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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
Commission File Number 333-43195
Commission File Number 333-43195-01
SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
(Exact name of registrants as specified in their respective charters)
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Delaware 3965 95-3959561
Delaware 6719 58-2365743
(State or other jurisdiction of (Primary Standard Industrial) (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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SCOVILL FASTENERS INC.
SCOVILL HOLDINGS INC.
1802 SCOVILL DRIVE
Clarkesville, GEORGIA 30523
706-754-4181
(Name, address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
____________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X (Not subject to filing
--- ---
requirements for past 90 days)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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Aggregate market value of voting stock held by non-affiliates of the Registrant:
None. (See Part II, Item 5.)
Number of shares of Common Stock outstanding as of March 15, 1998 was 4,655,500.
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SCOVILL HOLDINGS INC.
SCOVILL FASTENERS INC.
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1997
TABLE OF CONTENTS
PART I
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Page No.
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Item 1. Business................................................................ 1
Item 2. Properties.............................................................. 14
Item 3. Legal Proceedings....................................................... 15
Item 4. Submission of Matters to a Vote of Security-Holders..................... 16
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters... 17
Item 6. Selected Financial Data................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............. 25
Item 8. Financial Statements and Supplementary Data............................. 25
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................ 26
PART III
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Item 10. Directors and Executive Officers of the Registrant..................... 26
Item 11. Executive Compensation................................................. 27
Item 12. Security Ownership of Certain Beneficial Owners and Management......... 30
Item 13. Certain Relationships and Related Transactions......................... 31
PART IV
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Item 14. Exhibits, Financial Statements and Reports on Form 8-K................. 33
INDEX OF FINANCIAL STATEMENTS........... F-1
SIGNATURES
EXHIBIT INDEX
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PART I
Unless the context otherwise requires, references to the "Company," in this
Report include Scovill Holdings Inc. and its wholly-owned subsidiary Scovill
Fasteners Inc. and their respective operating subsidiaries and predecessors.
This report includes product names, trade names and marks of companies other
than the Company and Holdings. All other company or product names are
trademarks, registered trademarks, trade names or marks of their respective
owners and are not the property of the Company or Holdings.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Certain of the statements contained in the body of this Report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. In the preparation of
this Report, where such forward-looking statements appear, the Company has
sought to accompany such statements with meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statements. An additional
statement made pursuant to the Private Securities Litigation Reform Act of 1995
and summarizing the principal risks and uncertainties inherent in the Company's
business is included herein under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Safe Harbor
Statement." Readers of this Report are encouraged to read these cautionary
statements carefully.
ITEM 1. BUSINESS
BACKGROUND
Scovill Acquisition Inc. ("SAI") and Scovill Holdings Inc. ("Holdings"), both
Delaware corporations, were formed by Saratoga Partners III, L.P. ("Saratoga")
in 1997 to effect the acquisition of Scovill Fasteners Inc., a Delaware
Corporation ("Fasteners" or the "Company"). Pursuant to a Stock Purchase
Agreement, SAI, then a wholly-owned subsidiary of Holdings, purchased all of the
capital stock of KSCO Acquisition Corporation ("KSCO" or "Predecessor-KSCO") on
November 26, 1997 for a purchase price of approximately $168.8 million less the
amount of indebtedness of the Company existing immediately prior to closing of
the acquisition (including indebtedness that was not repaid in connection with
the transactions). Concurrently with the acquisition, SAI merged with and into
KSCO, and KSCO merged with and into Fasteners, with Fasteners surviving the
mergers. As a result, Fasteners is currently a wholly-owned subsidiary of
Holdings. The purchase of KSCO capital stock by SAI and the mergers of SAI and
KSCO into Fasteners are together referred to herein as the "Saratoga
Acquisition."
The Saratoga Acquisition of Fasteners was accounted for as a purchase.
Accordingly, the consolidated financial statements of Fasteners reflect the
purchase method of accounting effective November 26, 1997. In connection with
the Saratoga Acquisition, the Company issued $100,000,000 of 11.25% Senior Notes
due 2007 (the "Notes"), pursuant to an Indenture, dated November 26, 1997 (the
"Indenture") in reliance upon the exemptions from registration provided in
Section 4(2) and under Rule 144A of the Securities Act of 1933, as amended (the
"Securities Act") (the "Initial Offering"). The proceeds of the Initial Offering
were used to finance, in part, the purchase by SAI of all of the capital stock
of KSCO which then owned all of the capital stock of the Company. Following the
mergers described above, the Notes became obligations of Fasteners.
The Company completed an exchange of the Notes for substantially identical, but
publicly-tradeable notes (the "New Notes") pursuant to an exchange offer
registered with the Securities and Exchange Commission ("SEC"). References to
"Notes" herein means, unless stated or the context requires otherwise, such
registered publicly tradeable New Notes.
In connection with the Saratoga Acquisition, Saratoga and certain other
investors made a $36.6 million equity investment in Holdings, consisting of the
purchase of (i) $0.4 million in shares of Holdings' Common Stock, par value
$0.0001 per share (the "Common Stock"), and (ii) $36.2 million aggregate
liquidation preference of Holdings' Series B Preferred Stock , par value $0.0001
per share (the "Series B Preferred Stock") (collectively, the "Saratoga
Investment"). Management and the Chairman of the Board of Holdings rolled over
$3.4 million of their stock options in KSCO into options to purchase Common
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Stock and Series B Preferred Stock (the "Management Investment"). The Saratoga
Investment and the Management Investment are referred to as the "Equity
Investments." Concurrently with the Initial Offering, Holdings sold, for gross
proceeds of $10.0 million, 100,000 Units (the "Units Offering"), each Unit
consisting of $100 liquidation preference of Holdings' Series A Cumulative
Redeemable Exchangeable Preferred Stock (the "Senior Preferred Stock") and one
warrant (the "Warrants") to purchase Common Stock. The net proceeds of the
Equity Investments and the Units Offering totaled $49.5 million, after fees and
expenses to Holdings of $0.5 million. Holdings contributed such net proceeds to
Fasteners in the form of common equity. Each of these transactions was effected
pursuant to the exemptions from registration provided by Section 4(2) of the
Securities Act.
In connection with the Saratoga Acquisition, Fasteners entered into a new senior
secured credit facility (the "New Credit Facility"), consisting of a $28.0
million term loan (the "Term Loan") and a $25.0 million revolving credit
facility (the "Revolving Credit Facility").
Proceeds from the Equity Investments, the Initial Offering and the Term Loan
were used to finance the purchase price of the Saratoga Acquisition, repurchase
attaching machinery subject to a synthetic lease (the "Synthetic Lease"), repay
the Company's existing credit facility (the "Existing Credit Facility") and pay
related fees and expenses. The Saratoga Acquisition, the repurchase of attaching
machinery subject to the Synthetic Lease, the repayment of the Existing Credit
Facility, the Initial Offering, the Units Offering, the Equity Investments, the
borrowing of the Term Loan and the payment of the related fees and expenses are
collectively referred to herein as the "Transactions."
On February 20, 1998, Holdings issued one million shares of Common Stock and one
million shares of Series B Preferred Stock for proceeds of $10.3 million.
Holdings used such proceeds to repurchase the 100,000 Units that were sold in
the Units Offering.
Fasteners was a wholly-owned subsidiary of Alper Holdings USA, Inc.
("Predecessor-Alper") through October 17, 1995, when all of its outstanding
capital stock was purchased by KSCO.
During January 1996, Fasteners purchased all the outstanding common stock of Rau
Fastener Company, LLC ("Rau") for $7.9 million and all of the outstanding common
stock of PCI Group, Inc. ("PCI") for $15.6 million, excluding certain costs
related to financing and consummating the acquisitions. Rau primarily
manufactured snap fasteners with locations and subsidiaries operating in
Providence, Rhode Island, Braine-le-Comte, Belgium ("Scovill-Europe") and
Montreal, Canada. PCI manufactured industrial and shoe eyelets and light metal
stampings. In March 1996, Scovill-Europe acquired Daude in Paris, France and
combined its operations into Scovill-Europe.
BUSINESS OVERVIEW
Fasteners, whose business has been in continuous operation since 1802, is a
designer, manufacturer and distributor of apparel fasteners and specialty
industrial fasteners. The Scovill name is the oldest and one of the most well-
known brands in the fasteners industry. In the year ended December 31, 1997, the
Company sold more than 12 billion fastener units worldwide. The Company has
achieved and maintained its reputation by offering its customers an integrated
system of high quality fasteners, proprietary attaching machines, technical
service, on-site maintenance and customized applications and design services
tailored to individual customer needs.
The Company has two main product groups: the Apparel Group and the Industrial
Group. The Apparel Group, through its Gripper and DuraMark brands, produces
snaps, tack buttons, rivets, burrs and other snap fastener products used in
numerous apparel applications. The Company's customers and end-users include
many leading apparel design and manufacturing companies, including Wrangler,
OshKosh B'Gosh, Gerber Childrenswear, William Carter Company, Tommy Hilfiger,
Polo Ralph Lauren, Liz Claiborne and L.L. Bean.
The Industrial Group, primarily through its DOT and PCI product lines, produces
specialty industrial fasteners including large snaps, windshield clips, turn
buttons, eyelets, grommets, screw studs, gypsy studs and other specialty
fasteners. These products are used in a broad range of industries, including
marine textile, automotive, aerospace, military, medical/surgical products,
luggage, leather goods, electronic equipment, sporting and recreational goods
and consumer batteries. The end-users of the Company's products include a wide
variety of companies, including Freightliner, Boeing, Baxter, Samsonite, U.S.
Marine for its Bayliner Boats, Johnston & Murphy, Eveready Battery, Riddell for
its football helmets and the U.S. Government.
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COMPETITIVE STRENGTHS
The Company attributes its historical success and significant opportunities for
continued growth to the following competitive strengths:
Significant Presence in Fastener Business The Company is the oldest and one of
the most established manufacturers of a variety of apparel and specialty
industrial fasteners in the United States. The Company's fasteners have been
used in many products throughout its history, from U.S. military uniforms since
the War of 1812 to the flight suits worn by NASA shuttle astronauts. The
Company's reputation for high quality and its well-known brand names, including
Scovill, Gripper and DOT, make it a significant presence in the domestic
fastener business and provide it with a platform for enhanced global expansion.
"Total System" Approach In addition to manufacturing and distributing
fasteners to its customers, the Company also leases approximately 8,000
proprietary attaching machines to attach its products to those of its customers,
primarily in the apparel industry. The Company can (i) employ what the Company
believes to be the industry's only existing dedicated field service force that
provides on-site maintenance, which minimizes equipment down-time, (ii) have
ready access, through its servicing relationships, to its customers' facilities,
providing the Company with opportunities to cross-sell products and to test new
fastener machinery, (iii) continue to develop next-generation attaching
machines, such as the new Gemini system, which has lower manufacturing and
maintenance costs and improved fastener application flexibility and attaching
speed, and (iv) maintain an applications development and design lab that enables
customers to outsource design functions to the Company. The Company's "total
system" approach, by reducing cost per attached fasteners, enables it to compete
based on its ability to decrease its customers' costs and improve the quality of
their products. However, the Company's competitors, especially those in the
higher growth Asian and Latin American segments, often compete on price and
there can be no assurance that customer preferences will not shift to lower cost
producers of fasteners.
Large Installed Base of Attaching Machines The Company has a large installed
base of attaching machines in the United States, Canada, Europe and Asia which
enables it to generate a recurring stream of cash flow from high volume sales of
fasteners. The Company believes that its attaching machine, because of its
efficiency, flexibility and reliability, provide the Company's customers with a
stable and cost-efficient fastener attaching capability that enables the
customer to avoid production downtime. The Company has been able to maintain a
high level of customer retention with its attaching machines. In 1997 and 1996,
approximately 99% of all of its attaching machine leases were renewed. However,
the Company operates in a highly competitive environment and there can be no
assurance that the Company will be able to maintain such a high level of
customer retention in the future, or that customers would not undertake to
purchase attaching machines to enable the use of multiple sources of fasteners.
In connection with the Company's global expansion strategy, it may, in certain
cases, sell its attaching machines rather than lease them.
Broad Customer Base and Product Line The Company's customers include many
large and well-known apparel and industrial manufacturing companies. In 1997, no
single customer accounted for more than 7% of the Company's total net sales, and
the Company's 10 largest customers accounted for approximately 28% of the
Company's total net sales. The Company's broad line of products for apparel and
specialty industrial use reduces its exposure to any one customer segment and to
fashion trends.
Reputation for High Quality The Company has built its reputation by producing
high quality products designed and manufactured to precise specifications. The
Company has developed many of the safety standards for infantswear adopted by
the American Society of Testing Methods (the "ASTM"), and the Company's senior
quality manager is currently chairman of the ASTM subcommittee responsible for
establishing testing methodologies for the apparel fastener industry. These
methodologies provide the basis for determining compliance with requirements for
apparel set by the Consumer Products Safety Commission.
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Experienced Management Team The Company's senior management team has an average
of over 15 years of experience in the fastener industry. Since its formation in
1992, the management team has delivered significant revenue and EBITDA
improvements by successfully reorganizing the business and positioning the
Company for growth. Management has achieved these results by rationalizing
existing operations and thereby reducing costs and increasing efficiencies,
exiting an unprofitable product line and integrating domestic and international
acquisitions. This team has identified, integrated and consolidated three
significant acquisitions since 1992 and established a platform for international
growth. The success of the Company depends to a large extent upon the abilities
and continued efforts of its senior management, the loss of certain of whom
could have an adverse impact on the Company.
The fastener industry is highly competitive. The Company currently faces
significant domestic competition. Further, a number of companies in Asia,
Europe, and South America that currently manufacture and sell fasteners have the
capacity to quickly enter or expand their sales into the United States and other
markets world wide. Moreover, the Company believes that both domestic and
foreign companies that manufacture stamped metal parts and other products have
the capacity to quickly and with little sunk cost shift production to fasteners.
Finally, the apparel industry is a mature industry in the United States. As more
manufacturers move their operations outside the United States, foreign
manufacturers of fasteners will be in a better position to service those
manufacturers.
BUSINESS STRATEGY
The Company seeks to enhance its ability to compete domestically and globally
while increasing its net sales and operating cash flow by continuing to
implement the following components of its business strategy:
Continue to Strengthen Customer Relationships The Company intends to continue
to distinguish itself from competitors as a full-service provider. The Company
will continue to foster long-term partnerships with its customers by providing a
broad range of high quality products, consistent delivery performance,
comprehensive product support, efficient attaching machinery and dedicated field
service. The introduction of the Gemini attaching machine, which accommodates
rapid and cost-efficient switching of fastener types and is designed to address
ergonomic concerns, illustrates the Company's commitment to customer service.
The Company also continues to develop and implement value-added services, such
as specialized billing and delivery systems.
Reduce Customers' CPAF The Company intends to develop new means to continue
its commitment to lower its customers' cost per attached fastener ("CPAF").
Customers incur significant costs beyond the unit price of fasteners; an
individual fastener typically represents only 10% of an average customer's CPAF.
CPAF is also a function of factors such as attaching speed, production errors,
equipment downtime due to changeover and maintenance and the attaching machinery
lease expense or cost. The Company's "total system" approach and its focus on
CPAF are designed to reduce the remaining costs associated with the attaching of
its fasteners.
Seek Higher Margin Specialty Applications The Company intends to take
advantage of its diverse and flexible manufacturing capabilities to enhance its
line of specialty applications, which offers higher margins. Examples of
specialty applications are stainless steel buckles for football, hockey and
cycling helmets; engineered eyelets for consumer electronics; and male/female
connectors for batteries. The Company intends to develop new applications for
current products, engineer new products and re-engineer those products obtained
through acquisitions. Unlike smaller manufacturers, the Company possesses its
own tooling, stamping, plating and finishing equipment and, therefore, can
develop specialty applications without significant capital expenditures.
Strengthen "Retail Pull" The Company seeks to have large retailers specify the
use of the Company's products in their private label apparel lines. The Company
intends to expand its international opportunities by leveraging existing
relationships with customers that move sourcing abroad and by expanding its
distribution channels overseas to better serve them. The Company believes that
the high quality of its products, its "total system" approach and its Asian
distribution channels enhance the Company's ability to effect this strategy.
There can be no assurance, however, that the Company will be successful in
expanding its distribution channels abroad and thus leveraging existing
relationships with such customers.
Leverage Existing Manufacturing Base The Company intends to continue to
leverage its existing manufacturing base by incrementally expanding the capacity
of the Clarkesville facility. By optimizing its operations, adding shifts and
outsourcing particular activities, the Company believes that it can
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significantly increase the output of the Clarkesville facility with limited
capital expenditures. Through the addition of increased revenue at minimal
incremental fixed costs, the Company has been able to increase EBITDA margins.
The Company expects to increase revenue through new product development and
tuck-in acquisitions, such as the 1996 acquisitions of Rau and PCI, whose
operations were consolidated into the Company's Clarkesville, Georgia facility.
There can be no assurance, however, that the Company will be successful in
identifying or effecting such tuck-in acquisition opportunities or that new
products developed by the Company in the future will be successful.
Pursue Attractive Acquisition Opportunities The Company will continue to
evaluate opportunities to expand its sales and product offerings through
smaller, easily integrated domestic add-on acquisitions. The Company may also
explore larger international acquisitions, primarily in Europe and Asia to
enhance its ability to compete in the increasingly global fastener business. The
criteria for identifying attractive acquisition candidates include (i) revenue
potential, (ii) increases in manufacturing, production and other cost
efficiencies and (iii) diversification and expansion of the Company's product
lines and customer base. There can be no assurance, however, that the Company
will be able to successfully identify suitable acquisition candidates, obtain
financing on satisfactory terms, complete acquisitions, integrate acquired
operations into its existing operations or expand into new markets. Also, once
integrated, acquisitions may not achieve anticipated levels of revenue,
profitability or productivity or otherwise perform as expected.
NORTH AMERICAN AND FOREIGN OPERATIONS
The Company's operations are located in the United States, Europe and Canada.
Financial information by geographic area (the Company and Predecessor--KSCO)
for 1997 and 1996 is as follows:
1996 1997
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Net Sales by:
North America
Domestic $ 78,348 $ 77,764
Export 3,275 7,196
Europe 10,009 10,901
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$ 91,632 $ 95,861
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Operating Income:
North America $ 6,509 $ 7,506
Europe 915 867
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$ 7,424 $ 8,373
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Identifiable assets (at end of period):
North America $ 97,795 $219,185
Europe 6,071 7,017
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$103,866 $226,202
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Transfers of product from North America to Europe were not material during the
period presented above. Export sales from the United States include sales to
customers in Europe, Asia and Latin America. As the Company's European
operations were acquired in January 1996, export sales, operating profit and
identifiable assets were immaterial in 1995.
PRODUCT OVERVIEW
Recognizing the opportunity to improve production while enhancing the services
provided to customers, the Company has divided its operations into two main
product groups: the Apparel Group and the Industrial Group. Creating both groups
has provided the Company with several distinct business strengths. First,
because each group services different customers, each possesses a greater
appreciation for the needs and specifications of particular customers. Second,
in focusing on their individual customer segments, each group improves the
delivery and quality of the products and services it provides.
The following table sets forth, for the periods specified, the net sales and the
percentage of total net sales contributed by each product category for the year
ended December 31 (dollars in thousands):
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1993 1994 1995 1996 1997
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TOTAL NET SALES $65,066 $65,428 $66,388 $91,632 $95,861
APPAREL GROUP
Net sales $43,964 $45,536 $46,309 $48,258 $53,262
% of total net sales 67.5% 69.6% 69.8% 52.6% 55.5%
INDUSTRIAL GROUP (1)
Net sales $16,117 $14,175 $14,924 $19,747 $31,698
% of total net sales 24.8% 21.7% 22.4% 21.6% 33.1%
OTHER (2)
Net sales $ 4,985 $ 5,717 $ 5,155 $23,627 $10,901
% of total net sales 7.7% 8.7% 7.8% 25.8% 11.4%
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(1) Includes all Canadian operations.
(2) Includes (a) European operations, (b) the zipper product line, which was
discontinued in 1995, and (c) Rau and PCI prior to their integration in April
and October 1996, respectively, into the Clarkesville facility. Amounts also
include Scovill Europe subsequent to the Rau and Daude acquisitions in January
and March 1996.
APPAREL GROUP
Industry Overview
The apparel snap fastener market includes snap fasteners, tack buttons, rivets
and burrs and excludes other apparel devices such as zippers, buttons and
velcro. The apparel fastener market is large, with many customers and suppliers.
The primary customers for apparel snap fasteners are manufacturers of
basic garments such as jeans, infantswear, childrenswear and outerwear. Demand
for apparel snap fasteners is related to apparel industry trends generally,
which are affected by demographics. The production of each category of apparel
depends upon population trends and consumer spending in each apparel category.
According to U.S. Department of Commerce estimates, the value of domestic
shipments of apparel and other finished textiles has averaged over 4% growth per
year since 1976. During that time, the domestic apparel industry has exhibited
low cyclicality, with the value of such shipments having increased in all but
two years. In foreign markets, the Company believes expected population growth
over the next several years and improved standards of living will result in
increased apparel sales abroad. There can be no assurance, however, that such
factors will lead to increased sales. Competition, unforeseen economic
downturns, an inability of the Company to expand its foreign distribution
channels, and other factors could prevent increases, or result in decreases, in
sales abroad.
Despite improvements in technology, manufacturing processes in the apparel
industry are still quite labor-intensive. Because labor is such a significant
cost component in apparel manufacturing, manufacturers in low-wage, developing
countries enjoy a cost advantage over U.S. manufacturers. In response, many U.S.
companies have been shifting assembly operations to low-wage countries or
turning to foreign-based contractors in an effort to lower their production
costs. As a result, some export growth has consisted of shipments of garment
parts for assembly abroad and subsequent re-importation into the United States.
The Company has been able to follow a large portion of its customers' production
abroad, as evidenced by its more than 2,500 attaching machines located outside
of the United States. In addition, in marketing to national accounts the
Company will continue to implement its "retail pull" strategy by leveraging
relationships with customers that move sourcing abroad and expanding its
distribution channels overseas to better serve them.
Product Lines
The Company's Apparel Group is composed of three main product lines: Gripper,
DuraMark and Attaching Machines.
The Apparel Group serves six garment product segments of the apparel business:
infantswear, childrenswear, jeans, workwear, leisurewear/fashion and
disposables. The Company competes in the apparel fastener business in the
Americas, Asia, the Pacific Rim and Europe.
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The Company has remained a leader in the apparel business through the
manufacture and sale of its Gripper product line, which consists of a variety of
fasteners such as ring sockets, segmented sockets, short and long prongs and
western pearls. In addition, the Company has continued to grow its DuraMark
product line, which consists of large snap fasteners, tack buttons, rivets and
burrs. Through its "total system" approach, the Company leases approximately
8,000 attaching machines so that customers may attach the apparel fasteners to
their apparel products. When viewed together, the Apparel Group's product
offerings, attaching machines and support services have enabled the Company to
provide a comprehensive fastener system that improves customer product quality
and lowers customers' product costs. In connection with the Company's global
expansion strategy, it may, in certain cases, sell its attaching machines rather
than lease them.
The Company, in connection with its distributor in Asia, Acotex, seeks to
increase distribution capacity in China and other countries in Asia. Management
believes this expansion will allow the Company to maintain its customer base as
U.S. manufacturers, seeking to reduce costs, seek sources for their products
outside the United States and to enhance its ability to compete with local
manufacturers and distributors. There can be no assurance, however, that the
Company will be successful in expanding its distribution channels abroad and
thus, leveraging existing relationships with such customers. The Company
utilizes a "retail pull" strategy, whereby it seeks to have large retailers
specify the use of the Company's products in their private label apparel lines.
The Apparel Group also seeks to increase its customer base through the
deployment of its new Gemini attaching machine. The ergonomically designed
Gemini machine provides customers with high speed attaching capability and the
ability to change types quickly and efficiently, through interchangeable hopper
and feed units, a feature which most competitors' machines lack.
Gripper Gripper is a type of snap fastener with a stud-and-socket design that
was trademarked by the Company in 1937. Although Gripper is a versatile snap
fastener that can be used on almost any type of garment, it is most commonly
used with infantswear, toddler clothing, workwear, uniforms, western-style
shirts and womenswear. The Company sells Gripper fasteners to some of the most
widely recognized brand names in the infantswear and childrenswear industry,
including OshKosh B'Gosh, William Carter and Gerber Childrenswear. In addition
to apparel applications, Gripper fasteners are used in toys, wallets and a
variety of other accessories.
The Rau acquisition has allowed the Company to increase its Gripper sales, as
Gripper fasteners are now marketed to Rau's Klikit customers. The Company
intends to reposition Klikit as the premium brand in the Gripper product line.
In certain applications, Klikit's ring-socket design provides a competitive
advantage against segmented-socket styles. The Gripper product line generally
provides higher profit margins than other products in the Apparel Group.
DuraMark The DuraMark product line includes large snap fasteners and tack
buttons, rivets and burrs made from brass, steel, aluminum, zinc and copper.
Large snap fasteners differ from Gripper fasteners in that they are based on a
ring-socket design rather than the segmented-socket design used in Gripper
fasteners. The Company's large snap fasteners are marketed under their trade
names: Mighty-Snap and Maxi-Snap. Mighty Snap and Maxi-Snap fasteners are
generally larger than Gripper fasteners and are normally used in apparel-related
applications where greater strength is required, such as outerwear garments.
Some of the Company's customers for these snap fasteners include such well-known
names as OshKosh B'Gosh, Wrangler and Land's End.
Tack buttons are most commonly used as the waist-fastening button above the
zipper on jeans or other types of pants. Tack buttons derive their name from the
fact that they are attached to the garment from the back with a tack, rather
than being sewn to the garment. Rivets and burrs are generally sold in tandem
with tack buttons for reinforcement in stressed areas of heavy clothing such as
jeans. In addition to being functional, tack buttons, rivets and burrs typically
serve decorative functions. Accordingly, they have matching finishes and
designs. They are produced in numerous sizes and colors and typically include a
customer brand logo. Certain of the brand names which use the Company's tack
buttons, rivets and burrs include Wrangler, Polo Ralph Lauren, The Limited
Stores and Arizona Jean.
7
<PAGE>
Attaching Machine Leases The Company leases to its customers, pursuant to
short-term lease agreements (generally one year, subject to renewal, with a 60-
day notice clause), approximately 8,000 attaching machines, which are used at
customer locations to attach its products. The reliability and efficiency of the
Company's attaching machinery, which include patented components, have proven to
be key factors in maintaining a stable base of apparel fastener sales. In
connection with the Company's global expansion strategy, it may, in certain
cases, sell its attaching machines rather than lease them.
The attaching machines are used primarily for apparel products. They are used
less frequently for industrial products because attaching machines are better
suited for high volume, non-bulky items that can be readily fed through the
guides at the point of attachment. Many industrial fasteners are attached by
hand or as part of another manufacturing process.
The Company supplies its customers with three core models of apparel fastener
attaching machinery that can be customized to customers' specifications through
the addition of auxiliary attachments. The Company designs and assembles these
machines and periodically reconditions them in its Clarkesville facility.
The following table sets forth the Company's active attaching machine base as of
December 31, 1997:
Number % of Total
------------------------------
United States 5,352 64.5%
Canada 912 11.0%
Mexico 645 7.8%
Caribbean 593 7.2%
Other Europe 218 2.6%
Belgium 204 2.5%
Central America 169 2.0%
Asia 143 1.7%
South America 56 0.7%
Other 1 -
--------------------------
Total 8,293 100.0%
Typically, as part of the leasing arrangements, the Company's field technicians
provide on-site maintenance services with guaranteed 24-hour response time
(primarily in the Americas). Some customers perform the maintenance themselves
with Company-trained personnel. When machines require more comprehensive
reconditioning services, they are sent to the in-house reconditioning center in
Clarkesville.
8
<PAGE>
INDUSTRIAL GROUP
Industry Overview
The industrial fastener market serves a wide range of manufacturers, including
those in the marine textiles, automotive, aerospace, military, medical/surgical
products, electronic equipment, sporting goods and consumer battery industries.
Growth in this market is influenced by both the general economy and consumer
purchases of electronics, automobiles, housing and footwear. The industrial
fastener market is large and highly fragmented. The market is comprised of a
variety of niche segments with specialized customers, competitors and products.
The Company estimates that the industry segments in which it currently competes
constitute less than 10% of the overall market. The Company believes that there
is no dominant manufacturer that competes in all of its product lines, and the
Company intends to broaden its participation through new products and product
line extensions.
The businesses the Company serves with its DOT, PCI and Plastics product lines
are largely in North America. The Company has made limited sales of DOT products
in the European market. The Company plans to increase sales efforts through
Scovill-Europe in Belgium. Other specialty fastener markets in Europe are
currently served by Scovill-Europe in France.
The Company believes that there are opportunities to expand its product
offerings to include electronic equipment (such as PC boards), consumer
batteries (such as male and female connectors), identification bracelets (Tag
Lock, one-time fasteners), and grommets and washers (such as leisure products
and utility bags), among others.
Product Lines
The Company's Industrial Group is comprised of three main product lines: DOT,
PCI and Plastic Fasteners.
Industrial fasteners are sold through direct sales and authorized distributors
to a wide variety of customers, including manufacturers of marine textiles,
sporting and recreational products, electronics, electrical equipment and
footwear. The Company competes mostly in the specialty fastener market in the
Americas (including Canada) and, to a more limited extent, in Europe and Asia.
The Company's acquisition of the DOT product line in 1991 has enabled it to
supply heavy duty snap fasteners to additional industry segments, including
marine textiles, automotive, luggage, medical, sporting and recreational,
aircraft, military and health-related goods. The PCI product line, acquired in
1996, further expanded the Company's offering of industrial fasteners, which the
Company has been able to sell through its existing DOT distribution channels.
The Company's Plastic Fastener product line provides fasteners for a variety of
end uses, including use with the Company's own Gripper and DuraMark products, as
well as for those of Johnson & Johnson.
9
<PAGE>
To remain competitive in the industrial fastener industry, the Company intends
to focus on methods of improving plant efficiency and cost reduction. While
investing in research and development to create new products and to re-engineer
product lines acquired through acquisitions, the Company is also actively
developing new applications for its current industrial products.
DOT and PCI Product Lines DOT fasteners include large snaps, windshield clips,
turn buttons, screw studs, gypsy studs and other specialty fasteners. An
advantage of certain DOT products is their locking feature. Examples of DOT
products with a locking feature include Pull-the-DOT, which is a unidirectional
lock designed to open only when properly aligned, and the Common Sense line,
which has a positive locking feature that offers strength and durability. DOT
fasteners are used for, among other things: marine textiles, automobiles,
awnings, luggage, athletic outerwear, sporting goods, tents and packaging. DOT
end-users include Micron, Samsonite, Boeing and NASA.
