 5,875 $ 2,202
======== ========
Long-term Debt:
Existing Credit Agreement........................................ $ 58,500 $ --
New Credit Agreement(2).......................................... -- 58,862
Debt assumed in Fancom Acquisition(1)............................ -- 3,723
-------- --------
Total Long-term Debt........................................ 58,500 62,585
-------- --------
Stockholders' Equity:
Common Stock, $.01 par value, 950,000 shares authorized, actual;
40,000,000 shares authorized, pro forma as adjusted; 601,755(3)
shares issued and outstanding, actual; 12,881,804 shares issued
and outstanding, pro forma as adjusted(4)....................... 6 129
Preferred Stock, $.01 par value, $1,000 liquidation preference,
50,000 shares authorized, actual; 4,000,000 shares authorized,
pro forma as adjusted; 24,069(3) shares issued and outstanding,
actual; no shares issued and outstanding, pro forma as
adjusted(4)..................................................... -- --
Additional paid-in capital(4).................................... 29,994 82,871
Reduction for carryover of predecessor cost basis(5)............. (24,704) (24,704)
Retained earnings................................................ 9,420 8,773(6)
Cumulative translation adjustment................................ (74) (74)
-------- --------
Total Stockholders' Equity.................................. 14,642 66,995
-------- --------
Total Capitalization........................................ $ 73,142 $ 129,580
======== ========
</TABLE>
- ------------------------------
(1) Represents debt assumed in the Fancom Acquisition translated into U.S.
dollars at the exchange rate in effect on March 31, 1997.
(2) The New Credit Agreement will provide a $90 million five-year revolving
credit facility under which the Company will borrow to repay (together with
a portion of the net proceeds of the Offering) all amounts outstanding under
the Existing Credit Agreement. As of March 31, 1997, on a pro forma as
adjusted basis, the Company would have $31.0 million of availability under
the New Credit Agreement (less amounts allocated to letters of credit). See
"Description of Credit Agreement."
(3) Includes Preferred Stock and Common Stock issued subsequent to March 31,
1997.
(4) Pro forma as adjusted data gives effect to the Preferred Stock Exchange, the
Preferred Stock Redemption, the Stock Split and the Offering and excludes
858,624 shares issuable upon the exercise of outstanding options. See
"Shares Available for Future Sale."
(5) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 1 to the Consolidated Financial Statements of the
Company.
(6) Pro forma as adjusted retained earnings reflects an extraordinary charge of
$647 for the write-off (net of tax) of deferred financing costs associated
with the repayment of amounts outstanding under the Existing Credit
Agreement.
20
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma as adjusted consolidated income
statements for the year ended December 31, 1996 and for each of the three month
periods ended March 31, 1996 and March 31, 1997 give effect to the following
transactions as if they had been completed on January 1, 1996: (i) the Butler
Acquisition, (ii) the Fancom Acquisition, (iii) the repayment of all amounts
outstanding under the Existing Credit Agreement with the proceeds of borrowings
under the New Credit Agreement and a portion of the net proceeds of the
Offering, (iv) the Stock Split, (v) the Preferred Stock Exchange, (vi) the
Preferred Stock Redemption and (vii) the Offering. The unaudited pro forma as
adjusted consolidated balance sheet as of March 31, 1997 gives effect to the
transactions described above as if such transactions had been completed on such
date. The unaudited pro forma consolidated financial statements do not give
effect to the Vinyl Division Divestiture as this transaction is not material to
the presentation of the pro forma data.
The pro forma consolidated income statements and pro forma consolidated
balance sheet are unaudited, and reflect all adjustments necessary in the
opinion of the Company's management (consisting only of normal recurring
adjustments) for a fair presentation of such data. They do not purport to be
indicative of the Company's actual results of operations or financial position
that would have been reported had such events actually occurred on the dates
specified, nor do they purport to be indicative of the Company's future results
or financial position.
The unaudited pro forma consolidated financial statements, including the
notes thereto, should be read in conjunction with the historical consolidated
financial statements, including the notes thereto, of the Company, Butler and
Fancom appearing elsewhere in this Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY BUTLER(1) FANCOM(2) ADJUSTMENTS(3) AS ADJUSTED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $148,853 $41,693 $27,175 $ (294)(a) $ 217,427
Cost of sales............................ 110,303 32,416 16,386 144(b) 159,249
-------- ------- ------- ------- --------
Gross profit......................... 38,550 9,277 10,789 (438) 58,178
Selling, general and administrative
expenses............................... 18,257 3,220(a) 7,987(a) 92(c) 29,556
Amortization of goodwill................. 959 -- -- 837(d) 1,796
-------- ------- ------- ------- --------
Operating income..................... 19,334 6,057 2,802 (1,367) 26,826
Interest expense......................... (5,500) -- (467) 1,435(e) (4,532)
Interest income.......................... 168 -- 12 -- 180
-------- ------- ------- ------- --------
Income before income taxes........... 14,002 6,057 2,347 68 22,474
Income tax expense....................... 5,500 2,349 830 153(f) 8,832
-------- ------- ------- ------- --------
Net income........................... $ 8,502 $ 3,708 $ 1,517 $ (85) $ 13,642(4)
======== ======= ======= ======= ========
Pro forma net income per common share.... $ 0.90 (5) $ 1.03(6)
Pro forma weighted average common shares
outstanding............................ 9,405 (5) 13,302(6)
</TABLE>
- ------------------------------
(1) Historical income statement of Butler for the year ended December 31, 1996.
(a) Net of other income of $183.
(2) Historical income statement of Fancom for the year ended December 31, 1996,
translated into U.S. dollars at the 1996 Exchange Rate.
(a) Includes minority interest of $77 in Fancom's 40% owned subsidiary
Wolters WX B.V.
(3) Pro forma adjustments to reflect the Butler Acquisition, the Fancom
Acquisition, the repayment of all amounts outstanding under the Existing
Credit Agreement with the proceeds of borrowings under the New Credit
Agreement and a portion of the net proceeds of the Offering, the Preferred
Stock Exchange, the Preferred Stock Redemption and the Offering:
21
<PAGE> 23
(a) Represents the elimination of sales transactions between the Company and
Butler.
(b) Represents net increase in cost of sales as follows (in thousands):
<TABLE>
<S> <C>
Elimination of cost of sales transactions between the Company
and Butler................................................. $(223)
Net increase in depreciation expense for Butler resulting
from purchase accounting adjustments to increase property,
plant and equipment to estimated fair market value......... 510
Net decrease in depreciation expense for Fancom resulting
from purchase accounting adjustments to increase property,
plant and equipment to estimated fair market value offset
by an increase in estimated useful lives................... (143)
-----
Net increase in cost of sales...................... $ 144
=====
</TABLE>
(c) Represents net increase in selling, general and administrative expenses
as follows (in thousands):
<TABLE>
<S> <C>
Net increase in depreciation expense for Butler resulting from
purchase accounting adjustments to increase property, plant
and equipment to estimated fair market value................ $128
Net decrease in depreciation expense for Fancom resulting from
purchase accounting adjustments to increase property, plant
and equipment to estimated fair market value offset by an
increase in estimated useful lives.......................... (36)
----
Net increase in selling, general and administrative
expenses.......................................... $ 92
====
</TABLE>
(d) Represents amortization of goodwill of Butler of $514 (based on a 40
year estimated life) and Fancom of $323 (based on a 25 year estimated
life) resulting from the Butler and Fancom Acquisitions.
(e) Represents the net decrease in interest expense as follows (in
thousands):
<TABLE>
<S> <C>
Interest expense on borrowings under the New Credit
Agreement................................................ $ 3,756
Elimination of interest expense on borrowings under the
Existing Credit Agreement................................ (5,049)
Amortization of deferred financing costs associated with
New Credit Agreement..................................... 150
Elimination of amortization of deferred financing costs
associated with Existing Credit Agreement................ (292)
-------
Net decrease in interest expense................. $(1,435)
=======
</TABLE>
The assumed blended effective interest rate on the New Credit Agreement
and the Fancom indebtedness is 6.3% per annum.
(f) Represents income tax effect of above adjustments including amortization
of non-deductible goodwill of $323.
(4) Excludes extraordinary charge of $647 (net of tax) for the write-off of
deferred financing costs relating to the repayment of all amounts
outstanding under the Existing Credit Agreement.
(5) Pro forma net income per common share is calculated by dividing net income
by the pro forma weighted average common and common equivalent shares
outstanding, after giving effect to the following transactions as if they
had been completed on January 1, 1996: (i) the Stock Split, (ii) the
Preferred Stock Exchange, (iii) the Preferred Stock Redemption and (iv)
solely to the extent the proceeds will be used for the Preferred Stock
Redemption, the Offering (assuming an initial public offering price of
$15.00 per share).
(6) Pro forma as adjusted net income per common share is calculated based upon
pro forma as adjusted net income divided by the pro forma weighted average
common and common equivalent shares outstanding.
22
<PAGE> 24
UNAUDITED PRO FORMA CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY BUTLER(1) FANCOM(2) ADJUSTMENTS(3) AS ADJUSTED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $31,552 $4,891 $ 5,798 $(74)(a) $42,167
Cost of sales............................ 24,616 3,931 3,318 29(b) 31,894
------- ------ ------ ---- -------
Gross profit........................ 6,936 960 2,480 (103) 10,273
Selling, general and administrative
expenses............................... 4,732 709(a) 1,954(a) 23(c) 7,418
Amortization of goodwill................. 240 -- -- 209(d) 449
------- ------ ------ ---- -------
Operating income.................... 1,964 251 526 (335) 2,406
Interest expense......................... (1,393) -- (122) 358(e) (1,157)
Interest income.......................... 49 -- -- -- 49
------- ------ ------ ---- -------
Income before income taxes.......... 620 251 404 23 1,298
Income tax expense....................... 264 92 145 41(f) 542
------- ------ ------ ---- -------
Net income.......................... $ 356 $ 159 $ 259 $(18) $ 756(4)
======= ====== ====== ==== =======
Pro forma net income per common share.... $ 0.04(5) $ 0.06(6)
Pro forma weighted average common shares
outstanding............................ 9,405(5) 13,302(6)
</TABLE>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY BUTLER(1) FANCOM(2) ADJUSTMENTS(3) AS ADJUSTED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $31,520 $6,575 $ 7,038 $(64)(a) $45,069
Cost of sales............................ 23,916 4,997 4,021 8(b) 32,942
------- ------ ----- ---- -------
Gross profit........................ 7,604 1,578 3,017 (72) 12,127
Selling, general and administrative
expenses............................... 4,549 657(a) 2,215(a) 13(c) 7,434
Amortization of goodwill................. 240 -- -- 209(d) 449
------- ------ ----- ---- -------
Operating income.................... 2,815 921 802 (294) 4,244
Interest expense......................... (1,323) -- (91) 601(e) (813)
Interest income.......................... 31 -- -- -- 31
------- ------ ----- ---- -------
Income before income taxes.......... 1,523 921 711 307 3,462
Income tax expense....................... 605 361 270 152(f) 1,388
------- ------ ----- ---- -------
Net income.......................... $ 918 $ 560 $ 441 $155 $ 2,074
======= ====== ===== ==== =======
Pro forma net income per common share.... $ 0.10(5) $ 0.16(6)
Pro forma weighted average common shares
outstanding............................ 9,405(5) 13,302(6)
</TABLE>
- ------------------------------
(1) Historical income statement of Butler for the applicable three month period.
(a) Net of other income of $13 and $45 for the three months ended March 31,
1996 and 1997, respectively.
(2) Historical income statement of Fancom for the applicable three month period
translated into U.S. dollars at the average exchange rate for such period.
(a) Includes minority interest in Fancom's 40% owned subsidiary Wolters WX
B.V. of $(5) and $3 for the three months ended March 31, 1996 and 1997,
respectively.
23
<PAGE> 25
(3) Pro forma adjustments to reflect the Butler Acquisition, the Fancom
Acquisition, the repayment of all amounts outstanding under the Existing
Credit Agreement with the proceeds of borrowings under the New Credit
Agreement and a portion of the net proceeds of the Offering, the Preferred
Stock Exchange, the Preferred Stock Redemption and the Offering:
(a) Represents the elimination of sales transactions between the Company
and Butler.
(b) Represents net increase in cost of sales as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1997
(IN THOUSANDS)
<S> <C> <C>
Elimination of cost of sales
transactions between the Company and
Butler.............................. $ (62) $ (45)
Net increase in depreciation expense
for Butler resulting from purchase
accounting adjustments to increase
property, plant and equipment to
estimated fair market value......... 127 100
Net decrease in depreciation expense
for Fancom resulting from purchase
accounting adjustments to increase
property, plant and equipment to
estimated fair market value offset
by an increase in estimated useful
lives............................... (36) (47)
-------- --------
Net increase in cost of
sales..................... $ 29 $ 8
======== ========
</TABLE>
(c) Represents net increase in selling, general and administrative expenses
as follows:
<TABLE>
<S> <C> <C>
Net increase in depreciation expense
for Butler resulting from purchase
accounting adjustments to increase
property, plant and equipment to
estimated fair market value......... $ 32 $ 25
Net decrease in depreciation expense
for Fancom resulting from purchase
accounting adjustments to increase
property, plant and equipment to
estimated fair market value offset
by an increase in estimated useful
lives............................... (9) (12)
-------- --------
Net increase in selling,
general and administrative
expenses.................. $ 23 $ 13
======== ========
</TABLE>
(d) Represents amortization of goodwill of Butler of $128 (based on a 40
year estimated life) and Fancom of $81 (based on a 25 year estimated
life) resulting from the Butler and Fancom Acquisitions.
24
<PAGE> 26
(e) Represents the net decrease in interest expense as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1997
(IN THOUSANDS)
<S> <C> <C>
Interest expense on borrowings under
the New Credit Agreement............ $ 939 $ 696
Elimination of interest expense on
borrowings under the Existing Credit
Agreement........................... (1,262) (1,262)
Amortization of deferred financing
costs associated with New Credit
Agreement........................... 37 37
Elimination of amortization of
deferred financing costs associated
with Existing Credit Agreement...... (72) (72)
-------- --------
Net decrease in interest
expense................... $ (358) $ (601)
======== ========
</TABLE>
The assumed blended effective interest rate on the New Credit Agreement
and the Fancom indebtedness is 6.3% per annum.
(f) Represents income tax effect of above adjustments including
amortization of non-deductible goodwill of $81.
(4) Excludes extraordinary charge of $647 (net of tax) for the write-off of
deferred financing costs relating to the repayment of all amounts
outstanding under the Existing Credit Agreement.
(5) Pro forma net income per common share is calculated by dividing net income
by the pro forma weighted average common and common equivalent shares
outstanding, after giving effect to the following transactions as if they
had been completed on January 1, 1996: (i) the Stock Split, (ii) the
Preferred Stock Exchange, (iii) the Preferred Stock Redemption and (iv)
solely to the extent the proceeds will be used for the Preferred Stock
Redemption, the Offering (assuming an initial public offering price of
$15.00 per share).
(6) Pro forma as adjusted net income per common share is calculated based upon
pro forma as adjusted net income divided by the pro forma weighted average
common and common equivalent shares outstanding.
25
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMPANY BUTLER(1) FANCOM(2) ADJUSTMENTS(3) AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term
investments............... $ 191 $ -- $ 267 $ -- $ 458
Accounts receivable......... 14,304 1,901 5,335 -- 21,540
Inventories................. 14,986 8,025 5,008 1,923(a) 29,942
Deferred income taxes....... 1,863 -- -- 239(e) 2,102
Prepaid expenses............ 955 12 543 -- 1,510
-------- ------- ------- ------- --------
Total current assets... 32,299 9,938 11,153 2,162 55,552
Property plant & equipment-net... 35,393 4,046 3,239 7,006(b) 49,684
Intangibles-net.................. 38,141 -- -- 22,932(c) 61,073
Other assets..................... 18 -- -- -- 18
-------- ------- ------- ------- --------
Total assets........... $105,851 $ 13,984 $14,392 $ 32,100 $ 166,327
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............ $ 7,512 $ 1,458 $ 2,552 $ -- $ 11,522
Current portion of long-term
debt...................... 5,875 -- 2,202 (5,875)(d) 2,202
Accrued liabilities......... 7,698 1,050 1,415 -- 10,163
-------- ------- ------- ------- --------
Total current
liabilities.......... 21,085 2,508 6,169 (5,875) 23,887
Long-term debt................... 58,500 -- 3,723 362(f) 62,585
Deferred income taxes............ 9,593 -- 169 539(g) 10,301
Accrued postretirement
benefits....................... 2,031 180 101 -- 2,312
Other liabilities................ -- -- 247(a) -- 247
-------- ------- ------- ------- --------
Total liabilities...... 91,209 2,688 10,409 (4,974) 99,332
STOCKHOLDERS' EQUITY
Common stock................ 6 -- 7,637 (7,514) 129
Preferred stock............. -- --
Additional paid-in
capital................... 29,994 -- -- 52,877 82,871
Reduction for carryover of
predecessor cost basis.... (24,704) -- -- -- (24,704)
Retained earnings........... 9,420 11,296 (4,358) (7,585) 8,773
Cumulative translation
adjustment................ (74) -- 704 (704) (74)
-------- ------- ------- ------- --------
Total stockholders'
equity............... 14,642 11,296 3,983 37,074(h) 66,995
Total liabilities and
stockholders'
equity............... $105,851 $ 13,984 $14,392 $ 32,100 $ 166,327
======== ======= ======= ======= ========
</TABLE>
- ------------------------------
(1) Represents balance sheet of Butler as of March 31, 1997.
(2) Represents the balance sheet of Fancom as of March 31, 1997, translated into
U.S. dollars at the exchange rate in effect on such date.
(a) Includes minority interest of $37 in Fancom's 40% owned subsidiary
Wolters WX B.V.
(3) Pro forma adjustments to reflect the Butler Acquisition, the Fancom
Acquisition, the repayment of all amounts outstanding under the Existing
Credit Agreement with the proceeds of borrowings under the New Credit
Agreement and a portion of the net proceeds of the Offering, the Preferred
Stock Exchange, the Preferred Stock Redemption and the Offering:
(a) Represents purchase accounting adjustments to increase Butler's
inventory by $1,423 and Fancom's inventory by $500 in each case to
reflect their estimated fair market value (see (i) below).
(b) Represents purchase accounting adjustments to increase Butler's
property, plant and equipment by $5,466 and Fancom's property, plant
and equipment by $1,540 in each case to reflect their estimated fair
market value (see (i) below).
26
<PAGE> 28
(c) Represents net increase in intangibles, as follows (in thousands):
<TABLE>
<S> <C>
Goodwill in connection with the Butler Acquisition......... $15,315
Goodwill in connection with the Fancom Acquisition......... 7,928
Deferred financing costs relating to the New Credit
Agreement................................................ 750
Write-off of deferred financing costs relating to the
Existing Credit Agreement................................ (1,061)
-------
$22,932
=======
</TABLE>
(d) Represents repayment of current portion of the Company's borrowings
under the Existing Credit Agreement.
(e) Represents net increase in deferred income taxes as follows (in
thousands):
<TABLE>
<S> <C>
Tax benefit from write-off of deferred financing costs
related to the Existing Credit Agreement assuming an
effective tax rate of 39%.................................. $ 414
Deferred tax liability associated with the purchase
accounting adjustments to inventory of Fancom assuming an
effective tax rate of 35%.................................. (175)
-----
Net increase in deferred income taxes.............. $ 239
=====
</TABLE>
(f) Represents net increase in long-term debt as follows (in thousands):
<TABLE>
<S> <C>
Borrowings under New Credit Agreement..................... $ 58,862
Repayment of amounts outstanding under Existing Credit
Agreement............................................... (58,500)
--------
Net increase in long-term debt.................. $ 362
========
</TABLE>
(g) Represents deferred tax liability associated with purchase accounting
adjustments to property, plant and equipment of Fancom assuming an
effective tax rate of 35%.
(h) Represents net increase in stockholders' equity as follows (in
thousands):
<TABLE>
<S> <C>
Offering proceeds......................................... $ 75,000
Fees and expenses of Offering............................. (7,000)
Redemption of Existing Preferred Stock.................... (15,000)
Elimination of Butler stockholders' equity................ (11,296)
Elimination of Fancom stockholders' equity................ (3,983)
Write-off of deferred financing costs, net of taxes....... (647)
--------
Net increase in stockholders' equity............ $ 37,074
========
</TABLE>
(i) The Company has accounted for the Butler Acquisition and the Fancom
Acquisition using the purchase method of accounting. As such, the
purchase price has been allocated to the assets acquired and
liabilities assumed based on their estimated fair values. The
allocations used reflect management's preliminary estimates of fair
values of such assets and liabilities. An independent appraisal of the
acquired assets and liabilities is in process and is expected to be
completed by September 30, 1997. As such, the allocations are subject
to adjustment upon completion of appraisals and other valuation
analyses. It is not anticipated that the final allocation will
materially differ from the preliminary estimates.
27
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The selected consolidated income statement data and balance sheet data
presented below for the year ended December 31, 1996 and as of December 31, 1996
were derived from the audited consolidated financial statements, including the
notes thereto, of the Company appearing elsewhere in this Prospectus. The
selected consolidated income statement data and balance sheet data presented
below for each of the years in the two-year period ended December 31, 1995 and
as of December 31, 1995 were derived from the audited consolidated financial
statements, including the notes thereto, of the Predecessor Company appearing
elsewhere in this Prospectus. The selected consolidated income statement data
and balance sheet data presented below for each of the years in the two year
period ended December 31, 1993 and as of December 31, 1992, 1993 and 1994 were
derived from audited consolidated financial statements, including the notes
thereto, of the Predecessor Company not appearing in this Prospectus. The
selected consolidated income statement data and balance sheet data presented
below for each of the three month periods ended March 31, 1996 and March 31,
1997 and as of March 31, 1997 were derived from unaudited consolidated financial
statements, which reflect all adjustments necessary in the opinion of the
Company's management (consisting only of normal recurring adjustments) for a
fair presentation of such data, including the notes thereto, of the Company
appearing elsewhere in this Prospectus. The financial data presented below
should be read in conjunction with the consolidated financial statements,
including the notes thereto, of the Company, the Predecessor Company, Butler and
Fancom appearing elsewhere in this Prospectus, "Unaudited Pro Forma Consolidated
Financial Statements," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR COMPANY ------------------------------------------
------------------------------------------- YEAR ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------------------- ------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $105,509 $113,538 $140,505 $138,119 $148,853 $ 31,552 $ 31,520
Cost of sales.......... 77,725 84,110 103,491 105,578 110,303 24,616 23,916
-------- -------- -------- -------- -------- ------- -------
Gross profit........... 27,784 29,428 37,014 32,541 38,550 6,936 7,604
Selling, general and
administrative
expenses............. 18,345 19,310 20,069 20,606 18,257 4,732 4,549
Amortization of
goodwill............. -- -- -- -- 959 240 240
-------- -------- -------- -------- -------- ------- -------
Operating income....... 9,439 10,118 16,945 11,935 19,334 1,964 2,815
Other non-recurring
expenses............. -- -- -- 1,396(1) --
Interest income
(expense)--net....... 268 313 489 721 (5,332) (1,344) (1,292)
-------- -------- -------- -------- -------- ------- -------
Income before income
taxes................ 9,707 10,431 17,434 11,260 14,002 620 1,523
Income tax expense..... 3,303 3,961 6,665 4,730 5,500 264 605
-------- -------- -------- -------- -------- ------- -------
Income before
cumulative effect of
change in accounting
method............... 6,404 6,470 10,769 6,530 8,502 356 918
Cumulative effect of
change in accounting
method............... -- 211 -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income............. $ 6,404 $ 6,681(2) $ 10,769 $ 6,530 $ 8,502 $ 356 $ 918
======== ======== ======== ======== ======== ======= =======
Pro forma net income
per common
share(3)............. $ 0.90 $ 0.04 $ 0.10
Pro forma weighted
average common shares
outstanding(3)....... 9,405 9,405 9,405
</TABLE>
(See footnotes on following page)
28
<PAGE> 30
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR COMPANY ---------------------------------------------
------------------------------------- YEAR ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------------------------- --------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(4)............. $12,262 $12,866 $20,062 $14,166(5) $ 24,902 $ 3,425 $ 4,190
Depreciation.......... 2,823 2,748 3,117 3,627 4,609 1,221 1,135
Amortization(6)....... -- -- -- -- 1,251 312 312
Capital
expenditures........ 1,980 2,867 5,335 4,698 3,402 487 897
Gross profit margin... 26.3% 25.9% 26.3% 23.6% 25.9% 22.0% 24.1%
EBITDA margin(7)...... 11.6% 11.3% 14.3% 10.3%(8) 16.7% 10.9% 13.3%
CASH FLOW DATA:
Net cash flows from
operating
activities.......... $ 9,884 $ 5,496 $12,730 $11,263 $ 11,714 $ 4,530 $ 1,568
Net cash flows from
investing
activities.......... (1,958) (2,773) (5,278) (4,646) (106,606) (105,208) (860)
Net cash flows from
financing
activities.......... (5,497) (4,445) (4,757) (3,354) 95,150 101,500 (775)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31, AT MARCH 31,
------------------------------------- --------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $14,294 $15,072 $18,891 $22,150 $ 10,773(9) $ 7,730 $ 11,214
Total assets.......... 41,386 44,651 54,355 58,045 103,351 105,417 105,851
Total debt (including
current portion).... 344 40 -- -- 65,150 71,500 64,375
Total stockholders'
equity.............. 29,059 30,902 37,202 40,841 13,741 5,478 14,642
</TABLE>
- ------------------------------
(1) Non-recurring costs related to the CTB Acquisition.
(2) Includes increase in net income of $211 for cumulative effect of change in
accounting method for adopting the asset and liability method of accounting
for income taxes as prescribed by the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
(3) Pro forma net income per common share is calculated by dividing net income
by the pro forma weighted average common and common equivalent shares
outstanding, after giving effect to the following transactions as if they
had been completed on January 1, 1996: (i) the Stock Split, (ii) the
Preferred Stock Exchange, (iii) the Preferred Stock Redemption and (iv)
solely to the extent the proceeds will be used for the Preferred Stock
Redemption, the Offering (assuming an initial public offering price of
$15.00 per share). Due to the changes in the Company's capital structure
resulting from the CTB Acquisition and the planned recapitalization,
historical net income per common share is not meaningful and therefore is
not presented.
(4) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA as presented may not
be comparable to similarly titled measures reported by other companies since
not all companies necessarily calculate EBITDA in an identical manner and
therefore is not necessarily an accurate means of comparison between
companies. EBITDA is not intended to represent cash flows for the period or
funds available for management's discretionary use nor has it been presented
as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
(5) EBITDA for the year ended December 31, 1995, excluding non-recurring costs
in the amount of $1,396 related to the CTB Acquisition, was $15,562.
(6) With respect to the year ended December 31, 1996, comprised of amortization
of goodwill of $959 and amortization of deferred financing costs of $292
relating to the Existing Credit Agreement. With respect
29
<PAGE> 31
to each of the three month periods, comprised of amortization of goodwill of
$240 and amortization of deferred financing costs of $72 relating to the New
Credit Agreement.
(7) EBITDA margin represents EBITDA as a percentage of net sales. EBITDA margin
is presented because it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies on the basis
of operating performance. EBITDA margin should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(8) EBITDA margin for the year ended December 31, 1995, excluding non-recurring
costs related to the CTB Acquisition, was 11.3%.
(9) The reduction in working capital reflects the use of cash to fund a portion
of the CTB Acquisition and a $5.5 million increase in short-term debt
associated with such transaction.
30
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company and the Predecessor Company should be read in
conjunction with the consolidated financial statements, including the notes
thereto, of the Company and the Predecessor Company appearing elsewhere in this
Prospectus.
OVERVIEW
The Company's products are used on a worldwide basis by producers of
poultry, swine and eggs, whose primary cost of production is the cost of feed
grain consumed by the animals, and by producers or storers of grain.
Consequently, significant fluctuations in the supply and cost of grain to users
of the Company's products can impact the Company's operating results. The
Company believes that its diversified product offerings have historically
mitigated some of the effects of increases in the cost of feed grain, as the
demand for grain storage and handling equipment has tended to increase during
periods of higher grain prices, somewhat offsetting the declines in production
of poultry, swine and eggs and the resulting reduction in demand for the
Company's products by producers of these commodities which can occur as a result
of higher grain prices. The supply and cost of grain and feed is affected by a
number of factors including acreage planted, crop yields, weather, government
policies, government subsidies and levels of exports.
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the harvesting season. The Company's net
sales and net income have historically been lower during the first and fourth
fiscal quarters as compared to the second and third quarters.
Although the Company's sales are primarily denominated in U.S. dollars and
are not affected by currency fluctuations, the production costs, profit margins
and competitive position of the Company are affected by the strength of the U.S.
dollar relative to the strength of the currencies in countries where its
products are sold. With respect to sales which are not denominated in U.S.
dollars, the Company seeks to hedge against currency fluctuations as described
in Note 2 to the Company's consolidated financial statements appearing elsewhere
in this Prospectus. In 1996, the Company's foreign sales accounted for 28.8% of
net sales.
The Company was organized in November 1995 by ASCP for the purpose of
acquiring Old CTB. The CTB Acquisition was consummated on January 4, 1996 and
funded by the issuance of $30 million of equity and $75.5 million of borrowings
under the Existing Credit Agreement (net of cash acquired). The CTB Acquisition
was accounted for under the purchase method of accounting to the extent of the
change in ownership interest (67.9%). Accordingly, CTB's financial statements
for 1996 reflect the effects of purchase accounting adjustments (including
increased depreciation expense and amortization of goodwill) and interest
expense (including amortization of deferred financing costs) associated with the
financing of the CTB Acquisition. Results for 1995 also include a non-recurring
charge of $1.4 million for expenses associated with the CTB Acquisition and a
corresponding reduction in book equity.
RECENT DEVELOPMENTS
The following summarizes certain operating results of the Company for the
three month and six month periods ended June 30, 1997.
For the three months ended June 30, 1997, net sales increased approximately
33.1% to approximately $50.6 million compared to approximately $38.1 million in
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, net sales increased approximately 14.8%
to approximately $63.4 million for the three months ended June 30, 1997 compared
to approximately $55.2 million for the corresponding period in 1996.
Operating income for the three months ended June 30, 1997 was approximately
$7.0 million or approximately 22.9% higher than approximately $5.7 million for
the corresponding period in 1996. On a pro
31
<PAGE> 33
forma basis, giving effect to the Butler Acquisition, the Fancom Acquisition and
the Vinyl Division Divestiture as if they had occurred on January 1, 1996,
operating income for the three months ended June 30, 1997 was approximately $9.0
million which was approximately 9.4% higher than approximately $8.2 million for
the corresponding period in 1996.
Net income for the three months ended June 30, 1997 was approximately $4.7
million or approximately 75.7% higher than approximately $2.7 million for the
corresponding period in 1996. The increase was primarily due to a $1.3 million
gain on sale, net of tax, of the Vinyl Division. On a pro forma basis, giving
effect to the Butler Acquisition, the Fancom Acquisition and the Vinyl Division
Divestiture as if they had occurred on January 1, 1996, net income for the three
months ended June 30, 1997 was approximately $4.9 million which was
approximately 11.6% higher than approximately $4.4 million for the corresponding
period in 1996.
For the six months ended June 30, 1997, net sales increased approximately
18.0% to approximately $82.2 million compared to approximately $69.6 million in
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, net sales increased approximately 11.0%
to approximately $106.3 million for the six months ended June 30, 1997 compared
to approximately $95.7 million for the corresponding period in 1996.
Operating income for the six months ended June 30, 1997 was approximately
$9.8 million or approximately 28.2% higher than approximately $7.7 million for
the corresponding period in 1996. On a pro forma basis, giving effect to the
Butler Acquisition, the Fancom Acquisition and the Vinyl Division Divestiture as
if they had occurred on January 1, 1996, operating income for the six months
ended June 30, 1997 was approximately $13.1 million which was approximately
24.6% higher than approximately $10.5 million for the corresponding period in
1996.
Net income for the six months ended June 30, 1997 was approximately $5.6
million or approximately 85.3% higher than approximately $3.0 million for the
corresponding period in 1996. The increase was primarily due to a $1.3 million
gain on sale, net of tax, of the Vinyl Division. On a pro forma basis, giving
effect to the Butler Acquisition, the Fancom Acquisition and the Vinyl Division
Divestiture as if they had occurred on January 1, 1996, net income for the six
months ended June 30, 1997 was approximately $6.9 million which was
approximately 32.3% higher than approximately $5.2 million for the corresponding
period in 1996.
32
<PAGE> 34
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's and the Predecessor
Company's statements of income.
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR COMPANY ------------------------------------------------
-------------------------------- YEAR ENDED THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
-------------------------------- ------------ ----------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....................... 73.7 74.1 73.7 76.4 74.1 78.0 75.9
----- ----- ----- ----- ----- ----- -----
Gross profit........................ 26.3 25.9 26.3 23.6 25.9 22.0 24.1
Selling, general and administrative
expenses.......................... 17.4 17.0 14.3 15.0 12.3 15.0 14.4
Amortization of goodwill............ -- -- -- -- 0.6 0.8 0.8
----- ----- ----- ----- ----- ----- -----
Operating income.................... 8.9 8.9 12.0 8.6 13.0 6.2 8.9
Other non-recurring expenses........ -- -- -- 1.0 -- -- --
Interest income (expense), net...... 0.3 0.3 0.4 0.5 (3.6) (4.2) (4.1)
----- ----- ----- ----- ----- ----- -----
Income before income taxes.......... 9.2 9.2 12.4 8.1 9.4 2.0 4.8
Income tax expense.................. 3.1 3.5 4.7 3.4 3.7 0.8 1.9
Cumulative income effect of change
in accounting method.............. -- 0.2 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net income.......................... 6.1% 5.9% 7.7% 4.7% 5.7% 1.2% 2.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales decreased 0.1% to $31.5 million in the three months ended March
31, 1997 compared to $31.6 million in the corresponding period of 1996.
Historically high domestic grain prices coupled with other factors such as a
threatened Russian embargo of U.S. produced chicken, delayed expansion plans of
many U.S. poultry producers beginning in February 1996. In many cases delays
continued through the three months ended March 31, 1997 which had the effect of
lowering the Company's sales of feeding products by $0.7 million when compared
to the corresponding period of 1996. Grain bin sales decreased approximately
$1.0 million reflecting a decline in international sales. This effect was
mitigated by continued growth in sales of the Company's watering products as
well as strong sales of egg laying and handling systems which exceeded 1996
levels by $0.5 million and $0.8 million, respectively.
Gross profit increased to $7.6 million in the three months ended March 31,
1997 or 24.1% of net sales compared to $6.9 million in the corresponding period
of 1996 or 22.0% of net sales. The favorable change in gross profit margin was
primarily attributable to (i) the Company's more aggressive purchasing policies,
(ii) raw material price declines and (iii) price increases in certain product
lines.
Selling, general and administrative expenses decreased 3.9%, or $0.2
million, to $4.5 million in the three months ended March 31, 1997 from $4.7
million in the corresponding period of 1996. As a percent of net sales, selling,
general and administrative expenses decreased to 14.4% in the three months ended
March 31, 1997 from 15.0% in the corresponding period of 1996. The improvement
from 1996 to 1997 resulted primarily from the elimination of certain
non-essential positions in the latter part of the three months ended March 31,
1996 partially offset by the filling of certain positions since that time.
Operating income increased 43.3% or $0.9 million to $2.8 million in the
three months ended March 31, 1997 compared to $2.0 million in the corresponding
period of 1996. Operating income margins increased to 8.9% of net sales in the
three months ended March 31, 1997 from 6.2% in the corresponding period of 1996.
This increase in operating income and operating income margin was primarily
attributable to the improvement in gross profit margins and lower selling,
general and administrative expenses.
33
<PAGE> 35
Interest expense decreased 5.0% or $0.1 million to $1.3 million in the
three months ended March 31, 1997 compared to $1.4 million in the corresponding
period of 1996. The lower interest expense reflected the lower levels of debt in
the three months ended March 31, 1997 compared to the corresponding period of
1996.
The effective income tax rate for the three months ended March 31, 1997 was
39.7% as compared to 42.6% in the corresponding period of 1996.
Net income increased 157.9% or $0.6 million to $0.9 million in the three
months ended March 31, 1997 compared to $0.4 million in the corresponding period
of 1996. The increase was primarily due to higher operating income.
