<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1997
REGISTRATION NO. 333-29873
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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
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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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<PAGE> 2
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 JULY 30, 1997
PROSPECTUS
, 1997
5,000,000 SHARES
CHORE-TIME LOGO CTB INTERNATIONAL CORP. BROCK 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 has filed an application for
approval to quote the Common Stock on the Nasdaq National Market under the
symbol "CTBC."
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.
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 10 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.
- --------------------------------------------------------------------------------
<TABLE>
<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."
2
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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
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<PAGE> 5
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 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 35% 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 actual net asset value of Butler at
closing (to be determined by a specified post-closing procedure) exceeds the
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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 approximately $9.0 million which was approximately 9.4%
higher than approximately $8.2 million for the corresponding period in 1996.
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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.
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.
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PREDECESSOR COMPANY COMPANY
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YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
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1992 1993 1994 1995 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
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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 $ 4,083 $ 4,190 $ 6,081
Depreciation...................................... 1,221 1,228 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% 9.7% 13.3% 13.5%
</TABLE>
(See footnotes on following page)
8
<PAGE> 10
<TABLE>
<CAPTION>
PREDECESSOR COMPANY COMPANY
----------------------------------------- -----------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------------------- -----------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
CASH FLOW DATA:
Net cash flows from operating activities.......... $ 9,884 $ 5,496 $12,730 $11,263 $ 11,714
Net cash flows from investing activities.......... (1,958) (2,773) (5,278) (4,646) (106,606)
Net cash flows from financing activities.......... (5,497) (4,445) (4,757) (3,354) 95,150
<CAPTION>
COMPANY
----------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1997
<S> <C> <C>
CASH FLOW DATA:
Net cash flows from operating activities.......... $ 4,530 $1,568
Net cash flows from investing activities.......... (105,208) (860)
Net cash flows from financing activities.......... 101,500 (775)
</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%.
9
<PAGE> 11
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
10
<PAGE> 12
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. 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 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
11
<PAGE> 13
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 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
12
<PAGE> 14
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 resources or damage to the Company's reputation, any of which could
have a material adverse effect on the
13
<PAGE> 15
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 filed an
application for approval to quote the Common Stock on the Nasdaq National
Market, the Common Stock has not been approved for quotation on the Nasdaq
National Market and, once approved, no assurance can be given that the Common
Stock will continue to be included in the Nasdaq National
14
<PAGE> 16
Market after the 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,
15
<PAGE> 17
CTB will enter into a new credit agreement (the "New Credit Agreement") with its
existing group of lenders 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.
16
<PAGE> 18
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.
17
<PAGE> 19
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.
18
<PAGE> 20
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
19
<PAGE> 21
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 (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.
20
<PAGE> 22
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.
21
<PAGE> 23
(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.
22
<PAGE> 24
(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.
23
<PAGE> 25
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).
24
<PAGE> 26
(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.
25
<PAGE> 27
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>
26
<PAGE> 28
<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
27
<PAGE> 29
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.
28
<PAGE> 30
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
29
<PAGE> 31
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.
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.
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>
30
<PAGE> 32
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.
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.
31
<PAGE> 33
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 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
32
<PAGE> 34
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
SEPT.
MARCH 31 JUNE 30 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
33
<PAGE> 35
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
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
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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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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
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trends, which are affected by economic and population growth and government
policies. Because the U.S. is a 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
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the world's largest exporter of poultry and is expected to hold this position
for the foreseeable future. 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 35% 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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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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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> 44
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> 45
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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<PAGE> 46
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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<PAGE> 47
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> 49
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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<PAGE> 50
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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<PAGE> 51
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> 52
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> 53
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> 54
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>
53
<PAGE> 55
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
54
<PAGE> 56
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,
55
<PAGE> 57
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
56
<PAGE> 58
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.
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<PAGE> 59
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> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of July 30, 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.
59
<PAGE> 61
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
July 30, 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 Bylaws 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> 62
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 Bylaws, 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
61
<PAGE> 63
$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> 64
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> 65
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> 66
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."
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 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.
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<PAGE> 67
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> 68
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-20
Balance Sheets at December 31, 1995 and 1996 and (unaudited) March 31, 1997...... F-21
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-22
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-23
Notes to Financial Statements.................................................... F-24
FANCOM HOLDING B.V.
Report of Coopers & Lybrand N.V. ................................................ F-27
Consolidated Balance Sheets at December 31, 1995 and 1996 and (unaudited) March
31, 1997...................................................................... F-28
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-29
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-30
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-31
Notes to Consolidated Financial Statements....................................... F-32
</TABLE>
F-1
<PAGE> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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 THREE MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
------------------ ------------ --------------------------
1994 1995 1996 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> 75
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> 76
<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> 77
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. 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 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.
F-10
<PAGE> 78
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> 79
(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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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
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>
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-19
<PAGE> 87
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-20
<PAGE> 88
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-21
<PAGE> 89
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 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-22
<PAGE> 90
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-23
<PAGE> 91
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-24
<PAGE> 92
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-25
<PAGE> 93
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-26
<PAGE> 94
<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-27
<PAGE> 95
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-28
<PAGE> 96
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>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, 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-29
<PAGE> 97
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-30
<PAGE> 98
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-31
<PAGE> 99
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-32
<PAGE> 100
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-33
<PAGE> 101
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-34
<PAGE> 102
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-35
<PAGE> 103
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-36
<PAGE> 104
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-37
<PAGE> 105
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-38
<PAGE> 106
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-39
<PAGE> 107
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-40
<PAGE> 108
======================================================
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............................... 10
Special Note Regarding Forward-Looking
Statements............................... 15
Use of Proceeds............................ 15
Dividend Policy............................ 16
Dilution................................... 17
Capitalization............................. 18
Unaudited Pro Forma Consolidated Financial
Statements............................... 19
Selected Consolidated Financial Data....... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 29
Business................................... 36
Management................................. 50
Certain Relationships and Related
Transactions............................. 55
Principal Stockholders..................... 59
Description of Capital Stock............... 60
Description of Credit Agreement............ 61
Shares Available for Future Sale........... 63
Underwriting............................... 64
Legal Matters.............................. 65
Experts.................................... 65
Additional Information..................... 66
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> 109
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............................................... 30,000.00
----------
Transfer Agent Fee............................................................... *
Blue Sky Fees and Expenses....................................................... *
Printing and Engraving Expenses.................................................. *
Legal Fees and Expenses.......................................................... *
Accounting Fees and Expenses..................................................... *
Miscellaneous.................................................................... *
----------
Total.................................................................. $ *
==========
</TABLE>
- ------------------------------
* To be supplied by amendment.
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
II-1
<PAGE> 110
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.
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 Credit Agreement, dated as of , 1997, by and among CTB, Inc. and KeyBank
National Association**
10.2 Guaranty, dated as of December 22, 1995, by and among the Company, CTB, Inc. and
KeyBank National Association**
10.3 Asset Purchase Agreement, dated as of March 31, 1997, by and among Butler
Manufacturing Company and CTB, Inc.*
10.4 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.*
10.5 Asset Purchase Agreement, dated as of May 29, 1997, between CTB, Inc. and Royal
Crown Limited*
10.6 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*
10.7 Stockholders Agreement, dated as of January 4, 1996, by and among the Company and
the Individual Shareholders party thereto*
10.8 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*
10.9 Form of Non-Qualified Stock Option Agreement*
10.10 Profit Sharing Plan
10.11 Management Incentive Compensation Plan
10.12 Escrow Agreement, dated as of November 29, 1995, by and among CTB Ventures, Inc.,
the shareholders party thereto and NBD Bank, N.A.*
</TABLE>
II-2
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
<C> <S>
10.13 Management Consulting Agreement, dated as of January 4, 1996, by and among CTB, Inc.
and American Securities Capital Partners, L.P.*
10.14 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*
10.15 Transaction Consulting Agreement, dated as of April 30, 1997, by and among the
Company and American Securities Capital Partners, L.P.*
10.16 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.
** To be filed by amendment.
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> 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the State of
Indiana, on the 30th day of July, 1997.
CTB INTERNATIONAL CORP.
By: *
-----------------------------------
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
* President, Chief Executive Officer July 30, 1997
- ------------------------------------------ and Director (Principal Executive
J. Christopher Chocola Officer)
* Vice President, Chief Financial July 30, 1997
- ------------------------------------------ Officer and Treasurer (Principal
Don J. Steinhilber Financial Officer and Chief
Accounting Officer)
* Chairman of the Board of Directors July 30, 1997
- ------------------------------------------
Michael G. Fisch
* Director July 30, 1997
- ------------------------------------------
Caryl M. Chocola
* Director July 30, 1997
- ------------------------------------------
David Horing
* Director July 30, 1997
- ------------------------------------------
Charles D. Klein
*By /s/ DON J. STEINHILBER
- ------------------------------------------
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CTB INTERNATIONAL CORP.
(Pursuant to Section 245 of the
General Corporation Law of the State of Delaware)
CTB International Corp., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is CTB International Corp. The
Corporation was originally incorporated under the name CTB Holdings, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State of the State of Delaware was November 20, 1995.
2. The Board of Directors of the Corporation has duly adopted this
amendment and restatement of the Certificate of Incorporation in accordance with
the provisions of Sections 141(f), 242 and 245 of the General Corporation Law of
the State of Delaware.
3. The stockholders of the Corporation have duly adopted this
amendment and restatement of the Certificate of Incorporation in accordance with
the provisions of Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
4. The Certificate of Incorporation of CTB International Corp. is
hereby amended and restated in its entirety as follows:
FIRST: The name of the Corporation is CTB International Corp.
SECOND: The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH: Section 1. Authorized Capital Stock. The total number of
shares of all classes of stock which the Corporation shall have authority to
issue is 44,000,000
<PAGE> 2
shares, of which 40,000,000 shares shall be Common Stock, par value one cent
($.01) per share, and 4,000,000 shares shall be Preferred Stock, par value one
cent ($.01) per share.
At the close of business on the date that this Amended and Restated
Certificate of Incorporation is filed with the Secretary of State of the State
of Delaware and without any further action on the part of the Corporation or
its stockholders, each share of the Corporation's Common Stock then issued
(including shares held in the treasury of the Corporation) shall automatically
be subdivided, changed and converted into 12.0933 fully paid and nonassessable
shares of Common Stock.
The number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the Common
Stock of the Corporation irrespective of the provisions of Section 242(b)(2) of
the General Corporation Law of the State of Delaware or any corresponding
provision that may hereafter be enacted.
Section 2. Preferred Stock. The Preferred Stock may be issued from time
to time in one or more series. The Board of Directors of the Corporation (the
"Board") is authorized to fix by resolution or resolutions the designation of
each series of Preferred Stock and the powers, designations, preferences and
relative participating, optional or other rights, if any, or the
qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware. Pursuant to the foregoing authority
vested in the Board, but not in limitation of the powers conferred on the Board
thereby and by the law of the State of Delaware, the Board is expressly
authorized to determine with respect to each series of Preferred Stock:
(a) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are full
or limited in such series;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative,
the dividend rate of such series, and the dates and preferences of dividends on
such series;
(e) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
(f) the provisions, if any, pursuant to which the shares of such
series are convertible into, or exchangeable for, shares of any other class or
classes or of any
<PAGE> 3
3
other series of the same or any other class or classes of stock, or any
other security, of the Corporation or any other corporation or other
entity, and the price or prices or the rates of exchange applicable
thereto;
(g) the right, if any, to subscribe for or to purchase any
securities of the Corporation or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to
such series; and
(i) any other relative, participating, optional, or other
special powers, preferences, rights, qualifications, limitations, or
restrictions thereof.
All of such powers, designations, preferences and relative participating,
optional or other rights, if any, or the qualifications, limitations or
restrictions thereof as may be determined from time to time by the Board shall
be stated in the resolution or resolutions providing for the issuance of such
Preferred Stock (collectively, a "Preferred Stock Designation").
Thirty thousand (30,000) shares of Preferred Stock, par value
$.01 per share, are hereby designated 6% Series A Preferred Stock. The powers,
designations, preferences and relative participating, optional and other
special rights, and the qualifications, limitations or restrictions of the 6%
Series A Preferred Stock are as follows:
1. RANK. The 6% Series A Preferred Stock shall, with respect to
dividend rights, rights on redemption and rights on liquidation, winding
up and dissolution, rank prior to all classes of Common Stock of the
Corporation. All of such equity securities of the Corporation to which
the 6% Series A Preferred Stock ranks prior are collectively referred to
herein as the "Junior Stock".
2. DIVIDENDS.
(i) The holders of 6% Series A Preferred Stock shall be
entitled to receive in preference to the holders of any funds
legally available for the payment of dividends, noncumulative
dividends at the rate of $60.00 in cash for each share of 6%
Series A Preferred Stock held (determined by multiplying 6% by
the Liquidation Preference, as defined in paragraph 3 hereof)
per fiscal year of the Corporation. The rights to such dividends
on the 6% Series A Preferred Stock shall not be cumulative, and
no rights shall accrue to holders of 6% Series A Preferred Stock
by reason of the fact that dividends on said shares are not
declared in any previous dividend period, nor shall any
undeclared or unpaid dividends bear or accrue interest.
(ii) All dividends paid with respect to shares of the 6%
Series A Preferred Stock pursuant to paragraph 2(i) hereof shall
be paid pro rata to the holders entitled thereto.
<PAGE> 4
4
(iii) Holders of shares of the 6% Series A Preferred Stock
shall be entitled to receive the dividends provided for in paragraph 2(i)
hereof in preference to and in priority over any dividends upon any of the
Junior Stock.
(iv) Each fractional share of 6% Series A Preferred Stock
outstanding shall be entitled to a ratably proportionate amount of all
dividends accruing with respect to each outstanding share of 6% Series A
Preferred Stock pursuant to paragraph 2(i) hereof.
3. Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Corporation, the holders of shares of 6%
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders an
amount equal to $1,000.00 for each share outstanding (the "Liquidation
Preference"), plus an amount equal to all declared but unpaid dividends thereon
to the date fixed for liquidation, dissolution or winding up before any payment
shall be made or any assets distributed to the holders of any of the Junior
Stock. Except as provided in the preceding sentence, holders of 6% Series A
Preferred Stock shall not be entitled to any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation. If
the assets of the Corporation are not sufficient to pay in full the liquidation
payments payable to the holders of outstanding shares of 6% Series A Preferred
Stock, then the holders of all such shares shall share ratably in accordance
with the respective amounts to which the holders of outstanding shares of 6%
Series A Preferred Stock would be entitled if all amounts payable thereon were
paid in full.
The liquidation payment with respect to each outstanding fractional
share of 6% Series A Preferred Stock shall be equal to a ratably
proportionate amount of the liquidation payment with respect to each
outstanding share of the 6% Series A Preferred Stock.
4. Redemption. Upon the occurrence of an Initial Public Offering (as
defined below) or a Change of Control (as defined below), the 6% Series A
Preferred Stock shall be redeemable, at the option of the Corporation, in whole
or in part, from time to time at a redemption price of $1,000.00 per share of
the 6% Series A Preferred Stock, plus an amount equal to all declared but
unpaid dividends thereon to the date fixed for redemption. "Initial Public
Offering" shall mean the sale of shares of the Corporation's capital stock to
the public pursuant to a registration statement under the Securities Act of
1933, as amended. "Change of Control" shall mean any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended) other than American Securities Capital Partners, L.P. ("ASCP"),
investment funds managed by ASCP or its affiliates, J. Christopher Chocola or
Caryl M. Chocola shall have acquired beneficial ownership or control of over
15% of the voting stock (on a fully diluted basis) of the Corporation.
<PAGE> 5
5
4.1 Procedure for Redemption.
(i) In the event that fewer than all the outstanding shares of 6% Series A
Preferred Stock are to be redeemed, the number of shares to be redeemed shall be
determined by the Board and the shares to be redeemed shall be selected pro rata
based upon the number of outstanding shares of 6% Series A Preferred Stock held
by each holder thereof prior to the redemption.
(ii) In the event the Corporation shall redeem shares of 6% Series A
Preferred Stock, notice of such redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 days nor more than 60 days prior to the
redemption date, to all holders of record of the shares to be redeemed at such
holder's address as the same appears on the stock register of the Corporation.
Each such notice shall state: (a) the redemption date; (b) the aggregate number
of shares of 6% Series A Preferred Stock to be redeemed and, if less than all
the shares held by such holder are to be redeemed from such holder, the number
of shares to be redeemed from such holder; (c) the redemption price; and (d) the
place or places where certificates for such shares are to be surrendered for
payment of the redemption price.
(iii) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Corporation in providing
money for the payment of the redemption price of the shares called for
redemption) said shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued shares of 6% Series A Preferred
Stock, and shall not be reissued as shares of 6% Series A Preferred Stock, and
all rights of the holders thereof as stockholders of the Corporation (except the
right to receive from the Corporation the redemption price) shall cease. Upon
surrender in accordance with said notice of the certificates for any shares so
redeemed (properly endorsed or assigned for transfer, if the Board shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid. In the event fewer than all of
the shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares without cost to the holder
thereof.
5. Voting Rights. The holders of record of shares of 6% Series A
Preferred Stock shall not be entitled to any voting rights except as otherwise
provided by law.
Section 3. Common Stock. Except as may otherwise be provided in a
Preferred Stock Designation, the holders of Common Stock will be entitled to one
vote on each matter submitted to a vote at a meeting of stockholders for each
share of Common Stock held of record by such holder as of the record date for
such meeting.
FIFTH: The Board, acting by majority vote, may make, alter, amend or
repeal the By-Laws of the Corporation. The number of directors of the
Corporation shall be as from time to time fixed by, or in the manner provided
in, the By-Laws of the Corporation. The election of directors need not be
written ballot unless the By-Laws so provide.
<PAGE> 6
SIXTH: To the fullest extent permitted by the General Corporation Law
of the State of Delaware (as the same now exists or may hereafter be amended),
no director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, nothing herein shall be construed as eliminating
or limiting the liability of any director of the Corporation for:
(a) any breach of the director's duty of loyalty to the
Corporation or to the stockholders of the
Corporation;
(b) the director's acts or omissions not in good faith
or which involve intentional misconduct or a
knowing violation of law;
(c) any act in violation of Section 174 of the General
Corporation Law of the State of Delaware; or
(d) any transaction from which the director derived an
improper benefit.
SEVENTH: To the fullest extent permitted by the General Corporation Law
of the State of Delaware (as the same now exists or may hereafter be amended),
the Corporation shall indemnify any current or former director or officer of
the Corporation. Any repeal or modification of this Article SEVENTH shall not
adversely affect any right or protection of an officer or a director of the
Corporation existing at the time of such repeal or modification. Any right or
protection of an officer or a director of the Corporation under this Article
SEVENTH shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
IN WITNESS WHEREOF, said CTB International Corp. has caused this
Certificate to be signed by J. Christopher Chocola its President, this 18th day
of June, 1997.
