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RULE NO. 424(b)(5)
REGISTRATION NO. 333-56857
PROSPECTUS
[LOGO]
ALLIANCE
LAUNDRY SYSTEMS
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
Offer to Exchange their Series B 9 5/8% Senior Subordinated Notes due 2008 for
any and all of their outstanding Series A 9 5/8% Senior Subordinated Notes due
2008
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The Exchange Offer will expire at 5:00 p.m., New York City time, on June 18,
1999, unless extended.
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Alliance Laundry Systems LLC, a Delaware limited liability company
("Alliance" or the "Company"), and Alliance Laundry Corporation, a Delaware
corporation and wholly owned subsidiary of the Company ("ALC" and, together
with the Company, the "Issuers"), hereby offer (the "Exchange Offer"), upon
the terms and conditions set forth in this Prospectus (the "Prospectus") and
the accompanying Letter of Transmittal (the "Letter of Transmittal"), to
exchange $1,000 principal amount of its Series B 9 5/8% Senior Subordinated
Notes due 2008 (the "Exchange Notes"), which will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for each $1,000
principal amount of its outstanding Series A 9 5/8% Senior Subordinated Notes
due 2008 (the "Notes"), of which $110,000,000 principal amount is outstanding.
The Issuers' payment obligations under the Exchange Notes will be jointly and
severally, irrevocably and fully and unconditionally guaranteed on a senior
subordinated basis (the "Guarantees") by Alliance Laundry Holdings LLC, a
Delaware limited liability company and parent of the Company, and each of the
Company's future direct and indirect domestic subsidiaries (the "Guarantors").
The Guarantees will be subordinated to the guarantees of Senior Debt issued by
the Guarantors under the Senior Credit Facility. The form and terms of the
Exchange Notes are the same as the form and term of the Notes (which they
replace) except that the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting their
transfer and will not contain certain provisions relating to an increase in
the interest rate which were included in the terms of the Notes in certain
circumstances relating to the timing of the Exchange Offer. The Exchange Notes
will evidence the same debt as the Notes (which they replace) and will be
issued under and be entitled to the benefits of the Indenture dated May 5,
1998 between the Issuers and United States Trust Company of New York (the
"Indenture") governing the Notes. See "The Exchange Offer" and "Description of
the Exchange Notes."
Neither Issuer has issued, and does not have any current firm arrangements
to issue, any indebtedness to which the Exchange Notes would rank senior or
pari passu in right of payment. The Exchange Notes will be general unsecured
obligations of the Issuers and will be subordinate in right of payment to all
existing and future Senior Debt (as defined) and will be senior or pari passu
in right of payment to all existing and future subordinated indebtedness of
the Issuers. As of December 31, 1998, the Company and its Subsidiaries (as
defined) had $200.0 million of Senior Debt outstanding (exclusive of $67.0
million available under the Revolving Credit Facility (as defined), which
would also be Senior Debt). See "Capitalization," "Description of Senior
Credit Facility" and "Description of the Exchange Notes--Subordination."
The Issuers will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on June 18, 1999, unless
extended by the Issuers in their sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Issuers will not extend the Expiration Date
beyond June 25, 1999. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by the Issuers on May 5, 1998 (the
"Note Offering") to the Initial Purchasers (as defined) in a transaction not
registered under the Securities Act in reliance upon an exemption under the
Securities Act. The Initial Purchasers subsequently placed the Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act and in offshore transactions pursuant to Regulation S under the Securities
Act. Accordingly, the Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The Exchange Notes are being offered hereunder in
order to satisfy the obligations of the Issuers under the Registration Rights
Agreement entered into by the Issuers in connection with the offering of the
Notes. See "The Exchange Offer."
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Securities and Exchange Commission (the "Commission") set forth
in no-action letters issued to third parties, the Issuers believe the Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of either Alliance or ALC within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resales of the Exchange Notes." Each broker-dealer (a "Participating Broker-
Dealer") that receives Exchange Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Notes where such Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities. The Issuers have agreed that, for a period of 180 days
from the consummation of the Exchange Offer, they will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
If any holder of Notes is an affiliate of either Alliance or ALC, is engaged
in or intends to engage in or has any arrangement or understanding with any
person to participate in the distribution of the Exchange Notes to be acquired
in the Exchange Offer, such holder (i) cannot rely on the applicable
interpretations of the Commission and (ii) must comply with the registration
requirements of the Securities Act in connection with any resale transaction.
Holders of Notes not tendered and accepted in the Exchange Offer will
continue to hold such Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Issuers
will pay all the expenses incurred by them incident to the Exchange Offer. See
"The Exchange Offer."
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See "Risk Factors" on page 14 for a description of certain factors that
should be considered by holders who tender their Notes in the Exchange Offer.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 19, 1999.