1996 COMPARED TO 1995
Net sales increased 7.8% or $10.7 million to $148.9 million in 1996
compared to $138.1 million in 1995. Approximately $3.2 million of this change
was due to an increase in sales of domestic grain storage products resulting
primarily from historically high domestic grain prices. These high grain prices,
however, combined with a threatened Russian embargo of U.S. produced chicken,
delayed the 1996 expansion plans of many U.S. poultry integrators, resulting in
reduced domestic sales of the Company's feeding products of $3.3 million. Sales
of the Company's watering products, however, were not affected to the same
extent due primarily to the Company's increased emphasis in 1996 on expanding
its share of this market resulting in increased sales of $1.3 million.
Ventilation product sales increased $3.3 million during 1996 primarily due to
the introduction of a new line of ventilation products during the year. Sales of
egg laying and handling systems increased $5.3 million during 1996, benefiting
from shipments which were delayed or postponed during 1995 due to severe weather
which interrupted the 1995 construction season. International sales of the
Company's products increased $2.6 million to $38.6 million during 1996.
Gross profit increased to $38.6 million in 1996 or 25.9% of net sales
compared to $32.5 million in 1995 or 23.6% of net sales. The increase in gross
profit reflected the impact of increased sales, as well as the benefit of price
increases in certain product lines, together with operating efficiencies and the
return of certain raw material prices to levels more consistent with recent
historical levels. The positive impacts of the above items were partially offset
by a change in sales mix towards lower margin products due to the increase in
grain prices discussed above.
Selling, general and administrative expenses decreased 11.4% or $2.3
million to $18.3 million in 1996 from $20.6 million in 1995. As a percentage of
net sales, selling, general and administrative expenses decreased to 12.3% in
1996 from 15.0% in 1995. This improvement resulted primarily from the
elimination of costs and expenses related to certain non-essential functions of
approximately $1.7 million, a refocus of the Company's advertising program which
resulted in $0.8 million of cost savings, and a non-recurring gain of $0.6
million from an asset sale. These favorable results were partially offset by
increases in incentive bonuses paid as a result of improved operating
performance.
Operating income increased 62.0% or $7.4 million to $19.3 million for 1996
compared to $11.9 million for 1995. Operating income margins increased to 13.0%
of net sales in 1996 from 8.6% in 1995. This increase in operating income and
operating income margin was attributable to the 7.8% increase in sales, improved
gross margins and lower selling, general and administrative expenses.
Interest expense increased $5.5 million for 1996, reflecting borrowings
used to fund the CTB Acquisition. Interest income decreased to $0.2 million for
1996 compared to $0.7 million in 1995, reflecting lower average cash balances
due to the CTB Acquisition.
The effective income tax rate for 1996 was 39.3% as compared to 42.0% in
1995. The decrease in the effective tax rate was attributable to the inclusion
in 1995 results of $1.4 million of non-deductible expenses related to the CTB
Acquisition.
Net income increased 30.2% or $2.0 million to $8.5 million in 1996 compared
to $6.5 million in 1995. This increase was due to increased operating income,
$1.4 million of non-recurring transaction costs relating to
34
<PAGE> 36
the CTB Acquisition that negatively impacted 1995 and a lower effective tax
rate, partially offset by higher interest costs related to the CTB Acquisition.
1995 COMPARED TO 1994
Net sales decreased 1.7% or $2.4 million to $138.1 million in 1995 compared
to $140.5 million in 1994. This decrease in net sales reflected a slowdown in
the rate of expansion of U.S. poultry integrators following the significant
expansion that took place in the southeastern U.S. during 1994 resulting in a
$6.9 million decrease in domestic feeding system sales. Domestic sales of egg
laying and handling systems decreased $2.3 million as a result of low egg prices
and weather related construction delays which postponed shipments of orders
placed in 1995 to 1996. These decreases were partially offset by the Company's
increased emphasis on international markets, with international sales (excluding
Canada) increasing 25.0% to $36.0 million in 1995 from $28.8 million in 1994.
Gross profit decreased to $32.5 million in 1995 or 23.6% of net sales
compared to $37.0 million in 1994 or 26.3% of net sales. The decrease in gross
margin was primarily attributable to increases in raw material costs of steel,
polypropylene, packaging materials and aluminum, as well as lower absorption of
overhead costs as compared to 1994.
Selling, general and administrative expenses increased 2.7% or $0.5 million
to $20.6 million in 1995 from $20.1 million in 1994. As a percentage of net
sales, selling, general and administrative expenses increased to 15.0% in 1995
from 14.3% in 1994. This increase was primarily attributable to hiring of
personnel in areas targeted for future growth, including international
expansion.
Operating income decreased to $11.9 million in 1995 compared to $16.9
million in 1994. Operating income margins decreased to 8.6% in 1995 from 12.0%
in 1994. This decrease in operating income and operating income margin was
attributable to the decrease in sales discussed above, together with lower gross
margins and the higher selling, general and administrative costs discussed
above.
Interest income increased to $0.7 million in 1995 compared to $0.5 million
in 1994. The increase reflected higher average invested cash balances.
The effective tax rate for 1995 was 42.0% as compared to 38.2% in 1994. The
increase in the effective rate was attributable to non-deductible, non-recurring
expenses related to the CTB Acquisition incurred in 1995.
Net income decreased 39.4% or $4.2 million to $6.5 million in 1995 compared
to $10.8 million in 1994. The decrease in net income was attributable to lower
operating income, $1.4 million of non-recurring transaction costs relating to
the CTB Acquisition that were recorded in 1995 and the higher effective tax rate
discussed above.
QUARTERLY RESULTS
The Company attempts to ship products to its distributors and dealers on a
level basis throughout the year to reduce the effect of seasonal demands on its
manufacturing operations and to minimize its investment in inventory. However,
demand for agricultural equipment is seasonal, with producers traditionally
purchasing agricultural equipment in the prime construction periods of the
spring and summer and the fall harvesting season. The Company's net sales and
income from operations have historically been lower in the first and fourth
quarters and have increased in subsequent quarters as distributors and dealers
increase inventory in anticipation of seasonal demand.
The following table presents unaudited interim operating results of the
Company and the Predecessor Company. The Company believes that the following
information includes all adjustments (consisting only of normal, recurring
adjustments) that the Company considers necessary for a fair presentation for
the respective periods indicated, in accordance with generally accepted
accounting principles consistently applied throughout such periods. The
operating results for any interim period are not necessarily indicative of
results for any interim period or the entire fiscal year.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
(IN THOUSANDS)
<S> <C> <C> <C> <C>
COMPANY 1996:
Net sales.......................................... $31,552 $38,056 $44,506 $34,739
Gross profit....................................... 6,936 9,946 12,801 8,867
Gross margin.................................. 22.0% 26.1% 28.8% 25.5%
Operating income................................... $ 1,964 $ 5,709 $ 7,765 $ 3,896
Operating income margin....................... 6.2% 15.0% 17.4% 11.2%
Net income......................................... $ 356 $ 2,682 $ 3,902 $ 1,562
PREDECESSOR COMPANY 1995:
Net sales.......................................... $32,893 $36,556 $37,624 $31,046
Gross profit....................................... 7,392 8,800 9,524 6,825
Gross margin.................................. 22.5% 24.1% 25.3% 22.0%
Operating income................................... $ 2,303 $ 3,604 $ 4,186 $ 1,842
Operating income margin....................... 7.0% 9.9% 11.1% 5.9%
Net income......................................... $ 1,568 $ 2,355 $ 2,714 $ (107)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Historically, CTB's principal sources of liquidity have been available
cash, cash generated from operations and temporary borrowings for seasonal
working capital needs. In January 1996, the Company incurred approximately $75.5
million of borrowings (net of cash acquired) and issued approximately $30.0
million of equity in connection with the CTB Acquisition.
The Company's working capital requirements for its operations are seasonal,
with investments in working capital typically building in the second and third
quarters and then declining in the first and fourth quarters. As of December 31,
1996 the Company had $10.8 million of working capital, a decrease of $11.4
million from working capital as of December 31, 1995. The decrease in working
capital was primarily due to the use of cash to fund a portion of the CTB
Acquisition and a $5.5 million increase in short-term debt associated with such
transaction, partially offset by a purchase accounting adjustment of $4.4
million. As of March 31, 1997 the Company had working capital of $11.2 million,
as compared to working capital of $10.8 million at December 31, 1996.
Net cash provided from operations was $12.7 million, $11.3 million and
$11.7 million during 1994, 1995 and 1996, respectively, and $1.6 million for the
three months ended March 31, 1997. The cash provided from operations was
primarily from net income.
Net cash used for investing activities was $5.3 million, $4.6 million and
$106.6 million during 1994, 1995 and 1996, respectively, and $0.9 million for
the three months ended March 31, 1997. For 1994, 1995 and the three months ended
March 31, 1997, cash used for investing activities was primarily for capital
expenditures. In 1996, the cash used for investing activities was $3.4 million
for capital expenditures and $104.7 million for the CTB Acquisition, partially
offset by $1.5 million of proceeds from the sale of property, plant and
equipment. The Company has budgeted approximately $5 million for capital
expenditures in 1997.
Cash used in financing activities in 1994 and 1995 was $4.8 million and
$3.4 million, respectively. The cash was used primarily for the payment of
dividends and acquisition of treasury stock partially offset by the issuance of
common stock. In 1996, $95.2 million was provided primarily from proceeds of
debt incurred in connection with the CTB Acquisition and the issuance of Common
Stock and Existing Preferred Stock, net of repayment of debt. For the three
months ended March 31, 1997, $0.8 million of cash was used for debt repayment.
The Company acquired Fancom on May 1, 1997 and Butler on June 23, 1997. The
total consideration and related fees and expenses for Butler was $32.5 million,
subject to adjustment, and the total consideration and related fees and expenses
for Fancom was approximately $19.1 million (including the assumption of
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<PAGE> 38
approximately $5.9 million of Fancom's indebtedness), subject to adjustment, at
the May 1 Rate. Both the Fancom Acquisition and the Butler Acquisition were
financed through borrowings under the Existing Credit Agreement which will be
repaid with the proceeds of the Offering. The Company plans to continue to
pursue a selective acquisition strategy which may result in the need for
additional debt or equity financing in the future. The Company sold its vinyl
products business in May 1997 for approximately $8.2 million and applied the
proceeds to reduce indebtedness under the Existing Credit Agreement.
Upon consummation of the Offering, outstanding amounts under the Existing
Credit Agreement will be repaid with the proceeds of borrowings under the New
Credit Agreement with KeyBank National Association and a portion of the net
proceeds of the Offering. The New Credit Agreement provides for up to $90.0
million of revolving loans under a five year facility with no scheduled
amortization. Assuming that the Offering had been completed on March 31, 1997,
on a pro forma as adjusted basis, the anticipated borrowings under the New
Credit Agreement would have been approximately $59.9 million, and the Company
would have had approximately $31.0 million of availability under the New Credit
Agreement (less amounts allocated to letters of credit). See "Capitalization"
and "Description of Credit Agreement."
Borrowings under the New Credit Agreement will bear interest at rates
ranging from 0.25% to 0.625% over LIBOR depending upon certain financial ratios.
The obligations of CTB under the New Credit Agreement will be unconditionally
and irrevocably guaranteed by each domestic subsidiary of CTB. In addition, in
the event that the net proceeds of the Offering are insufficient to reduce the
ratio of funded debt to capitalization to less than 52.5%, then obligations
under the New Credit Agreement will be secured by a first priority security
interest in all of the assets and properties of CTB, a pledge of all of the
capital stock held by CTB in each of its domestic subsidiaries, and a pledge of
66% of the capital stock of each of its foreign subsidiaries. The New Credit
Agreement will require CTB to meet certain financial tests, including minimum
consolidated net worth, consolidated cash flow coverage ratio, minimum interest
coverage ratio and maximum leverage ratio. The New Credit Agreement will contain
covenants which, among other things, will limit the incurrence of additional
indebtedness, the nature of the business of CTB and its subsidiaries,
investments, leases of assets, ownership of subsidiaries, dividends,
transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and
other matters customarily restricted in such agreements. The New Credit
Agreement will contain customary events of default. See "Description of Credit
Agreement."
At March 31, 1997, Fancom had approximately $4.9 million of long term debt
outstanding, including a balance of NLG 8.5 million ($4.2 million at the
exchange rate in effect on such date) on a term loan, which has quarterly
payments of principal plus interest at 5.1% (fixed for three years). Fancom also
maintains a NLG 3.5 million ($1.9 million) overdraft facility which had NLG 2.5
million ($1.0 million) of borrowings and NLG 1.0 million ($0.9 million) of
availability at March 31, 1997.
The Company believes that existing cash, cash flow from operations and
available borrowings under the New Credit Agreement will be sufficient to
support its working capital, capital expenditures and debt service requirements,
absent further acquisitions, for the foreseeable future.
INFLATION
The Company does not believe that inflation has had a material effect on
its results of operations.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No.
128"). SFAS No. 128 simplifies the earnings per share ("EPS") computation and
replaces the presentation of primary EPS with a presentation of basic EPS. This
statement also requires dual presentation of basic and diluted EPS on the face
of the income statement for entities with a complex capital structure and
requires a reconciliation of the numerator and denominator used for the basic
and diluted EPS computations. SFAS No. 128 requires restatement of all
prior-period EPS data presented. The Company will implement SFAS No. 128 as of
and for the year ending December 31, 1997, and the adoption will not have an
effect on the financial statements.
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<PAGE> 39
BUSINESS
INTRODUCTION
The Company is a leading manufacturer and marketer of automated feeding,
watering and ventilation systems, feed bins, grain storage bins and integrated
commercial egg laying and handling systems for the poultry, swine, grain and egg
production industries. The Company believes that it has more than 50% of the
domestic market for (i) broiler chicken, swine and turkey feeding systems, (ii)
integrated commercial egg laying and handling systems and (iii) poultry and
swine feed storage and delivery systems. With the Butler Acquisition, the
Company is the leading domestic producer of grain storage bins. The Company
markets its agricultural products on a worldwide basis primarily under the
CHORE-TIME(R) and BROCK(R) brand names through a network of over 500 U.S. and
international independent distributors and dealers, which network the Company
believes is one of the strongest in the industry. The Company believes that its
strong brand names and market positions reflect its 45-year history as the
leading innovator in its core markets. The Company recorded net sales and
operating income of $148.9 million and $19.3 million, respectively, in 1996. Pro
forma for the Butler and Fancom acquisitions, the Company's net sales and
operating income would have been $217.4 million and $26.8 million, respectively,
for 1996.
The Company's feeding, watering and ventilation products are used primarily
by growers that raise poultry and swine, typically on a contract basis, for
large integrators such as Tyson Foods, Inc. Because growers are partially
compensated by integrators based on the efficiency with which they convert feed
to meat (the "feed-to-meat ratio"), they seek to purchase systems which minimize
the feed-to-meat ratio. The Company believes that its systems are among the most
cost-efficient in the industry and that it is currently the only provider of a
complete line of poultry feeding, watering and ventilation systems which have
been widely approved by integrators for use by their growers. The Company's egg
laying and handling products are similarly used by egg producers for whom a key
determinant of profitability is the ability to maximize the ratio of eggs
produced to feed and other costs of production. The Company believes that its
egg product lines are also among the most cost-effective in the industry. The
Company's grain storage products are primarily used by farm users or commercial
businesses such as feed mills, grain elevators, port storage facilities or
commercial grain processors. The Company believes that its grain storage and
handling systems are of the highest quality due to their strength and
durability, facilitation of efficient handling and minimization of grain
spoilage.
The Company's initial predecessor, Chore-Time Equipment Inc. ("Chore-Time
Equipment"), was founded in 1952 by Howard S. Brembeck who also established
Brock Manufacturing Inc. ("Brock") in 1957 as a manufacturer of bulk storage
feed bins. In 1976, Chore-Time Equipment and Brock came under common ownership
and in 1985 were merged into a single corporation, Old CTB.
The Company and its wholly owned subsidiary, CTB Ventures, Inc. ("CTB
Ventures"), an Indiana corporation, were organized by ASCP in connection with
the CTB Acquisition. Pursuant to the Stock Purchase Agreement (the "Stock
Purchase Agreement") dated November 29, 1995 among CTB Ventures, Old CTB and the
selling shareholders parties thereto, which included certain members of senior
management (the "Old CTB Shareholders"), CTB Ventures purchased all of the
issued and outstanding capital stock of Old CTB. Immediately following the
consummation of the acquisition, Old CTB merged into CTB Ventures, with CTB
Ventures remaining as the surviving corporation, and changed its name to CTB,
Inc. See "Certain Relationships and Related Transactions--CTB Acquisition."
INDUSTRY OVERVIEW
Demand for the Company's products is driven by the overall worldwide level
of poultry, swine, egg and grain production as well as the increasing focus both
domestically and internationally on improving productivity in these industries.
These markets are driven by a number of factors including consumption trends,
which are affected by economic and population growth and government policies.
Because the U.S. is a
38
<PAGE> 40
net exporter of all of these products, both the Company's domestic and
international sales benefit from positive worldwide trends in these markets.
Demand for the Company's products is positively impacted by the significant
economic and population growth occurring in the Company's international markets,
including Asia (where average annual gross domestic product growth rates over
the past ten years have been nearly triple that of the U.S.), Latin America and
to a lesser extent, Eastern Europe and Russia. As a result of increasing
disposable income in these international markets, consumers are devoting larger
portions of their income to improved and higher protein-based diets. This has
stimulated stronger demand for meat, specifically poultry and, to a lesser
extent, pork, as these meats provide more cost-effective sources of animal
protein than beef.
Demand for grain and the required infrastructure for grain storage,
conditioning and handling, is driven by several factors, including the need for
additional grain for increased international production of poultry, swine and
other meats discussed above. The U.S. Federal Agricultural Improvement and
Reform (FAIR) Act of 1996 and continued crop yield enhancements are expected to
lead to increased worldwide grain production. Furthermore, the Company believes
that less functionally sophisticated and efficient grain storage facilities
outside the U.S. and Western Europe, which experience higher levels of grain
spoilage and loss, are increasingly likely to be replaced by more modern
equipment. The Company believes that these dynamics will continue to support
rising domestic and international demand for the Company's grain storage and
handling systems.
POULTRY INDUSTRY
Domestic. The U.S. poultry industry has enjoyed steady growth over the
past several decades with U.S. broiler production growing at a compound annual
growth rate of 5.8% since 1975 to 26.1 billion pounds in 1996 with estimated
annual growth rates between 4% and 5% projected through 2001. Industry sources
attribute this increase to a number of factors, including consumers' rising
disposable incomes and population growth. Additionally, nutritional and health
concerns among consumers have led to poultry market share increases relative to
red meat due to poultry's relatively low fat, low cholesterol and high protein
content. These market share increases have been accelerated by increasing
production and managerial efficiencies in the poultry industry which have
steadily lowered the relative prices of poultry to beef. Broiler retail prices
have declined over 55% in real terms since 1960, as compared to a 25% reduction
in beef prices, bringing the price per pound for a broiler to one third that of
beef. Finally, the added convenience of poultry preparation has significantly
increased the use of poultry by the food service industry, including the fast
food, institutional service and the value-added frozen dinner segments. As a
result, per capita annual consumption of poultry has increased from its 1976
level of 51 pounds, or approximately 26% of total meat consumption, to an
estimated 90 pounds, or 43% of total meat consumption in 1996. Industry sources
suggest that the trends that have led to the rise in poultry consumption are
likely to continue and will result in an increase in the per capita annual
consumption of poultry to 113 pounds by the year 2005.
International. World poultry consumption grew at a compound annual rate of
approximately 5% between 1988 and 1994 (the most recent year for which data is
available) due to rising disposable incomes, population growth, declining
relative prices of poultry to other meats and product innovations such as the
proliferation of pre-packaged poultry products. Further international growth is
projected to exceed the rate experienced in the U.S. due to the rapid rate of
international economic development and the relatively low market shares that
poultry holds of the total meat market in a number of developing countries.
Despite 24% compound annual growth in China's per capita poultry consumption
between 1992 and 1996, 1996 per capita consumption in China's market of over 1.2
billion people was 21 pounds, well below the 90 pounds per capita in the U.S. in
1996. Furthermore, poultry meat accounts at present for only 19% of the market
for meat in China, which is currently the second largest producer and consumer
of poultry, compared to 43% in the U.S. As a result of this growth to date and
the inability of a number of developing countries to increase their production
facilities at a like rate, U.S. poultry exports have grown at a compound annual
rate of 24% since 1985, and are projected to grow at approximately 7% annually
through 2000. Consequently, the U.S. is now the world's largest exporter of
poultry and is expected to hold this position for the foreseeable future.
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<PAGE> 41
Additionally, as developing markets expand their existing production
infrastructures to meet this growing demand, international growers and
integrators are seeking the most efficient production systems available. Because
the U.S. has developed the most advanced and efficient model of poultry
production and because a significant portion of the international poultry
production is currently not automated, U.S. integrators and manufacturers of
production equipment are playing a large role in educating and developing
markets worldwide. This dynamic as well as the increasing importance of U.S.
exports in meeting demand has created significant opportunities for both
domestic and international product sales for the Company.
EGG INDUSTRY
Domestic egg production increased 3% in 1996 compared to 1995 due to rapid
growth in the export market and strengthened domestic demand for eggs, after a
period of relatively slow growth. With domestic trends towards eating away from
home and the increased role of food service companies in food preparation and
delivery, demand for eggs in meals and as an ingredient of further processed
products has increased. Internationally, combined U.S. exports of eggs and egg
products have grown for five years at a compound annual rate of over 16% per
year. The principal causes of this growth have been increased shipments of egg
products to Japan, Canada and Mexico and increased sales of table eggs to China.
Industry sources expect growth in U.S. exports to continue as, among other
things, European exports are hampered by decreases in export subsidies and
environmental issues that have negatively affected their cost competitiveness.
PORK INDUSTRY
Although pork production has experienced slow growth over the past 10
years, there has been a trend, similar to that experienced by the poultry
industry, towards industry consolidation from a large number of small operators
to a smaller number of larger, integrated operators creating increased demand
for automated production systems including feeding and ventilation systems.
Since 1980, the number of U.S. swine farms has fallen from over 650,000 to under
250,000. Total pork production, however, has increased from 14.0 billion pounds
in 1986 to 17.1 billion pounds in 1996, due to greater capital investment in
automated systems by larger operators. This consolidation is likely to further
lower production costs and therefore pork prices which may have a favorable
impact on per capita pork consumption. Internationally, world pork production is
projected to grow at a rate of 2.8% per year from 1996 to 2000. The primary
growth areas are expected to include Asia and Mexico with growth also
anticipated in the countries of the former Soviet Union and central and eastern
Europe. As in the U.S., much of the production is expected to shift from small
unconfined manual facilities to more modern automated, confined facilities
resulting in lower production costs and improved meat quality. International
growth, combined with the shift in production to more automated facilities, is
expected to increase demand for the Company's swine feeding and ventilation
systems.
GRAIN AND OTHER AGRICULTURAL COMMODITIES
After several years of flat growth and constrained supply, world grain
production is projected to increase steadily through 2005 to meet demand for
grain products. Widespread economic and population growth, which increases
demand for animal protein, is driving increased demand for world feed grain
production. The U.S. Federal Agricultural Improvement and Reform (FAIR) Act of
1996 and continued crop yield enhancements are expected to permit increased
worldwide grain production to meet this demand. According to the United States
Department of Agriculture (USDA), increasing demand for grain, combined with
short crops and poor weather in key growing regions in the last several years,
resulted in a tightening of inventory positions and the lowest level of U.S. and
worldwide grain reserves in recent history. For the 1996/1997 marketing year,
the world grain stocks-to-use ratio, while recovering slightly at 15% from 8% in
1995/1996, is still well below a historical average of 24% over the past eight
years. Consequently, grain prices have risen both in real and nominal terms over
the last several years, while also creating significant pricing volatility and
variability beyond the normal seasonal variations. Higher grain prices have
greatly increased the income and cash reserves of North American grain farmers
providing them with the means to invest in additional farm assets.
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Commodity price variations provide incentives for grain producers and users to
utilize on-farm or commercial grain storage capacity to take advantage of
favorable points in the pricing cycle.
BUSINESS STRATEGY
In January 1996, American Securities, along with senior management and
certain founding family members, acquired Old CTB. As a result of the new
ownership, management of the Company is implementing a growth strategy designed
to position the Company as the premier worldwide provider of high quality, cost-
efficient systems for poultry, egg and swine production and integrated grain
storage and handling equipment for the agricultural equipment industry. To
implement this growth strategy, the Company intends to:
- - CONTINUE TO BUILD LEADING MARKET SHARES IN ATTRACTIVE GROWTH MARKETS. The
Company believes that it has more than 50% of the domestic market share of
broiler, swine and turkey feeding systems, integrated commercial egg laying
and handling systems and poultry and swine feed storage and delivery
systems. With the Butler Acquisition, the Company is the leading domestic
producer of grain storage bins. The Company intends to continue to build
its market share in these product lines and believes that it will continue
to benefit from strong growth trends in worldwide poultry and swine
production, and in demand for grain storage and handling products. The
Company believes that the diversity of its end users in the agricultural
market, coupled with its increasing international focus, will mitigate the
impact of any reduction in demand within any of its individual product
lines.
- - CAPITALIZE ON SIGNIFICANT INTERNATIONAL GROWTH OPPORTUNITIES. The
Company's products are marketed in over 60 countries through approximately
180 international distributors, with international sales representing
approximately 39% of net sales in 1996, pro forma for the Butler and Fancom
acquisitions. The Company intends to leverage its worldwide brand name
recognition, leading market positions and strong international distribution
network to capture the significant demand for its products in international
markets. In Brazil, the world's third largest consumer of poultry and swine
products, the Company has recently established a subsidiary to manufacture
and market its products locally. In China, the world's second largest
consumer and producer of poultry and swine products, the Company has
recently appointed a master distributor, supported by a network of
subdistributors, to complement its existing direct sales and enhance its
distribution network in Southeast Asia.
- - OFFER INCREASED VALUE THROUGH INTEGRATED EQUIPMENT SYSTEMS. The Company
believes it can significantly lower total production system costs and help
end users achieve further productivity gains by offering integrated systems
for their total feeding, watering and ventilation needs. Integrated
equipment systems offer significant benefits to distributors, including
lower administrative and shipping costs and the ease of dealing with a
single supplier for all of their customer needs. In 1994, the Company
initiated a program to expand its product offerings of poultry watering and
poultry and swine ventilation systems and has recently begun offering an
integrated line of feeding, watering and ventilation products. Currently,
the Company believes it is the only provider of a complete line of poultry
feeding, watering and ventilation systems which have been widely approved
by integrators for use by their growers. Additionally, with the acquisition
of Fancom, the Company now manufactures its own line of control products
which increases the Company's flexibility in offering fully integrated
feeding, watering and ventilation systems.
- - CONTINUE TO DEVELOP AND INTRODUCE INNOVATIVE PRODUCTS. The Company intends
to leverage its research and development expertise and its broad
distribution network to introduce additional innovative products that meet
customers' needs for enhanced productivity. To maintain and enhance its
position as a leader in product innovation and quality, the Company has
spent an average of approximately $3.8 million per year over the last five
years on research and development. The Company has introduced some of the
most innovative products in the industry including (i) the centerless
FLEX-AUGER(R) which provides for the delivery of feed to poultry and swine
in a uniform fashion, and whose design has become the industry standard,
(ii) the round, pan-type poultry feeder, which maximizes the accessibility
of feed in limited space, and whose design has also become the
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<PAGE> 43
industry standard, (iii) the TURBO HOUSE(R) ventilation system which offers
consistent temperatures and airflow, (iv) the button nipple drinker, which
delivers water through a patented nipple that produces a large bead of
water allowing young birds to find water rapidly and easily, thereby
facilitating weight gain, and (v) the ULTRA-FLO(R) feeder which provides
rapid and consistent feed delivery to layers.
- - PURSUE SELECTED PRODUCT LINE EXTENSIONS/ACQUISITIONS. The global poultry
and swine production equipment market is generally characterized by a large
number of small, niche manufacturers, many of whom lack a broad product
line, extensive marketing and distribution networks or the financial and
management resources necessary to capitalize on emerging opportunities in
domestic and international markets. The Company believes that based on its
leading brand names, broad product line and strong distribution network, it
is uniquely positioned to take advantage of consolidation opportunities and
plans to continue to pursue a selective acquisition strategy by targeting
acquisitions that broaden its product range, leverage its distribution
base, increase its geographic reach or otherwise enhance its ability to
offer its customers integrated systems solutions. The Butler and Fancom
acquisitions are intended to advance the implementation of this strategy.
See "--Recent Transactions."
RECENT TRANSACTIONS
Butler Acquisition. On June 23, 1997, the Company acquired substantially
all of the assets of Butler. Based in Kansas City, Missouri, Butler manufactures
grain storage bins and markets grain storage, conditioning and handling systems
for grain producers and processors throughout the world. The Company believes
that the Butler Acquisition will contribute to the Company's competitive
position in the grain storage bin business by greatly increasing the scope of
its current distribution network, enhancing the Company's grain storage bin
manufacturing capability and adding an additional range of on-farm and
commercial grain storage bins to its existing product line, thereby making the
Company the leading U.S. manufacturer of grain storage bins. The acquisition
will expand the Company's grain bin distribution base by an additional 300
dealers, expanding dealership coverage in key grain producing states. Butler had
net sales and operating income of $41.7 million and $6.1 million, respectively,
in 1996 and of $6.6 million and $0.9 million, respectively, for the three months
ended March 31, 1997. The purchase price for Butler was $32.5 million and was
financed with borrowings under the Existing Credit Agreement. The purchase price
is subject to (i) upward adjustment (not to exceed $2.5 million) by the amount
by which the actual net asset value of Butler at closing (to be determined by a
specified post-closing procedure) exceeds the estimated net asset value or (ii)
downward adjustment by the amount by which such actual net asset value is less
than such estimated net asset value. Butler Manufacturing Company transferred
the assets of Butler to the Company free of all liens, claims and encumbrances,
and the Company has assumed only certain specified ordinary course liabilities
of Butler. The Company has the right to use the Butler logo for two years after
the closing date of the Butler Acquisition and the trademark and tradename for
three years after such closing date.
Fancom Acquisition. On May 1, 1997, the Company acquired all of the
capital stock of Fancom. Fancom, based in The Netherlands, is a manufacturer of
climate control systems and software applications for the agricultural equipment
business. These systems permit the simultaneous remote monitoring and operation
of multiple poultry and swine locations and the complete control of all critical
processes within facilities where poultry and swine are raised and eggs are
produced, including climate, feeding, watering, weighing and storage. The
Company believes that the Fancom Acquisition strengthens the Company's ability
to offer integrated equipment solutions and to further access the European
market where 90% of Fancom's sales are currently made through approximately 100
distributors and dealers. To date, Fancom's distribution and product development
efforts have been limited in regions such as the U.S., China and Brazil where
the Company has been active. The Company intends to utilize its extensive
distribution network with Fancom's expertise in product development and design
to market existing and new products in these markets. The purchase price for the
Fancom Acquisition was NLG 35.1 million ($18.1 million at an exchange rate of
NLG 1.915 to $1.00, the rate at which the Company purchased Dutch Guilders on
May 1, 1997 for the purpose of closing the Fancom Acquisition (the "May 1
Rate")), including the assumption of NLG 11.4 million ($5.9 million at the May 1
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Rate) of Fancom's indebtedness. The purchase price is subject to upward
adjustment by the amount of Fancom's net income for the two months ended April
30, 1997. The purchase price was financed with borrowings under the Existing
Credit Agreement. Fancom had net sales and operating income of $27.2 million and
$2.8 million, respectively, in 1996 based on the 1996 Exchange Rate and of $7.0
million and $0.8 million, respectively, for the three months ended March 31,
1997 based on the average exchange rate for such period.
Vinyl Division Divestiture. On May 29, 1997, the Company sold
substantially all assets (other than accounts receivable) relating to its PVC
deck, dock and fence business for approximately $8.2 million to a subsidiary of
Royal Group Technologies Limited. In conjunction with the sale, the Company
entered into a joint venture with the acquirer to produce certain extruded PVC
agricultural equipment component parts for the Company for a period of five
years.
PRODUCTS
Historically, the Company has been primarily a producer of feeding systems,
commercial egg laying and handling systems and grain and feed storage bins.
Although in the past the Company has also offered watering and ventilation
systems, recently the Company increased its emphasis on these products by
introducing more advanced poultry watering systems and poultry and swine
ventilation systems, which the Company believes equal or exceed the quality of
competing products. The increased emphasis on these product offerings reflects
the Company's strategy to offer complete, integrated feeding, watering and
ventilation systems for poultry and egg production and feeding and ventilation
systems for swine production. The Company believes that its ability to offer
integrated systems provides it with a competitive advantage by enabling
producers to purchase complete, integrated production systems from a single
distributor who can offer high quality installation and service. The Company
believes that its systems are among the most cost-efficient in the industry and
that it is currently the only provider of a complete line of poultry feeding,
watering and ventilation systems which have been widely approved by integrators
for use by their growers. The Company is also a manufacturer of grain storage
bins and worldwide marketer of grain storage and handling systems for on-farm
and commercial storage. The Company believes that its grain storage and handling
systems are of the highest quality due to their strength and durability,
facilitation of efficient handling and minimization of grain spoilage.
With the addition of Butler's product offerings, the Company has further
strengthened its grain storage bin business and believes it is the leading
domestic producer of grain storage bins. With the addition of Fancom's product
lines, the Company manufactures its own line of control products which increases
the Company's flexibility in offering fully integrated feeding, watering and
ventilation systems.
FEEDING SYSTEMS
The Company manufactures feeding systems for the buildings in which
broilers, turkeys and breeders (chickens and turkeys raised to produce hatching
eggs) are raised. Broilers and turkeys are raised in grow-out houses and
breeders are raised in breeder houses. The Company also manufactures swine
feeding systems for all stages of swine production, including feed storage bins,
feed delivery systems and volumetric feeders.
In addition to the individual product features outlined below, the Company
believes that its poultry and swine feeding systems are distinguished by
non-corrosive plastic and galvanized steel parts specially engineered for
durability and reliable operation, the FLEX-AUGER(R) system which allows feed to
be conveyed up, down and around corners, and automated controls which coordinate
feeding, watering, ventilation and lighting schedules. Additionally, the
Company's feed storage bins, used for bulk feed storage, are distinguished by a
number of patented features that are designed to maximize capacity, permit easy
cleaning and ensure proper feed flow. These features are reflected in the
"All-Out(TM) System" which is designed to manage the quality of stored feed and
prevent rain and condensation from entering feed storage bins and provide
first-in, first-out material flow, thereby keeping feed fresh to prevent
spoilage, and blended to provide uniform quality rations to the poultry and
swine.
The Company sells its feeding systems under the CHORE-TIME(R) brand name.
It also markets its feed storage bins under the BROCK(R) brand name.
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<PAGE> 45
Poultry. The Company believes that feed accounts for between 60% and 70%
of the total cost of raising poultry. Therefore, the profitability of broiler
and turkey growers is largely dependent upon the feed-to-meat conversion ratio
and the profitability of growers of breeders is largely dependent upon the total
amount of feed required to maximize egg production. The Company's feeding
systems for broilers and turkeys are designed to minimize the feed-to-meat
conversion ratio by making feed attractive and easily accessible to broilers and
turkeys at all stages of growth while simultaneously limiting feed waste. The
Company's feeding systems for breeders are designed to maximize egg production
by delivering appropriate diets at scheduled times, by reducing competition for
feed among breeders and by separately feeding hens and roosters thereby reducing
stress and enhancing productivity of the hens and roosters. The Company also
manufactures and markets a feeding system that is mounted on its egg layer
cages. See "--Egg Laying/Handling Systems."
The Company's poultry feeding systems consist of feed storage bins located
outside the grow-out or breeder houses, a feed delivery system which delivers
the feed from the feed storage bin into the house and an internal feed
distribution system which delivers the feed to the birds. The feed delivery and
distribution systems include the Company's FLEX-AUGER(R) conveying products
which convey the feed through an enclosed pipe from the feed storage bin to the
house and then to feeding pans. These feeding pans are suspended throughout the
grow-out and breeder houses with suspension apparatus and other components
allowing direct feed delivery to each bird. The suspension apparatus for
grow-out houses raises and lowers the pans according to the size of the birds.
In addition, these patented feed pans automatically adjust from flood feeding
for young chicks to regulated feed levels for older birds. Automatic timers are
also available to allow for automated periodic feeding. Feed storage bins
manufactured by the Company are sold as an integrated component of the Company's
feeding systems.
Swine. The profitability of swine producers is significantly affected by
the feed-to-meat conversion ratio and the number of pounds of lean meat of swine
produced for consumption, and with respect to sows (swine produced for breeding
purposes), the size and number of litters per sow per year. The Company's
feeding systems for swine are designed to minimize the feed-to-meat conversion
ratio of swine by delivering appropriate diets at scheduled times to prevent
swine from eating continuously, thus reducing feed waste and improving feed
conversion and utilization. The Company's feeding systems for sows are designed
to maximize the production of piglets by lowering animal stress and reducing the
associated costs by limiting feed waste and minimizing labor costs.