/s/ J. Christopher Chocola
__________________________
J. Christopher Chocola
President
<PAGE> 1
Exhibit 3.2
CTB INTERNATIONAL CORP.
AMENDED AND RESTATED
BY-LAWS
(as of June 18, 1997)
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meeting and Notice. Meetings of the stockholders of
the Corporation shall be held at such place either within or without the State
of Delaware as the Board of Directors may determine.
Section 2. Annual and Special Meetings. Annual meetings of stockholders
shall be held, at a date, time and place fixed by the Board of Directors and
stated in the notice of meeting, to elect a Board of Directors and to transact
such other business as may properly come before the meeting. Special meetings
of the stockholders may be called by the President for any purpose and shall be
called by the President or Secretary if directed by the Board of Directors or
requested in writing by the holders of not less than 25% of the capital stock
of the Corporation. Each such stockholder request shall state the purpose of
the proposed meeting.
Section 3. Notice. Except as otherwise provided by law, at least 10 and
not more than 60 days before each meeting of stockholders, written notice of
the time, date and place of the meeting, and, in the case of a special meeting,
the purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. Quorum. At any meeting of stockholders, the holders of
record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a
quorum is present.
Section 5. Voting. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record, present in person or by proxy, of a majority of the Corporation's
issued and outstanding capital stock.
Section 6. Notice of Stockholder Nominees. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed to make such nominations by the Board of Directors, or by any
stockholder of the Corporation entitled to vote for the election of Directors
at the meeting who complies with the notice procedures set forth in this
Section 6. Such nominations, if made by a stockholder of the Corporation as
such, shall be made
<PAGE> 2
2
pursuant to timely notice in writing addressed to the Secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the meeting at which Directors
are to be elected; provided, however, that in the event that less than 70 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received no
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made. Such stockholder's notice shall set forth: (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a Director (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of stock of the corporation which are beneficially owned by the person
and (iv) any other information relating to the person that would be required to
be disclosed in solicitations for proxies for election of Directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended, or any
successor rule thereto; and (b) as to the stockholder giving the notice (i) the
name and record address of the stockholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility
of such proposed nominee to serve as a Director of the Corporation. No person
shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth herein.
The presiding officer at the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and following any such determination,
the presiding officer shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE II
DIRECTORS
Section 1. Number, Election and Removal of Directors. The number of
Directors that shall constitute the Board of Directors shall not be less than
one or more than fifteen. The first Board of Directors shall consist of five
Directors. Thereafter, within the limits specified above, the number of
Directors shall be determined by the Board of Directors. The Directors shall be
elected by stockholders at their annual meeting. Vacancies and newly created
directorships resulting from any increase in the number of Directors may be
filled by a majority of the Directors then in office, although less than a
quorum, or by the sole remaining Director or by the stockholders. A Director
may be removed with or without cause by the stockholders.
Section 2. Meetings. Regular meetings of the Board of Directors shall
be held at such times and places as may from time to time be fixed by the Board
of Directors or as may be specified in a notice of meeting.
<PAGE> 3
3
Section 3. Quorum. One-third of the total number of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, these By-Laws or any
contract or agreement to which the Corporation is a party, the act of a
majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors.
Section 4. Committees. The Board of Directors may, by resolution
adopted by a majority of the whole Board, designate one or more committees,
including, without limitation, an Executive Committee, to have and exercise
such power and authority as the Board of Directors shall specify. In the
absence or disqualification of a member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another Director to act
at the meeting in place of any such absent or disqualified member.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer and such other additional officers with such titles as
the Board of Directors shall determine, all of which shall be chosen by and
shall serve at the pleasure of the Board of Directors. Such officers shall have
the usual powers and shall perform all the usual duties incident to their
respective offices. All officers shall be subject to the supervision and
direction of the Board of Directors. The authority, duties or responsibilities
of any officer of the Corporation may be suspended by the President with or
without cause. Any officer elected or appointed by the Board of Directors may
be removed by the Board of Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, the Corporation shall indemnify any current or former Director or officer
of the Corporation and may, at the discretion of the Board of Directors,
indemnify any current or former employee or agent of the Corporation against
all expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding brought by or in the right of the
Corporation or otherwise, to which he was or is a party by reason of his
current or former position with the Corporation or by reason of the fact that
he is or was serving, at the request of the Corporation, as a director,
officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
<PAGE> 4
4
Expenses incurred by a person who is or was a director or officer of
the Corporation in appearing at, participating in or defending any such action,
suit or proceeding shall be paid by the Corporation at reasonable intervals in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized by this Article. If a claim under
this Article is not paid in full by the Corporation within ninety days after a
written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim and, if successful in whole or in part, the claimant shall be paid
also the expense of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it
permissible under the Delaware General Corporation Law or other applicable law
for the corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law or other applicable law, nor an
actual determination by the Corporation (including its board of directors,
independent legal counsel, or its stockholders) that the claimant has not met
the applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of
Incorporation or these By-Laws require notice to be given to any Director or
stockholder, such notice may be given in writing by mail, addressed to such
Director or stockholder at his address as it appears in the records of the
Corporation, with postage thereon prepaid. Such notice shall be deemed to have
been given when it is deposited in the United States mail. Notice to Directors
may also be given by telegram.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
<PAGE> 1
Exhibit 10.10
CTB, INC.
PROFIT-SHARING PLAN
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS ................................. 22
2.2 DETERMINATION OF TOP HEAVY STATUS ........................... 23
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER ................. 26
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY ..................... 27
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES ............... 27
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR ...................... 28
2.7 RECORDS AND REPORTS ......................................... 29
2.8 APPOINTMENT OF ADVISERS ..................................... 29
2.9 INFORMATION FROM EMPLOYER ................................... 29
2.10 PAYMENT OF EXPENSES ......................................... 30
2.11 MAJORITY ACTIONS ............................................ 30
2.12 CLAIMS PROCEDURE ............................................ 30
2.13 CLAIMS REVIEW PROCEDURE ..................................... 30
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY ................................... 31
3.2 APPLICATION FOR PARTICIPATION ............................... 31
3.3 EFFECTIVE DATE OF PARTICIPATION ............................. 31
3.4 DETERMINATION OF ELIGIBILITY ................................ 32
3.5 TERMINATION OF ELIGIBILITY .................................. 32
3.6 OMISSION OF ELIGIBLE EMPLOYEE ............................... 32
<PAGE> 3
3.7 INCLUSION OF INELIGIBLE EMPLOYEE ............................. 32
3.8 ELECTION NOT TO PARTICIPATE .................................. 33
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION .............. 33
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION ...................... 34
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION ................... 38
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND
EARNINGS ..................................................... 38
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS ............................. 44
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS ............... 47
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS ......................... 50
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE
TESTS ........................................................ 53
4.9 MAXIMUM ANNUAL ADDITIONS ..................................... 56
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS .................... 61
4.11 TRANSFERS FROM QUALIFIED PLANS ............................... 62
4.12 VOLUNTARY CONTRIBUTIONS ...................................... 64
4.13 DIRECTED INVESTMENT ACCOUNT .................................. 65
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS ................... 65
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND .................................. 66
5.2 METHOD OF VALUATION .......................................... 67
<PAGE> 4
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT .................... 67
6.2 DETERMINATION OF BENEFITS UPON DEATH ......................... 67
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY ............. 69
6.4 DETERMINATION OF BENEFITS UPON TERMINATION ................... 69
6.5 DISTRIBUTION OF BENEFITS ..................................... 73
6.6 DISTRIBUTION OF BENEFITS UPON DEATH .......................... 76
6.7 TIME OF SEGREGATION OR DISTRIBUTION .......................... 78
6.8 DISTRIBUTION FOR MINOR BENEFICIARY ........................... 78
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN ............... 78
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP ............................ 79
6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION .............. 81
6.12 DIRECT ROLLOVER .............................................. 81
ARTICLE VII
AMENDMENT, TERMINATION AND MERGERS
7.1 AMENDMENT .................................................... 82
7.2 TERMINATION .................................................. 83
7.3 MERGER OR CONSOLIDATION ...................................... 83
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS ......................................... 84
8.2 ALIENATION ................................................... 84
8.3 CONSTRUCTION OF PLAN ......................................... 84
8.4 GENDER AND NUMBER ............................................ 85
8.5 LEGAL ACTION ................................................. 85
<PAGE> 5
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS ....................... 85
8.7 (RESERVED) ................................................... 85
8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE ................... 85
8.9 INSURER'S PROTECTIVE CLAUSE .................................. 86
8.10 RECEIPT AND RELEASE FOR PAYMENTS ............................. 86
8.11 ACTION BY THE EMPLOYER ....................................... 86
8.12 NAMED FIDUCIARIES AND ALLOCATION OF
RESPONSIBILITY ............................................... 86
8.13 HEADINGS ..................................................... 87
8.14 APPROVAL BY INTERNAL REVENUE SERVICE ......................... 87
8.15 UNIFORMITY ................................................... 88
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1 ADOPTION BY OTHER EMPLOYERS .................................. 88
9.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS ...................... 88
9.3 DESIGNATION OF AGENT ......................................... 89
9.4 EMPLOYEE TRANSFERS ........................................... 89
9.5 PARTICIPATING EMPLOYER'S CONTRIBUTION ........................ 89
9.6 AMENDMENT .................................................... 89
9.7 DISCONTINUANCE OF PARTICIPATION .............................. 90
9.8 ADMINISTRATOR'S AUTHORITY .................................... 90
<PAGE> 6
CTB, INC.
PROFIT-SHARING PLAN
THIS PLAN, hereby adopted this 30th day of December, 1994, by CTB,
Inc. (herein referred to as the "Employer").
W I T N E S S E T H:
WHEREAS, the Employer heretofore established a Profit Sharing Plan
effective November 1, 1979, (hereinafter called the "Effective Date") known as
CTB, Inc. Profit-Sharing Plan (herein referred to as the "Plan") in recognition
of the contribution made to its successful operation by its employees and for
the exclusive benefit of its eligible employees; and
WHEREAS, under the terms of the Plan, the Employer has the ability
to amend the Plan, provided the Trustee joins in such amendment if the
provisions of the Plan affecting the Trustee are amended;
NOW, THEREFORE, effective January 1, 1989, except as otherwise
provided, the Employer in accordance with the provisions of the Plan pertaining
to the amendments thereof, hereby amends the Plan in its entirety and restates
the Plan to provide as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.5 "Date" means December 31st.
1
<PAGE> 7
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 Except where otherwise provided herein, "Compensation" with respect to
any Participant means such Participant's wages, salaries, fees for professional
services and other amounts received (without regard to whether or not an amount
is paid in cash) for personal services actually rendered in the course of
employment with the Employer maintaining the Plan to the extent that the amounts
are includible in gross income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or other expense allowances under a nonaccountable plan (as
described in Regulation 1.62-2(c)) for a Plan Year.
Compensation for purposes of allocating profit sharing
contributions, allocating forfeitures, and for determining entitlement to any
matching contributions, and determining the amount of any voluntary
contributions, shall include wages, salary, over-time pay, and commissions, but
shall not include bonuses, benefits paid pursuant to any other group or welfare
plan, or termination pay for time not worked.
Compensation for purposes of the employee salary reduction election
shall consist of all wages, salaries, commissions, overtime, bonuses and service
awards, moving expenses paid or reimbursed by the employer to the extent
reasonably believed not deductible under Code Section 217, and foreign earned
income for services to the employer. Compensation for such purposes does not
include premiums for group life insurance even if includible in the gross income
of the employee and does not include amounts paid by the employer to the profit
sharing plan.
Compensation shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made
2
<PAGE> 8
by the Employer (whether or not under a salary reduction agreement) towards the
purchase of any annuity contract described in Code Section 403(b) (whether or
not the contributions are actually excludable from the gross income of the
Employee).
For purposes of this Section, the determination of Compensation
shall be made by:
(a) including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee
contributions described in Code Section 414(h)(2) that are treated
as Employer contributions.
For a Participant's initial year of participation, Compensation
shall be recognized as of such Employee's effective date of participation
pursuant to Section 3.3.
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
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<PAGE> 9
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
If, as a result of such rules, the maximum "annual addition" limit
of Section 4.9(a) would be exceeded for one or more of the affected Family
Members, the prorated Compensation of all affected Family Members shall be
adjusted to avoid or reduce any excess. The prorated Compensation of any
affected Family Member whose allocation would exceed the limit shall be adjusted
downward to the level needed to provide an allocation equal to such limit. The
prorated Compensation of affected Family Members not affected by such limit
shall then be adjusted upward on a pro rata basis not to exceed each such
affected Family Member's Compensation as determined prior to application of the
Family Member rule. The resulting allocation shall not exceed such individual's
maximum "annual addition" limit. If, after these adjustments, an "excess amount"
still results, such "excess amount" shall be disposed of in the manner described
in Section 4.10(a) pro rata among all affected Family Members.
For purposes of this Section, if the Plan is a plan described in
Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the
$200,000 limitation applies separately with respect to the Compensation of any
Participant from each Employer maintaining the Plan.
If, in connection with the adoption of this amendment and
restatement, the definition of Compensation has been modified, then, for Plan
Years prior to the Plan Year which includes the adoption date of this amendment
and restatement, Compensation means compensation determined pursuant to the Plan
then in effect.
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<PAGE> 10
For Plan Years beginning prior to January 1, 1989, the $200,000
limit (without regard to Family Member aggregation) shall apply only for Top
Heavy Plan Years and shall not be adjusted.
1.9 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the Participant's deferral election pursuant to Section
4.2 excluding any such amounts distributed as excess "annual additions" pursuant
to Section 4.10(a).
1.11 "Early Retirement Date" means the first day of the month (prior to
the Normal Retirement Date) coinciding with or following the date on which a
Participant or Former Participant attains age 60. A Participant shall become
fully Vested upon satisfying this requirement if still employed at his Early
Retirement Age.
A Former Participant who terminates employment and who thereafter
reaches the age requirement contained herein shall be entitled to receive his
benefits under this Plan.
1.12 "Elective Contribution" means the Employer's contributions to the
Plan of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.10(a). In addition, any Employer
Qualified Non-Elective Contribution made pursuant to Section 4.1(c) and Section
4.6 shall be considered an Elective Contribution for purposes of the Plan. Any
such contributions deemed to be Elective Contributions shall be subject to the
requirements of Sections 4.2(b) and 4.2(c) and shall further be required to
satisfy the discrimination requirements of Regulation l.401(k)-l(b)(5), the
provisions of which are specifically incorporated herein by reference.
1.13 "Eligible Employee" means any individual employed by the Employer who
receives a stated Compensation from the Employer, with the following exclusions:
Employees who are Leased Employees within the meaning of Code
Sections 414(n)(2) and 414(o)(2) shall not be eligible to participate in this
Plan.
Any five (5%) five percent owner (as described in Section 416 (i) of
the Code) after the date distribution is required to commence to such individual
as provided in the Code.
Employees whose employment is governed by the terms of a collective
bargaining agreement between Employee
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<PAGE> 11
representatives (within the meaning of Code Section 7701(a)(46)) and the
Employer under which retirement benefits were the subject of good faith
bargaining between the parties will not be eligible to participate in this Plan
unless such agreement expressly provides for coverage in this Plan or two
percent or more of the Employees of the Employer who are covered pursuant to
that agreement are professionals as defined in Regulation l.410(b)-9.
Employees who are Participants in any other Employer maintained Plan
of the Employer shall not be eligible to participate in this Plan.
Any temporary employee which are those employees hired on a
temporary basis who at the time of hiring are expected to work less than 1000
hours in the Plan Year shall not be eligible to participate in this Plan.
Employees who are nonresident aliens (within the meaning of Code
Section 7701(b)(1)(B)) shall not be eligible to participate in this Plan.
Employees of any division or other affiliated company or corporation
which has not adopted a resolution including such division, subsidiary or other
affiliated company or corporation as participants under this Plan, and which has
not been approved for inclusion by CTB, Inc. shall not be eligible to
participate in this Plan.
1.14 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.15 "Employer" means CTB, Inc. and any Participating Employer (as defined
in Section 9.1) which shall adopt this Plan; any successor which shall maintain
this Plan; and any predecessor which has maintained this Plan. The Employer is a
corporation, with principal offices in the State of Indiana.
1.16 "Excess Aggregate Contributions" means, with respect to any Plan
Year, the excess of the aggregate amount of the Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a) and any qualified non-elective
contributions or elective deferrals taken into account pursuant to Section
4.7(c) on behalf of Highly Compensated Participants for such Plan Year, over the
maximum amount of such contributions permitted under the limitations of Section
4.7(a).
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<PAGE> 12
1.17 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions made on behalf of Highly Compensated Participants for
the Plan Year over the maximum amount of such contributions permitted under
Section 4.5(a). Excess Contributions, including amounts recharacterized pursuant
to Section 4.6(a)(2), shall be treated as an "annual addition" pursuant to
Section 4.9(b).
1.18 "Excess Deferred Compensation" means, with respect to any taxable
year of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.9(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.19 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.20 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.21 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.22 "Forfeiture" means that portion of a Participant's Account that is
not Vested, and occurs on the earlier of:
(a) the distribution of the entire Vested portion of a Terminated
Participant's Account, or
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<PAGE> 13
(b) the last day of the Plan Year in which the Participant incurs a
"1-Year Period of Severance".
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(g)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.23 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.24 "415 Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
l.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
If, in connection with the adoption of this amendment and
restatement, the definition of "415 Compensation" has been modified, then, for
Plan Years prior to the Plan Year which
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<PAGE> 14
includes the adoption date of this amendment and restatement, "415 Compensation"
means compensation determined pursuant to the Plan then in effect.
1.25 "414(s) Compensation" with respect to any Participant means such
Participant's Elective Contributions attributable to Deferred Compensation
recharacterized as voluntary Employee contributions pursuant to Section 4.6(a)
plus "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year, except that "414(s) Compensation" shall only be recognized for
that portion of the Plan Year during which an Employee was a Participant in the
Plan.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded.