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The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers have agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
There has not previously been any public market for the Notes or the
Exchange Notes. The Issuers do not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market."
Moreover, to the extent that Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Notes
could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUERS.
UNTIL AUGUST 19, 1999 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
The Exchange Notes will be available initially only in book-entry form and
the Issuers expect that the Exchange Notes issued pursuant to the Exchange
Offer will be issued in the form of a Global Note (as defined), which will be
deposited with, or on behalf of, The Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Note representing the Exchange Notes will be shown on,
and transfers thereof will be effected through, records maintained by DTC and
its participants. After the initial issuance of the Global Note, Exchange
Notes in certificated form will be issued in exchange for the Global Note only
under limited circumstances as set forth in the Indenture. See "Description of
the Exchange Notes--Book-Entry; Delivery and Form."
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AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the Exchange Notes being offered hereby. This Prospectus does not contain all
the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Issuers and the Exchange Offer,
reference is made to the Exchange Offer Registration Statement. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Exchange Offer Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
the Regional Offices of the Commission at 75 Park Place, New York, New York
10007 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Additionally, the Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, including the Issuers.
As a result of the filing of the Exchange Offer Registration Statement with
the Commission, the Issuers will become subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith will be required to file periodic reports
and other information with the Commission. The obligation of the Issuers to
file periodic reports and other information with the Commission will be
suspended if the Exchange Notes are held of record by fewer than 300 holders
as of the beginning of any fiscal year of the Issuers other than the fiscal
year in which the Exchange Offer Registration Statement is declared effective.
The Issuers will nevertheless be required to continue to file reports with the
Commission if the Exchange Notes are listed on a national securities exchange.
In the event the Issuers cease to be subject to the informational requirements
of the Exchange Act, Alliance will be required under the Indenture to continue
to file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. Under the Indenture, the Issuers shall file
with the Trustee annual, quarterly and other reports within fifteen days after
it files such reports with the Commission. Further, to the extent that annual
or quarterly reports are furnished by the Issuers to unitholders generally it
will mail such reports to holders of Exchange Notes. The Issuers will furnish
annual and quarterly financial reports to unitholders of the Issuers and will
mail such reports to holders of Exchange Notes pursuant to the Indenture, thus
holders of Exchange Notes will receive financial reports every quarter. Annual
reports delivered to the Trustee and the holders of Exchange Notes will
contain financial information that has been examined and reported upon, with
an opinion expressed by an independent public or certified public accountant.
The Issuers will also furnish such other reports as may be required by law.
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This Prospectus includes "forward-looking statements" which appear in a
number of places in this Prospectus and include statements regarding the
intent, belief or current expectations of the Company or its officers with
respect to, among other things, the use of proceeds of the Offering, the
ability to borrow funds under the Senior Credit Facility, the ability to
successfully implement operating strategies, including trends affecting the
Company's business, financial condition and results of operations. All
statements other than statements of historical facts included in this
Prospectus, including, without limitation, the statements under "Prospectus
Summary," "Unaudited Pro Forma Combined Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," and located elsewhere herein regarding industry prospects and the
Company's financial position are forward-looking statements. Readers are
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cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Although the Issuers believe that the
expectations reflected in such forward-looking statements are reasonable, they
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from
the Issuers' expectations (the "Cautionary Statements") are disclosed in this
Prospectus, including, without limitation, in conjunction with the forward-
looking statements included in this Prospectus under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
All subsequent written and oral forward-looking statements attributable to
the Issuers or persons acting on their behalf are expressly qualified in their
entirety by the Cautionary Statements and Risk Factors contained throughout
this Prospectus.
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Trademarks and Tradenames
The following items referred to in this document are trademarks that are
federally registered in the United States and abroad pursuant to applicable
intellectual property laws and are the property of the Company: Speed Queen,
Huebsch and UniMac.
The following items referred to in this document are trademarks owned by the
Company, for which applications for registration are pending in the United
States pursuant to applicable intellectual property laws: MicroMaster and
CardMate Plus.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety, including information set forth under the heading
"Risk Factors." As used in this Prospectus, unless the context requires
otherwise, references to "Alliance" or the "Company" (i) with respect to
periods prior to the Transactions refer to Alliance Laundry Holdings LLC (the
"Parent," formerly known as Raytheon Commercial Laundry LLC) and its
predecessors and subsidiaries, (ii) with respect to periods subsequent to the
Transactions, refer collectively to Alliance Laundry Systems LLC and its
subsidiaries and (iii) when used with regard to financial data refer to the
consolidated financial results of Alliance Laundry Holdings LLC and Alliance
Laundry Systems LLC. As used herein, the term "stand alone commercial laundry
equipment" refers to commercial laundry equipment excluding dry cleaning
equipment and custom engineered, continuous process laundry systems and the
term "stand alone commercial laundry industry" includes laundromats, multi-
housing laundries and on-premise laundries and excludes dry cleaners and
continuous process laundries.