The Company's swine feed delivery systems are similar in concept to those
designed for poultry, consisting of a feed storage bin outside of the swine
building, a FLEX-AUGER(R) feed delivery system which conveys the feed to and
through the building to feed dispensers suspended within the building which
provide individualized feeding through automatic timers.
WATERING SYSTEMS
The Company has recently begun producing nipple watering systems for
breeder, layer and broiler houses. The ability of each bird to obtain water
easily and rapidly is an essential factor in facilitating weight gain. The
Company's watering system consists of a water pipe system which distributes
water throughout the house to drinking units supported by winches, cables and
other components. The water is delivered to the system through a regulator
designed to provide differential water pressure according to demand. For
grow-out houses, the watering system delivers water through a patented button
nipple drinker that produces a large bead of water allowing young birds to find
water rapidly and easily, thereby facilitating weight gain.
The Company's watering systems are further distinguished by water pressure
and height adjustments which allow the delivery of appropriate flow rates to
birds of all ages, corrosion resistant parts and easy installation, maintenance
and self-cleaning features.
In addition, the Company's watering systems, together with its poultry
feeding and ventilation systems, allow the Company to offer poultry growers a
complete integrated production system controlled by its automated controls. See
"--Automated Controls." The Company sells its watering systems under the
CHORE-TIME(R) brand name.
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<PAGE> 46
VENTILATION SYSTEMS
The Company manufactures and supplies ventilation systems for breeder,
layer and broiler grow-out houses and swine buildings. The systems consist of
fans, shutters, evaporative cooling systems, winches, inlets and other
accessories to regulate temperature and air flow. The acquisition of Fancom
complements the Company's product line of ventilation systems with the most
advanced climate control and software applications commercially available which
permit the remote control and monitoring of the climates of multiple poultry and
swine locations. Proper ventilation systems are crucial for minimizing the
feed-to-meat conversion ratios by reducing stress caused by extreme temperature
fluctuation, allowing for higher density production and providing for optimum
bird and swine health through disease prevention.
The Company's ventilation systems are distinguished by ease of assembly in
the field, energy-efficient airflow management, a design well suited for
international sales because it ships compactly and inexpensively and assembles
with little hardware and few tools, a reliable system of environmental controls
and a non-corrosive line of fans designed for layer and swine buildings. In
addition, the Company's ventilation systems may be marketed with the Company's
feeding and watering systems to poultry growers and with the Company's feeding
systems to swine growers to offer integrated production systems which can be
controlled by the Company's automated controls. See "--Automated Controls." The
Company sells its ventilation systems under the CHORE-TIME(R) brand name.
EGG LAYING/HANDLING SYSTEMS
The Company is a leading U.S. manufacturer of egg laying and handling
systems. Its integrated system approach includes layered galvanized wire mesh
cages, feed storage bins, a feed delivery system, cage mounted feeders, an egg
collection system, ventilation, watering and waste removal equipment. The
feeding, watering and ventilation components of each system are similar to those
described above.
The profitability of poultry egg producers is significantly affected by the
number and size of eggs produced by each bird, the cleanliness of the eggs and
the length of each bird's laying cycle. Egg production is optimized by factors
similar to those minimizing the feed-to-meat conversion ratio for broilers and,
therefore, product features such as periodic individualized feeding, easy access
to water and adequate ventilation distinguish the Company's egg laying systems.
In addition, profitability depends upon the gentle handling of eggs to minimize
breakage. The Company's egg handling system is distinguished by a patented egg
collection system, designed to handle eggs more gently, resulting in fewer
cracked or broken eggs. In addition, because the Company manufactures all the
necessary production systems for an egg house, it can offer fully integrated egg
laying and handling systems monitored and operated locally or remotely by the
Company's automated controls. See "--Automated Controls." The Company sells its
egg laying and handling systems under the CHORE-TIME(R) brand name.
AUTOMATED CONTROLS
In conjunction with sales of automated poultry, swine and egg laying and
handling systems, the Company sells a full range of systems controls, many of
which are manufactured by third parties. Controls are available for breeder,
grow-out and egg laying houses and swine buildings to operate automatically the
feeding, watering, ventilation and lighting operations, either individually or
as fully integrated systems.
With the acquisition of Fancom, the Company now manufactures its own line
of control products which includes a broad range of sophisticated, whole-house
personal computer-based control systems and increases the Company's flexibility
in offering fully integrated systems. Fancom offers the only computerized
agricultural control systems whose products are ISO 9001 certified, with systems
ranging from individual climate, liquid and dry feeding, and weighing controls
to personal computer based systems allowing for simultaneous remote monitoring
and control of multiple poultry and swine locations.
In the U.S., the egg industry has achieved greater levels of automation
than the poultry and swine industries by utilizing personal computer-based
control systems to coordinate the feeding, watering, ventilation
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<PAGE> 47
and lighting schedules in the layer houses on an integrated basis. The Company
anticipates similar advances in domestic broiler, turkey and swine production.
GRAIN STORAGE BINS
The Company manufactures and sells a complete line of grain storage bins
made of galvanized steel under the BROCK(R) brand name. The Company manufactures
over 300 models of grain storage bins for on-farm and commercial grain storage
in diameters ranging from 15 to 105 feet with capacities to over 600,000
bushels. The Company also manufactures and markets a line of industrial bulk
storage bins and conveying equipment. In addition to the products marketed under
the BROCK(R) brand name, the Company produces grain storage bins on a private
label basis.
The Company's grain storage bins are distinguished by an aeration floor
which helps preserve grain condition, patented corrosion resistant bolts and
certain additional patented features which prevent clumps of grain from blocking
bin unloading wells. The Company believes its grain storage bins are further
distinguished by superior roof strength, ease of installation, special
engineering for durability and reliable operation and superior cosmetic
appearance.
With the acquisition of Butler, the Company has enhanced its grain storage
bin manufacturing capability and has added an additional range of on-farm and
commercial grain storage bins to its existing product line. The Butler
Acquisition has expanded the Company's grain bin distribution base by an
additional 300 dealers, expanding dealership coverage in key grain producing
states. The Company has the right to use the Butler logo for two years after the
closing date of the Butler Acquisition and the trademark and trade name for
three years after such closing date.
PRODUCT DISTRIBUTION
The Company sells its products primarily through a network of over 500 U.S.
and international independent distributors and dealers who offer targeted
geographic coverage in key poultry, swine, egg and grain producing markets
throughout the world. The Company's distributors and dealers sell products to
poultry, egg, swine and grain producers, agricultural companies and other end
users. These independent distributors and dealers install and service the
Company's products and many of them also offer technical support and service to
the end user. Some of the Company s distributors sell products directly to end
users and others sell products through their own dealer networks. The Company
trains its distributors and dealers at its technical training center to install
and service the Company's products and systems. The Company believes that its
distribution network is one of the strongest in the industry, providing its
customers with high levels of service. The Company maintains longstanding
relationships with its distribution network, with its top 25 distributors and
dealers having an average tenure with the Company of 17 years.
The Company maintains written contracts with many of its distributors and
dealers. Such contracts generally do not require the Company to sell, or the
distributors and dealers to purchase, a fixed amount of products. Contracts with
domestic distributors and dealers generally do not have a set term and may be
terminated by either party after giving the other party the required notice
under the contract, typically 30 to 90 days. Contracts with international
distributors generally have a set term, usually one year, although initial terms
of two years are occasionally granted. The current form of international
contract provides for automatic annual renewals unless either party gives notice
of its intent not to renew at least 60 days before contract expiration.
The Company also maintains a 59 person sales force. In addition to
providing oversight services of the distribution network, the sales force is
responsible for maintaining continual contact with the marketplace by
interacting with integrators and end users, recruiting new and additional
distribution outlets for the Company's products, and continually educating the
distributors and dealers on the Company's product uses and functions. The
Company further supports its products and markets with a 38 person technical
service and support team who provide training and advice to distributors,
dealers and end users regarding installation, operation and service of products
and, when necessary, provide on-site service.
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In 1994, 1995 and 1996, no individual company or distributor represented
more than 10% of the Company's net sales.
DOMESTIC DISTRIBUTION AND CUSTOMERS
The Company sells its products domestically (including Canada) through a
network of over 400 independent distributors and dealers who market, sell and,
in many cases, install the Company's products and provide post-sale technical
support and service. The Company believes that its domestic distribution
network, which provides targeted geographic coverage in key poultry, swine, egg
and grain producing markets, is the strongest in the industry. The Company's
distribution network is supported by its internal sales management force
consisting of 24 professionals, as well as its 17 person technical service and
support team.
Distributors and dealers are given a primary coverage area but are not
restricted from competing in other markets. The turnover of distributors and
dealers is low. Many distributors and dealers market and sell several of the
Company's different product lines.
Feeding Systems. The Company typically sells its poultry and swine feeding
systems along with its feed storage and delivery systems to its network of
distributors and dealers who then market, sell and install the Company's
products and provide post-sale technical support and service to poultry and
swine producers. The Company has approximately 137 distributors and dealers of
its CHORE-TIME(R) brand feeding systems. These distributors and dealers
typically sell several of the Company's products.
Watering and Ventilation Systems. The Company sells its watering and
ventilation systems either to its distributors and dealers of CHORE-TIME(R)
brand products or directly to poultry and swine producers.
Egg Laying/Handling Systems. The Company sells its integrated egg laying
and handling systems both directly to large domestic egg producers and through
the Company's seven distributors and dealers who sell and service egg laying and
handling systems.
Grain Storage Bins. The Company sells its grain storage bins to its
distributors and dealers who market them for commercial grain storage and farm
grain storage markets. The Company occasionally makes direct sales of its
commercial storage bins. The Company currently has approximately 270
distributors and dealers of its grain storage bins.
INTERNATIONAL DISTRIBUTION AND CUSTOMERS
The Company markets its products outside of the U.S. and Canada through its
international marketing arm, Chore-Time/Brock International ("CTBI"), and
licenses a limited number of its products to a small group of foreign
distributors and dealers who manufacture and sell those products. In addition,
CTBI markets complete equipment systems utilizing products from several
manufacturers for the world market. Products sold under the CHORE-TIME(R) brand
name, however, account for the majority of international sales. International
sales of the Company's grain storage bins are primarily for commercial use.
The Company believes that its network of international distributors and
dealers is one of the strongest in the industry. The Company has more than 80
distributors and dealers located in over 60 countries outside the U.S. and
Canada. Most of these distributors sell many of the Company's products. In
addition, most of these distributors do not sell competitors' products. The
Company also sells directly into some international markets and provides
engineering and construction management support. The Company's international
distribution network is supported by its internal sales management force
consisting of 35 professionals, as well as its 21 person technical service and
support team.
The Company's products have been sold in over 100 countries. The Company
prefers to sell its products to local distributors and dealers, while
maintaining the right to make direct sales to key international customers. CTBI
sales representatives are assigned to specific geographic areas and are
responsible for development of their respective markets and distributor and
dealer networks. While the Company anticipates
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that sales will continue to be generated worldwide, the Company is targeting
Brazil, China and India, where it believes the greatest potential for
significant growth exists.
Net sales generated by the Company by international market region in 1996
were as follows:
1996 NET SALES BY FOREIGN REGION
<TABLE>
<CAPTION>
COMPANY
----------------------------------
ACTUAL PRO FORMA(1)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Latin America................................ $14,129 9.5%(2) $16,723 7.7%(2)
Europe/Mideast............................... 10,334 6.9 37,567 17.3
Asia......................................... 14,174 9.5 20,739 9.5
Canada....................................... 4,254 2.9 8,741 4.0
</TABLE>
- ------------------------------
(1) Pro forma for the Butler and Fancom acquisitions.
(2) Percentage of total 1996 net sales.
BUTLER DISTRIBUTION
Butler sells its products through over 300 independent distributors and
dealers located in various regions throughout the U.S. and Canada. Butler's
grain bin distribution is strongest in the western portion of the U.S. grain
belt, complimenting the Company's grain bin distribution which is highly
concentrated in the eastern portion of the U.S. grain belt. Butler oversees its
distribution network through five sales managers primarily responsible for
maintaining and recruiting dealers and distributors as well as a limited number
of direct sales. Additionally, Butler markets grain storage and handling systems
internationally through its staff of four sales professionals.
FANCOM DISTRIBUTION
Fancom markets its controls systems through several distribution channels.
In The Netherlands, which accounts for nearly 50% of its sales, Fancom sells
through 80 dealers specializing in the agricultural market. In Denmark and
France, Fancom has established its own local offices and distributes through
those local offices. In all of its other markets, which span 22 countries,
Fancom has more than 100 distributors and dealers. Fancom supports these
distribution networks with marketing and product development initiatives.
COMPETITION
The market for the Company's products is competitive. Domestically and
internationally, the Company competes with a variety of manufacturers and
suppliers, many of which offer only a limited number of the products offered by
the Company and two of which offer products across most of the Company's product
lines.
Competition is based on the price, value, reputation, quality and design of
the products offered and the customer service provided by distributors, dealers
and manufacturers of the products. The Company believes that its leading brand
names, strong distribution network, diversified product line, product support
and high quality products enable it to compete effectively. The Company further
believes that its ability to offer integrated systems to poultry, egg and swine
producers, which significantly lower total production costs and help producers
achieve further productivity gains, provide it with a competitive advantage. The
Company also believes that integrated equipment systems offer significant
benefits to distributors, including lower administrative and shipping costs and
the ease of dealing with a single supplier for all of their customer needs.
Currently, the Company believes it is the only provider of a complete line of
poultry feeding, watering and ventilation systems which have been widely
approved by integrators for use by their growers. In addition, the Company's
distributors and dealers provide producers with high quality service,
installation and repair. With the Butler Acquisition, the Company is the leading
domestic producer of grain storage bins.
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NEW PRODUCT DEVELOPMENT
The Company has a product development and design engineering staff of
approximately 57 people, most of whom are located in Milford, Indiana.
Expenditures by the Company for product research and development amounted to
approximately $3.8 million, $3.8 million and $3.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively. The Company charges research and
development costs to operations as incurred. The Company anticipates product
research and development spending to continue at historic levels.
With the Fancom Acquisition, the Company enhanced its research and
development activities by adding a staff of 18 research and development
specialists who, together with four product development specialists, are
dedicated to product innovation and development in automated controls in
Fancom's core markets. In 1996, Fancom spent approximately $1.2 million (at the
1996 Exchange Rate) in product research and development.
SUPPLIERS
The Company manufactures its products primarily with galvanized steel,
steel wire and polymer materials, including PVC pipe, polypropylene and
polyethylene. In addition, it purchases certain components including electric
motors for incorporation in certain of its products. It also purchases grain
handling systems which it sells together with grain storage bins outside of the
U.S. The PVC pipe is purchased from a company formed in conjunction with the
Vinyl Division Divestiture in which CTB has a 50% ownership interest. The
Company is not dependent on any one of its suppliers and has not experienced
difficulty in obtaining any parts or materials. The Company purchases galvanized
steel from a variety of integrated mills and galvanizing processors. In
addition, the components or substitute components, materials and parts purchased
by the Company are readily available from alternative suppliers.
FACILITIES
The following table sets forth information regarding the principal
properties of the Company:
<TABLE>
<CAPTION>
LOCATION FACILITY DESCRIPTION SQUARE FEET LEASED/OWNED
<S> <C> <C> <C>
Milford, Indiana Plant, corporate headquarters 611,000 Owned
and miscellaneous areas
Kansas City, Missouri(1) Plant and office 396,000 Owned
Decatur, Alabama Plant and office 120,000 Owned
Panningen, The Netherlands(2) Plant and office 43,600 Owned
Wierden, The Netherlands(2) Plant and office 25,800 Leased
Deurne, The Netherlands Warehouse and office 8,300 Leased
Londrina, Brazil Warehouse and office 5,000 Leased
Vitre, France(2) Warehouse and office 3,900 Owned
Vitre, France(2) Warehouse 2,900 Leased
</TABLE>
- ------------------------------
(1) Acquired in connection with the Butler Acquisition.
(2) Acquired in connection with the Fancom Acquisition.
Management believes that its facilities and equipment are generally well
maintained and are in good operating condition and that its capacity for the
manufacture of its products is adequate to satisfy anticipated demands for the
foreseeable future.
MANAGEMENT INFORMATION SYSTEMS
The Company has historically developed its own computer software to perform
order entry, production planning and accounting functions. The Company recently
decided to purchase software to meet current and future functional requirements.
The new software system will replace a number of the Company's current systems
and support the Company's future software needs. The new system of fully
integrated applications will
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<PAGE> 51
allow the Company to improve customer service by reducing order lead times,
improving manufacturing process quality and lowering costs. The Company
anticipates that the new system will be fully implemented by early 1998.
SEASONALITY
Sales of agricultural equipment are seasonal, with poultry, swine and egg
producers purchasing equipment during prime construction periods in the spring,
summer and fall and farmers traditionally purchasing grain storage bins in the
summer and fall in conjunction with the major harvesting season. The Company's
net sales and net income have historically been lower during the first and
fourth quarters as compared to the second and third quarters. See "Management's
Discussion and Analysis of Financial Conditions and Results of
Operations--Quarterly Results."
BACKLOG
Backlog is not a significant factor in the Company's business taken as a
whole, because most of the Company's products are delivered within a few weeks
of their order. The Company's backlog at April 30, 1997 was $30.7 million.
PATENTS AND TRADEMARKS
Since Old CTB's inception, the Company has obtained nearly 100 U.S. patents
covering innovations in poultry and livestock feeding and other agricultural
equipment. The Company aggressively seeks patent protection for its
technological developments. The Company currently has 70 active U.S. patents and
has applied for 5 additional U.S. patents. No significant patents will expire
prior to December 31, 2001.
The Company has 35 U.S. trademarks and has submitted applications for an
additional 14 U.S. trademarks. While the Company believes its patents and
trademarks have significant value, the Company does not believe that its
competitive position is dependent on patent protection or that its operations
are dependent on any individual patent or group of related patents.
PRODUCT LIABILITY AND LEGAL PROCEEDINGS
From time to time, the Company is involved in various litigation matters
involving ordinary and routine claims incidental to the Company's business.
Products sold by the Company may expose it to potential liabilities for personal
injury or property damage claims relating to the use of such products. The
Company maintains third-party product liability insurance which it believes to
be adequate. To date the aggregate costs to the Company for claims, including
product liability actions, has not been material. However, a significant claim
that is uninsured or partially insured could result in loss or deferral of
revenues, diversion of resources or damage to the Company's reputation, any of
which could have a material adverse effect on the financial condition of the
Company.
There are no legal proceedings pending against the Company which, in the
opinion of management, would have a material adverse effect on the Company's
financial position, results of operations or liquidity.
REGULATORY AND ENVIRONMENTAL MATTERS
Like other manufacturers the Company is subject to a broad range of
federal, state, local and foreign laws and requirements, including those
governing discharges to the air and water, the handling and disposal of solid
and hazardous substances and wastes, the remediation of contamination associated
with releases of hazardous substances at the Company's facilities and offsite
disposal locations, workplace safety and equal employment opportunities. The
Company has made, and will continue to make, expenditures to comply with such
laws and requirements. The Company believes, based upon information currently
available to management, that it is in compliance with applicable environmental
and other legal requirements and that it will not require material capital
expenditures to maintain compliance with such environmental requirements in the
foreseeable future.
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Governmental authorities have the power to enforce compliance with such laws and
regulations and violators may be subject to penalties, injunctions or both.
Third parties may also have the right to enforce compliance with such laws and
regulations.
EMPLOYEES
As of April 30, 1997, the Company had 887 employees. Management believes
that its relationships with the Company's employees are good. The Company added
approximately 174 employees pursuant to the Butler Acquisition and approximately
153 employees pursuant to the Fancom Acquisition. Butler's hourly employees are
currently subject to a collective bargaining agreement which expires January 31,
2000.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
J. Christopher Chocola...................... 35 President, Chief Executive Officer and
Director
Don J. Steinhilber.......................... 39 Vice President, Chief Financial Officer and
Treasurer
Bruce H. Marshall........................... 47 President of CTBI
Robert W. Martin............................ 59 Executive Vice President of CTB
Roger W. Townsend........................... 42 Executive Vice President and General
Manager--Grain Systems of CTB
Michael J. Kissane.......................... 40 Vice President, General Counsel and Secretary
Mark A. Lantz............................... 36 Vice President and General Manager--Cage
Systems of CTB
Brian D. Dawes.............................. 38 Vice President and General Manager--Floor
Systems of CTB
Michael G. Fisch............................ 35 Chairman of the Board of Directors
Caryl M. Chocola............................ 58 Director
Larry D. Greene............................. 40 Director
Frank S. Hermance........................... 49 Director
David Horing................................ 34 Director
Charles D. Klein............................ 59 Director
</TABLE>
J. Christopher Chocola became President of the Company in February 1996 and
Chief Executive Officer of the Company in April 1997. Mr. Chocola has served as
Chief Executive Officer of CTB (prior to January 1996, Old CTB) since March
1994. From July 1993 to March 1994, Mr. Chocola served as Executive Vice
President of Old CTB. From November 1993 to July 1996, Mr. Chocola served as the
General Manager of the Chore-Time division. From October 1991 to November 1993,
Mr. Chocola served as the General Manager of the Brock division. Mr. Chocola
joined Old CTB in 1988. Mr. Chocola was elected to the Board of Directors of Old
CTB in February 1991 and of the Company in February 1996.
Don J. Steinhilber became Vice President, Chief Financial Officer and
Treasurer of the Company in April 1997. Mr. Steinhilber served as Vice President
and Assistant Treasurer of the Company from December 1995 until April 1997.
Since December 1996, Mr. Steinhilber has served as Vice President, Chief
Financial Officer and Treasurer of CTB. From July 1993 to December 1996, Mr.
Steinhilber served as Vice President and Treasurer of CTB (prior to January
1996, Old CTB). From July 1991 to July 1993, Mr. Steinhilber served as
International Controller of Old CTB. Mr. Steinhilber joined the Company in July
1991.
Bruce H. Marshall joined CTB in December 1996 as President of CTBI. Prior
to joining the Company, Mr. Marshall was Vice President and General Manager of
Thiokol Technologies International, a commercial aerospace business, from 1989
to November 1996.
Robert W. Martin became Executive Vice President of CTB in December 1996.
Mr. Martin served as Vice President and Chief Financial Officer of CTB from
April 1996 until December 1996. Mr. Martin joined CTB in March 1996. Prior to
joining CTB, Mr. Martin was Vice President, Treasurer and Chief Financial
Officer of Fairfield Manufacturing Company, Inc., a manufacturer of high
precision custom gears and planetary gear systems, from 1990 to 1994.
Roger W. Townsend has served as Executive Vice President of CTB since April
1996 and became General Manager--Grain Systems of CTB in May 1997. Mr. Townsend
was Chief Operating Officer of CTB (prior to January 1996, Old CTB) from March
1994 until May 1997. From November 1993 to July 1996, Mr. Townsend served as
General Manager of the Brock division. From July 1993 to November 1993,
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<PAGE> 54
Mr. Townsend served as Vice President of Engineering of Old CTB. From October
1991 to July 1993, Mr. Townsend served as Assistant General Manager of the Brock
division. Mr. Townsend joined the Company in 1977.
Michael J. Kissane became General Counsel and Secretary of the Company in
April 1997 and Vice President of the Company in December 1995. Mr. Kissane has
been a Vice President of CTB (prior to January 1996, Old CTB) since July 1993,
the Secretary of CTB (prior to January 1996, Old CTB) since March 1994 and has
served as General Counsel of CTB (prior to January 1996, Old CTB) since joining
the Company in January 1992. Prior to joining the Company, Mr. Kissane was a
member of the law firm of Strauss & Kissane in San Diego, California.
Mark A. Lantz became Vice President and General Manager--Cage Systems of
CTB in May 1997. Mr. Lantz served as Vice President--Operations of CTB from
February 1996 until May 1997. Mr. Lantz served as Operations Manager of CTB
(prior to January 1996, Old CTB) from November 1993 until February 1996, as Vice
President--Manufacturing of Old CTB from July 1993 until November 1993 and as
Plant Manager of Old CTB from October 1991 until July 1993. Mr. Lantz joined Old
CTB in 1989.
Brian D. Dawes has served as Vice President and General Manager--Floor
Systems of CTB since May 1997. Mr. Dawes was Vice President of the Vinyl
Products Division of CTB (prior to January 1996, Old CTB) from July 1994 until
May 1997. Mr. Dawes served as Manager of National Contract Sales at Zimmer,
Inc., an orthopedics product division of Bristol-Myers Squibb, from 1992 until
July 1994. Mr. Dawes rejoined Old CTB in 1994, having served in management
positions at Old CTB from 1981 until 1986.
Michael G. Fisch was elected to the Board of Directors in November 1995.
Mr. Fisch has been President of ASCP since 1994 and a Managing Director of
American Securities, L.P. since 1993. From 1991 to 1993, Mr. Fisch served as a
Managing Director of First Atlantic Capital, Ltd., a private investment firm.
Mr. Fisch is presently Chairman of the Board of Caribbean Restaurants Holdings,
Inc., a Burger King franchisee, and is a director of MVE Holdings, Inc., a
manufacturer of cryogenic storage vessels, Caire, Inc., a medical supply
company, and Ketema, Inc., a diversified industrial company.
Caryl M. Chocola was elected to the Board of Directors in February 1996 and
has served on the Board of Directors of CTB (prior to January 1996, Old CTB)
since 1976. Ms. Chocola has been President of K.C. Equine Systems Inc., a
provider of fencing and feeder equipment since 1993. Ms. Chocola has been an
employee of CTB since 1987. Ms. Chocola is the mother of Mr. Chocola.
Larry D. Greene was elected to the Board of Directors in April 1997. Mr.
Greene has served as Senior Vice President of Tauber Enterprises, a private
investment company, since 1992. He served as Executive Vice President and Chief
Operating Officer of Sinai Health System, a healthcare company, from 1988 until
1992. Mr. Greene also serves on the board of directors of Complex Tooling &
Molding, Inc., an injection molder of plastic components.
Frank S. Hermance was elected to the Board of Directors in June 1997. Mr.
Hermance has served as President and Chief Operating Officer of AMETEK, Inc., a
diversified industrial company, ("AMETEK"), since November 1996. Mr. Hermance
served as Executive Vice President and Chief Operating Officer of AMETEK from
January 1996 until November 1996 and as President of the Precision Instruments
Group of AMETEK from 1994 until November 1996. From 1990 until 1994, Mr.
Hermance was Group Vice President of AMETEK.
David Horing was elected to the Board of Directors in November 1995. Mr.
Horing has been a Principal of ASCP since May 1995. Prior to that time, Mr.
Horing served as a Manager of The Dyson-Kissner-Moran Corporation, a private
investment firm, which he joined in 1988. Mr. Horing is a director of the
general partner of Community Pacific Broadcasting Company, L.P., a radio
broadcaster, and Caribbean Restaurants Holdings, Inc.
Charles D. Klein was elected to the Board of Directors in November 1995.
Mr. Klein has been a financial advisor to the William Rosenwald family and a
Managing Director of American Securities, L.P. and its
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<PAGE> 55
predecessors since 1978. Mr. Klein is a director of AMETEK, Ketema, Inc., the
general partner of Community Pacific Broadcasting Company, L.P. and Caribbean
Restaurants Holdings, Inc.
TERM OF OFFICE
There are currently seven members of the Board of Directors. Directors are
elected annually by a plurality of votes by the stockholders present and voting
at the annual meeting. Each director holds office until his successor is elected
or qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
There are two committees of the Board of Directors: the Audit Committee
(comprising Ms. Chocola and Messrs. Fisch and Horing) and the Compensation
Committee (comprising Ms. Chocola and Messrs. Fisch and Klein). Upon completion
of the Offering, the Board of Directors will establish an Executive Committee.
The Board of Directors also may establish from time to time any other committees
that it deems necessary or advisable.
The Audit Committee is responsible for making recommendations to the Board
of Directors regarding the selection of independent accountants to audit the
Company's annual financial statements, conferring with the independent
accountants and reviewing the scope and the fees of the annual audit, reviewing
the Company's audited financial statements, accounting and financial procedures,
monitoring the Company's ethics and conflict of interest procedures and
approving the nature and scope of nonaudit services performed by the independent
accountants. Upon completion of the Offering, the Audit Committee will be
comprised of Messrs. Horing, Greene and Hermance.
The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors on all matters concerning compensation
of employees and management. Upon completion of the Offering, the Compensation
Committee will be comprised of Messrs. Fisch, Greene and Hermance.
The Executive Committee will be responsible for meeting when required on
short notice during intervals between meetings of the Board of Directors and
will have authority to exercise all of the powers of the Board of Directors in
the management and direction of the affairs of the Company subject to specific
directions of the Board of Directors and to the limitations of the Delaware
General Corporation Law. The Executive Committee also will be responsible for
reviewing the financial policies and procedures of the Company, considering
corporate financing and the issuance and sale of the Company's securities,
recommending certain acquisitions and dispositions, and reviewing certain other
financial matters. Upon completion of the Offering, the Executive Committee will
consist of Messrs. Chocola, Fisch and Horing.
DIRECTOR COMPENSATION
Each director of the Company who is not an employee of the Company or an
employee of American Securities will receive an annual fee of $10,000 plus a fee
of $2,500 for each Board of Directors meeting attended and $2,500 for each
committee meeting attended if not held concurrently with a meeting of the Board
of Directors. Directors who are also employees of the Company will receive no
remuneration for serving as directors. In 1997, directors who were officers or
employees of the Company or American Securities received no compensation for
service as members of the Board of Directors or any committees thereof. Messrs.
Greene and Hermance were each granted options to purchase 18,140 shares of
Common Stock at an exercise price of $10.92 per share on May 13, 1997 and June
18, 1997, respectively.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned and/or paid for
services rendered to the Company for the year ended December 31, 1996, with
respect to (i) the Chief Executive Officer of the Company and (ii) the four
other most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers").
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<PAGE> 56
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(#)
<S> <C> <C> <C> <C> <C>
J. Christopher Chocola................... 1996 $144,200 $123,170 $16,513(3) 14,512
President, Chief Executive Officer and
Director
Roger W. Townsend........................ 1996 113,300 96,766 6,764 21,768
Executive Vice President and General
Manager--Grain Systems of CTB
Don J. Steinhilber....................... 1996 90,492 64,762 6,940 14,512
Vice President, Chief Financial Officer
and Treasurer
Robert W. Martin......................... 1996 82,244 64,017 25,824(4) --
Executive Vice President of CTB
Mark A. Lantz............................ 1996 83,700 54,659 6,449 14,512
Vice President and General
Manager--Cage Systems of CTB
</TABLE>
- ------------------------------
(1) Includes amounts paid pursuant to the Management Incentive Compensation Plan
and includes a holiday bonus of 5% of base salary payable to all employees
in December 1996 with 1,000 hours of service for the twelve months ended
November 30, 1996. See "--Compensation Pursuant to Benefit Plans and
Arrangements--Management Incentive Compensation Plan."
(2) Includes amounts paid under the Profit Sharing Plan that are determined
based on the Company's results of operations, matching contributions under
the 401(k) Plan and imputed income on term life insurance policies. See
"--Compensation Pursuant to Benefit Plans and Arrangements--Profit Sharing
Plan."
(3) Includes $5,422 for the value of the personal use of an automobile.
(4) Includes $19,557 for commuting and living expenses.
COMPENSATION PURSUANT TO BENEFIT PLANS AND ARRANGEMENTS
NON-QUALIFIED STOCK OPTION AGREEMENTS
In connection with the CTB Acquisition, the Board of Directors granted
options to purchase a total of 689,318 shares of Common Stock (the "Option
Shares") at an exercise price of $0.83 per share (the "Options") to certain key
employees of the Company. The following table provides information concerning
the Options granted to the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION -------------------------
NAME GRANTED(#) IN 1996 (PER SHARE) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
J. Christopher
Chocola............. 72,560 10.53% $ 0.83 01/03/2006 $1,712,884 $2,763,022
Roger W. Townsend..... 108,840 15.79 0.83 01/03/2006 2,569,326 4,144,532
Don J. Steinhilber.... 72,560 10.53 0.83 01/03/2006 1,712,884 2,763,022
Robert W. Martin...... -- -- -- -- -- --
Mark A. Lantz......... 72,560 10.53 0.83 01/03/2006 1,712,884 2,763,022
</TABLE>
55
<PAGE> 57
Under the Non-Qualified Stock Option Agreements pursuant to which the
Options were granted (the "Non-Qualified Stock Option Agreements"), the Options
are exercisable in full commencing on January 4, 2003 and terminate on January
3, 2006. The date of exercise may be accelerated based on the achievement of
certain corporate goals set forth in the Non-Qualified Stock Option Agreements.
If, on the last day of each of the Company's fiscal years beginning with the
fiscal year ending December 31, 1996 through the fiscal year ending December 31,
2000 (each, an "Accelerated Vesting Date"), the Company meets certain EBITDA
targets, the Options will immediately become exercisable as to 20% of the Option
Shares per fiscal year. Any portion of the Options that would have become
exercisable on any applicable Accelerated Vesting Date will be exercisable on a
subsequent Accelerated Vesting Date if the Company meets a cumulative EBITDA
target for that Accelerated Vesting Date. The Company met the EBITDA targets for
fiscal 1996 resulting in the vesting of 20% of the Options. None of the Options
have been exercised. The Options are nonassignable and unexercised Options
terminate a short time after termination of employment (or immediately in the
case of termination for cause). Full payment for shares of Common Stock
purchased upon exercise of an Option must be made at the time of exercise.
In the event that American Securities no longer holds any shares of capital
stock of the Company, nor has any ownership interest in the Company, any
affiliate of the Company, any successor or surviving entity to the Company, or
any of the Company's substantial assets, the Options will immediately become
exercisable as to 100% of the Option Shares.
In the event that the shares underlying the Options are changed by reason
of a stock split, stock reverse, stock dividend or recapitalization, or
converted into or exchanged for other securities as a result of a merger,
consolidation or reorganization, the Board of Directors will make adjustments in
the number and class of shares of stock subject to the Options and to the
exercise price.
The Non-Qualified Stock Option Agreements provide that, upon issuance, the
Option Shares will be subject to the transfer restrictions contained in the
Stockholders Agreement. See "Certain Relationships and Related Transactions--CTB
Acquisition--Stockholders Agreement."
PROFIT SHARING PLAN
CTB has established a profit sharing plan (the "Profit Sharing Plan")
covering all of its eligible U.S. employees. At the beginning of each fiscal
year, the Board of Directors of CTB determines the amount, if any, that CTB will
contribute to the Profit Sharing Plan in that fiscal year based on the
achievement of certain financial targets for that year. CTB is not required to
make any contributions to the Profit Sharing Plan if those targets are not met.
The Profit Sharing Plan also provides for the making of cash-or-deferred
contributions pursuant to Section 401(k) of the Internal Revenue Code. Under
this provision, employees may elect to contribute a whole percentage of between
1% and 16% (or a particular dollar amount within that range) of their pre-tax
earnings to the 401(k) plan. Each year, the Company has the discretion to elect
to make a matching contribution with respect to each employee equal to 50% of
the amount contributed by such employee up to a total matching contribution of
2% of base compensation.
MANAGEMENT INCENTIVE COMPENSATION PLAN
CTB established a management incentive compensation plan (the "Management
Incentive Compensation Plan") which provides certain employees with the
opportunity to receive an annual bonus based on CTB's annual performance. The
Management Incentive Compensation Plan covers individuals employed at CTB for
the entire calendar year in positions designated by senior management of CTB as
those that impact corporate earnings. Individual awards under the Management
Incentive Compensation Plan are determined based on the degree to which certain
financial and market position targets are achieved by CTB. Actual incentive
compensation awards may be more or less than targeted amounts depending upon
actual results compared with the goals established.
At the beginning of each calendar year, the Board of Directors of CTB, in
consultation with senior management, approves certain financial goals, including
EBITDA targets and net sales growth and gross
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<PAGE> 58
profit, and certain nonfinancial goals. Attainment of these goals determine
whether awards will be made under the Management Incentive Compensation Plan and
the extent of any such awards. No bonuses will be paid unless at least 75% of
target EBITDA is achieved. Bonuses for CTB's executive officers are based solely
on the achievement of target EBITDA. Bonuses for other employees are based on
EBITDA as well as group and employee category achievements.