Such amount shall be adjusted at the same time and in such manner as permitted
under Code Section 415(d), except that the dollar increase in effect on January
1 of any calendar year shall be effective for the Plan Year beginning with or
within such calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the "414(s)
Compensation" limit shall be an amount equal to the "414(s) Compensation" limit
for the calendar year in which the Plan Year begins multiplied by the ratio
obtained by dividing the number of full months in the short Plan Year by twelve
(12). In applying this limitation, the family group of a Highly Compensated
Participant who is subject to the Family Member aggregation rules of Code
Section 414(q)(6) because such Participant is either a "five percent owner" of
the Employer or one of the ten (10) Highly Compensated Employees paid the
greatest "415 Compensation" during the year, shall be treated as a single
Participant, except that for this purpose Family Members shall include only the
affected Participant's spouse and any lineal descendants who have not attained
age nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in the Plan,
and notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of each
Employee taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period,
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<PAGE> 15
not exceeding 12 months, over which Compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference
in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
If, in connection with the adoption of this amendment and
restatement, the definition of "414(s) Compensation" has been modified, then,
for Plan Years prior to the Plan Year which includes the adoption date of this
amendment and restatement, "414(s) Compensation" means compensation determined
pursuant to the Plan then in effect.
1.26 "Employment Commencement Date" means the date on which the employee
first performs an Hour of Service.
1.27 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year"
or "look-back year" were "five percent owners" as defined in Section
1.33(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of
the Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415 Compensation"
during the
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<PAGE> 16
"look-back year" from the Employer greater than 50 percent of the
limit in effect under Code Section 415(b)(1)(A) for any such Plan
Year. The number of officers shall be limited to the lesser of (i)
50 employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of
officers, Employees described in Section 1.56(a), (b), (c) and (d)
shall be excluded, but such Employees shall still be considered for
the purpose of identifying the particular Employees who are
officers. If the Employer does not have at least one officer whose
annual "415 Compensation" is in excess of 50 percent of the Code
Section 415(b)(1)(A) limit, then the highest paid officer of the
Employer will be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination
year" for "look-back year."
The "determination year" shall be the Plan Year for which testing is
being performed, and the "look-back year" shall be the immediately preceding
twelve-month period.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment, the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who
are non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased
Employees are covered by a plan described in Code Section 414(n)(5) and are not
covered in any qualified plan maintained by the Employer. The exclusion of
Leased Employees for this purpose shall be applied on a uniform and consistent
basis for all of the Employer's retirement plans.
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<PAGE> 17
Highly Compensated Former Employees shall be treated as Highly Compensated
Employees without regard to whether they performed services during the
"determination year."
1.28 "Highly Compensated Former Employee" means a former Employee who had
a separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner." For purposes
of this Section, "determination year, " "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.27. Highly Compensated
Former Employees shall be treated as Highly Compensated Employees. The method
set forth in this Section for determining who is a "Highly Compensated Former
Employee" shall be applied on a uniform and consistent basis for all purposes
for which the Code Section 414(q) definition is applicable.
1.29 "Highly Compensated Participant" means any Highly Compensated
Employee who is eligible to participate in the Plan.
1.30 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with
12
<PAGE> 18
applicable worker's compensation, or unemployment compensation or disability
insurance laws; and (iii) Hours of Service are not required to be credited for a
payment which solely reimburses an Employee for medical or medically related
expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made
by or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). In addition, Hours of Service will be credited for
employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.31 "Income" means the income or losses allocable to "excess amounts"
which shall equal the allocable gain or loss for the "applicable computation
period". The income allocable to "excess amounts" for the "applicable
computation period" is determined by multiplying the income for the "applicable
computation period" by a fraction. The numerator of the fraction is the "excess
amount" for the "applicable computation period." The denominator of the fraction
is the total "account balance" attributable to "Employer contributions" as of
the end of the applicable computation period", reduced by the gain allocable to
such total amount for the "applicable computation period" and increased by the
loss allocable to such total amount for the "applicable computation period". The
provisions of this Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
(2) "taxable year of the Participant" for "applicable
computation period";
(3) "Deferred Compensation" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance."
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<PAGE> 19
(b) For purposes of Section 4.6(a), by substituting:
(1) "Excess Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Elective Contributions" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance."
(c) For purposes of Section 4.8(a), by substituting:
(1) "Excess Aggregate Contributions" for "excess amounts;"
(2) "Plan Year" for "applicable computation period;"
(3) "Employer matching contributions made pursuant to Section
4.1(b), voluntary Employee contributions made pursuant to
Section 4.12 and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section
4.7(c)" for "Employer contributions;" and
(4) "Participant's Account and Voluntary Contribution Account"
for "account balance."
Income allocable to any distribution of Excess Deferred Compensation
on or before the last day of the taxable year of the Participant shall be
calculated from the first day of the taxable year of the Participant to the date
on which the distribution is made pursuant to either the "fractional method" or
the "safe harbor method." Under such "safe harbor method," allocable Income for
such period shall be deemed to equal ten percent (10%) of the Income allocable
to such Excess Deferred Compensation multiplied by the number of calendar months
in such period. For purposes of determining the number of calendar months in
such period, a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
The Income allocable to Excess Aggregate Contributions resulting
from the recharacterization of Elective Contributions shall be determined and
distributed as if such recharacterized Elective Contributions had been
distributed as Excess Contributions.
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Notwithstanding the above, for "applicable computation periods"
which began in 1987, Income during the "gap period" shall not be taken into
account.
1.32 "Investment Manager" means an entity that (a) has the power to
manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary
responsibility to the Plan in writing. Such entity must be a person, firm, or
corporation registered as an investment adviser under the Investment Advisers
Act of 1940, a bank, or an insurance company.
1.33 "Key Employee" means an Employee as defined in Code Section 416(i)
and the Regulations thereunder. Generally, any Employee or former Employee (as
well as each of his Beneficiaries) is considered a Key Employee if he, at any
time during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c)(1)(A) for the calendar year in
which such Plan Year ends and owning (or considered as owning within
the meaning of Code Section 318) both more than one-half percent
interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent
owner" means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person
who owns more than five percent (5%) of the capital or profits
interest in the Employer. In determining percentage ownership
hereunder, employers that would otherwise be aggregated under Code
Sections 414(b), (c), (m) and (o) shall be treated as separate
employers.
(d) a "one percent owner" of the Employer having an annual
"415 Compensation" from the Employer of more than $150,000. "One
percent owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than one percent (1%)
of the outstanding stock of the Employer or stock possessing
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more than one percent (1%) of the total combined voting power of all
stock of the Employer or, in the case of an unincorporated business,
any person who owns more than one percent (1%) of the capital or
profits interest in the Employer. In determining percentage
ownership hereunder, employers that would otherwise be aggregated
under Code Sections 414(b), (c), (m) and (o) shall be treated as
separate employers. However, in determining whether an individual
has "415 Compensation" of more than $150,000, "415 Compensation"
from each employer required to be aggregated under Code Sections
414(b), (c), (m) and (o) shall be taken into account.
For purposes of this Section, the determination of "415
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
1.34 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.35 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension
plan providing:
(1) a non-integrated employer contribution rate of at least
10% of compensation, as defined in Code Section 415(c)(3), but
including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not
includible in the gross income of the Participant under Code
Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457, and
Employee contributions described in Code Section 414(h)(2)
that are treated as Employer contributions.
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<PAGE> 22
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the
recipient's non-highly compensated work force.
1.36 "Non-Elective Contribution" means the Employer's contributions to the
Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2 and any Qualified Non-Elective
Contribution.
1.37 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.38 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.39 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.40 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
1.41 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or
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<PAGE> 23
paternity leave of absence" shall be those which would normally have been
credited but for such absence, or, in any case in which the Administrator is
unable to determine such hours normally credited, eight (8) Hours of Service per
day. The total Hours of Service required to be credited for a "maternity or
paternity leave of absence" shall not exceed 501.
For purposes of vesting, a "1-Year Period of Severance" shall be
substituted for the term "1-Year Break in Service", and shall be determined on
the basis of a 12-consecutive month period beginning on the Severance from
Service Date and ending on the first anniversary of that date, provided that the
employee during such 12-consecutive month period does not perform an Hour of
Service for the employer or employers maintaining the Plan.
1.42 "Participant" means any Eligible Employee who participates in the
Plan as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.43 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's Non-Elective Contributions.
A separate accounting shall be maintained with respect to that
portion of the Participant's Account attributable to Employer matching
contributions made pursuant to Section 4.1(b) and Employer discretionary
contributions made pursuant to Section 4.1(d).
1.44 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.
1.45 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2 and any Employer Qualified Non-Elective
Contributions.
1.45(A) "Participation Commencement Date" means the date a Participant
first commences participation under the Plan.
1.45(B) "Period of Service" means a period of service commencing on the
employee's Employment Commencement Date or Reemployment Commencement Date,
whichever is applicable, and ending on the Severance from Service Date.
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1.45(C) "Period of Severance" means the period of time on the Severance
from Service Date and ending on the date on which the employee again performs an
Hour of Service for an employer or employers maintaining the Plan.
1.46 "Plan" means this instrument, including all amendments thereto.
1.47 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.48 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.1(c) and Section
4.6. Such contributions shall be considered an Elective Contribution for the
purposes of the Plan and used to satisfy the "Actual Deferral Percentage" tests.
In addition, the Employer's contributions to the Plan that are made
pursuant to Section 4.8(h) which are used to satisfy the "Actual Contribution
Percentage" tests shall be considered Qualified Non-Elective Contributions and
be subject to the provisions of Sections 4.2(b) and 4.2(c).
1.49 "Qualified Voluntary Employee Contribution Account" means the account
established and maintained by the Administrator for each Participant with
respect to his total interest in the Plan resulting from the Participant's tax
deductible qualified voluntary employee contributions made pursuant to Section
4.14.
1.49(A) "Reemployment Commencement Date" means the first date, following a
period of Severance from Service which is not required to be taken into service
under spanning rules in Reg. l.410(a)-7(c)(2)(iii) and (d)(1)(iii), on which the
employee performs an Hour of Service for the employer or employers maintaining
the Plan.
1.50 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.51 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.52 "Retirement Date" means the date as of which a Participant retires
for reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date
(see Section 6.1).
1.52(A) "Severance from Service Date" means the date on which shall occur
the earlier of:
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(i) the date on which an employee quits, retires, is
discharged or dies, or
(ii) the first anniversary of the first date of a period in
which an employee remains absent from service (with or without
pay) with the employer or employer maintaining the Plan for
any reason other than quit, retirement, discharge, or death,
such as vacation, holiday, sickness, disability, leave of
absence or layoff.
1.53 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.54 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.55 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.56 "Top Heavy Plan Year" means a Plan Year commencing after December 31,
1983 during which the Plan is a Top Heavy Plan.
1.57 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.27) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered
Employees unless such Leased Employees are covered by a plan described in Code
Section 414(n)(5) and are not covered in any qualified plan maintained by the
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 91l(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year, the following additional
Employees shall also be excluded; however, such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during a
year; and
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(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied
on a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
1.58 "Total and Permanent Disability" means a physical or mental condition
which, in the judgement of the Plan Administrator, based upon medical reports
and other evidence satisfactory to the Plan Administrator, presumably
permanently prevents an Employee from satisfactorily performing his usual duties
for the Employer or the duties of such other position or job which the Employer
makes available to him and for which such Employee is qualified by reason of his
training, education or experience.
1.59 "Trustee" means the person or entity named as trustee herein or in
any separate trust forming a part of this Plan, and any successors.
1.60 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.61 "Vested" means the nonforfeitable portion of any account maintained
on behalf of a Participant.
1.62 "Voluntary Contribution Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan resulting from the Participant's nondeductible voluntary
contributions made pursuant to Section 4.12.
Amounts recharacterized as voluntary Employee contributions pursuant
to Section 4.6(a) shall remain subject to the limitations of Sections 4.2(b) and
4.2(c). Therefore, a separate accounting shall be maintained with respect to
that portion of the Voluntary Contribution Account attributable to voluntary
Employee contributions made pursuant to Section 4.12.
1.63 "Year of Service" for eligibility, participation and benefit accrual
means the computation period of twelve (12) consecutive months, herein set
forth, during which an Employee has at least 1000 Hours of Service.
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1.64 "Year of Vesting Service" means a period of 12 consecutive months
starting with the Employment Commencement Date or Reemployment Commencement Date
and annual anniversaries thereof, and which shall be the computation period for
vesting. The Plan is intended to be an elapsed time plan for vesting only.
For purposes of eligibility for participation, the initial
computation period shall begin with the date on which the Employee first
performs an Hour of Service. The participation computation period beginning
after a 1-Year Break in Service shall be measured from the date on which an
Employee again performs an Hour of Service. The participation computation period
shall shift to the Plan Year which includes the anniversary of the date on which
the Employee first performed an Hour of Service. An Employee who is credited
with the required Hours of Service in both the initial computation period (or
the computation period beginning after a 1-Year Break in Service) and the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service, shall be credited with two (2) Years of Service
for purposes of eligibility to participate.
For all other purposes, the computation period shall be the Plan
Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c), except
when the computation is based on elapsed time. However, in determining whether
an Employee has completed a Year of Service for benefit accrual purposes in the
short Plan Year, the number of the Hours of Service required shall be
proportionately reduced based on the number of full months in the short Plan
Year.
Years of Service with any Affiliated Employer shall be recognized.
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.
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2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year
commencing after December 31, 1983 in which, as of the Determination
Date, (1) the Present Value of Accrued Benefits of Key Employees and
(2) the sum of the Aggregate Accounts of Key Employees under this
Plan and all plans of an Aggregation Group, exceeds sixty percent
(60%) of the Present Value of Accrued Benefits and the Aggregate
Accounts of all Key and Non-Key Employees under this Plan and all
plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan
Year, but such Participant was a Key Employee for any prior Plan
Year, such Participant's Present Value of Accrued Benefit and/or
Aggregate Account balance shall not be taken into account for
purposes of determining whether this Plan is a Top Heavy or Super
Top Heavy Plan (or whether any Aggregation Group which includes this
Plan is a Top Heavy Group). In addition, for Plan Years beginning
after December 31, 1984, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination
Date, any accrued benefit for such Participant or Former Participant
shall not be taken into account for the purposes of determining
whether this Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan
Year commencing after December 31, 1983 in which, as of the
Determination Date, (1) the Present Value of Accrued Benefits of Key
Employees and (2) the sum of the Aggregate Accounts of Key Employees
under this Plan and all plans of an Aggregation Group, exceeds
ninety percent (90%) of the Present Value of Accrued Benefits and
the Aggregate Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of
the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but due
on or before the Determination Date, except for the first Plan
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<PAGE> 29
Year when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4)
preceding Plan Years. However, in the case of distributions
made after the valuation date and prior to the Determination
Date, such distributions are not included as distributions for
top heavy purposes to the extent that such distributions are
already included in the Participant's Aggregate Account
balance as of the valuation date. Notwithstanding anything
herein to the contrary, all distributions, including
distributions made prior to January 1, 1984, and distributions
under a terminated plan which if it had not been terminated
would have been required to be included in an Aggregation
Group, will be counted. Further, distributions from the Plan
(including the cash value of life insurance Policies) of a
Participant's account balance because of death shall be
treated as a distribution for the purposes of this paragraph.
(4) any Employee contributions, whether voluntary or
mandatory. However, amounts attributable to tax deductible
qualified voluntary employee contributions shall not be
considered to be a part of the Participant's Aggregate Account
balance.
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and
made from a plan maintained by one employer to a plan
maintained by another employer), if this Plan provides the
rollovers or plan-to-plan transfers, it shall always consider
such rollovers or plan-to-plan transfers as a distribution for
the purposes of this Section. If this Plan is the plan
accepting such rollovers or plan-to-plan transfers, it shall
not consider such rollovers or plan-to-plan transfers as part
of the Participant's Aggregate Account balance. However,
rollovers or plan-to-plan transfers accepted prior to January
1, 1984 shall be considered as part of the Participant's
Aggregate Account balance.
(6) with respect to related rollovers and plan-to-plan
transfers (ones either not initiated by the Employee or made
to a plan maintained by
24
<PAGE> 30
the same employer), if this Plan provides the rollover or
plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan transfer, it
shall consider such rollover or plan-to-plan transfer as part
of the Participant's Aggregate Account balance, irrespective
of the date on which such rollover or plan-to-plan transfer is
accepted.
(7) For the purposes of determining whether two employers are
to be treated as the same employer in (5) and (6) above, all
employers aggregated under Code Section 414(b), (c), (m) and
(o) are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in
which a Key Employee is a participant in the Plan Year
containing the Determination Date or any of the four preceding
Plan Years, and each other plan of the Employer which enables
any plan in which a Key Employee participates to meet the
requirements of Code Sections 401(a)(4) or 410, will be
required to be aggregated. Such group shall be known as a
Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the
Required Aggregation Group will be considered a Top Heavy Plan
if the Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also
include any other plan not required to be included in the
Required Aggregation Group, provided the resulting group,
taken as a whole, would continue to satisfy the provisions of
Code Sections 401(a)(4) and 410. Such group shall be known as
a Permissive Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan
that is part of the Required Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation
Group is a Top Heavy Group. No plan in the Permissive
Aggregation Group will be considered a Top Heavy
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<PAGE> 31
Plan if the Permissive Aggregation Group is not a Top Heavy
Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year shall
be aggregated in order to determine whether such plans are Top
Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of
the Employer if it was maintained within the last five (5)
years ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the
preceding Plan Year, or (b) in the case of the first Plan Year, the
last day of such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant
other than a Key Employee, shall be as determined using the single
accrual method used for all plans of the Employer and Affiliated
Employers, or if no such single method exists, using a method which
results in benefits accruing not more rapidly than the slowest
accrual rate permitted under Code Section 411(b)(1)(C). The
determination of the Present Value of Accrued Benefit shall be
determined as of the most recent valuation date that falls within or
ends with the 12-month period ending on the Determination Date
except as provided in Code Section 416 and the Regulations
thereunder for the first and second plan years of a defined benefit
plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as
of the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees
under all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group, exceeds sixty
percent (60%) of a similar sum determined for all
Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems
necessary for the proper administration of the Plan to assure that
the Plan is being operated for the exclusive benefit of the
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<PAGE> 32
Participants and their Beneficiaries in accordance with the terms of
the Plan, the Code, and the Act.
(b) The Employer shall establish a "funding policy and
method," i.e., it shall determine whether the Plan has a short run
need for liquidity (e.g., to pay benefits) or whether liquidity is a
long run goal and investment growth (and stability of same) is a
more current need, or shall appoint a qualified person to do so. The
Employer or its delegate shall communicate such needs and goals to
the Trustee, who shall coordinate such Plan needs with its
investment policy. The communication of such a "funding policy and
method" shall not, however, constitute a directive to the Trustee as
to investment of the Trust Funds. Such "funding policy and method"
shall be consistent with the objectives of this Plan and with the
requirements of Title I of the Act.
(c) The Employer shall periodically review the performance of
any Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied
by formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the
7 27
<PAGE> 33
Employer and the Trustee in writing of such action and specify the
responsibilities of each Administrator. The Trustee thereafter shall accept and
rely upon any documents executed by the appropriate Administrator until such
time as the Employer or the Administrators file with the Trustee a written
revocation of such designation.