The Company
Alliance believes it is the leading designer, manufacturer and marketer of
stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and Huebsch,
the Company produces a full line of commercial washing machines and dryers with
load capacities from 16 to 250 pounds. The Company believes it has had the
leading market share in the North American stand alone commercial laundry
equipment industry for the last five years and has progressively increased its
market share from approximately 21% in 1993 to 38% in 1997. The Company
attributes its industry leading position to: (i) the quality, reliability and
functionality of its products; (ii) the breadth of its product offerings; (iii)
its extensive distributor network and strategic alliances with key customers;
and (iv) its substantial investment in new product development and
manufacturing capabilities. As a result of its market leadership, the Company
has an installed base of equipment that it believes is the largest in the
industry and that generates significant recurring sales of replacement
equipment and service parts. Internationally, the Company has developed
targeted opportunities, generating equipment sales of $45.5 million and $34.1
million in 1997 and 1998, respectively. In addition, pursuant to an agreement,
the Company supplies consumer washing machines to Amana Company, L.P.
("Appliance Co.") for sale at retail. For 1997 and 1998, the Company generated
net sales of $347.7 million and $330.3 million and EBITDA (as defined) of $57.2
million and $44.2 million, respectively.
The Company believes it has developed the most extensive distribution
networks to each of the three distinct customer groups within the North
American stand alone commercial laundry equipment industry: (i) laundromats;
(ii) multi-housing laundries, consisting primarily of common laundry facilities
in apartment buildings, universities and military installations; and (iii) on-
premise laundries, consisting primarily of in-house laundry facilities in
hotels, hospitals, nursing homes and prisons. The Company estimates that in
over 80% of the North American market its laundromat and on-premise laundry
distributors are either the number one or number two distributor for their
respective selling regions. In addition, the Company's in-house sales force has
developed superior relationships with leading route operators that own, install
and maintain commercial laundry equipment in multi-housing laundries, a
critical factor in enabling the Company to grow its market share.
Internationally, the Company sells its laundry equipment through distributors
and to retailers.
With an investment of over $77.0 million since 1994, the Company has
substantially completed the development of many new products, the redesign of
existing products and the modernization of its three manufacturing facilities
in Wisconsin, Florida and Kentucky. Since January 1, 1997, the Company has
introduced new product designs and new product models that comprise over 85% of
its current product offerings. The Company believes its considerable investment
in its product line and manufacturing capabilities has strengthened and will
continue to enhance its market leadership position.
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Industry Overview
The Company estimates that North American stand alone commercial laundry
equipment sales were approximately $498.0 million in 1997, of which the
Company's equipment sales represented approximately $187.0 million. The Company
believes that North American sales of stand alone commercial laundry equipment
have grown at a compound annual rate of approximately 4.5% since 1993. North
American commercial laundry equipment sales historically have been relatively
insulated from business and economic cycles, given that economic conditions do
not tend to affect the frequency of use, or replacement, of laundry equipment.
Management believes industry growth will be sustained by continued population
expansion and by customers increasingly "trading up" to equipment with enhanced
functionality, raising average selling prices.
Manufacturers of stand alone commercial laundry equipment compete on their
ability to satisfy several customer criteria, including: (i) equipment
reliability and durability; (ii) performance criteria such as water and energy
efficiency, load capacity and ease of use; (iii) availability of innovative
technologies such as cashless payment systems and advanced electronic controls,
which improve ease of use and management audit capabilities; and (iv) value-
added services such as rapid spare parts delivery, equipment financing and
computer aided assistance in the design of commercial laundries.
Company Strengths
Market Leader with Significant Installed Base. The Company believes it led
the North American industry in sales to all customer groups, with a 38% market
share overall in 1997. The Company's market share has increased progressively
during the last five years for each customer group. As a result of its leading
market position, the Company has achieved superior brand recognition and
extensive distribution capabilities. The Company's market position has also
allowed it to establish what it believes to be the largest installed base in
its industry, which generates a significant level of recurring sales of
replacement equipment and service parts and provides a platform for sales
growth.
Industry-leading Product Offering. The Company believes its product line
leads the industry in reliability, breadth of offerings, functionality and
advanced features. Its development team of more than 100 engineers and
technical personnel, together with its marketing and sales personnel, work with
the Company's major customers to redesign and enhance the Company's products to
better meet customer needs. For example, the Company has introduced since
January 1, 1997 new product designs and new product models that comprise over
85% of its current product offerings; the Company's new products emphasize
efficiency and new technology, facilitating ease of use as well as improving
performance and reliability. In addition, the Company believes it is the only
manufacturer in North America to produce a full product line (including
washers, dryers, washer-extractors and tumblers for all customer groups),
thereby providing customers with a single source for all their stand alone
commercial laundry equipment needs.