EMPLOYMENT AGREEMENT
On February 26, 1996, CTB and Robert W. Martin, the Executive Vice
President of CTB, entered into a letter agreement summarizing Mr. Martin's
employment arrangements with CTB. Under this agreement, Mr. Martin is entitled
to receive an annual salary of $100,000 and a bonus in an amount up to $86,250
under the Management Incentive Compensation Plan. He is also entitled to
participate in the Profit Sharing Plan and to reimbursement for certain living
expenses. The agreement with Mr. Martin terminates on December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CTB ACQUISITION
In November 1995, the Company and CTB Ventures were organized by ASCP for
the purpose of consummating the acquisition of Old CTB. Prior to its acquisition
by the Company, Old CTB's equity was primarily owned by Howard S. Brembeck and
members of his family (including J. Christopher Chocola and Caryl Chocola (the
"Chocolas")) with minimal ownership by non-family management. In connection with
the CTB Acquisition, the existing members of the management team and certain
founding family members (the "Individual Stockholders") of Old CTB exchanged
shares of common stock of Old CTB valued at $9.9 million for an equal value of
Common Stock and the Existing Preferred Stock, and the Individual Stockholders,
together with American Securities (collectively, the "Existing Stockholders")
invested $20.1 million in cash in the Company, and CTB borrowed $75.5 million
under the Existing Credit Agreement (net of cash acquired) to fund the purchase
of the shares of the exiting family members. On January 4, 1996, ASCP received a
$750,000 fee, plus the reimbursement of its expenses, from CTB for services
provided in connection with the CTB Acquisition.
ASCP is a private investment firm. The Common Stock and Preferred Stock
owned by American Securities is owned of record by two limited partnerships,
American Securities Partners, L.P. and ASP/CTB, L.P. The shares of Common Stock
owned by American Securities Partners, L.P. and ASP/CTB, L.P. are beneficially
owned by American Securities Partners GP (Management) Corp. and ASP/CTB G.P.
Corp., respectively. See "Principal Stockholders."
STOCK PURCHASE AGREEMENT
In connection with the CTB Acquisition, the Company, CTB Ventures, Old CTB
and the Old CTB Shareholders entered into the Stock Purchase Agreement pursuant
to which CTB Ventures purchased all of the issued and outstanding capital stock
of Old CTB, and the Company and the Existing Stockholders entered into a
Stockholders Agreement dated as of January 4, 1996 (the "Stockholders
Agreement") pursuant to which the Company issued the shares of the capital stock
of the Company to the Existing Stockholders. Concurrently with the consummation
of the CTB Acquisition, Old CTB merged into CTB Ventures, with CTB Ventures
being the surviving corporation, and changed its name to CTB, Inc.
Pursuant to the Stock Purchase Agreement, the Company and CTB have, jointly
and severally, agreed to make certain contingent payments to the Old CTB
Shareholders (the "Earn-Out Amount") based on a calculation of cumulative EBITDA
for the three year period ended December 31, 1998. The cumulative EBITDA target
is $89.5 million, subject to adjustment in the event of any merger, acquisition,
divestiture or other extraordinary transaction. A revised EBITDA target has not
yet been determined in order to give effect to the Butler Acquisition, the
Fancom Acquisition and the Vinyl Division Divestiture. As of December 31,
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<PAGE> 59
1996, EBITDA of $24.9 million had been achieved against the original target. CTB
and the Company may be liable to pay the Old CTB Shareholders up to an amount
equal to $13.5 million in respect of the Earn-Out Amount, which would be
recorded in the Company's consolidated financial statements as an adjustment to
the original purchase price for the CTB Acquisition. Fifty percent of the
maximum Earn-Out Amount is to be paid at the attainment of 85% of the cumulative
EBITDA target, and no payment is required unless 85% of the cumulative EBITDA
target is attained.
If an Earn-Out Amount is payable, the Company and CTB are obligated to pay
the Earn-Out Amount in four semi-annual installments beginning on August 31,
1998. The first installment is equal to 25% of the estimated Earn-Out Amount,
the second installment is equal to 50% of the actual Earn-Out Amount minus the
amount of the first installment and the third and fourth installments are each
equal to 25% of the actual Earn-Out Amount. Accrued interest from January 1,
1999 at the prime rate on the last business day of 1998 will be payable on the
third and fourth installments, provided that interest at such interest rate on
the first installment payment from August 31, 1998 to December 31, 1998 will be
credited against such amount. The payment of the Earn-Out Amount will be
subordinated to amounts payable under the New Credit Agreement.
In connection with the Stock Purchase Agreement, the Old CTB Shareholders
entered into an Escrow Agreement dated as of January 4, 1996 (the "Escrow
Agreement") with CTB Ventures and NBD Bank, N.A., as escrow agent (the "Escrow
Agent"), creating an escrow fund of $5 million as security for the obligations
of the Old CTB Shareholders under the indemnity provisions of the Stock Purchase
Agreement. The parties have agreed, with the Escrow Agent's consent, to a
partial distribution of the amount held by the Escrow Agent, leaving a principal
balance of $500,000 on deposit with the Escrow Agent for potential claims.
STOCKHOLDERS AGREEMENT
The Company and the Existing Stockholders entered into the Stockholders
Agreement which, among other things, imposed certain restrictions on the
transfer of shares by Existing Stockholders and their permitted transferees.
Each Individual Stockholder has agreed to transfer shares only to related
persons, the Company or American Securities and, after January 4, 2003, to
permitted third parties as described therein, subject to a right of first
refusal granted to the Company and American Securities. Upon receipt of notice
from an Individual Stockholder intending to transfer shares, the Company may
elect to purchase all of the shares owned by such Individual Stockholder (or
less than all if the remaining portion is to be purchased by American
Securities). If the Company elects not to exercise its purchase option, American
Securities may elect to purchase all of the shares owned by the Individual
Stockholder. If neither the Company nor American Securities exercises its
option, the Individual Stockholder has 30 days in which to transfer the shares
to a third party, subject to the consent of the Company and American Securities,
which consent will not be unreasonably withheld.
Shares of Common Stock and options owned by the Individual Stockholders
(excluding those owned by J. Christopher Chocola) and their permitted
transferees are further subject to purchase options granted first to the
Company, second to American Securities and third to the Chocolas exercisable
upon the termination of each Individual Stockholder's employment with the
Company. The Company may elect to purchase an Individual Stockholder's shares
within 30 days of the date of termination of the Individual Stockholder's
employment with the Company. If the Company elects not to purchase the
Individual Stockholder's shares, American Securities may elect to exercise its
option to purchase the shares. If neither the Company nor American Securities
elects to purchase the Individual Stockholder's shares, then the Chocolas may
elect to purchase the shares.
The Individual Stockholders have agreed to consent to a sale of the Company
or a sale of the majority of the Company's Common Stock in an initial public
offering if such sale is approved by the Board of Directors and the holders of a
majority of the Company's outstanding Common Stock. The Individual Stockholders
have also agreed to sell all of their stock if the transaction is structured as
a sale of stock.
Pursuant to the Stockholders Agreement, the Individual Stockholders were
granted piggy-back registration rights exercisable in connection with an initial
public offering of the shares of Common Stock held by
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<PAGE> 60
American Securities. Each Individual Stockholder has agreed that it will not
effect a public sale or distribution of shares for 180 days after receipt of the
piggy-back notice or 90 days after the effective date of a registration
statement in connection with an initial public offering of shares of Common
Stock by the Company. Each Existing Stockholder has waived its registration
rights in connection with the Offering.
PREFERRED STOCK REDEMPTION
The Company intends to use $15 million of the net proceeds of the Offering
to redeem 15,000 shares of the Existing Preferred Stock, including 10,036.73
shares held by American Securities, 1,552.07 shares held by J. Christopher
Chocola, 3,376.24 shares held by Caryl Chocola and 34.96 shares held by John
Haugh. Each share of Preferred Stock will be redeemed for $1,000.
PREFERRED STOCK EXCHANGE
Concurrently with the consummation of the Offering, the Company intends to
exchange the remaining 9,069 shares outstanding of the Existing Preferred Stock
for shares of Common Stock, including 5,483.27 shares held by American
Securities, 847.93 shares held by J. Christopher Chocola, 1,844.51 shares held
by Caryl Chocola and 388.65 shares held by other executive officers of the
Company. Each share of Preferred Stock will be exchanged for 66.7 shares of
Common Stock (at an assumed initial public offering price of $15.00 per share).
RELATIONSHIP WITH PRINCIPAL STOCKHOLDER
American Securities currently owns approximately 64.5% of the outstanding
Common Stock and approximately 64.5% of the Existing Preferred Stock. Upon
completion of the Offering, the Preferred Stock Redemption and the Preferred
Stock Exchange, American Securities will own 39.3% of the outstanding Common
Stock (or 35.4% if the Underwriters' over-allotment option is exercised in
full). Accordingly, upon completion of the Offering, American Securities will
have effective control over the election of a majority of the members of the
Board of Directors and will remain able to exercise a controlling influence over
the business and affairs of the Company. While American Securities may reduce
its ownership interest in the Company, American Securities has advised the
Company that it presently has no plans to do so. However, American Securities is
not subject to any contractual obligation to retain its controlling interest,
except that American Securities has agreed, subject to certain exceptions, not
to sell or otherwise dispose of any shares of Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation. See "Risk Factors--Control
by and Relationship with Principal Stockholders" and "--Potential Adverse Market
Effect of Future Sales of Common Stock."
Pursuant to a Management Consulting Agreement dated January 4, 1996 (the
"Management Consulting Agreement") between ASCP and CTB, CTB has engaged ASCP as
a consultant for a fee of $300,000 per annum plus expenses. CTB has agreed to
indemnify ASCP and its partners, directors, officers, employees, agents and
affiliates from and against all claims arising out of the Management Consulting
Agreement except for any claims arising from the gross negligence or willful
misconduct of ASCP. The agreement terminates on December 31, 2000 unless
extended pursuant to its terms.
The Company has agreed to pay ASCP advisory fees in connection with the
Butler Acquisition, the Fancom Acquisition and the Offering. The advisory fee
payable to ASCP in connection with the Butler Acquisition will be in an amount
equal to 1% of the purchase price of the Butler Acquisition, payable upon the
consummation of the Butler Acquisition. The advisory fee payable to ASCP in
connection with the Fancom Acquisition will be in an amount equal to 1% of the
purchase price of the Fancom Acquisition, plus the amount of any debt assumed by
the Company in connection therewith, payable upon the consummation of the later
of the Fancom Acquisition or the Butler Acquisition. The advisory fee payable to
ASCP in connection with the Offering will be in an amount equal to 0.5% of the
proceeds of the Offering (before deducting underwriting discounts and
commissions and expenses) payable upon the consummation of the Offering. See
"Underwriting."
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<PAGE> 61
From time to time the Company and ASCP have entered into, and can be
expected to continue to enter into, certain agreements and business transactions
in the ordinary course of their respective businesses.
BOARD REPRESENTATION AGREEMENT
Pursuant to a Board Representation Agreement dated January 4, 1996 (the
"Board Representation Agreement") among the Company, ASCP, and the Chocolas,
ASCP has agreed that it will vote and will cause its affiliates to vote all
shares of Common Stock owned by them in favor of two nominees to the Board of
Directors selected by the Chocolas (one of which shall be J. Christopher
Chocola) and take all other action to cause the Chocolas' nominees to be elected
to the Board of Directors so long as the Chocolas beneficially own at least 20%
of the outstanding shares of Common Stock of the Company. The Board
Representation Agreement terminates when either the Chocolas or American
Securities no longer own at least 20% of the outstanding shares of Common Stock
of the Company.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of August 11, 1997, as adjusted to
reflect the sale of shares of Common Stock offered hereby (assuming the
over-allotment option is not exercised) for (i) each person known by the Company
to beneficially own more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each Named Executive Officer and (iv) all current directors and
executive officers as a group. Unless otherwise noted, the address of each of
the stockholders named below is the Company's principal executive office.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF SHARES NUMBER OF PERCENT OF SHARES
OWNED PRIOR TO BENEFICIALLY SHARES OWNED BENEFICIALLY
THE OWNED PRIOR BENEFICIALLY AFTER OWNED AFTER
NAME OF BENEFICIAL OWNER OFFERING(1)(2) TO THE OFFERING THE OFFERING(1)(3) THE OFFERING
<S> <C> <C> <C> <C>
American Securities Partners
GP (Management) Corp.(4)............. 4,226,548 58.1% 4,555,822 35.4%
ASP/CTB G.P. Corp.(5)................ 465,653 6.4 501,930 3.9
J. Christopher Chocola............... 740,110 10.2 796,639 6.2
Roger W. Townsend.................... 45,955 0.6 51,288 0.4
Don J. Steinhilber................... 51,445 0.7 59,589 0.5
Mark A. Lantz........................ 26,605 0.4 29,272 0.2
Michael G. Fisch(4)(5)............... 4,692,201 64.5 5,057,752 39.3
Caryl M. Chocola..................... 1,578,405 21.7 1,701,373 13.2
Larry D. Greene...................... -- -- -- --
Frank S. Hermance.................... -- -- -- --
David Horing......................... -- -- -- --
Charles D. Klein(4)(5)............... 4,692,201 64.5 5,057,752 39.3
All directors and executive officers
as a group......................... 7,200,774 97.8% 7,771,731 59.9%
</TABLE>
- ------------------------------
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares as of a given date which such person
has the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on a given date, any security which such person or
persons has the right to acquire within 60 days after such date is deemed to
be outstanding, but is not deemed to be outstanding for the purpose of
computing the percentage of ownership of any other person. Includes options
to purchase Common Stock exercisable within 60 days after the Offering held
by Messrs. Chocola (14,512 shares), Townsend (21,768 shares), Steinhilber
(14,512 shares) and Lantz (14,512 shares).
(2) Gives effect to the Stock Split.
(3) Gives effect to the Stock Split, the Preferred Stock Exchange and the
Preferred Stock Redemption.
(4) Shares of Common Stock shown as beneficially owned by American Securities
Partners GP (Management) Corp. are owned of record by American Securities
Partners, L.P. of which American Securities Associates, L.P. ("ASALP") is
the sole general partner and possesses sole voting and investment power.
American Securities Partners GP (Management) Corp. is the sole general
partner of ASALP and possesses sole voting and investment power. Messrs.
Klein and Fisch, as stockholders of American Securities Partners GP
(Management) Corp., may be deemed to have beneficial ownership of the shares
shown as beneficially owned by American Securities Partners GP (Management)
Corp. Such persons disclaim beneficial ownership of such shares.
(5) Shares of Common Stock shown as beneficially owned by ASP/CTB G.P. Corp. are
owned of record by ASP/CTB, L.P. of which ASP/CTB G.P. Corp. is the sole
general partner and as to which it possesses sole voting and investment
power. Messrs. Klein and Fisch, as stockholders of ASP/CTB G.P. Corp., may
be deemed to have beneficial ownership of the shares shown as beneficially
owned by ASP/CTB G.P. Corp. Such persons disclaim beneficial ownership of
such shares.
61
<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, par value $0.01 per
share, and 4,000,000 shares of Preferred Stock, par value $0.01 per share. As of
August 11, 1997, the Company had 7,277,204 shares of Common Stock and 24,069
shares of Existing Preferred Stock outstanding. Upon the consummation of the
Offering, the Preferred Stock Exchange, and the Preferred Stock Redemption,
there will be 12,881,804 shares of Common Stock outstanding and there will be no
shares of Preferred Stock outstanding. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Certificate and the By-laws of the Company, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Subject to the rights of holders of any shares of Preferred Stock that may
be issued and outstanding from time to time, holders of 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. See "Dividend Policy."
Subject to the rights of holders of any shares of Preferred Stock that may be
issued and outstanding from time to time in the event of dissolution,
liquidation or winding up of the Company, holders of shares of Common Stock are
entitled to share ratably in all assets remaining after payment or provision for
payment of all debts or other liabilities and the liquidation preference of any
then outstanding shares of Preferred Stock.
Holders of shares of Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of Common Stock are, and
the shares of Common Stock being sold in the Offering are and will be, duly
authorized, validly issued, fully paid and nonassessable.
Each outstanding share of Common Stock is entitled to one vote per share on
any matter submitted to a vote of stockholders. Holders of shares of Common
Stock have no cumulative voting rights. Subject to the rights of holders of any
shares of Preferred Stock that may be issued and outstanding from time to time
and provided a quorum is present, the affirmative vote of a majority of the
shares of Common Stock represented and voting at any meeting of stockholders is
required for action by stockholders on any matter, unless the vote of a greater
number of shares or voting by classes or series is required under Delaware law.
Prior to the date of this Prospectus, there has been no public market for
the shares of Common Stock. See "Risk Factors--Absence of Prior Public Market;
Possible Volatility of Stock Price."
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York, 525 Washington Boulevard, Jersey City, New Jersey
07310.
PREFERRED STOCK
The Board of Directors is authorized, without further shareholder action,
to provide for the issuance of shares of Preferred Stock in one or more series
and to establish the number of shares in each series, the designations,
preferences and powers and relative, participating, optional and other rights,
qualifications, limitations and restrictions thereof, including but not limited
to the dividend rate, conversion privileges, voting rights, redemption price and
liquidation preferences. The terms of the Preferred Stock may adversely affect
the voting power and other rights of the holders of Common Stock and may make it
more difficult to gain control of the Company. As of the date of this
Prospectus, the Board of Directors has not authorized any series of Preferred
Stock and has no plans, agreements or understandings for the issuance of any
shares of Preferred Stock.
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<PAGE> 64
CERTAIN PROVISIONS OF THE CERTIFICATE AND BY-LAWS
The Certificate provides that, to the fullest extent permitted by Delaware
law as it may be amended from time to time, no director of the Company shall be
liable to the Company or its stockholders for monetary damages resulting from a
breach of fiduciary duty as a director. Under current Delaware law, this
provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence. The Company believes that this provision does not eliminate
the liability of directors of the Company to the Company or its stockholders for
monetary damages under the Federal securities laws. The Certificate and By-laws
also provide indemnification for the benefit of directors and officers of the
Company to the fullest extent permitted by Delaware law as it may be amended
from time to time, including most circumstances under which indemnification
otherwise would be discretionary.
DELAWARE TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law ("Section 203")
provides that, subject to certain exceptions specified therein, an "interested
stockholder" of a Delaware corporation shall not engage in any business
combination, including mergers or consolidations or acquisitions of additional
shares of the corporation with the corporation for a three-year period following
the date at which the stockholder becomes an "interested stockholder" unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an "interested stockholder," (ii) upon consummation of the transaction
which resulted in the stockholder becoming an "interested stockholder," the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the "interested stockholder."
Except as otherwise specified in Section 203, an "interested stockholder" is
defined to include (x) any person which is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person.
These provisions could have the effect of delaying, deterring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate or By-laws, may elect not to be governed by Section
203, effective twelve months after adoption. Neither the Certificate nor the
Bylaws presently exclude the Company from the restrictions imposed by Section
203.
DESCRIPTION OF CREDIT AGREEMENT
In connection with the CTB Acquisition, CTB entered into the Existing
Credit Agreement. Upon consummation of the Offering, all amounts outstanding
under the Existing Credit Agreement will be repaid with the proceeds of
borrowings under the New Credit Agreement with KeyBank National Association and
a portion of the net proceeds of the Offering. The following is a description of
all material terms of the New Credit Agreement.
The New Credit Agreement will provide CTB with a $90 million revolving
credit facility with a $5 million swingline facility and a $10 million sublimit
for trade and standby letters of credit. There is no mandatory principal
amortization prior to the maturity date in 2002. Assuming that the Offering had
been completed on March 31, 1997, on a pro forma as adjusted basis, the Company
would have had approximately
63
<PAGE> 65
$31.0 million of availability under the New Credit Agreement. Borrowings under
the New Credit Agreement will bear interest at rates ranging from 0.25% to
0.625% over LIBOR depending upon certain financial ratios.
The obligations of CTB under the New Credit Agreement will be
unconditionally and irrevocably guaranteed by each domestic subsidiary of CTB.
In addition, in the event that the net proceeds of the Offering are insufficient
to reduce the ratio of funded debt to capitalization to less than 52.5%, then
obligations under the New Credit Agreement will be secured by a first priority
security interest in all of the assets and properties (including, without
limitation, accounts receivable, inventory, real property, machinery, equipment,
contracts and contract rights, trademarks, copyrights, patents, license
agreements and general intangibles) of CTB, a pledge of all of the capital stock
held by CTB in each of its domestic subsidiaries, and a pledge of 66% of the
capital stock of each of its foreign subsidiaries.
The New Credit Agreement will require CTB to meet certain financial tests,
including minimum consolidated net worth, consolidated cash flow coverage ratio,
minimum interest coverage ratio and maximum leverage ratio. The New Credit
Agreement will contain covenants which, among other things, will limit the
incurrence of additional indebtedness, the nature of the business of CTB and its
subsidiaries, investments, leases of assets, ownership of subsidiaries,
dividends, transactions with affiliates, asset sales, acquisitions, mergers and
consolidations, prepayments of other indebtedness, liens and encumbrances and
other matters customarily restricted in such agreements.
The New Credit Agreement will contain customary events of default,
including payment defaults, breach of representations and warranties, covenant
defaults, cross-default to certain other indebtedness, certain events of
bankruptcy and insolvency, ERISA violations, judgment defaults, failure of any
guaranty or security agreement supporting the New Credit Agreement to be in full
force and effect and change of control of the Company or CTB.
Under the New Credit Agreement, CTB will be required to maintain a minimum
net worth of not less than 90% of its net worth immediately following the
Offering. The minimum net worth is to be increased quarterly by an amount equal
to 50% of the quarterly earnings of CTB. This covenant will limit the dividends
CTB can pay to the Company and, therefore, the dividends the Company can pay to
its stockholders.
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<PAGE> 66
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 12,881,804 shares
of Common Stock issued and outstanding. All of the shares of Common Stock to be
sold in the Offering will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 adopted under
the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144. The 7,881,804 shares of Common Stock outstanding prior
to the Offering (including shares of Common Stock to be issued in the Preferred
Stock Exchange) are "restricted securities" under the Securities Act. These
shares and any shares purchased by affiliates of the Company may not be sold
unless they are registered under the Securities Act or unless an exemption from
registration, such as the exemption provided by Rule 144A under the Securities
Act, is available. Under the Stockholders Agreement, the Existing Stockholders
have certain rights to require the Company to effect registration of the shares
of Common Stock owned by them. See "Certain Relationships and Related
Transactions--CTB Acquisition--Stockholders Agreement."
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned
"restricted securities" for at least one year, including a person who may be
deemed an "affiliate", is entitled to sell, within any three-month period, a
number of shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly reported trading volume of the
Common Stock during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission
(the "Commission") pursuant to Rule 144 (or, if no such notice is required, the
date of receipt of the order to execute the transaction by the broker or the
date of execution of the transaction directly with a market maker). Sales under
Rule 144 also are subject to certain other requirements relating to manner of
sale, notice of sale and availability of current public information with respect
to the Company. A person (or persons whose shares are required to be aggregated)
who is not and has not been an "affiliate" of the Company at any time during the
three months preceding a sale is entitled to sell such shares under Rule 144
without regard to the volume limitations described above, provided that two
years have elapsed since the date on which such restricted shares were acquired
from the Company or the date on which they were acquired from an affiliate of
the Company. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.
Prior to the Offering, there has been no market for the Common Stock, and
no prediction can be made as to the effect, if any, that market sales of
outstanding shares of Common Stock, or the availability of such shares for sale,
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market,
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. While American Securities in the future may
effect additional sales of Common Stock that would reduce its ownership interest
in the Company, American Securities has advised the Company that it presently
has no such plans to reduce its ownership interest through sales or other
dispositions. In connection with the Offering, the Company and the Existing
Stockholders agreed, subject to certain exceptions, not to sell or offer to sell
any shares of Common Stock for a period of 180 days after the public offering
without the prior consent of Donaldson, Lufkin & Jenrette Securities
Corporation. See "Underwriting."
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<PAGE> 67
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Donaldson, Lufkin &
Jenrette Securities Corporation, George K. Baum & Company and Chase Securities
Inc. are acting as representatives (the "Representatives"), have severally
agreed to purchase from the Company an aggregate of 5,000,000 shares of Common
Stock. The number of shares of Common Stock that each Underwriter has agreed to
purchase is set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........................
George K. Baum & Company...................................................
Chase Securities Inc.......................................................
Total............................................................
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock offered hereby are subject
to approval of certain legal matters by their counsel and to certain other
conditions. If any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all such shares (other than those covered by the
over-allotment option described below).
Prior to the Offering, there has been no established market for the Common
Stock. The initial price to the public for the Common Stock set forth on the
cover page of this Prospectus has been determined by negotiation between the
Company and the Representatives. The principal factors considered in determining
the initial price to the public were the information set forth in this
Prospectus and otherwise available to the Representatives, the history and
prospects for the industry in which the Company competes, the ability of the
Company's management, the past and present operations of the Company, the
historical results of operations, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the Offering and the recent market
prices and demand for publicly traded common stock of generally comparable
companies.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock to the public initially at the price to the public
set forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price, less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may re-allow,
a concession not in excess of $ per share to certain other dealers.
After the initial public offering, the price to the public, the concession and
the discount to dealers may be changed by the Representatives.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
750,000 additional shares of Common Stock at the initial price to the public
less underwriting discounts and commissions, solely to cover over-allotments. To
the extent that the Underwriters exercise such option, each of the Underwriters
will be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
At the request of the Company, the Underwriters have reserved a portion of
the Common Stock for sale to certain employees of the Company. The aggregate
number of shares of Common Stock available for sale to the public in the
Offering will be reduced to the extent such persons purchase such shares of
Common Stock. The price per share of Common Stock to be sold to these persons is
equal to the initial public offering price.
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<PAGE> 68
Any reserved shares of Common Stock not so purchased will be offered by the
Underwriters to the public on the same basis as the other shares of Common Stock
offered hereby.
The Company and certain stockholders each have agreed that they will not,
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable for
shares of Common Stock or in any manner transfer all or a portion of the
economic consequences associated with the ownership of Common Stock, for a
period of 180 days after the date of this Prospectus, except for gifts, provided
that the donee agrees to be bound by the foregoing restrictions, and except that
the Company may grant options under its employee benefit plans consistent with
past practice or issue shares of Common Stock upon the exercise of outstanding
options. See "Shares Available for Future Sale."
The Company has filed an application for approval to quote the Common Stock
on the Nasdaq National Market under the symbol "CTBC."
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase Common Stock in the open market to cover syndicate short positions
or to stabilize the price of the Common Stock. Finally, the underwriting
syndicate may reclaim selling concessions from syndicate members in the
Offering, if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
George K. Baum & Company, an Underwriter in the Offering, was retained to
act as financial advisor to Butler and received customary investment banking
fees in connection with the sale of the assets of its grain bin division to the
Company. See "Business--Recent Transactions."
The Company and ASCP entered into a Transaction Consulting Agreement dated
as of April 30, 1997, whereby the Company, as consideration for consulting
services performed by ASCP, agreed to pay to ASCP 0.5% of the gross proceeds
received from the Offering.
An affiliate of Chase Securities Inc., an Underwriter in the Offering, owns
a 7% limited partnership interest in American Securities Partners, L.P. and a
52% limited partnership interest in ASP/CTB, L.P. See "Principal Stockholders."
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York and for the Underwriters by Kaye, Scholer,
Fierman, Hays & Handler, LLP, New York, New York.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996 and
the consolidated statements of income, stockholders' equity and cash flows for
the year ended December 31, 1996 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
thereon appearing elsewhere herein, and are included in reliance on such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated balance sheet of CTB, Inc. as of December 31, 1995 and the
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1995 and 1994 included in this
67
<PAGE> 69
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The balance sheets of Butler as of December 31, 1995 and 1996 and the
statements of earnings and division equity and cash flows for each of the years
in the three year period ended December 31, 1996 included in this Prospectus
have been included herein in reliance on the report of KPMG Peat Marwick, LLP,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Fancom as of December 31, 1995 and 1996
and the consolidated statements of income, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 1996 included
in this Prospectus have been included herein in reliance on the report of
Coopers & Lybrand N.V. Eindhoven, The Netherlands, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
During 1996, the Company terminated its relationship with its independent
accountants and engaged Deloitte & Touche LLP as its new independent
accountants. Deloitte & Touche LLP served as the independent accountants for the
Company beginning with the fiscal year ended December 31, 1996.
On June 20, 1996, the Company terminated its relationship with Price
Waterhouse LLP as its independent accountants. The reports of Price Waterhouse
LLP on the financial statements of CTB, Inc. as of December 31, 1995 and for
each of the two years in the period then ended contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. The decision to terminate the relationship
with Price Waterhouse LLP was recommended by the Audit Committee and approved by
the Board of Directors of the Company. In connection with its audits of the
financial statements of CTB, Inc. for the two fiscal years ended December 31,
1994 and 1995 and through June 20, 1996, there have been no disagreements with
Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Price Waterhouse LLP would
have caused them to make reference thereto in their report on the financial
statements of CTB, Inc. for such fiscal years. During the two fiscal years ended
December 31, 1994 and 1995 and through June 20, 1996, there were no reportable
events (as defined in Regulation S-K Item 304(a)(1)(v)).
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement"), under the Securities Act, and the rules and
regulations thereunder, for the registration of the Common Stock offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which have been omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement, a
copy of which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
As a result of the Offering, the Company will be subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of
1934, as amended. As long as the Company is subject to such periodic reporting
and informational requirements, it will file with the Commission all reports,
proxy statements and other information required thereby. The Registration
Statement, as well as such reports and other information filed by the Company
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
all or any portion of the Registration Statement can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Registration Statement is publicly
available through the Commission's site on the Internet's World Wide Web,
located at http://www.sec.gov.
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<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
Report of Deloitte & Touche LLP.................................................. F-2
Consolidated Balance Sheets at December 31, 1996 and (unaudited) March 31,
1997.......................................................................... F-4
Consolidated Statements of Income for the year ended December 31, 1996 and
(unaudited) three months ended March 31, 1996 and 1997........................ F-5
Consolidated Statements of Stockholders' Equity for the year ended December 31,
1996 and (unaudited) three months ended March 31, 1997........................ F-6
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and
(unaudited) three months ended March 31, 1996 and 1997........................ F-7
Notes to Consolidated Financial Statements....................................... F-8
CTB, INC. AND SUBSIDIARIES
Report of Price Waterhouse LLP................................................... F-3
Consolidated Balance Sheet at December 31, 1995.................................. F-4
Consolidated Statements of Income for the years ended December 31, 1994 and
1995.......................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994 and 1995................................................................. F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and
1995.......................................................................... F-7
Notes to Consolidated Financial Statements....................................... F-8
BUTLER (GRAIN SYSTEMS DIVISION)
Report of KPMG Peat Marwick LLP.................................................. F-21
Balance Sheets at December 31, 1995 and 1996 and (unaudited) March 31, 1997...... F-22
Statements of Earnings and Division Equity for the years ended December 31, 1994,
1995 and 1996 and (unaudited) three months ended March 31, 1996 and 1997...... F-23
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and
(unaudited) three months ended March 31, 1996 and 1997........................ F-24
Notes to Financial Statements.................................................... F-25
FANCOM HOLDING B.V.
Report of Coopers & Lybrand N.V. ................................................ F-28
Consolidated Balance Sheets at December 31, 1995 and 1996 and (unaudited) March
31, 1997...................................................................... F-29
Consolidated Statements of Income for the years ended December 31, 1994, 1995 and
1996 and (unaudited) three months ended March 31, 1996 and 1997............... F-30
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995
and 1996 and (unaudited) three months ended March 31, 1996 and 1997........... F-31
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995 and 1996 and (unaudited) three months ended March 31,
1997.......................................................................... F-32
Notes to Consolidated Financial Statements....................................... F-33
</TABLE>
F-1
<PAGE> 71
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of CTB International Corp.:
We have audited the consolidated balance sheet of CTB International Corp.
and its subsidiaries as of December 31, 1996, and the related consolidated
statements of income, stockholders' 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company and its
subsidiaries at December 31, 1996, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
February 5, 1997
Chicago, Illinois
F-2
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of CTB, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of CTB, Inc.
and its subsidiaries (the "Predecessor Company") at December 31, 1995, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Predecessor Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
South Bend, Indiana
February 16, 1996
F-3
<PAGE> 73
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1996 AND (UNAUDITED) MARCH 31, 1997 AND PRO FORMA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
COMPANY --------------------------------------------
------------ MARCH 31, 1997
DECEMBER 31, DECEMBER 31, MARCH 31, 1997 PRO FORMA
1995 1996 (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................. $ 13,103 $ 258 $ 191
Accounts receivable, less allowance for
doubtful accounts of $435, $449 and
$538, respectively..................... 13,720 11,694 14,304
Inventories............................... 8,762 14,153 14,986
Deferred income taxes..................... 1,993 1,863 1,863
Prepaid expenses and other................ 422 1,206 955
------- -------- --------
Total current assets................. 38,000 29,174 32,299
PROPERTY, PLANT AND EQUIPMENT--Net............ 18,097 35,644 35,393
INTANGIBLES--Net.............................. -- 38,453 38,141
OTHER ASSETS.................................. 1,948 80 18
------- -------- --------
TOTAL......................................... $ 58,045 $103,351 $105,851
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................... $ 3,856 $ 4,481 $ 7,512
Current portion of long-term debt......... -- 5,500 5,875
Accrued liabilities....................... 7,300 6,802 4,998
Deferred revenue.......................... 4,694 1,618 2,700
------- -------- --------
Total current liabilities............ 15,850 18,401 21,085
------- -------- --------
LONG-TERM DEBT................................ -- 59,650 58,500
DEFERRED INCOME TAXES......................... 1,272 9,593 9,593
ACCRUED POSTRETIREMENT BENEFIT COST........... 82 1,966 2,031
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY:
Common stock, Predecessor Company -- no
par value; 200,000 shares authorized;
62,411 shares issued and outstanding,
Company -- $.01 par value; 950,000
shares authorized; 600,000 shares
issued and outstanding................. 1,313 6 6 $ 6
Preferred stock, Company -- 6% cumulative;
$.01 par value; 50,000 shares
authorized; 24,000 shares issued and
outstanding; liquidation preference
$24,000,000............................ -- -- -- --
Additional paid-in capital................ 2,248 29,994 29,994 14,994
Reduction for carryover of predecessor
cost basis............................. -- (24,704) (24,704) (24,704)
Retained earnings......................... 37,244 8,502 9,420 9,420
Cumulative translation adjustment......... 36 (57) (74) (74)
------- -------- -------- --------
Total stockholders' equity........... 40,841 13,741 14,642 $ (358)
========
------- -------- --------
TOTAL......................................... $ 58,045 $103,351 $105,851
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 74
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND
(UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
COMPANY -------------------------------------------
--------------------- YEAR ENDED
YEAR ENDED DECEMBER DECEMBER THREE MONTHS ENDED
31, 31, MARCH 31,
--------------------- ----------- ---------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES...................... $140,505 $138,119 $ 148,853 $ 31,552 $ 31,520
COST OF SALES.................. 103,491 105,578 110,303 24,616 23,916
-------- -------- -------- -------- --------
Gross profit......... 37,014 32,541 38,550 6,936 7,604
OTHER OPERATING EXPENSE:
Selling, general and
administrative
expenses................ 20,069 20,606 18,257 4,732 4,549
Amortization of
goodwill................ -- -- 959 240 240
-------- -------- -------- -------- --------
OPERATING INCOME............... 16,945 11,935 19,334 1,964 2,815
OTHER INCOME (EXPENSE):
Interest income........... 491 721 168 49 31
Interest expense.......... (2) -- (5,500) (1,393) (1,323)
Expenses associated with
the sale of the
company................. -- (1,396) -- -- --
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES..... 17,434 11,260 14,002 620 1,523
INCOME TAXES................... 6,665 4,730 5,500 264 605
-------- -------- -------- -------- --------
NET INCOME..................... $ 10,769 $ 6,530 $ 8,502 $ 356 $ 918
======== ======== ======== ======== ========
Pro forma net income per common
share (unaudited)......... $ 0.90 $ 0.04 $ 0.10
Pro forma weighted average
common shares outstanding
(unaudited)............... 9,405 9,405 9,405
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 75
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
---------------------------------------------------------------------------------------
TREASURY COMMON COMMON
COMMON COMMON TREASURY STOCK STOCK STOCK ADDITIONAL
STOCK STOCK STOCK (AT COST) SUBSCRIBED SUBSCRIBED SUBSCRIPTIONS PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT RECEIVABLE CAPITAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994................ 67,565 $1,731 844 $ (267) 41 $ 25 $ (15) $1,077
NET INCOME..............................
PURCHASE OF TREASURY STOCK.............. 6,074 (4,509)
RETIREMENT OF TREASURY STOCK............ (6,918) (1,120) (6,918) 4,776
CASH DIVIDEND DECLARED..................