With the acquisition of PCI, the Company expanded its industrial product line to
include footwear eyelets, grommets, washers, industrial eyelets, and specialty
stampings. PCI end-users include Zenith, Converse and Eveready. The Company's
supply division provides specialized setting tools and supplies so that PCI
customers can customize third-party manufactured attaching machines to
accommodate PCI fasteners. These products are largely able to utilize the DOT
distribution channels.
Plastic Fasteners The Company's plastic fastener line is principally composed
of three products that are known by their trade names: Whipper Snap, Color Snap
and Tag Lock. The Whipper Snap was the first plastic snap fastener. Each Whipper
Snap is composed of four parts and employs a four-prong design that grips fabric
securely without tearing. Currently, the Whipper Snap is the most important of
the Company's plastic fasteners, measured by sales volumes, and is primarily
sold for use in protective disposable medical apparel. Since late 1992, the
demand for disposable medical garments has increased as a result of new OSHA
regulations governing the medical profession.
Color Snaps are used in packaging and other non-apparel applications. The Tag
Lock fastener is a one-way fastener that is most commonly used for one-time use
identification bracelets such as hospital bracelets and amusement park entrance
wrist bands.
MANUFACTURING OPERATIONS
Beginning in 1992, the Company reorganized its manufacturing operations,
resulting in a substantial reduction in the number of employees and in total
operating costs. The Company reduced its manufacturing employee headcount from
635 at the end of 1992 to 545 at the end of 1995, prior to the acquisitions of
Rau and PCI. By integrating acquired operations into its Clarkesville facility,
the Company has increased production volume at the facility, which has enabled
it to absorb more fixed costs and indirect labor costs. In addition, the Company
reorganized its manufacturing organization to focus on its product lines rather
than production processes. The Company established five separate production
units, each dedicated to a particular product line. These production units, in
turn, are subdivided into a number of manufacturing cells. Each production unit
consists of dedicated equipment, employees and management. As a result of the
sale of its zipper line in February 1996, the Company was able to integrate the
manufacturing operations of Rau and PCI at the Clarkesville facility.
The implementation of improved manufacturing techniques, including "Total
Quality Management," "Statistical Process Control" and "Just In Time"
inventory management, has substantially increased plant production throughout
the Company by reducing bottlenecks, improving material flows and focusing the
Company on manufacturing process improvements. The Company regularly performs
maintenance under "Total Preventative Maintenance" practices on its machines
and equipment to reduce downtime and improve production efficiency. Additional
examples of improved techniques implemented by the Company include the
establishment of corrective action teams, educational programs for manufacturing
employees and vendor-certification programs.
In conjunction with the restructuring of the Company's manufacturing
organization and implementation of improved manufacturing techniques, the
Company commenced a value-added capital expenditures program. This program
10
<PAGE>
emphasizes investments that improve the efficiency of the Company's
manufacturing operations, increase product quality, enhance the safety of
workers and in some cases, require a reduction in the number of employees. These
initiatives have significantly lowered the Company's manufacturing costs and
have contributed to improved gross margins.
The manufacture of a majority of the Company's products begins with the stamping
of the relevant raw material. Some products are formed through a series of
stamping steps using progressive dies while others are formed through a single
stamping step using sophisticated forming dies. These products are then cleaned
to reduce lubricant residues and prepare the surface for finishing before being
assembled and packed for shipping. To facilitate shipping, the Company works
with several different common carriers and its manufacturing facility is readily
accessible to the interstate highway system. Availability and cost of
transportation are not competitive factors affecting the Company's business.
The Company defines capacity by individual manufacturing cells within five
product line-oriented production units, as opposed to functional processes such
as stamping or plating. The Company believes it has sufficient manufacturing
capacity in each of its product lines, including the recently acquired Rau and
PCI product lines, to meet current customer demands, including anticipated
growth thereof. By optimizing its operations, adding shifts and outsourcing
particular activities, the Company believes that it can significantly increase
the output of the Clarkesville facility with limited capital expenditures.
There can be no assurance, however, of such a result. The inability of the
Company to attract an adequate number of skilled employees, an unanticipated
need for greater capital expenditures, and other unpredictable factors could
prevent such increases in output or cause any such increases to be significantly
more expensive than anticipated.
INSURANCE
The Company maintains property insurance, liability insurance, business
interruption insurance and other insurance policies customary to the
manufacturing industry. The Company believes that its policies are sufficient to
cover any potential loss or liability that is likely to arise in the future.
RAW MATERIALS
The prices of raw materials are subject to volatility. The Company's principal
raw materials are brass, steel, zinc, nickel alloys, and plastic resins, of
which brass is the most significant. These raw materials are commodities that
are widely available.
The Company seeks to minimize the impact of price volatility through hedging
practices. The Company has hedged a substantial portion of its expected raw
material needs, largely for brass, through June 1998. To the extent that the
price for the Company's remaining needs increases before prices are set, there
can be no assurance that the Company will be able to set the price low enough to
enable the Company to achieve adequate margins on finished products, although it
has in the past been able to pass a portion of any price increase in materials
to its customers.
The Company has strong relationships with many of the largest suppliers of raw
and processed materials in the United States. The Company's policy is to
establish arrangements with select vendors, based upon price, quality, and
delivery terms. By limiting the number of its suppliers, the Company believes
that it obtains materials of consistently high quality at favorable prices. In
addition to purchase contracts, the Company has tolling agreements with some of
its suppliers whereby the suppliers reprocess the Company's scrap for a fixed
charge. These relationships afford the Company certain purchasing advantages,
including stable supply and favorable pricing arrangements. The Company believes
it is able to obtain favorable pricing of raw materials as it achieves greater
production, due to its ability to place larger orders with commodity suppliers.
A portion of these cost savings can then be passed on to the Company's
customers.
MARKETING AND SALES
The Company's sales and marketing organization consists of four functional
areas: sales, customer service, field service and product support. These four
areas work in close cooperation with one another in an effort to maximize the
11
<PAGE>
Company's sales revenue and to offer superior customer service. The general
marketing strategy of the Company is to differentiate itself from other fastener
manufacturers by offering a full range of premium branded products and services.
Components of this strategy include offering attaching machine service,
engineering and sales support through the maintenance of a network of service
personnel, a large direct field sales organization, applications engineering,
and product design and development.
Sales After the Rau and PCI acquisitions, the Company divided its sales
personnel between the Apparel and Industrial Groups. The sales organization is
further divided by domestic U.S. regions. Regional sales managers have
supervisory and administrative responsibility for the sales personnel in their
respective regions, as well as direct sales responsibility for certain large
regional accounts.
The Company sells its products through separate apparel and specialty industrial
sales forces. Products in Europe are sold through a combination of direct sales
in Belgium and France, as well as through distributors in fifteen European
countries. The Company has a distribution agreement with Acotex, which provides
the Company with expanded distribution capability (including local finishing and
stocking of products) in Southeast Asia.
Marketing The Company services lower volume customers (particularly DOT
customers) through a telemarketing office in Clarkesville, Georgia, which
enables the Company to reach a large number of diversified customers throughout
the United States in a cost-effective manner.
To reach its markets, the Company employs a general promotional mix,
utilizing a direct field sales staff, a telemarketing group and authorized
distributors. The sales activity is supported by participation in trade
exhibitions, as well as a full advertising program in trade publications. Other
promotional activities include publicity announcements, entertainment functions,
advertising novelties and a Company website.
Customer Service The Company provides customers with a "total system"
approach, which includes the fasteners, attaching equipment and dedicated field
service. The Company believes that its sales depend on in-depth knowledge of
customer manufacturing procedures, responsiveness to product design changes,
consistent product quality, timely delivery, and efficient and reliable
attaching machinery. Typically, the buying decision requires a consensus among
the customer's plant managers, plant engineers and merchandising and purchasing
personnel. The Company's sales force has been able to develop and maintain long-
term customer relationships. The Company's customer service center is located in
Clarkesville, Georgia and is dedicated to handling customer orders. The center
is staffed by twelve customer service representatives. These representatives
work with the Company's sales personnel and customer purchasing representatives
to process orders and ensure that all specifications are met. The customer
service center also handles inquiries regarding order changes, delivery and
billing.
Field Service The Company provides product support through a dedicated field
service organization.
12
<PAGE>
These service representatives regularly visit customer locations. Through the
service representatives, the Company is able to minimize the downtime of its
attaching machinery and increase machine efficiency, hence reducing CPAF for its
customers.
Product Support The Company's product support includes a quality assurance
department that maintains an applications laboratory staffed by an applications
engineer and technicians. The applications laboratory performs a variety of
tests, including strength and durability testing, in order to evaluate the
suitability of a fastener for a customer's application. The Company's
engineering department employs dedicated graphics designers. These designers
work with a CAD/CAM system to adapt customers' logo designs to the Company's
fastener products. The Company also has a dedicated research and development
department, staffed by four full-time employees, which focuses on new product
development and manufacturing process improvements.
Backlog At each of December 31, 1997 and 1996, the Company had an order
backlog of approximately $9.4 million. Management does not believe that a
material amount of orders constituting such backlog at December 31, 1997 will
remain unfilled by the end of May 1998.
Customers The Company serves two major markets: apparel and industrial. The
Apparel Group serves six primary market segments, consisting of infantswear,
childrenswear, jeans, workwear, leisurewear/fashion and disposables. The
Industrial Group serves six primary market segments, consisting of automotive,
marine textiles, military, leather, sporting goods and medical.
In 1997, no single customer accounted for more than 7% of the Company's total
net sales, and the Company's 10 largest customers accounted for approximately
28% of the Company's total net sales. The Company's broad line of products for
apparel and specialty industrial use reduces its exposure to any one customer
segment and to fashion trends. The Company plans to expand its customer base by
introducing new products and developing applications for existing products.
The loss of any single customer would not have a material adverse effect on the
Company.
Competition The Company operates in a highly competitive environment. Some
of the Company's competitors have greater financial resources and may be less
leveraged than the Company. As a result of its presence in both the apparel and
industrial markets and the diversity of its products, the Company believes that
no single competitor competes with the Company across the entire range of the
Company's product lines.
13
<PAGE>
Although the primary competitive factors for the Company's products vary
somewhat across different product categories, the principal factors influencing
competition are breadth of product line, cost of raw materials, cost of
attaching machinery, price, quality and customer service. Brand recognition is
also a differentiating factor in the Apparel Group, which includes the Gripper
product line, and in the Industrial Group, which includes the DOT product line.
The Company believes that it has remained competitive by developing strong
customer relations based on its ability to supply quality products while
minimizing the customer's CPAF and utilizing its "total system" approach.
Other factors affecting the Company's ability to compete domestically and
internationally include the ability of domestic and foreign manufacturers of
fasteners and other stamped metal products to move capacity quickly into
production in the industry segments in which the Company sells its products. As
a result, the Company faces price competition from a number of sources.
Trademarks and Patents The Company currently uses numerous trademarks and
trade names in its business, including Color Snap(R), Common Sense, DOT(R),
DuraMark(R), Gemini TM, Gripper(R), Klikit(R), Maxi-Snap TM, Mighty-Snap TM, PCI
TM, Pull-the-DOT(R), Tag Lock TM, and Whipper Snap(R). In addition, the Company
owns 19 patents relating to its fasteners and attaching machinery and it has 3
patents pending. Although the products and services underlying such trademarks
and patents have achieved significant brand recognition and, as a result, are of
significant economic value, the Company does not believe that any individual
trademark or patent is of material importance to the Company's business.
The Company also relies upon trade secret protection of its confidential and
proprietary information. The Company routinely enters into confidentiality
agreements with both high- and low-level employees. There can be no assurance
that such measures will be successful or that competitors will not be able to
discover the trade secrets on their own.
GOVERNMENTAL REGULATIONS
A number of regulations affect the Company's business. The Company believes that
it complies substantially with all laws and regulations affecting its business
and that it does not have any material liabilities under such laws and
regulations. The Company also believes that compliance with all such laws and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's capital expenditures, earnings or competitive position.
See also "Legal Proceedings - Environmental Matters."
EMPLOYEES
As of December 31, 1997, the Company employed 886 people. Approximately 171 were
employed in administrative and sales positions and 715 were employed in
manufacturing positions. None of the Company's employees at the Clarkesville or
the Montreal facilities is represented by a labor union. The 84 non-management
employees at the Belgium facility may belong to a labor union, but under Belgian
law, such membership is not required to be disclosed to the Company.
The Company believes that its relationships with its employees are satisfactory.
Because of its dependence on apparel manufacturers and other customers, however,
the Company may be adversely affected by labor strikes, work slowdowns and
walkouts at the manufacturing facilities of such manufacturers or other
customers.
ITEM 2. PROPERTIES
The Company's U.S. manufacturing facilities are situated on 31 acres owned by
the Company in Clarkesville, Georgia (approximately 90 miles northeast of
Atlanta, Georgia) and include a 230,000 square foot building used for
manufacturing and administration, as well as a 26,400 square foot attaching
14
<PAGE>
machine center. The Company also leases manufacturing facilities in Montreal,
Canada, and owns a manufacturing facility in Braine le Comte, Belgium.
The Company maintains a central distribution warehouse at its facility and
satellite warehouses in Texas and Mexico. Its products are also available from
distributor facilities located throughout the United States and in Western
Europe, Central America, South America, and the Far East. The Company intends to
use its facilities in Belgium, acquired in connection with the Rau acquisition,
to increase the distribution of its products in Europe. Goods are packaged to
meet market needs for safe handling and effective storage, and customized
packaging is available for distributors in select market channels such as the
marine product line.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is named in claims involving manufacturers,
contractual disputes and other matters arising in the ordinary course of the
Company's business. Currently, no legal proceedings are pending against or
involve the Company that, in the opinion of management, could reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject to a
wide variety of increasingly complex and stringent federal, state, local and
foreign environmental laws and regulations, including those governing the use,
storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials and wastes, the remediation of contaminated soil
and groundwater, and the health and safety of employees (collectively,
"Environmental Laws").
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA"), and similar state laws, provide for responses to
and liability for releases of certain hazardous materials into the environment.
These obligations are imposed on the current owner or operator of a facility,
the owner or operator of a facility at the time of disposal of hazardous
materials at the facility, any person who arranged for the treatment or disposal
of hazardous materials at the facility, and any person who accepted hazardous
materials for transport to a facility selected by such person. Liability under
CERCLA is strict, and may be joint and several. Certain federal Environmental
Laws, including the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Safe Drinking Water Act, the Emergency
Planning and Community Right to Know Act, each as amended, and similar state and
local Environmental Laws, regulate air emissions, water discharges, hazardous
materials and wastes, and require public disclosure related to the use of
various hazardous materials. The Company's operations are also governed by
Environmental Laws relating to workplace safety and worker health, primarily
pursuant to the federal Occupational Safety and Health Act, as amended.
Compliance with Environmental Laws may require the acquisition of permits or
other authorizations for certain activities and compliance with various
standards or procedural requirements. The Environmental Laws are subject to
frequent amendment and have historically become increasingly stringent. The
Company is currently subject, and may in the future be subject, to liability
under Environmental Laws for remediation of contamination at currently or
formerly owned or operated facilities including, presently, remediation at its
Clarkesville, Georgia facility. In addition, from time to time, the Company has
been cited for violations of Environmental Laws. The sanctions for failure to
comply with such Environmental Laws can include significant civil penalties,
injunctive relief and denial or loss of, or imposition of significant
restrictions on, environmental permits. In addition, the Company could be
subject to suit by third parties in connection with violations of or liability
under Environmental Laws. In the event of liability under Environmental Laws,
the Company intends to pursue available statutory and contractual remedies,
including any applicable rights of contribution and indemnification from
predecessors in interest. However, there can be no assurance that the Company
will prevail in connection with any such claims.
15
<PAGE>
As of December 31, 1997, the Company had reserves of approximately $3.1 million
for environmental liabilities. Of the total reserve for environmental
liabilities, $2.7 million represents contractual payments to a former parent.
Because Environmental Laws have historically become increasingly more stringent,
costs and expenses relating to environmental control and compliance may increase
in the future.
The nature of the Company's current and former operations, and those of its
predecessors, exposes it to the risk of claims with respect to environmental
matters and there can be no assurance that material costs or liabilities will
not be incurred in connection with such claims. Based upon its experience to
date, the Company believes that the future cost of compliance with existing
Environmental Laws, and liability for known environmental claims pursuant to
such Environmental Laws, will not have a material adverse effect on the cash
flow, financial condition or results of operations of the Company. However,
future events, such as new information, changes in existing Environmental Laws
or their interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Neither Holdings nor Fasteners has a class of capital stock, including their
respective classes of common stock, registered pursuant to the Securities
Exchange Act of 1934, as amended. There is no established public trading market
for the Common Stock. Holdings has never declared or paid any cash dividends on
its Common Stock. In connection with the Transactions, the Company entered into
an agreement with Saratoga pursuant to which the Company will pay a management
fee of $150,000 per quarter to Saratoga. Fasteners anticipates paying this fee
by declaring quarterly dividends on its common stock. Holdings will then pay the
fee to Saratoga. Holdings is restricted by the terms of the New Credit Facility
from paying dividends or making other distributions on its capital stock.
Fasteners is restricted by the terms of the indenture governing the Notes (the
"Indenture") and by the terms of the New Credit Facility from paying dividends
or making other distributions on its capital stock. The Indenture and the New
Credit Facility permit Fasteners to pay dividends to Holdings in specified
amounts for Holdings to pay certain management fees to Saratoga and to pay its
legal, accounting and other operating expenses. Other than such dividends by
Fasteners to Holdings, neither Holdings nor Fasteners anticipates paying
dividends or making other distributions on their capital in the foreseeable
future. See "Certain Relationships and Related Transactions--Transactions with
Saratoga." Aside from this quarterly dividend, both Holdings and the Company
anticipate retaining their earnings for development and expansion of the
Company's business and do not anticipate paying other cash dividends in the
foreseeable future.
In connection with the Saratoga Acquisition, the Company issued the Notes in
reliance upon the exemptions from registration provided in Section 4(2) and
under Rule 144A of the Securities Act (the Initial Offering). The proceeds of
the Initial Offering were used to finance, in part, the purchase by SAI of all
of the capital stock of KSCO which then owned all of the capital stock of
Fasteners. Following the mergers described in "Business," the Notes became
obligations of Fasteners. Subsequent to the Saratoga Acquisition, the Notes
were exchanged for a like principal amount of New Notes in an exchange offer
registered with the SEC.
On November 26, 1997, in connection with the Saratoga Acquisition, Saratoga and
certain other investors made a $36.6 million equity investment in Holdings (the
Saratoga Investment), consisting of the purchase of (i) 3,655,500 shares of
Common Stock for $0.4 million and (ii) 3,655,500 shares of Series B Preferred
Stock for $36.2 million. Management and the Chairman of the Board of Holdings
rolled over $3.4 million of their stock options in KSCO into options to purchase
Common Stock and Series B Preferred Stock (the Management Investment).
Concurrent with the Initial Offering, Holdings sold, for gross proceeds of $10.0
million, 100,000 Units, each Unit consisting of $100 liquidation preference of
Senior Preferred Stock and one Warrant to purchase Common Stock (the Units
Offering). The net proceeds of the Saratoga Investment, the Management
Investment and the Units Offering totaled $49.5 million, after fees and
related expenses to Holdings of $0.5 million. Holdings contributed such net
proceeds to Fasteners in the form of common equity. Based on the private
nature of these investments and the financial sophistication of the parties
involved, each of these transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act.
Proceeds from each of the above transactions were used to finance the purchase
price of the Saratoga Acquisition, repurchase attaching machinery subject to the
Synthetic Lease, repay the Existing Credit Facility and pay related fees and
expenses.
In February 1998, Holdings sold an additional 1,000,000 shares of each of Common
Stock and Series B Preferred Stock for approximately $10.3 million, which sale
was also exempt from registration pursuant to Section 4(2) of the Securities Act
because of the private nature of the transaction and the financial
sophistication of the purchaser involved. The proceeds from this sale were used
to redeem the outstanding Senior Preferred Stock and Warrants.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
(Dollars in thousands)
The following table presents selected historical financial data of the Company,
Predecessor-KSCO and Predecessor-Alper as of the dates and for the periods
indicated, including the results of operations of acquired companies from their
respective dates of acquisition. The financial data as of December 31, 1997 and
for the period from November 26, 1997 to December 31, 1997 have been derived
from the consolidated financial statements of the Company audited by Arthur
Andersen LLP, independent public accountants. The financial data as of December
31, 1995 and 1996 and for the period from January 1, 1995 to October 17, 1995,
the period from October 17, 1995 to December 31, 1995, the year ended December
31, 1996, and the period from January 1, 1997 to November 26, 1997 have been
derived from the consolidated financial statements of Predecessor-Alper and
17
<PAGE>
Predecessor-KSCO audited by Arthur Andersen LLP, independent public accountants.
The financial data for the year ended December 31, 1994 and 1993 have been
derived from the consolidated financial statements of Predecessor-Alper audited
by Deloitte & Touche LLP, independent auditors. The selected historical
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere herein.
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(Dollars in thousands)
The consolidated financial statements of the Company, the Predecessor-KSCO and
the Predecessor-Alper are not comparable in certain respects.
<TABLE>
<CAPTION>
PREDECESSOR - ALPER |
----------------------------------------------- |
|
YEAR ENDED PERIOD FROM |
------------------------ JANUARY 1, 1995 |
1993 1994 TO OCTOBER 17, 1995 |
----------- ----------- --------------------- |
<S> <C> <C> <C> |
STATEMENT OF OPERATIONS DATA |
|
Net sales $65,066 $65,428 $53,589 |
|
Gross profit 15,988 18,383 13,329 |
|
Operating income 1,480 7,438 5,187 |
|
Income (loss) before income taxes and |
extraordinary loss (3,577) 2,975 1,164 |
|
Net income (loss) available to common stockholders (1) $(3,414) $ 2,341 $ 1,164 |
======= ======= ======= |
<CAPTION> |
PREDECESSOR - ALPER |
--------------------------- |
DECEMBER 31, |
--------------------------- |
1993 1994 |
------------ ------------ |
BALANCE SHEET DATA |
|
Working capital $11,141 $ 7,810 |
Total assets 72,521 76,448 |
Total debt (2) - 14,516 |
Redeemable preferred stock - 19,439 |
Stockholders' equity (3) 37,369 29,043 |
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR - KSCO | COMPANY
-------------------------------------------------------- | ------------------
|
PERIOD FROM YEAR ENDED PERIOD FROM | PERIOD FROM
OCTOBER 17, 1995 DECEMBER 31, JANUARY 1, 1997 TO | INCEPTION TO
TO DECEMBER 31, 1995 1996 NOVEMBER 26, 1997 | DECEMBER 31, 1997
-------------------- ------------ -------------------- | ------------------
<S> <C> <C> <C> | <C>
STATEMENT OF OPERATIONS DATA |
|
Net sales $12,799 $91,632 $89,167 | $6,694
|
Gross profit 3,446 27,032 25,164 | 2,103
|
Operating income 1,380 7,424 7,746 | 627
|
Income (loss) before income taxes and |
extraordinary loss 274 1,021 2,431 | (704)
|
Net income (loss) available to common stockholders (1) $ 116 $ (852) $ 1,319 | $ (781)
======= ======= ======= | ======
|
<CAPTION> |
PREDECESSOR - KSCO | COMPANY
----------------------------- | -------------------
DECEMBER 31, | DECEMBER 31,
----------------------------- | -------------------
1995 1996 | 1997
---------- ------------- | -------------------
BALANCE SHEET DATA |
|
Working capital $ 6,688 $ 17,562 | $ 15,815
Total assets 88,577 103,866 | 226,202
Total debt (2) 41,538 37,718 | 129,848
Redeemable preferred stock - - | 9,400
Stockholders' equity (3) 18,263 21,421 | 31,409
</TABLE>
18
<PAGE>
NOTES TO SELECTED HISTORICAL FINANCIAL DATA
(1) In January 1996, the Company refinanced its previously existing credit
agreements with the Existing Credit Facility, which resulted in an extraordinary
after-tax charge of $950 in the first quarter of 1996 from the write-off of
related deferred financing costs.
(2) Excludes off-balance sheet financing pursuant to the Synthetic Lease,
proceeds of which were applied toward repayment of debt of $31,268 in November
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - General."
(3) Stockholders' equity includes affiliate advances, demand notes and
debentures from Predecessor-Alper's parent at December 31, 1993 and 1994 of
$62,046 and $31,237, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto. All dollar figures have
been rounded to the nearest one-tenth of one million for presentation purposes.
GENERAL
The Company, whose business has been in continuous operation since 1802, is a
designer, manufacturer and distributor of apparel and specialty industrial
fasteners. The Scovill name is the oldest and one of the most well-known brands
in the fasteners industry. The Company has achieved and maintained its
reputation by offering its customers an integrated system of high quality
fasteners, proprietary attaching machines, technical service, on-site
maintenance and customized applications and design services tailored to
individual customer needs. The Company has two main product groups: the Apparel
Group and the Industrial Group. For the periods covered by the financial
statements included in this Report, the Company does not account for the results
of operations of its subsidiaries in the Apparel Group or the Industrial Group.
Revenues include sales of fastener products and rental income from the leasing
of attaching machines to customers. Cost of sales includes the costs of raw
materials, labor and variable and fixed manufacturing overhead. Selling, general
and administrative expenses ("SG&A") consist primarily of salaries and
benefits paid to sales and administrative personnel, commissions, and travel,
marketing and advertising expenses.
On October 17, 1995, Fasteners was acquired by Predecessor-KSCO (referred to as
the "Kohlberg Acquisition"), which was organized by Kohlberg & Co. for the
purpose of acquiring the capital stock of Fasteners. The Kohlberg Acquisition
was accounted for using the purchase method of accounting. Financial information
for periods prior to October 18, 1995 are for Fasteners when it was a wholly-
owned subsidiary of Predecessor-Alper. Similar to the Saratoga Acquisition,
the Kohlberg Acquisition and the related application of purchase accounting
resulted in changes to the capital structure of Predecessor-Alper and the
historical basis of various assets and liabilities. The effect of such changes
significantly impairs the comparability of the financial position and results of
operations of Predecessor-Alper, Predecessor-KSCO and the Company.
The Company ceased operations of the unprofitable zipper product line in late
1995 and sold the line in February 1996. In 1996, the Company relocated the PCI
machine tool business of PCI to Scovill Canada and opened a sales, warehouse and
machine repair center in Torreon, Mexico. A new distribution network was also
established in Asia in late 1996.
During 1996, the Company acquired three companies and integrated their
operations into existing facilities. On January 24, 1996, the Company acquired
Rau, a Rhode Island apparel fastener manufacturer, for $7.9 million and PCI, a
Massachusetts-based eyelet manufacturer, for $15.6 million. The Rau acquisition
expanded the Company's customer base in its existing product offerings. Rau's
Klikit brand was integrated into the Gripper line. In April, Rau's domestic
facility was closed, relocated and integrated into the Company's Clarkesville,
Georgia facility. The Company consolidated the Rau Canada operation with the
Scovill Canada facility. PCI's operations were integrated into the Clarkesville,
Georgia facility in October 1996. In March 1996, the Company also purchased
Daude, a French fastener manufacturer, for $2.5 million, which was integrated
into the Scovill-Europe facility in Belgium in June 1996. The Rau, PCI and Daude
acquisitions were accounted for using the purchase method of accounting and, as
a result, the Company's financial statements include the results of operations
of Rau, PCI and Daude from their dates of acquisition.
19
<PAGE>
In November 1996, the Company refinanced its attaching machinery under a
Synthetic Lease (the "Synthetic Lease") with General Electric Capital
Corporation ("GECC"). Pursuant to the Synthetic Lease, GECC leased to the
Company various fastener equipment, which the Company then subleased to its
customers. The Company originally sold the equipment to GECC for $31.3 million.
The lease was accounted for as an operating lease in accordance with Statement
of Financial Accounting Standards No. 13, "Accounting for Leases." Proceeds
from the Synthetic Lease were used to repay a term loan under the Existing
Credit Facility. The Synthetic Lease was terminated, and the equipment subject
thereto repurchased, in connection with the Transactions. See "Business" and
the Consolidated Financial Statements hereto. The Company entered into the
Synthetic Lease transaction to benefit from the increased short-term liquidity
resulting from the proceeds of the sale of the equipment in November 1996. The
Company decided to terminate the Synthetic Lease because it determined that the
Synthetic Lease would be inconsistent with its global expansion strategy, which
may call for the Company, in certain cases, to sell its attaching machines
(rather than lease them). In addition, rental payments under the Synthetic Lease
were greater than amortization payments on the Term Loan (proceeds of which were
used to repurchase the equipment subject to the Synthetic Lease).
SAI and Holdings, were formed by Saratoga in 1997 to effect the acquisition of
Fasteners. Pursuant to a Stock Purchase Agreement, SAI, a wholly-owned
subsidiary of Holdings, purchased all of the capital stock of Predecessor-KSCO
on November 26, 1997 for a purchase price of approximately $168.8 million less
the amount of indebtedness of the Company existing immediately prior to closing
of the acquisition (including indebtedness that was not repaid in connection
with the Transactions). Concurrently with the acquisition, SAI merged with and
into KSCO, and KSCO merged with and into Fasteners, with Fasteners surviving the
mergers.
The results of operations of the Company and Predecessor-KSCO have been combined
for purposes of discussion of the results of operations for fiscal year 1997.
The results of operations of Predecessor-Alper and Predecessor-KSCO have been
combined for purposes of discussion of the results of operations for fiscal year
1995.
RESULTS OF OPERATIONS
FISCAL YEAR 1997 (COMBINED COMPANY AND PREDECESSOR-KSCO)
COMPARED WITH FISCAL YEAR 1996
Net Sales Net sales increased $4.3 million, or 4.6%, from $91.6 million to
$95.9 million. The increase of $1.9 million, or 2.0%, was attributable, in part,
to receipt of revenues from the former Rau and PCI operations for a full twelve
months in 1997, compared to approximately eleven months of revenues in 1996,
measured from the dates of acquisition. Strong jeans and denimwear orders also
contributed approximately $1.7 million, or 1.8%, of additional overall Apparel
Group sales. The Company's international subsidiaries also experienced increased
sales, resulting from the acquisition of Daude. These increases were partially
offset by initial sales declines resulting from customer concerns relating to
publicized workforce unrest due to the relocation of the PCI operations from New
Bedford, Massachusetts to Clarkesville, Georgia during the latter part of 1996.