Extensive and Loyal Distribution Networks. The Company believes it has
developed the industry's most extensive North American distribution networks.
The Company estimates its distributors are either the number one or number two
distributor for their respective selling regions in over 80% of the North
American market. Most of the Company's distributors have been customers for
over ten years. In addition, through its in-house sales force the Company has
developed excellent relationships with industry-leading route operators, who
are direct customers of the Company. The Company believes its strong
relationships with its customers are based, in part, on the quality, breadth
and performance of its products and on its comprehensive value-added services.
Leading National Brands. The Company markets and sells its products under the
widely recognized brand names Speed Queen, UniMac and Huebsch. A survey
commissioned by the Company in 1993 of more than 1,000 commercial laundry
distributors and end-users ranked Speed Queen as the leader in terms of brand
awareness and as an industry leader for quality and reliability. In the same
study, UniMac was ranked a leading brand in the stand alone on-premise laundry
industry; Huebsch and Speed Queen ranked first and second, respectively, in
customer satisfaction.
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Strong and Incentivized Management Team. Led by Chief Executive Officer
Thomas L'Esperance, the Company believes it has assembled the strongest
management team in the commercial laundry equipment industry. The Company's
seven executive officers have over 80 years of combined experience in the
commercial laundry equipment and appliance industries. This management team has
executed numerous strategic initiatives, including: (i) ongoing refinements to
its product offerings; (ii) the development of strategic alliances with key
customers; (iii) the implementation of manufacturing cost reduction and quality
improvement programs; and (iv) the acquisition and successful integration of
the commercial washer-extractor business of the UniMac Company ("UniMac"). In
addition, senior management (the "Management Investors") owns approximately 19%
of the Company's common units on a diluted basis.
Business Strategy
The Company's strategy is to achieve profitable growth by offering a full
line of the most reliable and functional stand alone commercial laundry
equipment, along with comprehensive value-added services. The key elements of
the Company's strategy are as follows:
Offer Full Line of Superior Products and Services. The Company seeks to
satisfy all of a customer's stand alone commercial laundry equipment needs with
its full line of products and services. The Company seeks to compete with other
manufacturers in the commercial laundry equipment industry by introducing new
products, features and value-added services tailored to meet evolving customer
requirements. In 1998, for example, the Company introduced a new line of small-
chassis frontload washers, offering multi-housing laundries increased water and
energy efficiency. In addition, in 1997, the Company introduced its Automatic
Balance System for topload washers, providing industry-leading out-of-balance
handling; Alliance's new topload washers generate a higher g-force, thereby
reducing moisture left in the laundry and drying time, ultimately reducing
operating costs for the Company's customers.
Develop and Strengthen Alliances with Key Customers. The Company has
developed and will continue to pursue long-term alliances and multi-year supply
agreements with key customers. The Company is the predominant supplier of new
laundry equipment to Coinmach Corporation ("Coinmach"), the largest and fastest
growing operator of multi-housing laundries in North America. Similarly, the
Company is the supplier of substantially all of the laundry equipment purchased
by SpinCycle, Inc. ("SpinCycle"), an emerging leader in the North American
laundromat industry.
Continuously Improve Manufacturing Operations. The Company seeks to
continuously enhance its product quality and reduce costs through refinements
to manufacturing processes. The Company achieves such improvements through
collaboration among key customers and its engineering and marketing personnel.
Since 1995, the Company has progressively reduced manufacturing costs through
improvements in raw material usage and labor efficiency, among other factors.
These improvements are driven in part by the Company's goalsharing programs,
through which the Company's manufacturing teams share in a portion of the cost
reductions they achieve.
The Sponsor
Bain Capital, Inc. ("Bain"), founded in 1984, manages capital in excess of
$1.5 billion and has invested in more than 100 companies. Bain is one of the
most experienced and successful private equity investors in the United States,
and the firm's principals have extensive experience working with companies on a
wide range of operational challenges. Bain's investment strategy is to acquire
companies in partnership with excellent management teams and to improve the
long-term value of businesses. The firm typically invests in companies that are
market share leaders with strong strategic positions and significant
opportunities for growth. Following consummation of the Transactions,
affiliates of Bain own 54.9% of the outstanding equity interests of the Parent.
In addition, Bain has entered into the Management Services Agreement (as
defined) with the Company pursuant to which Bain will provide general
management, acquisition and financial services.