COMMON STOCK SUBSCRIBED................. 135 98 (98)
SALE OF COMMON STOCK.................... 30 23
SETTLEMENT OF COMMON STOCK
SUBSCRIPTION.......................... 25 15 (25) (15) 48
EXERCISE OF STOCK OPTIONS............... 3,137 598
TAX BENEFIT FROM EXERCISE OF STOCK
OPTIONS............................... 1,171
CUMULATIVE TRANSLATION ADJUSTMENT.......
------ ------ ------ -------- --- ---- ----- ------
BALANCE, DECEMBER 31, 1994.............. 63,839 1,247 -- -- 151 108 (65) 2,248
------ ------ ------ -------- --- ---- ----- ------
NET INCOME..............................
PURCHASE OF TREASURY STOCK.............. 1,500 (1,430)
RETIREMENT OF TREASURY STOCK............ (1,500) (20) (1,500) 1,430
CASH DIVIDENDS DECLARED.................
SETTLEMENT OF COMMON STOCK
SUBSCRIPTION.......................... 72 53 (72) (53) 43
CUMULATIVE TRANSLATION ADJUSTMENT.......
------ ------ ------ -------- --- ---- ----- ------
BALANCE, DECEMBER 31, 1995.............. 62,411 $1,280 -- $ -- 79 $ 55 $ (22) $2,248
====== ====== ====== ======== === ==== ===== ======
<CAPTION>
CUMULATIVE
TRANSLATION RETAINED
ADJUSTMENT EARNINGS TOTAL
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1994................ $ (8) $28,359 $30,902
NET INCOME.............................. 10,769 10,769
PURCHASE OF TREASURY STOCK.............. (4,509)
RETIREMENT OF TREASURY STOCK............ (3,656) --
CASH DIVIDEND DECLARED.................. (1,829) (1,829)
COMMON STOCK SUBSCRIBED................. --
SALE OF COMMON STOCK.................... 23
SETTLEMENT OF COMMON STOCK
SUBSCRIPTION.......................... 48
EXERCISE OF STOCK OPTIONS............... 598
TAX BENEFIT FROM EXERCISE OF STOCK
OPTIONS............................... 1,171
CUMULATIVE TRANSLATION ADJUSTMENT....... 29 29
---- ------- -------
BALANCE, DECEMBER 31, 1994.............. 21 33,643 37,202
---- ------- -------
NET INCOME.............................. 6,530 6,530
PURCHASE OF TREASURY STOCK.............. (1,430)
RETIREMENT OF TREASURY STOCK............ (1,410) --
CASH DIVIDENDS DECLARED................. (1,519) (1,519)
SETTLEMENT OF COMMON STOCK
SUBSCRIPTION.......................... 43
CUMULATIVE TRANSLATION ADJUSTMENT....... 15 15
---- ------- -------
BALANCE, DECEMBER 31, 1995.............. $ 36 $37,244 $40,841
==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
COMPANY
-----------------------------------------------------------------------------------------------------
REDUCTION FOR
ADDITIONAL CARRYOVER OF CUMULATIVE
COMMON STOCK PREFERRED STOCK PAID-IN PREDECESSOR TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL COST BASIS ADJUSTMENT EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION,
JANUARY 1, 1996......... 600,000 $ 6 24,000 $ $ 29,994 $ 30,000
REDUCTION FOR CARRYOVER OF
PREDECESSOR COST
BASIS................... $ (24,704) (24,704)
NET INCOME................ $8,502 8,502
CUMULATIVE TRANSLATION
ADJUSTMENT.............. $(57) (57)
--
------- ------ ------ ------- -------- ---- ------ --------
BALANCE, DECEMBER 31,
1996.................... 600,000 6 24,000 -- 29,994 (24,704) (57) 8,502 13,741
--
------- ------ ------ ------- -------- ---- ------ --------
NET INCOME (unaudited).... 918 918
CUMULATIVE TRANSLATION
ADJUSTMENT
(unaudited)............. (17) (17)
--
------- ------ ------ ------- -------- ---- ------ --------
BALANCE, MARCH 31, 1997
(unaudited)............. 600,000 $ 6 24,000 $ -- $ 29,994 $ (24,704) $(74) $9,420 $ 14,642
======= == ====== ====== ======= ======== ==== ====== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 76
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------------ ------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------ ------------ THREE MONTHS ENDED
1994 1995 1996 MARCH 31,
--------------------------
1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................ $10,769 $ 6,530 $ 8,502 $ 356 $ 918
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation......................... 3,117 3,627 4,609 1,221 1,135
Amortization......................... -- -- 1,251 312 312
Gain on sale of property, plant and
equipment.......................... (55) (35) (574) -- (24)
Changes in operating assets and
liabilities:
Accounts receivable.............. (694) (1,750) 2,226 1,734 (2,610)
Inventories...................... (3,575) 2,103 (967) (260) (833)
Prepaid expenses and other
assets......................... (524) 274 1,318 1,417 313
Accounts payable, accruals and
other liabilities.............. 3,692 514 (4,651) (250) 2,357
------- ------- --------- -------- -------
Net cash flows from operating
activities.............................. 12,730 11,263 11,714 4,530 1,568
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and
equipment............................ (5,335) (4,698) (3,402) (487) (897)
Acquisition of CTB, Inc., net of cash
acquired............................. -- -- (104,741) (104,741) --
Proceeds from sale of property, plant and
equipment............................ 57 52 1,537 20 37
------- ------- --------- -------- -------
Net cash flows from investing
activities.............................. (5,278) (4,646) (106,606) (105,208) (860)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from acquisition debt:
Revolving credit..................... -- -- 24,000 24,000 --
Term loans........................... -- -- 65,000 65,000 --
Issuance of common stock.................. 1,801 43 6,000 6,000 --
Treasury stock acquisitions............... (4,509) (1,430) -- -- --
Issuance of preferred stock............... -- -- 24,000 24,000
Principal payments on long-term debt...... -- -- (4,750) (1,000) (1,375)
Proceeds from revolving credit............ -- -- 20,400 2,500 6,800
Payments on revolving credit.............. -- -- (39,500) (19,000) (6,200)
Dividends paid............................ (2,049) (1,967) -- -- --
------- ------- --------- -------- -------
Net cash flows from financing
activities.............................. (4,757) (3,354) 95,150 101,500 (775)
------- ------- --------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 2,695 3,263 258 822 (67)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD...................................... 7,145 9,840 -- -- 258
------- ------- --------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD...... $ 9,840 $13,103 $ 258 $ 822 $ 191
======= ======= ========= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 77
CTB INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
1. BASIS OF PRESENTATION
On January 4, 1996, CTB International Corp. (the "Company"), formerly CTB
Holdings, Inc., through its wholly owned subsidiary, CTB Ventures, Inc. ("CTB
Ventures"), corporations formed by affiliates of American Securities Capital
Partners, L.P. ("ASCP"), acquired all of the outstanding stock of CTB, Inc. (the
"Predecessor Company") in a leveraged buyout transaction for an aggregate
purchase price of approximately $117.8 million, including acquisition costs of
approximately $2.3 million and cash acquired of approximately $13.1 million (the
"Acquisition"). The Acquisition was funded by the issuance of $6 million of
common stock, $24 million of preferred stock, bank term loans of $65 million and
revolving credit loans of $24 million. Immediately following the Acquisition,
the Predecessor Company merged into CTB Ventures and CTB Ventures changed its
name to CTB, Inc. For convenience, the Acquisition was accounted for as if it
had occurred on January 1, 1996.
In connection with the Acquisition, shareholders of the Predecessor Company
exchanged $9.9 million in shares of stock of the Predecessor Company for an
equal value of shares of common and preferred stock of the Company. Accordingly,
at the date of the Acquisition, the Company was owned 67.9% by affiliates of
ASCP and certain new management investors, with the remaining 32.1% owned by
former stockholders of the Predecessor Company. The Acquisition has been
accounted for using the purchase method of accounting to the extent of the 67.9%
change in ownership with the remaining 32.1% valued at historical book value. To
the extent of the change in ownership, the purchase price has been allocated to
the assets and liabilities of the Predecessor Company based on their fair values
as of the Acquisition date. The fair values of assets and liabilities were based
on independent appraisals and estimates by management. The Company has recorded
an adjustment ("reduction for carryover of predecessor cost basis") to reduce
the Predecessor Company stockholders' investment in the Company to the
historical cost basis of their investment in the Predecessor Company.
The following summarizes the purchase price allocation as of the
Acquisition date (in thousands):
<TABLE>
<S> <C>
Current assets, excluding cash acquired........................... $ 32,380
Property, plant and equipment..................................... 37,814
Intangibles and other assets...................................... 39,884
Liabilities assumed............................................... (30,041)
--------
Total............................................................. 80,037
Reduction for carryover of predecessor cost basis................. 24,704
--------
Total purchase price.............................................. $104,741
========
</TABLE>
The 1994 and 1995 consolidated financial statements of the Predecessor
Company have been prepared on the historical cost basis. Accordingly, the
financial statements of the Company are not directly comparable to those of the
Predecessor Company. The following summarized unaudited pro forma results of
operations for the year ended December 31, 1995 assume that the Acquisition had
occurred on January 1, 1995 and the purchase price was the same. The unaudited
pro forma results have been prepared for comparative purposes only and do not
purport to represent what the results of operations would have been if the
Acquisition had actually occurred on January 1, 1995 or to project future
results.
F-8
<PAGE> 78
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Net sales.............................................................. $138,119
Cost of sales.......................................................... 106,514
--------
Gross profit........................................................... 31,605
Other operating expense:
Selling, general and administrative expenses...................... 20,771
Amortization of goodwill.......................................... 959
--------
Operating income....................................................... 9,875
Other income (expense):
Interest income...................................................... 721
Interest expense..................................................... (5,500)
--------
Income before income taxes............................................. 5,096
Income taxes........................................................... 2,251
--------
Net income............................................................. $ 2,845
========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- The Company manufactures grain and feed storage,
feeding, watering, ventilation, and egg laying and handling systems used
primarily in the agricultural industry. To a lesser extent, the Company
manufactures fencing and other vinyl products for use in agricultural,
commercial and residential markets.
Principles of Consolidation -- 1996 -- The consolidated financial
statements include the accounts of the Company, its wholly owned subsidiary,
CTB, Inc., and its wholly owned subsidiaries, CTB Credit Corporation, CTB Sales
Corporation ("FSC"), Chore-Time Brock B.V., Chore-Time Brock Ltda, and
Chore-Time Brock S.A. All intercompany accounts and transactions have been
eliminated.
Principles of Consolidation -- 1994 and 1995 -- The consolidated financial
statements include the accounts of CTB, Inc., and its wholly owned subsidiaries,
CTB Credit Corporation, CTB Sales Corporation ("FSC"), Chore-Time Brock B.V. and
Chore-Time Brock S.A. All intercompany accounts and transactions have been
eliminated.
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.
Cash Equivalents -- The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents. At
December 31, 1995, cash equivalents consisted primarily of U.S. Treasury Bills,
carried at cost which approximated fair value.
Inventories -- Inventories are stated at the lower of cost or market using
the last-in, first-out ("LIFO") method.
Property, Plant and Equipment -- Property, plant and equipment is stated at
cost. Maintenance and repairs are charged to expense as incurred. Depreciation
is provided using straight-line and accelerated methods over the estimated
useful lives of individual assets. The estimated useful lives range from 10 to
40 years, or the life of the lease if shorter, for buildings and improvements,
and from 3 to 10 years for machinery and equipment.
Goodwill -- Goodwill represents costs in excess of the fair value of net
assets acquired and is amortized using the straight-line method over 40 years.
The Company periodically assesses the recoverability of intangibles based on its
expectations of future profitability and undiscounted cash flow of the related
F-9
<PAGE> 79
operations. These factors, along with management's plans with respect to the
operations, are considered in assessing the recoverability of goodwill and other
purchased intangibles. If the Company determines, based on such measures, that
the carrying amount is impaired, the goodwill will be written down to its
recoverable value with a corresponding charge to earnings. Recoverable value is
calculated as the amount of estimated future cash flows (undiscounted and
without interest charges) for the remaining amortization period. During the
periods presented no such impairment was incurred.
Deferred Finance Costs -- Costs associated with the issuance of debt are
being amortized using the straight-line method over the life of the related
debt. Amortization expense is included in interest expense.
Income Taxes -- The Company provides for income taxes under the asset and
liability method of accounting for deferred income taxes. Deferred tax assets
and liabilities are recorded based on the expected tax effects of future taxable
income or deductions resulting from differences in the financial statement and
tax bases of assets and liabilities. An allowance is provided whenever
management believes it is more likely than not that tax benefits will not be
utilized.
Revenue Recognition of Deferred Revenue and Product Warranties -- Sales of
products and services are recorded based upon shipment of product and
performance of services. Egg laying and handling system contracts, which
generally do not exceed one year, require predetermined payment intervals and,
in some instances, customer prepayments. Such revenue is deferred and recognized
at the date that the product is shipped or the service is performed. The Company
provides its customers with a one- to five-year, depending on the product,
warranty from the date of purchase. Estimated warranty costs are accrued at the
time of sale and do not differ materially from actual product warranty costs.
Warranty expenses for the years ended December 31, 1994, 1995 and 1996 were
approximately $694,000, $1,312,000 and $1,171,000, respectively, and for the
three months ended March 31, 1996 and 1997 were approximately $199,000 and
$413,000, respectively.
International export sales (excluding Canada) consisted of the following
(in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------- ----------------------------------
YEAR ENDED YEAR ENDED THREE MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 31,
------------------- ------------ -----------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Latin America........................... $12,484 $11,146 $ 14,129 $2,343 $3,004
Europe/Mideast.......................... 6,689 10,941 10,334 3,326 2,589
Asia.................................... 9,652 13,919 14,174 2,933 2,281
------- ------- ------- ------ ------
$28,825 $36,006 $ 38,637 $8,602 $7,874
======= ======= ======= ====== ======
</TABLE>
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentration of credit risk consist principally of trade
receivables. The Company's customers are not concentrated in any specific
geographic region, but are concentrated in the agricultural industry. No single
customer accounted for a significant amount of the Company's sales in 1994, 1995
and 1996 and there were no significant accounts receivable from a single
customer at December 31, 1995 or 1996. The Company reviews a customer's credit
history before extending credit. The Company establishes an allowance for
doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. To reduce credit risk, the
Company generally receives down-payments on large orders.
Research and Development -- Research and development expenditures are
charged to operations as incurred. Total research and development expenses for
the years ended December 31, 1994, 1995 and 1996 were approximately $3,750,000,
$3,830,000 and $3,555,000, respectively, and for the three months ended March
31, 1996 and 1997 were approximately $914,000 and $848,000, respectively.
Postretirement Health Care Benefit Plans -- The Company has unfunded
postretirement plans and uses the minimum amortization method for recognizing
gains and losses for postretirement benefits, as prescribed by SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Foreign Currency Translation -- The Company has determined the local
currency to be the functional currency of all foreign subsidiaries. Assets and
liabilities of non-U.S. subsidiaries are translated at current
F-10
<PAGE> 80
exchange rates, and related revenues and expenses are translated at average
exchange rates in effect during the period. Resulting translation adjustments
are recorded as a currency component in stockholders' equity.
Interest Rate Swap Agreements -- The Company enters into various rate swaps
in managing its interest rate risk and holds such instruments for purposes other
than trading. In these swaps, the Company agrees with other parties to exchange,
at specific intervals, the difference between fixed and floating interest
amounts calculated on an agreed-upon notional principal amount. Because some of
the Company's interest-bearing liabilities are floating rate obligations,
interest rate swaps in which the Company pays the fixed rate and receives the
floating rate are used to reduce the impact of market interest rate fluctuation
on the Company's net income. The differential to be paid or received on interest
rate swap agreements entered into to reduce the impact of changes in interest
rates is recognized as an adjustment to interest expense related to the hedged
liability over the life of the agreement. In the event of early extinguishment
of the debt obligation, any realized or unrealized gain or loss from the swap
would be recognized in income, coincident with the extinguishment.
Forward Exchange Contracts -- The Company enters into foreign currency
forward exchange contracts on a limited basis. Contracts entered are for
significant outstanding accounts receivable for which timing of the receipt of
payment can be reasonably estimated. The purpose of the Company's hedging
activities is to protect the Company from the risk that eventual dollar net
inflows resulting from the sale of products to foreign customers will be
adversely affected by changes in foreign currency exchange rates. Option
contracts that are designed as hedges are marked to market with realized and
unrealized gains and losses deferred and recognized in earnings as an adjustment
to the assets and liabilities being hedged. The Company's foreign exchange
contracts do not subject the Company's results of operations to risk due to
exchange rate movements because gains and losses on the contracts generally
offset gains and losses on the assets and liabilities being hedged.
All contracts outstanding at December 31, 1995 and 1996 have a term of
three months or less. Differences between the contract rate and the fair value
for contracts outstanding at December 31, 1995 and 1996 were insignificant.
Impairment of Long Lived Assets -- The Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," on January 1, 1996. Management reviews long-lived assets and
the related intangible assets for impairment of value whenever events or changes
in circumstances indicate the carrying amount of such assets may not be
recoverable. If the Company determines it is unable to recover the carrying
value of the assets, the assets will be written down using an appropriate
method. Management does not believe current events or circumstances provide
evidence that suggest that values have been impaired.
New Accounting Pronouncement -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). SFAS No. 128 simplifies the earnings per
share (EPS) computation and replaces the presentation of primary EPS with a
presentation of basic EPS. This statement also requires dual presentation of
basic and diluted EPS on the face of the income statement for entities with a
complex capital structure and requires a reconciliation of the numerator and
denominator used for the basic and diluted EPS computations. SFAS No. 128
requires restatement of all prior-period EPS data presented. The Company will
implement SFAS No. 128 as of and for the year ending December 31, 1997, and the
adoption will not have an effect on the financial statements.
Interim Financial Statements (Unaudited) -- The financial statements as of
March 31, 1997 and for the three months ended March 31, 1996 and 1997 were
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
interim periods included herein are not necessarily indicative of the results
that may be expected for the entire year.
Pro Forma Per Share Information (Unaudited) -- Pro forma net income per
common share is calculated by dividing net income by the pro forma weighted
average number of common and common equivalent shares outstanding, after giving
effect to the following proposed transactions as if they had been completed on
January 1, 1996: (i) the Stock Split (a 12.0933 for 1 stock split of the common
stock in connection with a planned initial public offering (the "Offering")),
(ii) the Preferred Stock Exchange (see definition below),
F-11
<PAGE> 81
(iii) the Preferred Stock Redemption (see definition below) and (iv) solely to
the extent the proceeds will be used for the Preferred Stock Redemption, the
Offering (assuming an initial public offering price of $15.00 per share) and
assuming that all options to purchase common stock were exercised (applying the
treasury stock method assuming an initial public offering price of $15.00 per
share). Stock and options to purchase common stock issued or granted in the
twelve months prior to the Offering are treated as outstanding for all periods
reported. Due to the changes in the Company's capital structure resulting from
the Acquisition and the planned recapitalization, historical net income per
common share is not meaningful and therefore is not presented.
The Company intends to use $15 million of the net proceeds of the Offering
to redeem (the "Preferred Stock Redemption") 15,000 shares of the outstanding 6%
Series A Preferred Stock of the Company (the "Existing Preferred Stock"). In
addition, concurrently with the consummation of the Offering, the Company will
exchange 604,600 shares of common stock (at the assumed initial public offering
price of $15.00 per share) for the remaining 9,069 shares outstanding of the
Existing Preferred Stock (the "Preferred Stock Exchange").
Pro Forma March 31, 1997 Balance Sheet Information (Unaudited) -- The March
31, 1997 pro forma balance sheet information gives effect to the proposed Stock
Split, Preferred Stock Exchange and Preferred Stock Redemption (without giving
effect to the offering proceeds) as if they had occurred on March 31, 1997.
Reclassifications -- Certain reclassifications have been made to conform
the prior year's financial statements with classifications adopted in 1996.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------ ----------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Raw material................................... $ 7,396 $ 7,753 $ 7,101
Work in process................................ 2,954 2,503 3,063
Finished goods................................. 3,861 3,897 4,822
------- ------- -------
14,211 14,153 14,986
Allowance to state inventories at LIFO cost.... (5,449) -- --
------- ------- -------
Total.......................................... $ 8,762 $ 14,153 $14,986
======= ======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------ ----------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Land and improvements......................... $ 1,050 $ 1,161 $ 1,161
Buildings and improvements.................... 13,033 15,062 15,063
Machinery and equipment....................... 36,495 22,783 23,266
Construction in progress...................... 227 1,220 1,554
-------- ------- -------
50,805 40,226 41,044
Less accumulated depreciation................. (32,708) (4,582) (5,651)
-------- ------- -------
Total......................................... $ 18,097 $ 35,644 $35,393
======== ======= =======
</TABLE>
F-12
<PAGE> 82
5. INTANGIBLES
Intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
COMPANY
-------------------------------
DECEMBER 31, MARCH 31,
1996 1997
(UNAUDITED)
<S> <C> <C>
Goodwill................................................. $ 38,351 $ 38,350
Accumulated amortization................................. (959) (1,198)
------- -------
Goodwill--net............................................ 37,392 37,152
------- -------
Deferred finance costs................................... 1,353 1,353
Accumulated amortization................................. (292) (364)
------- -------
Deferred finance costs--net.............................. 1,061 989
------- -------
Total.................................................... $ 38,453 $ 38,141
======= =======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------ ----------------------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Salaries, wages, and benefits................. $2,973 $4,049 $ 2,986
Warranty...................................... 476 1,050 1,120
Non-recurring expenses........................ 1,396 -- --
Other......................................... 2,455 1,703 892
------- ------ -------
Total......................................... $7,300 $6,802 $ 4,998
======= ====== =======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
COMPANY
-------------------------------
DECEMBER 31, MARCH 31,
1996 1997
(UNAUDITED)
<S> <C> <C>
Revolving line of credit................................. $ 4,900 $ 5,500
Term loans payable to bank............................... 60,250 58,875
------- -------
65,150 64,375
Less current portion..................................... 5,500 5,875
------- -------
Long-term debt........................................... $ 59,650 $ 58,500
======= =======
</TABLE>
The Company has a senior credit facility totalling $90,000,000 (the
"Existing Credit Agreement"). The facility, secured by 100% of the Company's
assets, consists of a $25,000,000 revolving line of credit ("Revolver"), a
$45,000,000 term loan ("Term A Loan") and a $20,000,000 term loan ("Term B
Loan").
The Revolver, subject to a borrowing base, carries a three-year maturity
date with an annual one-year extension option. Interest is determined at prime
or, at the Company's option, 175 basis points above a LIBOR-based rate of
interest.
The Term A Loan, repayable in twenty-four quarterly installments, carries
an interest rate of prime or, at the Company's option, 200 basis points above a
LIBOR-based rate of interest. The total amount outstanding under the Term A Loan
is $40,250,000 at December 31, 1996.
F-13
<PAGE> 83
The Term B Loan is due in full at November 30, 2001, subject to certain
mandatory prepayments. The total amount outstanding under the Term B Loan is
$20,000,000 at December 31, 1996. Interest is determined at prime plus 0.25% or,
at the Company's option, 225 basis points above a LIBOR-based rate of interest.
The credit facility is subject to a $50,000 annual administration fee and
an annual 0.25% facility fee on the total Revolver commitment. The terms of the
credit agreement contain, among other provisions, requirements regarding net
worth, capital expenditures and various financial ratios and limits the
dividends CTB, Inc. can pay to the Company and, therefore, the dividends the
Company can pay to its stockholders. The Company was in compliance with all debt
covenants at December 31, 1996.
In conjunction with the debt agreements, the Company maintains an interest
rate swap agreement which effectively converts $15,000,000 of the variable rate
Term B Loan into 7.83% fixed rate debt. This swap arrangement expires December
31, 1998. In addition, the Company entered an interest rate swap agreement which
effectively converts $40,250,000 of the variable rate Term A Loan into 7.71%
fixed rate debt. This swap arrangement expires December 31, 2001.
The aggregate maturities of long-term debt at December 31, 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
TERM LOANS REVOLVER TOTAL
<S> <C> <C> <C>
1997................................................. $ 5,500 $ 5,500
1998................................................. 7,000 $4,900 11,900
1999................................................. 8,500 8,500
2000................................................. 9,000 9,000
2001................................................. 30,250 30,250
-------- ------ -------
Total................................................ $ 60,250 $4,900 $65,150
======== ====== =======
</TABLE>
Interest paid was approximately $5,080,000 for the year ended December 31,
1996 and $1,226,000 and $1,954,000 for the three months ended March 31, 1996 and
1997, respectively.
The carrying value of debt approximates fair value because the floating
interest rates reflect market rates. The fair value of interest rate swaps is
$626,000 at December 31, 1996.
The Predecessor Company had an agreement with a bank for an unsecured line
of credit of $15,000,000 at December 31, 1995. The line of credit bore interest
based upon a floating rate market index. No borrowings were outstanding against
the line at December 31, 1995.
8. COMMITMENTS AND CONTINGENCIES
The Company was named in a lawsuit arising from a fire at a cage house
construction site. The lawsuit seeks damages approximating $500,000 from the
Company. While it is reasonably possible that an unfavorable outcome will occur,
it is not possible at this time to estimate the amount of any obligation because
of the uncertainty of whether the Company will prevail in the lawsuit or the
amount of insurance coverage that will be available to the Company to settle
this potential obligation. The Company has not recorded an accrual for this
contingency at December 31, 1996.
In addition, there are various other claims and pending legal proceedings
against the Company involving matters arising out of the ordinary conduct of
business. While the Company is unable to predict with certainty the outcome of
current proceedings, based upon the facts currently known to it, the Company
does not believe that resolution of these proceedings will have a material
adverse effect on its financial condition or results of operations.
Pursuant to the Stock Purchase Agreement, the Company has agreed to make
certain contingent payments to the Predecessor Company stockholders (the
"Earn-Out Amount") based on a calculation of cumulative Earnings before
Interest, Taxes, Depreciation and Amortization ("EBITDA") (calculated in
accordance with the Stock Purchase Agreement). The Earn-Out Amount is determined
based on cumulative
F-14
<PAGE> 84
EBITDA for the three-year period ended December 31, 1998. The Company could be
liable to pay the Predecessor Company stockholders up to a maximum amount equal
to $13,500,000, which would be recorded as an adjustment to the purchase price
for the Acquisition.
If an Earn-Out Amount is payable, the Company is obligated to pay the
Earn-Out Amount in four semi-annual installments beginning on August 31, 1998.
The first installment is equal to 25% of the estimated Earn-Out Amount, the
second installment is equal to 50% of the actual Earn-Out Amount minus the
amount of the first installment and the third and fourth installments are each
equal to 25% of the actual Earn-Out Amount. Accrued interest from January 1,
1999 at the prime rate on the last business day of 1998 will be payable on the
third and fourth installments, provided that interest at such interest rate on
the first installment payment from August 31, 1998 to December 31, 1998 will be
credited against such amount.
The Company has a Management Incentive Compensation Plan whereby certain
employees receive annual bonuses based upon achievement of certain financial
goals, including EBITDA targets.
9. PROFIT SHARING
Substantially all employees of the Company participate in a defined
contribution, qualified profit-sharing retirement plan. The agreement provides
that the Company contributions to the profit-sharing trust be made in amounts as
determined by the Company's Board of Directors. Contributions are allocated to
participants on the basis of proportionate qualified compensation at the close
of each fiscal year. Benefits to participants are limited to funds in their
individual accounts. The Company and the Predecessor Company recorded profit
sharing expenses of approximately $1,652,000, $1,160,00 and $1,403,000 for the
years ended December 31, 1994, 1995 and 1996, respectively and for the three
months ended March 31, 1996 and 1997 of approximately $180,000 and $215,000,
respectively.
The profit-sharing plan has a 401(k) provision which allows participants to
contribute a percentage of their pretax compensation to the plan within Internal
Revenue Code limits. Upon authorization of the Board of Directors, the Company
may make matching contributions. Matching contributions made by the Company and
the Predecessor Company approximated $315,000, $334,000 and $337,000 for the
years ended December 31, 1994, 1995 and 1996, respectively and for the three
months ended March 31, 1996 and 1997 of approximately $82,000 and $85,000,
respectively.
10. POSTRETIREMENT HEALTH CARE BENEFIT PLANS
The Company provides medical and dental benefit programs for retired
employees. Substantially all of the Company's employees become eligible for
these benefits upon retirement.
Summary information of the plan is as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------ ------------
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Accumulated postretirement benefit obligations (assets):
Retirees................................................. $ (180) $ 263
Fully eligible active employees.......................... (125) 322
Other active employees................................... 596 1,299
----- ------
291 1,884
Unrecognized net gain.................................... 126 82
Unrecognized transition obligation....................... (335) --
----- ------
Accrued postretirement benefit cost...................... $ 82 $1,966
===== ======
</TABLE>
The accumulated postretirement benefit obligation was determined using
relevant actuarial assumptions and the timing of the Company's medical and
dental plans. The effect of a 1% annual increase in the assumed medical
inflation rate on the accumulated postretirement benefit obligation and the
related expense would be insignificant.
F-15
<PAGE> 85
Measurement of the accumulated postretirement obligation was based on a
7.0% and 7.5% discount rate at December 31, 1995 and 1996, respectively. At
December 31, 1996, medical trend rates were assumed at 12% (under age 65) and 8%
(over age 65) which trend down to 6%. At December 31, 1995, medical trend rates
were assumed at 15% (under age 65) and 9% (over age 65) which trended down to
6%.
The Company funds medical and dental costs as incurred. The components of
net periodic postretirement benefit expense are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
------------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------- ------------
1994 1995 1996
<S> <C> <C> <C>
Service cost............................................. $ 51 $40 $158
Interest cost............................................ 29 15 109
Amortization of unrecognized gain........................ -- (12) --
Amortization of unrecognized transition obligation....... 20 20 --
---- --- ----
$100 $63 $267
==== === ====
</TABLE>
11. STOCK OPTION PLANS
Executives and other key employees have been granted options to purchase
common shares of the Company under a stock option plan adopted in 1996. In each
case, the option price equals the fair market value of the common shares on the
day of the grant and an option's maximum term is ten years. Options granted vest
in seven years or over an accelerated period of five years should certain annual
or cumulative earnings targets be met. No options were exercised and 3,000
common share options were canceled in the current year.
In accordance with the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company has elected to apply the accounting
prescribed by APB Opinion No. 25 and related interpretations in accounting for
its stock option plan. If the Company had elected to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net income for the year ended December 31, 1996 would have been
reduced to the pro forma amounts indicated in the table below (in thousands):
<TABLE>
<S> <C>
Net income--as reported.................................................... $8,502
Net income--pro forma...................................................... 8,477
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following assumptions:
<TABLE>
<S> <C>
Volatility............................................................. 0%
Expected dividend yield................................................ 0%
Risk free interest rate................................................ 5.36%-6.00%
Expected life of options............................................... 5 years
</TABLE>
The weighted average fair value of options granted during 1996 is $3.62 per
share. A total of 60,000 share options are authorized and outstanding at
December 31, 1996. The options outstanding at December 31, 1996 have a weighted
average exercise price of $15 per share and a weighted average remaining
contractual life of 9 years. None of the options outstanding are exercisable.
The options outstanding at December 31, 1996 have exercise prices ranging from
$10 to $60 per share.
Prior to 1996, the Predecessor Company maintained the CTB, Inc. Incentive
Stock Option Plan which provided for officers and key employees options to
purchase up to 20,000 shares of common stock at prices not less than the fair
market value of the shares at the date of grant, as defined. The plan was
terminated in conjunction with the sale of the Predecessor Company. There were
no options granted, exercised or terminated during 1995. There were no options
outstanding at December 31, 1995.
F-16
<PAGE> 86
During 1994, 3,137 option shares were exercised at prices ranging from $118
to $337 per share and the Predecessor Company subsequently repurchased 5,954
shares during 1994 at prices ranging from $719 to $795 per share. As a result,
the Predecessor Company realized an income tax benefit from the early
disposition of these option shares of $1,171,000. This benefit resulted in a
decrease in current income taxes payable and an increase in additional paid-in
capital.
12. INCOME TAXES
The elements of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- ------------
1994 1995 1996
<S> <C> <C> <C>
Current income taxes:
U.S. federal....................................... $5,796 $4,389 $4,628
State.............................................. 1,007 792 909
Foreign............................................ 90 36 26
------ ------ ------
Total current........................................ 6,893 5,217 5,563
------ ------ ------
Deferred:
U.S. federal....................................... (199) (426) (55)
State.............................................. (29) (61) (8)
------ ------ ------
Total deferred....................................... (228) (487) (63)
------ ------ ------
Provision for income taxes........................... $6,665 $4,730 $5,500
====== ====== ======
</TABLE>
Income taxes paid were approximately $4,655,000, $6,379,000 and $6,055,000
for the years ended December 31, 1994, 1995 and 1996, respectively and
approximately $26,000 for the three months ended March 31, 1996. The Company
received a tax refund of $630,000 for the three months ended March 31, 1997.
A reconciliation of the provision for income taxes for consolidated
operations to the U.S. federal income tax statutory rate is as follows (in
thousands):
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY COMPANY
----------------- ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
----------------- ------------
1994 1995 1996
<S> <C> <C> <C>
U.S. tax at federal statutory rate................... $6,102 $3,828 $4,901
Increase (decrease) in tax resulting from:
State income taxes, net of U.S. tax benefit..... 668 482 591
FSC benefit..................................... (208) (234) (316)
Goodwill........................................ -- -- 336
Non-deductible expenses associated with the sale
of CTB, Inc................................... -- 475 --
Other, net...................................... 103 179 (12)
------ ------ ---------
Provision for income taxes........................... $6,665 $4,730 $5,500
====== ====== =========
</TABLE>
F-17
<PAGE> 87
Deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
------------------- ------------
DECEMBER 31, DECEMBER 31,
1995 1996
<S> <C> <C>
Deferred tax assets -- current:
Accrued liabilities........................... $ 1,329 $ 1,151
Inventory..................................... 390 507
Allowance for doubtful accounts receivable.... 174 180
Other......................................... 100 25
-------------- ----------
Total.................................... 1,993 1,863
-------------- ----------
Deferred tax assets (liabilities) -- noncurrent:
Property, plant and equipment................. (1,272) (8,577)
Inventory..................................... -- (1,770)
Accrued postretirement benefit cost........... -- 754
-------------- ----------
Total.................................... (1,272) (9,593)
-------------- ----------
Deferred income taxes.............................. $ 721 $ (7,730)
============== ==========
</TABLE>
13. STOCK
At December 31, 1996, the Company had common stock of $.01 par value,
950,000 shares authorized and 600,000 shares issued and outstanding. At December
31, 1996, the Company also had preferred stock of $.01 par value, 50,000 shares
authorized and 24,000 shares issued and outstanding.
The preferred stock carries with it noncumulative dividend rights of 6%. In
the event of any voluntary or involuntary liquidation, the stockholders are
entitled to a liquidation preference to be paid at $1,000 per share plus an
amount equal to all declared but unpaid dividends. Upon occurrence of an Initial
Public Offering or a Change of Control, the preferred stock is redeemable, at
the option of the Company, in whole or in part, at a redemption price of $1,000
per share plus an amount equal to all declared but unpaid dividends.
At December 31, 1995, the Predecessor Company had common stock of no par
value, 200,000 shares authorized and 62,411 issued and outstanding.
14. RELATED PARTY TRANSACTIONS
Under the terms of the purchase agreement, the Company is required to pay
annual management fees of $300,000 plus expenses to ASCP. Such expense has been
charged to operations during 1996. Additionally, in connection with the
Acquisition, the Company paid fees of $750,000 to ASCP.
15. STOCK REDEMPTION AGREEMENT
During calendar 1994 and 1995, the Predecessor Company purchased 6,074 and
1,500 shares of treasury stock for a total cost of $4,509,000 and $1,430,000,
respectively, under the terms of a stock redemption agreement which was
terminated in conjunction with the sale of the Predecessor Company.
16. SUBSEQUENT EVENTS (UNAUDITED)
On May 1, 1997, the Company acquired all of the capital stock of Fancom
Holding B.V., a Netherlands company ("Fancom"), for 35.1 million Dutch Guilders
("NLG") ($18.1 million at the May 1, 1997 exchange rate), subject to adjustment,
including the assumption of NLG 11.4 million ($5.9 million at the May 1, 1997
exchange rate) of Fancom indebtedness. The acquisition of Fancom was funded
through additional borrowings under the revolving line of credit.