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401 (a), and shall comply with the terms of the Act and
all regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect
to the amount and the kind of benefits to which any Participant
shall be entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration
of the Plan;
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<PAGE> 34
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent with
the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from which
such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee
from time to time the sums of money necessary or desirable to be
contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the
short and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner designed
to accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their
Compensation deferred or paid to them in cash;
(j) to assist any Participant regarding his rights, benefits,
or elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of
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such of the foregoing facts as may be pertinent to the Trustee's duties under
the Plan. The Administrator may rely upon such information as is supplied by the
Employer and shall have no duty or responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has
been denied a benefit by a decision of the Administrator pursuant to Section
2.12 shall be entitled to request the Administrator to give further
consideration to his claim by filing with the Administrator (on a form which may
be obtained from the Administrator) a request for a review. Such request,
together with a written statement of the reasons why the claimant believes his
claim should be allowed, shall be filed with the Administrator no later than 60
days after receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a review within the next 60 days, at which the
claimant may be represented by a representative of his choosing and at which the
claimant shall
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have an opportunity to submit written evidence and comments in support of his
claim. At the review (or prior thereto upon 5 business days written notice to
the Administrator) the claimant or his representative shall have an opportunity
to review all documents in the possession of the Administrator which are
pertinent to the claim at issue and its disallowance. A final decision as to the
allowance of the claim shall be made by the Administrator within 60 days of
receipt of the appeal (unless there has been an extension of 60 days due to
special circumstances, provided the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period) . Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has attained age 18 shall be eligible to
participate hereunder as of the date he has satisfied such requirements.
However, any Employee who was a Participant in the Plan prior to the effective
date of this amendment and restatement shall continue to participate in the
Plan. The Employer shall give each prospective Eligible Employee written notice
of his eligibility to participate in the Plan prior to the close of the Plan
Year in which he first becomes an Eligible Employee.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
first date on which he first performs an Hour of Service as an Eligible
Employee.
In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee will participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
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3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee
for participation in the Plan based upon information furnished by the Employer.
Such determination shall be conclusive and binding upon all persons, as long as
the same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification
of an Eligible Employee to an ineligible Employee, or in the event a
Participant shall fail in any computation period of his employment
to accumulate 1000 hours of service, such Former Participant shall
continue to vest in his interest in the Plan for each Year of
Vesting Service completed while a noneligible Employee, until such
time as his Participant's Account shall be forfeited or distributed
pursuant to the terms of the Plan. Additionally, his interest in the
Plan shall continue to share in the earnings of the Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate,
such Employee will participate immediately upon returning to an
eligible class of Employees.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included
as a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the ineligible person shall constitute a Forfeiture
(except for
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<PAGE> 38
Deferred Compensation which shall be distributed to the ineligible person) for
the Plan Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan.
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be
deemed an Employer's Elective Contribution.
(b) On behalf of each Participant who is eligible to share in
matching contributions for the Plan Year, a discretionary matching
contribution equal to a percentage of each such Participant's
Deferred Compensation, the exact percentage to be determined each
year by the Employer, which amount shall be deemed an Employer's
Non-Elective Contribution.
(c) On behalf of each Non-Highly Compensated Participant and
Non-Key Employee who is eligible to share in the Qualified
Non-Elective Contribution for the Plan Year, a discretionary
Qualified Non-Elective Contribution equal to a percentage of each
eligible individual's Compensation, the exact percentage to be
determined each year by the Employer. The Employer's Qualified
Non-Elective Contribution shall be deemed an Employer's Elective
Contribution.
(d) A discretionary amount, which amount shall be deemed an
Employer's Non-Elective Contribution.
(e) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of
Code Section 404. All contributions by the Employer shall be made in
cash or in such property as is acceptable to the Trustee.
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<PAGE> 39
shall make a contribution even if it exceeds the amount which is
deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer from 1% to 16% of his
Compensation which would have been received in the Plan Year, but
for the deferral election. A deferral election (or modification of
an earlier election) may not be made with respect to Compensation
which is currently available on or before the date the Participant
executed such election.
Additionally, each Participant may elect to defer and
have allocated for a Plan Year all or a portion of any cash bonus
attributable to services performed by the Participant for the
Employer during such Plan Year and which would have been received by
the Participant on or before two and one-half months following the
end of the Plan Year but for the deferral election. A deferral
election may not be made with respect to cash bonuses which are
currently available on or before the date the Participant executed
such election. Notwithstanding the foregoing, cash bonuses
attributable to services performed by the Participant during a Plan
Year but which are to be paid to the Participant later than two and
one-half months after the close of such Plan Year will be subjected
to whatever deferral election is in effect at the time such cash
bonus would have otherwise been received.
The amount by which Compensation and/or cash bonuses are
reduced shall be that Participant's Deferred Compensation and be
treated as an Employer Elective Contribution and allocated to that
Participant's Elective Account.
(b) The balance in each Participant's Elective Account shall
be fully Vested at all times and shall not be subject to Forfeiture
for any reason.
(c) Amounts held in the Participant's Elective Account may not
be distributable earlier than:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
(3) the termination of the Plan without the
establishment or existence of a "successor plan," as
that term is described in Regulation 1.401(k)-1(d)(3);
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<PAGE> 40
(4) the date of disposition by the Employer to an entity
that is not an Affiliated Employer of substantially all
of the assets (within the meaning of Code Section
409(d)(2)) used in a trade or business of such
corporation if such corporation continues to maintain
this Plan after the disposition with respect to a
Participant who continues employment with the
corporation acquiring such assets;
(5) the date of disposition by the Employer or an
Affiliated Employer who maintains the Plan of its
interest in a subsidiary (within the meaning of Code
Section 409(d)(3)) to an entity which is not an
Affiliated Employer but only with respect to a
Participant who continues employment with such
subsidiary; or
(6) Effective October 1, 1990, the proven financial
hardship of a Participant, subject to the limitations of
Section 6.10.
(d) For each Plan Year beginning after December 31, 1987, a
Participant's Deferred Compensation made under this Plan and all
other plans, contracts or arrangements of the Employer maintaining
this Plan shall not exceed, during any taxable year of the
Participant, the limitation imposed by Code Section 402(g), as in
effect at the beginning of such taxable year. If such dollar
limitation is exceeded, a Participant will be deemed to have
notified the Administrator of such excess amount which shall be
distributed in a manner consistent with Section 4.2(f). The dollar
limitation shall be adjusted annually pursuant to the method
provided in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution from his Participant's Elective Account pursuant to
Section 6.10 or pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from
any other plan maintained by the Employer, then such Participant
shall not be permitted to elect to have Deferred Compensation
contributed to the Plan on his behalf for a period of twelve (12)
months following the receipt of the distribution. Furthermore, the
dollar limitation under Code Section 402(g) shall be reduced, with
respect to the Participant's taxable year following the taxable
year in which the hardship distribution was made, by the amount of
such Participant's Deferred Compensation, if any, pursuant to this
Plan (and any other plan maintained by the Employer) for the taxable
year of the hardship distribution.
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<PAGE> 41
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred arrangement
(as defined in Code Section 401(k)), a simplified employee pension
(as defined in Code Section 408(k)), a salary reduction arrangement
(within the meaning of Code Section 3121(a)(5)(D)), a deferred
compensation plan under Code Section 457, or a trust described in
Code Section 501(c)(18) cumulatively exceed the limitation imposed
by Code Section 402(g) (as adjusted annually in accordance with the
method provided in Code Section 415(d) pursuant to Regulations) for
such Participant's taxable year, the Participant may, not later than
March 1 following the close of the Participant's taxable year,
notify the Administrator in writing of such excess and request that
his Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator may
direct the Trustee to distribute such excess amount (and any Income
allocable to such excess amount) to the Participant not later than
the first April 15th following the close of the Participant's
taxable year. Distributions in accordance with this paragraph may be
made for any taxable year of the Participant which begins after
December 31, 1986. Any distribution of less than the entire amount
of Excess Deferred Compensation and Income shall be treated as a pro
rata distribution of Excess Deferred Compensation and Income. The
amount distributed shall not exceed the Participant's Deferred
Compensation under the Plan for the taxable year. Any distribution
on or before the last day of the Participant's taxable year must
satisfy each of the following conditions:
(1) the distribution must be made after the date on
which the Plan received the Excess Deferred
Compensation;
(2) the Participant shall designate the distribution as
Excess Deferred Compensation; and
(3) the Plan must designate the distribution as a
distribution of Excess Deferred Compensation.
Any distribution made pursuant to this Section 4.2(f)
shall be made simultaneously from Deferred Compensation and matching
contributions which relate to such Deferred Compensation provided,
however, that any such matching contributions which are not Vested
shall be forfeited in lieu of distribution.
(g) Notwithstanding Section 4.2(f) above, a Participant's
Excess Deferred Compensation shall be
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<PAGE> 42
reduced, but not below zero, by any distribution and/or
recharacterization of Excess Contributions pursuant to Section
4.6(a) for the Plan Year beginning with or within the taxable year
of the Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market
value of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective Account
may be treated as a Directed Investment Account pursuant to Section
4.13.
(j) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short-term debt security acceptable to the
Trustee until such time as the allocations pursuant to Section 4.4
have been made.
(k) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with
the following:
(1) A Participant may commence making elective deferrals to
the Plan only after first satisfying the eligibility and
participation requirements specified in Article III. However,
the Participant must make his initial salary deferral election
within a reasonable time, not to exceed thirty (30) days,
after entering the Plan pursuant to Section 3.3. If the
Participant fails to make an initial salary deferral election
within such time, then such Participant may thereafter make an
election in accordance with the rules governing modifications.
The Participant shall make such an election by entering into a
written salary reduction agreement with the Employer and
filing such agreement with the Administrator. Such election
shall initially be effective beginning with the pay period
following the acceptance of the salary reduction agreement by
the Administrator, shall not have retroactive effect and shall
remain in force until revoked.
(2) A Participant may modify a prior election at any time
during the Plan Year and concurrently make a new election by
filing a written notice with the Administrator within a
reasonable time
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<PAGE> 43
before the pay period for which such modification is to be
effective. Any modification shall not have retroactive effect
and shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his salary
reduction agreement in its entirety at any time during the
Plan Year by providing the Administrator with thirty (30) days
written notice of such revocation (or upon such shorter notice
period as may be acceptable to the Administrator). Such
revocation shall become effective as of the beginning of the
first pay period coincident with or next following the
expiration of the notice period. Furthermore, the termination
of the Participant's employment, or the cessation of
participation for any reason, shall be deemed to revoke any
salary reduction agreement then in effect, effective
immediately following the close of the pay period within which
such termination or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to
the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax return
for the Fiscal Year.
However, Employee Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account
in the name of each Participant to which the Administrator shall
credit as of each Anniversary Date all amounts allocated to each
such Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper
allocation of the Employer's contributions for each Plan Year.
Within a reasonable
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<PAGE> 44
period of time after the date of receipt by the Administrator of
such information, the Administrator shall allocate such contribution
as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 4.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(b), to each Participant's Account
in accordance with Section 4.1(b).
Only Participants who are actively employed on the last day of
the Plan Year, and have not made a hardship withdrawal during
the Plan Year, shall be eligible to share in the matching
contribution for the year.
(3) With respect to the Employer's Qualified Non-Elective
Contribution made pursuant to Section 4.1(c), to each
Participant's Elective Account in accordance with Section
4.1(c).
Only Non-Highly Compensated Participants and Non-Key Employees
who have completed a Year of Service during the Plan Year, not
made a hardship withdrawal during the Plan Year, and are
actively employment on the last day of the Plan Year shall be
eligible to share in the Qualified Non-Elective Contribution
for the year.
(4) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(d), to each Participant's Account
in the same proportion that each such Participant's
Compensation for the year bears to the total Compensation of
all Participants for such year.
Only Participants who have completed a Year of Service during
the Plan Year and are actively employed on the last day of the
Plan Year shall be eligible to share in the discretionary
contribution for the year.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of
Former Participants, if any, in accordance with Section 6.4(g)(2).
The remaining Forfeitures, if any, shall be
39
<PAGE> 45
allocated to Participants' Accounts in the following manner:
(1) Forfeitures attributable to Employer matching
contributions made pursuant to Section 4.1(b) shall be
allocated among the Participants' Accounts in the same manner
as the Employer's discretionary contributions.
(2) Forfeitures attributable to Employer discretionary
contributions made pursuant to Section 4.1(d) shall be added
to the Employer's discretionary contribution for the Plan Year
in which such Forfeitures occur and allocated among the
Participants' Accounts in the same manner as the Employer's
discretionary contributions.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.9) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.10.
(d) For any Top Heavy Plan Year, Non-Key Employees not
otherwise eligible to share in the allocation of contributions and
Forfeitures as provided above, shall receive the minimum allocation
provided for in Section 4.4(g) if eligible pursuant to the
provisions of Section 4.4(i).
(e) Participants who are not actively employed on the last day
of the Plan Year due to Retirement (Early, Normal or Late), Total
and Permanent Disability or death shall share in the allocation of
contributions and Forfeitures for that Plan Year only if otherwise
eligible in accordance with this Section.
(f) As of each Anniversary Date or other valuation date,
before the current valuation period allocation of Employer
contributions and Forfeitures, any earnings or losses (net
appreciation or net depreciation) of the Trust Fund shall be
allocated in the same proportion that each Participant's and Former
Participant's nonsegregated accounts bear to the total of all
Participants' and Former Participants' nonsegregated accounts as of
such date.
Participants' transfers from other qualified plans and
voluntary contributions deposited in the general Trust Fund shall
share in any earnings and losses (net appreciation or net
depreciation) of the Trust Fund in the same manner provided above.
Each segregated account maintained on behalf of a
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<PAGE> 46
Participant shall be credited or charged with its separate earnings
and losses.
(g) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum
of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be
equal to at least three percent (3%) of such Non-Key Employee's "415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However,
if (1) the sum of the Employer's contributions and Forfeitures
allocated to the Participant's Combined Account of each Key Employee
for such Top Heavy Plan Year is less than three percent (3%) of each
Key Employee's "415 Compensation" and (2) this Plan is not required
to be included in an Aggregation Group to enable a defined benefit
plan to meet the requirements of Code Section 401(a)(4) or 410, the
sum of the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be
equal to the largest percentage allocated to the Participant's
Combined Account of any Key Employee. However, in determining
whether a Non-Key Employee has received the required minimum
allocation, such Non-Key Employee's Deferred Compensation and
matching contributions needed to satisfy the "Actual Contribution
Percentage" tests pursuant to Section 4.7(a) shall not be taken into
account.
However, no such minimum allocation shall be required in
this Plan for any Non-Key Employee who participates in another
defined contribution plan subject to Code Section 412 providing such
benefits included with this Plan in a Required Aggregation Group.
(h) For purposes of the minimum allocations set forth above,
the percentage allocated to the Participant's Combined Account of
any Key Employee shall be equal to the ratio of the sum of the
Employer's contributions and Forfeitures allocated on behalf of such
Key Employee divided by the "415 Compensation" for such Key
Employee.
(i) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Combined Account
of all Non-Key Employees who are Participants and who are employed
by the Employer on the last day of the Plan Year, including Non-Key
Employees who have (1) failed to complete a
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<PAGE> 47
Year of Service; and (2) declined to make mandatory contributions
(if required) or, in the case of a cash or deferred arrangement,
elective contributions to the Plan.
(j) For the purposes of this Section, "415 Compensation" shall
be limited to $200,000. Such amount shall be adjusted at the same
time and in the same manner as permitted under Code Section 415(d),
except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or
within such calendar year and the first adjustment to the $200,000
limitation shall be effective on January 1, 1990. For any short Plan
Year the "415 Compensation" limit shall be an amount equal to the
"415 Compensation" limit for the calendar year in which the Plan
Year begins multiplied by the ratio obtained by dividing the number
of full months in the short Plan Year by twelve (12). However, for
Plan Years beginning prior to January 1, 1989, the $200,000 limit
shall apply only for Top Heavy Plan Years and shall not be adjusted.
In addition to other applicable limitations set forth in
the Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the
annual Compensation of each Employee taken into account under the
Plan shall not exceed the OBRA '93 annual compensation limit. The
OBRA '93 annual compensation limit is $150,000, as adjusted by the
Commissioner for increases in the cost of living in accordance with
Code Section 401(a)(17)(B). The cost of living adjustment in effect
for a calendar year applies to any period, not exceeding 12 months,
over which Compensation is determined (determination period)
beginning in such calendar year. If a determination period consists
of fewer than 12 months, the OBRA '93 annual compensation limit will
be multiplied by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of which is
12.
For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under Code Section
401(a)(17) shall mean the OBRA '93 annual compensation limit set
forth in this provision.
If Compensation for any prior determination period is
taken into account in determining an Employee's benefits accruing in
the current Plan Year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in
effect for that prior determination period. For this purpose, for
determination periods beginning before the
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<PAGE> 48
first day of the first Plan Year beginning on or after January 1,
1994, the OBRA '93 annual compensation limit is $150,000.
(k) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during the
Plan Year shall share in the salary reduction contributions made by
the Employer for the year of termination without regard to the Hours
of Service credited.
(1) If a Former Participant is reemployed after five (5)
consecutive 1-Year Period of Severance, then separate accounts shall
be maintained as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan
attributable to post-break service.
(m) Notwithstanding anything to the contrary, for Plan Years
beginning after December 31, 1989, if this is a Plan that would
otherwise fail to meet the requirements of Code Sections 401(a)(26),
410(b)(1) or 410(b)(2)(A)(i) and the Regulations thereunder because
Employer contributions would not be allocated to a sufficient number
or percentage of Participants for a Plan Year, then the following
rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year
shall be expanded to include the minimum number of
Participants who would not otherwise be eligible as are
necessary to satisfy the applicable test specified above. The
specific Participants who shall become eligible under the
terms of this paragraph shall be those who are actively
employed on the last day of the Plan Year and, when compared
to similarly situated Participants, have completed the
greatest number of Hours of Service in the Plan Year.