The PCI facility in New Bedford was closed in October 1996. Employees of this
facility who were not relocated or chose not to be relocated received severance
and other benefits subject to the shutdown agreement negotiated between the
labor union representing the employees and the Company. The Company no longer
has any employees in New Bedford.
20
<PAGE>
Gross Profit Gross profit increased $.3 million, or 0.9%, from $27.0 million
to $27.3 million. Gross margin decreased from 29.5% to 28.4%. The cost of goods
sold in 1997 includes rental expense of $4.7 million related to the Synthetic
Lease. Without the effect of the Synthetic Lease transaction, gross profit would
have increased by an additional $.9 million to $28.2 million, and gross margin
would have increased to 29.4%, of which $0.8 million resulted primarily from the
Company's relocation and integration of operations from the Rau, PCI and Daude
acquisitions during 1996. In the case of the Rau and PCI integrations,
additional manufacturing volume at the Clarkesville facility absorbed a greater
portion of fixed costs.
Selling, General and Administrative Expenses SG&A decreased $1.3 million, or
7.2%, from $17.1 million to $15.8 million. The decrease was primarily
attributable to reductions, in late 1996, in the number of salespeople after
integration of the Rau and PCI operations and the related decrease in travel,
advertising and commission expenses. SG&A was 16.5% of net sales for 1997
compared to 18.6% for 1996.
Operating Income Operating income increased $1.0 million, or 12.8%, from $7.4
million to $8.4 million. The increase was primarily attributable to acquisitions
stemming from SG&A reductions and increased volume.
Interest Expense Interest expense decreased $1.0 million, or 17.5%, from
$5.9 million to $4.9 million. This decrease was attributable to the repayment of
indebtedness with proceeds from the Synthetic Lease. Interest expense was $1.2
million from November 26, 1997 through December 31, 1997 as a result of the
Initial Offering and the Term Loan used to finance the Saratoga Acquisition.
Income Tax Provision The provision for income taxes was $1.1 million in 1997
compared to $.9 million for 1996.
Net Income Net income for 1997 was $.5 million compared to a loss of $.9
million in 1996 (all of which was attributable to an extraordinary loss related
to the early extinguishment of debt in January 1996). The remaining impact was
attributable to the factors discussed above.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 (COMBINED PREDECESSOR-KSCO AND
PREDECESSOR-ALPER)
Net Sales Net sales increased $25.2 million, or 38.0%, from $66.4 million to
$91.6 million. This increase was primarily attributable to increased sales
volume as a result of the 1996 acquisitions of Rau, PCI and Daude. The Rau
acquisition increased revenues in both apparel and industrial fasteners. The PCI
acquisition was a product line extension that increased industrial fastener
sales. Finally, the Daude acquisition, also a product line extension in Europe,
increased the Company's European sales.
Gross Profit Gross profit increased $10.2 million, or 61.1%, from $16.8
million to $27.0 million. Gross margin increased from 25.3% to 29.5%. The
increases in gross profit and margin were primarily the result of the Company's
acquisitions in early 1996. The Rau and Daude facilities were operated until
April 1996 and June 1996, respectively, when operations from the Rau facility
were relocated to the Company's main manufacturing facility in Clarkesville and
the Daude operations were relocated to the Company's facility in Belgium. The
PCI facility was operated through October 1996. To a lesser extent, the
Company's increases in gross profit reflected absorption of a greater percentage
of fixed costs at the Clarkesville facility as a result of relocating the
acquired operations.
Selling, General and Administrative Expenses SG&A increased $7.4 million, or
76.7%, from $9.6 million to $17.1 million. The increase was a result of the
addition of administrative and selling personnel from the acquired companies.
SG&A was 18.6% of net sales for 1996 compared to 14.5% for 1995. This increase
was due to the expenses related to duplicate functions and administrative
operations of the acquired businesses prior to their integration into the
Company's existing operations.
21
<PAGE>
Operating Income Predecessor-KSCO's operating income for 1996 was $7.4 million
compared with Predecessor-KSCO's $1.4 million for the period from October 17,
1995 to December 31, 1995, or $6.6 million on an annualized basis. The increase
was attributable to the Company's acquisitions and increased sales volume in
1996.
Interest Expense Predecessor-KSCO's interest expense for 1996 was $6.0 million
compared with Predecessor-KSCO's $0.9 million for the period from October 17,
1995 to December 31, 1995, or $4.3 million on an annualized basis. This increase
was primarily attributable to the additional debt incurred under the Existing
Credit Facility in January 1996 in connection with the Rau and PCI acquisitions.
Income Tax Provision Predecessor-KSCO's income tax provision for 1996 was $0.9
million compared with Predecessor-KSCO's $0.2 million for the period from
October 17, 1995 to December 31, 1995, or $0.8 million on an annualized basis.
Net Income Predecessor-KSCO's net loss for 1996 was $0.9 million (all of
which was attributable to an extraordinary item related to the extinguishment of
debt in connection with the Rau and PCI acquisitions) compared with Predecessor-
KSCO's net income of $0.1 million for the period from October 17, 1995 to
December 31, 1995, or $0.6 million on an annualized basis.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company derived its cash from funds generated by operations
and from third-party financings, including the Existing Credit Facility. As of
December 31, 1997, no borrowings were outstanding under the Revolving Credit
Facility. In December 1997, the Company issued $100 million of Notes in the
Initial Offering. The proceeds of the Initial Offering were used to finance, in
part, the purchase by SAI of all of the capital stock of KSCO which then owned
all of the capital stock of the Company. The Company's liquidity requirements
consist primarily of scheduled payments of principal and interest on its
indebtedness, working capital needs and capital expenditures. The Company
believes that its operating cash flow, together with borrowings under the New
Credit Facility, will be sufficient to meet its operating expenses and capital
requirements, and its debt service requirements through 1998.
Capital Expenditures
The Company's capital expenditures during 1997 aggregated approximately $37.5
million, of which $30.2 million represented the repurchase of attaching machines
previously under the Synthetic Lease. Other expenditures were primarily for
reconditioning and purchases of attaching machines and plant machinery and
equipment. Capital expenditures for 1998 and 1999 are expected to be less than
$5.0 million per year.
Cash Flows
Net cash provided in the Company's operating activities was $4.3 million for
1997. Principal working capital changes included increases of $1.9 million and
$5.8 million in accounts receivable and inventory, respectively. The Company's
cash used in investing activities during 1997 was $143.2 million related
principally to the Saratoga Acquisition of $94.6 million, repayment of the
Synthetic Lease and capital expenditures. Net cash provided by financing
activities was $142.7 million, reflecting $128.0 million of debt issued in
connection with the Saratoga Acquisition and $29.5 million of the issuance of
Holdings' preferred stock and $20.0 million of the issuance of Common Stock.
Net cash used by the Company's operations in 1996 was $1.4 million. Principal
working capital changes included a $6.2 million increase in inventory, a $4.0
million decrease in accrued liabilities and a $3.0 million increase in accounts
payable. The Company's cash provided by investing activities during 1996 was
$2.6 million, of which $31.3 million represented proceeds from the Synthetic
Lease transaction, net of $25.3 million related to the Rau and PCI acquisitions,
including acquisition costs. Additionally, the Company had capital expenditures
of $5.7 million. Net cash used in financing activities was $1.0 million,
reflecting a net decrease in borrowings under the Credit Facility of $5.0
million and $4.0 million related to the issuance of the Company's common stock.
22
<PAGE>
The Indenture and the New Credit Facility place significant restrictions on the
Company's ability to incur additional indebtedness, pay dividends or repurchase
stock or make other distributions, create liens, make certain investments, sell
assets, or enter into mergers or consolidations.
Impact of the Transactions
The Transactions had a material impact on the Company's financial condition and
will have a material impact on the Company's results of operations and cash
flows. The Transactions resulted in the Company's consolidated total long-term
debt increasing from $40.1 million (excluding off-balance sheet financing
pursuant to the Synthetic Lease of $31.3 million) to $129.9 million and its
stockholders' equity increasing from $22.8 million to $31.4 million. The
Transactions will result in increased amortization, depreciation, and interest
expense. Scheduled debt repayments are $1.5 million in 1998, $3.3 million in
1999, $5.3 million in 2000, $6.2 million in 2001, $6.0 million in 2002 and
$107.2 million (including the Notes) thereafter.
In addition, the Saratoga Acquisition was reflected using purchase accounting,
with the excess of the purchase price over the fair value of the Company's
identifiable net assets (such excess represents $86.2 million) being classified
as goodwill. Therefore, the amortization expense of the Company is significantly
higher than the amortization expense of Predecessor-KSCO.
INFLATION
Inflation had a nominal impact on operations during the last three years.
Increases in operating costs were consistent with the general inflation rate and
were offset by management cost control measures and productivity improvements.
HEDGING ACTIVITIES
Since late 1995, the Company has entered into certain hedging transactions
regarding its raw material purchases. The Company regularly purchases copper and
zinc call and put options that are regularly traded on exchanges. These
transactions (commonly referred to as "Bull Spreads") attempt to effectively
ensure maximum and minimum net purchase costs. At December 31, 1997, the Company
had outstanding (i) call options covering 2,175,000 pounds of copper, expiring
from January through July 1998 with exercise prices ranging from $0.89 to $1.188
per pound, and (ii) put obligations covering 1,450,000 pounds of copper,
expiring from January through July 1998 with exercise prices of $0.765 per
pound. At December 31 , 1997, the Company also had outstanding (i) call options
covering 1,450,000 pounds of zinc, expiring from January 1998 through January
1999 with exercise prices ranging from $0.566 to $0.612 per pound, and (ii) put
obligations covering 1,450,000 pounds of zinc, expiring from January 1998
through January 1999 with exercise prices ranging from $0.555 to $0.5216 per
pound. At December 31, 1997, the fair market value of the outstanding copper and
zinc put and call options was $(157,000). For the year ended December 31, 1997
and 1996, hedging activities resulted in trading gains/losses (reflected in cost
of sales) of $69,000 gain and $143,000 loss, respectively. See Note 2 to the
audited financial statements.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish twenty-first century dates from twentieth century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance.
The Company has performed an initial evaluation of its information systems for
Year 2000 compliance and is modifying its information systems to accurately
process information that includes the year 2000 date and beyond (the "Year 2000
Project"). The Company incurred approximately $650,000 in costs related to
23
<PAGE>
systems implementation in 1997. The Company believes that future costs of the
Year 2000 Project, expected to be less than $500,000 in 1998, will not have a
material impact on the Company's results of operations, financial condition or
cash flows. Such implementation is expected to be completed in June 1998.
Although the Company's initial evaluation did not reveal material operational
issues or costs associated with preparing its information systems for the Year
2000, there can be no assurances that the Company will not experience serious
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in its information systems. The
failure to fully identify all Year 2000 dependencies in the Company's
information systems to make them Year 2000 compliant could have an adverse
effect on future results of operations.
In addition to making its own systems Year 2000 ready, the Company also will
contact its key suppliers and customers to determine the extent to which the
systems of such suppliers and customers are Year 2000 compliant and the extent
to which the Company could be affected by the failure of such third parties to
be Year 2000 compliant. The Company cannot presently estimate the impact of the
failure of such third parties to be Year 2000 compliant.
ACQUISITIONS
The Company intends to pursue attractive acquisition opportunities that provide
products and services that complement those currently offered by the Company or
enhance the ability of the Company to increase efficiencies or achieve cost
savings. Depending upon the nature, size and timing of future acquisitions, the
Company may be required to raise additional capital. The Company expects that a
substantial portion of the financing of any acquisition would be additional
indebtedness. Additional indebtedness incurred to finance acquisitions could
adversely affect the Company's liquidity and financial condition. There can be
no assurance that the New Credit Facility, the Indenture or any other loan
agreements to which the Company may become a party or subject to will permit
such additional financing or that such additional financing will be available to
the Company on terms acceptable to its management or at all. The timing, size or
success of any acquisition effort and the associated potential capital
commitments are currently not known, and there can be no assurance that the
Company will be able to successfully identify suitable acquisition candidates,
obtain financing on satisfactory terms, complete acquisitions, integrate
acquired operations into its existing operations or expand into new markets.
Also, once integrated, an acquisition may not achieve anticipated levels of
revenue, profitability or productivity or otherwise perform as expected. While
there can be no assurance, based on current facts and circumstances, management
believes it has adequate cash flows and financing alternatives to fund its
current operations and to implement its acquisition strategy.
ACCOUNTING STANDARDS
In 1997, the FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure
all changes in equity that result from transactions and other economic events
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. SFAS 131 introduces a new
segment reporting model called the "management approach." The management
approach is based on the manner in which management organizes segments within a
company for making operating decisions and assessing performance. The management
approach replaces the notion of industry and geographic segments. The Company
will adopt SFAS 130 and SFAS 131 in fiscal year 1998. Management believes
adoption of SFAS 130 and SFAS 131 will not significantly affect the Company's
financial position or results of operations. The adoption of SFAS 131 will
affect presentation of the Company's operating results within the footnotes of
the financial statements.
"SAFE HARBOR " STATEMENT
The following "Safe Harbor Statement" is made pursuant to the Private Securities
Litigation Reform Act of 1995. Certain of the statements contained in the body
of this Report are forward-looking statements (rather than historical facts)
24
<PAGE>
that are subject to risks and uncertainties that could cause actual results to
differ materially from those described in the forward-looking statements. With
respect to such forward-looking statements, the Company seeks the protections
afforded by the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements are based on management's current plans and expectations and
are subject to a number of uncertainties that could cause actual results to
differ materially from those described in such statements. Such uncertainties
and risks include, but are not limited to: the highly leveraged nature of the
Company, its substantial debt service requirements and the substantial operating
and financing restrictions on the Company by the terms of the New Credit
Facility, the Indenture, and the other agreements governing the Company's
indebtedness; the risks and uncertainties inherent in doing business abroad and
the possible negative impact of the North American Free Trade Agreement (NAFTA)
on the Company's sales in the U.S. market; the availability of, and the ability
to close and finance acquisition opportunities on terms acceptable to the
Company; the volatility of the price of raw materials; increasing competition;
reliance on key personnel; increasingly complex and stringent environmental laws
and regulations; delays or difficulties associated with systems conversion and
Year 2000 compliance; and general economic conditions. The preceding list of
uncertainties, however, is not intended to be exhaustive, and should be read in
conjunction with other cautionary statements made herein and in the Company's
publicly-filed reports and its Form S-1 Registration Statement, dated December
24, 1997 (Commission File No. 333-43195), and all amendments thereto (the
"Registration Statement"), including, but not limited to the "Risk Factors" set
forth in the Registration Statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the general instructions to Rule 305 of SEC Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 7a and by Rule
305 of SEC Regulation S-K are inapplicable to Holdings and Fasteners at this
time.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required by
this item are filed as part of this Report on pages F-1 through F-22 and pages
S-1 and S-2 immediately preceding the signature page to this Report.
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Directors
Set forth below are the names, ages as of December 31, 1997, and a brief account
of the business experience of each person who serves as an executive officer or
director of Fasteners. The executive officers and directors of Holdings are
the same as those of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------- ---------- -------------------------------------
<S> <C> <C>
David J. Barrett 47 President, Chief Executive Officer
and Director
Martin A. Moore 38 Executive Vice President, Treasurer,
Chief Financial Officer and Secretary
Michael Baxley 40 Executive Vice President-Apparel
Group
John Champagne 49 Executive Vice President-Industrial
Group
Robert Feltz 48 Executive Vice President-Business
Development
William F. Andrews 66 Chairman of the Board
Christian L. Oberbeck 38 Director
Charles P. Durkin, Jr. 58 Director
</TABLE>
Mr. Barrett has been with the Company since November 1991, when he joined as
Vice President of Operations. Mr. Barrett has been President and CEO since
1995. He has also served as Executive Vice President of Operations. Prior to
joining the Company, Mr. Barrett held various manufacturing, operational and
administrative positions with the Newell Company and Continental Group, Inc.
Mr. Moore joined the Company as Director of Finance in February 1992. He has
also served as the Vice President of Finance and the Vice President of Finance
and Administration. Mr. Moore was promoted to Executive Vice President/Chief
Financial Officer in 1997. Prior to joining the Company, Mr. Moore held various
financial, controller and manufacturing positions with Frantschach AG, Quality
Forms, Inc. and Society Corporation.
Mr. Baxley joined the Company as Executive Vice President - Sales and Marketing
in February 1997. Mr. Baxley became Executive Vice President - Apparel Group in
April 1997. Prior to joining the Company, Mr. Baxley served as Senior Vice
President and General Manager of ACD Tridon, Inc. from 1994 to 1996. He was also
Vice President of Marketing for Johnston & Murphy (a division of Genesco) from
1992 to 1994. Prior to 1992, Mr. Baxley held various positions with Procter and
Gamble and the United States Navy.
Mr. Champagne joined the Company as Vice President of Manufacturing in 1996. He
was named Executive Vice President--Industrial Group in 1997. Before joining the
Company, Mr. Champagne worked at Rau Fastener, Inc. from 1968 to 1995, serving
as President and Director from 1988 to 1995. He also served as President of Rau
Fasteners, LLC from 1995 to 1996.
Mr. Feltz joined the Company as National Sales and Service Manager in 1980. He
was named Executive Vice President - Business Development in September 1997. He
has also served as Vice President of Sales and Marketing Worldwide. Prior
thereto, he worked at Talon, Inc., a zipper manufacturer.
Mr. Andrews has been Chairman of the Company's Board of Directors since 1996.
From 1981 to 1986, he was Chairman, President and Chief Executive Officer of
Scovill Manufacturing, Co., where he worked for more than 20 years. Mr. Andrews
is also Chairman of Schrader-Bridgeport International Inc., a manufacturer of
tire valves and pressure control devices. From 1993 to 1995, Mr. Andrews was
Chairman and Chief Executive Officer of Amdura Corporation, a manufacturer of
hardware and industrial equipment. From 1990 to 1992, he was President and Chief
Executive Officer of UNR Industries, Inc., a diversified manufacturer of steel
26
<PAGE>
products. Prior to 1990, Mr. Andrews was President of Massey Investment Company
and Chairman, President, and Chief Executive Officer of Singer Sewing Company.
Mr. Andrews is also a director of Black Box Corporation; Corrections Corporation
of America; Johnson Controls, Inc.; Katy Industries; Navistar, Inc.;
Northwestern Steel and Wire Co.; and Southern New England Telephone Company.
Mr. Oberbeck became a director of the Company upon consummation of the Saratoga
Acquisition and is a member of the Executive Committee of the Board of
Directors. Mr. Oberbeck has been a Managing Director of SBC Warburg Dillon Read
Inc. ("Dillon Read") since September 1997. From February 1995 to September
1997, Mr. Oberbeck was a Managing Director of Dillon Read. Prior to joining
Dillon Read, Mr. Oberbeck was a Managing Director of Castle Harlan, Inc., where
he worked from October 1987 until February 1995. He is a member of the Saratoga
Partners Investment Committee and a director of J&W Scientific Incorporated, USI
Holdings Corporation, Equality Specialties, Inc. and Koppers Industries, Inc.
Mr. Durkin became a director of the Company in February 1998 and is a member of
the Executive Committee of the Board of Directors. Mr. Durkin joined Dillon Read
in 1966 and is currently a Managing Director of SBC Warburg Dillon Read Inc.
which acquired Dillon Read in September 1997. Since November 1994, he has been
responsible for the management of corporate buyout funds managed by Dillon Read:
Saratoga Partners, L.P.; Saratoga Partners II, L.P.; and Saratoga Partners III,
L.P. Mr. Durkin is also currently a Director of Viking Office Products, Inc. Mr.
Durkin's nomination as a director of the Company was designated by Saratoga
Partners III, L.P. under the terms of the Stockholders' Agreement.
Board Designations
Pursuant to a Stockholders Agreement among Holdings and certain investors and
members of management, until at least 25% of the Common Stock is publicly
traded, (i) David J. Barrett will be elected to serve as a director for so long
as he shall be an officer and an employee of Holdings or of a Subsidiary
thereof, (ii) Moore Investments, Ltd. and Remington Investment Strategies, L.P.
together will have the right to designate one member of the Board of Directors
of Holdings so long as such investors together hold at least 50% of their
original investment in Holdings, (iii) Saratoga will have the right to designate
up to five directors and (iv) Co-Investment Partners, L.P. ("Co-Investment
Partners") has the right to receive notice of all meetings of the Board of
Directors of Holdings and to have a representative attend such meetings so long
as it holds at least 50% of its original investment in Holdings.
ITEM 11. EXECUTIVE COMPENSATION
Employment Agreements
In order to assure the continued service of executive management, the Company
has entered into employment agreements ("Employment Agreements") with Messrs.
Barrett, Moore, and Feltz (each, an "Executive," and together, the
"Executives"). Each of these Employment Agreements became effective upon
consummation of the Transactions. Mr. Barrett serves as Chief Executive Officer
of the Company and has an annual salary of $243,750. Mr. Moore serves as Chief
Financial Officer of the Company and has an annual salary of $187,813. Mr. Feltz
serves as Executive Vice President - Business Development of the Company and has
an annual salary of $156,250. Each contract has a three-year term and renews
annually for successive one-year periods, subject to termination upon notice by
either party. Salary for such renewal periods is to be negotiated between the
Executive and the Company. The Employment Agreements also provide for the
payment of an amount equal to two times the annual base salary of the Executive
("Incentive Payment") upon the occurrence of an "Incentive Event." An
"Incentive Event" is generally defined as either a sale of substantially all
of the Company's assets or over 50% of its common stock, or any transaction
whereby Saratoga or any of its affiliates no longer controls the Board of
Directors. Each Executive is entitled to participate in the Company's benefit
plans for senior executives and receives certain fringe benefits, including a
car, personal computer and cellular telephone.
If the Company terminates the employment of any of the Executives without Cause
(as defined in the Employment Agreements) or if an Executive terminates his
27
<PAGE>
employment with the Company for a specific reason set forth in the Employment
Agreements, the Executive is entitled to receive a severance payment, equal to
the greater of (1) two times the Executive's annual base salary on that date and
(2) the remainder of the base salary to be paid under the initial three-year
term of the Executive's Employment Agreement. If the Executive voluntarily
terminates his employment (other than for specifically enumerated reasons) or
the Executive's employment is terminated by the Company for Cause, the Company
is not obligated to make a severance payment to the Executive. In addition, each
Executive has agreed to not compete with the Company during the period of his
employment and for 18 months following the termination of his employment, unless
the termination is without Cause, and to comply with confidentiality covenants.
In the event that the Company terminates the employment of any of the Executives
without Cause or an Executive terminates his employment with the Company for a
specific reason set forth in his Employment Agreement in anticipation or in
connection with certain transactions or within the two-month period prior to
completing certain transactions, the Executive is entitled to receive the
Incentive Payment, provided that any severance payments to which the Executive
is entitled upon termination of employment is reduced by the full amount of the
Incentive Payment.
The preceding description of the Employment Agreements is intended only as a
summary and is qualified in its entirety by reference to the Employment
Agreements, which have been filed as exhibits to this Report and are
incorporated herein by reference.
BOARD MEMBER COMPENSATION
The Company may compensate the members of the Board of Directors who are not
full-time employees of the Company on an annual and per meeting basis, in an
amount and on a basis as may be determined in the future. The Company also may
compensate members of committees of the Board of Directors for each Committee
meeting attended. Directors of the Company receive reimbursement of their
reasonable out-of-pocket expenses incurred in connection with their board
activities. The Company intends to purchase directors' and officers' insurance
for its executive officers and directors, assuming that such insurance is
available on commercially reasonable terms.
NEW INCENTIVE STOCK OPTION PLAN
The Company has established a new stock option plan (the "New Plan") for key
executives and managers which provides for the grant of stock options
("Options") to purchase 588,329 shares of the Common Stock of Holdings. The
New Plan has the following terms: Options granted under the New Plan will have
an exercise price equal to the fair market value of the stock underlying the
Option on the date of the grant, which exercise price will increase annually at
a rate of 9% of the value of the unit (each unit consisting of one share of
Common Stock and one share of Series B preferred stock), and Options will vest
over a period of 5 years commencing on the first anniversary of the date of the
grant. Vested options may be exercised by payment of the exercise price in cash
or, if approved by Holdings' stock option committee, by delivery of a promissory
note. Upon a participant's termination of employment for cause, all of such
participant's Options will immediately expire. If a participant's employment
terminates by reason of (i) death, (ii) disability, (iii) retirement or (iv)
voluntary resignation or termination of employment other than for cause, the
participant's unvested Options will immediately expire and such participant's
vested Options will remain exercisable for a period of 90 days.
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table contains information concerning the
compensation provided by the Company in 1996 and 1997 to its Chief Executive
Officer and the four other executives other than the Chief Executive officer
(together, the "Named Executive Officers") of the Company.
28
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- LONG TERM
COMPENSATION
--------------------
SECURITIES
UNDERLYING All Other
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- ----------------------------------- --------- ---------------- ---------- -------------------- -------------------
<S> <C> <C> <C> <C> <C>
David J. Barrett 1997 $189,338 $51,000 --------- $ 4,750 (1)
President and Chief Executive 1996 167,916 -------- --------- 4,197 (2)
Officer
Martin A. Moore 1997 149,490 27,000 --------- 4,750 (3)
Executive Vice President and 1996 129,375 -------- --------- 3,234 (2)
Chief Financial Officer
Michael S. Baxley (4) 1997 149,149 ------- 161,500 (5) 14,798 (6)
Executive Vice President -
Apparel Group
John H. Champagne 1997 133,907 65,000 80,500 (5) 853 (7)
Executive Vice President - 1996 119,356 45,000 -------- 10,833 (8)
Industrial Group
Robert W. Feltz 1997 137,611 25,000 -------- 10,068 (9)
Executive Vice President - 1996 124,398 ------- -------- 43,365 (10)
Business Development
</TABLE>
(1) Represents matching contributions made by the Company to Mr. Barrett's
account under the Company 401(k) plan.
(2) Represents matching contributions made by the Company to the Named Executive
Officers' accounts under the Company's 401(k) plan.
(3) Represents matching contributions made by the Company to Mr. Moore's account
under the Company 401(k) plan.
(4) Mr. Baxley joined the Company in February 1997.
(5) Represents options issued by Predecessor-KSCO in February 1997.
(6) Includes reimbursement for relocation expenses ($12,895) and matching
contributions made by the Company to Mr. Baxley's account under the Company's
401(k) plan ($1,903).
(7) Represents matching contributions made by the Company to Mr. Champagne's
account under the Company 401(k) plan.
(8) Represents reimbursement for relocation expenses.
29
<PAGE>
(9) Includes reimbursement for the office relocation to home office ($6,000) and
matching contributions made by the Company to Mr. Feltz's account under the
Company's 401(k) plan ($4,068).
(10) Includes reimbursement for relocation expenses ($40,256) and matching
contributions made by the Company to Mr. Feltz's account under the Company's
401(k) plan ($3,109).
The following table presents information regarding options granted to the
Company's Named Executive Officers during fiscal 1997 to purchase shares of
Common Stock. The Company has no outstanding stock appreciation rights ("SARs")
and granted no SARs during fiscal 1997. In accordance with SEC rules, the table
shows the hypothetical "gains" or "option spreads" that would exist for the
respective options based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
Individual Grants Realizable Value
------------------------------------------------------------ At Assumed Annual
Number of Rates of Stock Price
Securities Percent of Appreciation for
Underlying Total Options Option Term
Options Granted to Exercise Price Expiration --------------------
Name Granted(1) Employees Per Share Date 5% 10%
- --------------------- ---------- ------------- -------------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Michael S. Baxley 161,500 66.7% $2.50 02/2000 $467,391 $537,391
John H. Champagne 80,500 33.3% $2.50 02/2000 $232,972 $267,864
</TABLE>
(1) Vest in 33% increments on the first, second and third anniversaries of the
date of grant, if named executive officer meets certain performance targets in
each such year, or earlier upon a change in control of the Company.
The following table sets forth information concerning the exercise of stock
options in 1997 by, and the value of unexercised options held at December 31,
1997 by, the Named Executive Officers.
FISCAL YEAR-END STOCK TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE
OPTIONS AT DECEMBER MONEY OPTIONS AT
SHARES OF KSCO 31, 1997 (1) DECEMBER 31, 1997
--------------------- ------------------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ----------------------- --------------------- ----------------- ------------------------ ------------------------------
<S> <C> <C> <C> <C>
David J. Barrett 160,523 $964,099 107,472/0 $ 800,000/0
Martin A. Moore 95,036 525,702 87,322/0 650,000/0
Robert W. Feltz 105,772 630,702 73,216/0 545,000/0
Michael S. Baxley 59,249 175,702 134,341/0 1,000,000/0
John H. Champagne 50,099 288,033 40,302/0 300,000/0
</TABLE>
(1) Options are exercisable for the number of units set forth in the table, each
unit consisting of one share of Common Stock and one share of Series B Preferred
Stock. The share numbers reflect options the Company expects to issue pursuant
to option agreements that have not been executed, but which the Company believes
will be consummated (and effective for purposes of fiscal year 1997) in the
second quarter of 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock at March 15, 1998 of (i) each person known by
Holdings to own beneficially 5% or more of the Common Stock, (ii) each current
director of Holdings, (iii) each Named Executive Officer and (iv) all current
directors and executive officers of Holdings as a group. According to rules
adopted by the SEC, a person is the "beneficial owner" of securities if he or
she has or shares the power to vote them or to direct their investment or has
the right to acquire beneficial ownership of such securities within 60 days
through the exercise of an option, warrant, right of conversion of a security or
otherwise. Except as otherwise noted, the indicated owners have sole voting and
investment power with respect to shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
- ---------------------------------------------------------------------------------------------------------------
OWNED
- ---------------------------------------------------------------------------------------------------------------
NUMBER OF PERCENT
- ---------------------------------------------------------------------------------------------------------------
NAME SHARES OF CLASS
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Saratoga Partners III, L.P. (1) 3,127,500 67.2
- ---------------------------------------------------------------------------------------------------------------
Co-Investment Partners, L.P. (2) 1,000,000 21.5
- ---------------------------------------------------------------------------------------------------------------
Moore Global Investments, Ltd./ Remington Investment
Strategies, L.P. (3) 700,000 15.0
- ---------------------------------------------------------------------------------------------------------------
WLD Partners, Ltd. (4) 400,000 8.6
- ---------------------------------------------------------------------------------------------------------------
William F. Andrews (5) 20,151 *
- ---------------------------------------------------------------------------------------------------------------
Charles P. Durkin, Jr. (1) 3,127,500 67.2
- ---------------------------------------------------------------------------------------------------------------
Christian L. Oberbeck (1) 3,127,500 67.2
- ---------------------------------------------------------------------------------------------------------------
David J. Barrett (5) 107,472 2.3
- ---------------------------------------------------------------------------------------------------------------
Martin A. Moore (5) 87,322 1.9
- ---------------------------------------------------------------------------------------------------------------
Michael S. Baxley (5) 134,341 2.9
- ---------------------------------------------------------------------------------------------------------------
John H. Champagne (5) 40,302 *
- ---------------------------------------------------------------------------------------------------------------
Robert Feltz (5) 73,216 1.6
- ---------------------------------------------------------------------------------------------------------------
All directors and executive officers as a group (10 persons) (6) 3,590,304 77.1
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
* Less than one percent.