On June 23, 1997, the Company acquired substantially all of the assets of
Butler Manufacturing Company's grain systems division ("Butler"). The purchase
price for Butler was $32.5 million, subject to adjustment. The acquisition of
Butler was funded by borrowings through a new term loan under the Existing
Credit Agreement.
F-18
<PAGE> 88
On May 29, 1997, the Company sold substantially all assets (other than
accounts receivable) relating to its PVC deck, dock and fence business for
approximately $8.2 million to a subsidiary of Royal Group Technologies Limited.
In conjunction with the sale, the Company entered into a joint venture with the
acquirer to produce certain extruded PVC agricultural equipment component parts
for the Company for a period of 5 years.
During May and June 1997, the Board of Directors granted options to certain
employees to purchase a total of 11,000 shares of common stock at an exercise
price of $132.
In May 1997, subsequent to the acquisition of Fancom, the Company issued 69
shares of preferred stock at $1,000 per share and 1,755 shares of common stock
at $132 per share, to certain key employees of Fancom.
17. PARENT COMPANY FINANCIAL STATEMENTS
As discussed in Note 7, under the terms of the Existing Credit Agreement,
CTB, Inc., the Company's wholly owned subsidiary, is limited in the dividends it
may distribute to the Company, subject to meeting certain financial goals and
requirements. Accordingly, the following parent company only financial
statements are presented since the distribution of the net assets at CTB, Inc.
is restricted.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND (UNAUDITED) MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1997
(UNAUDITED)
<S> <C> <C>
ASSETS
Equity investment in subsidiaries............................. $13,741 $ 14,642
------- -------
TOTAL ASSETS........................................... $13,741 $ 14,642
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity........................................ $13,741 $ 14,642
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $13,741 $ 14,642
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Equity in undistributed net income of
subsidiaries................................. $ 8,502 $356 $918
------- ---- ----
NET INCOME........................... $ 8,502 $356 $918
======= ==== ====
</TABLE>
F-19
<PAGE> 89
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
(UNAUDITED) FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996 MARCH 31, 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................... $ 8,502 $ 356 $ 918
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiaries............................ (8,502) (356) (918)
------- ----- -----
Net cash provided by operating activities.... -- -- --
------- ----- -----
Net increase in cash........................... -- -- --
Cash at beginning of the period................ -- -- --
------- ----- -----
CASH AT END OF THE PERIOD...................... $ -- $ -- $ --
======= ===== =====
</TABLE>
F-20
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Butler Manufacturing Company:
We have audited the balance sheets of Grain Systems Division (a division of
Butler Manufacturing Company) (the Division) as of December 31, 1995 and 1996
and the related statements of earnings and division equity and cash flows for
each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Division'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
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Division at December 31,
1995 and 1996 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
March 13, 1997
F-21
<PAGE> 91
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND (UNAUDITED) MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................... $ -- $ -- $ --
------- ------- -------
Receivables
Trade............................................. 441 1,615 1,866
Other............................................. 19 5 35
------- ------- -------
460 1,620 1,901
Less allowance for possible losses................ 184 204 104
------- ------- -------
Net receivables.............................. 276 1,416 1,797
------- ------- -------
Inventories............................................ 4,135 5,903 6,831
Other current assets................................... 16 30 57
------- ------- -------
Total current assets......................... 4,427 7,349 8,685
------- ------- -------
Property, plant and equipment, at cost:
Land................................................... 506 506 506
Buildings.............................................. 6,791 6,865 7,779
Machinery, tools and equipment......................... 9,848 10,490 9,730
Office furniture and fixtures.......................... 1,278 1,615 1,657
Transportation equipment............................... 26 26 26
------- ------- -------
18,449 19,502 19,698
Less accumulated depreciation.......................... 15,176 15,582 15,641
------- ------- -------
Net property, plant, and equipment........... 3,273 3,920 4,057
------- ------- -------
$ 7,700 $ 11,269 $12,742
======= ======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable....................................... $ 640 $ 1,798 $ 1,418
Cash overdraft......................................... 104 136 172
Due to parent company.................................. 966 390 7,637
Accrued expenses....................................... 2,306 2,553 2,205
Accrued payroll........................................ 192 335 342
------- ------- -------
Total current liabilities.................... 4,208 5,212 11,774
Division equity............................................. 3,492 6,057 968
Commitments and contingencies
------- ------- -------
$ 7,700 $ 11,269 $12,742
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 92
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
STATEMENTS OF EARNINGS AND DIVISION EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
--------------------------------- MARCH 31,
1994 1995 1996 ---------------------
1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $28,594 $30,588 $41,693 $ 4,891 $ 6,575
Cost of sales....................... 23,091 24,071 32,416 3,932 4,997
------- ------- ------- ------- -------
Gross profit......... 5,503 6,517 9,277 959 1,578
Selling, general and administrative
expenses.......................... 2,895 3,224 3,403 700 656
------- ------- ------- ------- -------
Operating income..... 2,608 3,293 5,874 259 922
Other income........................ 97 199 183 12 46
------- ------- ------- ------- -------
Earnings before
income taxes....... 2,705 3,492 6,057 271 968
Income taxes........................ 1,021 1,299 2,349 93 361
------- ------- ------- ------- -------
Net earnings......... 1,684 2,193 3,708 178 607
Division equity at beginning of
period............................ 3,086 2,705 3,492 3,492 6,057
------- ------- ------- ------- -------
4,770 4,898 7,200 3,670 6,664
Transfers of division equity........ 2,065 1,406 1,143 3,389 5,696
------- ------- ------- ------- -------
Division equity at end of period.... $ 2,705 $ 3,492 $ 6,057 $ 281 $ 968
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 93
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ---------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings.................... $ 1,684 $ 2,193 $ 3,708 $ 178 $ 607
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and
amortization............. 424 384 407 51 52
Provision for doubtful
accounts................. 10 (1) 20 (1) (100)
Change in assets and
liabilities:
Accounts receivable...... (626) 779 (1,160) (1,286) (281)
Inventories.............. 473 (418) (1,768) (1,125) (928)
Other current assets..... 4 (10) (14) (29) (27)
Accounts payable......... 1,150 (1,009) 1,158 582 (380)
Due to parent company.... (1,385) (119) (576) 5,119 7,247
Accrued expenses......... 746 290 247 2,033 1,870
Accrued payroll.......... -- (263) 143 (2,119) (2,211)
------- ------- ------- ------- -------
Net cash provided by
operating
activities.......... 2,480 1,826 2,165 3,403 5,849
Cash flows from investing
activities -- capital
expenditures....................... (401) (332) (1,054) (125) (189)
Cash flows from financing
activities -- transfers of division
equity............................. (2,065) (1,406) (1,143) (3,389) (5,696)
------- ------- ------- ------- -------
Net change in cash.... 14 88 (32) (111) (36)
Cash overdraft at beginning of
period............................. (206) (192) (104) (104) (136)
------- ------- ------- ------- -------
Cash overdraft at end of period...... $ (192) $ (104) $ (136) $ (215) $ (172)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 94
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business Description
The Grain Systems Division (the Division) manufactures and markets grain
storage, handling and conditioning systems for worldwide use by grain
producers and processors through a network of grain systems dealers.
The Division has no unusual concentration of customers or credit risk
within its primary market. The worldwide and domestic agricultural
economies are subject to fluctuations which have a direct impact on the
operations of the Grain Division.
(b) Affiliation
The Division is a division of Butler Manufacturing Company (parent
company).
Intercompany payable amounts are shown as current liabilities in the
accompanying financial statements as they are due upon demand.
(c) Use of Estimates
Management of the Division has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(d) Income Taxes
The Division's operations are included in the consolidated federal income
tax return filed by the parent company. Income tax expense is allocated
to the Division which approximates the amount that would have been
applicable on a separate income tax return basis.
Deferred taxes for the Division have been recorded by the Corporate
Division of the parent company and are included in the intercompany
accounts as of December 31, 1995 and 1996.
(e) Property, Plant and Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the assets. Expenditures for maintenance and
repairs are charged to expense as incurred. Upon sale or retirement of
assets, the cost and the accumulated depreciation amounts are removed
from the accounts.
(f) Basis of Presentation
The accompanying unaudited financial statements for the three months ended
March 31, 1996 and 1997 have been prepared in accordance with the
accounting policies described above. In the opinion of management, the
accompanying unaudited financial statements reflect all adjustments
necessary for a fair presentation of the financial position of the Grain
Systems Division of Butler Manufacturing Company and the results of its
operations.
F-25
<PAGE> 95
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) INVENTORIES
Inventories are valued at the lower of cost or market. The last-in,
first-out (LIFO) method of determining cost is used for substantially
all domestic inventories. If the first-in, first-out method had been
used for all locations, inventories would have been $952,000, $971,000,
$923,000, and $923,000 higher than those reported at December 31, 1994,
1995 and 1996 and March 31, 1997, respectively.
The use of the LIFO method decreased net earnings by $101,000 in 1994 and
$11,000 in 1995 and increased net earnings by $29,000 in 1996. There was
no LIFO impact on net earnings for the three months ended March 31, 1996
and 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials................................ $3,036 $4,401 $3,829
Work in process.............................. 126 154 385
Finished goods............................... 1,944 2,271 3,540
------ ------ ----------
5,106 6,826 7,754
LIFO reserve................................. (971) (923) (923)
------ ------ ----------
$4,135 $5,903 $6,831
====== ====== ==========
</TABLE>
(3) LEASES
Rental expense under operating leases was $35,052, $21,079 and $9,258 in
1994, 1995 and 1996, respectively and $5,955 and $11,573 for the three
months ended March 31, 1996 and 1997, respectively. Minimum rental
commitments under noncancelable operating leases are $46,291 in 1997,
$46,291 in 1998, $40,450 in 1999, $27,790 in 2000 and $9,227 in 2001.
(4) RELATED PARTY TRANSACTIONS
The parent company provides certain management, corporate, financial and
administrative services to the Division. Charges for these services are
determined by both allocations and direct charges. The allocation for
costs such as pension benefits, insurance, taxes, rent and other
business services are based on specific calculations such as headcount,
occupied space or time allocations of parent company personnel.
Management believes the allocation methods used are reasonable. All
significant charges of the Division incurred by the parent company have
been recorded in the intercompany accounts. These charges amounted to
$1,335,000, $1,616,000 and $1,860,000 in 1994, 1995 and 1996,
respectively and $439,000 and $464,000 for the three months ended March
31, 1996 and 1997, respectively.
The financial statements of the Division include amounts of land and
buildings of $199,000 and $1,600,000 that are recorded on the books of
the parent company since they are included in the assets being disposed
of as a part of the Grain Systems Division divestiture. The cost,
accumulated depreciation and depreciation expense have been recorded for
all years presented.
(5) COMMITMENTS AND CONTINGENCIES
The Division is a defendant in pending or threatened lawsuits involving its
role as a contractor. Provisions have been made for estimated losses on these
lawsuits. Management believes that the amount of such losses will not exceed
provided amounts.
F-26
<PAGE> 96
GRAIN SYSTEMS DIVISION
(A DIVISION OF BUTLER MANUFACTURING COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) INCOME TAXES
Deferred taxes are provided for differences arising from using the
accelerated cost recovery method for property, plant and equipment for income
tax purposes and the straight-line depreciation method for financial statement
purposes and where other differences exist between the period in which
transactions are reported for income tax and financial reporting purposes.
The Company has sufficient taxable income in the three-year carryback
period to support the recognition of deferred tax assets.
The following represents the breakout of the deferred tax assets and
liability that have been reflected in the intercompany accounts (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Operating expenses............................. $ 92 $ 84
Depreciation expense........................... 87 --
----- -----
179 84
----- -----
Deferred tax liabilities:
Operating expenses............................. (286) (465)
Depreciation expenses.......................... -- (69)
----- -----
(286) (534)
----- -----
Net deferred taxes........................ $(107) $(450)
===== =====
</TABLE>
F-27
<PAGE> 97
<TABLE>
<S> <C> <C> <C>
COOPERS ACCOUNTANTS SEUKENLAAN 77 TELEPHONE +31-40-250 06 00
&LYBRAND 5616 VC EINDHOVEN TELEFAX +31-40-250 06 05
P.O. BOX 6365
5500 MS EINDHOVEN
THE NETHERLANDS
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of Fancom Holding B.V.
INTRODUCTION
We have audited the accompanying consolidated balance sheets of Fancom
Holding B.V., Panningen, as of December 31, 1995 and 1996 and the related
statements of consolidated income, consolidated cash flow and consolidated
changes in stockholders' equity for each of the years in the three year period
ended December 31, 1996. 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.
SCOPE
We conducted our audit in accordance with auditing principles generally
accepted in the Netherlands, that are not significantly different from those in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
OPINION
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the company at December 31, 1995 and 1996
and of the results of its operations and its cash flows for each of the years in
the three year period ended December 31, 1996 in accordance with accounting
principles generally accepted in the United States of America.
Eindhoven, June 10, 1997
Coopers & Lybrand N.V.
F-28
<PAGE> 98
FANCOM HOLDING B.V., PANNINGEN
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996 AND (UNAUDITED) MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 -----------
1997
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 322 $ 169 $ 267
Trade receivables.................................... 4,812 5,382 5,393
Less: allowance for doubtful accounts................ (297) (46) (58)
Inventories.......................................... 5,221 4,989 5,008
Prepaid expenses and other........................... 185 552 543
------ ------ ------
Total current assets............................ 10,243 11,046 11,153
Property, plant and equipment -- Net................. 3,519 3,491 3,239
------ ------ ------
Total........................................... $13,762 $14,537 $14,392
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable..................................... $ 1,783 $ 1,732 $ 2,552
Current portion of long-term debt.................... 1,430 1,326 1,191
Bank overdrafts...................................... 608 1,326 1,011
Taxes and social premiums payable.................... 43 430 264
Other payables and accrued expenses.................. 1,115 1,027 1,151
------ ------ ------
4,979 5,841 6,169
------ ------ ------
LONG-TERM DEBT............................................ 5,906 4,324 3,723
------ ------ ------
PROVISIONS
Deferred income taxes................................ 165 183 169
Accrued postretirement benefits...................... 124 110 101
Other provisions..................................... 200 196 210
------ ------ ------
489 489 480
------ ------ ------
MINORITY INTEREST......................................... (34) 43 37
------ ------ ------
STOCKHOLDERS' EQUITY
Common stock......................................... 7,500 7,637 7,637
Retained earnings.................................... (6,317) (4,800) (4,358)
Cumulative translation adjustment.................... 1,239 1,003 704
------ ------ ------
Total stockholders' equity...................... 2,422 3,840 3,983
------ ------ ------
Total........................................... $13,762 $14,537 $14,392
====== ====== ======
COMMITMENTS AND CONTINGENCIES (NOTE 13).
</TABLE>
See notes to consolidated financial statements.
F-29
<PAGE> 99
FANCOM HOLDING B.V., PANNINGEN
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------- -----------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $17,760 $22,312 $27,175 $ 5,798 $ 7,038
Cost of sales....................... 10,389 13,182 16,386 3,318 4,021
------- ------- ------- ------ ------
Gross profit........................ 7,371 9,130 10,789 2,480 3,017
------- ------- ------- ------ ------
Other operating expenses
Selling expenses.................... 3,075 4,193 4,723 1,109 1,295
General and administrative
expenses.......................... 2,000 3,084 3,187 840 923
------- ------- ------- ------ ------
5,075 7,277 7,910 1,949 2,218
------- ------- ------- ------ ------
Income from operations.............. 2,296 1,853 2,879 531 799
------- ------- ------- ------ ------
Other income (expense)
Interest income..................... 17 26 12 -- --
Interest expense.................... (241) (184) (467) (121) (90)
------- ------- ------- ------ ------
(224) (158) (455) (121) (90)
------- ------- ------- ------ ------
Income before income taxes.......... 2,072 1,695 2,424 410 709
Income taxes........................ (706) (720) (830) (145) (270)
Minority interest................... 22 141 (77) (5) 3
------- ------- ------- ------ ------
Net income.......................... $ 1,388 $ 1,116 $ 1,517 $ 260 $ 442
======= ======= ======= ====== ======
</TABLE>
See notes to consolidated financial statements.
F-30
<PAGE> 100
FANCOM HOLDING B.V., PANNINGEN
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $1,388 $1,116 $1,517 $ 260 $ 442
Adjustments to reconcile net income to
net cash flows from operating
activities:
Movement in allowances
Inventories.................. 160 172 (317) (89) (29)
Accounts receivable.......... 34 (32) (251) (66) 12
Depreciation tangible fixed
assets.......................... 358 495 631 128 134
Movement in provisions............ 33 22 0 (30) (9)
Movement minority interest........ 0 (34) 77 5 (6)
Changes in operating assets and
liabilities:
Accounts receivable.......... (651) (796) (570) (52) (11)
Inventories.................. (181) (1,042) 549 (29) 10
Prepaid expenses and other
assets..................... (35) (41) (367) (400) 9
Accounts payable, accruals
and other liabilities...... 642 124 248 275 778
------ ------ ------ ------ ------
Net cash flows from operating
activities........................... 1,748 (16) 1,517 2 1,330
------ ------ ------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and
equipment............................ (534) (634) (904) (221) (148)
Exchange differences................... (1) 6 13 0 0
------ ------ ------ ------ ------
Net cash flows from investing
activities........................... (535) (628) (891) (221) (148)
------ ------ ------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment to stockholders
(restructuring)...................... 0 (6,250) 0 -- --
Issuance of common stock............... 0 0 137 -- --
Proceeds from long-term debt........... 0 6,250 51 -- --
Payment on debt........................ (338) (163) (1,737) (230) (736)
Movements bank overdrafts.............. (972) 506 718 190 (315)
------ ------ ------ ------ ------
Net cash flows from financing
activities........................... (1,310) 343 (831) (40) (1,051)
NET INCREASE/(DECREASE) IN CASH........ (97) (301) (205) (259) 131
TRANSLATION DIFFERENCES................ 333 328 52 34 (33)
CASH BEGINNING OF PERIOD............... 59 295 322 322 169
------ ------ ------ ------ ------
CASH END OF PERIOD..................... $ 295 $ 322 $ 169 $ 97 $ 267
====== ====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
F-31
<PAGE> 101
FANCOM HOLDING B.V., PANNINGEN
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS OF US DOLLARS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
-------------------- RETAINED TRANSLATION
SHARES AMOUNT EARNINGS ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C> <C>
CHANGES YEAR ENDED DECEMBER 31, 1995
Balance January 1, 1995............... 20 $ 10 $ 6,307 $ 642 $ 6,959
Net income for the year ended December
31, 1995............................ 0 0 1,116 0 1,116
Restructuring December 29, 1995....... 1,199,980 7,490 (13,740) 0 (6,250)
Translation adjustment................ 0 0 0 597 597
--------- ------ -------- ------ -------
Balance December 31, 1995............. 1,200,000 $7,500 $ (6,317) $1,239 $ 2,422
========= ====== ======== ====== =======
CHANGES YEAR ENDED DECEMBER 31, 1996
Balance January 1, 1996............... 1,200,000 $7,500 $ (6,317) $1,239 $ 2,422
Issuance of shares.................... 24,000 137 0 0 137
Net income for the year ended December
31, 1996............................ 0 0 1,517 0 1,517
Translation adjustment................ 0 0 0 (236) (236)
--------- ------ -------- ------ -------
Balance December 31, 1996............. 1,224,000 $7,637 $ (4,800) $1,003 $ 3,840
========= ====== ======== ====== =======
CHANGES THREE MONTHS ENDED MARCH 31,
1997
Balance January 1, 1997............... 1,224,000 $7,637 $ (4,800) $1,003 $ 3,840
Net income (unaudited) for the three
months ended March 31, 1997......... 0 0 442 0 442
Translation adjustment................ 0 0 0 (299) (299)
--------- ------ -------- ------ -------
Balance (unaudited) March 31, 1997.... 1,224,000 $7,637 $ (4,358) $ 704 $ 3,983
========= ====== ======== ====== =======
</TABLE>
See notes to the consolidated financial statements.
F-32
<PAGE> 102
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(AMOUNTS IN THOUSANDS OF US DOLLARS, EXCEPT FOR SHARE INFORMATION)
1 GROUP INFORMATION
Fancom Holding B.V. was founded on December 29, 1995. At the incorporation
of Fancom Holding B.V. the shares of Fancom B.V., valued at NLG 22 ($13.75)
million, were paid-in as a contribution in kind on the shares issued ($7,500)
and a debt to the sellers of Fancom B.V. ($6,250).
Consequently the financial statements in this report include:
- the consolidated balance sheets of Fancom Holding B.V. as per December
31, 1995 and 1996 and (unaudited) March 31, 1997 and of Fancom B.V. as
per December 31, 1994;
- the consolidated statements of income and the consolidated statements of
cash flows of Fancom Holding B.V. for the year ended December 31, 1996
and (unaudited) the three months ended March 31, 1996 and 1997 and of
Fancom B.V. for the years ended December 31, 1994 and 1995;
- the statement of changes in stockholders' equity of Fancom B.V. for the
years ended December 31, 1994 and 1995 and of Fancom Holding B.V. for the
years ended December 31, 1995 and 1996 and (unaudited) the three months
ended March 31, 1997.
The unaudited financial statements as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997 were prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for fair presentation of the financial position and results of
operations for those periods. Operating results for the interim periods included
herein are not necessarily indicative of the results that may be expected for
the entire year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Below, as appropriate, figures are presented taking into account the
changes in group structure described in Note 1.
2.1 NATURE OF THE BUSINESS
The activities of the Fancom Group mainly consist of the development,
the production and selling of computers and peripheral equipment for the
agricultural industry.
2.2 CONSOLIDATION PRINCIPLES
In the consolidated balance sheets and consolidated income statements
the following companies are included, based on management control:
- Fancom Holding B.V., established at Panningen
- Fancom B.V., established at Panningen (100%) and its subsidiaries:
- Masterfan Ventilation B.V. , established at Wierden, Holland (100%)
- E.U.R.L. Fancom, established at Vitre, France (100%)
- Ninova Fancom S.r.l., established in Italy (100%)
- Wolters WX B.V., established at Zwolle, Holland (40% of the
ordinary shares and 100% of the priority shares).
F-33
<PAGE> 103
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The holder of priority shares is entitled to exercise certain powers
as specified in the Articles of Association. In the case of Wolters WX
B.V., Fancom B.V., as priority shareholder, may dismiss the managing
director, determine the number of directors to be appointed, and can issue
a binding proposal of at least two names for appointment as managing
director. This proposal can only be overridden by a two-thirds vote of the
ordinary shares, of which Fancom B.V. holds 40%. Any ordinary shares
offered for sale must be offered first to the priority shareholder. In
addition, the priority shareholder must approve investments above NLG
50,000, distributions to shareholders and other major decisions including
the acquisition of companies. Resolutions for merger or dissolution of
Wolters WX B.V. require a three-fourths majority of the votes cast with at
least two-thirds of the issued share capital represented. The rights of the
priority shareholder under the Articles of Association cannot be amended
without approval of three-fourths of the priority shares.
At the end of 1996, the decision was taken to liquidate the Italian
subsidiary as per April 1, 1997. The activities will be transferred to the
Netherlands. The impact on result and equity is minimal.
As per December 31, 1996, stockholders' equity of the Italian
subsidiary amounts to $91. Total assets and net income 1996 amount to $389
and $13 respectively.
Intercompany balances and transactions have been eliminated.
2.3 GENERAL ACCOUNTING PRINCIPLES
The principles of valuation and determination of the result remained
unchanged over the periods presented. Assets and liabilities are valued at
costs unless otherwise indicated.
The company recognizes revenue upon shipment of goods to customers or
upon performance of services.
Result represents the difference between the realizable value of the
goods delivered and the costs and other charges for the year. The results
on transactions are recognized in the year in which they are realized;
losses are taken as soon as they are foreseeable.
2.4 FOREIGN CURRENCIES
These financial statements have been translated from the functional
currency (NLG) into US dollars, using the average rates for the respective
income statements and the year-end rates for the related balance sheets.
Resulting gains and losses are included in a separate component of
stockholders' equity.
Assets and liabilities denominated in foreign currencies are
translated at the rate of exchange prevailing on balance sheet date.
Settled transactions in foreign currencies during the reporting period have
been incorporated in the financial statements at the rate of settlement.
Foreign group companies are considered as independent foreign units.
The financial statements denominated in foreign currencies are translated
at the rate prevailing on balance sheet date. The exchange difference for
the initial capital and for the equity movements in the course of the
financial year are directly added to or charged against stockholders'
equity.
2.5 INCOME TAXES
The company accounts for income taxes under Statement of Financial
Accounting Standards No. 109. FAS 109 requires an asset and liability
method of accounting for income taxes. Deferred tax assets are recognized
when it is more likely than not that the benefits will be recognized.
F-34
<PAGE> 104
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2.6 CASH
Includes $57 which is pledged as a bank guarantee to a supplier. This
item is the only one considered as "cash equivalent".
2.7 INVENTORIES
Finished products and semi-finished products and work in progress are
valued at the lower of cost and market. Cost includes materials (based on
average purchase prices) and direct wages. Raw materials and trade goods
are valued at average purchase prices. An allowance for possible
obsolescence has been included based on the turnover and the aging of the
inventories.
2.8 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at historical cost less
depreciation calculated on the basis of the straight-line method on the
estimated useful lives of the individual assets. Maintenance and repairs
are charged to expense as incurred. The estimated useful lives range from
10 to 25 years for buildings and improvements and from 3 to 7 years for
machinery and equipment.
2.9 RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as
incurred.
2.10 ACCRUED POSTRETIREMENT BENEFITS
The company shares in a multi-employer plan both for postretirement
and preretirement benefits. For some employees the company provides
additional pension insurance.
2.11 OTHER PROVISIONS
These provisions have been set up for possible guarantee obligations
resulting from products delivered. In principle the guarantee term is one
year. The provision is based on specific claims asserted against the
company. In addition a provision has been calculated based on recent claim
history.
2.12 DEBTS AND BANKERS
The company pledged the following assets as collateral for the long
term debts and the bank overdrafts:
- the building of the subsidiary in France (on a mortgage)
- the premises (land and buildings) of the company in Panningen
- the fixtures and furniture, stocks and trade debtors.
F-35
<PAGE> 105
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3 INVENTORIES
Inventories at December 31, 1995 and 1996 and March 31, 1997 consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................... $2,658 $2,286 $ 2,340
Semi-finished products and work in
progress.................................. 1,617 1,466 1,400
Finished products and trade stock........... 1,774 1,748 1,750
------ ------
Totals...................................... 6,049 5,500 5,490
Less: allowance for obsolete stock.......... (828) (511) (482)
------ ------
Net......................................... $5,221 $4,989 $ 5,008
====== ======
</TABLE>
4 PREPAID EXPENSES AND OTHER
Specified as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Related parties:
Loan general manager...................... $ 0 $ 57 $ 53
Due from stockholders..................... 0 50 52
Other.......................................... 185 445 438
---- ----
$185 $552 $ 543
==== ====
</TABLE>
5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995 and 1996 and March 31,
1997 consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Land...................................... $ 336 $ 308 $ 285
Buildings and improvements................ 2,689 2,634 2,436
Machinery and equipment................... 2,466 2,968 2,886
----- ----- -----
Total at cost............................. 5,491 5,910 5,607
Less: accumulated depreciation............ (1,972) (2,419) (2,368)
----- ----- -----
Book value................................ $3,519 $3,491 $ 3,239
===== ===== =====
</TABLE>
Specifications of changes in book value (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Acquisitions.............................. $ 634 $ 904 $ 148
Depreciation.............................. (495) (631) (134)
Translation adjustments................... 263 (301) (266)
----- ----- -----
Balance................................... $ 402 $ (28) $ (252)
===== ===== =====
</TABLE>
F-36
<PAGE> 106
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6 CURRENT LIABILITIES
Other payables and accrued expenses are specified as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Accrued expenses:
Holiday allowance.................... $ 341 $ 325 $ 477
Miscellaneous........................ 506 531 450
----- ----- -----
847 856 927
Other payables............................ 268 171 224
----- ----- -----
$1,115 $1,027 $1,151
===== ===== =====
</TABLE>
7 LONG-TERM DEBT
Specifications of the loans (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
INTEREST ----------------- -----------
RATE (1996) 1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
ABN-Amro bank:
Loan 023................................... 9.90% $ 289 $ 165 $ 136
Loan 160................................... 10.10 250 189 170
Loan 697................................... 5.10 6,250 4,871 4,236
Loan 700................................... 4.15 177 129 115
Loan 974................................... 5.10 285 218 192
Financial lease............................ 11.50 33 0 0
BNP (France).................................... 9.00 52 40 35
FMN Finance House (financial lease)............. 6.40 0 38 30
------ ------ -----------
7,336 5,650 4,914
Current portion................................. 1,430 1,326 1,191
------ ------ -----------
$5,906 $4,324 $ 3,723
====== ====== ===========
</TABLE>
Current portion has been included in current liabilities.
Repayment schedule (in thousands):
<TABLE>
<S> <C>
1998................................................................ $1,327
1999................................................................ 1,264
2000................................................................ 1,239
2001................................................................ 379
2002................................................................ 115
------
$4,324
======
</TABLE>
F-37
<PAGE> 107
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under declaration of joint and several liability, Fancom B.V. and Masterfan
Ventilatie B.V. pledged the following assets in relation to the loans issued by
ABN-Amro:
- the company facility and the site Industrieterrein 34 at Panningen
(mortgage of $1,862);
- pledge of business inventory, stocks and receivables.
8 ACCRUED POSTRETIREMENT BENEFITS
The company has defined benefits pension plans covering nearly all of its
employees in the Netherlands. Plan benefits are based on years of service and
compensation levels at the time of retirement or average compensation levels
over the last years before retirement.
The major part of the pension obligations is covered by a mandatory pension
plan. This mandatory plan is administered by the pension fund
"Bedrijfstakpensioenfonds van de metaalindustrie". The mandatory plan is a
multi-employer plan as defined in SFAS No. 87, "Employers' Accounting for
Pensions". For the years ended December 31, 1994, 1995 and 1996, amounts charged
(credited) to earnings by the company for the multi-employer defined benefit
pension plans totalled $63, $(32) and $72 respectively.
The remaining plans are single employer plans providing benefits to
employees with salaries in excess of the maximum salary for the multi-employer
plan, and for the two directors of the company.
The company's funding policy is to fund amounts as are necessary on an
actuarial basis to provide for vested benefits.
Plan assets of the single employer plans are participating annuity
contracts as defined in SFAS No. 87.
Net periodic pension expense of single employer plans for the years 1994,
1995 and 1996 included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost benefits earned during the year.................. $18 $21 $25
Interest cost on the projected benefit obligations............ 17 21 24
Actual return on plan assets.................................. (7) 2 3
Net total of other components................................. 6 (4) (7)
--- --- ---
Net periodic pension cost..................................... $34 $40 $45
=== === ===
</TABLE>
The actuarial present value of benefit obligations and funded status for
the company's single employer plans were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated............................................................ $ 353 $ 278
Projected.............................................................. 330 353
Plan assets at fair value................................................... 172 202
----- -----
Plan assets less than projected benefit obligation.......................... (158) (151)
Unrecognized transition obligation.......................................... 34 28
Unrecognized net loss....................................................... 0 13
----- -----
Accrued pension cost........................................................ $(124) $(110)
===== =====
</TABLE>
F-38
<PAGE> 108
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions used in developing the projected benefit obligation as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1995 1996
% % %
<S> <C> <C> <C>
Weighted average discount rates....................................... 7.0 7.0 7.0
Expected long-term rate of return on assets........................... 4.0 4.0 4.0
Assumed rate of increase in future compensation....................... 2.0 2.0 2.0
</TABLE>
9 STOCKHOLDERS' EQUITY
Authorized capital as at December 31, 1996 amounts to $11,460, being
2,000,000 ordinary shares of $5.73 (NLG 10) each. Issued and fully paid are
1,224,000 shares. No dividends have been paid on these shares yet.
As at December 31, 1996, 33,000 share options have been issued to the
general manager at an exercise rate of $5.73 (NLG 10) per share. The option
rights are exercised April 1997.
10 TAXES
10.1 DEFERRED TAXES
The deferred tax liability relates to the pension obligations in the
Netherlands (fiscal unity) and has been calculated as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Pension obligations:
Fiscal purposes............................................ $595 $632
In US GAAP................................................. 124 110
---- ----
Difference...................................................... $471 $522
==== ====
35% deferred taxes.............................................. $165 $183
==== ====
</TABLE>
Deferred tax liabilities are principally long-term.
The company has tax losses carried forward in Italy in an amount of
$114, but does not recognize a deferred tax asset, since realization is not
expected because of discontinued operations as per April 1, 1997.
No other deferred tax assets exist.
F-39
<PAGE> 109
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10.2 CURRENT TAXES
Per tax jurisdiction the position is as follows (in thousands):
<TABLE>
<CAPTION>
CURRENT INCOME
PAYABLE BEFORE TAXES
END OF YEAR TAXES ON INCOME
<S> <C> <C> <C>
1994
The Netherlands (fiscal unity)........... $ 511 $2,203 $ 685
The Netherlands (other).................. 0 (166) 0
France................................... 0 51 17
Italy.................................... 0 (16) 3
----- ------ -----
$ 511 $2,072 $ 705
===== ====== =====
1995
The Netherlands (fiscal unity)........... $ (41) $1,787 $ 692
The Netherlands (other).................. 0 (112) 0
France................................... 6 65 28
Italy.................................... (3) (44) 0
----- ------ -----
$ (38) $1,696 $ 720
===== ====== =====
1996
The Netherlands (fiscal unity)........... $ (72) $2,120 $ 746
The Netherlands (other).................. 38 179 40
France................................... 11 105 38
Italy.................................... 7 20 6
----- ------ -----
$ (16) $2,424 $ 830
===== ====== =====
</TABLE>
F-40
<PAGE> 110
FANCOM HOLDING B.V., PANNINGEN
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11 ADDITIONAL INCOME STATEMENT INFORMATION
11.1 GEOGRAPHICAL DIVISION OF NET SALES (IN % OF TOTAL)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ -----------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
The Netherlands...... 41 43 45 41 48
Other
EU--countries...... 44 44 46 45 42
USA and Canada....... 11 6 4 10 4
Rest of world........ 4 7 5 4 6
----
-
--- ---
100 100 100 100 100
=== === =====
</TABLE>
11.2 NET SALES PER PRODUCT GROUP (IN % OF TOTAL)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------ -----------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Pigs climate
control............ 45 48 54 52 56
Pigs feeding/manure
rinsing............ 7 12 14 8 7
Mushrooms/storage.... 10 9 6 8 5
Poultry automation... 34 28 22 25 27
Other................ 4 3 4 7 5
----
-
--- ---
100 100 100 100 100
=== === =====
</TABLE>
11.3 RESEARCH AND DEVELOPMENT EXPENSES (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------ -----------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expenses........ $870 $1,157 $1,170 $ 429 $ 442
</TABLE>
12 ADDITIONAL CASH FLOW INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------- -----------------------------
1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid.... $226 $ 227 $402 $ 120 $ 95
Corporate taxes
paid........... 582 1,310 811 29 37
</TABLE>
13 CONTINGENCIES AND COMMITMENTS
The company leased some cars and computer equipment. Some subsidiaries are
located in a rented building.
Further a bank guarantee of approximately $179 has been rendered. The Dutch
companies within the group form a fiscal entity for income tax purposes; each of
the companies is jointly and severally liable for the tax debt of the entire
entity.
F-41
<PAGE> 111
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THAT 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 ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE COMMON STOCK BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING THE 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 CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 12
Special Note Regarding Forward-Looking
Statements............................... 17
Use of Proceeds............................ 17
Dividend Policy............................ 18
Dilution................................... 19
Capitalization............................. 20
Unaudited Pro Forma Consolidated Financial
Statements............................... 21
Selected Consolidated Financial Data....... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 31
Business................................... 38
Management................................. 52
Certain Relationships and Related
Transactions............................. 57
Principal Stockholders..................... 61
Description of Capital Stock............... 62
Description of Credit Agreement............ 63
Shares Available for Future Sale........... 65
Underwriting............................... 66
Legal Matters.............................. 67
Experts.................................... 67
Additional Information..................... 68
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTION.
======================================================
======================================================
5,000,000 SHARES
[CHORE-TIME LOGO] [BROCK LOGO]
CTB INTERNATIONAL CORP.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GEORGE K. BAUM & COMPANY
CHASE SECURITIES INC.