(2) If after application of paragraph (1) above, the
applicable test is still not satisfied, then the group of
Participants eligible to share in the Employer's contribution
and Forfeitures for the Plan Year shall be further expanded to
include the minimum number of Participants who are not
actively employed on the last day of the Plan Year as are
necessary to satisfy the applicable test. The specific
Participants who shall become eligible to share shall be those
Participants, when compared to similarly situated
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<PAGE> 49
Participants, who have completed the greatest number of Hours
of Service in the Plan Year before terminating employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be
reallocated to satisfy these requirements. In such event, the
Employer shall make an additional contribution equal to the
amount such affected Participants would have received had they
been included in the allocations, even if it exceeds the
amount which would be deductible under Code Section 404. Any
adjustment to the allocations pursuant to this paragraph shall
be considered a retroactive amendment adopted by the last day
of the Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the portion of the Plan
which is not a Code Section 401(k) or 401(m) plan would fail
to satisfy Code Section 410(b) if the coverage tests were
applied by treating those Participants whose only allocation
(under such portion of the Plan) would otherwise be provided
under the top heavy formula as if they were not currently
benefiting under the Plan, then, for purposes of this Section
4.4(m), such Participants shall be treated as not benefiting
and shall therefore be eligible to be included in the expanded
class of Participants who will share in the allocation
provided under the Plan's non top heavy formula.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year beginning
after December 31, 1986, the annual allocation derived from Employer
Elective Contributions to a Participant's Elective Account shall
satisfy one of the following tests:
(1) The "Actual Deferral Percentage" for the Highly
Compensated Participant group shall not be more than the
"Actual Deferral Percentage" of the Non-Highly Compensated
Participant group multiplied by 1.25, or
(2) The excess of the "Actual Deferral Percentage" for the
Highly Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two
44
<PAGE> 50
percentage points. Additionally, the "Actual Deferral
Percentage" for the Highly Compensated Participant group shall
not exceed the "Actual Deferral Percentage" for the Non-Highly
Compensated Participant group multiplied by 2. The provisions
of Code Section 401(k)(3) and Regulation 1.401(k)-1(b) are
incorporated herein by reference.
However, for Plan Years beginning after December 31, 1988, in
order to prevent the multiple use of the alternative method
described in (2) above and in Code Section 401(m)(9)(A), any
Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions under this
Plan or under any other plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2, the provisions of
which are incorporated herein by reference.
(b) For the purposes of this Section "Actual Deferral
Percentage" means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group for a
Plan Year, the average of the ratios, calculated separately for each
Participant in such group, of the amount of Employer Elective
Contributions allocated to each Participant's Elective Account for
such Plan Year (including all or any portion of cash bonuses which
may be deferred pursuant to Section 4.2(a)), to such Participant's
"414(s) Compensation" for such Plan Year. The actual deferral ratio
for each Participant and the "Actual Deferral Percentage" for each
group shall be calculated to the nearest one-hundredth of one
percent for Plan Years beginning after December 31, 1988. Employer
Elective Contributions allocated to each Non-Highly Compensated
Participant's Elective Account shall be reduced by Excess Deferred
Compensation to the extent such excess amounts are made under this
Plan or any other plan maintained by the Employer.
(c) For the purpose of determining the actual deferral ratio
of a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant
is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, the following shall apply:
45
<PAGE> 51
(1) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However,
in applying the $200,000 limit to "414(s) Compensation," for
Plan Years beginning after December 31, 1988, Family Members
shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the
close of the Plan Year. Notwithstanding the foregoing, with
respect to Plan Years beginning prior to January 1, 1990,
compliance with the Regulations then in effect shall be deemed
to be compliance with this paragraph.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Deferral Percentage" of
the Non-Highly Compensated Participant group except to the
extent taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member
of more than one family group in a plan, all Participants who
are members of those family groups that include the
Participant are aggregated as one family group in accordance
with paragraphs (1) and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant
shall include any Employee eligible to make a deferral election
pursuant to Section 4.2, whether or not such deferral election was
made or suspended pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which include
cash or deferred arrangements are considered one plan for the
purposes of Code Section 401(a)(4) or 410(b) (other than Code
Section 410(b)(2)(A)(ii) as in effect for Plan Years beginning after
December 31, 1988), the cash or deferred arrangements included in
such plans shall be treated as one arrangement. In addition, two or
more cash or deferred arrangements may be considered as a single
arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In
such a case, the cash or deferred arrangements included in such
plans and the plans including such arrangements shall be treated as
one
46
<PAGE> 52
arrangement and as one plan for purposes of this Section and Code
Sections 401(a)(4), 410(b) and 401(k). Plans may be aggregated under
this paragraph (e) for Plan Years beginning after December 31, 1989
only if they have the same plan year.
Notwithstanding the above, for Plan Years beginning
after December 31, 1988, an employee stock ownership plan described
in Code Section 4975(e)(7) or 409 may not be combined with this Plan
for purposes of determining whether the employee stock ownership
plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred
arrangements (other than a cash or deferred arrangement which is
part of an employee stock ownership plan as defined in Code Section
4975(e)(7) or 409 for Plan Years beginning after December 31, 1988)
of the Employer or an Affiliated Employer, all such cash or deferred
arrangements shall be treated as one cash or deferred arrangement
for the purpose of determining the actual deferral ratio with
respect to such Highly Compensated Participant. However, for Plan
Years beginning after December 31, 1988, if the cash or deferred
arrangements have different plan years, this paragraph shall be
applied by treating all cash or deferred arrangements ending with or
within the same calendar year as a single arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests set
forth in Section 4.5(a) for Plan Years beginning after December 31, 1986, the
Administrator shall adjust Excess Contributions pursuant to the options set
forth below:
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, the Highly Compensated
Participant having the highest actual deferral ratio shall have his
portion of Excess Contributions distributed to him and/or at his
election recharacterized as a voluntary Employee contribution
pursuant to Section 4.12 until one of the tests set forth in Section
4.5(a) is satisfied, or until his actual deferral ratio equals the
actual deferral ratio of the Highly Compensated Participant having
the second highest actual deferral ratio. This process shall
continue until one of the tests set forth in Section 4.5(a) is
satisfied. For each Highly Compensated
47
<PAGE> 53
Participant, the amount of Excess Contributions is equal to the
Elective Contributions on behalf of such Highly Compensated
Participant (determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after application of
this paragraph) by his "414(s) Compensation." However, in
determining the amount of Excess Contributions to be distributed
and/or recharacterized with respect to an affected Highly
Compensated Participant as determined herein, such amount shall be
reduced by any Excess Deferred Compensation previously distributed
to such affected Highly Compensated Participant for his taxable year
ending with or within such Plan Year.
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are
allocable;
(ii) shall be made simultaneously from Deferred
Compensation and matching contributions which relate to
such Deferred Compensation provided, however, that any
such matching contributions which are not Vested shall
be forfeited in lieu of distribution;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a
distribution of Excess Contributions (and Income).
(2) With respect to the recharacterization of Excess
Contributions pursuant to (a) above, such recharacterized
amounts:
(i) shall be deemed to have occurred on the date on
which the last of those Highly Compensated Participants
with Excess Contributions to be recharacterized is
notified of the recharacterization and the tax
consequences of such recharacterization;
(ii) shall not exceed the amount of Deferred
Compensation on behalf of any Highly Compensated
Participant for any Plan Year;
48
<PAGE> 54
(iii) shall be treated as voluntary Employee
contributions for purposes of Code Section 401(a)(4)
and Regulation l.401(k)-l(b). However, for purposes of
Sections 2.2 and 4.4(g), recharacterized Excess
Contributions continue to be treated as Employer
contributions that are Deferred Compensation. For Plan
Years beginning after December 31, 1988, Excess
Contributions recharacterized as voluntary Employee
contributions shall continue to be nonforfeitable and
subject to the same distribution rules provided for in
Section 4.2(c);
(iv) are not permitted if the amount recharacterized
plus voluntary Employee contributions actually made by
such Highly Compensated Participant, exceed the maximum
amount of voluntary Employee contributions (determined
prior to application of Section 4.7(a)) that such Highly
Compensated Participant is permitted to make under the
Plan in the absence of recharacterization; and
(v) shall be adjusted for Income.
(3) Any distribution and/or recharacterization of less than
the entire amount of Excess Contributions shall be treated as
a pro rata distribution and/or recharacterization of Excess
Contributions and Income.
(4) The determination and correction of Excess Contributions
of a Highly Compensated Participant whose actual deferral
ratio is determined under the family aggregation rules shall
be accomplished by reducing the actual deferral ratio as
required herein, and the Excess Contributions for the family
unit shall then be allocated among the Family Members in
proportion to the Elective Contributions of each Family Member
that were combined to determine the group actual deferral
ratio. Notwithstanding the foregoing, with respect to Plan
Years beginning prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be compliance
with this paragraph.
(b) Within twelve (12) months after the end of the Plan Year,
the Employer may make a special Qualified Non-Elective Contribution
on behalf of Non-Highly Compensated Participants in an amount
49
<PAGE> 55
sufficient to satisfy one of the tests set forth in Section 4.5(a).
Such contribution shall be allocated to the Participant's Elective
Account of each Non-Highly Compensated Participant in the same
proportion that each Non-Highly Compensated Participant's
Compensation for the year bears to the total Compensation of all
Non-Highly Compensated Participants.
(c) If during a Plan Year the projected aggregate amount of
Elective Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth
in Section 4.5(a), cause the Plan to fail such tests, then the
Administrator may automatically reduce proportionately or in the
order provided in Section 4.6(a) each affected Highly Compensated
Participant's deferral election made pursuant to Section 4.2 by an
amount necessary to satisfy one of the tests set forth in Section
4.5(a).
4.7 ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) The "Actual Contribution Percentage" for Plan Years
beginning after December 31, 1986 for the Highly Compensated
Participant group shall not exceed the greater of:
(1) 125 percent of such percentage for the Non-Highly
Compensated Participant group; or
(2) the lesser of 200 percent of such percentage for the
Non-Highly Compensated Participant group, or such percentage
for the Non-Highly Compensated Participant group plus 2
percentage points. However, for Plan Years beginning after
December 31, 1988, to prevent the multiple use of the
alternative method described in this paragraph and Code
Section 401(m)(9)(A), any Highly Compensated Participant
eligible to make elective deferrals pursuant to Section 4.2 or
any other cash or deferred arrangement maintained by the
Employer or an Affiliated Employer and to make Employee
contributions or to receive matching contributions under this
Plan or under any other plan maintained by the Employer or an
Affiliated Employer shall have his actual contribution ratio
reduced pursuant to Regulation 1.401(m)-2. The provisions of
Code Section 401(m) and Regulations l.401(m)-l(b) and
1.401(m)-2 are incorporated herein by reference.
(b) For the purposes of this Section and Section 4.8, "Actual
Contribution Percentage" for a Plan Year means, with respect to the
Highly Compensated
50
<PAGE> 56
Participant group and Non-Highly Compensated Participant group, the
average of the ratios (calculated separately for each Participant in
each group) of:
(1) the sum of Employer matching contributions made pursuant
to Section 4.1(b), voluntary Employee contributions made
pursuant to Section 4.12 and Excess Contributions
recharacterized as voluntary Employee contributions pursuant
to Section 4.6(a) on behalf of each such Participant for such
Plan Year; to
(2) the Participant's "414(s) Compensation" for such Plan
Year.
(c) For purposes of determining the "Actual Contribution
Percentage" and the amount of Excess Aggregate Contributions
pursuant to Section 4.8(d), only Employer matching contributions
(excluding Employer matching contributions forfeited or distributed
pursuant to Sections 4.2(f) and 4.6(a)(1) or forfeited pursuant to
Section 4.8(a)) contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered. In addition, the
Administrator may elect to take into account, with respect to
Employees eligible to have Employer matching contributions pursuant
to Section 4.1(b) or voluntary Employee contributions pursuant to
Section 4.12 allocated to their accounts, elective deferrals (as
defined in Regulation l.402(g)-1(b)) and qualified non-elective
contributions (as defined in Code Section 401(m)(4)(C)) contributed
to any plan maintained by the Employer. Such elective deferrals and
qualified non-elective contributions shall be treated as Employer
matching contributions subject to Regulation l.401(m)-l(b)(5) which
is incorporated herein by reference. However, for Plan Years
beginning after December 31, 1988, the Plan Year must be the same as
the plan year of the plan to which the elective deferrals and the
qualified non-elective contributions are made.
(d) For the purpose of determining the actual contribution
ratio of a Highly Compensated Employee who is subject to the Family
Member aggregation rules of Code Section 414(q)(6) because such
Employee is either a "five percent owner" of the Employer or one of
the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, the following shall apply:
(1) The combined actual contribution ratio for the family
group (which shall be treated as one Highly Compensated
Participant) shall be
51
<PAGE> 57
determined by aggregating Employer matching contributions made
pursuant to Section 4.1(b), voluntary Employee contributions
made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant
to Section 4.6(a) and "414(s) Compensation" of all eligible
Family Members (including Highly Compensated Participants).
However, in applying the $200,000 limit to "414(s)
Compensation" for Plan Years beginning after December 31,
1988, Family Members shall include only the affected
Employee's spouse and any lineal descendants who have not
attained age 19 before the close of the Plan Year.
Notwithstanding the foregoing, with respect to Plan Years
beginning prior to January 1, 1990, compliance with the
Regulations then in effect shall be deemed to be compliance
with this paragraph.
(2) The Employer matching contributions made pursuant to
Section 4.1(b), voluntary Employee contributions made pursuant
to Section 4.12, Excess Contributions recharacterized as
voluntary Employee contributions pursuant to Section 4.6(a)
and "414(s) Compensation" of all Family Members shall be
disregarded for purposes of determining the "Actual
Contribution Percentage" of the Non-Highly Compensated
Participant group except to the extent taken into account in
paragraph (1) above.
(3) If a Participant is required to be aggregated as a member
of more than one family group in a plan, all Participants who
are members of those family groups that include the
Participant are aggregated as one family group in accordance
with paragraphs (1) and (2) above.
(e) For purposes of this Section and Code Sections 401(a)(4),
410(b) and 401(m), if two or more plans of the Employer to which
matching contributions, Employee contributions, or both, are made
are treated as one plan for purposes of Code Sections 401(a)(4) or
410(b) (other than the average benefits test under Code Section
410(b)(2)(A)(ii) as in effect for Plan Years beginning after
December 31, 1988), such plans shall be treated as one plan. In
addition, two or more plans of the Employer to which matching
contributions, Employee contributions, or both, are made may be
considered as a single plan for purposes of determining whether or
not such plans satisfy Code Sections 401(a)(4), 410(b) and 401(m).
In such a case, the aggregated plans must satisfy this Section and
Code Sections 401(a)(4),
52
<PAGE> 58
410(b) and 401(m) as though such aggregated plans were a single
plan. Plans may be aggregated under this paragraph (e) for Plan
Years beginning after December 31, 1988, only if they have the same
plan year.
Notwithstanding the above, for Plan Years beginning
after December 31, 1988, an employee stock ownership plan described
in Code Section 4975(e)(7) or 409 may not be aggregated with this
Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(m).
(f) If a Highly Compensated Participant is a Participant under
two or more plans (other than an employee stock ownership plan as
defined in Code Section 4975(e)(7) or 409 for Plan Years beginning
after December 31, 1988) which are maintained by the Employer or an
Affiliated Employer to which matching contributions, Employee
contributions, or both, are made, all such contributions on behalf
of such Highly Compensated Participant shall be aggregated for
purposes of determining such Highly Compensated Participant's actual
contribution ratio. However, for Plan Years beginning after December
31, 1988, if the plans have different plan years, this paragraph
shall be applied by treating all plans ending with or within the
same calendar year as a single plan.
(g) For purposes of Sections 4.7(a) and 4.8, a Highly
Compensated Participant and Non-Highly Compensated Participant shall
include any Employee eligible to have Employer matching
contributions pursuant to Section 4.1(b) (whether or not a deferral
election was made or suspended pursuant to Section 4.2(e)) or
voluntary Employee contributions pursuant to Section 4.12 (whether
or not voluntary Employee contributions are made) allocated to his
account for the Plan Year.
4.8 ADJUSTMENT TO ACTUAL CONTRIBUTION PERCENTAGE TESTS
(a) In the event that, for Plan Years beginning after December
31, 1986, the "Actual Contribution Percentage" for the Highly
Compensated Participant group exceeds the "Actual Contribution
Percentage" for the Non-Highly Compensated Participant group
pursuant to Section 4.7(a), the Administrator (on or before the
fifteenth day of the third month following the end of the Plan Year,
but in no event later than the close of the following Plan Year)
shall direct the Trustee to distribute to the Highly Compensated
Participant having the highest actual contribution ratio, his Vested
53
<PAGE> 59
portion of Excess Aggregate Contributions (and Income allocable to
such contributions) and, if forfeitable, forfeit such non-Vested
Excess Aggregate Contributions attributable to Employer matching
contributions (and Income allocable to such forfeitures) until
either one of the tests set forth in Section 4.7(a) is satisfied, or
until his actual contribution ratio equals the actual contribution
ratio of the Highly Compensated Participant having the second
highest actual contribution ratio. This process shall continue until
one of the tests set forth in Section 4.7(a) is satisfied. The
distribution and/or forfeiture of Excess Aggregate Contributions
shall be made in the following order:
(1) Voluntary Employee contributions including Excess
Contributions recharacterized as voluntary Employee
contributions pursuant to Section 4.6(a)(2);
(2) Employer matching contributions.
If the correction of Excess Aggregate Contributions
attributable to Employer matching contributions is not in proportion
to the Vested and non-Vested portion of such contributions, then the
Vested portion of the Participant's Account attributable to Employer
matching contributions after the correction shall be subject to
Section 6.5(g).
(b) Any distribution and/or forfeiture of less than the entire
amount of Excess Aggregate Contributions (and Income) shall be
treated as a pro rata distribution and/or forfeiture of Excess
Aggregate Contributions and Income. Distribution of Excess Aggregate
Contributions shall be designated by the Employer as a distribution
of Excess Aggregate Contributions (and Income). Forfeitures of
Excess Aggregate Contributions shall be treated in accordance with
Section 4.4. However, no such forfeiture may be allocated to a
Highly Compensated Participant whose contributions are reduced
pursuant to this Section.
(c) Excess Aggregate Contributions attributable to amounts
other than voluntary Employee contributions, including forfeited
matching contributions, shall be treated as Employer contributions
for purposes of Code Sections 404 and 415 even if distributed from
the Plan.
Forfeited matching contributions that are reallocated to
Participants' Accounts for the Plan Year in which the forfeiture
occurs shall be treated as an "annual addition" pursuant to Section
4.9(b) for the Participants to whose Accounts they are reallocated
and
54
<PAGE> 60
for the Participants from whose Accounts they are forfeited.
(d) For each Highly Compensated Participant, the amount of
Excess Aggregate Contributions is equal to the Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to Section 4.12, Excess Contributions
recharacterized as voluntary Employee contributions pursuant to
Section 4.6(a) and any qualified non-elective contributions or
elective deferrals taken into account pursuant to Section 4.7(c) on
behalf of the Highly Compensated Participant (determined prior to
the application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Participant's actual contribution
ratio (determined after application of this paragraph) by his
"414(s) Compensation." The actual contribution ratio must be rounded
to the nearest one-hundredth of one percent for Plan Years beginning
after December 31, 1988. In no case shall the amount of Excess
Aggregate Contribution with respect to any Highly Compensated
Participant exceed the amount of Employer matching contributions
made pursuant to Section 4.1(b), voluntary Employee contributions
made pursuant to Section 4.12, Excess Contributions recharacterized
as voluntary Employee contributions pursuant to Section 4.6(a) and
any qualified non-elective contributions or elective deferrals taken
into account pursuant to Section 4.7(c) on behalf of such Highly
Compensated Participant for such Plan Year.