(1) Includes (i) 320,914 shares held by Saratoga Partners III, C.V. and (ii)
672,000 shares held by Co-Investment Partners L.P. with respect to which
Saratoga has sole voting power pursuant to the Voting Agreement (see
"Certain Transactions - Voting Agreement"). Saratoga's address is 535
Madison Avenue, New York, New York 10022. Saratoga's general partner is
DR-Associates IV, L.P., of which the general partner is Dillon Read Inc.
Dillon Read Inc. is a wholly-owned subsidiary of SBC Warburg Dillon Read
Inc., which is a wholly-owned subsidiary of Swiss Bank Corporation.
Saratoga has authorized Messrs. Durkin and Oberbeck, directors of the
Company, to vote the shares of Common Stock held by Saratoga. Messrs.
Durkin and Oberbeck disclaim beneficial ownership of the shares of Common
Stock held by Saratoga.
(2) The address of Co-Investment Partners is 660 Madison Avenue, New York, New
York 10021. Pursuant to the Voting Agreement described in "Item 13--Voting
Agreement", Co-Investment Partners L.P. has granted Saratoga sole voting
power with respect to 672,000 of such shares.
(3) The address of Moore Global Investments, Ltd., ("MGI") is c/o Citco Funds
Services (Bahamas) Ltd., Bahamas Financial Centre, P.O. Box CB-13136,
Nassau Bahamas. The address of Remington Investment Strategies, L.P.
("Remington") is 1251 Avenue of the Americas, 53rd Floor, New York, New
York 10020. Moore Capital Management, Inc., a Connecticut corporation, is
vested with investment discretion with respect to portfolio assets held for
the account of MGI. Moore Capital Advisers, L.L.C., a New York limited
liability company, is the sole general partner of Remington. Mr. Louis M.
Bacon is the majority shareholder of Moore Capital Management, Inc. and is
the majority shareholder of Moore Capital Management, Inc. and is the
majority equity holder of Moore Capital Advisors, L.L.C. As a result, Mr.
Bacon may be deemed to be the indirect beneficial owner of the aggregate
700,000 shares held by MGI and Remington. Mr. Martin Moore is not
affiliated with any of the entities set forth above.
(4) The address of WLD Partners, Ltd. is Las Olas Centre, 450 East Las Olas
Boulevard, Suite 900, Fort Lauderdale, Florida 33301.
(5) Represents Common Stock issuable upon exercise of options to purchase
Common Stock.
(6) Includes 3,127,500 shares owned and/or voted by Saratoga and as to which
Messrs. Durkin and Oberbeck exercise voting power. Messrs. Durkin and
Oberbeck disclaim beneficial ownership of such shares. See footnote 1
above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH KOHLBERG
From October 1995 through November 26, 1997, the Company paid an aggregate of
$939,000 in management fees to Kohlberg & Co., pursuant to a management services
agreement that was terminated effective as of the closing of the Saratoga
Acquisition. In January 1996, the Company paid an advisory fee of $1.0 million
to Kohlberg & Co. in conjunction with the acquisition of PCI and Rau.
TRANSACTIONS WITH SARATOGA
In connection with the Transactions, the Company paid a transaction fee of $1.75
million to an affiliate of Saratoga in consideration for advisory services
related to the structuring and financing of the transaction. The Company
entered into an agreement with Saratoga, pursuant to which the Company will pay
a management fee of $150,000 per quarter to Saratoga (the "Management Services
Agreement"). In addition, Saratoga will provide the Company advisory services
with significant business transactions, such as acquisitions, for which the
Company will pay Saratoga compensation comparable for similarly situated
31
<PAGE>
companies. No management fees were paid to Saratoga from the period November 26,
1997 to December 31, 1997.
THE SARATOGA ACQUISITION
In connection with the Transactions, affiliates of Kohlberg & Co.'s other
existing stockholders received an aggregate of approximately $98.1 million.
Members of management received aggregate proceeds of approximately $2.6 million
in cash in consideration for their stock options in KSCO, excluding the $3.3
million that was rolled over into options to purchase Common Stock and Series B
Preferred Stock. Certain members of management entered into employment
agreements with the Company. In addition, William F. Andrews, the Chairman of
the Board, received proceeds of approximately $1.8 million in cash in
consideration for his stock and stock options of KSCO, excluding the $150,000
that was rolled over into options to purchase Common Stock and Series B
Preferred Stock.
STOCKHOLDERS AGREEMENT
Effective with the consummation of the Transactions, Holdings and its
stockholders and optionholders entered into a Stockholders Agreement. The
following summary of certain provisions of the Stockholders Agreement does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Stockholders Agreement, which has been filed as an exhibit
to this Report and is hereby incorporated by reference herein. Capitalized
terms not defined below have the meanings given to them in the Stockholders
Agreement.
Put and Call of Management Equity
Any Management Party who elects to resign his employment with the Company and
who does so within thirty (30) days following the second anniversary of the
consummation of the Transactions will be entitled to require Holdings to
repurchase, at their Fair Market Value, the stock options (or shares issued upon
exercise of such options) in Holdings rolled over from stock options in KSCO
(the "Rollover Equity"). In addition, upon the death or permanent disability of
any Management Party, such Management Party (or his estate) will be entitled to
require Holdings to repurchase, at their Fair Market Value, the Rollover Equity
and any vested options. Holdings can require any Management Party to sell, at
Fair Market Value, the stock options and Shares held by him upon any termination
of employment of such Management Party for Cause. Finally, in the event of any
termination of employment of any Management Party other than for Cause, such
Management Party will be entitled to require Holdings to repurchase, at their
Fair Market Value, that portion of the Rollover Equity that would allow him to
recover the cost of his Rollover Equity plus interest at the applicable federal
rate. These repurchase arrangements are subject to restrictions in the New
Credit Facility, and the Indenture.
Registration Rights
If Holdings effects a public offering of the Common Stock, each current
stockholder pursuant to a Registration Rights Agreement will be entitled to
"piggyback" registration rights following a 180-day holdback period beginning
with the initial public offering of Common Stock. Saratoga, Co-Investment
Partners and Moore Global Investment Ltd. will be entitled to demand
registration rights following such holdback period. Management parties will also
be entitled to registration on Form S-8 for shares of Common Stock received
pursuant to stock options under the New Plan.
Board Designations
Pursuant to a Stockholders Agreement among Holdings and certain investors and
members of management, until at least 25% of the Common Stock is publicly
traded, (i) David J. Barrett will be elected to serve as a director for so long
as he shall be an officer and an employee of Holdings or of a Subsidiary
thereof, (ii) Moore Investments, Ltd. and Remington Investment Strategies, L.P.
together will have the right to designate one member of the Board of Directors
of Holdings so long as such investors together hold at least 50% of their
original investment in Holdings, (iii) Saratoga will have the right to designate
up to five directors and (iv) Co-Investment Partners has the right to receive
notice of all meetings of the Board of Directors of Holdings and to have a
representative attend such meetings so long as it holds at least 50% of its
original investment in Holdings.
VOTING AGREEMENT
Pursuant to an agreement dated February 20, 1998 (the "Voting Agreement"),
Co-Investment Partners has appointed Saratoga as its proxy to vote 672,000 of
the 1,000,000 shares of Common Stock it owned as of that date. The Voting
Agreement will terminate upon at least 20% of the outstanding Common Stock being
offered and sold in a public offering registered under the Act.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Documents incorporated by reference or filed with this Report
(1) The following financial statements of Scovill Holdings Inc. are
included in Part II, Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the periods ended December 31,
1997, November 26, 1997, December 31, 1996, December 31, 1995 and October
17, 1995
Consolidated Statements of Cash Flows for the periods ended December 31,
1997, November 26, 1997, December 31, 1996, December 31, 1995 and October
17, 1995
Consolidated Statements of Stockholders' Equity for the periods ended
December 31, 1997, November 26, 1997, December 31, 1996, December 31,
1995 and October 17, 1995
Notes to Consolidated Financial
Statements
(2) Supplemental Consolidated Financial Statement Schedules for each of
the periods in the three years ended December 31, 1997:
Report of Independent Public Accountants
II - Valuation and Qualifying Account - Allowance for Uncollectible
Accounts
Schedules other than those referred to above are omitted and are
not applicable or not required, or the required information is
shown in the financial statements or notes thereto.
(3) Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Certificate of Incorporation of Scovill Holdings Inc, as amended.
3.2 Certificate of Designation, Preferences, and Relative,
Participating, Optional and Other Special Rights of 13-3/4% Series
A Cumulative Redeemable Exchangeable Preferred Stock
3.3 Certificate of Designation, Preferences, and Relative,
Participating, Option and Other Special Rights of Series B
Preferred Stock.
3.4 By-laws of Scovill Holdings Inc. +
3.5 Certificate of Incorporation of AF Acquisition Corp. ++
3.6 Certificate of Amendment of Certificate of Incorporation of AF
Acquisition Corp. ++
3.7 Certificate of Amendment of Certificate of Incorporation of Scovill
Apparel Fasteners Inc. ++
3.8 Certificate of Amendment of Certificate of Incorporation of Scovill
Apparel Fasteners Inc. ++
3.9 Certificate of Change of Location of Registered Office and of
Registered Agent of Scovill Fasteners Inc. ++
3.10 Certificate of Ownership and Merger Merging KSCO New Co. into
Scovill Fasteners Inc. ++
3.11 Certificate of Amendment of Certificate of Incorporation of Scovill
Fasteners Inc. ++
3.12 By-laws of Scovill Fasteners Inc. ++
4.1 Indenture dated as of November 26, 1997 among Scovill Acquisition
Inc., Scovill Holdings Inc., as Guarantor, and United States Trust
Company of New as Trustee (including Form of Note). +
4.2 Registration Rights Agreement dated as of November 26, 1997 among
Scovill Acquisition Inc., Scovill Holdings Inc. and SBC Warburg
Dillon Read Inc. and BT Alex Brown Incorporated. +
10.1.1 Management Services Agreement among Scovill Fasteners Inc. and
Saratoga Partners III, L.P. **
10.1.5 Employment Agreement dated as of October 10, 1997 between David J.
Barrett and Scovill Acquisition Inc. +
10.1.6 Employment Agreement dated as of October 10, 1997 between Martin A.
Moore and Scovill Acquisition Inc. +
33
<PAGE>
10.1.7 Employment Agreement dated as of October 10, 1997 between Robert
Feltz and Scovill Acquisition Inc. +
10.1.8 Stock Purchase Agreement dated as of October 10, 1997 among SLF
Corporation, KSCO Acquisition Corporation, and the Stockholders of
KSCO Acquisition Corporation. ++
10.1.10 Tax Sharing Agreement dated as of November 26, 1997 by and among
Scovill Holdings Inc., Scovill Fasteners Inc., and the SFI
Subgroup. ++
10.1.11 Stock Option Agreement dated as of November 26, 1997 between
William F. Andrews and Scovill Holdings Inc. ++
10.1.12 Stock Option Agreement dated as of November 26, 1997 between John
Champagne and Scovill Holdings Inc. ++
10.1.13 Stock Option Agreement dated as of November 26, 1997 between
Michael Baxley and Scovill Holdings Inc. ++
10.1.14 Stock Option Agreement dated as of November 26, 1997 between Robert
W. Feltz and Scovill Holdings Inc. ++
10.1.15 Stock Option Agreement dated as of November 2, 1997 between Martin
A. Moore and Scovill Holdings Inc. ++
10.1.16 Stock Option Agreement dated as of November 26, 1997 between David
J. Barrett and Scovill Holdings Inc. ++
10.1.17 Scovill Holdings Inc. Stockholders Agreement dated as of November
26, 1997.++
10.1.18 Scovill Holdings Inc. Subscription Agreement dated as of November
26, 1997.++
10.1.19 Scovill Holdings Inc. Long-Term Incentive and Share Award Plan. ++
10.1.21 Credit Agreement dated as of November 26, 1997. ++
10.1.22 Scovill Holdings Inc. Amended and Restated Stockholders Agreement
dated as of February 20, 1998 **
10.1.23 Joinder Agreement dated as of February 20, 1998. **
10.1.24 Voting Agreement dated as of February 20, 1998 by and between
Saratoga Partners III, L.P., Scovill Holdings Inc., and Co-
Investment Partners, L.P. **
10.1.25 Subscription Agreement dated as of February 20, 1998 by and between
Scovill Holdings Inc. and Co-Investment Partners, L.P. **
10.1.26 Repurchase and Termination Agreement dated as of February 20, 1998
by and between Scovill Holdings Inc., SBC Warburg Dillon Read Inc.,
BT Alex. Brown Incorporated, and United States Trust Company of
New York. **
21.1 List of Subsidiaries of Scovill Holdings Inc. ++
21.2 List of Subsidiaries of Scovill Fasteners Inc. +
27 Financial Data Schedule.
+ Incorporated by Reference to Exhibit of the same number to the
Company's Registration Statement on Form S-1 (No. 333-43195), as filed
with the Securities and Exchange Commission on December 24, 1997
++ Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 1 to Registration Statement on Form S-1 (No.
333-43195), as filed with the Securities and Exchange Commission on
January 13, 1998.
+++ Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 2 to Registration Statement on Form S-1 (No.
333-43195), as filed with the Securities and Exchange Commission on
February 2, 1998.
* Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 3 to Registration Statement on Form S-1 (No.
333-43195), as filed with the Securities and Exchange Commission on
February 11, 1998.
** Incorporated by Reference to Exhibit of the same number to the
Company's Post-Effective Amendment No. 1 to Registration Statement on
Form S-1 (No. 333-43195), as filed with the Securities and Exchange
Commission on February 27, 1998.
34
<PAGE>
(b) Reports of Form 8-K
No Form 8-K was filed during the last quarter of the year ended December
31, 1997.
35
<PAGE>
FINANCIAL STATEMENTS INDEX
PAGE
----
Report of Independent Public Accountants............................. F-2
Consolidated balance sheets as of December 31, 1997
and 1996............................................................ F-3
Consolidated statements of operations for the periods ended
December 31, 1997, November 26, 1997, December 31, 1996,
December 31, 1995 and October 17, 1995.............................. F-4
Consolidated statements of cash flows for the periods ended
December 31, 1997, November 26, 1997, December 31, 1996,
December 31, 1995 and October 17, 1995.............................. F-5
Consolidated statements of stockholders' equity for the
periods ended December 31, 1997, November 26, 1997,
December 31, 1996, December 31, 1995 and October 17, 1995........... F-6
Notes to consolidated financial statements........................... F-7
Schedule II--Valuation and Qualifying Accounts--Allowance
for Uncollectible Accounts.......................................... S-1
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Scovill Holdings Inc.
We have audited the accompanying consolidated balance sheet of Scovill Holdings
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from Inception, November 26, 1997 through December 31,
1997. We have also audited the accompanying consolidated balance sheet of
Predecessor-KSCO (business identified in Note 1) as of December 31, 1996, and
the related statements of operations, stockholders' equity and cash flows for
the period from January 1, 1997 through November 26, 1997, the year ended
December 31, 1996, and the period from October 17, 1995 through December 31,
1995. We have also audited the accompanying consolidated statements of
operations, stockholders' equity and cash flows of Predecessor-Alper (business
identified in Note 1) for the period from January 1, 1995 through October 17,
1995. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule referred to below based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on 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 consolidated financial position of the Company as of
December 31, 1997 and of Predecessor-KSCO as of December 31, 1996, and the
results of operations and cash flows of the Company for the period from November
26, 1997 through December 31, 1997; and of Predecessor-KSCO for the period from
January 1, 1997 through November 26, 1997, the year ended December 31, 1996, and
the period from October 17, 1995 through December 31, 1995; and of Predecessor-
Alper for the period from January 1, 1995 through October 17, 1995, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the financial
statements index is presented for purposes of complying with the Securities and
Exchange Commission's rule and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
March 10, 1998
F-2
<PAGE>
Scovill Holdings Inc.
Consolidated Balance Sheets
(in thousands, except share data)
The consolidated financial statements of the Company and the Predecessor-KSCO
are not comparable in certain respects (Note 1).
<TABLE>
<CAPTION>
The Company Predecessor - KSCO
----------------- -------------------
December 31
----------------- | -------------------
1997 | 1996
----------------- | -------------------
<S> <C> | <C>
Assets |
|
Current Assets |
Cash and cash equivalents $2,821 | $603
Accounts receivable, net of allowances |
of $894 and $640, respectively 11,502 | 12,438
Inventories 24,292 | 21,594
Other 839 | 1,175
-------------- | ---------------
|
Total Current Assets 39,454 | 35,810
-------------- | ---------------
|
Property, Plant and Equipment, Net 72,505 | 40,389
-------------- | ---------------
|
Deferred Income Taxes - | 1,266
Intangible Assets 114,243 | 26,401
-------------- | ---------------
|
$226,202 | $103,866
============== | ===============
|
|
Liabilities and Stockholders' Equity |
|
Current Liabilities |
Current maturities of long-term debt $1,649 | $830
Accounts payable 11,458 | 10,588
Accrued liabilities 9,470 | 6,295
Accrued interest 1,062 | 535
-------------- | ---------------
|
Total Current Liabilities 23,639 | 18,248
-------------- | ---------------
|
Long-Term Liabilities |
Revolving line of credit - | 9,424
Long-term debt 128,199 | 27,464
Employee benefits 24,499 | 24,407
Deferred income taxes 5,380 | -
Other 3,676 | 2,902
-------------- | ---------------
|
Total Long-Term Liabilities 161,754 | 64,197
-------------- | ---------------
|
Commitments and Contingencies |
|
Series A Cumulative Redeemable |
Exchangeable Preferred Stock, |
$.001 par value, 200,000 shares |
authorized,100,000 issued 9,400 | -
(liquidation preference of -------------- | ---------------
$100 per share) |
|
Stockholders' Equity |
Series B Preferred Stock, $.0001 par value, |
16,200,000 shares authorized, |
3,655,500 shares issued and outstanding - | -
Common stock, Company, $.0001 par value, |
6,000,000 shares authorized, |
3,655,500 shares issued and outstanding - | -
Common stock, Predecessor-KSCO, $.01 |
par value, 15,000,000 shares authorized, |
8,880,102 shares issued and outstanding - | 89
Additional paid-in capital - preferred 39,700 | -
Additional paid-in capital - common 400 | 22,086
Predecessor basis adjustment (7,831) | -
Retained earnings (deficit) (781) | (736)
Foreign currency translation adjustment (79) | (18)
-------------- | ---------------
|
Total Stockholders' Equity 31,409 | 21,421
-------------- | ---------------
|
|
$226,202 | $103,866
============== | ===============
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-3
<PAGE>
Scovill Holdings Inc.
Consolidated Statements of Operations
(in thousands, except share data)
The consolidated financial statements of the Company, the Predecessor-KSCO and
the Predecessor-Alper are not comparable in certain respects (Note 1).
<TABLE>
<CAPTION>
The Company | Predecessor - KSCO | Predecessor - Alper
--------------- | ------------------ ------------------------------------- | -------------------
Period from | Period from Period from |
Inception | January 1, 1997 October 17, 1995 | January 1, 1995
through | to Year Ended to | to
December 31, | November 26, December 31, December 31, | October 17,
1997 | 1997 1996 1995 | 1995
-------------- | ------------- -------------- ---------------- | ------------------
<S> <C> | <C> <C> <C> | <C>
Net sales $6,694 | $89,167 $91,632 $12,799 | $53,589
Cost of sales 4,591 | 64,003 64,600 9,353 | 40,260
------------ | ------------- ------------ ------------- | ----------------
| |
Gross profit 2,103 | 25,164 27,032 3,446 | 13,329
| |
Selling expenses 682 | 8,857 10,220 1,369 | 5,656
General and administrative | |
expenses 463 | 5,816 6,831 458 | 2,166
Amortization expense 331 | 2,745 2,557 239 | 320
------------ | ------------- ------------ ------------- | ---------------
| |
Operating Income 627 | 7,746 7,424 1,380 | 5,187
| |
Other expense 114 | 1,621 450 214 | 551
Interest expense - affiliate - | - - - | 2,084
Interest expense - other 1,217 | 3,694 5,953 892 | 1,388
------------ | ------------- ------------ ------------- | ---------------
| |
Income (loss) before income tax | |
provision (benefit) and | |
extraordinary loss (704) | 2,431 1,021 274 | 1,164
| |
Income tax provision (benefit) (38) | 1,112 923 158 | -
------------ | ------------- ------------ ------------- | ---------------
| |
Income (loss) before | |
extraordinary loss (666) | 1,319 98 116 | 1,164
| |
Extraordinary loss, net of | |
$613 tax benefit - | - 950 - | -
------------ | ------------- ------------ ------------- | ----------------
| |
Net income (loss) ($666) | $1,319 ($852) $116 | $1,164
------------ | ------------- ------------ ------------- | ----------------
| |
Dividends and accretion on | |
redeemable preferred stock 115 | - - - | -
------------ | ------------- ------------ ------------- | ----------------
| |
Net income (loss) available | |
to common stockholders ($781) | $1,319 ($852) $116 | $1,164
============ ============= ============ ============= ================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
Scovill Holdings Inc.
Consolidated Statements of Cash Flows
(in thousands)
The consolidated financial statements of the Company, the Predecessor-KSCO and
the Predecessor-Alper are not comparable in certain respects (Note 1).
<TABLE>
<CAPTION>
The Company | Predecessor - KSCO | Predecessor - Alper
--------------- |------------------ ------------------------------------- | ----------------------
Period from | Period from Period from |
Inception | January 1, 1997 October 17, 1995 | January 1, 1995
through | to Year Ended to | through
December 31, | November 26, December 31, December 31, | October 17,
1997 | 1997 1996 1995 | 1995
-------------- | ------------- -------------- ---------------- | ---------------------
<S> <C> | <C> <C> <C> | <C>
Cash Flows from Operating | |
Activities: | |
Net income (loss) available | |
to common stockholders ($781) | $1,319 ($852) $116 | $1,164
Adjustments to reconcile net | |
income (loss) to net cash | |
provided by (used in) | |
operating activities: | |
Depreciation and amortization 835 | 7,822 11,268 1,720 | 5,988
Deferred income taxes 1,502 | (287) 265 8 | -
Changes in operating assets | |
and liabilities, net of | |
effect of acquired businesses: | |
Accounts receivable, net 1,147 | (3,009) (931) 1,105 | 360
Inventories (1,656) | (4,187) (6,231) 772 | (1,371)
Other current assets (125) | 461 (883) 119 | (213)
Accounts payable (1,946) | 2,816 3,042 (2,075) | 1,251
Accrued liabilities 3,217 | 1,139 (4,031) (2,313) | (465)
Other assets and liabilities (1,490) | (2,437) (3,063) (465) | 313
----------- | ----------- ------------- ------------- | --------------
| |
Net cash provided by (used in) | |
operating activities 703 | 3,637 (1,416) (1,013) | 7,027
----------- | ----------- ------------- ------------- | --------------
| |
Cash Flows from Investing | |
Activities: | |
Cash paid in business | |
acquisitions, net of cash | |
acquired (94,615) | (23,110) (40,897) | -
Acquisition costs (11,105) | (2,140) (3,246) | -
Additions to property, plant | |
and equipment (31,112) | (6,354) (5,695) (1,168) | (4,962)
Proceeds from sale/leaseback | |
of attaching machines - | - 31,267 - | -
Proceeds from sales of | |
property, plant and equipment - | - 2,264 13 | 26
----------- | ----------- ------------- ------------- | --------------
| |
Net cash used in investing | |
activities (136,832) | (6,354) 2,586 (45,298) | (4,936)
----------- | ----------- ------------- ------------- | --------------
| |
Cash Flows from Financing | |
Activities: | |
Net borrowings (repayments) | |
on line of credit (12,230) | 2,806 2,324 3,830 | (1,245)
Issuance of long-term debt 128,000 | - 23,967 35,000 | -
Repayments of long-term debt (26,320) | (250) (31,268) (10,284) | (278)
Issuance of preferred stock 49,100 | - - - | -
Issuance of common stock 400 | 1,240 4,000 18,175 | -
Repayments of intercompany | |
debt - | - - - | (475)
----------- | ----------- ------------- ------------- | --------------
| |
Net cash provided by | |
(used in) financing | |
activities 138,950 | 3,796 (977) 46,721 | (1,998)
----------- | ----------- ------------- ------------- | --------------
| |
Net Increase in Cash 2,821 | 1,079 193 410 | 93
| |
Cash at Beginning of Period - | 603 410 - | 510
----------- | ----------- ------------- ------------- | --------------
| |
Cash at End of Period $2,821 | $1,682 $603 $410 | $603
=========== | =========== ============= ============= | ==============
| |
| |
Supplemental Disclosure of | |
Cash Flow Information | |
Interest paid $318 | $4,066 $5,062 $718 | $3,238
=========== | =========== ============= ============= | ==============
| |
| |
Income taxes paid $189 | $54 - - | -
=========== | =========== ============= ============= | ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
Scovill Holdings Inc.
Consolidated Statements of Stockholders' Equity
(in thousands)
The consolidated financial statements of the Company, the Predecessor-KSCO
and the Predecessor-Alper are not comparable in certain respects (Note 1)
<TABLE>
<CAPTION>
Unfunded Accumulated
Pension Benefits
Series B Additional Predecessor Retained in Excess of
Common Preferred Paid-In Basis Earnings Unrecognized
Stock Stock Capital Adjustment (Deficit) Prior Service Cost
--------- -------- ---------- ------------- ----------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
The Predecessor-Alper
----------------------------------------------------------------------------------------
Balance, December 31, 1994 $0 $8,194 ($29,038) ($711)
Net Income 1,164
---------- -------- ---------- ------------- ----------- ---------------------
Balance, October 17, 1995 $0 $0 $8,194 $0 ($27,874) ($711)
========== ======== ========== ============= =========== =====================
The Predecessor-KSCO
----------------------------------------------------------------------------------------
Acquisition - Elimination of
Predecessor-Alper Equity
(Note 1) $0 $0 ($8,194) $0 $27,874 $711
---------- -------- ---------- ------------- ----------- ---------------------
Issuance of Common Stock 73 18,102
---------- -------- ---------- ------------- ----------- ---------------------
Foreign Currency Translation
Net Income 116
---------- -------- ---------- ------------- ----------- ---------------------
Balance, December 31, 1995 $73 $0 $18,102 $0 $116 $0
---------- -------- ---------- ------------- ----------- ---------------------
Issuance of Common Stock 16 3,984
Foreign Currency Translation
Net Income (852)
---------- -------- ---------- ------------- ----------- ---------------------
Balance, December 31, 1996 $89 $0 $22,086 $0 ($736) $0
========== ======== ========== ============= =========== =====================
Foreign Currency Translation
Tax benefit - option exercise 5 1,224
Net Income 1,319
---------- -------- ---------- ------------- ----------- ---------------------
Balance, November 26, 1997 $94 $0 $23,310 $0 $583 $0
========== ======== ========== ============= =========== =====================
The Company
---------------------------------------------------------------------------------------
Acquisition - Elimination of
Predecessor-KSCO Equity
(Note 1) (94) (23,310) (583)
Issuance of common and
preferred stock 40,100
Predecessor basis adjustment (7,831)
Foreign Currency Translation
Net Income (loss) available to
common stockholders (781)
---------- -------- ---------- ------------- ----------- ---------------------
Balance, December 31, 1997 $0 $0 $40,100 ($7,831) ($781) $0
========== ======== ========== ============= =========== =====================
Total Series A
Foreign Currency Stockholders' Redeemable
Translation Adjustment Equity Preferred Stock
---------------------- ------------- ------------------
----------------- ------------- ------------------
<S> <C> <C> <C>
Balance, December 31, 1994 ($78) ($21,633) $19,439
Net Income 1,164
----------------- ------------- ------------------
Balance, October 17, 1995 ($78) ($20,469) $19,439
================= ============= ==================
Acquisition - Elimination of
Predecessor-Alper Equity
(Note 1) $78 $20,469
----------------- ------------- ------------------
Issuance of Common Stock 18,175 ($19,439)
Foreign Currency Translation (28) (28)
Net Income 116
----------------- ------------- ------------------
Balance, December 31, 1995 ($28) $18,263 $0
----------------- ------------- ------------------
Issuance of Common Stock 4,000
Foreign Currency Translation 10 10
Net Income (852)
----------------- ------------- ------------------
Balance, December 31, 1996 ($18) $21,421 $0
----------------- ------------- ------------------
Foreign Currency Translation (291) (291)
Tax benefit - option exercise 1,229
Net Income 1,319
----------------- ------------- ------------------
Balance, November 26, 1997 ($309) $23,678 $0
================= ============= ==================
Acquisition - Elimination of
Predecessor-KSCO Equity
(Note 1) 309 (23,678)
Issuance of common and
preferred stock 40,100 $9,400
Predecessor basis adjustment (7,831)
Foreign Currency Translation (79) (79)
Net Income (loss) available to
common stockholders (781)
----------------- ------------- ------------------
Balance, December 31, 1997 ($79) $31,409 $9,400
================= ============= ==================
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
F-6
<PAGE>
SCOVILL HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts expressed in thousands, except for share amounts,
or as otherwise noted)
NOTE 1. BASIS OF PRESENTATION
The consolidated balance sheet as of December 31, 1997 and the consolidated
statements of operations, stockholders' equity and cash flows for the period
from November 26, 1997 ("Inception") to December 31, 1997 include the accounts
of Scovill Holdings Inc. ("Holdings") and Scovill Fasteners Inc. ("Fasteners"),
a wholly-owned subsidiary of Holdings (collectively referred to as the
"Company"). Scovill Acquisition Inc. ("SAI") and Holdings were formed by
Saratoga Partners III, L.P. ("Saratoga") to effect the acquisition of the
Company. Under a Stock Purchase Agreement, SAI purchased all of the capital
stock of KSCO Acquisition Corporation ("KSCO") on November 26, 1997 for a
purchase price of approximately $168.8 million less the amount of indebtedness
of the Company existing immediately prior to closing of the acquisition
(including indebtedness that was not repaid in connection with the
transactions). Concurrently with the acquisition, SAI merged with and into
KSCO, and KSCO merged with and into Fasteners, with Fasteners surviving the
mergers. The purchase of KSCO capital stock by SAI and the mergers of SAI and
KSCO into Fasteners are together referred to herein as the "Saratoga
Acquisition."