, 1997
======================================================
<PAGE> 112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an itemization of the estimated costs expected to be
incurred in connection with the offer and sale of the securities registered
hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................... $ 27,878.79
-----
NASD filing fee............................................................... 9,700.00
Nasdaq National Market Listing Fee............................................ 49,705.00
-----
Transfer Agent Fee............................................................ 13,000.00
Blue Sky Fees and Expenses.................................................... 10,000.00
Printing and Engraving Expenses............................................... 290,000.00
Legal Fees and Expenses....................................................... 400,000.00
Accounting Fees and Expenses.................................................. 645,000.00
Miscellaneous................................................................. 54,716.21
-----
Total............................................................... $1,500,000.00
=====
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporation's best interests, and, for criminal
proceedings, had no reasonable cause to believe his or her conduct was illegal.
A Delaware corporation may indemnify officers and directors against expenses
(including attorney's fees) in connection with the defense or settlement of an
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him or her against the
expenses which such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Restated Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors of the Company for violations of their fiduciary
duty. This provision eliminates each director's liability to the Company or its
stockholders for monetary damages except (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Delaware Law providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) for any transaction from which a director derived an
improper personal benefit. The effect of this provision is to eliminate the
personal liability of directors for monetary damages for actions involving a
breach of their fiduciary duty of care, including any such actions involving
gross negligence.
Pursuant to underwriting agreements filed as exhibits to registration
statements relating to underwritten offerings of securities, the underwriters
parties thereto have agreed to indemnify each officer and director of the
Company and each person, if any, who controls the Company within the meaning of
the Securities Act of 1933, against certain liabilities, including liabilities
under said Act.
II-1
<PAGE> 113
The directors and officers of the Company are covered by directors' and
officers' insurance policies.
The Restated Certificate of Incorporation of the Company provides for
indemnification of the officers and directors of the Company to the full extent
permitted by applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the CTB Acquisition, the Company issued and sold 388,000
shares of its Common Stock and 15,520 shares of its Preferred Stock to American
Securities, 190,519 shares of its Common Stock and 7,620.75 shares of its
Preferred Stock to certain founding family members, 21,481 shares of its Common
Stock and 859.25 shares of its Preferred Stock to certain members of management
of the Company. The purchase price was $10 per share of Common Stock and $1,000
per share of Preferred Stock in cash or, in the case of the founding family
members and certain members of management, an equivalent value in shares of
common stock of Old CTB.
In connection with the acquisition of Fancom Holding B.V., the Company
issued and sold 1,755 shares of its Common Stock and 69 shares of its Preferred
Stock to two members of Fancom's management at a purchase price of $132 per
share and $1,000 per share, respectively.
The foregoing transactions were exempt from registration under the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Restated Certificate of Incorporation of the Company*
3.2 Form of By-laws of the Company*
4.1 Specimen Certificate of Common Stock of the Company
5.1 Opinion of Simpson Thacher & Bartlett regarding the legality of the Common Stock
10.1 Commitment Letter, dated as of March 21, 1997, by and among CTB, Inc. and KeyBank
National Association
10.2 Asset Purchase Agreement, dated as of March 31, 1997, by and among Butler
Manufacturing Company and CTB, Inc.*
10.3 Share Purchase Agreement, dated as of May 1, 1997, by and among Chore-Time Brock
Holding B.V. and Halder Investments III B.V., Halder Investments III C.V.,
Stichting Fondshebeer Fincon, Beldor B.V., V. Berger, A. Faber, J. Paquet, J.H.M.
Cremers and H.W. Gootzen and Fancom Holding B.V.*
10.4 Asset Purchase Agreement, dated as of May 29, 1997, between CTB, Inc. and Royal
Crown Limited*
10.5 Stock Purchase Agreement, dated as of November 29, 1995, by and among the Company,
CTB Ventures, Inc., CTB, Inc., and the selling shareholders party thereto*
10.6 Stockholders Agreement, dated as of January 4, 1996, by and among the Company and
the Individual Shareholders party thereto*
10.7 Board Representation Agreement, dated as of January 4, 1996, by and among American
Securities Capital Partners, L.P., J. Christopher Chocola, Caryl Chocola and the
Company*
10.8 Form of Non-Qualified Stock Option Agreement*
10.9 Profit Sharing Plan*
10.10 Management Incentive Compensation Plan*
10.11 Escrow Agreement, dated as of November 29, 1995, by and among CTB Ventures, Inc.,
the shareholders party thereto and NBD Bank, N.A.*
10.12 Management Consulting Agreement, dated as of January 4, 1996, by and among CTB, Inc.
and American Securities Capital Partners, L.P.*
10.13 Agreement for Partial Release of Escrowed Funds, dated as of March 1, 1997, by and
among CTB, Inc. and each of the shareholders party thereto*
</TABLE>
II-2
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
<C> <S>
10.14 Transaction Consulting Agreement, dated as of April 30, 1997, by and among the
Company and American Securities Capital Partners, L.P.*
10.15 Transaction Consulting Agreement, dated as of April 30, 1997, by and among CTB, Inc.
and American Securities Capital Partners, L.P.*
11.1 Statement regarding computation of per share earnings*
16.1 Letter regarding change of Independent Accountants*
21.1 Subsidiaries of the Company*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Coopers & Lybrand N.V.
23.5 Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
24.1 Power of Attorney*
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Representatives of the Underwriters at the closing specified in the Underwriting
Agreement certificates for Common Stock in such denominations and registered in
such names as required by the Representatives of the Underwriters to permit
prompt delivery to each purchaser of Common Stock.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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 Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the State of
Indiana, on the 11th day of August, 1997.
CTB INTERNATIONAL CORP.
By: *
-----------------------------------
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------ -------------------------------- ----------------
<C> <S> <C>
* President, Chief Executive August 11, 1997
- ------------------------------------------ Officer and Director (Principal
J. Christopher Chocola Executive Officer)
* Vice President, Chief Financial August 11, 1997
- ------------------------------------------ Officer and Treasurer (Principal
Don J. Steinhilber Financial Officer and Chief
Accounting Officer)
* Chairman of the Board of August 11, 1997
- ------------------------------------------ Directors
Michael G. Fisch
* Director August 11, 1997
- ------------------------------------------
Caryl M. Chocola
* Director August 11, 1997
- ------------------------------------------
David Horing
* Director August 11, 1997
- ------------------------------------------
Charles D. Klein
*By /s/ MICHAEL J. KISSANE
- ------------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Restated Certificate of Incorporation of the Company*
3.2 Form of By-laws of the Company*
4.1 Specimen Certificate of Common Stock of the Company
5.1 Opinion of Simpson Thacher & Bartlett regarding the legality of the Common
Stock
10.1 Commitment Letter, dated as of March 21, 1997, by and among CTB, Inc. and
KeyBank National Association
10.2 Asset Purchase Agreement, dated as of March 31, 1997, by and among Butler
Manufacturing Company and CTB, Inc.*
10.3 Share Purchase Agreement, dated as of May 1, 1997, by and among Chore-Time
Brock Holding B.V. and Halder Investments III B.V., Halder Investments III
C.V., Stichting Fondshebeer Fincon, Beldor B.V., V. Berger, A. Faber, J.
Paquet, J.H.M. Cremers and H.W. Gootzen and Fancom Holding B.V.*
10.4 Asset Purchase Agreement, dated as of May 29, 1997, between CTB, Inc. and Royal
Crown Limited*
10.5 Stock Purchase Agreement, dated as of November 29, 1995, by and among the
Company, CTB Ventures, Inc., CTB, Inc., and the selling shareholders party
thereto*
10.6 Stockholders Agreement, dated as of January 4, 1996, by and among the Company
and the Individual Shareholders party thereto*
10.7 Board Representation Agreement, dated as of January 4, 1996, by and among
American Securities Capital Partners, L.P., J. Christopher Chocola, Caryl
Chocola and the Company*
10.8 Form of Non-Qualified Stock Option Agreement*
10.9 Profit Sharing Plan*
10.10 Management Incentive Compensation Plan*
10.11 Escrow Agreement, dated as of November 29, 1995, by and among CTB Ventures,
Inc., the shareholders party thereto and NBD Bank, N.A.*
10.12 Management Consulting Agreement, dated as of January 4, 1996, by and among CTB,
Inc. and American Securities Capital Partners, L.P.*
10.13 Agreement for Partial Release of Escrowed Funds, dated as of March 1, 1997, by
and among CTB, Inc. and each of the shareholders party thereto*
10.14 Transaction Consulting Agreement, dated as of April 30, 1997, by and among the
Company and American Securities Capital Partners, L.P.*
10.15 Transaction Consulting Agreement, dated as of April 30, 1997, by and among CTB,
Inc. and American Securities Capital Partners, L.P.*
11.1 Statement regarding computation of per share earnings*
16.1 Letter regarding change of Independent Accountants*
21.1 Subsidiaries of the Company*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Price Waterhouse LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Coopers & Lybrand N.V.
23.5 Consent of Simpson Thacher & Bartlett (included in Exhibit 5.1)
24.1 Power of Attorney*
27.1 Financial Data Schedule
</TABLE>
- ------------------------------
* Previously filed.
<PAGE> 1
5,000,000 SHARES
CTB INTERNATIONAL CORP.
COMMON STOCK
UNDERWRITING AGREEMENT
________________, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GEORGE K. BAUM & COMPANY
CHASE SECURITIES INC.
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Ladies and Gentlemen:
CTB International Corp., a Delaware corporation (the
"Company"), proposes to sell an aggregate of 5,000,000 shares of common stock,
par value $.01 per share, of the Company (the "Firm Shares"), to the several
underwriters named in Schedule I hereto (the "Underwriters"). The stockholders
of the Company named in Schedule II hereto (collectively, the "Selling
Stockholders"), severally propose to sell to the several Underwriters not more
than 750,000 additional shares of common stock, par value $.01 per share, of the
Company (the "Additional Shares"), if requested by the Underwriters as provided
in Section 2 hereof. The Firm Shares and the Additional Shares are herein
collectively called the Shares. The shares of common stock of the Company to be
outstanding after giving effect to the transactions contemplated hereby are
hereinafter referred to as the Common Stock. The Company and the Selling
Stockholders are hereinafter collectively called the Sellers. CTB, Inc., a
wholly-owned subsidiary of the Company, is hereinafter called CTB.
All or a substantial portion of the proceeds from the sale of
the Firm Shares will be used to repay indebtedness incurred in connection with
(i) the acquisition of all of the assets of the Grain Systems Division (the
"Grain Division") of Butler Manufacturing Company, a Delaware corporation
("Butler"), by CTB (the "Butler Acquisition"), and (ii) the acquisition of all
of the issued shares in the share capital of Fancom Holding B.V., a Netherlands
corporation ("Fancom"), by Chore-Time Brock Holding B.V., a Netherlands
corporation ("CTB Holding") (the "Fancom Acquisition" and collectively with the
Butler Acquisition, the "Acquisitions"). The Butler Acquisition was effected
pursuant to the Asset Purchase Agreement, dated as of March 31, 1997,
<PAGE> 2
between Butler and CTB (the "Butler Acquisition Agreement"). The Fancom
Acquisition was effected pursuant to the Share Purchase Agreement, dated as of
May 1, 1997, by and among CTB Holding, Fancom and each of the Selling
Shareholders identified on the first page thereof (the "Fancom Acquisition
Agreement"). The Butler Acquisition Agreement and all related agreements and
documents and the Fancom Acquisition Agreement and all related agreements and
documents are collectively referred to herein as the Transaction Documents.
Prior to or concurrently with the issuance and sale of the
Firm Shares, the Company will (i) redeem 15,000 shares of the outstanding 6%
Series A Preferred Stock of the Company (the "Existing Preferred Stock") at a
redemption price of $1,000 per share (the "Redemption") and (ii) exchange (the
"Exchange") 9,069 of the Existing Preferred Stock for ________ shares of common
stock, par value $.01 per share (the "Common Stock"), of the Company, in each
case pursuant to a certain agreement (the "Exchange/Redemption Agreement").
1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively called the "Act"), a registration statement on Form S-1 including
a prospectus relating to the Shares, which may be amended. The registration
statement as amended at the time when it becomes effective, including a
registration statement (if any) filed pursuant to Rule 462(b) under the Act
increasing the size of the offering registered under the Act and any other
post-effective amendment to the registration statement and information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Act, is hereinafter referred to as the
Registration Statement; and the prospectus in the form first used to confirm
sales of Shares is hereinafter referred as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each Underwriter
agrees, severally and not jointly, to purchase from the Company at a price per
share of $______ (the "Purchase Price") the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained
in this Agreement, and subject to its terms and conditions, (i) each Selling
Stockholder agrees, severally and not jointly, to sell the number of Additional
Shares set forth opposite such Selling Stockholder's name in Schedule II, and
(ii) the Underwriters shall have the right to purchase, severally and not
jointly, up to an aggregate 750,000 Additional Shares from such Selling
Stockholders at the Purchase Price. Additional Shares may be purchased solely
for the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof. The date specified
in any such notice shall be a business day (i) no earlier than the Closing Date
(as
2
<PAGE> 3
hereinafter defined), (ii) no later than ten business days after such notice has
been given and (iii) no earlier than two business days after such notice has
been given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Selling Stockholders the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional Shares to be purchased from the Selling Stockholders as the number
of Firm Shares set forth opposite the name of such Underwriter in Schedule I
bears to the total number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the
Company shall, concurrently with the execution of this Agreement, deliver an
agreement executed by (i) each of the directors and officers of the Company who
is a stockholder and not a Selling Stockholder, and (ii) each other stockholder
listed on Annex I hereto, pursuant to which each such person agrees, not to
offer, sell, contract to sell, grant any option to purchase, or otherwise
dispose of any common stock of the Company or any securities convertible into or
exercisable or exchangeable for such common stock or in any other manner
transfer all or a portion of the economic consequences associated with the
ownership of any such common stock, except to the Underwriters pursuant to this
Agreement, for a period of 180 days after the date of the Prospectus without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such period (i) the Company may grant
stock options pursuant to the Company's existing stock option plan and (ii) the
Company may issue shares of its common stock upon the exercise of an option or
warrant.
3. Terms of Public Offering. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the effective date of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 10:00 A.M., New York City time, on
the third or fourth business day unless otherwise permitted by the Commission
pursuant to Rule 15c6-1 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (the "Closing Date") following the date of the initial public
offering, at such place as you shall designate. The Closing Date and the
location of delivery of and the form of payment for the Firm Shares may be
varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at such place as you
shall designate at 10:00 A.M., New York City time, on the date specified in the
applicable exercise notice given by you pursuant to Section 2 (an "Option
Closing Date"). Any such Option Closing Date and the location of delivery of and
the form of payment for such Additional Shares may be varied by agreement
between you and the Sellers.
Certificates for the Shares shall be registered in such names
and issued in such denominations as you shall request in writing not later than
two full business days prior to the
3
<PAGE> 4
Closing Date or an Option Closing Date, as the case may be. Such certificates
shall be made available to you for inspection not later than 9:30 A.M., New York
City time, on the business day next preceding the Closing Date or the applicable
Option Closing Date, as the case may be. Certificates in definitive form
evidencing the Shares shall be delivered to you on the Closing Date or the
applicable Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment of the Purchase Price therefor by wire
transfer of immediately available funds to the order of the applicable Sellers.
5. Agreements of the Company. The Company agrees with you:
(a) To use its reasonable best efforts to cause the
Registration Statement to become effective at the earliest possible time.
(b) To advise you promptly and, if requested by you, to
confirm such advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment to it becomes effective, (ii) of
any request by the Commission for amendments to the Registration Statement or
amendments or supplements to the Prospectus or for additional information, (iii)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or of the suspension of qualification of the
Shares for offering or sale in any jurisdiction, or the initiation of any
proceeding for such purposes, and (iv) of the happening of any event during the
period referred to in paragraph (e) below which makes any statement of a
material fact made in the Registration Statement or the Prospectus untrue or
which requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading. If at any time the Commission shall issue any stop order suspending
the effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(c) To furnish to you, without charge, two signed copies of
the Registration Statement as first filed with the Commission and of each
amendment to it, including all exhibits, and to furnish to you and each
Underwriter designated by you such number of conformed copies of the
Registration Statement as so filed and of each amendment to it, without
exhibits, as you may reasonably request.
(d) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when it becomes
effective, or to make any amendment or supplement to the Prospectus of which you
shall not previously have been advised or to which you shall reasonably object;
and to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its reasonable best efforts to
cause the same to become promptly effective.
(e) Promptly after the Registration Statement becomes
effective, and from time to time thereafter for such period (prior to nine
months after the date of the Prospectus) as in the
4
<PAGE> 5
opinion of counsel for the Underwriters a prospectus is required by law to be
delivered in connection with sales by an Underwriter or a dealer, to furnish to
each Underwriter and dealer as many copies of the Prospectus (and of any
amendment or supplement to the Prospectus) as such Underwriter or dealer may
reasonably request.
(f) If during the period specified in paragraph (e) any event
shall occur as a result of which, in the opinion of counsel for the Underwriters
it becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with any law, forthwith to prepare and file
with the Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented, will not
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with law, and to furnish to each Underwriter and
to such dealers as you shall specify, such number of copies thereof as such
Underwriter or dealers may reasonably request.
(g) Prior to any public offering of the Shares, to cooperate
with you and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such qualification in effect so long as required
for distribution of the Shares and to file such consents to service of process
or other documents as may be necessary in order to effect such registration or
qualification, provided that the Company shall not be required to qualify as a
foreign corporation or to file a consent to service of process in any
jurisdiction or to subject itself to taxation in respect of doing business in
any jurisdiction in which it is not otherwise so subject.
(h) To mail and make generally available to its stockholders
as soon as reasonably practicable an earnings statement covering a period of at
least twelve months after the effective date of the Registration Statement (but
in no event commencing later than 90 days after such date) which shall satisfy
the provisions of Section 11 (a) of the Act.
(i) During the period of five years after the date of this
Agreement, (i) to mail as soon as reasonably practicable after the end of each
fiscal year to the record holders of its Common Stock a financial report of the
Company and its subsidiaries on a consolidated basis (and a similar financial
report of all unconsolidated subsidiaries, if any), all such financial reports
to include a consolidated balance sheet, a consolidated statement of operations,
a consolidated statement of cash flows and a consolidated statement of
stockholders' equity as of the end of and for such fiscal year, together with
comparable information as of the end of and for the preceding year, certified by
independent certified public accountants, and (ii) to mail and make generally
available as soon as practicable after the end of each quarterly period (except
for the last quarterly period of each fiscal year) to such holders, a
consolidated balance sheet, a consolidated statement of operations and a
consolidated statement of cash flows (and similar financial reports of all
unconsolidated subsidiaries, if any) as of the end of and for such period, and
for the period from the beginning of such year to the
5
<PAGE> 6
close of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(j) During the period referred to in paragraph (i), to furnish
to you as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed with
the Commission and such other publicly available information concerning the
Company and its subsidiaries as you may reasonably request.
(k) To pay all costs, expenses, fees and taxes incident to (i)
the preparation, printing, filing and distribution under the Act of the
Registration Statement (including financial statements and exhibits), each
preliminary prospectus and all amendments and supplements to any of them prior
to or during the period specified in paragraph (e), (ii) the printing and
delivery of the Prospectus and all amendments or supplements to it during the
period specified in paragraph (e), (iii) the printing and delivery of this
Agreement, the Preliminary and Supplemental Blue Sky Memoranda and all other
agreements, memoranda, correspondence and other documents printed and delivered
in connection with the offering of the Shares (including in each case any
disbursements of counsel for the Underwriters relating to such printing and
delivery), (iv) the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of the several states (including in
each case the fees and disbursements of counsel for the Underwriters relating to
such registration or qualification and memoranda relating thereto not to exceed
$25,000), (v) the filing fees incident to securing any required review by the
Corporate Financing Department of NASD Regulation, Inc. (the "NASDR") of the
terms of the sale of the Shares and the fees, disbursements and expenses for
counsel for the Underwriters in connection with the securing of any required
review by the NASDR of the terms of the sale of the Shares, (vi) the listing of
the Shares on the Nasdaq National Market, (vii) furnishing such copies of the
Registration Statement, the Prospectus and all amendments and supplements
thereto as may be requested for use in connection with the offering or sale of
the Shares by the Underwriters or by dealers to whom Shares may be sold and
(viii) the performance by the Sellers of their other obligations under this
Agreement.
(l) To use its best efforts to maintain the inclusion of such
Common Stock in the Nasdaq National Market (or on a national securities
exchange) for a period of five years after the effective date of the
Registration Statement.
(m) To use its best efforts to do and perform all things
required or necessary to be done and performed under this Agreement by the
Company prior to the Closing Date or any Option Closing Date, as the case may
be, and to satisfy all conditions precedent to the delivery of the Shares.
6. Representations and Warranties of the Company and CTB. The
Company and CTB jointly and severally represent and warrant to each Underwriter
that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
6
<PAGE> 7
(b) (i) Each part of the Registration Statement, when such
part became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the Act, and each Registration Statement
filed pursuant to Rule 462(b) under the Act, if any, complied when so filed in
all material respects with the Act; and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(d) The Company and each of its significant subsidiaries as
defined in Rule 405 under the Act (the "Significant Subsidiaries") has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as it is currently being conducted and to
own, lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(e) All of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's Significant Subsidiaries
have been duly authorized and validly issued and are fully paid and
non-assessable, and are owned by the Company, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature, except as
described in the Registration Statement.
(f) All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights; and the Shares have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
7
<PAGE> 8
(g) The authorized capital stock of the Company, including the
Common Stock, conforms as to legal matters to the description thereof contained
in the Prospectus.
(h) Neither the Company nor any of its Significant
Subsidiaries is (i) in violation of its respective charter or by-laws or (ii) in
default in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
other agreement, indenture, lease or instrument material to the conduct of the
business of the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound, except where such default
would not have a Material Adverse Effect.
(i) The execution, delivery and performance of this Agreement
by the Company and CTB, compliance by the Company and CTB with all the
provisions hereof and the consummation of the transactions contemplated hereby
and the consummation of the Exchange and the Redemption will not require any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as such may be required
under the securities or Blue Sky laws of the various states and except as would
not have a Material Adverse Effect) and will not conflict with or constitute a
breach of any of the terms or provisions of, or a default under, (i) any of the
respective charters or by-laws of the Company or any of its subsidiaries, (ii)
any agreement, indenture or other instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries or
their respective property is bound except as would not have a Material Adverse
Effect, or (iii) violate or conflict with any laws, administrative regulations
or rulings or court decrees applicable to the Company or any of its subsidiaries
or their respective property except as would not have a Material Adverse Effect.
(j) This Agreement has been duly authorized, executed and
delivered by the Company and CTB and is a valid and binding agreement of the
Company and CTB, enforceable against the Company and CTB in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the rights of
creditors generally, by general principles of equity and except as rights to
indemnity and contribution hereunder may be limited by applicable law.
(k) Except as otherwise set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or any of its
Significant Subsidiaries is a party or of which any of their respective property
is the subject, and, to the best of the Company's knowledge, no such proceedings
are threatened or contemplated, except as would not have a Material Adverse
Effect. No contract or document of a character required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement is not so described or filed as required.
(l) None of the Company nor any of its subsidiaries has
violated any foreign, federal, state or local law or regulation relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("Environmental Laws"), nor any
federal or state law relating to discrimination in the hiring, promotion or pay
of
8
<PAGE> 9
employees nor any applicable federal or state wages and hours laws, nor any
provisions of the Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, which in each case would have a Material
Adverse Effect. The costs and liabilities of complying with Environmental Laws
would not, singly or in the aggregate, have a Material Adverse Effect.
(m) The Company and each of its subsidiaries have such
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its respective
properties and to conduct its business except where the failure to have any such
permits would not, singly or in the aggregate, have a Material Adverse Effect;
the Company and each of its subsidiaries have fulfilled and performed all of
their obligations with respect to such permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any other impairment of the rights of the holder of any
such permit except as would not have a Material Adverse Effect.
(n) Except as otherwise set forth in the Prospectus or such as
would not result in a Material Adverse Effect, the Company and each of its
subsidiaries have good and marketable title, free and clear of all liens,
claims, encumbrances and restrictions except liens for taxes not yet due and
payable, to all property and assets described in the Registration Statement as
being owned by it. All leases to which the Company or any of its subsidiaries
are a party are valid and binding and no default has occurred or is continuing
thereunder, except as would not have a Material Adverse Effect, and the Company
and its subsidiaries enjoy peaceful and undisturbed possession under all such
leases to which any of them is a party as lessee with such exceptions as do not
interfere with the use made by the Company or such subsidiary except as would
not have a Material Adverse Effect.
(o) The Company and its subsidiaries maintain reasonably
adequate insurance.
(p) The respective firm of accountants that has certified or
shall certify the applicable consolidated financial statements and supporting
schedules of the Company, the Company's predecessor, Butler and Fancom filed or
to be filed with the Commission as part of the Registration Statement and the
Prospectus are independent public accountants as required by the Act.
(q) The consolidated historical and pro forma financial
statements, together with related schedules and notes, set forth in the
Prospectus and the Registration Statement comply as to form in all material
respects with the requirements of the Act. Such historical financial statements
fairly present the consolidated financial position of the Company and its
subsidiaries at the respective dates indicated and the results of their
operations and their cash flows for the respective periods indicated, in
accordance with generally accepted accounting principles consistently applied
throughout such periods. Such pro forma financial statements have been prepared
on a basis consistent with such historical statements, except for the pro forma
adjustments specified therein, and give effect to assumptions made on a
reasonable basis and present fairly the transactions described in the
Prospectus. The other financial information and data included in the Prospectus
and in the Registration Statement, historical and pro forma, are, in all
material respects, accurately
9
<PAGE> 10
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company, the Company's predecessor, Butler and
Fancom.
(r) The Company is not an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(s) No holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of the
Company, except as otherwise set forth in the Registration Statement.
(t) The Company has complied with all provisions of Section
517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(u) Except as disclosed in the Prospectus, there are no
business relationships or related party transactions required to be disclosed
therein by Item 404 of Regulation S-K of the Commission.
(v) All material tax returns required to be filed by the
Company and each of its subsidiaries in any jurisdiction have been filed, other
than those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received by
the Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
(w) There is (i) no significant unfair labor practice
complaint pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against any of them, before the National
Labor Relations Board or any state or local labor relations board, and no
significant grievance or more significant arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against the Company
or any of its subsidiaries or, to the best knowledge of the Company, threatened
against any of them, and (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Company or any of its subsidiaries or, to the best
knowledge of the Company, threatened against it or any of its subsidiaries
except for such actions specified in clause (i) or (ii) above, which, singly or
in the aggregate as would not have a Material Adverse Effect.
(x) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens related to
or entitling any person to purchase or otherwise to acquire any shares of the
capital stock of, or other ownership interest in, the Company or any subsidiary
thereof except as otherwise disclosed in the Registration Statement.
(y) Each of the Company and its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
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<PAGE> 11
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) the Acquisitions have been consummated in accordance with
the terms of the Transaction Documents and the Company or its subsidiaries own
all or substantially all of the assets of the Grain Division and the entire
equity interest in Fancom.
(aa) The Exchange/Redemption Agreement has been duly
authorized, executed and delivered by the Company and each of the other parties
thereto and constitutes a valid and legally binding agreement of the Company and
each of the other parties thereto, enforceable against the Company and each of
the other parties thereto in accordance with its terms except as enforcement may
be limited by bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the rights of creditors generally or by general
principles of equity.
(bb) The Company has delivered to you a true and complete copy
of each of the Transaction Documents and Exchange/Redemption Agreement that have
been executed and delivered prior to the date of this Agreement, together with
all related agreements and all schedules and exhibits thereto, and there have
been no amendments, alterations, modifications or waivers of any of the
provisions of any of the Transaction Documents since their date of execution
from the form in which it has been delivered to you.
(cc) After giving effect to the Redemption and the Exchange,
no shares of Existing Preferred Stock will be outstanding.
(dd) The Company has filed a registration statement pursuant
to Section 12(g) of the Exchange Act to register the Common Stock, has filed an
application to list the Shares on the Nasdaq National Market, and has received
notification that the listing has been approved, subject to notice of issuance.
7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder severally represents and warrants to each Underwriter
that:
(a) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and has, and
on the Closing Date (and Option Closing Date, if applicable) will have, good and
marketable title to such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to
this Agreement, good and clear title to such Shares will pass to the
Underwriters, free of all restrictions on transfer, lies, encumbrances, security
interests and claims whatsoever.
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<PAGE> 12
(c) Such Selling Stockholder has, and on the Closing Date will
have, full legal right, power and authority to enter into this Agreement and to
sell, assign, transfer and deliver such Shares in the manner provided herein,
and this Agreement has been duly authorized, executed and delivered by the
Selling Stockholders and is a valid and binding agreement of the Selling
Stockholders enforceable in accordance with its terms, except as rights to
indemnity and contribution hereunder may be limited by applicable law.
(d) The power of attorney signed by such Selling Stockholder
appointing David L. Horing and Don J. Steinhilber, or either one of them, as its
attorney-in-fact to the extent set forth therein with regard to the transactions
contemplated hereby and by the Registration Statement has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder enforceable in
accordance with its terms, and, pursuant to such power of attorney, such Selling
Stockholder has authorized David L. Horing and Don J. Steinhilber, or either one
of them, to execute and deliver on his behalf this Agreement and any other
document necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by such Selling Stockholder pursuant
to this Agreement.
(e) Such Selling Stockholder had not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares
pursuant to the distribution contemplated by this Agreement, and other than as
permitted by the Act, such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(f) The execution, delivery and performance of this Agreement
by such Selling Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body (except
as such may be required under the securities or Blue Sky laws of the various
states except as would not have a Material Adverse Effect) and will not conflict
with or constitute a breach of any of the terms or provisions of, or a default
under, (i) the organizational documents of such Selling Stockholder, if not an
individual, (ii) any agreement, indenture or other instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder or property
of such Selling Stockholder is bound except as would not have a Material Adverse
Effect, or (iii) violate or conflict with any laws, administrative regulations
or rulings or court decrees applicable to such Selling Stockholder or property
of such Selling Stockholder except as would not have a Material Adverse Effect.
(g) Such parts of the Registration Statement under the caption
"Principal Stockholders" which specifically relate to such Selling Stockholder
do not, and will not on the Closing Date (and any Option Closing Date, if
applicable), contain any untrue statement if a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of circumstances under which they were made, not
misleading.
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<PAGE> 13
(h) At any time during the period described in paragraph 5(e)
hereof, if there is any change in the information referred to in paragraph 7(g)
above, the Selling Stockholders will immediately notify you of such change.
8. Indemnification. (a) The Company and CTB, jointly and
severally, agree to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and judgments caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriters furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use therein. Each Selling Stockholder
severally agrees to indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, to the same extent as to the
foregoing indemnity from the Company and CTB, but only with reference to
information furnished to the Company by or on behalf of the Selling Stockholders
expressly for use in the Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) or any preliminary prospectus. Notwithstanding the foregoing, the
aggregate liability of any Selling Stockholder pursuant to the provisions of
this paragraph shall be limited to an amount equal to the aggregate net purchase
price received by such Selling Stockholder from the sale of such Selling
Stockholder's Shares hereunder; provided, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages and liabilities and judgments purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended and supplemented) would have cured the defect giving rise to such
loss, claim, damage, liability or judgment.
(b) In case any action shall be brought against any
Underwriter or any person controlling such Underwriter, based upon any
preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement thereto and with respect to which indemnity may be
sought against any indemnifying party under Section 8(a), such Underwriter shall
promptly notify such indemnifying party in writing and the indemnifying party
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to the indemnified party and payment of all fees and expenses. Any
Underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or such controlling person
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<PAGE> 14
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense and employ counsel or (iii) the named
parties to any such action (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying party, as the case
may be, and such Underwriter or such controlling person shall have been advised
by such counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to an indemnifying
party, as the case may be (in which case an 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 an 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 fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such Underwriters and controlling persons, which firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation and
that all such fees and expenses shall be reimbursed as they are incurred). No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent, but if settled with the written consent of
such indemnifying party, such indemnifying party agrees to indemnify and hold
harmless any Underwriter and any such controlling person from and against any
loss or liability by reason of such settlement (limited in the case of Selling
Stockholders as provided in Section 8(a)). Notwithstanding the immediate
preceding sentence, if in any case where the fees and expenses of counsel are at
the expense of the indemnifying party and an indemnified party shall have
requested the indemnifying party to reimburse the indemnified party for such
fees and expenses of counsel as incurred, such indemnifying party agrees that it
shall be liable for any settlement of any action effected without its written
consent if (i) such settlement is entered into more than ten business days after
the receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall have failed to reimburse the indemnified party in
accordance with such request for reimbursement prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, any person controlling the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each
Selling Stockholder and each person, if any, controlling such Selling
Stockholder within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, to the same extent as the foregoing indemnity from the
indemnifying parties under Section 8(a) to each Underwriter but only with
reference to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any preliminary prospectus. In case any action
shall be brought against the Company, any of its directors, any such officer or
any person controlling the Company, or any Selling Stockholder or any such
person controlling such Selling Stockholder based on the Registration Statement,
the Prospectus or any preliminary prospectus and in respect of which indemnity
may be
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<PAGE> 15
sought against any Underwriter, the Underwriter shall have the rights and duties
given to the indemnifying parties under Section 8(b) (except that if any such
indemnifying party shall have assumed the defense thereof, such Underwriter
shall not be required to do so, but may employ separate counsel therein and
participate in the defense thereof but the fees and expenses of such counsel
shall be at the expense of such Underwriter), and the Company, its directors,
any such officers and any person controlling the Company and the Selling
Stockholders and any person controlling such Selling Stockholders shall have the
rights and duties given to the Underwriter, by Section 8(b) hereof.
(d) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnifying parties under Section
8(a) on the one hand and the Underwriters on the other hand from the offering of
the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the indemnifying parties and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the indemnifying parties and
the Underwriters shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
indemnifying parties, and the total underwriting discounts and commissions
received by the Underwriters, bear to the total price to the public of the
Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the indemnifying parties and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by an indemnifying party or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
Each of the indemnifying parties and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent
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<PAGE> 16
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective number of Shares
purchased by each of the Underwriters hereunder and not joint.
(e) Each of the indemnifying parties will accept the
jurisdiction of any state or federal court in the State of New York in any
action, suit or proceeding which may be instituted by and Underwriter or person
controlling an Underwriter asserting a claim for indemnification or contribution
under or pursuant to this Section 8, and waives, to the fullest extent permitted
by applicable law, any defense based upon lack of personal jurisdiction or
venue. A copy of such process shall be sent or given to such indemnifying party
at the address for notices specified in Section 12 hereof.
9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and
CTB contained in this Agreement shall be true and correct on the Closing Date
with the same force and effect as if made on and as of the Closing Date.
(b) The Registration Statement shall have become effective not
later than 5:00 P.M. (and in the case of a Registration Statement filed under
Rule 462 (b) of the Act, not later than 10:00 p.m.), New York City time, on the
date of this Agreement or at such later date and time as you may approve in
writing, and at the Closing Date no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or contemplated by
the Commission.
(c) (i) Since the date of the latest balance sheet included in
the Registration Statement and the Prospectus there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings,
affairs or business prospects, whether or not arising in the ordinary course of
business, of the Company and its subsidiaries, taken as a whole, (ii) since the
date of the latest balance sheet included in the Registration Statement and the
Prospectus there shall not have been any change, or any development involving a
prospective material adverse change, in the capital stock or in the long-term
debt of the Company and its subsidiaries from that set forth in the Registration
Statement and Prospectus, (iii) the Company and its subsidiaries shall have no
liability or obligation, direct or contingent, which is material to the Company
and its subsidiaries, taken as a whole, other than those reflected in the
Registration Statement and the Prospectus, (iv) on the Closing Date you shall
have received a certificate, dated the Closing Date, executed on behalf of the
Company, signed by the President, Chief Executive Officer or any Vice President
and a principal financial or accounting officer of the Company, confirming the
matters set forth in paragraphs (a), (b), and (c) of this Section 9, and (v) on
the Closing Date you shall have received a certificate, dated the Closing Date,
executed on behalf of CTB, signed by the President, Chief Executive Officer or
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<PAGE> 17
any Vice President and a principal financial or accounting officer of CTB,
confirming the matters set forth in paragraph (a) of this Section 9.
(d) All of the representations and warranties of the Selling
Stockholders contained in this Agreement shall be true and correct on the
Closing Date with the same force and effect as if made on and as of the Closing
Date and you shall have received a certificate to such effect, dated the Closing
Date, from each Selling Stockholder (or its attorney-in-fact).