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The Transactions
On May 5, 1998 the Company completed the offering of the Notes (the "Note
Offering") and the recapitalization of the Parent (the "Recapitalization")
through (i) the Merger whereby, among other things, Bain/RCL, L.L.C., a
Delaware limited liability company ("Bain LLC"), the BRS Investors (as defined)
and the Management Investors (collectively with Bain LLC and the BRS Investors,
the "Securityholders") acquired 93% of the common equity of the Parent, of
which the Company is a direct wholly-owned subsidiary, and (ii) financings
whereby the Company entered into and borrowed under the Senior Credit Facility
and entered into a $250.0 million off-balance sheet receivables and equipment
financing facility (the "Asset Backed Facility"). In addition, simultaneously
with the consummation of each of the other Transactions, the Parent completed
the Parent Contribution (as defined).
The transactions contemplated by the Merger Agreement (as defined) were
funded by: (i) $200.0 million of term loan borrowings by the Company pursuant
to the Senior Credit Facility; (ii) the Note Offering, with aggregate gross
proceeds of $110.0 million (substantially all of the amounts in clauses (i) and
(ii) was distributed to the Parent to fund the Merger and related fees and
expenses); (iii) the issuance by the Parent of the Seller Subordinated Note (as
defined) to Raytheon, with a principal amount of $9.0 million; (iv) the
issuance by the Parent of the Seller Preferred Equity (as defined) to Raytheon
Company ("Raytheon") with a liquidation value of approximately $6.0 million;
(v) an equity investment in the Parent by the Securityholders of approximately
$47.1 million (the "Investors Equity Contribution"); and (vi) a retained equity
investment in the Parent by Raytheon with a fair market value of approximately
$3.5 million (the "Raytheon Equity"). The Offering, the Senior Credit Facility,
the Investors Equity Contribution, the Parent Contribution, the Merger, the
Asset Backed Facility and the issuance of the Seller Subordinated Note and the
Seller Preferred Equity are collectively referred to herein as the
"Transactions." Each of the Transactions was conditioned upon each of the
others, and consummation of each of the Transactions occurred simultaneously.
See "The Transactions."
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The executive offices of the Company are located at Shepard Street, Ripon,
Wisconsin 54971-0990, and its telephone number is (920) 748-3121.
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The Note Offering
Notes....................... The Notes were sold (the "Note Offering") by
Alliance and ALC on May 5, 1998 to Lehman
Brothers Inc. and Credit Suisse First Boston
Corporation (the "Initial Purchasers") pursuant
to a Purchase Agreement dated May 5, 1998 (the
"Purchase Agreement"). The Initial Purchasers
subsequently resold the Notes to qualified
institutional buyers pursuant to Rule 144A under
the Securities Act. ALC is a wholly owned
subsidiary of Alliance that was incorporated for
the sole purpose of serving as a co-issuer of the
Notes in order to facilitate the Note Offering.
ALC does not have any substantial operations or
assets of any kind and will not have any
revenues. Prospective investors in the Exchange
Notes should not expect ALC to participate in
servicing the interest, principal obligations or
Liquidated Damages, if any, on the Exchange
Notes. See "Description of the Exchange Notes--
Certain Covenants."
Exchange and Registration
Rights Agreement........... Pursuant to the Purchase Agreement, the Issuers
and the Initial Purchasers entered into a
Registration Rights Agreement, dated as of May 5,
1998 (the "Exchange and Registration Rights
Agreement"), which grants the holder of the Notes
certain exchange and registration rights. The
Exchange Offer is intended to satisfy such
exchange and registration rights which terminate
upon the consummation of the Exchange Offer.
The Exchange Offer
Securities Offered.......... $110,000,000 aggregate principal amount of Series
B 9 5/8% Senior Subordinated Notes due 2008.
The Exchange Offer.......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of
Notes. As of the date hereof, $110,000,000
aggregate principal amount of Notes are
outstanding. The Issuers will issue the Exchange
Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Issuers believe that the
Exchange Notes issued pursuant to the Exchange
Offer in exchange for Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is an "affiliate" of either Alliance or ALC
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
5
<PAGE>
Each Participating Broker-Dealer that receives
Exchange Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and
by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in
connection with resales of Exchange Notes
received in exchange for Notes where such Notes
were acquired by such Participating Broker-Dealer
as a result of market-making activities or other
trading activities. The Issuers have agreed that,
for a period of 180 days from the consummation of
the Exchange Offer, they will make this
Prospectus available to any Participating Broker-
Dealer for use in connection with any such
resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the
Exchange Notes could not rely on the position of
the staff of the Commission enunciated in no-
action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
resale transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder is not indemnified by
the Issuers.