The consolidated balance sheet as of December 31, 1996 and the consolidated
statements of operations, stockholders' equity and cash flows for the period
from January 1, 1997 to November 26, 1997, the year ended December 31, 1996, and
the period from October 17, 1995, through December 31, 1995, include the
accounts of KSCO and Scovill Fasteners Inc., a wholly-owned subsidiary of KSCO
(collectively referred to as the "Predecessor-KSCO"), both of which are Delaware
corporations. On October 17, 1995, Fasteners was acquired by KSCO, for
approximately $41.5 million. KSCO was organized by Kohlberg & Co. ("Kohlberg")
for the purpose of acquiring the outstanding stock of Fasteners from Alper
Holdings USA, Inc. ("Alper"). This transaction (referred to herein as the
"Kohlberg Acquisition") was accounted for as a purchase.
During January 1996, Fasteners purchased the outstanding common stock of Rau
Fastener Company, LLC ("Rau") for $7,892 and PCI Group, Inc. ("PCI") for
$15,551, excluding certain costs related to financing and consummating the
acquisitions. Rau primarily manufactured snap fasteners with locations and
subsidiaries operating in Providence, Rhode Island, Brussels, Belgium ("Scovill-
Europe") and Montreal, Canada. PCI manufactured industrial and shoe eyelets and
light metal stampings.
The consolidated statements of operations, stockholders' equity and cash flows
from January 1, 1995 through October 17, 1995 are the financial statements of
Fasteners when it was a wholly-owned subsidiary of Alper (referred to herein as
the "Predecessor-Alper"). The Saratoga Acquisition and the KSCO Acquisition and
the related application of purchase accounting (Note 3) resulted in changes to
the capital structure of the Predecessor-KSCO and Predecessor-Alper and the
historical bases of various assets and liabilities. The effect of such changes
significantly impairs comparability of the financial position and results of
operations of the Company, the Predecessor-KSCO and the Predecessor-Alper,
accordingly a line has been used to separate the financial statements of the
Company after the Saratoga Acquisition.
The Company is a leading manufacturer of apparel fasteners, such as snaps, tack
buttons and rivets, primarily serving the jeans wear and infant wear market
segments. The Company produces non-apparel fastener products for use in cars,
boats, luggage, leather goods and packaging, generally marketed under the
DOT(R) trademark. Fasteners' other non-apparel products also include industrial
and shoe eyelets and light metal stampings marketed under PCI. The Company also
designs and manufactures fastener attaching equipment, leased to customers and
placed in customers' manufacturing facilities. The Company's customers include
many of the leading apparel design and manufacturing companies in North America
and Europe.
F-7
<PAGE>
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Significant transactions and balances between Holdings, Fasteners and its
wholly-owned subsidiaries and entities which comprise the Predecessor-KSCO and
Predecessor-Alper have been eliminated in consolidation.
ACCOUNTING 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 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 AND CASH EQUIVALENTS
Cash includes cash and cash equivalents which consist of highly liquid
investments, having maturities of three months or less when acquired. Included
in accounts payable as of December 31, 1997 and 1996 were $2,121 and $1,898,
respectively of cash overdrafts.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for all domestic inventories (excluding
spare parts), which accounted for approximately 55.0% and 55.6% of all
inventories as of December 31, 1997 and 1996, respectively. Cost for the
remaining inventories is determined using the first-in, first-out (FIFO) method.
Inventory costs include material, labor and manufacturing overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment purchased in the Saratoga Acquisition, as well as
the acquisitions of PCI and Rau, are stated at fair market value, as prescribed
by the purchase method of accounting. Subsequent purchases of property, plant
and equipment are stated at cost, net of accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets. The following useful lives are used for recognizing
depreciation expense for financial reporting purposes:
Leasehold improvements lease term
Buildings and improvements 5 - 30 years
Attaching equipment 8 years
Computer equipment 3 - 5 years
Machinery, equipment and tooling 3 - 12 years
Major renewals and betterments which extend the useful life of an asset are
capitalized; routine maintenance and repairs are expensed as incurred. Upon
sale or retirement of assets, the asset cost and related accumulated
depreciation are removed from the accounts and any related gain or loss is
reflected in operations.
INTANGIBLE ASSETS
Intangible Assets at December 31, 1997 and 1996 consisted of the following:
F-8
<PAGE>
<TABLE>
<CAPTION>
1997
Accumulated
Gross amortization Net
-------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 86,230 ($181) $ 86,049
Trademarks 14,840 (149) 14,691
Organization and deferred financing fees 11,105 (102) 11,003
Covenants not to compete 2,547 (109) 2,438
Other 62 - 62
-------------------------------------------------------------
$114,784 ($541) $114,243
=============================================================
</TABLE>
<TABLE>
<CAPTION>
1996
Accumulated
Gross amortization Net
-------------------------------------------------------
<S> <C> <C> <C>
Goodwill $15,983 ($350) $15,633
Trademarks 2,255 (129) 2,126
Organization and deferred financing fees 7,436 (2,855) 4,581
Covenants not to compete 4,975 (1,311) 3,664
Other 397 - 397
-------------------------------------------------------
$31,046 ($4,645) $26,401
=======================================================
</TABLE>
Goodwill is amortized on a straight-line basis over 40 years. Trademarks are
amortized on a straight-line basis over a period of 40 years. Deferred
financing fees are amortized over the term of the related outstanding debt.
Organization costs are being amortized on a straight-line basis over 5 years.
Covenants not to compete consist of agreements with Alper, a former parent of
Fasteners, and with the former owners of PCI; such agreements are amortized over
5 and 3 years, respectively.
Goodwill represents the excess of cost over the estimated fair value of the net
assets of acquired businesses. Should events or circumstances occur subsequent
to any business acquisition which bring into question the realizable value or
impairment of any component of goodwill, the Company will evaluate the remaining
useful life and balance of goodwill and make appropriate adjustments. The
Company's principal considerations in determining impairment include the
strategic benefit to the Company of the particular business related to the
questioned component of goodwill as measured by undiscounted current and
expected future operating income levels of that particular business and expected
undiscounted future cash flows.
ENVIRONMENTAL MATTERS
Environmental expenditures are expensed or capitalized as appropriate, depending
on their future economic benefit. Environmental expenditures include site
investigation, physical remediation, operation and maintenance and legal and
administrative costs. Environmental accruals are established for sites where it
is probable that a loss has been incurred and the amount of the loss can be
reasonably estimated.
RECOGNITION OF REVENUE
Revenue from the sale of fastener products is recorded on the date goods are
shipped to the customer. Sales returns and allowances are recorded as a charge
against revenue in the period in which the related sales are recognized.
Revenue from the lease of attaching machinery is recorded over the applicable
rental period.
INCOME TAXES
Income taxes are recorded in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109
utilizes the asset and liability method, under which deferred income taxes are
F-9
<PAGE>
recognized for the tax consequences of "temporary differences" by applying
currently enacted statutory rates to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities. Under
SFAS 109, the effect on deferred taxes of a change in tax rates is recognized in
income in the period that includes the enactment date.
Fasteners periodically evaluates the recognition of deferred tax assets and
provides a valuation allowance for any portion of such assets not considered
realizable. Through October 17, 1995, Fasteners was included in the
consolidated Federal return of Alper. For financial reporting purposes,
Fasteners provided income taxes as if it filed separately from Alper.
Accordingly, Federal income tax expense/(benefit) and liabilities constituted a
charge in lieu of income taxes and amounts due Alper. Since October 18, 1995,
the Company has filed separate company income tax returns.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign subsidiaries are translated in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation," which requires that foreign currency assets and liabilities be
translated using the exchange rates in effect at the balance sheet date.
Results of operations are translated using the average exchange rates prevailing
throughout the period. The effects of unrealized exchange rate fluctuations on
translating foreign currency assets and liabilities into US dollars are
accumulated as the cumulative foreign currency translation adjustment in
stockholders' equity. Realized gains and losses from foreign currency
transactions during the periods ended December 31, 1997, November 26, 1997,
December 31, 1996, December 31, 1995, and October 17, 1995 were not material.
RESEARCH AND DEVELOPMENT COSTS
Research, development, pre-production and start-up costs related to both present
and future products are expensed as incurred. Such costs amounted to $34, $304,
$377, $74 and $271, for the periods ended December 31, 1997, November 26, 1997,
December 31, 1996, December 31, 1995 and October 17, 1995, respectively and are
classified as a component of "General and administrative expenses" in the
accompanying consolidated statements of operations.
FINANCIAL INSTRUMENTS
The Company uses futures contracts to manage its inventory, both to set pricing
on purchases and to reduce the Company's exposure to price fluctuations. Under
existing accounting literature, these activities are accounted for as hedging
activities. To qualify as a hedge, the item must expose the Company to inventory
pricing risk, and the related contract must reduce that exposure and be
designated by the Company as a hedge. Additionally, to hedge expected
transactions, the significant characteristics and expected terms of such
transactions must be identified and it must be probable that the transaction
will occur.
Gains and losses on futures contracts, including gains and losses upon
termination of the contract, are matched to inventory purchases and are included
in the carrying value of inventory and charged or credited to cost of sales as
such inventory is sold or used in production. The fair market value of commodity
options held at December 31, 1997 and 1996, was $(157) and $70, respectively.
If derivative transactions do not meet the criteria for hedges, the Company
recognizes unrealized gains or losses as they occur. If a hedged transaction no
longer exists or a hedged anticipated transaction is deemed no longer probable
to occur, cumulative gains and losses on the hedge are recognized immediately in
income and subsequent changes in fair market value of the derivative transaction
are recognized in the period the change occurs.
CONCENTRATION OF CREDIT RISK
The Company's customers include many large and well-known apparel and industrial
manufacturing companies. In calendar 1997 and 1996, no single customer
accounted for more than 7% and 8%, respectively of the Company's total net
sales, and the Company's ten largest customers accounted for approximately 28%
and 26%, respectively of the Company's total net sales. The Company's broad
line of products for apparel and specialty industrial use reduces its exposure
to any one customer segment and to fashion trends.
F-10
<PAGE>
ASSET IMPAIRMENT
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires that
long-lived assets, certain identifiable intangible assets and goodwill be
reviewed for impairment when expected future undiscounted cash flows are less
than the carrying value of the assets. No charges were recorded pursuant to
this statement in fiscal 1997 or 1996.
COMPREHENSIVE INCOME AND SEGMENTS
In 1997, the FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 130 establishes standards to measure
all changes in equity that result from transactions and other economic events
other than transactions with owners. Comprehensive income is the total of net
income and all other nonowner changes in equity. SFAS 131 introduces a new
segment reporting model called the "management approach." The management
approach is based on the manner in which management organizes segments within a
company for making operating decisions and assessing performance. The management
approach replaces the notion of industry and geographic segments. The Company
will adopt SFAS 130 and SFAS 131 in fiscal year 1998. The Company believes
adoption of SFAS 130 and SFAS 131 will not significantly affect the Company's
current disclosures.
Note 3. ACQUISITIONS
FASTENERS
The Saratoga Acquisition of Fasteners described in Note 1 was accounted for as a
purchase. Accordingly, the consolidated financial statements of Fasteners
reflect the purchase method of accounting effective November 26, 1997. The
purchase price was approximately $168.8 million, less the amount of the
indebtedness of the Company existing immediately prior to closing of the
Acquisition (including indebtedness that was not repaid with the Saratoga
Acquisition). In connection with the Saratoga Acquisition, the Company issued
$100,000,000 of 11.25% Senior Notes ("Notes") due 2007 in a private placement
offering under Rule 144A ("Initial Offering"). The proceeds of the Initial
Offering were used to finance, in part, the purchase by SAI of all of the
capital stock of KSCO which then owned all of the capital stock of the Company.
Predecessor-KSCO merged with and into KSCO, with KSCO surviving, and KSCO merged
with and into the Company, with the Company surviving. Following the mergers
described above, the Notes became obligations of the Company. Subsequent to the
Saratoga Acquisition, the Notes were registered with the SEC in an exchange
offering under virtually identical terms with the Initial Offering.
In connection with the Acquisition, Saratoga and certain other investors made a
$36.6 million equity investment, consisting of (i) $0.4 million in shares of
Holdings' Common Stock, par value $0.0001 per share (the "Common Stock"), and
(ii) $36.2 million aggregate liquidation preference of Holdings' Series B
Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock")
(collectively, the "Saratoga Investment"). Management and the Chairman of the
Board rolled over $3.4 million of their stock options in KSCO into options to
purchase Common Stock and Series B Preferred Stock (the "Management
Investment"). The Saratoga Investment and the Management Investment are
referred to as the "Equity Investments." Concurrently with the Initial
Offering, Holdings sold, for gross proceeds of $10.0 million, 100,000 Units
("Units Offering), each Unit consisting of $100 liquidation preference of the
Company's Series A Cumulative Redeemable Exchangeable Preferred Stock (the
"Senior Preferred Stock") and one warrant (the "Warrants") to purchase
Common Stock. The net proceeds of the Equity Investments and the Units Offering
totalled $49.5 million, after fees and expenses to Holdings of $0.5 million.
Management maintained a continuing ownership interest in the Company.
Accordingly, stockholders' equity and the excess of purchase cost over book
value have been reduced by $7,831 pursuant to the provisions of the Emerging
Issues Task Force Issue No. 88-16 of the Financial Accounting Standards Board.
F-11
<PAGE>
In connection with the Saratoga Acquisition, Fasteners entered into a new senior
secured credit facility (the "New Credit Facility"), consisting of a $28.0
million term loan (the "Term Loan") and a $25.0 million revolving credit
facility (the "Revolving Credit Facility").
Proceeds from the Equity Investment, the Initial Offering and the Term Loan were
used to finance the purchase price in the Acquisition, repurchase attaching
machinery subject to a synthetic lease (the "Synthetic Lease"), repay the
Company's existing credit facility (the "Existing Credit Facility") and pay
related fees and expenses.
The allocation of the purchase price to the underlying net assets acquired was
based upon preliminary estimates of the fair value of the net assets as follows:
<TABLE>
<S> <C>
Purchase price $168,800
Organization and deferred financing fees 11,105
--------------------
Total purchase price 179,905
Less - value assigned to assets and
liabilities
Cash 5,213
Accounts receivable 12,650
Inventories 22,634
Other current assets 714
Property, plant, and equipment 72,004
Organization and deferred financing fees 11,105
Other long-term assets 17,880
Accounts payable and accrued liabilities (22,369)
Long term liabilities and debt assumed (26,156)
--------------------
93,675
--------------------
Goodwill $ 86,230
====================
</TABLE>
NOTE 4. INVENTORIES
Inventories as of December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 | 1996
----------------------- | -----------------------
<S> <C> | <C>
Raw materials $ 2,792 | $ 3,088
Work in process 6,310 | 5,099
Finished goods 15,190 | 13,407
----------------------- | -----------------------
$24,292 | $21,594
======================= | =======================
</TABLE>
The value of inventories is reported net of allowances for obsolete, slow-moving
and discontinued product line inventory of $1,182 and $927 as of December 31,
1997 and 1996, respectively. If the FIFO method had been used to value all
F-12
<PAGE>
inventories, inventories would have been increased by $0 and $49 at December 31,
1997 and 1996, respectively.
Note 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 | 1996
--------------------- | ----------------------
<S> <C> | <C>
Land and improvements $ 324 | $ 327
Computer equipment $ 1,173 | 609
Buildings and improvements 7,088 | 7,434
Attaching equipment 34,084 | 3,019
Machinery, equipment and tooling 30,276 | 33,198
--------------------- | ----------------------
72,945 | 44,587
Accumulated depreciation (440) | (4,198)
--------------------- | ----------------------
$72,505 | $40,389
===================== | ======================
</TABLE>
Depreciation expense was $440, $5,077, $6,829, $1,481 and $5,735 for the
periods ended December 31, 1997, November 26, 1997, December 31, 1996,
December 31, 1995 and October 17, 1995, respectively.
In November 1996, Fasteners refinanced its attaching equipment under a
sale/leaseback arrangement. The lease was an operating lease in accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases."
In connection with the Saratoga Acquisition, Fasteners repurchased attaching
machinery under the lease agreement for $30,212, an amount which approximates
fair value.
Note 6. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 | 1996
--------------------- | ----------------------
<S> <C> | <C>
Salaries, wages and benes $1,514 | $1,454
Deferred taxes 1,036 | 1,317
Pension, current portion 1,088 | 1,128
Other 5,832 | 2,396
--------------------- | ----------------------
$9,470 | $6,295
===================== | ======================
</TABLE>
F-13
<PAGE>
Note 7. LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 | 1996
---------------------- | -----------------------
<S> <C> | <C>
Senior notes $100,000 | -
Term note 28,000 | $26,281
Revolving line of credit - | 9,424
Other 1,501 | 1,578
Capital lease obligations 347 | 435
---------------------- | -----------------------
129,848 | 37,718
Less - Current maturities (1,649) | (830)
---------------------- | -----------------------
Total long-term debt $128,199 | $36,888
====================== | =======================
</TABLE>
The Notes are guaranteed by Holdings. The Notes and the guarantee are senior
unsecured obligations of the Company and Holdings. Interest on the Notes is
payable semi-annually on May 30 and November 30 of each year, commencing May 30,
1998. The Notes are redeemable at the option of the Company, in whole or in
part, at any time after November 30, 2002, at redemption prices as defined, plus
accrued and unpaid interest and Liquidated Damages, as defined. Upon the
occurrence of a change in control, as defined, the Company will be required to
make an offer to purchase all or any part of each holder's Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of the purchase.
NEW CREDIT FACILITY
In connection with the Acquisition, Fasteners entered into a New Credit
Facility, consisting of a $28,000 Term Loan and a $25,000 Revolving Credit
Facility. Borrowings under the New Credit Facility are collateralized by
substantially all of Fasteners' assets. Borrowing availability under the
revolving line of credit is subject to limitations based on eligible accounts
receivable and eligible inventory, as defined. The New Credit Facility allows
Fasteners to choose among interest rate options of LIBOR plus 2.5% or the Base
Rate plus 1.5%. The New Credit Facility requires that Fasteners meet certain
covenants which, among other things, requires the maintenance of ratios related
to leverage and cash flow and limits the level of capital expenditures and
operating leases. The New Credit Facility requires an annual commitment fee of
0.5% of the total unused commitment, less letters of credit and amounts
borrowed, and requires Fasteners to make quarterly payments of accrued interest
outstanding on the Term Loan and the Revolving Credit Facility.
As of December 31, 1997, Fasteners had borrowings of $28,000 ($14,000 at each
of Base Rate and LIBOR) outstanding under the Term Loan with zero borrowings
under the Revolving Credit Facility and $15,270 of unused credit availability.
The New Credit Facility expires in November 2007. Under the New Credit
Facility, interest rates for the Term Loan ranged from 8.5% at LIBOR to 10% at
Base Rate and the weighted average interest rate was 9.2% during the period from
November 26, 1997 to December 31, 1997. The interest rate was 8.5% at LIBOR and
10% at Base Rate at December 31, 1997.
Other debt at December 31, 1997 includes outstanding obligations of Scovill-
Europe.
F-14
<PAGE>
Maturities, excluding capital lease obligations, of long-term debt as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 1,552
1999 3,267
2000 5,259
2001 6,190
2002 6,034
Thereafter 107,199
--------------------
$129,501
====================
</TABLE>
CREDIT AGREEMENT
In connection with the acquisitions of Rau and PCI in January 1996, Fasteners
refinanced its outstanding obligations under the Original Credit Agreement with
a Credit Agreement (the "Credit Agreement"). The Credit Agreement provided for
term notes of $29,496 and $28,000, as well as a revolving line of credit of up
to $15,000. Borrowings under the Credit Agreement were collateralized by
substantially all of Fasteners' assets. Borrowing availability under the
revolving line of credit were subject to limitations based on eligible accounts
receivable and inventory, as defined. As of December 31, 1996, Fasteners had
borrowings of $35,705 outstanding under the Credit Agreement including $9,424
of borrowings under the revolving line of credit and $3,702 of unused credit
availability. Fasteners repaid all outstanding obligations under the Credit
Agreement principally with proceeds from the sale/leaseback transaction of
attaching equipment. In connection with the January 1996 refinancing, Fasteners
recognized an extraordinary after tax charge of $950 from the write-off of
related deferred financing costs. All outstanding obligations under the Credit
Agreement were repaid in November 1997 in connection with the Saratoga
Acquisition.
The carrying value of long-term debt at December 31, 1997 and 1996 approximates
fair value.
NOTE 8. OTHER LONG TERM LIABILITIES
Other long term liabilities as of December 31, 1997 and 1996 consisted primarily
of liabilities for environmental matters of $3,155 and $2,902 at December 31,
1997 and 1996, respectively.
NOTE 9. LEASE COMMITMENTS
OPERATING LEASES
Fasteners leases office space, office equipment and vehicles for various periods
through the year 2002 and it is expected in the normal course of operations that
the leases may be extended or replaced. Certain leases provide for contingent
rentals based upon additional usage of equipment and vehicles in excess of a
specified minimum. Leases for real estate generally include options to renew
for periods ranging from one to ten years. At December 31, 1997, future minimum
annual rental commitments were as follows:
<TABLE>
<S> <C>
1998 $ 692
1999 484
2000 313
2001 62
2002 and thereafter 9
--------------------
Total minimum lease payments $1,560
====================
</TABLE>
Rental expense for operating leases was $493, $5,422, $1,756, $184, and $674 for
the periods ended December 31, 1997, November 26, 1997, December 31, 1996,
December 31, 1995 and October 17, 1995, respectively.
F-15
<PAGE>
CAPITAL LEASE
In 1996, Fasteners entered into a lease agreement for computer equipment which
is classified as a capital lease. The net book value of the leased equipment
included in Property, Plant and Equipment at December 31, 1997 was $525 which
was included in machinery and equipment. Future minimum payments, by year,
under noncancelable capital leases consist of the following at December 31,
1997:
<TABLE>
<S> <C>
1998 $130
1999 130
2000 130
2001 22
----------------------------------
Total minimum lease payments $412
Amounts representing interest (65)
----------------------------------
Present value of net minimum lease payments 347
Less current portion (97)
----------------------------------
Long-term capital lease obligation $250
==================================
</TABLE>
10. INCOME TAXES
The following is a summary of the components of income (loss) before income
taxes and extraordinary loss:
<TABLE>
<CAPTION>
Company | Predecessor Predecessor Predecessor | Predecessor
| KSCO KSCO KSCO | Alper
-------------- | --------------------------------------------------- | -----------------
| |
Period from | Period from Period from | Period from
Inception to | January 1, 1997 Year Ended October 17, 1995 | January 1
| 1995 |
| to to | to
December 31, | November 26, 1997 December 31, December 31, | October 17,
1997 | 1996 1995 | 1995
-------------- | --------------------------------------------------- | ==============
<S> <C> | <C> <C> <C> | <C>
| |
Domestic ($6) | $ 505 $1,317 $324 | $1,354
Foreign (698) | 1,926 (296) (50) | (190)
-------------- | --------------------------------------------------- | ===============
($704) | $2,431 $1,021 $274 | $1,164
============== | =================================================== | ===============
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Company | Predecessor-KSCO Predecessor-KSCO Predecessor-KSCO | Predecessor-Alper
- ---------------------- | ---------------------------------------------------------------------- | ---------------------
| |
Period from | Period from Period from | Period from
Inception to | January 1, 1997 to Year Ended October 17, 1995 to | January 1 to
| |
December 31, 1997 | November 26, 1997 December 31, 1996 December 31, 1995 | October 17, 1995
- ---------------------- | ----------------------------------------------------------------------- | ---------------------
<S> <C> | <C> <C> <C> | <C>
| |
Current ($1,360) | $1,065 $ - $150 | $-
Deferred 1,440 | (415) 265 8 | -
Foreign (118) | 462 45 - | -
- ---------------------- | =======================----------------------------------------------- | ---------------------
($38) | $1,112 $310 $158 | $-
====================== | ====================================================================== | =====================
</TABLE>
F-16
<PAGE>
The difference between the United States Federal statutory income tax rate and
the consolidated effective income tax rate is summarized as follows:
<TABLE>
<CAPTION>
| Predecessor Predecessor Predecessor | Predecessor
Company | KSCO KSCO KSCO | Alper
-------------- | ---------------------------------------------------------- | -----------------
Period from | Period from Period from | Period from
Inception to | January 1, 1997 to Year Ended October 17, 1995 | January 1 to
December 31, | November 26, 1997 December 31, 1996 to December 31, | October 17, 1995
1997 | 1995 |
-------------- | ---------------------------------------------------------- | -----------------
<S> <C> | <C> <C> <C> | <C>
Federal income tax expense at ($239) | $ 827 $ 429 $ 93 | $ 323
statutory rates | |
| |
State income tax provision, net (35) | 122 66 21 | 71
of federal taxes | |
| |
Benefit for net operating losses - | (362) - - | (528)
| |
Benefit for - | - (613) - | -
extraordinary item | |
| |
Amortization of 56 | 552 292 29 | 77
goodwill/deferred | |
financing fees | |
| |
Foreign tax impact 175 | 65 45 - | -
| |
Other 5 | (92) 91 15 | 57
-------------------- | ------------------------------------------------------------- | -----------
($38) | $1,112 $ 310 $158 | $ -
==================== | ============================================================= | ===========
</TABLE>
Deferred tax consequences of significant temporary differences are as follows as
of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------------ | -----------------
Deferred tax liabilities: |
<S> <C> | <C>
Fixed assets ($15,919) | ($12,132)
Trademarks (5,600) | (1,617)
Inventories (990) | (1,474)
Organization and deferred financing fees - | (2,142)
Other (46) | (161)
------------------ | -----------------
(22,555) | (17,526)
------------------ | -----------------
|
Deferred tax assets: |
NOL carryforward 4,857 | 4,518
Pension and Postretirement health and life benefits 9,986 | 10,024
Environmental matters 1,230 | 1,138
Other 66 | 1,795
------------------ | -----------------
16,139 | 17,475
------------------ -----------------
($6,416) ($51)
================== =================
</TABLE>
In connection with the acquisition by KSCO and the acquisitions of PCI and Rau,
Alper and the former owners of PCI and Rau, respectively indemnified the Company
from any potential future tax liabilities that may arise from periods prior to
the dates of acquisition.
F-17
<PAGE>
NOTE 11. PENSION AND OTHER EMPLOYEE BENEFIT PLANS
PENSION PLAN
Fasteners sponsors noncontributory defined benefit pension plans. On December
31, 1994, Fasteners curtailed future benefits attributable to participants of
its pension plans. The effect of this curtailment resulted in the elimination
of defined pension benefits for all future services of active employees
participating in the plans. Additionally, Fasteners assumed the obligations of
two pension plans sponsored by PCI. The PCI plans were merged with the
Fasteners plans effective March 31, 1996.
The amounts funded by Fasteners for any plan year are not less than the minimum
required under the Employee Retirement Income Security Act.
The following items are the components of the net pension cost:
<TABLE>
<CAPTION>
| Predecessor Predecessor Predecessor | Predecessor
Company | KSCO KSCO KSCO | Alper
-------------- | ---------------------------------------------------------- | -----------------
Period from | Period from Period from | Period from
Inception to | January 1, 1997 to Year Ended October 17, 1995 | January 1 to
December 31, | November 26, 1997 December 31, 1996 to December 31, | October 17, 1995
1997 | 1995 |
-------------- | ---------------------------------------------------------- | -----------------
<S> <C> | <C> <C> <C> | <C>
| |
Interest cost on projected | |
benefit obligation $ 177 | $ 1,945 $ 2,110 $ 480 | $ 1,525
| |
Service cost - | - 97 - | -
Actual return on plan assets (122)| (1,340) (2,962) (749) | (2,570)
Net amortization and deferral (31)| (343) 588 362 | 1,526
------------ | ---------------------------------------------------------- | -----------------
Net periodic pension cost $24 | $262 $(167) $93 | $481
============ ========================================================== =================
</TABLE>
The following is a summary of the plans' funded status as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 | 1996
------------------ | -------------------
<S> <C> | <C>
Actuarial present value of benefits for service rendered to date: |
Accumulated benefits based on salaries to date, including vested benefits |
of $29,364 and $29,767 at December 31, 1997 and 1996, respectively $29,364 | $29,867
------------------ | -------------------
|
Projected benefit obligation 29,364 | 29,867
Less fair value of plan assets 20,272 | 21,938
------------------ | -------------------
Projected benefit obligation in excess of plan assets 9,092 | 7,929
Unrecognized net gain 947 | 1,896
------------------ | -------------------
|
Accrued pension cost 10,039 | 9,825
Less current portion 1,099 | 1,099
------------------ | -------------------
Long-term pension liabilities $ 8,940 | $ 8,726
================== | ===================
</TABLE>
The following is a summary of assumptions used to reflect expectations of future
economic conditions as they relate to Fasteners' pension plans:
F-18
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.50% 7.00%
Expected long-term rate of return on plan assets 9.00% 11.00% 9.00%
</TABLE>
Fasteners has an additional defined benefit non-qualified pension plan covering
former employees and former employees of PCI. The pension liability relating to
this plan was $1,022 and $1,203 at December 31, 1997 and 1996, respectively of
which $928 and $1,109 was classified as long-term at December 31, 1997 and 1996,
respectively. Pension expense for this plan was $7, $77, $79, $7 and $35 for
the periods ended December 31, 1997, November 26, 1997, December 31, 1996,
December 31, 1995 and October 17, 1995, respectively.
POSTRETIREMENT BENEFIT PLANS
Fasteners sponsors several defined benefit postretirement health and life
insurance benefit plans that cover both salaried and non-salaried former
employees. Fasteners assumed the obligations of a postretirement health and
life plan for former employees of PCI. All of the participants are retired
employees and beneficiaries, mostly from operations which were previously sold
or discontinued. Fasteners reserves the right to amend or discontinue all or
any part of those plans at any time. Fasteners' funding policy for its
postretirement plans is on a pay-as-you-go basis.