(e) The determination of the amount of Excess Aggregate
Contributions with respect to any Plan Year shall be made after
first determining the Excess Contributions, if any, to be treated as
voluntary Employee contributions due to recharacterization for the
plan year of any other qualified cash or deferred arrangement (as
defined in Code Section 401(k)) maintained by the Employer that ends
with or within the Plan Year or which are treated as voluntary
Employee contributions due to recharacterization pursuant to Section
4.6(a).
(f) If the determination and correction of Excess Aggregate
Contributions of a Highly Compensated Participant whose actual
contribution ratio is determined under the family aggregation rules,
then the actual contribution ratio shall be reduced and the Excess
Aggregate Contributions for the family unit shall be allocated among
the Family Members in proportion to the sum of Employer matching
contributions made pursuant to Section 4.1(b), voluntary Employee
contributions made pursuant to
55
<PAGE> 61
Section 4.12, Excess Contributions recharacterized as voluntary
Employee contributions pursuant to Section 4.6(a) and any qualified
non-elective contributions or elective deferrals taken into account
pursuant to Section 4.7(c) of each Family Member that were combined
to determine the group actual contribution ratio. Notwithstanding
the foregoing, with respect to Plan Years beginning prior to January
1, 1990, compliance with the Regulations then in effect shall be
deemed to be compliance with this paragraph.
(g) If during a Plan Year the projected aggregate amount of
Employer matching contributions, voluntary Employee contributions
and Excess Contributions recharacterized as voluntary Employee
contributions to be allocated to all Highly Compensated Participants
under this Plan would, by virtue of the tests set forth in Section
4.7(a), cause the Plan to fail such tests, then the Administrator
may automatically reduce proportionately or in the order provided in
Section 4.8(a) each affected Highly Compensated Participant's
projected share of such contributions by an amount necessary to
satisfy one of the tests set forth in Section 4.7(a).
(h) Notwithstanding the above, within twelve (12) months after
the end of the Plan Year, the Employer may make a special Qualified
Non-Elective Contribution on behalf of Non-Highly Compensated
Participants in an amount sufficient to satisfy one of the tests set
forth in Section 4.7(a). Such contribution shall be allocated to the
Participant's Elective Account of each Non-Highly Compensated
Participant in the same proportion that each Non-Highly Compensated
Participant's Compensation for the year bears to the total
Compensation of all Non-Highly Compensated Participants. A separate
accounting shall be maintained for the purpose of excluding such
contributions from the "Actual Deferral Percentage" tests pursuant
to Section 4.5(a).
4.9 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of:
(1) $30,000 (or, if greater, one-fourth of the dollar
limitation in effect under Code Section 415(b)(1)(A)) or (2)
twenty-five percent (25%) of the Participant's "415
Compensation" for such "limitation year." For any short
"limitation year," the dollar limitation in (1) above shall be
reduced by a fraction, the numerator of which is the number of
full months in the short
56
<PAGE> 62
limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code Section
415, "annual additions" means the sum credited to a Participant's
accounts for any "limitation year" of (1) Employer contributions,
(2) Employee contributions for "limitation years" beginning after
December 31, 1986, (3) forfeitures, (4) amounts allocated, after
March 31, 1984, to an individual medical account, as defined in Code
Section 415(1)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from
contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to
post-retirement medical benefits allocated to the separate account
of a key employee (as defined in Code Section 419A(d)(3)) under a
welfare benefit plan (as defined in Code Section 419(e)) maintained
by the Employer. Except, however, the "415 Compensation" percentage
limitation referred to in paragraph (a)(2) above shall not apply
to: (1) any contribution for medical benefits (within the meaning of
Code Section 419A(f)(2)) after separation from service which is
otherwise treated as an "annual addition," or (2) any amount
otherwise treated as an "annual addition" under Code Section
415(1)(1).
(c) For purposes of applying the limitations of Code Section
415, the transfer of funds from one qualified plan to another is not
an "annual addition." In addition, the following are not Employee
contributions for the purposes of Section 4.9(b)(2): (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions received
by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs);
(4) repayments of distributions received by an Employee pursuant to
Code Section 411(a)(3)(D) (mandatory contributions); and (5)
Employee contributions to a simplified employee pension excludable
from gross income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Plan Year.
(e) The dollar limitation under Code Section 415(b)(1)(A)
stated in paragraph (a)(1) above shall be adjusted annually as
provided in Code Section 415(d) pursuant to the Regulations. The
adjusted limitation is effective as of January 1st of each calendar
year and
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<PAGE> 63
is applicable to "limitation years" ending with or within that
calendar year.
(f) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined benefit plan, and all
qualified defined contribution plans (whether terminated or not)
ever maintained by the Employer shall be treated as one defined
contribution plan.
(g) For the purpose of this Section, if the Employer is a
member of a controlled group of corporations, trades or businesses
under common control (as defined by Code Section 1563(a) or Code
Section 414(b) and (c) as modified by Code Section 415(h)), is a
member of an affiliated service group (as defined by Code Section
414(m)), or is a member of a group of entities required to be
aggregated pursuant to Regulations under Code Section 414(o), all
Employees of such Employers shall be considered to be employed by a
single Employer.
(h) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain
this Plan will be considered to be a single Employer.
(i)(1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan
shall equal the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited to such
Participant's accounts during the "limitation year."
(2) If a Participant participates in both a defined
contribution plan subject to Code Section 412 and a defined
contribution plan not subject to Code Section 412 maintained
by the Employer which have the same Anniversary Date, "annual
additions" will be credited to the Participant's accounts
under the defined contribution plan subject to Code Section
412 prior to crediting "annual additions" to the Participant's
accounts under the defined contribution plan not subject to
Code Section 412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained
by the Employer which have the same Anniversary Date, the
maximum "annual additions" under this Plan shall equal the
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product of (A) the maximum "annual additions" for the
"limitation year" minus any "annual additions" previously
credited under subparagraphs (1) or (2) above, multiplied by
(B) a fraction (i) the numerator of which is the "annual
additions" which would be credited to such Participant's
accounts under this Plan without regard to the limitations of
Code Section 415 and (ii) the denominator of which is such
"annual additions" for all plans described in this
subparagraph.
(j) If an Employee is (or has been) a Participant in one or
more defined benefit plans and one or more defined contribution
plans maintained by the Employer, the sum of the defined benefit
plan fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(k) The defined benefit plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the
Participant's projected annual benefits under all the defined
benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of 125 percent
of the dollar limitation determined for the "limitation year" under
Code Sections 415(b) and (d) or 140 percent of the highest average
compensation, including any adjustments under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation
year" beginning before January 1, 1987, disregarding any changes in
the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of Code
Section 415 for all "limitation years" beginning before January 1,
1987.
(1) The defined contribution plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the annual
additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior "limitation years" (including
the annual additions attributable to the Participant's
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nondeductible Employee contributions to all defined benefit plans,
whether or not terminated, maintained by the Employer, and the
annual additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical accounts, as
defined in Code Section 415(1)(2), maintained by the Employer), and
the denominator of which is the sum of the maximum aggregate amounts
for the current and all prior "limitation years" of service with the
Employer (regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate amount in any
"limitation year" is the lesser of 125 percent of the dollar
limitation determined under Code Sections 415(b) and (d) in effect
under Code Section 415(c)(1)(A) or 35 percent of the Participant's
Compensation for such year.
If the Employee was a Participant as of the end of the
first day of the first "limitation year" beginning after December
31, 1986, in one or more defined contribution plans maintained by
the Employer which were in existence on May 6, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction and
the defined benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount equal to the
product of (1) the excess of the sum of the fractions over 1.0 times
(2) the denominator of this fraction, will be permanently subtracted
from the numerator of this fraction. The adjustment is calculated
using the fractions as they would be computed as of the end of the
last "limitation year" beginning before January 1, 1987, and
disregarding any changes in the terms and conditions of the Plan
made after May 5, 1986, but using the Code Section 415 limitation
applicable to the first "limitation year" beginning on or after
January 1, 1987. The annual addition for any "limitation year"
beginning before January 1, 1987 shall not be recomputed to treat
all Employee contributions as annual additions.
(m) Notwithstanding the foregoing, for any "limitation year"
in which the Plan is a Top Heavy Plan, 100 percent shall be
substituted for 125 percent in Sections 4.9(k) and 4.9(1) unless the
extra minimum allocation is being provided pursuant to Section 4.4.
However, for any "limitation year" in which the Plan is a Super Top
Heavy Plan, 100 percent shall be substituted for 125 percent in any
event.
(n) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section
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415 and the Regulations thereunder, the terms of which are
specifically incorporated herein by reference.
4.10 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made with
respect to any Participant under the limits of Section 4.9 or other
facts and circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the
Administrator shall (1) distribute any elective deferrals (within
the meaning of Code Section 402(g)(3)) or return any voluntary
Employee contributions credited for the "limitation year" to the
extent that the return would reduce the "excess amount" in the
Participant's accounts (2) hold any "excess amount" remaining after
the return of any elective deferrals or voluntary Employee
contributions in a "Section 415 suspense account" (3) use the
"Section 415 suspense account" in the next "limitation year" (and
succeeding "limitation years" if necessary) to reduce Employer
contributions for that Participant if that Participant is covered by
the Plan as of the end of the "limitation year," or if the
Participant is not so covered, allocate and reallocate the "Section
415 suspense account" in the next "limitation year" (and succeeding
"limitation years" if necessary) to all Participants in the Plan
before any Employer or Employee contributions which would constitute
"annual additions" are made to the Plan for such "limitation year"
(4) reduce Employer contributions to the Plan for such "limitation
year" by the amount of the "Section 415 suspense account" allocated
and reallocated during such "limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any,
of (1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of
Code Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 4.9.
(c) For purposes of this Section, "Section 415 suspense
account" shall mean an unallocated account equal to the sum of
"excess amounts" for all Participants in the Plan during the
"limitation year." The "Section 415 suspense account" shall not
share in any earnings or losses of the Trust Fund.
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4.11 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Employees, provided that
the trust from which such funds are transferred permits the transfer
to be made and the transfer will not jeopardize the tax exempt
status of the Plan or Trust or create adverse tax consequences for
the Employer. The amounts transferred shall be set up in a separate
account herein referred to as a "Participant's Rollover Account."
Such account shall be fully Vested at all times and shall not be
subject to Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held
by the Trustee pursuant to the provisions of this Plan and may not
be withdrawn by, or distributed to the Participant, in whole or in
part, except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as
defined in Regulation 1.401(k)-1(g)(3)), including amounts treated
as elective contributions, which are transferred from another
qualified plan in a plan-to-plan transfer shall be subject to the
distribution limitations provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Participant's Rollover
Account shall be used to provide additional benefits to the
Participant or his Beneficiary. Any distributions of amounts held in
a Participant's Rollover Account shall be made in a manner which is
consistent with and satisfies the provisions of Section 6.5,
including, but not limited to, all notice and consent requirements
of Code Section 411(a)(11) and the Regulations thereunder.
Furthermore, such amounts shall be considered as part of a
Participant's benefit in determining whether an involuntary cash-out
of benefits without Participant consent may be made.
(e) The Administrator may direct that employee transfers made
after a valuation date be segregated into a separate account for
each Participant in a federally insured savings account, certificate
of deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as
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the allocations pursuant to this Plan have been made, at which time
they may remain segregated or be invested as part of the general
Trust Fund, to be determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover Account
may be treated as a Directed Investment Account pursuant to Section
4.13.
(g) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The
term "amounts transferred from other qualified plans" shall mean:
(I) amounts transferred to this Plan directly from another qualified
plan; (ii) distributions from another qualified plan which are
eligible rollover distributions and which are either transferred by
the Employee to this Plan within sixty (60) days following his
receipt thereof or are transferred pursuant to a direct rollover;
(iii) amounts transferred to this Plan from a conduit individual
retirement account provided that the conduit individual retirement
account has no assets other than assets which (A) were previously
distributed to the Employee by another qualified plan as a lump-sum
distribution (B) were eligible for tax-free rollover to a qualified
plan and (C) were deposited in such conduit individual retirement
account within sixty (60) days of receipt thereof and other than
earnings on said assets; and (iv) amounts distributed to the
Employee from a conduit individual retirement account meeting the
requirements of clause (iii) above, and transferred by the Employee
to this Plan within sixty (60) days of his receipt thereof from such
conduit individual retirement account.
(h) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish
that the amounts to be transferred to this Plan meet the
requirements of this Section and may also require the Employee to
provide an opinion of counsel satisfactory to the Employer that the
amounts to be transferred meet the requirements of this Section.
(i) This Plan shall not accept any direct or indirect
transfers (as that term is defined and interpreted under Code
Section 401(a)(11) and the Regulations thereunder) from a defined
benefit plan, money purchase plan (including a target benefit plan),
stock bonus or profit sharing plan which would otherwise have
provided for a life annuity form of payment to the Participant:
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(j) Notwithstanding anything herein to the contrary, a
transfer directly to this Plan from another qualified plan (or a
transaction having the effect of such a transfer) shall only be
permitted if it will not result in the elimination or reduction of
any "Section 411(d)(6) protected benefit" as described in Section
7.1.
4.12 VOLUNTARY CONTRIBUTIONS
(a) In order to allow Participants the opportunity to increase
their retirement income, each Participant may, at the discretion of
the Administrator, elect to voluntarily contribute up to ten percent
(10%) of his compensation earned while a Participant under this
Plan. Such contributions shall be paid to the Trustee within a
reasonable period of time but in no event later than ninety (90)
days after the receipt of the contribution. The balance in each
Participant's Voluntary Contribution Account shall be fully Vested
at all times and shall not be subject to Forfeiture for any reason.
(b) A Participant may elect to withdraw his voluntary
contributions from his Voluntary Contribution Account and the actual
earnings thereon in a manner which is consistent with and satisfies
the provisions of Section 6.5, including, but not limited to, all
notice and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder, provided, however, a Participant shall not
make over (3) three acts of withdrawal in a sixty (60) month period.
If the Administrator maintains sub-accounts with respect to
voluntary contributions (and earnings thereon) which were made on or
before a specified date, a Participant shall be permitted to
designate which sub-account shall be the source for his withdrawal.
In the event such a withdrawal is made, or in the event
a Participant has received a hardship distribution from his
Participant's Elective Account pursuant to Section 6.10 or pursuant
to Regulation 1.401(k)-1(d)(2)(iv)(B) from any other plan maintained
by the Employer, then such Participant shall be barred from making
any voluntary contributions to the Trust Fund for a period of twelve
(12) months after receipt of the withdrawal or distribution.
(c) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Voluntary Contribution
Account shall be used to provide additional benefits to the
Participant or his Beneficiary.
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(d) The Administrator may direct that voluntary contributions
made after a valuation date be segregated into a separate account
for each Participant in a federally insured savings account,
certificate of deposit in a bank or savings and loan association,
money market certificate, or other short term debt security
acceptable to the Trustee until such time as the allocations
pursuant to this Plan have been made, at which time they may remain
segregated or be invested as part of the general Trust Fund, to be
determined by the Administrator.
(e) All amounts allocated to a Voluntary Contribution Account
may be treated as a Directed Investment Account pursuant to Section
4.13.
4.13 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may determine
that all Participants be permitted to direct the Trustee as to the
investment of all or a portion of the interest in any one or more of
their individual account balances. If such authorization is given,
Participants may, subject to a procedure established by the
Administrator and applied in a uniform nondiscriminatory manner,
direct the Trustee in writing to invest any portion of their account
in specific assets, specific funds or other investments permitted
under the Plan and the directed investment procedure. That portion
of the account of any Participant so directing will thereupon be
considered a Directed Investment Account, which shall not share in
Trust Fund earnings.
(b) A separate Directed Investment Account shall be
established for each Participant who has directed an investment.
Transfers between the Participant's regular account and his Directed
Investment Account shall be charged and credited as the case may be
to each account. The Directed Investment Account shall not share in
Trust Fund earnings, but it shall be charged or credited as
appropriate with the net earnings, gains, losses and expenses as
well as any appreciation or depreciation in market value during each
Plan Year attributable to such account.
4.14 QUALIFIED VOLUNTARY EMPLOYEE CONTRIBUTIONS
(a) Any voluntary employee contribution made in cash after
December 31, 1981, on a pre-tax basis attributable to taxable years
ending before January 1, 1987, shall be treated as a "Qualified
Voluntary Employee Contributions" within the meaning of Code Section
219(e)(2) as it existed prior to the
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enactment of the Tax Reform Act of 1986, and held in a separate
Qualified Voluntary Employee Contribution Account.
(b) The balance in each Participant's Qualified Voluntary
Employee Contribution Account shall be fully Vested at all times and
shall not be subject to Forfeiture for any reason.
(c) A Participant may, upon written request delivered to the
Administrator, make withdrawals from his Qualified Voluntary
Employee Contribution Account. Any distribution shall be made in a
manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(l1) and the Regulations
thereunder.
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive
benefits, the fair market value of the Qualified Voluntary Employee
Contribution Account shall be used to provide additional benefits to
the Participant or his Beneficiary.
(e) Unless the Administrator directs Qualified Voluntary
Employee Contributions made pursuant to this Section be segregated
into a separate account for each Participant in a federally insured
savings account, certificate of deposit in a bank or savings and
loan association, money market certificate or other short term debt
security acceptable to the Trustee, they shall be invested as part
of the general Trust Fund and share in earnings and losses.
(f) All amounts allocated to a Qualified Voluntary Employee
Contribution Account may be treated as a Directed Investment Account
pursuant to Section 4.13.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at such other date or dates deemed necessary by the Administrator,
herein called "valuation date," to determine the net worth of the assets
comprising the Trust Fund as it exists on the "valuation date." In determining
such net worth, the Trustee shall value the assets comprising the Trust Fund at
their fair market value as of the "valuation date" and shall deduct all expenses
for which the Trustee has not yet obtained reimbursement from the Employer or
the Trust Fund.
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5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the exchange on which
they are traded was not open for business on the "valuation date," then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date," which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date or Early Retirement
Date. However, a Participant may postpone the termination of his employment with
the Employer to a later date, in which event the participation of such
Participant in the Plan, including the right to receive allocations pursuant to
Section 4.4, shall continue until his Late Retirement Date. Upon a Participant's
Retirement Date, or as soon thereafter as is practicable, the Trustee shall
distribute all amounts credited to such Participant's Combined Account in
accordance with Section 6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date
or other termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute the value of the
deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, in accordance with the provisions of
Sections 6.6 and 6.7, to distribute any remaining Vested amounts
credited to the
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accounts of a deceased Former Participant to such Former
Participant's Beneficiary.