Expiration Date............. 5:00 p.m., New York City time, on June 18, 1999
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
Accrued Interest on the
Exchange Notes and the Each Exchange Note will bear interest from its
Notes...................... issuance date. Holders of Notes that are accepted
for exchange will receive, in cash, accrued
interest thereon to, but not including, the
issuance date of the Exchange Notes. Such
interest will be paid with the first interest
payment on the Exchange Notes. Interest on the
Notes accepted for exchange will cease to accrue
upon issuance of the Exchange Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, which may be waived by the
Issuers. See "The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Notes wishing to accept the
Notes...................... Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
6
<PAGE>
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent (as defined) at the address set
forth herein. Delivery of the Notes may also be
made by book-entry transfer in accordance with
the procedures described below. Confirmation of
such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date. By
executing the Letter of Transmittal or effecting
delivery by book-entry transfer, each holder will
represent to the Issuers that, among other
things, the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the
ordinary course of business of the person
receiving such Exchange Notes, whether or not
such person is the holder, that neither the
holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes and that neither the holder nor any such
other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of either
Alliance or ALC. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and "--
Procedures for Tendering."
Untendered Notes............ Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who
do not tender their Notes will not have any
further exchange rights and such Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Notes could be adversely
affected.
Consequences of Failure to
Exchange...................
The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only: (i)
to the Issuers; (ii) pursuant to Rule 144A or
Rule 144 under the Securities Act or pursuant to
some other exemption under the Securities Act;
(iii) outside the United States to a foreign
person pursuant to the requirements of Rule 904
under the Securities Act; or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange Offer--
Consequences of Failure to Exchange."
Shelf Registration If the Exchange Offer is not permitted under
Statement.................. applicable law or Commission policy or any holder
of the Notes (other than any such holder which is
an "affiliate" of either Alliance or ALC within
the meaning of Rule 405 under the Securities Act)
is not eligible under applicable securities laws
to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's
Notes to the Issuers for use therein, the Issuers
have agreed to register the Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause it
to be declared effective by the Commission as
promptly as practicable on or after the
consummation of the Exchange Offer. The Issuers
have agreed to maintain the continuous
effectiveness of the Shelf Registration Statement
for, under certain circumstances, a period of two
years, to cover resales of the Notes held by any
such holders.
7
<PAGE>
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the Notes
in such owner's name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time. The Issuers will keep the
Exchange Offer open for not less than twenty
business days in order to provide for the
transfer of registered ownership.
Guaranteed Delivery Holders of Notes who wish to tender their Notes
Procedures................. and whose Notes are not immediately available or
who cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
Acceptance of Notes and
Delivery of Exchange The Issuers will accept for exchange any and all
Notes...................... Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Notes issued
pursuant to the Exchange Offer will be delivered
promptly following the Expiration Date. See "The
Exchange Offer--Terms of the Exchange Offer."
Use of Proceeds............. There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. United States Trust Company of New York.
The Exchange Notes
General..................... The form and terms of the Exchange Notes are the
same as the form and terms of the Notes (which
they replace) except that: (i) the Exchange Notes
bear a Series B designation; (ii) the Exchange
Notes have been registered under the Securities
Act and, therefore, will not bear legends
restricting the transfer thereof; and (iii) the
holders of Exchange Notes will not be entitled to
certain rights under the Exchange and
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the
8
<PAGE>
Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated.
See "The Exchange Offer--Purpose and Effect of
the Exchange Offer." The Exchange Notes will
evidence the same debt as the Notes and will be
entitled to the benefits of the Indenture. See
"Description of Exchange Notes."
Securities Offered.......... $110,000,000 aggregate principal amount of Series
B 9 5/8% Senior Subordinated Notes due 2008 of
the Issuers.
Maturity Date............... May 1, 2008.
Interest Payment Dates...... May 1 and November 1, commencing November 1,
1998.
Events of Default........... An Event of Default occurs under the Indenture in
instances such as the failure to pay principal
when due, the failure to pay any interest within
30 days of when due and payable, the failure to
perform or comply with various covenants under
the Indenture or the default under the terms of
certain other indebtedness of the Company. See
"Description of Exchange Notes--Events of
Default."
Optional Redemption......... The Exchange Notes will be redeemable at the
option of the Issuers, in whole or in part, at
any time on or after May 1, 2003, at the
redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption. In
addition, at any time prior to May 1, 2001, the
Issuers may, in their discretion, redeem up to
35% of the aggregate principal amount of the
Notes issued under the Indenture at a redemption
price of 109.625% of the principal amount
thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date
of redemption, with the net cash proceeds of one
or more Equity Offerings, provided that at least
65% of the aggregate principal amount of the
Exchange Notes issued under the Indenture remains
outstanding immediately after each such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
Change of Control........... In the event of a Change of Control, holders of
the Notes will have the right to require the
Issuers to purchase their Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon
to the date of purchase. At any time on or prior
to May 1, 2003, the Exchange Notes may also be
redeemed in whole, but not in part, at the option
of the Issuers, upon the occurrence of a Change
of Control (but in no event more than 90 days
after the occurrence of such Change of Control),
at a redemption price equal to 100% of the
principal amount thereof plus the Applicable
Premium as of, and accrued but unpaid interest
and Liquidated Damages thereon, if any, to, the
date of redemption (subject to the right of
holders on the relevant record date to receive
interest due
9
<PAGE>
on the relevant interest payment date). There can
be no assurance that the Company will have the
financial resources necessary or be able to
arrange financing to repurchase the Exchange
Notes upon a Change of Control. See "Description
of the Exchange Notes--Repurchase at the Option
of Holders--Change of Control;--Optional
Redemption."