The following table sets forth the status of Fasteners' postretirement benefit
plans as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees and beneficiaries $14,769 $13,644
Fully eligible active participants - 816
----------------------- ----------------------
Total accumulated postretirement benefit obligation 14,769 14,460
Unrecognized net (loss)/gain (318) 112
----------------------- ----------------------
Accumulated postretirement benefit obligation ("APBO") $14,451 $14,572
======================= ======================
</TABLE>
Net periodic postretirement benefit cost consisted of the following:
<TABLE>
<CAPTION>
Company | Predecessor Predecessor Predecessor | Predecessor
| KSCO KSCO KSCO | Alper
-------------------- | ------------------------------------------------------------ | -------------------
Period from | Period from Period from | Period from
Inception to | January 1, 1997 to Year Ended October 17, 1995 | January 1 to
December 31, | November 26, 1997 December 31, 1996 to December 31, | October 17, 1995
1997 | 1995 |
| |
-------------------- | ------------------------------------------------------------ | -------------------
<S> <C> | <C> <C> <C> | <C>
| |
Interest cost $ 86 | $942 $ 990 $110 | $619
Service cost - | - 101 - | -
-------------------- | ------------------------------------------------------------ | -------------------
Net postretirement $ 86 | $942 $1,091 $110 | $619
benefit cost | |
==================== | ============================================================ | ===================
</TABLE>
For measurement purposes, a 9.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998; the rate was assumed to
decrease gradually to 6% for 2004 and remain at that level thereafter. The
health care cost trend rate has a significant effect on the amounts reported.
F-19
<PAGE>
An increase in the health care cost trend rates of one percentage point would
have the effect of increasing the APBO as of December 31, 1997 by a total of
$944 and the interest cost component of net periodic postretirement benefit cost
for the year then ended by a total of $71.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25%, 7.5% and 7.0% in 1997, 1996 and
1995, respectively.
401(k) PLAN
Fasteners sponsors a 401(k) savings plan for salaried and non-salaried
employees. Participation in the plan is optional. Employer contributions are
equal to 50% of employee contributions, up to 5% of the participant's annual
salary, subject to certain limitations. Fasteners' contributions to this plan
were $24, $261, $248, $47 and $197 for the periods ended December 31, 1997,
November 26, 1997, December 31, 1996, December 31, 1995 and October 17, 1995,
respectively.
STOCK OPTIONS
During October 1995, Fasteners granted certain executives options to purchase a
total of 727,000 shares of common stock at an option price of $2.50 per share.
These options vested immediately upon a change in control or over a three-year
period upon achievement of specified performance targets. As of December 31,
the options are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 727,000 727,000 -
Options outstanding, end of year - 727,000 727,000
Options exercisable - 242,275 -
Options granted - Predecessor-KSCO 242,000 - 727,000
Exercise price $ 2.50 $ 2.50 $ 2.50
Grant date February 1997 - October 1995
Options exercised/surrendered 969,000 - -
</TABLE>
Fasteners adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Accordingly, no compensation cost has been recognized for the stock
options granted. Had compensation cost of Fasteners' stock options granted been
determined consistent with the provisions of SFAS 123, Fasteners' compensation
expense would have increased by approximately $0, $126 and $105 for the periods
from Inception to December 31, 1997, January 1, 1997 to November 26, 1997 and
the year ended December 31, 1996, respectively, based on a risk free rate of
return of 7.0% and an expected 5 year life of the options. On the date of the
Saratoga Acquisition, outstanding options that had not been exercised were to be
rolled into options of the Company at equivalent economic values; however, as
the formal option agreements of the Company have not yet been finalized, such
options (442,653) have been considered surrendered in the above table.
NOTE 12. RELATED PARTY TRANSACTIONS
Holdings entered into a management agreement with Saratoga in which Holdings
will pay $150 per quarter to Saratoga. Such payment will be funded with a
dividend from Fasteners and will be recorded as an operating expense of
Holdings. No such payments were made from Inception through December 31, 1997.
Pursuant to a management agreement, Kohlberg provided Fasteners with general
corporate administrative services. Kohlberg received a management fee to
recover its operating expenses based upon an allocation of time devoted to
Fasteners. The management fee was $451, $425 and $63 for the period ended
November 26, 1997, the year ended December 31, 1996 and the period from October
17, 1995 to December 31, 1995, respectively.
F-20
<PAGE>
Fasteners paid a fee of $1.3 million to Kohlberg in conjunction with the KSCO
acquisition. This fee was capitalized along with other acquisition costs
incurred in the transaction. On January 24, 1996, Fasteners paid a fee of $1
million to Kohlberg in conjunction with the acquisitions of PCI and Rau.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Fasteners is occasionally made a party to litigation, claims and assertions
from outside parties during the normal course of business. Management does not
believe that the unfavorable resolution of any such matters currently existing
would have a material unfavorable impact upon the Company's financial position
or results of operations.
As a result of Fasteners' almost 200 years of industrial operations, Fasteners
is involved in environmental protection matters relating to the discharge of
materials into the environment and new such matters arise from time to time.
Fasteners is involved in clean-ups of a current and a former operating location.
In general, Fasteners has established accruals for those hazardous waste sites
where it is probable that a loss has been incurred and the amount of the loss
can be reasonably estimated. At December 31, 1997, Fasteners had established
accruals on a discounted basis, using a rate of 7.5%, for environmental matters
in the amount of $3,155 which are not anticipated to be of a capital nature. The
undiscounted amounts of the expected payments totaled $4,453 at December 31,
1997. The reliability and precision of the loss estimates are affected by
numerous factors, such as the complexity of investigation and remediation, the
stage of site evaluation, the allocation of responsibility among potentially
responsible parties and the assertion of additional claims. Fasteners adjusts
its accruals from time to time as a result of changes in performance standards,
remediation technology, available information and other relevant factors. The
expected payments for environmental obligations consist of $354 in 1998, $429 in
each of 1999 and 2000, $476 in 2001 and $2,765 thereafter.
In December 1993, the Predecessor-Alper filed a lawsuit against certain
insurance carriers seeking indemnification for costs paid and to be paid
relating to environmental matters. During August 1996, Fasteners received a
settlement of $2,487 relating to this claim. No liabilities are currently
recorded for the sites for which this claim related.
Fasteners has employment agreements with certain executives that contain change
in control and severance provisions.
NOTE 14. NORTH AMERICAN AND FOREIGN OPERATIONS
The Company's operations are located in the United States, Europe and Canada.
Financial information by geographic area for 1997 and 1996 is as follows:
F-21
<PAGE>
<TABLE>
<CAPTION>
Company | Predecessor Predecessor
| KSCO KSCO
------------------------- | -----------------------------------------------------
Period from Inception to | Period from January 1,
December 31, | 1997 to Year Ended
1997 | November 26, 1997 December 31, 1996
|
------------------------- | -----------------------------------------------------
<S> <C> | <C> <C>
|
Net Sales by: |
North America |
Domestic $ 5,583 | $72,181 $ 78,348
Export 588 | 6,608 3,275
Europe 523 | 10,378 10,009
------------------------- | -----------------------------------------------------
$ 6,694 | $89,167 $ 91,632
========================= | =====================================================
|
|
|
Operating Income |
North America $ 838 | $ 6,668 $ 6,509
Europe (211) | 1,078 915
------------------------- | -----------------------------------------------------
$ 627 | $ 7,746 $ 7,424
========================= | =====================================================
|
|
Identifiable assets (at December 31): |
North America $219,185 | $ 97,795
Europe 7,017 | 6,071
------------------------- | -------------------------
$226,202 | $103,866
========================= | =========================
</TABLE>
Transfers of product from North America to Europe were not material during the
period presented above. Export sales from the United States include sales to
customers in Europe, Asia, and Latin America. As the Company's European
operations were acquired in January 1996, export sales, operating profits and
identifiable assets were immaterial in 1995.
NOTE 15. SUBSEQUENT EVENT
In February 1998, Holdings sold additional shares of common stock for
approximately $10.3 million. The proceeds were used to redeem the outstanding
redeemable exchangeable preferred stock and warrants.
F-22
<PAGE>
<TABLE>
<CAPTION>
SCOVILL HOLDINGS INC. SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Deductions Balance at
Beginning of charged to costs from end of
Classification Period and expenses Reserve period
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VALUATION AND QUALIFYING ACCOUNTS
DEDUCTED FROM THE ASSETS TO WHICH
THEY APPLY:
(1) For the period from November 26, 1997 to December 31, 1997 $879 $ 20 $5 $ 894
=========== =========== ========== =========
(2) For the period from January 1, 1997 to November 26, 1997 $640 $346 $107 $879
=========== =========== ========== =========
(2) For the year ended December 31, 1996 $326 $376 $62 $640
=========== =========== ========== =========
(2) For the period from October 17, 1995 to December 31, 1995 $326 $455 $455 $326
=========== =========== ========== =========
(3) For the period from January 1, 1995 to October 17, 1995 $326 $398 $398 $326
=========== =========== ========== =========
(1) The Company
(2) Predecessor-KSCO
(3) Predecessor-Alper
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCOVILL HOLDINGS INC.
SCOVILL FASTENERS INC.
/s/ David J. Barrett
------------------------------------------------------
David J. Barrett, Chief Executive Officer and Director
Date: March 30, 1998
Each person whose signature appears below hereby constitutes and appoints
David J. Barrett and Martin A. Moore the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ David J. Barrett
Date: March 30, 1998 ----------------------------------------------
David J. Barrett, Chief Executive Officer,
President and Director
/s/ Martin A. Moore
Date: March 30, 1998 ----------------------------------------------
Martin A. Moore, Executive Vice President and
Chief Financial Officer and Principal
Accounting Officer
/s/ William F. Andrews
Date: March 30, 1998 ----------------------------------------------
William F. Andrews, Chairman of the Board
/s/ Christian L. Oberbeck
Date: March 30, 1998 ----------------------------------------------
Christian L. Oberbeck, Director
/s/ Charles P. Durkin
Date: March 30, 1998 ----------------------------------------------
Charles P. Durkin, Director
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Scovill Holdings Inc., as amended.
3.2 Certificate of Designations, Preferences and Relative, Participating,
Optional and Other Special Rights of 13-3/4% Series A Cumulative
Redeemable Exchangeable Preferred Stock.
3.3 Certificate of Designation, Preferences, and Relative, Participating,
Option and Other Special Rights of Series B Preferred Stock.
3.4 By-laws of Scovill Holdings Inc. +
3.5 Certificate of Incorporation of AF Acquisition Corp. ++
3.6 Certificate of Amendment of Certificate of Incorporation of AF
Acquisition Corp. ++
3.7 Certificate of Amendment of Certificate of Incorporation of Scovill
Apparel Fasteners Inc. ++
3.8 Certificate of Amendment of Certificate of Incorporation of Scovill
Apparel Fasteners Inc. ++
3.9 Certificate of Change of Location of Registered Office and of
Registered Agent of Scovill Fasteners Inc. ++
3.10 Certificate of Ownership and Merger Merging KSCO New Co. into Scovill
Fasteners Inc. ++
3.11 Certificate of Amendment of Certificate of Incorporation of Scovill
Fasteners Inc. ++
3.12 By-laws of Scovill Fasteners Inc. ++
4.1 Indenture dated as of November 26, 1997 among Scovill Acquisition
Inc., Scovill Holdings Inc., as Guarantor, and United States Trust
Company of New as Trustee (including Form of Note). +
4.2 Registration Rights Agreement dated as of November 26, 1997 among
Scovill Acquisition Inc., Scovill Holdings Inc. and SBC Warburg
Dillon Read Inc. and BT Alex Brown Incorporated. +
10.1.1 Management Services Agreement among Scovill Fasteners Inc. and
Saratoga Partners III, L.P. **
10.1.5 Employment Agreement dated as of October 10, 1997 between David J.
Barrett and Scovill Acquisition Inc. +
10.1.6 Employment Agreement dated as of October 10, 1997 between Martin A.
Moore and Scovill Acquisition Inc. +
10.1.7 Employment Agreement dated as of October 10, 1997 between Robert
Feltz and Scovill Acquisition Inc. +
10.1.8 Stock Purchase Agreement dated as of October 10, 1997 among SLF
Corporation, KSCO Acquisition Corporation, and the Stockholders of
KSCO Acquisition Corporation. ++
10.1.10 Tax Sharing Agreement dated as of November 26, 1997 by and among
Scovill Holdings Inc., Scovill Fasteners Inc., and the SFI Subgroup. ++
10.1.11 Stock Option Agreement dated as of November 26, 1997 between William
F. Andrews and Scovill Holdings Inc. ++
10.1.12 Stock Option Agreement dated as of November 26, 1997 between John
Champagne and Scovill Holdings Inc. ++
10.1.13 Stock Option Agreement dated as of November 26, 1997 between Michael
Baxley and Scovill Holdings Inc. ++
10.1.14 Stock Option Agreement dated as of November 26, 1997 between Robert W.
Feltz and Scovill Holdings Inc. ++
10.1.15 Stock Option Agreement dated as of November 2, 1997 between Martin A.
Moore and Scovill Holdings Inc. ++
10.1.16 Stock Option Agreement dated as of November 26, 1997 between David J.
Barrett and Scovill Holdings Inc. ++
10.1.17 Scovill Holdings Inc. Stockholders Agreement dated as of November 26,
1997.++
10.1.18 Scovill Holdings Inc. Subscription Agreement dated as of November 26,
1997.++
10.1.19 Scovill Holdings Inc. Long-Term Incentive and Share Award Plan. ++
10.1.21 Credit Agreement dated as of November 26, 1997. ++
10.1.22 Scovill Holdings Inc. Amended and Restated Stockholders Agreement
dated as of February 20, 1998 **
10.1.23 Joinder Agreement dated as of February 20, 1998. **
10.1.24 Voting Agreement dated as of February 20, 1998 by and between Saratoga
Partners III, L.P., Scovill Holdings Inc., and Co-Investment Partners,
L.P. **
10.1.25 Subscription Agreement dated as of February 20, 1998 by and between
Scovill Holdings Inc. and Co-Investment Partners, L.P. **
10.1.26 Repurchase and Termination Agreement dated as of February 20, 1998 by
and between Scovill Holdings Inc., SBC Warburg Dillon Read Inc., BT
Alex Brown Incorporated, and United States Trust Company of New York. **
21.1 List of Subsidiaries of Scovill Holdings Inc. ++
21.2 List of Subsidiaries of Scovill Fasteners Inc. +
27 Financial Data Schedule.
+ Incorporated by Reference to Exhibit of the same number to the
Company's Registration Statement on Form S-1 (No. 333-43195), as filed
with the Securities and Exchange Commission on December 24, 1997
++ Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 1 to Registration Statement on Form S-1 (No.
333-43195), as filed with the Securities and Exchange Commission on
January 13, 1998.
+++ Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 2 to Registration Statement on Form S-1
(No. 333-43195), as filed with the Securities and Exchange
Commission on February 2, 1998.
* Incorporated by Reference to Exhibit of the same number to the
Company's Amendment No. 3 to Registration Statement on Form S-1
(No. 333-43195), as filed with the Securities and Exchange
Commission on February 11, 1998.
** Incorporated by Reference to Exhibit of the same number to the
Company's Post-Effective Amendment No. 1 to Registration Statement on
Form S-1 (No. 333-43195), as filed with the Securities and Exchange
Commission on February 27, 1998.
</TABLE>
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SCOVILL HOLDINGS INC.
__________________________
ARTICLE I
NAME
The name of the corporation is SCOVILL HOLDINGS INC. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, Delaware 19801, County
of New Castle. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSES AND POWERS
The purpose of the Corporation is to engage in any capacity, whether
by itself or by or through any other person, organization, association,
partnership, corporation or other entity in which the Corporation may have an
interest, in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware, and the Corporation
shall be authorized to exercise and enjoy all powers, rights and privileges
conferred upon corporations by the laws of the State of Delaware as in force
from time to time including, without limitation, all powers necessary or
appropriate to carry out all those acts and activities in which it may lawfully
engage.
<PAGE>
-2-
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue, from time to time, is (i) 6,000,000 shares of
Common Stock, par value $.0001 per share (the "Common Stock") and (ii) 6,200,000
shares of Preferred Stock, par value $.0001 per share.
Each share of Common Stock shall be entitled to one vote. So long as
any Common Stock is outstanding, and except as otherwise expressly provided
elsewhere herein, each share of Common Stock shall entitle the holder thereof to
one vote on all matters to be voted upon at any meeting of the stockholders of
the Corporation.
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 expressly
authorized at any time, and from time to time, to provide for the issuance of
shares of Preferred Stock in one or more series, for such consideration (not
less than its par value) and with such designations, powers, preferences and
relative, participating, optional or special rights, and such qualifications,
limitations or restrictions, as shall be determined by the Board and fixed by
resolution or resolutions adopted by the Board providing for the number of
shares in each series.
The rights of holders of shares of capital stock to take any action as
provided in this Article IV may be exercised at any annual meeting of
stockholders or at a special meeting of stockholders held for such purpose as
provided in the By-laws or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action.
<PAGE>
-3-
ARTICLE V
INCORPORATOR
The name and mailing address of the incorporator is as follows:
Robert C. Scherer
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
The power of the incorporator as such shall terminate upon the filing
of this Certificate of Incorporation.
ARTICLE VI
CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE VII
BOARD OF DIRECTORS
(a) Initial Directors. The names and mailing addresses of the
-----------------
persons who are to serve as directors until the first annual meeting of
stockholders or until their successors are elected and qualified are as follows:
Christian L. Oberbeck
Saratoga Partners III, L.P.
535 Madison Avenue
New York, NY 10022
David J. Barrett
Scovill Fasteners Inc.
1802 Scovill Drive
Clarkesville, GA 30523
William F. Andrews
c/o Scovill Fasteners Inc.
<PAGE>
-4-
1802 Scovill Drive
Clarkesville, GA 30523
(b) Appointment; Number; Removal. Subsequent to the initial
----------------------------
appointment of the directors herein, members of the board of directors (the
"Board") shall be designated by holders of a majority of the votes under all
outstanding shares of Common Stock. At any time and from time to time,
subsequent to the initial appointment of the directors herein, the number of
directors which shall constitute the whole Board may be increased to not more
than nine or decreased to not less than one. Any change in the number of
directorships must be authorized by a majority of the whole Board, as
constituted immediately prior to such change. Any director may be removed,
either with or without cause, by the holders of the majority of votes under all
outstanding shares of Common Stock.
(c) Power and Authorization of the Board. In furtherance and not in
------------------------------------
limitation of the powers conferred by statute, the Board is expressly
authorized:
(i) To make, alter, amend or repeal the By-laws, except as
otherwise expressly provided in any By-law made by the holders of the
capital stock of the Corporation entitled to vote thereon. Any By-laws
may be altered, amended or repealed by the holders of the capital stock of
the Corporation entitled to vote thereon at any annual meeting or at any
special meeting called for that purpose;
(ii) To determine the use and disposition of any surplus and net
profits of the Corporation, including the determination of the amount of
working capital required, to set apart out of any of the funds of the
Corporation, whether or not available for dividends, a reserve or reserves
for any proper purpose and to abolish any such reserve in the manner in
which it was created; and
(iii) To have the general management and control of all the
property of the Corporation and exercise all the powers of the Corporation,
except such as may be expressly by statute, by this Certificate of
Incorporation or by the By-laws conferred upon or reserved to the
stockholders. Without limiting the generality of the foregoing powers, the
Board, without consent or other action of the stockholders of the
Corporation, may authorize the Corporation to purchase, acquire, hold,
lease, mortgage, pledge, sell or convey such property, real and personal,
<PAGE>
-5-
as they may, from time to time, determine, and in payment for any property
or for money to issue or cause to be issued, in any manner permitted by
law, stock of the Corporation, or bonds, debentures, notes or other
obligations thereof, secured or unsecured.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHERS
(a) Limitation of Liability. A director of the Corporation shall not
-----------------------
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stock
holders, (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 General Corporation Law, which provision, among other things, makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions and expressly sets forth a negligence standard with respect to
such liability, or (iv) for any transaction from which the director derived an
improper personal benefit.
If the Delaware General Corporation Law is amended after approval by
the stockholders of this paragraph (a) of Article VIII to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
(b) Indemnification. (1) Each person who was or is made a party or
---------------
is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative, investigative or otherwise
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, if the basis of any such
action, suit or proceeding is action in such capacity, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corpora-
<PAGE>
-6-
tion Law as the same exists, or may hereafter be amended (but in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to pro vide prior to such amendment), against all expense, liability
and loss (including penalties, fines, judgments, attorneys' fees, amounts paid
or to be paid in settlement and excise taxes or penalties) reasonably incurred
or suffered by such person in connection therewith and such indemnification
shall continue as to a person who has ceased to be a director, officer or agent
and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that the Corporation shall indemnify any such
-------- -------
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person (other than pursuant to paragraph (b)(2) of this
Article VIII) only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in this paragraph (b)(1) of
Article VIII shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that if the Delaware
-------- -------
General Corporation Law requires, the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer in advance
of the final disposition of a proceeding shall be made only upon delivery to the
Corporation of an undertaking by or on behalf of such director or officer to
repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this paragraph
(b)(1) of Article VIII or otherwise. Such expenses incurred by other agents may
be so paid upon such terms and conditions, if any, as the Board deems
appropriate.
(2) If a claim which the Corporation is obligated to pay under
paragraph (b)(1) of this Article VIII is not paid in full by the Corporation
within 60 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 entitled to 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
for the Corporation to indemnify the claimant for the amount claimed, but
<PAGE>
-7-
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board, 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 or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board, independent legal counsel or its stockholders)
that the claimant has not met such 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.
(3) The provisions of this Section (b) of Article VIII shall cover
claims, actions, suits and proceedings, civil or criminal, whether now pending
or hereafter commenced and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. If any part of
this Section (b) of Article VIII should be found to be invalid or ineffective in
any proceeding, the validity and effect of the remaining provisions shall not be
affected.
(4) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Section (b) of Article VIII shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of this
Certificate of Incorporation, the By-laws of the Corporation, agreement, vote of
stockholders or disinterested directors or otherwise.
(c) The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
(d) Any repeal or modification of any provision of this Article VIII
by the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
<PAGE>
-8-
ARTICLE IX
RESERVATION OF RIGHT TO AMEND
CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal
any provisions contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all the provisions of this Certificate of
Incorporation and all rights and powers conferred in this Certificate of
Incorporation on stockholders, directors and officers are subject to this
reserved power.
THE UNDERSIGNED being the incorporator hereinbefore named, for the
purposes of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this Certificate hereby declaring and certifying
that the facts herein stated are true; and accordingly has hereunto set his hand
this 20th day of November, 1997.
/s/ Robert C. Scherer
--------------------------------
Robert C. Scherer
Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SCOVILL HOLDINGS INC.
Scovill Holdings Inc. (the "Company"), a corporation organized under the
General Corporation law of the State of Delaware (the "DGCL"), does hereby
certify:
FIRST: The Company has not received any payment for any of its stock.
SECOND: The amendment to the Company's Certificate of Incorporation set
forth in the following resolution was approved by a majority of the Company's
Board of Directors and was duly adopted in accordance with the provisions of
(S)242 of the DGCL:
"RESOLVED: that the Certificate of Incorporation of the Company be
amended by striking the first paragraph of Article IV in its entirety and
replacing therefor: 'ARTICLE IV: CAPITAL STOCK: The total number of shares of
capital stock which the Corporation shall have authority to issue, from time to
time, is (i) 6,000,000 shares of Common Stock, par value $.0001 per share (the
"Common Stock") and (ii) 16,200,000 shares of Preferred Stock, par value $.0001
per share."
IN WITNESS THEREOF, the Company has caused this Certificate to be signed
by David J. Barrett, its President and Chief Executive Officer.
Dated: November 24, 1997
SCOVILL HOLDINGS INC.
By: /s/ David J. Barrett
-------------------------
David J. Barrett
President and CEO
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SCOVIL HOLDINGS INC.
-----------------------------
Pursuant to (S)242 of the General Corporation Law
of the State of Delaware
-----------------------------
Scovill Holdings Inc. (the "Company"), a corporation organized under the
General Corporation Law of the State of Delaware (the "DGCL"), does hereby
certify:
FIRST: That (S)(c)(i) of the Company's Certificate of Designations,
Preferences and Relative, Participating, Optional and Other Special Rights of
the 13 3/4% Series A Cumulative Redeemable Exchangeable Preferred Stock, filed
with the State of Delaware on November 26, 1997, shall be amended to read in its
entirety:
"Holders of the outstanding shares of Senior Pre-
ferred Stock shall be entitled to receive, when, as
and if declared by the Board, out of funds legally
available therefor, dividends at a rate per annum
equal to 13 3/4% of the liquidation preference per share
of the Senior Preferred Stock. All dividends shall
be cumulative, whether or not earned or declared, on
a daily basis from the Senior Preferred Stock Issue
Date and shall be payable quarterly in arrears on
each Dividend Payment Date, commencing February 28,
1998, provided that if any dividend payable on any
Dividend Payment Date on or before November 30, 2002
is not declared and paid in full in cash on such
Dividend Payment Date, the amount payable as divi-
dends on such Dividend Payment Date that is not paid
in cash (including partial payments in cash) on such
Dividend Payment Date shall be paid by the Company in
additional fully paid and non-assessable shares
(including fractional shares, if applicable) of Sen-
ior Preferred Stock having an aggregate liquidation
preference equal to the amount of such dividends
(rounded to the nearest whole cent). After November
30, 2002, dividends shall be paid only in cash. If
any dividend (or portion thereof) payable on any
Dividend Payment Date after November 30, 2002 is not
declared or paid in full in cash on such Dividend
<PAGE>
Payment Date, the amount of such dividend that is
payable and that is not paid in cash on such date
shall increase at the rate of 13 3/4% per annum, com-
pounded quarterly, from such Dividend Payment Date
until declared and paid in full. No interest, or sum
of money in lieu of interest, will be payable in re-
spect of any accrued and unpaid dividends. Each
dividend payment (whether in cash or in additional
shares of Senior Preferred Stock) shall be payable to
Holders of record as they appear on the stock regis-
ter of the Company on such record dates, not less
than 10 nor more than 60 days preceding the related
Dividend Payment Date, as shall be fixed by the
Board. Dividends shall cease to accumulate in re-
spect of shares of the Senior Preferred Stock on the
Exchange Date (as defined in paragraph (g)(1)(A)
hereof) or on the date of their earlier redemption
except to the extent that the Company shall have
failed to issue the appropriate aggregate principal
amount of Exchange Debentures (as defined in para-
graph (g)(1)(A) hereof) in respect of the Senior Pre-
ferred Stock on the Exchange Date or shall have
failed to pay the relevant redemption price on the
date fixed for redemption."
SECOND: That the foregoing Amendment was duly adopted in accordance
with the provisions of (S)242 of the General Corporation Law of the State of
Delaware.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS THEREOF, the Company has caused this Certificate to be signed
by Martin A. Moore, its Executive Vice President.
Dated: December 17, 1997
SCOVILL HOLDINGS INC.
By: /s/ Martin A. Moore
-------------------------
Martin A. Moore
Executive Vice President
<PAGE>
EXHIBIT 3.2
SCOVILL HOLDINGS INC
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF 13 3/4% SERIES A CUMULATIVE
REDEEMABLE EXCHANGEABLE PREFERRED STOCK
______________________
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
______________________
Scovill Holdings Inc. (the "Company"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
that pursuant to the provisions of Section 151 of the General Corporation Law of
the State of Delaware, the Board of Directors of the Company (the "Board"), by
unanimous written consent dated November 24, 1997, adopted the following
resolution, which resolution remains in full force and effect as the date
hereof.
WHEREAS, the Board is authorized, within the limitations and restrictions
stated in the Certificate of Incorporation of the Company, to fix by resolution
or resolutions the designation of each series of Preferred Stock of the Company
(the "Preferred Stock") and the powers, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof, including, without limitation the generality of the
foregoing, such provisions as may be desired concerning voting, redemption,
dividends, dissolutions or distribution of assets, conversion or exchange, and
such other subjects or matters as may be fixed by resolutions of the Board under
the General Corporation Law of Delaware; and
WHEREAS, it is the desire of the Board, pursuant to its authority as
aforesaid, to authorize and fix the terms of a series of Preferred Stock and the
number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such series of
Preferred Stock on the terms and with the provisions herein set forth:
(a) Designation. There is hereby created out of the authorized and unissued
shares of Preferred Stock of the Company a series of Preferred Stock
designated as the "13 3/4% Series A Cumulative Redeemable Exchangeable
Preferred Stock" (the "Senior Preferred Stock"). The number of shares
constituting such series shall be 200,000 shares of Senior Preferred Stock,
consisting of an initial issuance of 100,000 shares of Senior Preferred
Stock
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plus up to 100,000 additional shares of Senior Preferred Stock which may be
issued to pay dividends on the Senior Preferred Stock if the Company elects
to pay dividends in additional shares of Senior Preferred Stock. The
liquidation preference of the Senior Preferred Stock shall be $100.00 per
share.
(b) Rank. The Senior Preferred Stock shall, with respect to dividend
distributions and distributions upon the liquidation, winding-up and
dissolution of the Company, rank senior to all classes of Common Stock of
the Company, the Series B Preferred Stock of the Company (the "Series B
Preferred Stock") and each other class of capital stock or series of
Preferred Stock of the Company established by the Board the terms of which
do not expressly provide that it ranks on a parity with the Senior
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of the Company (collectively
referred to with the Common Stock and the Series B Preferred Stock of the
Company as "Junior Securities"). The Senior Preferred Stock shall, with
respect to dividend distributions and distributions upon the liquidation,
winding-up and dissolution of the Company, rank on a parity with any class
of capital stock or series of Preferred Stock established by the Board, the
terms of which expressly provide that such class or series shall rank on a
parity with the Senior Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of the
Company (collectively referred to as "Parity Securities"); provided that
any such Parity Securities that were not approved by the Holders in
accordance with paragraph (f)(ii)(A) hereof shall be deemed to be Junior
Securities and not Parity Securities.
(c) Dividends.