(e) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Michael J. Kissane, Esq. General Counsel for the Company and CTB and counsel
for certain of the Selling Stockholders, to the effect that:
(i) the Company and each of its Significant Subsidiaries has
been duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority required to carry on its business as
it is currently being conducted and to own, lease and operate its
properties;
(ii) the Company and each of its Significant Subsidiaries is
duly qualified and is in good standing as a foreign corporation
authorized to do business in each jurisdiction in which the nature of
its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not
have a Material Adverse Effect;
(iii) all of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's Significant
Subsidiaries have been duly and validly authorized and issued and are
fully paid and non-assessable, and to such counsel's knowledge are
owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature, except as
described in the Registration Statement;
(iv) all the outstanding shares of Common Stock (including the
Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(v) the Shares to be issued and sold by the Company hereunder
have been duly authorized, and when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement,
will have been validly issued and will be fully paid and
non-assessable, and the issuance of such Shares is not subject to any
preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company, CTB and each of the Selling Stockholders;
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<PAGE> 18
(vii) the Exchange/Redemption Agreement has been duly
authorized, executed and delivered by the Company and each of the other
parties thereto and constitutes a valid and binding agreement of the
Company and each of the other parties thereto, enforceable against the
Company and each of the other parties thereto in accordance with its
terms except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to or affecting the
rights of creditors generally or by general principles of equity;
(viii) the authorized capital stock of the Company, including
the Common Stock, conforms as to legal matters to the description
thereof contained in the Prospectus;
(ix) the Registration Statement has become effective under the
Act, and to the knowledge of such counsel, no stop order suspending its
effectiveness has been issued and no proceedings for that purpose are
pending before or contemplated by the Commission;
(x) the statements under the captions "Risk Factors--Possible
Anti-Takeover Effect of Certain Charter and By-Law Provisions",
"Business--Patents and Trademarks", "Business--Product Liability and
Legal Proceedings", "Business--Regulatory and Environmental Matters",
"Management--Compensation Pursuant to Benefit Plans and Arrangements",
"Certain Relationships and Related Transactions", "Description of
Capital Stock", "Description of Credit Agreement" and "Shares Available
for Future Sale" in the Prospectus and Items 14 and 15 of Part II of
the Registration Statement insofar as such statements constitute a
summary of legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal
matters, documents and proceedings;
(xi) neither the Company nor any of its Significant
Subsidiaries is (i) in violation of its respective charter or bylaws
and (ii) to such counsel's knowledge, neither the Company nor any of
its subsidiaries is in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any other agreement, indenture,
lease or instrument material to the conduct of the business of the
Company and its subsidiaries, taken as a whole, to which the Company or
any of its subsidiaries is a party or by which it or any of its
subsidiaries or their respective property is bound, except where such
default would not have a Material Adverse Effect;
(xii) the execution, delivery and performance of this
Agreement by the Company, CTB and each Selling Stockholder, compliance
by the Company, CTB and each Selling Stockholder with all the
provisions hereof and the consummation of the transactions provided for
hereby and the consummation of the Exchange and the Redemption will not
require any consent, approval, authorization or other order of any
court regulatory body, administrative agency or other governmental body
(except as such may be required under the Act or other securities or
Blue Sky laws and except as would not have a Material Adverse Effect)
and will not conflict with or constitute a breach of any of the terms
or provisions of, or a default under, (i) the charter or by-laws of the
Company, CTB or any of their subsidiaries, (ii) any agreement,
indenture or other instrument, known to such counsel, to
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which the Company, CTB or any of their subsidiaries, or any Selling
Stockholder is a party or by which the Company, CTB or any of their
subsidiaries, or any Selling Stockholder or their respective properties
are bound except as would not have a Material Adverse Effect, or (iii)
violate or conflict with any laws, administrative regulations or
rulings or court decrees applicable to the Company, CTB or any of their
subsidiaries, or any Selling Stockholder or their respective
properties, except as would not have a Material Adverse Effect;
(xiii) such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or any of its
Significant Subsidiaries is a party or to which any of their respective
property is subject which is required to be described in the
Registration Statement or the Prospectus and is not so described, or of
any contract or other document which is required to be described in the
Registration Statement or the Prospectus or is required to be filed as
an exhibit to the Registration Statement which is not described or
filed as required;
(xiv) except as disclosed in the Prospectus, to such counsel's
knowledge, no holder of any security of the Company has any right to
require registration of shares of Common Stock or any other security of
the Company;
(xv) Such counsel has no reason to believe that the
Registration Statement, as of its effective date, contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading or that the Prospectus and any
supplement or amendment thereto contains any untrue statement of a
material fact or omits to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading, except that in each case such counsel
need express no belief with respect to the financial statements or
other financial or statistical data contained in the Registration
Statement or the Prospectus;
(xvi) each Selling Stockholder has full legal right, power and
authority, and any approval required by law (other than any approval
imposed by the applicable state securities and Blue Sky laws) to sell,
assign, transfer and deliver the Shares to be sold by it in the manner
provided in this Agreement;
(xvii) each Selling Stockholder has good and clear title to
the certificates for the Shares to be sold by him and upon delivery
thereof, pursuant hereto and payment therefor, good and clear title
will pass to the Underwriters, severally, free of all restrictions on
transfer, liens, encumbrances, security interests and claims
whatsoever; and
(xviii) the power of attorney signed by such Selling
Stockholder appointing David L. Horing and Don J. Steinhilber, or
either one of them, as its attorney-in-fact to the extent set forth
therein with regard to the transactions contemplated hereby and by the
Registration Statement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder and is a valid and binding
instrument of such Selling Stockholder enforceable
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in accordance with its terms, and, pursuant to such power of attorney,
each of the Selling Stockholders has authorized David L. Horing and Don
J. Steinhilber, or either one of them, to execute and deliver on his
behalf this Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver the
Shares to be sold by such Selling Stockholder pursuant to this
Agreement.
In giving such opinion with respect to the matters covered by
clause (xv) such counsel may state that his opinion and belief are based upon
his participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
The opinion of Michael J. Kissane, Esq. described in paragraph
(e) above shall be rendered to you at the request of the Company, CTB and the
Selling Stockholders and shall so state therein.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Simpson Thatcher & Bartlett, special counsel for the Company and American
Securities Partners, L.P. and ASP/CTB, L.P., each a Delaware limited
partnership, to the effect that:
(i) the Company has been duly incorporated and is validly
existing and in good standing as a corporation under the laws of the
State of Delaware and has full corporate power and authority to conduct
its business as described in the Registration Statement and Prospectus;
(ii) all outstanding shares of the Company's Common Stock,
including the Shares, have been duly authorized, and all outstanding
shares of the Company's Common Stock have been and, upon payment and
delivery in accordance with this Agreement, the Shares will be, validly
issued, fully paid and nonassessable;
(iii) each of American Securities Partners, L.P. and ASP/CTB,
L.P. (each an "American Securities Partnership") is the sole registered
owner of the Shares to be sold by such American Securities Partnership
and each American Securities Partnership has full partnership power,
right and authority to sell such Shares and, upon payment for and
delivery of such Shares in accordance with this Agreement, the
Underwriters will acquire all of the rights of each American Securities
Partnership in the Shares to be sold by such American Securities
Partnership and will also acquire their interest in such Shares free of
any adverse claim (within the meaning of the Uniform Commercial Code as
in effect in the State of New York);
(iv) the statements made in the Prospectus under the caption
"Description of Capital Stock," insofar as they purport to constitute
summaries of the terms of the Company's capital
20
<PAGE> 21
stock (including the Shares), constitute accurate summaries of the
terms of such capital stock in all material respects;
(v) this Agreement has been duly authorized, executed and
delivered by the Company and on behalf of each American Securities
Partnership;
(vi) the power of attorney signed by each American Securities
Partnership appointing David L. Horing and Don J. Steinhilber, or
either one of them, as its attorney-in-fact to the extent set forth
therein with regard to the transactions contemplated hereby and by the
Registration Statement has been duly authorized, executed and delivered
by or on behalf of each American Securities Partnership and is a valid
and binding instrument of each American Securities Partnership
enforceable in accordance with its terms and pursuant to such power of
attorney, each American Securities Partnership has authorized David L.
Horing and Don J. Steinhilber, or either one of them, to execute and
deliver on his behalf this Agreement and any other document necessary
or desirable in connection with transactions contemplated hereby and to
deliver the Shares to be sold by each American Securities Partnership
pursuant to this Agreement;
(vii) no consent, approval, authorization, order, registration
or qualification of or with any federal or New York governmental agency
or body or any Delaware governmental agency or body acting pursuant to
the Delaware General Corporation Law or, to our knowledge, any federal
or New York court or any Delaware court acting pursuant to the Delaware
General Corporation Law is required for the issue and sale of the
Shares by the Company and the compliance by the Company with all of the
provisions of this Agreement, except for the registration under the Act
and the Exchange Act, of the Shares, and such consents, approvals,
authorizations, orders, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(viii) the issue and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement
will not conflict with or constitute a breach of any of the terms or
provisions of, or result in a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument
identified on the annexed schedule furnished to such counsel by the
Company (which the Company shall have certified constitutes a list of
all material agreements except as would not have a Material Adverse
Effect), nor will such action violate the Certificate of Incorporation
or By-Laws of the Company or any federal or New York statute or the
Delaware General Corporation Law or any rule or regulation that has
been issued pursuant to any federal or New York statute or the Delaware
General Corporation Law or any order known to us issued pursuant to any
federal or New York statute or the Delaware General Corporation Law by
any governmental agency or body or court having jurisdiction over the
Company or any of its subsidiaries or any of their properties;
21
<PAGE> 22
(ix) the sale of the Shares by the American Securities
Partnerships and the compliance by the American Securities Partnerships
with all of the provisions of this Agreement will not conflict with or
constitute a breach of any of the terms or provisions of, or result in
a default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument identified on the annexed schedule
furnished to such counsel by the American Securities Partnerships
(which the American Securities Partnerships shall have certified
constitutes a list of all material agreements except as would not have
a Material Adverse Effect), nor will such action violate the
partnership agreements of the American Securities Partnerships or any
federal or New York statute or the Delaware Uniform Limited Partnership
Act or any rule or regulation that has been issued pursuant to any
federal or New York statute or the Delaware Uniform Limited Partnership
Act or any order known to us issued pursuant to any federal or New York
statute or the Delaware Uniform Limited Partnership Act by any
governmental agency or body or court having jurisdiction over the
American Securities Partnerships or any of their properties;
(x) no consent, approval, authorization, order, registration
or qualification of or with any federal or New York governmental agency
or body or any Delaware governmental agency or body acting pursuant to
the Delaware Uniform Limited Partnership Act or, to our knowledge, any
federal or New York court or any Delaware court acting pursuant to the
Delaware Uniform Limited Partnership Act is required for the sale of
the Shares by the American Securities Partnerships and the compliance
by the American Securities Partnerships with all of the provisions of
this Agreement, except for the registration under the Act and the
Exchange Act, of the Shares, and such consents, approvals,
authorizations, orders, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(xi) the Registration Statement has become effective under the
Act and the Prospectus was filed on ___________, 1997 pursuant to Rule
424(b) of the rules and regulations of the Commission under the Act
and, to our knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued or proceeding for that
purpose has been instituted or threatened by the Commission;
(xii) there are no preemptive rights under federal law or
under the Delaware General Corporation Law to subscribe for or purchase
shares of the Company's capital stock. There are no preemptive or other
rights to subscribe for or to purchase any shares of the Company's
capital stock pursuant to the Company's charter or by-laws or any
agreement or other instrument identified on a schedule furnished to
such counsel by the Company (which the Company shall have certified
constitutes a list of all material agreements except as would not have
a Material Adverse Effect) and which is attached to such counsel's
opinion;
(xiii) the Company is not an "investment company" within the
meaning of and subject to regulation under the Investment Company Act
of 1940, as amended; and
22
<PAGE> 23
(xiv) the Registration Statement and the Prospectus and any
supplement or amendment thereto, comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations of the Commission thereunder, except that in each case such
counsel need express no opinion with respect to the financial
statements or other financial or statistical data contained in the
Registration Statement or the Prospectus, and such counsel has no
reason to believe that the Registration Statement, as of its effective
date, contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading or that the
Prospectus and any supplement or amendment thereto contains any untrue
statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that
in each case such counsel need express no belief with respect to the
financial statements or other financial or statistical data contained
in the Registration Statement or the Prospectus.
In giving such opinion with respect to the matters covered by
clause (xiv) such counsel may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified.
The opinion of Simpson Thatcher & Bartlett described in
paragraph (f) above shall be rendered to you at the request of the Company and
American Securities Partners, L.P. and ASP/CTB, L.P. and shall so state therein.
(g) You shall have received on the Closing Date an opinion,
dated the Closing Date, of Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel
for the Underwriters, as to the matters referred to in clauses (v), (vi) (but
only with respect to the Company), (ix), (x) (but only with respect to the
statements under the caption "Description of Capital Stock" and "Underwriting")
and (xv) of the foregoing paragraph (e). In giving such opinion with respect to
the matters covered by clause (xv) such counsel may state that their opinion and
belief are based upon their participation in the preparation of the Registration
Statement and Prospectus and any amendments or supplements thereto and review
and discussion of the contents thereof, but are without independent check or
verification except as specified.
(h) You shall have received letters on and as of the Closing
Date, in form and substance satisfactory to you, from Deloitte & Touche LLP,
Price Waterhouse LLP, KPMG Peat Marwick LLP and Coopers & Lybrand N.V.,
independent public accountants, with respect to the financial statements and
certain financial information contained in the Registration Statement and the
Prospectus for each of the Company, the Company's predecessor, Butler and
Fancom, respectively, substantially in the form and substance of the letters
delivered to you by Deloitte & Touche LLP, Price Waterhouse LLP, KPMG Peat
Marwick LLP and Coopers & Lybrand N.V. on the date of this Agreement.
23
<PAGE> 24
(i) The Sellers shall have delivered to you the agreements
specified in Section 2 hereof.
(j) The Acquisitions shall have been consummated prior to the
issuance and sale of the Firm Shares hereunder substantially on the terms set
forth in the Prospectus and the Company or its subsidiaries shall own all or
substantially all of the assets of the Grain Division and the entire equity
interest in Fancom.
(k) The Exchange and the Redemption shall have been
consummated prior to or contemporaneously with the issuance and sale of the Firm
Shares hereunder.
(l) The New Credit Agreement (as defined in the Prospectus)
shall have been entered into and all amounts outstanding under the Existing
Credit Agreement (as defined in the Prospectus) shall have been repaid.
(m) The Company, CTB and the Selling Stockholders shall not
have failed at or prior to the Closing Date to perform or comply with any of the
agreements herein contained and required to be performed or complied with by
them at or prior to the Closing Date.
The several obligations of the Underwriters to purchase any
Additional Shares hereunder are subject to the delivery to you on the applicable
Option Closing Date of such documents as you may reasonably request with respect
to the good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
10. Effective Date of Agreement and Termination. This
Agreement shall become effective upon the later of (i) execution of this
Agreement and (ii) when notification of the effectiveness of the Registration
Statement has been released by the Commission.
This Agreement may be terminated at any time prior to the
Closing Date by you by written notice to the Sellers if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Company and its subsidiaries, taken as a whole,
or the earnings, affairs, or business prospects of the Company or any of its
subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business, which would, in your judgment, make it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) any
outbreak or escalation of hostilities or other national or international
calamity or crisis or change in economic conditions or in the financial markets
of the United States or elsewhere that, in your judgment, is material and
adverse and would, in your judgment, make it impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus, (iii) the
suspension or material limitation of trading in securities on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market or
limitation on prices for securities on any such exchange or Nasdaq National
Market, (iv) the enactment, publication, decree or other promulgation of any
federal or state
24
<PAGE> 25
statute, regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects, or will materially and
adversely affect, the business or operations of the Company or any of its
subsidiaries, (v) the declaration of a banking moratorium by either federal or
New York State authorities or (vi) the taking of any action by any federal,
state or local government or agency in respect of its monetary or fiscal affairs
which in your opinion has a material adverse effect on the financial markets in
the United States.
If on the Closing Date or on an Option Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase the Firm Shares or Additional Shares, as the case may be, which it or
they have agreed to purchase hereunder on such date and the aggregate number of
Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date or on an Option Closing Date, as the case may be, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares or
Additional Shares, as the case may be, and the aggregate number of Firm Shares
or Additional Shares, as the case may be, with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date by all Underwriters and arrangements satisfactory to you and the
Company for purchase of such Shares are not made within 48 hours after such
default, this Agreement will terminate without liability on the part of any
non-defaulting Underwriter and the Company. In any such case which does not
result in termination of this Agreement, either you or the Company shall have
the right to postpone the Closing Date or the applicable Option Closing Date, as
the case may be, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
11. Agreements of the Selling Stockholders. Each Selling
Stockholder severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes, if any,
with respect to the Shares to be sold by such Selling Stockholder; and
25
<PAGE> 26
(b) To take all reasonable actions in cooperation with the
Company and the underwriters to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to be doe
and performed under this Agreement prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Shares pursuant to this Agreement.
12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (a) if to the Company or CTB, to
Chore-Time Brock, Inc., State Road 15 North, P.O. Box 2000, Milford, In
46542-2000, (b) if to the Selling Stockholders, to [Name of Attorney-in-fact c/o
address of Attorney-in-fact], and (c) if to any Underwriter or to you, to you
c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New
York, New York 10172, Attention: Syndicate Department, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company or CTB and their
respective officers and directors, the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of (i) any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter or by or on behalf of
the Company or CTB and their respective officers and directors, the Selling
Stockholders, or any controlling person of any of them, (ii) acceptance of the
Shares and payment for them hereunder and (iii) termination of this Agreement.
If this Agreement shall be terminated by the Underwriters
because of any failure or refusal on the part of the Company, CTB or the Selling
Stockholders to comply with the terms or to fulfill any of the conditions of
this Agreement, the Sellers agree to reimburse the several Underwriters for all
out-of-pocket expenses (including the fees and disbursements of counsel)
reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, CTB, the
Selling Stockholders, the Underwriters, any controlling persons referred to
herein and their respective successors and assigns, all as and to the extent
provided in this Agreement, 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 a purchaser of any of the Shares from any of the several
Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York applicable to agreements made and to be
performed entirely in such State, without reference to the rules covering the
conflicts of laws.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
26
<PAGE> 27
Please confirm that the foregoing correctly sets forth the
agreement between the Company, CTB, the Selling Stockholders and the several
Underwriters.
Very truly yours,
CTB INTERNATIONAL CORP.
By:
----------------------------------------
Title:
CTB, INC.
By:
----------------------------------------
Title:
THE SELLING STOCKHOLDERS NAMED
IN SCHEDULE II HERETO
By:
----------------------------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GEORGE K. BAUM & COMPANY
CHASE SECURITIES INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------
<PAGE> 28
SCHEDULE I
Number of
Firm Shares
Underwriters to be Purchased
------------ ---------------
Donaldson, Lufkin & Jenrette
Securities Corporation
George K. Baum & Company
Chase Securities Inc.
<PAGE> 29
SCHEDULE II
Selling Stockholders
Number of
Firm Shares
Name Being Sold
---- -----------
American Securities Partners, L.P.
ASP/CTB, L.P.
J. Christopher Chocola
Caryl Chocola
<PAGE> 30
ANNEX I
Required Stockholder Lock-ups
American Securities Partners, L.P.
ASP/CTB, L.P.
American Securities Partners GP (Management) Corp.
ASP/CTB G.P. Corp.
J. Christopher Chocola
Caryl M. Chocola
Roger W. Townsend
Don J. Steinhilber
Mark A. Lantz
Michael G. Fisch
Charles D. Klein
John L. Haugh, Jr.
Dennis C. Manning
Michael J. Kissane
Mark Kleinsmith
Brian Dawes
Steve E. Bryant
Peter M. Smith
Billy Sue Bodley
James Coble
Jan H.M. Cremers
H.H.W. Gootzen
Richard A. Van Puffelen
<PAGE> 1
Exhibit 4.1
[CHORE-TIME LOGO] [BROCK LOGO]
CTB
INTERNATIONAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
SHARES
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
CUSIP 125960 10 4
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF PAR VALUE OF $.01 OF
CTB INTERNATIONAL CORP.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile Seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
Countersigned and Registered:
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Transfer Agent
and Registrar
By
Authorized Signature
[CTB INTERNATIONAL CORP.
CORPORATE
SEAL]
/s/ J. Christopher Chocola
President and Chief Executive Officer
/s/ Michael J. Kissane
Vice President, General Counsel and Secretary
<PAGE> 2
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
- -----------------------------------------------------------------------------
UNIF GIFT MIN ACT - Custodian
--------- ---------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
- -----------------------------------------------------------------------------
For value received, hereby sell, assign and transfer unto
-----
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -----------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Shares
- ----------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
------------------------------------------
Attorney
- --------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
-----------------------------------------------------
-----------------------------------------------------
NOTICE: THE SIGNATURE TO THIS AGREEMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR WITHOUT ALTERATIOIN OR ENHANCEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -------------------------------------------
THE SIGNATURES SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKER,
STOCKHOLDERS, SAVINGS AND LOANS ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17AD-1C
CTB INTERNATIONAL CORP.
<PAGE> 1
Exhibit 5.1
[Letterhead of Simpson Thacher & Bartlett]
August 11, 1997
CTB International Corp.
State Road 15 North
Milford, Indiana 46542-2000
Dear Sirs:
We have acted as special counsel to CTB International Corp., a
Delaware corporation (the "Company"), in connection with the proposed sale of
shares of Common Stock, par value $.01 per share, of the Company (the "Shares"),
as described in the Registration Statement on Form S-1, as amended (the
"Registration Statement"), filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act").
The Shares are to be purchased by certain underwriters and offered for sale to
the public (the "Offering") pursuant to the terms of an Underwriting Agreement
(the "Underwriting Agreement"), the form of which has been filed as an exhibit
to the Registration Statement.
We have examined, and have relied upon as to matters of fact, such
documents, corporate records and other instruments as we have deemed necessary
for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that the Shares to be
sold pursuant to the Registration Statement (including Shares, if any,
registered in a registration statement relating to the Offering filed by the
Company pursuant to Rule 462(b) under the Securities Act), have been duly
authorized by the Company and, upon
<PAGE> 2
CTB International Corp. -2- August 11, 1997
payment and delivery in accordance with the Underwriting Agreement, will be
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Registration Statement. We hereby also consent to the
incorporation by reference of this opinion and consent in a registration
statement, if any, relating to the Offering filed by the Company pursuant to
Rule 462(b) under the Securities Act.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE> 1
EXHIBIT 10.1
[KEYBANK LETTERHEAD]
March 21, 1997
Mr. Don Steinhilber
Vice President and
Chief Financial Officer
CTB, Inc.
State Route 15 North
Milford, IN 46542-2000
Dear Don:
I am please to inform you that KeyBank National Association ("KeyBank") has
committed to underwrite a $90,000,000 credit facility to CTB, Inc. ("CTB")
following the completion of an initial public offering (the "IPO") of its common
stock. The terms and conditions of this approval are as outlined in the Summary
of Principal Terms and Conditions dated March 21, 1997 attached hereto.
KeyBank's commitment shall expire at 5:00 p.m. Cleveland time on March 28, 1997
if CTB has not by such time (1) signed a copy of this letter accepting the terms
and conditions of KeyBank's approval and (2) paid KeyBank the non-refundable
underwriting fee of $75,000. KeyBank's commitment, once accepted, shall be
automatically terminated if (1) CTB has not filed a registration statement with
the Securities and Exchange Commission related to the IPO by August 31, 1997 or
(2) the IPO has not been completed by October 31, 1997.
KeyBank is pleased to provide this commitment to CTB and looks forward to
continuing to bring value to CTB in the future.
Sincerely,
/s/ Richard A. Pohle
Accepted and Agreed to this 24th day of March 1997.
CTB, INC.
by: /s/ Don J. Steinhilber
its: Vice President & CEO
<PAGE> 2
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21, 1997
The following details the terms and conditions of a credit facility which
KeyBank National Association commits to underwrite to provide financing to CTB,
Inc. following the receipt of proceeds from an initial public offering of its
common stock. This assumes CTB, Inc. is the operating company of the new public
entity.
BORROWERS: CTB, Inc. and its eligible foreign subsidiaries.
MANAGING AGENT: KeyBank National Association ("KeyBank").
LENDERS: Syndicate of bank lenders (the "Leaders" or the
"'Ranks") acceptable to the Borrower and Managing Agent
to be arranged by the Managing Agent.
FACILITY: A $90,000,000 Revolving Credit Facility to expire five
years from the closing date, the "Closing Date".
Borrowings will be denominated in U.S. Dollars and
foreign currencies (up to $25,000,000) acceptable to the
Lenders. This Facility will contain a $10,000,000
sublimit for trade letters of credit and standby letters
of credit. This Facility will also include a $5,000,000
Swingline for borrowings less than 30 days. Swingline
borrowings will be provided by KeyBank.
All fundings and credit exposure created through the
issuance of Letters of Credit would be issued by KeyBank
as Fronting Bank and participated to the Lenders on a
prorate basis. Specific terms of the letters of credit
are as follows:
LETTERS OF CREDIT: Trade letters of credit shall be issued to support
Borrower's import activity. No trade letter of credit or
related acceptance shall be issued with an expiration
date greater than six months after the date of its
issuance.
Standby letters of credit shall be issued to support
utility deposits, workmen's compensation insurance and
other needs. No standby letters of credit shall be
issued for periods of longer than one year, Further, no
standby letter of credit shall be issued with an
expiration date which is less than the date fifteen
business days prior to the date of expiration of the
Facility.
<PAGE> 3
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21,1997
ADVANCES & REPAYMENTS: Advances and repayments at the discretion of the
Borrower. Balance due at maturity.
RENEWAL/EXTENSION: With the submission of Borrower's fiscal year 1997
audited financial statements and annually thereafter,
Borrower may request the Banks extend their commitments
of the Facility by one additional year. A unanimous vote
of the Banks to extend the facility would be necessary
for an extension to be granted.
SECURITY: If the net proceeds from the IPO are sufficient to
reduce Funded Debt to Total Capitalization to less than
52.5%: None. Negative pledge on all assets.
If the net proceeds from the IPO result in Funded Debt
to Total Capitalization of greater than 52.50%: First
perfected security interest in all tangible and
intangible assets of the Borrower. The Lenders will
require a pledge of 66% of the stock of any foreign
subsidiary. (Mirroring existing collateral package with
the addition of the assets and/or stock of the acquired
companies). Lenders agree to release their interests in
the collateral should the Borrower reduce its Funded
Debt to Total Capitalization below 52.5% for two
consecutive quarters and is in compliance with all other
terms and conditions of the credit agreement.
GUARANTORS: Guaranteed by all existing and to-be-created operating
subsidiaries of Borrower. The guarantee of the
Borrower's holding company will not be required, unless
the operating assets of the Borrower, as currently
configured, are transferred to an entity that is not a
subsidiary of the Borrower.
PRICING: Fundings under the Facility and standby letters of
credit shall be available at closing at an effective
rate based off the following pricing options:
1. KeyBank's Prime Rate. Under this option, interest is
payable quarterly.
<PAGE> 4
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21,1997
PRICING
(CONTINUED): 2. London Interbank Offered Rate or Eurocurrency
equivalent (LIBOR) plus a spread to be determined
through the following pricing matrix for 1, 2, 3, and 6
month periods, Under this pricing option, interest is
payable at the earlier of the end of each applicable
interest period or 90 days. LIBOR will be adjusted for
reserves and other regulatory requirements. LIBOR
borrowings will be in minimum amounts of $ 1,000,000 and
increments of $100,000. Borrower may not have more than
eight LIBOR advances outstanding at any time.
3. Money Market Rate plus a spread to be determined
through the following pricing matrix for periods less
than 30 days. The Money Market Rate will be used to
price borrowings under the Swingline.
PRICING MATRIX: Upon submission of Borrower's quarterly financial
statements, LIBOR rate loan spreads, standby letter of
credit fees and the facility fee shall be determined
for the succeeding quarter by the Managing Agent using
the following Pricing Matrix. The Pricing Matrix
compares Borrower's maximum Funded Debt to EBITDA, with
EBITDA measured on a rolling four quarter basis.
<TABLE>
<CAPTION>
Pricing Matrix (measured in basis points)
-----------------------------------------
Funded Debt LIBOR Facility Drawn
to EBITDA Margin Fee Pricing
--------- ------ --- -------
<S> <C> <C> <C>
Greater than or equal to 2.75 62.5 25.0 87.5
Greater than or equal to 2.25 50.0 22.5 72.5
Greater than or equal to 1.75 45.0 20.0 65.0
Greater than or equal to 1.25 37.5 17.5 55.0
Less than 1.25 25.0 15.0 40.0
</TABLE>
<PAGE> 5
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21, 1997
PRICING MATRIX If Borrower's Funded Debt to Total Capitalization
(CONTINUED): exceeds 55%, 5 basis points will be added to the
applicable LIBOR Margin. Initial pricing shall be
determined based upon a proforma opening balance sheet
and income statement prepared by the Borrower at
closing. The EBITDA of the acquired companies will be
added to the EBITDA of the Borrower both on a historic
and prospective basis to compute EBITDA for purposes of
determining the Pricing Matrix.
FEES: Facility Fee - Per annum fee payable quarterly in
advance on the amount of the Facility and shared
pro-rata by the Banks. The Facility Fee shall be
calculated based on the pricing tier under which
Borrower would qualify.
Underwriting Fee - $75,000 payable to KeyBank for its
own account upon CTB's acceptance of the commitment.
This fee is non-refundable.
TRADE LETTER OF CREDIT Commissions for letters of credit shall be determined on
COMMISIONS: each Lender's prorata share of the average balance of
outstanding trade letters of credit.
FINANCIAL COVENANTS: Borrower will be required to comply with the following
financial covenants:
Net Worth - Borrower shall maintain its Consolidated Net
Worth at not less than 90% of the Consolidated Net Worth
of the Borrower immediately following the receipt of the
IPO proceeds, with Consolidated Net Worth increasing
quarterly by an amount equal to 50% of Borrower's
quarterly positive net earnings. The required
Consolidated Net Worth shall be increased by the amount
of any equity issued or subordinated debt converted to
equity by Borrower over the term of the Facility,
excluding stock offerings under any of Borrower's
employee benefit plans. The Covenant shall be tested
quarterly.
Consolidated Net Worth is defined as the net book value
of Borrower's assets less all liabilities,
<PAGE> 6
CTB, INC. SUMMARY OF PRINCIPAL
TERM AND CONDITIONS
MARCH 21,1997
FINANCIAL COVENANTS
(CONTINUED): Leverage - Borrower shall not permit the ratio, the
numerator of which is Funded Debt and the denominator of
which is the sum of Funded Debt plus Consolidated Net
Worth (Total Capitalization), to exceed 60% at the end
of each fiscal quarter of fiscal year 1997 and 55% at
each fiscal quarter end thereafter.
Funded Senior Debt is defined as funds provided by the
Lenders and other obligations of Borrower for borrowed
money.
Interest Coverage - Borrower shall not permit the ratio,
the numerator of which is Borrower's Consolidated
Pre-Tax Earnings plus Interest Expense and the
denominator of which is Interest Expense, to fall below
2.50 times, The Interest Coverage ratio shall be
measured on a rolling four quarter basis and tested
quarterly.
Consolidated Pre-Tax Earnings is defined as earnings (or
losses) experienced by Borrower as determined by GAAP.
Consolidated Pre-Tax Earnings shall not include any
extraordinary gains or losses experienced by Borrower.
The earnings of the acquired companies will be added to
the earnings of the Borrower both on a historic and
prospective basis to compute pre-tax earnings for
purposes of this covenant.
Interest Expense is interest expense as defined by GAAP.
Funded Debt to EBITDA - Borrower shall not permit the
ratio, the numerator of which is Borrower's Consolidated
Funded Debt and the denominator of which is Borrower's
Consolidated Pre-Tax Earnings plus Interest Expense,
Depreciation Expense and Amortization Expense to exceed
3.00 times. The Funded Debt to EBITDA ratio shall be
measured on a rolling four quarter basis and tested
quarterly. The EBITDA of the acquired companies will be
added to the EBITDA of Elie Borrower both on a historic
and prospective basis to compute EBITDA for purposes of
determining this covenant.
<PAGE> 7
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21, 1997
OTHER-COVENANTS: Customary for credit facilities of this nature,
including but not limited to:
- Accounting, financial statement and other information.
- Insurance coverage and maintenance of properties.
- Conduct of business; maintenance of existence.
- Inspection of property, books, records.
- Compliance with laws, including ERISA and
environmental regulations.
- Consolidations, mergers and sale of assets.
- Subsidiary debt limitation.
- Use of proceeds.
- Limitations on other indebtedness with allowances for
foreign debt and a foreign accounts receivable
purchase facility.
REPRESENTATIONS
AND WARRANTIES: Customary for credit facilities of this type, including
but not limited to:
- Financial condition/information.
- No material adverse change from the date of
the last audited financial statement.
- Corporate existence.
- Corporate power. authorized enforcement of obligations
- No material litigation ongoing or pending.
- Payment of taxes.
- Compliance with laws, including ERISA.
- No default.
- Environmental.
- Full disclosure.
<PAGE> 8
CTB, INC. SUMMARY OF PRINCIPAL
TERMS AND CONDITIONS
MARCH 21, 1997
CONDITIONS PRECEDENT
TO BORROWING: Customary for credit facilities of this type, including
but not limited to:
- Receipt of net cash proceeds from an initial public
offering of not less than $40 million.
- Opening Funded Debt to Total Capitalization of less
than 60%.
- Absence of default.
- Accuracy of representations and warranties.
- Execution of satisfactory closing documentation.
TRANSFERS AND
PARTICIPATIONS: Banks shall be permitted to assign and participate
loans, Notes and commitments as follows: Assignments,
which shall be in minimum amounts of $10,000,000 (except
for amounts allocated during the initial syndication of
the Facility by the Managing Agent), shall be permitted
with Managing Agent and Borrower approval, not to be
unreasonably withheld. Each Lender agrees to hold a
minimum of $10,000,000, unless an Event of Default has
occurred or is continuing. Assignees will have all the
fights and obligations of the assignor Bank. Each
assignment will be subject to the payment of a service
fee of $2,500 payable by the assignee and/or the
assignor to the Managing Agent, Participations shall be
without restriction. The voting rights for participants
will be limited to changes in amount, tenor and rate.
EXPENSES: Borrower will pay all legal expenses of Key Bank as
Managing Agent for the Banks related to this transaction
and any subsequent amendments or waivers, including the
fees and expenses of legal counsel to Key Bank.
GOVERNING LAW: State of Ohio.
COUNSEL FOR THE
LENDERS: Jones, Day, Reavis & Pogue.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 3 to the Registration Statement
(No. 333-29873) of CTB International Corp. on Form S-1 of our report dated
February 5, 1997, appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Deloitte & Touche LLP
August 11, 1997
Chicago, Illinois
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Prospectus
constituting part of this Registration Statement on Form S-1 of our report dated
February 16, 1996 relating to the financial statements of CTB, Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Price Waterhouse LLP
South Bend, Indiana
August 11, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report included herein dated March 13, 1997,
on our audits of the financial statements of Grain Systems Division of Butler
Manufacturing Company as of December 31, 1995 and 1996 and for each of the years
in the three year period ended December 31, 1996 and to the reference to our
firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
August 11, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Fancom Holding B.V. on Form S-1 (File No. 333-29873) of our report dated June
10, 1997 on our audits of the consolidated financial statements and financial
statement schedules of Fancom Holding B.V. as of December 31, 1995 and 1996, and
for each of the years in the three year period ended December 31, 1996, which
report is included in this Registration Statement.
We also consent to the reference to Coopers & Lybrand N.V., the Netherlands,
under the caption "Experts".
Eindhoven, August 11, 1997
Coopers & Lybrand N.V.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CTB
INTERNATIONAL CORP. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 140,505
<TOTAL-REVENUES> 140,505
<CGS> 103,491
<TOTAL-COSTS> 103,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 17,434
<INCOME-TAX> 6,665
<INCOME-CONTINUING> 10,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,769
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CTB
INTERNATIONAL CORP. FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1995
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,103
<SECURITIES> 0
<RECEIVABLES> 14,155
<ALLOWANCES> 435
<INVENTORY> 8,762
<CURRENT-ASSETS> 38,000
<PP&E> 50,805
<DEPRECIATION> 32,708
<TOTAL-ASSETS> 58,045
<CURRENT-LIABILITIES> 15,850
<BONDS> 0
0
0
<COMMON> 1,313
<OTHER-SE> 39,528
<TOTAL-LIABILITY-AND-EQUITY> 58,045
<SALES> 138,119
<TOTAL-REVENUES> 138,119
<CGS> 105,578
<TOTAL-COSTS> 105,578
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,260
<INCOME-TAX> 4,730
<INCOME-CONTINUING> 6,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,530
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