Ranking..................... The Exchange Notes will be general unsecured
obligations of the Issuers, subordinate in right
of payment to all existing and future Senior Debt
of the Issuers, including all borrowings of the
Company and its subsidiaries under the Senior
Credit Facility. Concurrently with the Note
Offering, the Company entered into a new $275.0
million Senior Credit Facility. As of May 5,
1998, after consummation of the Transactions,
including the Offering, borrowings under the
Senior Credit Facility and application of the net
proceeds therefrom, the Company and its
Subsidiaries had $200.0 million of Senior Debt
outstanding (exclusive of $75.0 million available
under the Revolving Credit Facility which would
also be Senior Debt). See "Capitalization,"
"Description of Senior Credit Facility" and
"Description of the Exchange Notes--
Subordination."
Guarantees.................. The Issuers' payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Guarantees") by the Parent and each of the
Company's future direct and indirect Domestic
Subsidiaries (the "Guarantors"). The Exchange
Notes will not be guaranteed by any of the
Company's current direct and indirect Domestic
Subsidiaries or current or future Foreign
Subsidiaries (the "Non-Guarantor Subsidiaries").
For the fiscal year ended December 31, 1998, the
Non-Guarantor Subsidiaries accounted for 3% of
the Company's net sales and generated $1.7
million of EBITDA. The Guarantees will be
subordinated to the guarantees of Senior Debt
issued by the Guarantors under the Senior Credit
Facility. See "Description of the Exchange
Notes--Exchange Note Guarantees."
Certain Covenants........... The indenture pursuant to which the Exchange
Notes will be issued (the "Indenture") will
contain certain covenants that, among other
things, limit the ability of the Company, its
Restricted Subsidiaries (as defined) and, with
respect to clause (i), any Guarantor to (i) incur
additional indebtedness and issue preferred
stock, (ii) pay dividends or make certain other
restricted payments, (iii) enter into
transactions with affiliates, (iv) make certain
asset dispositions, (v) merge or consolidate
with, or transfer all or substantially all of its
assets to, another Person (as defined), (vi)
encumber assets under certain circumstances,
(vii) restrict dividends and other payments from
Restricted Subsidiaries or (viii) engage in
certain business activities. See "Description of
the Exchange Notes--Certain Covenants." In
addition, under certain circumstances, the
Issuers will be required to offer to purchase the
Exchange Notes at a price equal to 100% of the
principal amount thereof, plus accrued and
10
<PAGE>
unpaid interest and Liquidated Damages, if any,
thereon to the date of purchase, with the
proceeds of certain Asset Sales (as defined). See
"Description of the Exchange Notes--Certain
Covenants;--Repurchase at the Option of Holders--
Asset Sales."
For additional information regarding the Exchange
Notes, see "Description of Exchange Notes."
For a discussion of certain factors that should be considered by holders who
tender their Notes in the Exchange Offer, see "Risk Factors."
11
<PAGE>
Summary Historical and Unaudited Pro Forma Financial and Operating Data
The following table sets forth (i) summary historical combined financial data
for the four years ended December 31, 1997 and summary historical consolidated
financial data for the year ended December 31, 1998 and (ii) summary unaudited
pro forma consolidated financial data for the year ended December 31, 1998. For
periods prior to the Transactions, the historical combined financial
information represents the results of the Company. As a result of the
Transactions, the Company is now a wholly-owned subsidiary of the Parent.