(i) Holders of the outstanding shares of Senior Preferred Stock shall be
entitled to receive, when, as and if declared by the Board, out of funds
legally available therefor, dividends at a rate per annum equal to 13 3/4%
of the liquidation preference per share of the Senior Preferred Stock. All
dividends shall be cumulative, whether or not earned or declared, on a
daily basis from the Senior Preferred Stock Issue Date and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing on the first
Dividend Payment Date after the Senior Preferred Stock Issue Date, provided
that if any dividend payable on any Dividend Payment Date on or before
November 30, 2002 is not declared and paid in full in cash on such Dividend
Payment Date, the amount payable as dividends on such Dividend Payment Date
that is not paid in cash (including partial payments in cash) on such
Dividend Payment Date shall be paid by the Company in additional fully paid
and non-assessable shares (including fractional shares, if applicable) of
Senior Preferred Stock having an aggregate liquidation preference equal to
the
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amount of such dividends (rounded to the nearest whole cent). After
November 30, 2002, dividends shall be paid only in cash. If any dividend
(or portion thereof) payable on any Dividend Payment Date after November
30, 2002 is not declared or paid in full in cash on such Dividend Payment
Date, the amount of such dividend that is payable and that is not paid in
cash on such date shall increase at the rate of 13 3/4% per annum,
compounded quarterly, from such Dividend Payment Date until declared and
paid in full. No interest, or sum of money in lieu of interest, will be
payable in respect of any accrued and unpaid dividends. Each dividend
payment (whether in cash or in additional shares of Senior Preferred Stock)
shall be payable to Holders of record as they appear on the stock register
of the Company on such record dates, not less than 10 nor more than 60 days
preceding the related Dividend Payment Date, as shall be fixed by the
Board. Dividends shall cease to accumulate in respect of shares of the
Senior Preferred Stock on the Exchange Date (as defined in paragraph
(g)(1)(A) hereof) or on the date of their earlier redemption except to the
extent that the Company shall have failed to issue the appropriate
aggregate principal amount of Exchange Debentures (as defined in paragraph
(g)(i)(A) hereof) in respect of the Senior Preferred Stock on the Exchange
Date or shall have failed to pay the relevant redemption price on the date
fixed for redemption.
(ii) All dividends paid with respect to shares of the Senior Preferred
Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders
entitled thereto.
(iii) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board to declare, or
the Company to pay or set apart for payment, any dividends on shares of the
Senior Preferred Stock at any time.
(iv) Dividends on account of arrears for any past Dividend Period and
dividends in connection with any optional redemption pursuant to paragraph
(e)(i) may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to Holders of record on such date, not more
than 45 days prior to the payment thereof, as may be fixed by the Board.
(v) No full dividends shall be declared by the Board or paid or funds set
apart for payment of dividends by the Company on any Parity Securities for
any period unless full cumulative dividends shall have been or
contemporaneously are declared and paid in full, or declared and (in the
case of dividends payable in cash) a sum in cash set apart sufficient for
such payment, on the Senior Preferred Stock for all Dividend Periods
terminating on or prior to the date of payment of such full dividends on
such Parity Securities. If any dividends are not paid in full, as
aforesaid, upon the shares of the Senior Preferred Stock and any other
Parity Securities, all dividends declared upon shares of the Senior
Preferred Stock and any other Parity Securities shall be declared pro rata
so that the amount of dividends declared per share on the Senior Preferred
Stock and such Parity Securities shall in all cases bear to each other the
same ratio that accrued dividends per share on the Senior Preferred Stock
and such Parity Securities bear to each other.
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(vi) Holders of shares of the Senior Preferred Stock shall be entitled to
receive the dividends provided for in paragraph (c)(i) hereof in preference
to and in priority over any dividends upon any of the Junior Securities.
(vii) Dividends payable on shares of the Senior Preferred Stock for any
period less than a year shall be payable for the actual number of days
elapsed in the period for which such dividends are payable, computed on the
basis of a 360-day year of twelve 30-day months. If any Dividend Payment
Date occurs on a day that is not a Business Day, any accrued dividends
otherwise payable on such Dividend Payment Date shall be paid on the next
succeeding Business Day.
(viii) The election of directors pursuant to paragraph (f)(iii) is the
sole remedy for the Company's failure to pay dividends on the Senior
Preferred Stock.
(d) Liquidation Preference.
(i) Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the affairs of the Company, the Holders of shares of Senior
Preferred Stock then outstanding shall be entitled to be paid, out of the
assets of the Company available for distribution to its stockholders,
$100.00 per share of Senior Preferred Stock, plus an amount in cash equal
to all accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up (including an amount equal to a
prorated dividend for the period from the last Dividend Payment Date to the
date fixed for liquidation, dissolution or winding-up), before any
distribution is made with respect to any Junior Securities, including,
without limitation, the Series B Preferred Stock and Common Stock of the
Company. If, upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the amounts payable with respect to the Senior
Preferred Stock and all other Parity Securities are not paid in full, then
the holders of all such shares shall share equally and ratably in such
distribution of assets of the Company in accordance with the amounts which
would be payable on such distribution if the amount to which the Holders of
outstanding shares of Senior Preferred Stock and the holders of outstanding
shares of all Parity Securities are entitled were paid in full.
(ii) After payment of the full amount of the liquidation preferences and
accumulated and unpaid dividends to which they are entitled, the holders of
shares of Senior Preferred Stock shall not be entitled to any further
participation in any distribution of assets of the Company.
(iii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
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of the Company nor the consolidation or merger of the Company with or into
one or more corporations shall be deemed to be a liquidation, dissolution
or winding-up of the affairs of the Company.
(e) Redemption.
(i) Optional Redemption.
(A) The Company may (subject to contractual and other restrictions
with respect thereto and the legal availability of funds therefor), at
the option of the Board, redeem at any time on or after November 30,
2002, from any source of funds legally available therefor, in whole or in
part, in the manner provided in paragraph (e)(iii) hereof, any or all of
the shares of the Senior Preferred Stock, at the redemption prices
(expressed as percentages of the liquidation preference thereof) set
forth below plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends per share (including an amount in cash
equal to a prorated dividend for the period from the Dividend Payment
Date immediately prior to the Redemption Date to the Redemption Date)
(the "Optional Redemption Price"), if redeemed during the 12-month period
beginning on November 30 of each of the calendar years indicated below:
YEAR PERCENTAGE
---- ----------
2002 106.875%
2003 104.583%
2004 102.292%
2005 and thereafter 100.000%
provided that no optional redemption pursuant to this paragraph (e)(i)(A)
shall be authorized or made unless prior thereto full unpaid cumulative
dividends for all Dividend Periods terminating on or prior to the
Redemption Date and for an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Redemption
Date to the Redemption Date shall have been or immediately prior to the
Redemption Notice (as defined in paragraph (e)(iii)(A) hereof) are
declared and paid in cash or declared and a sum set apart sufficient for
such cash payment on the Redemption Date, on the outstanding shares of
the Senior Preferred Stock.
(B) In addition, at any time, the Company may redeem, in the manner
provided in paragraph (e)(iii) hereof, shares of the Senior Preferred
Stock, in whole or in part, at the option of the Company, at a redemption
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price equal to 113.75% of the liquidation preference thereof, plus an
amount in cash equal to all accumulated and unpaid dividends per share
(including an amount in cash equal to a prorated dividend for the period
from the Dividend Payment Date immediately prior to the Redemption Date
to the Redemption Date) (the "Contingent Redemption Price"), with the net
cash proceeds of one or more Public Equity Offerings, provided that
notice of such redemption is given within 60 days of the date of the
closing of such Public Equity Offerings, and provided, further, that no
optional redemption pursuant to this paragraph (e)(i)(B) shall be
authorized or made unless prior thereto full unpaid cumulative dividends
for all Dividend Periods terminating on or prior to the Redemption Date
and for an amount equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date on the outstanding shares of the Senior Preferred Stock
shall have been or immediately prior to the Redemption Notice are
declared and paid in cash or declared and a sum set apart sufficient for
such cash payment on the Redemption Date.
(C) In the event of a redemption of only a portion of the then
outstanding shares of the Senior Preferred Stock, the Company shall
effect such redemption as it determines, pro rata according to the number
of shares held by each Holder of the Senior Preferred Stock or by lot, as
may be determined by the Company in its sole discretion, except that the
Company may redeem such shares held by any Holders of fewer than 100
shares (or shares held by Holders who would hold less than 100 shares as
a result of such redemption), without regard to any pro rata redemption
requirement.
(D) The election of directors pursuant to paragraph (f)(iii) is the
sole remedy for the Company's failure to effect a redemption pursuant to
this paragraph (e)(ii) following the issuance of a Redemption Notice (as
defined in paragraph (e)(iii)(A) below).
(ii) Mandatory Redemption. On November 30, 2009, the Company shall redeem
(subject to the legal availability of funds therefor) from any source of
funds legally available therefor, in the manner provided in paragraph
(e)(iii) hereof, all of the shares of the Senior Preferred Stock then
outstanding at a redemption price equal to 100% of the liquidation
preference per share, plus an amount in cash equal to all accumulated and
unpaid dividends per share (including an amount equal to a prorated
dividend for the period from the Dividend Payment Date immediately prior to
the Redemption Date to the Redemption Date) (the "Mandatory Redemption
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Price"). The election of directors pursuant to paragraph (f)(iii) is the
sole remedy for the Company's failure to effect the redemption required by
this paragraph (e)(ii).
(iii) Procedures for Redemption.
(A) At least 30 days and not more than 60 days prior to the date
fixed for any redemption of the Senior Preferred Stock, written notice of
the redemption (the "Redemption Notice") shall be given by first-class
mail, postage prepaid, to each Holder of record on the record date fixed
for such redemption of the Senior Preferred Stock at such Holder's
address as the same appears on the stock register of the Company,
provided that no failure to give such notice nor any deficiency therein
or in the mailing thereof shall affect the validity of the procedure for
the redemption of any shares of Senior Preferred Stock to be redeemed
except as to the Holder or Holders to whom the Company has failed to give
said notice or except as to the Holder or Holders whose notice was
defective. The Redemption Notice shall state:
(1) whether the redemption is pursuant to paragraph (e)(i)(A), (e)(i)(B)
or (e)(ii) hereof;
(2) the Optional Redemption Price, the Contingent Redemption Price or the
Mandatory Redemption Price, as the case may be;
(3) whether all or less than all the outstanding shares of the Senior
Preferred Stock are to be redeemed and the total number of shares of
the Senior Preferred Stock being redeemed;
(4) the number of shares of Senior Preferred Stock held, as of the
appropriate record date, by the Holder that the Company intends to
redeem;
(5) the date fixed for redemption;
(6) that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Senior Preferred Stock are to
be surrendered for redemption, in the manner and at the price
designated, the certificate or certificates representing the shares
of Senior Preferred Stock to be redeemed; and
(7) that dividends on the shares of the Senior Preferred Stock to be
redeemed shall cease to accrue and all rights of the Holder of such
shares will terminate (except for the right to receive the Optional
Redemption Price, the Contingent Redemption Price or the Mandatory
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Redemption Price, as the case may be, without interest) on such
Redemption Date unless the Company defaults in the payment of the
Optional Redemption Price, the Contingent Redemption Price or the
Mandatory Redemption Price, as the case may be.
(B) Each Holder of Senior Preferred Stock shall surrender the
certificate or certificates representing such shares of Senior Preferred
Stock to the Company, duly endorsed, in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the full
Optional Redemption Price, Contingent Redemption Price or Mandatory
Redemption Price, as the case may be, for such shares shall be payable in
cash to the Person whose name appears on such certificate or certificates
as the owner thereof, and each surrendered certificate shall be canceled
and retired. In the event that less than all of the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) Except to the extent the Company defaults in the payment in
full of the Optional Redemption Price, Contingent Redemption Price or
Mandatory Redemption Price, as the case may be, dividends on the Senior
Preferred Stock called for redemption shall cease to accumulate on the
Redemption Date, and the Holders of such redemption shares shall cease to
have any further rights with respect thereto on the Redemption Date, other
than the right to receive the Optional Redemption Price, the Contingent
Redemption Price or the Mandatory Redemption Price, as the case may be,
without interest.
(f) Voting Rights.
(i) The Holders of shares of the Senior Preferred Stock, except as
otherwise required under the laws of the State of Delaware or as set forth
in paragraphs (ii) and (iii) below and in paragraph (m) hereof, shall not
be entitled or permitted to vote on any matter required or permitted to be
voted upon by the stockholders of the Company.
(ii) (A) So long as any shares of the Senior Preferred Stock are
outstanding, the Company shall not authorize any class of Parity Securities
without the affirmative vote or consent of Holders of a majority of the
outstanding shares of Senior Preferred Stock, voting or consenting, as the
case may be, separately as one class, given in person or by proxy.
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(B) So long as any shares of the Senior Preferred Stock are
outstanding, the Company shall not amend this Certificate of Designations
so as to affect adversely the specified rights, preferences, privileges or
voting rights of Holders of shares of Senior Preferred Stock, or to
authorize the issuance of any additional shares of Senior Preferred Stock,
without the affirmative vote or consent of Holders of a majority of the
then outstanding shares of Senior Preferred Stock, voting or consenting, as
the case may be, separately as one class, given in person or by proxy,
either in writing or by resolution adopted at an annual or special meeting.
(C) Prior to the Exchange Date, the Company shall not amend or
modify the indenture for the Exchange Debentures in the form approved by
the Company on the Senior Preferred Stock Issue Date (the "Exchange
Debenture Indenture") (other than any such modification as would be
permitted under the Exchange Debenture Indenture without consent of the
holders of Exchange Debentures) without the affirmative vote or consent of
Holders of at least a majority of the shares of Senior Preferred Stock then
outstanding, voting or consenting, as the case may be, separately as one
class, given in person or by proxy, either in writing or by resolution
adopted at an annual or special meeting.
(D) Except to the extent set forth in paragraphs (f)(ii)(A) above,
(1) the creation, authorization or issuance of any shares of any Junior
Securities or Parity Securities, (2) the decrease in the amount of
authorized capital stock of any class, including any Preferred Stock, or
(3) the increase in the amount of authorized capital stock of any class of
Junior Securities shall not require the consent of Holders of Senior
Preferred Stock and shall not be deemed to affect adversely the rights,
preferences, privileges or voting rights of Holders of shares of Senior
Preferred Stock.
(iii) (A) If (1) dividends on the Senior Preferred Stock are in arrears
and unpaid (and, in the case of dividends payable after November 30, 2002,
are not paid in cash) for four consecutive quarterly periods (a "Dividend
Default"); (2) the Company fails to discharge any redemption obligation of
the Senior Preferred Stock when required (a "Redemption Default"), whether
or not the Company is permitted to do so by the terms of any indenture,
credit agreement or any other obligations of the Company; (3) the Company
fails to make an offer to purchase all outstanding shares of Senior
Preferred Stock following a Change of Control if such offer to purchase is
required to be made pursuant to paragraph (h) hereof or fails to purchase
shares of Senior Preferred Stock from holders who elect to have such shares
purchased pursuant to such Change of Control offer (a "Change of Control
Default"), whether or not the Company is permitted to do so by the terms of
any indenture, credit agreement or any other obligation of the Company;
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(4) the Company breaches or violates one of the provisions set forth in
paragraph (m) hereof and the breach or violation continues for a period of
30 days or more (a "Restriction Default"); or (5) a default occurs on the
obligations to pay principal of, interest on or any other payment
obligation when due (a "Payment Default") at final maturity on one or more
classes of Indebtedness of the Company or any Subsidiary of the Company,
whether such Indebtedness exists on the Senior Preferred Stock Issue Date
or is incurred thereafter, having individually or in the aggregate, an
outstanding principal amount of $15,000,000 or more, or any other Payment
Default occurs on one or more such classes of Indebtedness and such class
or classes of Indebtedness are declared due and payable prior to their
respective maturities, then, in any such case, the number of directors
constituting the Board shall be increased by two as set forth in this
Certificate of Designations and the Holders of the majority of the then
outstanding Senior Preferred Stock, voting separately as one class, shall
be entitled to elect two directors. Subject to Section (f)(iii)(B) below,
Holders of a majority of the issued and outstanding shares of the Senior
Preferred Stock, voting separately as one class, shall have the exclusive
right to elect such two directors at a meeting therefor called upon the
occurrence of such Dividend Default, Redemption Default, Change of Control
Default, Restriction Default or Payment Default, as the case may be, and at
every subsequent meeting at which the terms of office of the directors so
elected by the Holders of the Senior Preferred Stock expire (other than as
described in (f)(iii)(B) below). Each such event described in clauses (1),
(2), (3), (4) and (5) is a "Voting Rights Triggering Event."
(B) The right of the Holders of Senior Preferred Stock voting
separately as one class to elect members of the Board of Directors as set
forth in paragraph (f)(iii)(A) above shall continue until such time as (1)
in the event such right arises due to a Dividend Default, all accumulated
dividends that are in arrears on the Senior Preferred Stock are paid in
full (and, in the case of Dividends payable after November 30, 2002, are
paid in cash); and (2) in the event such right arises due to a Redemption
Default, a Change of Control Default, a Restriction Default or a Payment
Default, the Company remedies any such failure, breach or default, at which
time the term of any directors elected pursuant to paragraph (f)(iii)(A)
shall immediately terminate, subject always to the same provisions for the
renewal and divestment of such special voting rights in the case of any
future Voting Rights Triggering Event. At any time after voting power to
elect directors shall have become vested and be continuing in the Holders
of shares of the Senior Preferred Stock pursuant to this paragraph
(f)(iii), or if vacancies shall exist in the offices of directors elected
by the Holders of shares of the Senior Preferred Stock, a proper officer of
the Company may, and upon the written request of the Holders of record of
at least 10% of the shares of Senior Preferred Stock then outstanding
addressed to the Secretary of the Company shall, call a special meeting of
the Holders of Senior Preferred Stock, for the purpose of electing the
directors which such Holders are entitled to elect. If such meeting shall
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not be called by the proper officer of the Company within 20 days after
personal service of said written request upon the Secretary of the Company,
or within 20 days after mailing the same within the United States by
certified mail, addressed to the Secretary of the Company at its principal
executive offices, then the Holders of record of at least 20% of the
outstanding shares of the Senior Preferred Stock may designate in writing
one of their numbers to call such meeting at the expense of the Company,
and such meeting may be called by the Person so designated upon the notice
required for the annual meeting of stockholders of the Company and shall be
held at the place for holding the annual meetings of stockholders or such
other place in the United States as shall be designated in such notice.
Notwithstanding the provisions of this paragraph (f)(iii)(B), no such
special meeting shall be called if any such request is received less than
30 days before the date fixed for the next ensuing annual or special
meeting of stockholders of the Company. Any Holder of shares of the Senior
Preferred Stock so designated shall have, and the Company shall provide,
access to the lists of Holders of shares of the Senior Preferred Stock for
purposes of calling a meeting pursuant to the provisions of this paragraph
(f)(iii)(B).
(C) At any meeting held for the purpose of electing directors at
which the Holders of Senior Preferred Stock shall have the right, voting
separately as one class, to elect directors as aforesaid, the presence in
person or by proxy of the Holders of at least a majority of the outstanding
Senior Preferred Stock shall be required to constitute a quorum of such
Senior Preferred Stock.
(D) Any vacancy occurring in the office of a director elected by
the Holders of shares of the Senior Preferred Stock may be filled by the
remaining director elected by the Holders of shares of the Senior Preferred
Stock unless and until such vacancy shall be filled by the Holders of
shares of the Senior Preferred Stock.
(E) The right to elect directors pursuant to this paragraph
(f)(iii) is the sole remedy for the Company's failure to pay dividends on
the Senior Preferred Stock, redeem the Senior Preferred Stock when
required, to effect an Offer (as defined in paragraph (h)(i)) when required
by paragraph (h) or comply with any provision in paragraph (m).
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(iv) In any case in which the Holders of shares of the Senior Preferred
Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant
to the laws of the State of Delaware, each Holder of shares of the Senior
Preferred Stock shall be entitled to one vote for each share of Senior
Preferred Stock held.
(v) In no event shall the Holders of Senior Preferred Stock have the
right to elect and have serve more than two members of the Board at any one
time.
(g) Exchange.
(i) Requirements.
(A) The Company may at its option exchange all, but not less than
all, of the then outstanding shares of Senior Preferred Stock into the
Company's 13 3/4% Subordinated Exchange Debentures due 2009 (the
"Exchange Debentures") on any Dividend Payment Date, provided that on the
date of such exchange (the "Exchange Date"): (1) there shall be no
contractual impediments to such exchange; (2) either (a) a registration
statement relating to the Exchange Debentures shall have been declared
effective under the Securities Act of 1933, as amended (the "Securities
Act"), prior to the Exchange Date and shall continue to be in effect on
the Exchange Date or (b)(i) the Company shall have obtained a written
opinion of counsel that an exemption from the registration requirements
of the Securities Act is available for such exchange, and that upon
receipt of such Exchange Debentures pursuant to such exchange made in
accordance with such exemption, the holders (assuming such holder is not
an Affiliate of the Company) thereof shall not be subject to any
restrictions imposed by the Securities Act upon the resale thereof and
(ii) such exemption is relied upon by the Company for such exchange; (3)
the Exchange Debenture Indenture and the Trustee shall have been
qualified under the Trust Indenture Act of 1939, as amended; (4)
immediately after giving effect to such exchange, no Default or Event of
Default (each as defined in the Exchange Debenture Indenture) would exist
under the Exchange Debenture Indenture; and (5) the Company shall have
delivered to the Trustee a written opinion of counsel (subject to
customary qualifications and assumptions), dated the Exchange Date,
regarding the satisfaction of the conditions set forth in clauses (1),
(2) and (3). In the event that the issuance of the Exchange Debentures is
not permitted on the date of exchange or any of the conditions set forth
in clauses (1) through (5) of the preceding sentence are not satisfied on
the Exchange Date, the Company shall use its best efforts to satisfy such
conditions and effect such exchange as soon as practicable.
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The Company shall send a written notice (the "Exchange Notice")
of exchange by mail to each Holder, which notice shall state: (v) that
the Company is exercising its option to exchange the Senior Preferred
Stock for Exchange Debentures pursuant to paragraph (g) hereof; (w) the
Exchange Date, which date shall not be less than 30 days nor more than 60
days following the date on which the Exchange Notice is mailed (except as
provided in the last sentence of this paragraph); (x) that the Holder is
to surrender to the Company, at the place or places where certificates
for shares of Senior Preferred Stock are to be surrendered for exchange,
in the manner designated in the Exchange Notice, the certificate or
certificates representing the shares of Senior Preferred Stock to be
exchanged; (y) that dividends on the shares of Senior Preferred Stock to
be exchanged shall cease to accrue on the Exchange Date whether or not
certificates for shares of Senior Preferred Stock are surrendered for
exchange on the Exchange Date unless the Company shall default in the
delivery of Exchange Debentures; and (z) that interest on the Exchange
Debentures shall accrue from the Exchange Date whether or not
certificates for shares of Senior Preferred Stock are surrendered for
exchange on the Exchange Date unless the Company shall default in the
delivery of Exchange Debentures. On the Exchange Date, if the conditions
set forth in clauses (1) through (5) above are satisfied, the Company
shall issue Exchange Debentures in exchange for the Senior Preferred
Stock as provided in the next paragraph.
(B) Upon any exchange pursuant to paragraph (g)(i)(A), Exchange
Debentures shall be issued in exchange for Senior Preferred Stock, in
registered form without coupons, in a principal amount equal to the
liquidation preference thereof, plus an amount in cash equal to all
accumulated and unpaid dividends (including a prorated dividend for the
period from the immediately preceding Dividend Payment Date to the
Exchange Date). Exchange Debentures will be issued in principal amounts
of $1,000 and integral multiples thereof to the extent possible, and will
also be issued in principal amounts less than $1,000 so that each Holder
of Senior Preferred Stock will receive certificates representing the
entire amount of Exchange Debentures to which his shares of Senior
Preferred Stock entitle him, provided that the Company may, at its
option, pay cash in lieu of issuing an Exchange Debenture in a principal
amount of less than $1,000.
(ii) Procedure for Exchange.
(A) On or before the Exchange Date, each Holder of Senior Preferred
Stock shall surrender the certificate or certificates representing such
shares of Senior Preferred Stock, in the manner and at the place
designated in the Exchange Notice. The Company shall cause the Exchange
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Debentures to be executed on the Exchange Date and, upon surrender in
accordance with the Exchange Notice of the certificates for any shares of
Senior Preferred Stock so exchanged (properly endorsed or assigned for
transfer, if the notice shall so state), such shares shall be exchanged
by the Company into Exchange Debentures. The Company shall pay interest
on the Exchange Debentures at the rate and on the dates specified therein
from the Exchange Date.
(B) If notice has been mailed as aforesaid, and if before the
Exchange Date (1) the Exchange Debenture Indenture shall have been duly
executed and delivered by the Company and the Trustee and (2) all
Exchange Debentures necessary for such exchange shall have been duly
executed by the Company and delivered to the Trustee with irrevocable
instructions to authenticate the Exchange Debentures necessary for such
exchange, then on the Exchange Date, dividends shall cease to accrue on
the outstanding shares of Senior Preferred Stock and all of the rights of
the Holders of shares of the Senior Preferred Stock as stockholders of
the Company shall cease (except the right to receive Exchange Debentures,
an amount in cash equal to the accrued and unpaid dividends on the Senior
Preferred Stock and, if the Company so elects, cash in lieu of any
Exchange Debentures which is an amount that is not an integral multiple
of $1,000), and the Person or Persons entitled to receive the Exchange
Debentures issuable upon exchange shall be treated for all purposes as
the registered holder or holders of such Exchange Debentures as of the
Exchange Date.
(h) Change of Control.
(i) Upon the occurrence of a Change of Control, the Company shall be
obligated to make an offer ("Offer") to all Holders of Senior Preferred
Stock to purchase all outstanding Senior Preferred Stock and shall
purchase, on a Business Day not more than 60 days nor less than 30 days
after the occurrence of the Change of Control (such purchase date being the
"Change of Control Purchase Date"), all Senior Preferred Stock validly
tendered, and not properly withdrawn, pursuant to such Offer for a purchase
price in cash (the "Change of Control Purchase Price") equal to 101% of the
aggregate liquidation preference of the Senior Preferred Stock plus,
without duplication, an amount in cash equal to all accumulated and unpaid
dividends per share (including an amount in cash equal to a prorated
dividend for the period from the Dividend Payment Date immediately prior to
the Change of Control Purchase Date to the Change of Control Purchase
Date).
(ii) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder stating: (A) that an Offer is being made
pursuant to this paragraph (h) and that, to the extent lawful, all shares
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of Senior Preferred Stock validly tendered and not properly withdrawn shall
be accepted for payment; (B) a description of the transaction or
transactions that constitute the Change of Control; (C) the number of
shares of Senior Preferred Stock outstanding as of the date of such notice,
the Change of Control Purchase Price, the purchase price per share and the
expiration date of the Offer, which shall be a date no earlier than the
date 20 Business Days following the commencement of the Offer; (D) that any
shares of Senior Preferred Stock not validly tendered and any shares of
Senior Preferred Stock properly withdrawn shall continue to accrue
dividends in accordance with the terms of this Certificate of Designations;
(E) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, all shares of Senior Preferred Stock accepted for
payment pursuant to the Offer shall cease to accrue dividends after the
Change of Control Purchase Date, which shall be not later than five
Business Days after the termination of the Offer; and (F) a description of
the procedures to be followed by such Holder in order to have its shares of
Senior Preferred Stock validly tendered (including that the Holder is to
surrender to the Company in the manner and at the place designated or
places where certificates for shares of Senior Preferred Stock are to be
surrendered) and a description of the procedures to be followed by such
Holder in order to withdraw tendered shares.
(iii) On the Change of Control Purchase Date, (A) the Company shall, to
the extent lawful, (1) accept for payment shares of Senior Preferred Stock
validly tendered pursuant to the Offer, (2) deposit with the Transfer Agent
an amount equal to the Change of Control Purchase Price in respect of all
shares of Senior Preferred Stock so tendered, (3) deliver or cause to be
delivered to the Transfer Agent the Senior Preferred Stock so accepted
together with an Officer's Certificate stating the total number of shares
of Senior Preferred Stock being purchased by the Company, (4) promptly mail
to each Holder of shares of Senior Preferred Stock so accepted payment in
an amount equal to the purchase price for such shares and (5) arrange to
have promptly authenticated and mailed (or cause to be transferred by book
entry) to each Holder a new share certificate representing any unpurchased
shares of the Senior Preferred Stock represented by the certificate
tendered pursuant to the Offer, if any, and (B) unless the Company defaults
in the payment for the shares of Senior Preferred Stock tendered pursuant
to the Offer, dividends shall cease to accrue with respect to the shares of
Senior Preferred Stock tendered and all rights of Holders of such tendered
shares shall terminate, except for the right to receive payment therefor,
on the Change of Control Purchase Date. The Company shall publicly announce
the results of the Offer on the Change of Control Purchase Date.
(iv) The Company shall comply with Rule 14e-1 under the Exchange Act and
any securities laws and regulations, to the extent such laws and
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regulations are applicable to the repurchase of shares of the Senior
Preferred Stock in connection with a Change of Control.
(v) The election of directors pursuant to paragraph (f)(iii) is the sole
remedy for the Company's failure to make or consummate an Offer upon the
occurrence of a Change of Control.
(i) Conversion or Exchange. Holders of shares of Senior Preferred Stock shall
not have any rights hereunder to convert such shares into or exchange such
shares for shares of any other class or classes or of any other series of
any class or classes of Capital Stock of the Company.
(j) Preemptive Rights. No shares of Senior Preferred Stock shall have any
rights of preemption whatsoever as to any securities of the Company, or any
warrants, rights or options issued or granted with respect thereto,
regardless of how such securities or such warrants, rights or options may
be designated, issued or granted.
(k) Reissuance of Senior Preferred Stock. Shares of Senior Preferred Stock
that have been issued and reacquired in any manner, including shares
purchased or redeemed or exchanged, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of
authorized but unissued shares of Preferred Stock of the Company
undesignated as to series and may be designated or redesignated and issued
or reissued, as the case may be, as part of any series of Preferred Stock
of the Company (including the Senior Preferred Stock), provided that any
issuance of such shares as Senior Preferred Stock must be in compliance
with the terms hereof.
(l) Business Day. If any payment, redemption, purchase or exchange shall be
required by the terms hereof to be made on a day that is not a Business
Day, such payment, redemption, purchase or exchange shall be made on the
immediately succeeding Business Day.
(m) Certain Additional Provisions.