(c) The Administrator may require such proper proof of death
and such evidence of the right of any person to receive payment of
the value of the account of a deceased Participant or Former
Participant as the Administrator may deem desirable. The
Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
(d) The Beneficiary of the death benefit payable pursuant to
this Section shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a
court order to such effect (and there is no "qualified
domestic relations order" as defined in Code Section 414(p)
which provides otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be made
on a form satisfactory to the Administrator. A Participant may at
any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change
with the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily
elected to relinquish such right. In the event no valid designation
of Beneficiary exists at the time of the Participant's death, the
death benefit shall be payable to his estate.
(e) Any consent by the Participant's spouse to waive any
rights to the death benefit must be in writing, must acknowledge the
effect of such waiver, and be witnessed by a Plan representative or
a notary public. Further, the spouse's consent must be irrevocable
and must acknowledge the specific nonspouse Beneficiary.
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6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior
to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Combined Account as
though he had retired.
6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or
retirement, the Administrator may direct the Trustee to segregate
the amount of the Vested portion of such Terminated Participant's
Combined Account and invest the aggregate amount thereof in a
separate, federally insured savings account, certificate of deposit,
common or collective trust fund of a bank or a deferred annuity. In
the event the Vested portion of a Participant's Combined Account is
not segregated, the amount shall remain in a separate account for
the Terminated Participant and share in allocations pursuant to
Section 4.4 until such time as a distribution is made to the
Terminated Participant.
Distribution of the funds due to a Terminated
Participant shall be made on the occurrence of an event which would
result in the distribution had the Terminated Participant remained
in the employ of the Employer (upon the Participant's death, Total
and Permanent Disability, Early or Normal Retirement). However, at
the election of the Participant, the Administrator shall direct the
Trustee to cause the entire Vested portion of the Terminated
Participant's Combined Account to be payable to such Terminated
Participant. Any distribution under this paragraph shall be made in
a manner which is consistent with and satisfies the provisions of
Section 6.5, including, but not limited to, all notice and consent
requirements of Code Section 411(a)(11) and the Regulations
thereunder.
If the value of a Terminated Participant's Vested
benefit derived from Employer and Employee contributions (including
accumulated Qualified Voluntary Employee Contributions) does not
exceed $3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause
the entire Vested benefit to be paid
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to such Participant in a single lump sum, unless otherwise
instructed by the Employee.
For purposes of this Section 6.4, if the value of a
Terminated Participant's Vested benefit is zero, the Terminated
Participant shall be deemed to have received a distribution of such
Vested benefit.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of
Vesting Service according to the following schedule:
Vesting Schedule
Years of Vesting Service Percentage
Less than 3 0 %
3 20 %
4 40 %
5 60 %
6 80 %
7 100 %
(c) Notwithstanding the vesting provided for in paragraph (b)
above, for any Top Heavy Plan Year, the Vested portion of the
Participant's Account of any Participant who has an Hour of Service
after the Plan becomes top heavy shall be a percentage of the total
amount credited to his Participant's Account determined on the basis
of the Participant's number of Years of Vesting Service according to
the following schedule:
Vesting Schedule
Years of Vesting Service Percentage
Less than 2 0 %
2 20 %
3 40 %
4 60 %
5 80 %
6 100 %
If in any subsequent Plan Year, the Plan ceases to be a
Top Heavy Plan, the Administrator shall revert to the vesting
schedule in effect before this Plan became a Top Heavy Plan. Any
such reversion shall be treated as a Plan amendment pursuant to the
terms of the Plan.
(d) Notwithstanding the vesting schedule above, the Vested
percentage of a Participant's Account shall not be less than the
Vested percentage attained as of
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the later of the effective date or adoption date of this amendment
and restatement.
(e) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the Plan
or upon any full or partial termination of the Plan, all amounts
credited to the account of any affected Participant shall become
100% Vested and shall not thereafter be subject to Forfeiture.
(f) The computation of a Participant's nonforfeitable
percentage of his interest in the Plan shall not be reduced as the
result of any direct or indirect amendment to this Plan. For this
purpose, the Plan shall be treated as having been amended if the
Plan provides for an automatic change in vesting due to a change in
top heavy status. In the event that the Plan is amended to change or
modify any vesting schedule, a Participant with at least three (3)
Years of Vesting Service as of the expiration date of the election
period may elect to have his nonforfeitable percentage computed
under the Plan without regard to such amendment. If a Participant
fails to make such election, then such Participant shall be subject
to the new vesting schedule. The Participant's election period shall
commence on the adoption date of the amendment and shall end 60 days
after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
(g)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue
to participate in the Plan in the same manner as if such termination
had not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in Service,
and such Former Participant had received, or was deemed to
have received, a distribution of his entire Vested interest
prior to his reemployment, his forfeited account shall be
reinstated only if he repays the full amount distributed to
him before the earlier of five (5) years after the first date
on which the Participant is subsequently reemployed by the
Employer or the close of the
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first period of five (5) consecutive 1-Year Breaks in Service
commencing after the distribution, or in the event of a deemed
distribution, upon the reemployment of such Former
Participant. In the event the Former Participant does repay
the full amount distributed to him, or in the event of a
deemed distribution, the undistributed portion of the
Participant's Account must be restored in full, unadjusted by
any gains or losses occurring subsequent to the Anniversary
Date or other valuation date coinciding with or preceding his
termination. The source for such reinstatement shall first be
any Forfeitures occurring during the year. If such source is
insufficient, then the Employer shall contribute an amount
which is sufficient to restore any such forfeited Accounts
provided, however, that if a discretionary contribution is
made for such year pursuant to Section 4.1(d), such
contribution shall first be applied to restore any such
Accounts and the remainder shall be allocated in accordance
with Section 4.4.
(3) If any Former Participant is reemployed after a 1-Year
Break in Service has occurred, Years of Service shall include
Years of Service prior to his 1-Year Break in Service subject
to the following rules:
(i) If a Former Participant has a 1-Year Period of
Severance, his pre-break and post-break service shall be
used for computing Years of Service for eligibility and
for vesting purposes upon his reemployment with the
Employer;
(ii) Any Former Participant who under the Plan does not
have a nonforfeitable right to any interest in the Plan
resulting from Employer contributions shall lose service
credits otherwise allowable under (i) above if his
consecutive 1-Year Periods of Severance equal or exceed
the greater of (A) five (5) or (B) the aggregate number
of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Periods of
Severance, a Former Participant's Vested Account balance
attributable to pre-break service shall not be increased
as a result of post-break service;
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(iv) If a Former Participant is reemployed as an
Eligible Employee he shall participate in the Plan
immediately upon his date of reemployment;
(h) In determining Years of Service for purposes of vesting
under the Plan, Years of Service prior to the Effective Date of the
Plan and prior to the vesting computation period in which an
Employee attained his eighteenth birthday shall be excluded.
(i) This Plan is intended to be an elapsed time plan as to
vesting, Accordingly, the provisions of Reg. 1.410(a)-7 are
incorporated by reference and shall be followed as necessary to have
the Plan comply with the requirements therein.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a Participant
or his Beneficiary any amount to which he is entitled under the Plan
in one or more of the following methods:
(1) One lump-sum payment in cash or in property;
(2) Payments over a period certain in monthly, quarterly,
semiannual, or annual cash installments. In order to provide
such installment payments, the Administrator may (A) segregate
the aggregate amount thereof in a separate, federally insured
savings account, certificate of deposit in a bank or savings
and loan association, money market certificate or other liquid
short-term security or (B) purchase a nontransferable annuity
contract for a term certain (with no life contingencies)
providing for such payment. The period over which such payment
is to be made shall not extend beyond the Participant's life
expectancy (or the life expectancy of the Participant and his
designated Beneficiary).
(3) Such other manner as determined by the Administrator or
the Administrator's designee, except not as a life annuity or
any variation thereof.
(b) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such
distribution commences
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prior to the later of his Normal Retirement Age or age 62. With
regard to this required consent:
(1) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to
consent, it shall be deemed an election to defer the
commencement of payment of any benefit. However, any election
to defer the receipt of benefits shall not apply with respect
to distributions which are required under Section 6.5(c).
(2) Notice of the rights specified under this paragraph shall
be provided no less than 30 days and no more than 90 days
before the first day on which all events have occurred which
entitle the Participant to such benefit.
(3) Written consent of the Participant to the distribution
must not be made before the Participant receives the notice
and must not be made more than 90 days before the first day on
which all events have occurred which entitle the Participant
to such benefit.
(4) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent
to the distribution.
If a distribution is one to which Code Sections 401(a)(11) and
417 do not apply, such distribution may commence less than 30
days after the notice required under Regulation 1.411(a)-11(c)
is given, provided that: (1) the Administrator clearly informs
the Participant that the Participant has a right to a period
of at least 30 days after receiving the notice to consider the
decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option), and (2) the
Participant, after receiving the notice, affirmatively elects
a distribution.
(c) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits made on or after
January 1, 1985 shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder (including Regulation 1.401(a)(9)-2),
the provisions of which are incorporated herein by reference:
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(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later
of (i) the calendar year in which the Participant attains age
70 1/2 or (ii) the calendar year in which the Participant
retires, provided, however, that this clause (ii) shall not
apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending
in the calendar year in which he attains age 70 1/2 or, in the
case of a Participant who becomes a "five (5) percent owner"
during any subsequent Plan Year, clause (ii) shall no longer
apply and the required beginning date shall be the April 1st
of the calendar year following the calendar year in which such
subsequent Plan Year ends. Alternatively, distributions to a
Participant must begin no later than the applicable April 1st
as determined under the preceding sentence and must be made
over a period certain measured by the life expectancy of the
Participant (or the life expectancies of the Participant and
his designated Beneficiary) in accordance with Regulations.
Notwithstanding the foregoing, clause (ii) above shall not
apply to any Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a "five (5)
percent owner" at any time during the Plan Year ending with or
within the calendar year in which the Participant attained age
66 1/2 or any subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
Additionally, for calendar years beginning before 1989,
distributions may also be made under an alternative method
which provides that the then present value of the payments to
be made over the period of the Participant's life expectancy
exceeds fifty percent (50%) of the then present value of the
total payments to be made to the Participant and his
Beneficiaries.
(d) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made, shall be
irrevocable. If no election is made by the time distributions must
commence, then the life expectancy
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of the Participant and the Participant's spouse shall not be subject
to recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V
and VI of Regulation 1.72-9.
(e) The restrictions imposed by this Section shall not apply
if a Participant has, prior to January 1, 1984, made a written
designation to have his retirement benefit paid in an alternative
method acceptable under Code Section 401(a) as in effect prior to
the enactment of the Tax Equity and Fiscal Responsibility Act of
1982. Any such written designation made by a Participant shall be
binding upon the Plan Administrator notwithstanding any contrary
provision of Section 6.5.
(f) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any
annuity Contract purchased and distributed to a Participant or
spouse shall comply with all of the requirements of the Plan.
(g) If a distribution is made at a time when a Participant is
not fully Vested in his Participant's Account (employment has not
terminated) and the Participant may increase the Vested percentage
in such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested portion of
the separate account shall be equal to an amount ("X")
determined by the formula:
X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested
percentage at the relevant time, AB is the account balance at
the relevant time, D is the amount of distribution, and R is
the ratio of the account balance at the relevant time to the
account balance after distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a)(1) The death benefit payable pursuant to Section 6.2 shall
be paid to the Participant's Beneficiary within a reasonable time
after the Participant's death by either of the following methods, as
elected by the Participant (or if no election has
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been made prior to the Participant's death, by his Beneficiary)
subject, however, to the rules specified in Section 6.6(b):
(i) One lump-sum payment in cash or in property;
(ii) Payment in monthly, quarterly, semi-annual, or
annual cash installments over a period to be determined
by the Participant or his Beneficiary. After periodic
installments commence, the Beneficiary shall have the
right to direct the Trustee to reduce the period over
which such periodic installments shall be made, and the
Trustee shall adjust the cash amount of such periodic
installments accordingly.
(2) In the event the death benefit payable pursuant to Section
6.2 is payable in installments, then, upon the death of the
Participant, the Administrator may direct the Trustee to
segregate the death benefit into a separate account, and the
Trustee shall invest such segregated account separately, and
the funds accumulated in such account shall be used for the
payment of the installments.
(b) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant made on or after
January 1, 1985 shall be made in accordance with the following
requirements and shall otherwise comply with Code Section 401(a)(9)
and the Regulations thereunder. If it is determined pursuant to
Regulations that the distribution of a Participant's interest has
begun and the Participant dies before his entire interest has been
distributed to him, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution
selected pursuant to Section 6.5 as of his date of death. If a
Participant dies before he has begun to receive any distributions of
his interest under the Plan or before distributions are deemed to
have begun pursuant to Regulations, then his death benefit shall be
distributed to his Beneficiaries by December 31st of the calendar
year in which the fifth anniversary of his date of death occurs.
(c) For purposes of this Section, the life expectancy of a
Participant and a Participant's spouse may, at the election of the
Participant or the Participant's spouse, be redetermined in
accordance with Regulations. The election, once made, shall be
irrevocable. If no election is made by the time
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distributions must commence, then the life expectancy of the
Participant and the Participant's spouse shall not be subject to
recalculation. Life expectancy and joint and last survivor
expectancy shall be computed using the return multiples in Tables V
and VI of Regulation 1.72-9.
(d) Subject to the spouse's right of consent afforded under
the Plan, the restrictions imposed by this Section shall not apply
if a Participant has, prior to January 1, 1984, made a written
designation to have his death benefits paid in an alternative method
acceptable under Code Section 401(a) as in effect prior to the
enactment of the Tax Equity and Fiscal Responsibility Act of 1982.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is
to make a distribution or to commence a series of payments on or as of an
Anniversary Date, the distribution or series of payments may be made or begun on
such date or as soon thereafter as is practicable. However, unless a Former
Participant elects in writing to defer the receipt of benefits (such election
may not result in a death benefit that is more than incidental), the payment of
benefits shall begin not later than the 60th day after the close of the Plan
Year in which the latest of the following events occurs: (a) the date on which
the Participant attains the earlier of age 65 or the Normal Retirement Age
specified herein; (b) the 10th anniversary of the year in which the Participant
commenced participation in the Plan; or (c) the date the Participant terminates
his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable
to a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by
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reason of the inability of the Administrator, after sending a registered letter,
return receipt requested, to the last known address, and after further diligent
effort, to ascertain the whereabouts of such Participant or his Beneficiary, the
amount so distributable shall be treated as a Forfeiture pursuant to the Plan.
In the event a Participant or Beneficiary is located subsequent to his benefit
being reallocated, such benefit shall be restored.
6.10 ADVANCE DISTRIBUTION FOR HARDSHIP
(a) Effective October 1, 1992, the Administrator, at the
election of the Participant, shall direct the Trustee to distribute
to any Participant in any one Plan Year up to the lesser of 100% of
his Participant's Elective Account valued as of the last Anniversary
Date or other valuation date or the amount necessary to satisfy the
immediate and heavy financial need of the Participant. Any
distribution made pursuant to this Section shall be deemed to be
made as of the first day of the Plan Year or, if later, the
valuation date immediately preceding the date of distribution, and
the Participant's Elective Account shall be reduced accordingly.
Withdrawal under this Section shall be authorized only if the
distribution is on account of:
(1) Expenses for medical care described in Code Section 213(d)
previously incurred by the Participant, his spouse, or any of
his dependents (as defined in Code Section 152) or necessary
for these persons to obtain medical care;
(2) The costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
(3) Payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the
Participant, his spouse, children, or dependents; or
(4) Payments necessary to prevent the eviction of the
Participant from his principal residence or foreclosure on the
mortgage of the Participant's principal residence.
(b) No distribution shall be made pursuant to this Section
unless the Administrator, based upon the Participant's
representation and such other facts as are known to the
Administrator, determines that all of the following conditions are
satisfied:
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(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant. The
amount of the immediate and heavy financial need may include
any amounts necessary to pay any federal, state, or local
income taxes or penalties reasonably anticipated to result
from the distribution;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable (at the time of the
loan) loans currently available under all plans maintained by
the Employer;
(3) The Plan, and all other plans maintained by the Employer,
provide that the Participant's elective deferrals and
voluntary Employee contributions will be suspended for at
least twelve (12) months after receipt of the hardship
distribution or, the Participant, pursuant to a legally
enforceable agreement, will suspend his elective deferrals and
voluntary Employee contributions to the Plan and all other
plans maintained by the Employer for at least twelve (12)
months after receipt of the hardship distribution; and
(4) The Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective deferrals
for the Participant's taxable year immediately following the
taxable year of the hardship distribution in excess of the
applicable limit under Code Section 402(g) for such next
taxable year less the amount of such Participant's elective
deferrals for the taxable year of the hardship distribution.
(c) Notwithstanding the above, for Plan Years beginning after
December 31, 1988, distributions from the Participant's Elective
Account pursuant to this Section shall be limited, as of the date of
distribution, to the Participant's Elective Account as of the end of
the last Plan Year ending before July 1, 1989, plus the total
Participant's Deferred Compensation after such date, reduced by the
amount of any previous distributions pursuant to this Section.
(d) Any distribution made pursuant to this Section shall be
made in a manner which is consistent with and satisfies the
provisions of Section 6.5, including, but not limited to, all notice
and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder.
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6.11 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan, but only to the extent required under governing
law and regulations. For the purposes of this Section, "alternate payee,"
"qualified domestic relations order" and "earliest retirement age" shall have
the meaning set forth under Code Section 414(p).
6.12 DIRECT ROLLOVER
(a) This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under
this Section, a distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any portion of an
eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(b) For purposes of this Section the following definitions
shall apply:
(1) An eligible rollover distribution is any distribution of
all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary,
or for a specified period of ten years or more; any
distribution to the extent such distribution is required under
Code Section 401(a)(9); and the portion of any distribution
that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with
respect to employer securities).
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an
annuity plan described in Code Section 403(a), or a qualified
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trust described in Code Section 401(a), that accepts the
distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
(3) A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former
spouse who is the alternate payee under a qualified domestic
relations order, as defined in Code Section 414(p), are
distributees with regard to the interest of the spouse or
former spouse.
(4) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
ARTICLE VII
AMENDMENT, TERMINATION AND MERGERS
7.l AMENDMENT
(a) The Employer shall have the right at any time to amend the
Plan, subject to the limitations of this Section. Any such amendment
shall be adopted by formal action of the Employer's board of
directors and executed by an officer authorized to act on behalf of
the Employer. However, any amendment which affects the rights,
duties or responsibilities of the Trustee and Administrator may only
be made with the Trustee's and Administrator's written consent. Any
such amendment shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute any such
amendment unless the Trust provisions contained herein are a part of
the Plan and the amendment affects the duties of the Trustee
hereunder.