(i) Merger or Consolidation. Without the consent of Holders of a majority
of the outstanding shares of Senior Preferred Stock, voting or consenting,
as the case may be, separately as a class (regardless of whether such vote
or consent is given in proxy or in person, either in writing or by
resolution adopted at an annual or special meeting), the Company shall not,
in a single transaction or series of related transactions, consolidate or
merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its properties or assets in one or more
related transactions, to another corporation, Person or entity unless (A)
the Company is the surviving corporation or the entity or the Person formed
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by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition will have been made is a corporation, partnership or
trust organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (B) the Senior Preferred Stock shall
be converted into or exchanged for and shall become shares of the entity or
Person formed by or surviving any such consolidation or merger (if other
than the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made,
having in respect of such successor, transferee or resulting corporation
substantially the same powers, preferences and relative participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereon, that the Senior Preferred Stock had immediately prior
to such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition; (C) immediately after such transaction, no
Voting Rights Triggering Event, and no event that after the giving of
notice or lapse of time or both would become a Voting Rights Triggering
Event, shall have occurred and be continuing; (D) the Company or the entity
or Person formed by or surviving any such consolidation or merger (if other
than the Company), or to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made will have Consolidated
Net Worth immediately after the transaction equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the
transaction; and (E) prior to the consummation of any such proposed
transaction, the Company shall have delivered to the Transfer Agent an
Officer's Certificate and an opinion of counsel to the effect that such
transaction complies with the terms of the Certificate of Designations and
that all conditions precedent to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of
all or substantially all of the properties or assets of one or more
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
(ii) Junior Payments. (A) The Company shall not, directly or indirectly,
(1) declare or pay any dividend or make any distribution on account of any
Junior Securities (other than dividends or distributions payable in Junior
Securities (other than Disqualified Stock)), (2) purchase, redeem or
otherwise acquire or retire for value any Junior Securities or (3) make any
Restricted Investment (all such dividends, distributions, purchases,
redemptions, acquisitions, retirements and Restricted Investments being
collectively referred to as "Junior Payments"), if, at the time of such
Junior Payment:
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(a) a Voting Rights Triggering Event shall have occurred and be
continuing or would occur as a consequence thereof; or
(b) all dividends on the Senior Preferred Stock payable on Dividend
Payment Dates after November 30, 2002, have not been declared and paid in
cash.
(B) Notwithstanding the foregoing, this paragraph (m)(ii) shall not
prohibit as Junior Payments:
(1) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with all of the provisions hereof (including, but not limited to,
this paragraph (m)(ii));
(2) the making of any Restricted Investment in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of, or from substantially concurrent
additional capital contributions in respect of, Capital Stock of the
Company (other than Disqualified Stock);
(3) (a) the redemption, repurchase, retirement or other acquisition
of any Parity Securities of the Company in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of, or from substantially concurrent
additional capital contributions in respect of, other Parity or Junior
Securities of the Company (other than any Disqualified Stock) and (b) the
redemption, repurchase, retirement or other acquisition of any Junior
Securities of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company)
of, or from substantially concurrent additional capital contributions in
respect of, other Junior Securities of the Company (other than any
Disqualified Stock);
(4) the repurchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company held by any present or
former employee or director of the Company (or Scovill or any of the
Company's Subsidiaries) (or the estate or a trust for the benefit of any
such Person) in an aggregate amount not to exceed $1.5 million in any
fiscal year (provided that any unused amounts may be carried over to the
immediately subsequent fiscal year but not beyond such fiscal year); and
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(5) repurchases of Capital Stock deemed to occur upon exercise of
stock options or warrants if such Capital Stock represents a portion of
the exercise price thereof.
(iii) Transactions with Affiliates.
(A) Except as otherwise set forth in this paragraph (m)(iii), the Company
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, in one transaction or a series of related transactions, sell,
lease, transfer or otherwise dispose of any of its properties or assets to,
or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any of their respective Affiliates (each of the foregoing, an
"Affiliate Transaction"), unless (1) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Subsidiary than
those that could have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person and (2) the Company
delivers to the Transfer Agent (a) with respect to any Affiliate
Transaction (or series of related transactions) involving aggregate
payments in excess of $2.0 million, an Officer's Certificate certifying
that such Affiliate Transaction complies with clause (1) above and a
secretary's certificate which sets forth and authenticates a resolution
that has been adopted by a vote of a majority of the Disinterested
Directors approving such Affiliate Transaction or states that there are no
Disinterested Directors, in which case an opinion, as described in clause
(b), shall be required and (b) with respect to any Affiliate Transaction
(or series of related transactions) involving aggregate payments in excess
of $7.5 million, the certificates described in the preceding clause (a) and
an opinion as to the fairness to the Company or such Subsidiary from a
financial point of view issued by an Independent Financial Advisor.
(B) Notwithstanding the foregoing, the following transactions will not be
deemed to be Affiliate Transactions: (1) transactions exclusively between
or among (a) the Company and one or more Subsidiaries or (b) Subsidiaries,
provided, in each case, that no Affiliate of the Company (other than any
Person that is such an Affiliate solely because of the control of such
Person by the Company) owns Capital Stock of any such Subsidiary; (2)
reasonable director, officer and employee compensation and other benefit
and indemnification arrangements approved by the Board; (3) transactions
permitted by the covenant described in paragraph (m)(ii) herein; (4) the
existence of, or the performance by the Company or any Subsidiary under,
the Management Services Agreement with respect to fees of up to $600,000
per year and any other agreement in effect on the Senior Preferred Stock
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Issue Date, as such agreement is in effect on the Senior Preferred Issue
Date or as amended thereafter in any manner no less favorable to the
Holders; (5) prepaid expenses and loans or advances to employees or
directors of the Company or any of its Subsidiaries in the ordinary course
of business; (6) the entering into of a tax sharing agreement, or payments
pursuant thereto, between the Company and/or one or more Subsidiaries, on
the one hand, and any other Person with which the Company or such
Subsidiaries are required or permitted to file a consolidated tax return or
with which the Company or such Subsidiaries are or could be part of a
consolidated group for tax purposes, on the other hand, which payments by
the Company and its Subsidiaries are not in excess of the tax liabilities
that would have been payable by them on a stand alone basis; and (7) the
issuance and sale by the Company to its Affiliates of Qualified Stock.
(iv) Reports. Whether or not required by the rules and regulations of the
Commission, so long as any shares of Senior Preferred Stock are
outstanding, the Company will file with the Commission, to the extent such
filings are accepted by the Commission, and will furnish to the Holders all
quarterly and annual reports and other information, documents and reports
that would be required to be filed with the Commission pursuant to Section
13 of the Exchange Act if the Company were required to file under such
section. For so long as any shares of Senior Preferred Stock remain
outstanding, the Company will furnish to the Holders and beneficial holders
of shares of Senior Preferred Stock and to prospective purchasers of shares
of Senior Preferred Stock designated by the Holders of Transfer Restricted
Securities and to broker-dealers, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities
Act.
(v) Remedies. The election of directors pursuant to paragraph f(iii) is
the sole remedy for the failure to comply with the covenants described in
this paragraph (m).
(n) [Intentionally omitted.]
(o) Definitions. As used herein, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings
when used in the plural and vice versa), unless the context otherwise
requires:
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person or (b) any executive
officer or director of any such specified Person or other Person. For the
purposes of this definition, "control," when used with respect to any
specified Person, includes the power to vote 10% or more of any class of
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voting securities of such Person or to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise, and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Business Day" means any day other than a Legal Holiday.
"Capitalized Lease Obligations" means, with respect to any Person, any
obligation of that Person to pay lease payments, rent or other amounts
under a lease of (or other similar agreement conveying the right to use)
any property (whether real, personal or mixed) that is required to be
classified and accounted for as a capital lease obligation under GAAP and,
for purposes of this Certificate of Designations, the amount of that
obligation at any date will be the capitalized amount thereof at that date,
as determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participations or other equivalents of or interests in (however designated)
the equity (including without limitation common stock, Preferred Stock and
partnership interests) of such Person.
"Cash Equivalents" means (i) marketable obligations with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged
in support thereof); (ii) demand and time deposits and certificates of
deposit or acceptances with a maturity of 180 days or less of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million;
(iii) commercial paper maturing no more than 180 days from the date of
creation thereof issued by a corporation that is not an Affiliate of the
Company and is organized under the laws of any state of the United States
or the District of Columbia and rated at least A-1 by S&P or at least P-1
by Moody's; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any commercial bank meeting the specifications of clause
(ii) above; and (v) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types
described in clauses (i) through (iv) above.
"Change of Control" means the occurrence of any of the following: (i)
the consummation of any transaction the result of which is (x) if such
transaction occurs prior to the first sale of Voting Stock of the Company
pursuant to a registration statement under the Securities Act that results
in at least 20% of the then outstanding Voting Stock of the Company having
been sold to the public, that Permitted Holders beneficially own Voting
Stock representing less than, directly or indirectly, 51% of the voting
power of the Voting Stock of the Company and (y) if such transaction occurs
thereafter, that any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act) (other than Permitted Holders) is or becomes
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the beneficial owner (as defined in Rule 13d-3 of the Exchange Act),
directly or indirectly, of Voting Stock representing more than 35% of the
voting power of the Voting Stock of the Company unless Permitted Holders
beneficially own Voting Stock representing a greater percentage of the
voting power of the Voting Stock of the Company, (ii) the Company
consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of Company, or the Company and its
Subsidiaries (taken as a whole), to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company, as the
case may be, is converted into or exchanged for cash, securities or other
property, other than any such transaction where the outstanding Voting
Stock of the Company, as the case may be, is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and the beneficial owners of the Voting Stock of the
Company immediately prior to such transaction own, directly or indirectly,
Voting Stock representing not less than a majority of the voting power of
the Voting Stock of the surviving or transferee corporation immediately
after such transaction, (iii) during any consecutive two-year period,
individuals who at the beginning of such period constituted the Board
(together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by
either (x) a vote of two-thirds of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved or (y) a Permitted
Holder) cease for any reason to constitute a majority of the Board then in
office, or (iv) the approval by the holders of Capital Stock of the Company
of any plan or proposal for liquidation or dissolution of the Company.
"Commission" means the Securities and Exchange Commission.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of Preferred Stock (other than Disqualified
Stock), less all write-ups (other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going concern
business made within 12 months after the acquisition of such business)
subsequent to the Senior Preferred Stock Issue Date in the book value of
any asset owned by such Person or a Subsidiary of such Person.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which a resolution of the Board is required
under this Certificate of Designations, a member of the Board who does not
have any material direct or indirect financial interest (other than an
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interest arising solely from the beneficial ownership of Capital Stock of
the Company) in or with respect to such transaction or series of
transactions.
"Disqualified Stock" means any Capital Stock of such Person that, by its
terms, by the terms of any agreement related thereto or by the terms of any
security into which it is convertible, puttable or exchangeable, is, or
upon the happening of any event or the passage of time would be, required
to be redeemed or repurchased by such Person or any of its Subsidiaries,
whether or not at the option of the holder thereof, or matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to November 30, 2009; provided, however,
that (i) any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations with respect to
the payment of dividends or upon maturity, redemption (pursuant to a
sinking fund or otherwise) or repurchase thereof or otherwise by the
delivery of Qualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed to
be Disqualified Stock so long as such Person satisfies its obligations with
respect thereto solely by the delivery of Qualified Stock and (ii) any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof (or of any security into which it is convertible or for
which it is exchangeable) have the right to require the issuer to
repurchase such Capital Stock (or such security into which it is
exchangeable) upon the occurrence of an asset sale or a Change of Control
shall not constitute Disqualified Stock if such Capital Stock (and all such
securities into which it is convertible or for which it is exchangeable)
provides that the issuer thereof will not repurchase or redeem any such
Capital Stock (or any such security into which it is convertible or for
which it is exchangeable) pursuant to such provisions prior to compliance
by the Company with the provisions of paragraph (h) thereof and purchase of
any shares of Senior Preferred Stock properly tendered pursuant to an offer
to purchase required thereunder and not withdrawn.
"Dividend Payment Date" means February 28, May 30, August 30 and November
30 of each year.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer Registration Statement" means a registration statement
relating to the registration of shares of Preferred Stock pursuant to
Section 5 of the Securities Act, in connection with the issuance and
exchange of such shares for shares of the Senior Preferred Stock.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession of the United States, which are in effect on
the date of the Senior Preferred Stock Issue Date.
"Holder" means a holder of shares of Senior Preferred Stock.
"Indebtedness" of any Person at any date means, without duplication: (i)
all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services; (v) the maximum fixed repurchase price of all
Disqualified Stock of such Person; (vi) all Capitalized Lease Obligations of
such Person; (vii) all Indebtedness of others secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person; (viii)
all Indebtedness of others guaranteed by such Person to the extent of such
guarantee; and (ix) to the extent not otherwise included in this definition,
obligations under hedging obligations not entered into solely for the purpose of
protecting the Company or its Subsidiaries against fluctuations in foreign
currency exchange rates or interest rates on or in connection with indebtedness
of the Company or any of its Subsidiaries then outstanding. The amount of
Indebtedness of any Person at any date shall be, without duplication, the
outstanding balance at such date of all unconditional obligations as described
above, the maximum liability of such Person for any such contingent obligations
at such date and, in the case of clause (vii), the lesser of (A) the fair market
value (which, if such value exceeds $2.0 million, the determination of fair
market value shall be made in good faith by the Board, whose determination shall
be conclusive) of any asset subject to a Lien securing the Indebtedness of
others on the date that the Lien attaches and (B) the amount of the Indebtedness
secured. For purposes of the preceding sentences, the "maximum fixed repurchase
price" of any Disqualified Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Stock as
if such Disqualified Stock were purchased on any date on which Indebtedness
shall be required to be determined hereunder, and, if such price is based upon,
or measured by, the fair market value of such Disqualified Stock (or any equity
security for which it may be exchanged or converted), such fair market value
shall be determined in good faith by the Board of Directors of such Person,
which determination shall be evidenced by a resolution of such Board of
Directors.
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"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is
disinterested and independent with respect to the Company and its
Affiliates and, in the reasonable judgment of the Company's Board, is
qualified to perform the task for which it has been engaged.
"Initial Dividend Period" means the dividend period commencing on the
Senior Preferred Stock Issue Date and ending on the day before the first
Dividend Payment Date to occur thereafter.
"Investments" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or
capital contribution to (by means of any transfer of cash or other property
or assets to others or any payment for property, assets or services for the
account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities (including
derivatives) or evidences of Indebtedness issued by, any other Person.
"Investments" shall exclude (a) extensions of trade credit or other
advances to customers on commercially reasonable terms in accordance with
normal trade practices or otherwise in the ordinary course of business, (b)
hedging obligations and (c) endorsements of negotiable instruments and
documents in the ordinary course of business.
"Legal Holiday" means a Saturday, a Sunday or a day on which federal
offices or banking institutions in the City of New York, in the city of the
Corporate Trust Office of the trustee under the Exchange Debenture
Indenture, or at a place of payment are authorized by law, regulation or
executive order to remain closed. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday,
and no interest shall accrue for the intervening period.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar
type of encumbrance (including, without limitation, any agreement to give
or grant any lease, conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing) upon
or with respect to any property of any kind. A Person will be deemed to own
subject to a Lien any property that the Person has acquired or holds
subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement.
"Management Services Agreement" means the Management Services Agreement
to be entered into between Saratoga and/or its Affiliate, on the one hand,
and the Company and/or one or more of its Subsidiaries, on the other hand,
as such agreement may be amended from time to time in any manner, provided
that after giving effect to such amendment the terms thereof are, in the
aggregate, no less favorable to the Holders.
25
<PAGE>
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Offering Memorandum" means the Offering Memorandum, dated November 25,
1997 relating to the offering of the Units, consisting of $10,000,000
aggregate liquidation preference of the Senior Preferred Stock and warrants
to purchase shares of Common Stock, par value $0.0001 per share, of the
Company.
"Officer" means, with respect to the Company, the Chairman of the Board,
the Vice-Chairman of the Board, the Chief Executive Officer or any other
executive officer of the Company or the Treasurer or any Assistant
Treasurer, the Company's Secretary or any Assistant Secretary of the
Company.
"Officer's Certificate" means a certificate signed by any one Officer.
"Opinion of Counsel" means a written opinion signed by legal counsel who
may be an employee of or counsel to the Company.
"Permitted Holders" means (i) Saratoga Partners III, L.P., (ii) David J.
Barrett, Martin A. Moore, Michael Baxley, John Champagne, Robert Feltz, and
Frank A. Wright, and (iii) Permitted Transferees of the foregoing.
"Permitted Investments" means any of the following: (i) Investments in
Cash Equivalents; (ii) Investments in the Company or any of its
Subsidiaries; (iii) Investments by the Company or any of its Subsidiaries
in another Person, if as a result of such Investment (A) such other Person
becomes a Subsidiary or (B) such other Person is merged or consolidated
with or into, or transfers or conveys all or substantially all of its
properties and assets to, the Company or a Subsidiary; (iv) Investments
made in the ordinary course of business in prepaid expenses, lease,
utility, workers' compensation, performance and other similar deposits; (v)
Investments received upon foreclosure, perfection or enforcement of any
Lien granted by, in the course of good faith settlement of claims against,
or by reason of a composition or readjustment of debt or a reorganization
of, any debtor of the Company or any of its Subsidiaries; (vi) endorsements
for collection or deposit in the ordinary course of business of bank drafts
and similar negotiable instruments received as payment for ordinary course
of business trade receivables; (vii) hedging obligations; (viii) loans or
advances to employees or directors of the Company or any Subsidiary in the
ordinary course of business; (ix) guarantees of Indebtedness of the Company
or any Subsidiary; (x) any Investment (x) to the extent that the
consideration therefor consists of Qualified Stock or (y) out of the
proceeds of a substantially concurrent issuance and sale (other than to a
Subsidiary of the Company) of Qualified Stock; and (xii) Investments in an
aggregate amount not to exceed $7.5 million at any time outstanding.
26
<PAGE>
"Permitted Transferees" means, with respect to any Person, (x) in the
case of any Person that is a natural person, (i) such individual's spouse,
estate, lineal descendants, heirs, executors, legal representatives,
administrators and (ii) any trust for the benefit of any of the foregoing,
and (y) in the case of any Person that is not a natural person, any other
Person controlled by such Person.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock Registration Rights Agreement" means the Preferred Stock
Registration Rights Agreement dated as of November 26, 1997 among the
Company and the Initial Purchasers named therein.
"Public Equity Offering" means an offer and sale of Qualified Stock of
the Company for cash pursuant to a registration statement that has been
declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person other than Disqualified Stock.
"Quarterly Dividend Period" shall mean the quarterly period commencing on
each February 28, May 30, August 30 and November 30 and ending on the day
before the following Dividend Payment Date.
"Redemption Date" with respect to any shares of Senior Preferred Stock,
means the date on which such shares of Senior Preferred Stock are redeemed
by the Company.
"Registrar" means the registrar for the Senior Preferred Stock as
designated by the Company from time to time, which shall initially be the
United States Trust Company of New York.
"Restricted Investment", with respect to any Person, means (without
duplication) any Investment by such Person other than a Permitted
Investment.
"S&P" means Standard & Poor's Ratings Service, a division of The McGraw-
Hill Companies, Inc. and its successors.
27
<PAGE>
"Saratoga" means Saratoga Partners III, L.P.
"Securities Act" means the Securities Act of 1933, as amended.
"Scovill" means Scovill Acquisition Inc., a Delaware corporation.
"Senior Preferred Stock Issue Date" means the date on which the Senior
Preferred Stock is originally issued by the Company under this Certificate
of Designations.
"Separation Date" means the earliest to occur of (i) 90 days after
November 26, 1997, (ii) such earlier date as may be determined by the
Initial Purchasers (as defined in the Preferred Stock Registration Rights
Agreement), upon written notice thereof to the Transfer Agent and
Registrar, (iii) in the event of a Change of Control, the date on which the
Company mails notice of thereof to the Holders of Senior Preferred Stock,
and (iv) the date on which the Exchange Offer Registration Statement with
respect to the Senior Preferred Stock is declared effective.
"Subsidiary" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of whose Voting Stock is owned by
such Person directly or through one or more other Subsidiaries of such
Person and (ii) any entity other than a corporation in which such Person,
directly or indirectly, owns at least a majority of the voting power of the
Voting Stock of such entity.
"Transfer Agent" means the transfer agent for the Senior Preferred Stock
as designated by the Company from time to time, which shall initially be
the United States Trust Company of New York.
"Transfer Restricted Securities" means each share of Senior Preferred
Stock until (i) the date on which such share has been exchanged by a person
other than a broker-dealer for a share of newly issued Preferred Stock in
an exchange offer (the "Preferred Stock Exchange Offer") and such share of
new Preferred Stock has been effectively registered under the Securities
Act, (ii) following the exchange by a broker-dealer in the Preferred Stock
Exchange Offer of a share of Senior Preferred Stock for a share of new
Preferred Stock, the date on which such share of new Preferred Stock is
sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in a registration
statement relating to the Preferred Stock Exchange Offer, (iii) the date on
which such share of Senior Preferred Stock has been effectively registered
under the Securities Act and disposed of pursuant to an effective shelf
registration statement relating to the Senior Preferred Stock or (iv) the
date on which such share of Senior Preferred Stock could be resold pursuant
to Rule 144 under the Securities Act.
28
<PAGE>
"Trustee" means the party designated on the Exchange Date as such for the
Exchange Debenture Indenture until a successor replaces it in accordance
with the applicable provisions of the Exchange Debenture Indenture and
thereafter means the successor serving thereunder.
"Units Offering" means the offer and sale of units, consisting of
$10,000,000 aggregate liquidation preference of the Senior Preferred Stock
and warrants to purchase shares of Common Stock, par value $0.0001 per
share, of the Company as contemplated by the Offering Memorandum.
"Voting Stock", with respect to any specified Person, any class or
classes of Capital Stock of the specified Person pursuant to which the
holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers or
trustees of the specified Person (irrespective of whether or not, at the
time, stock of any other class or classes has, or might have, voting power
by reason of the happening of any contingency).
29
<PAGE>
IN WITNESS WHEREOF, Scovill Holdings Inc. has caused this Certificate to be
duly executed on its behalf by its undersigned duly authorized officer this
26th day of November, 1997.
SCOVILL HOLDINGS INC.
By: /s/ Martin A. Moore
-------------------
Name: Martin A. Moore
Title: Executive Vice President
and Secretary
30
<PAGE>
EXHIBIT 3.3
-----------
CERTIFICATE OF DESIGNATION
OF THE POWERS, PREFERENCES AND RIGHTS
OF SERIES B PREFERRED STOCK OF
SCOVILL HOLDINGS, INC.
AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS THEREOF
The undersigned, David J. Barrett and Martin A. Moore, hereby certify:
That they are the President and the Secretary, respectively, of
SCOVILL HOLDINGS, INC., a Delaware corporation (the "Corporation").
-----------
That pursuant to the authority given by the Corporation's Certificate
of Incorporation, the Board of Directors of the Company has duly adopted the
following preambles and resolutions:
"WHEREAS, the Board is authorized, within the limitations and
restrictions stated in the Certificate of Incorporation of the Company, to
fix by resolution or resolutions the designation of each series of Preferred
Stock of the Company (the "Preferred Stock") and the powers, preferences and
---------------
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof, including, without
limitation the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolutions or distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolutions of the Board under the General Corporation Law of
Delaware;
WHEREAS, it is the desire of the Board, pursuant to its authority as
aforesaid, to authorize and fix the terms of two series of Preferred Stock
and the number of shares constituting such series;
RESOLVED, that there is hereby authorized such series of Preferred
Stock on the terms and with the provisions set forth below:
1. Title. This Board of Directors hereby authorizes a series of
-----
preferred stock for this Corporation designated as "Series B Preferred
Stock" and referred to in these resolutions as "Series B Preferred Stock".
<PAGE>
-2-
2. Number. The number of shares constituting the Series B Preferred
------
Stock shall be 6,000,000.
3. Liquidation Rights. Upon any liquidation, dissolution or winding
------------------
up of the Corporation, whether voluntary or involuntary, the Series B
Preferred Stock shall be entitled, before any distribution is made with
respect to any capital stock (other than common stock and any capital stock
that expressly provides that it ranks junior to the Series B Preferred
Stock), to be paid $9.90 per share, and the Series B Preferred Stock shall
not be entitled to any further payment. In case the net assets of the
Corporation are insufficient to pay all outstanding shares of Series B
Preferred Stock the amount to which they are respectively entitled, then the
entire net assets of the Corporation shall be distributed ratably to all
outstanding shares of Series B Preferred Stock.
4. Voting.
------
4.1 No Voting Rights Generally. The holders of Series B Preferred
--------------------------
Stock, except as otherwise required under Delaware law or as set forth in
this paragraph 4, shall not be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of the
Corporation.
4.2 Actions Requiring Vote of Series B Preferred Stock. The
--------------------------------------------------
Corporation shall not at any time, except with the affirmative vote of the
holders of at least a majority of the shares of the Series B Preferred Stock
at the time outstanding, (a) authorize any class of stock ranking prior to
the Series B Preferred Stock either as to rights on liquidation or as to
dividends (it being understood that the foregoing shall not apply to the
Corporation's Series A Cumulative Redeemable Exchangeable Preferred Stock) or
(b) amend the Certificate of Incorporation or the Bylaws of the Corporation
so as to affect adversely the relative rights, preferences or limitations of
the shares of the Series B Preferred Stock. No separate vote or consent of
the Series Stock shall be required in connection with the authorization of,
or the increase of the total number of authorized shares of, any class of
stock ranking pari passu with or junior to the Series B Preferred Stock as to
rights on liquidation and as to dividends.
5. Redemption.
----------
5.1 Mandatorv Redemption. The Corporation shall redeem all of the
--------------------
outstanding shares of Series B Preferred Stock from funds lawfully available
therefor twenty-one
<PAGE>
-3-
(21) days after the consummation of any of the following events (each, a
"Redemption Event"): (a) a public offering of shares of Common Stock of the
----------------
Corporation, or of securities convertible or exchangeable into or exercisable
for shares of Common Stock, pursuant to the Securities Act of 1933 (the
"Act"); (b) a reorganization, merger or consolidation with one or more other
---
corporations as a result of which the Company is not the surviving
corporation or the Company survives as a subsidiary (at least majority owned)
of another corporation; or (c) the sale of substantially all of the assets
and property of the Corporation to another corporation.
5.2 Optional Redemption. If the Board of Directors shall determine,
-------------------
in its sole discretion, to recapitalize the debt or equity of the
Corporation, or both, and, as part of such recapitalization, to redeem the
Series B Preferred Stock, the Corporation, at its option, exercised under
authority of its Board of Directors, may redeem all (but not less than all)
of the outstanding shares of Series B Preferred Stock.
5.3 Procedure. The following procedure shall apply to redemptions of
---------
Series B Preferred Stock:
(A) In any redemption of Series B Preferred Stock, the Corporation
shall pay therefor $9.90 in cash per share said sum being sometimes
hereinafter called the "redemption price".
(B) Notice of any proposed redemption shall be mailed by the
Corporation, postage prepaid, not less than twenty (20) days nor more than
sixty (60) days prior to the date fixed for redemption, to each holder of
record of shares of Series B Preferred Stock, at such holder's address as
shown on the records of the Corporation or given by such holder to the
Corporation for the purpose of notice, or, if no such address appears or is
given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption and the redemption
price and shall call upon each holder of shares of Series B Preferred Stock
to surrender to the Corporation on said date at the place designated in the
notice such holder's certificate or certificates representing the shares to
be redeemed.
(C) On or after the date fixed for redemption and stated in such
notice, each holder of Series B Preferred Stock shall surrender the
certificate evidencing such shares to the Corporation at the place designated
in such notice and shall thereupon be entitled to receive payment of the
redemption price. If such notice of redemption
<PAGE>
-4-
shall have been duly given, and, if, on the date fixed for redemption, funds
necessary for the redemption are available therefor, then, notwithstanding
that the certificates evidencing the Series B Preferred Stock called for
redemption shall not have been surrendered, and all voting rights of such
shares shall terminate on said date.
(D) If, on or prior to any date fixed for redemption of Series B
Preferred Stock, the Corporation deposits with any bank or trust company in
the State of New York, as a trust fund, a sum sufficient to redeem, on the
date fixed for redemption thereof, the Series B Preferred Stock called for
redemption, with irrevocable instructions and authority to pay, on or after
the date fixed for redemption, the redemption price of such shares to their
respective holders upon surrender of their share certificates, and if the
notice described above designates such bank or trust company as the place to
which such certificates are to be surrendered, such deposit shall constitute
full payment of the redemption price of the shares to be redeemed, and, from
and after the date fixed for redemption, such shares shall no longer be
outstanding, and the holders thereof shall cease to be stockholders with
respect to such shares and shall have no rights with respect thereto except
the right to receive from the bank or trust company payment of the redemption
price of such shares, without interest, upon surrender of their certificates
therefor. If the holders of Series B Preferred Stock so called for redemption
shall not have claimed any funds so deposited prior to the end of six years
from the date fixed for redemption of such shares, such bank or trust company
shall thereupon pay over to the Corporation such unclaimed funds, and such
bank or trust company shall thereafter be relieved of all responsibility in
respect thereof to such holders, and such holders shall look only to the
Corporation for payment of the redemption price.
(E) The Series B Preferred Stock redeemed pursuant to this paragraph 5
shall revert to the status of authorized but unissued preferred stock and may
thereafter have such characteristics and designations as the Board of
Directors may determine."
That the authorized number of shares of Preferred Stock is 16,200,000,
of which 100,000 have been issued as Series A Cumulative Redeemable Exchangeable
Preferred Stock, and the number of shares constituting the Series B Preferred
Stock, none of which have been issued, is 6,000,000.
<PAGE>
-5-
Each of the undersigned further declares under penalty of perjury that
the matters set forth in the foregoing certificate are true of his or her own
knowledge.
Dated: November 26, 1997
/s/ David J. Barrett /s/ Martin A. Moore
- ------------------------ -----------------------------
David J. Barrett, Martin A. Moore, Secretary
President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from Scovill
Fasteners Inc. and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0001051860
<NAME> SCOVILL FASTENERS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,821
<SECURITIES> 0
<RECEIVABLES> 12,648
<ALLOWANCES> 1,146
<INVENTORY> 24,292
<CURRENT-ASSETS> 39,454
<PP&E> 72,945
<DEPRECIATION> 440
<TOTAL-ASSETS> 226,202
<CURRENT-LIABILITIES> 23,639
<BONDS> 128,199
9,400
0
<COMMON> 0
<OTHER-SE> 31,409
<TOTAL-LIABILITY-AND-EQUITY> 226,202
<SALES> 95,861
<TOTAL-REVENUES> 95,861
<CGS> 68,594
<TOTAL-COSTS> 84,412
<OTHER-EXPENSES> 4,811
<LOSS-PROVISION> 355
<INTEREST-EXPENSE> 4,911
<INCOME-PRETAX> 1,727
<INCOME-TAX> 1,074
<INCOME-CONTINUING> 653
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 653
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