(b) No amendment to the Plan shall be effective if it
authorizes or permits any part of the Trust Fund (other than such
part as is required to pay taxes and administration expenses) to be
used for or diverted to any purpose other than for the exclusive
benefit of the Participants or their Beneficiaries or estates; or
causes any reduction in the amount credited to the account of any
Participant; or causes or permits any portion of the Trust Fund to
revert to or become property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan
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amendment (such as a merger, plan transfer or similar transaction)
shall be effective to the extent it eliminates or reduces any
"Section 411(d)(6) protected benefit" or adds or modifies conditions
relating to "Section 411(d)(6) protected benefits" the result of
which is a further restriction on such benefit unless such protected
benefits are preserved with respect to benefits accrued as of the
later of the adoption date or effective date of the amendment.
"Section 411(d)(6) protected benefits" are benefits described in
Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
7.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written
notice of such termination. Upon any full or partial termination,
all amounts credited to the affected Participants' Combined Accounts
shall become 100% Vested as provided in Section 6.4 and shall not
thereafter be subject to forfeiture, and all unallocated amounts
shall be allocated to the accounts of all Participants in accordance
with the provisions hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Section 6.5. Distributions to a Participant shall be
made in cash or in property or through the purchase of irrevocable
nontransferable deferred commitments from an insurer. Except as
permitted by Regulations, the termination of the Plan shall not
result in the reduction of "Section 411(d)(6) protected benefits" in
accordance with Section 7.1(c).
7.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan and trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 7.1(c).
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ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
8.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate,
sell, transfer, assign, pledge, encumber, or charge the same shall
be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements, or torts
of any such person, nor shall it be subject to attachment or legal
process for or against such person, and the same shall not be
recognized by the Trustee, except to such extent as may be required
by law.
(b) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to
the extent provided under a "qualified domestic relations order," a
former spouse of a Participant shall be treated as the spouse or
surviving spouse for all purposes under the Plan.
8.3 CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act and
the laws of the State of Indiana, other than its laws respecting choice of law,
to the extent not preempted by the Act.
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8.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
8.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any
funds contributed thereto to be used for, or diverted to, purposes
other than the exclusive benefit of Participants, Retired
Participants, or their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any
losses attributable thereto must reduce the amount so returned.
8.7 (RESERVED)
8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of
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any person which may delay payment or render a Contract null and void or
unenforceable in whole or in part.
8.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
8.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative,
Beneficiary, or to any guardian or committee appointed for such Participant or
Beneficiary in accordance with the provisions of the Plan, shall, to the extent
thereof, be in full satisfaction of all claims hereunder against the Trustee and
the Employer, either of whom may require such Participant, legal representative,
Beneficiary, guardian or committee, as a condition precedent to such payment, to
execute a receipt and release thereof in such form as shall be determined by the
Trustee or Employer.
8.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
8.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be
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solely responsible for the management of the assets assigned to it, all as
specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
8.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
8.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan
receives an adverse determination with respect to its initial
qualification, then the Plan may return such contributions to the
Employer within one year after such determination, provided the
application for the determination is made by the time prescribed by
law for filing the Employer's return for the taxable year in which
the Plan was adopted, or such later date as the Secretary of the
Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(f), any contribution by the Employer to
the Trust Fund is conditioned upon the deductibility of the
contribution by the Employer under the Code and, to the extent any
such deduction is disallowed, the Employer may, within one (1) year
following the disallowance of the deduction, demand repayment of
such disallowed contribution and the Trustee shall return such
contribution within one (1) year following the disallowance.
Earnings of the Plan attributable to the excess contribution may not
be returned to the
87
<PAGE> 93
Employer, but any losses attributable thereto must reduce the amount
so returned.
8.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
ARTICLE IX
PARTICIPATING EMPLOYERS
9.1 ADOPTION BY OTHER EMPLOYERS
Notwithstanding anything herein to the contrary, with the consent of
the Employer and Trustee, any other corporation or entity, whether an affiliate
or subsidiary or not, may adopt this Plan and all of the provisions hereof, and
participate herein and be known as a Participating Employer, by a properly
executed document evidencing said intent and will of such Participating
Employer.
9.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS
(a) Each such Participating Employer shall be required to use
the same Trustee as provided in this Plan.
(b) The Trustee may, but shall not be required to, commingle,
hold and invest as one Trust Fund all contributions made by
Participating Employers, as well as all increments thereof. However,
the assets of the Plan shall, on an ongoing basis, be available to
pay benefits to all Participants and Beneficiaries under the Plan
without regard to the Employer or Participating Employer who
contributed such assets.
(c) The transfer of any Participant from or to an Employer
participating in this Plan, whether he be an Employee of the
Employer or a Participating Employer, shall not affect such
Participant's rights under the Plan, and all amounts credited to
such Participant's Combined Account as well as his accumulated
service time with the transferor or predecessor, and his length of
participation in the Plan, shall continue to his credit.
(d) All rights and values forfeited by termination of
employment shall inure only to the benefit of the Participants of
the Employer or Participating Employer by which the forfeiting
Participant was employed.
88
<PAGE> 94
(e) Any expenses of the Trust which are to be paid by the
Employer or borne by the Trust Fund shall be paid by each
Participating Employer in the same proportion that the total amount
standing to the credit of all Participants employed by such Employer
bears to the total standing to the credit of all Participants.
9.3 DESIGNATION OF AGENT
Each Participating Employer shall be deemed to be a party to this
Plan; provided, however, that with respect to all of its relations with the
Trustee and Administrator for the purpose of this Plan, each Participating
Employer shall be deemed to have designated irrevocably the Employer as its
agent. Unless the context of the Plan clearly indicates the contrary, the word
"Employer" shall be deemed to include each Participating Employer as related to
its adoption of the Plan.
9.4 EMPLOYEE TRANSFERS
It is anticipated that an Employee may be transferred between
Participating Employers, and in the event of any such transfer, the Employee
involved shall carry with him his accumulated service and eligibility. No such
transfer shall effect a termination of employment hereunder, and the
Participating Employer to which the Employee is transferred shall thereupon
become obligated hereunder with respect to such Employee in the same manner as
was the Participating Employer from whom the Employee was transferred.
9.5 PARTICIPATING EMPLOYER'S CONTRIBUTION
All contributions made by a Participating Employer, as provided for
in this Plan, shall be determined separately by each Participating Employer, and
shall be allocated only among the Participants eligible to share of the Employer
or Participating Employer making the contribution. On the basis of the
information furnished by the Administrator, the Trustee shall keep separate
books and records concerning the affairs of each Participating Employer
hereunder and as to the accounts and credits of the Employees of each
Participating Employer. The Trustee may, but need not, register Contracts so as
to evidence that a particular Participating Employer is the interested Employer
hereunder, but in the event of an Employee transfer from one Participating
Employer to another, the employing Employer shall immediately notify the Trustee
thereof.
9.6 AMENDMENT
Amendment of this Plan by the Employer at any time when there shall
be a Participating Employer hereunder shall only be by the written action of
each and every Participating Employer and with the consent of the Trustee where
such consent is necessary in accordance with the terms of this Plan.
89
<PAGE> 95
9.7 DISCONTINUANCE OF PARTICIPATION
Any Participating Employer shall be permitted to discontinue or
revoke its participation in the Plan. At the time of any such discontinuance or
revocation, satisfactory evidence thereof and of any applicable conditions
imposed shall be delivered to the Trustee. The Trustee shall thereafter
transfer, deliver and assign Contracts and other Trust Fund assets allocable to
the Participants of such Participating Employer to such new Trustee as shall
have been designated by such Participating Employer, in the event that it has
established a separate pension plan for its Employees, provided however, that no
such transfer shall be made if the result is the elimination or reduction of any
"Section 411(d)(6) protected benefits" in accordance with Section 7.1(c). If no
successor is designated, the Trustee shall retain such assets for the Employees
of said Participating Employer pursuant to the provisions of the Trust. In no
such event shall any part of the corpus or income of the Trust as it relates to
such Participating Employer be used for or diverted to purposes other than for
the exclusive benefit of the Employees of such Participating Employer.
9.8 ADMINISTRATOR'S AUTHORITY
The Administrator shall have authority to make any and all necessary
rules or regulations, binding upon all Participating Employers and all
Participants, to effectuate the purpose of this Article.
90
<PAGE> 96
IN WITNESS WHEREOF, this Plan has been executed the day and year
first above written.
CTB, Inc.
By /s/ Don J. Steinhilber
--------------------------------
EMPLOYER VP & TREASURER
91
<PAGE> 1
EXHIBIT 10.11
1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Program Purpose:
The Annual Incentive Program focuses managerial and professional personnel on
achieving:
- CTB's EBITDA goals
- A number 1 or 2 market position in the seven product categories
- Team goals that have a direct and meaningful impact on attaining the
above corporate goals
Program effectiveness will be reviewed each year.
Plan Cycle and Timing of Payouts:
The plan cycle is annual, coinciding with the fiscal and calendar years. Payouts
will generally be given within one month after the Audit committee accepts the
final financial audited statements.
Eligibility:
Eligible personnel are those who have the most visible impact on corporate
earnings. Salaried/Exempt employees in positions designated and approved by
management, who are on the payroll for the entire calendar year, are eligible to
be included in the Annual Incentive Program.
An employee who has been employed at CTB for the entire calendar year, and whose
pay level and/or job responsibilities have changed, will have any bonus
calculations pro-rated based on time in each position.
<PAGE> 2
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Program Purpose:
The Annual Incentive Program focuses managerial and
professional personnel on achieving:
o CIB's EBITDA goals
o A number 1 or 2 market position in the seven
product categories
o Team goals that have a direct and meaningful
impact on attaining the above corporate goals
Program effectiveness will be reviewed each year.
<PAGE> 3
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Plan Cycle and Timing of Payouts:
The plan cycle is annual, coinciding with the fiscal and
calendar years.
Payouts will generally be given within one month after
the Audit Committee accepts the final financial audited
statements.
<PAGE> 4
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Eligibility:
Eligible personnel are salaried/exempt employees in
positions designated and approved by management, who are
on the payroll for the entire calendar year.
An employee who has been employed at CIB for the entire
calendar year, and whose job responsibilities have
changed will have any bonus calculations pro-rated based
on time in each position.
<PAGE> 5
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Record-Keeping Procedures:
The Chief Financial Officer and the Human Resources
Manager are responsible for keeping the records
concerning the Annual Incentive Program.
All changes are to be documented on a Status Report form
and approved in writing by the Chief Executive Officer.
<PAGE> 6
[LOGO] CTB CTB, Inc.
Annual Incentive Plan Impact Tree
[FLOW CHART OMITTED]
<PAGE> 7
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Group Measures:
Corporate Sales Corporate Gross Corporate EBITDA
Growth Percentage Profit Percentage Dollars
----------------- ----------------- -------
Sales - Multi-Prod. Manufacturing Corporate Staff
Sales - Single Prod. Purchasing Prod. Leadership Teams
International Sales Engineering (non-PLT) MIS
Customer Service Technical Services
<PAGE> 8
[LOGO] CTB 1997 Annual Incentive Program
Effective 1/1/97 - 12/31/97
Plan Measures:
To address the line-of-sight issue, the Annual Incentive
Plan includes three levels of measures.
o Corporate measures - EBITDA
o Group measures - Sales growth, Gross Profit %,
and EBITDA
o Category measures - Specific to each employee
category
Management reserves the right to make appropriate
adjustments to measures for acquisitions or divestitures
that occur during the year, not contemplated at the time
of establishing current year measures.
[LOGO] CTB CTB, Inc.
Annual Incentive Plan
Performance/Payout Structure
[LINE GRAPH OMITTED]
<PAGE> 9
<TABLE>
<CAPTION>
"Circuit Breaker"
75% of Corporate
[LOGO] CTB Weightings EBITDA $ must be achieved in
order for any
bonus to be paid!!!
- ----------------------------------------------------------------------------------------------------
Corporate
Employee Measure/ Group Category
Group Weighting Measure/Weighting Measure/Weighting
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales -- Multi-Prod. EBITDA -- 50% Corp. Sales Growth % -- Emerging Products % -- 20%
(CT Dom & Cage) 10% Gross Profit % (Div) -- 20%
- ----------------------------------------------------------------------------------------------------
Sales -- Single Prod. EBITDA -- 50% Corp. Sales Growth % -- Sales Growth % (Prod. Grp) -- 20%
(Vinyl & GB) 10% Gross Profit % (Prod. Grp) -- 20%
- ----------------------------------------------------------------------------------------------------
Tech. Services EBITDA -- 50% Corp. EBITDA $ -- 25% Travel Costs as % of Plan -- 10%
Sales Growth % (Corp. less
Vinyl GB) -- 15%
- ----------------------------------------------------------------------------------------------------
Int'l Sales EBITDA -- 50% Corp. Sales Growth % -- Regional Gross Profit % -- 15%
10% Regional Sales Growth % -- 15%
Travel Costs as % Plan -- 10%
- ----------------------------------------------------------------------------------------------------
Manufacturing EBITDA -- 50% Corp. Gross Profit % -- Inventory Turns -- 15%
20% Labor as % of Sales -- 15%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
"Circuit Breaker"
75% of Corporate
[LOGO] CTB Weightings EBITDA $ must be achieved in
order for any
bonus to be paid!!!
- ----------------------------------------------------------------------------------------------------
Corporate
Employee Measure/ Group Category
Group Weighting Measure/Weighting Measure/Weighting
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchasing EBITDA -- 50% Corp. Gross Profit % -- Price related to Market -- 15%
20% On-Time Delivery -- 15%
- ----------------------------------------------------------------------------------------------------
Engineering EBITDA -- 50% Corp. Gross Profit % -- Corp. Sales Growth % -- 15%
(non-PLT) 20% Completion of Projects -- 15%
- ----------------------------------------------------------------------------------------------------
Corporate Staff EBITDA -- 50% Corp. EBITDA $ -- 25% Specifics per Group -- 15%
Corp. Sales Growth % -- 10%
- ----------------------------------------------------------------------------------------------------
Product Leadership EBITDA -- 50% N/A Sales Growth % (Prod Grp) -- 25%
Team Gross Margin % (Prod Grp) -- 25%
- ----------------------------------------------------------------------------------------------------
Cust. Service EBITDA -- 50% Corp. Sales Growth % -- Complete/On-Time Del. -- 15%
25% Dept Budget -- 10%
- ----------------------------------------------------------------------------------------------------
MIS EBITDA -- 50% N/A Timely IS Package
Implementation -- 50%
- ----------------------------------------------------------------------------------------------------
Executive EBITDA -- 50%
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 10
CTB, Inc.
Bonus Payout % Model
1997 Bonus -- Payable 1998
- --------------------------------------------------------------------------------
Participant John Doe
- -----------------------------------
Position:
Salary $30,000
% Bonus Opportunity 10%
Bonus Opportunity $ $ 3,000
- ------------------------------------------------------------
Measurement Components and Weights:
- ------------------------------------------------------------
EBITDA 50%
Corp. Sales and Growth % 10%
Emerging Prod Growth % 20%
Gross Profit % by Div. 20%
- ------------------------------------------------------------
<PAGE> 11
- ------------------------------------------------------------
Award Calculation Inputs
- ------------------------------------------------------------
Measure Target Actual
- ------- ------ ------
EBITDA $ 30.9 $ 30.9
Corp. Sales Growth % 30.8% 30.8%
Emerging Prod Growth % 100.0% 100.0%
Gross Profit % by Div. 95.0% 95.0%
- ------------------------------------------------------------
- ------------------------------------------------------------
Bonus Payout Determination
- ------------------------------------------------------------
Component % Earned
- ------------------------------------------------------------
Bonus % Earned Based on:
EBITDA 50.00%
Corp. Sales Growth % 10.00%
Emerging Prod Growth % 20.00%
Gross Profit % by Div. 20.00%
- ------------------------------------------------------------
- ------------------------------------------------------------
Total Bonus % Earned 100.00%
- ------------------------------------------------------------
Bonus Opportunity $3,000
- ------------------------------------------------------------
Total Bonus $ Earned $3,000
- ------------------------------------------------------------
<PAGE> 1
Statement regarding computation of pro forma income per share
(In thousands, except per share amounts)
Exhibit 11.1
<TABLE>
<CAPTION>
Year Ended
December 31, Three Months Ended March 31,
--------------------- ----------------------------------------------
1996 1996 1997
--------------------- ------------------- ----------------------
Pro Pro Forma Pro Pro Forma Pro Pro Forma
Forma As Adjusted Forma As Adjusted Forma As Adjusted
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net income - historical $8,502 $ 8,502 $ 356 $ 356 $ 918 $ 918
Butler net income - historical 3,708 159 560
Fancom net income - historical 1,517 259 441
Pro forma adjustments (85) (18) 155
------ ------- ------ ------- ------ -------
Net income $8,502 $13,642 $ 356 $ 756 $ 918 $ 2,074
====== ======= ====== ======= ====== =======
Average shares issued and outstanding(1) 602 602 602 602 602 602
Incremental shares applicable to the
Stock Split 6,675 6,675 6,675 6,675 6,675 6,675
Incremental shares applicable to
stock options(2) 420 420 420 420 420 420
Incremental shares applicable to the
Preferred Stock Exchange 605 605 605 605 605 605
Incremental shares applicable to the
Offering(3) 1,103 5,000 1,103 5,000 1,103 5,000
------ ------- ------ ------- ------ -------
Pro forma weighted average common
shares outstanding 9,405 13,302 9,405 13,302 9,405 13,302
====== ======= ====== ======= ====== =======
Pro forma net income per
common share..................... $0.90 $ 1.03 $0.04 $ 0.06 $0.10 $ 0.16
====== ======= ====== ======= ====== =======
</TABLE>
Notes
- -------
(1) Shares sold in the twelve months prior to the Offering (2 shares after
giving effect to the Stock Split) one treated as outstanding for all
periods.
(2) Incremental shares applicable to stock options were computed using the
treasury stock method assuming an initial public offering price of
$15.00 per share. Options granted in the twelve months prior to the
Offering (206 shares after giving effect to the Stock Split) are
treated as outstanding for all periods.
(3) Pro forma reflects incremental shares applicable to the offering, solely
to the extent the proceeds will be used for the Preferred Stock
Redemption assuming an initial public offering price of $15.00 per share
net of underwritten expenses.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 2 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
July 30, 1997
Chicago, Illinois
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 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
July 30, 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
July 30, 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, July 30, 1997
Coopers & Lybrand N.V.