Because the Parent is a holding company with no operating activities and
provides certain guarantees, the financial information presented herein for
periods subsequent to the Transactions represents consolidated financial
information of the Parent, rather than consolidated financial information of
the Company. The summary historical combined financial data for the four years
ended December 31, 1997 were derived from the audited combined financial
statements of the Company, which for the two years ended December 31, 1997 are
included elsewhere herein, together with the report of PricewaterhouseCoopers
LLP, independent accountants. The summary historical consolidated financial
data for the year ended December 31, 1998 were derived from audited
consolidated financial statements of the Company, which are included elsewhere
herein, together with the report of PricewaterhouseCoopers LLP, independent
accountants. The summary historical consolidated financial data for the year
ended December 31, 1998 reflect the impact of the Recapitalization and are not
necessarily indicative of the results for the full year. The summary unaudited
pro forma consolidated statement of income and other operating data for the
year ended December 31, 1998 give effect to the Transactions as if each had
occurred on January 1, 1998. The summary unaudited pro forma consolidated
financial data are intended for informational purposes and should not be
considered indicative of either future results of operations or the results
that might have occurred if the Transactions had been consummated on the
indicated date or had been in effect for the period presented. The following
table should be read in conjunction with "Selected Historical Financial Data,"
"Unaudited Pro Forma Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements and the notes related thereto of the Company included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Years ended December 31, Pro Forma(/1/)
--------------------------------------------- --------------
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- -------- --------------
(Dollars in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income:
Net sales............... $267,445 $324,529 $318,263 $347,709 $330,267 $329,337
Cost of sales........... 208,543 259,272 246,017 263,932 251,159 251,159
-------- -------- -------- -------- -------- --------
Gross profit............ 58,902 65,257 72,246 83,777 79,108 78,178
Selling, general and
administrative expense. 29,782 35,360 34,464 40,827 43,478 43,682
Nonrecurring costs(/2/). -- 574 3,704 -- 6,784 6,784
-------- -------- -------- -------- -------- --------
Operating income....... 29,120 29,323 34,078 42,950 28,846 27,712
Other income, net....... 312 778 685 (243) 306 306
Interest expense........ -- -- -- -- 21,426 32,618
-------- -------- -------- -------- -------- --------
Income before taxes..... 29,432 30,101 34,763 42,707 7,726 (4,600)
Provision for income
taxes(/3/)............. 11,265 11,545 13,408 16,431 2,391 --
-------- -------- -------- -------- -------- --------
Net income.............. $ 18,167 $ 18,556 $ 21,355 $ 26,276 $ 5,335 $ (4,600)
======== ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31, Pro Forma(/1/)
------------------------------------------------- --------------
1994 1995 1996 1997 1998 1998
-------- -------- -------- -------- --------- --------------
(Dollars in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Other Operating Data:
EBITDA(/4/)............. $ 37,573 $ 40,948 $ 45,908 $ 57,152 $ 44,241 $43,107
EBITDA Margin(/5/)...... 14.0% 12.6% 14.4% 16.4% 13.4% 13.1%
Cash interest
expense(/6/)........... $ -- $ -- $ -- $ -- $ 18,720 $28,498
Depreciation and
amortization(/7/)...... 8,141 10,847 11,145 14,445 16,671 17,494
Capital
expenditures(/8/)...... 11,579 16,177 22,030 19,990 7,861 7,861
Operating cash flows.... 19,381 17,517 77,192 39,654 6,787 --
Investing cash flows.... (19,659) (80,847) (21,177) (19,159) (5,511) --
Financing cash flows.... 549 63,126 (55,226) (20,249) 2,355 --
Ratio of EBITDA to cash interest expense.................... 2.4x 1.5x
Ratio of earnings to
fixed charges(/9/)..... 149.6x 153.0x 96.8x 108.8x 1.4x 0.9x
Balance Sheet Data (at end of period):
Working capital.................................... $ 15,434 $ 29,378
Total assets....................................... 205,086 214,204
Total debt......................................... -- 320,124
Mandatorily redeemable preferred equity............ -- 6,000
Parent company investment/(members' deficit)....... 148,573 (151,312)
</TABLE>
- -------
(1) See "Unaudited Pro Forma Financial Data."
(2) Nonrecurring costs in 1995 and 1996 are associated primarily with
reductions in work force. In 1998 such costs relate to a $4.5 million
restructuring charge and $2.3 million associated with payments under
retention agreements with certain key employees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
(3) Subsequent to the consummation of the Transactions, the Company will not
be a tax paying entity. Historical amounts represent the Company's tax
attributes as a division of Raytheon as calculated on a separate return
basis. See "Unaudited Pro Forma Financial Data."
(4) "EBITDA," as presented, represents income before income taxes plus
depreciation and amortization, cash interest expense and non-cash interest
expense on the Seller Subordinated Note. Interest accrued on the Seller
Subordinated Note is capitalized annually and will be repaid when the note
becomes due. EBITDA should not be considered an alternative to measures of
operating performance as determined in accordance with generally accepted
accounting principles, including net income as a measure of the Company's
operating results and cash flows as a measure of the Company's liquidity.
Because EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled
measures of other companies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(5) Represents EBITDA as a percentage of net sales.
(6) Cash interest expense represents interest expense less amortization of
deferred financing costs and non-cash interest expense on the Seller
Subordinated Note. Interest accrued on the Seller Subordinated Note is
capitalized annually and will be repaid when the note becomes due.
(7) Depreciation and amortization amounts for the historical 1998 and pro
forma 1998 periods include $1,582 and $2,405, respectively, representing
the amortization of deferred financing costs included in interest expense.
(8) Excludes purchases of assets related to the November 1994 acquisition of
the business of UniMac. For each of the five years ended December 31,
1998, capital expenditures excluding those relating to major new products,
significant product redesigns and major capacity additions would have been
less than $10.0 million.
(9) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
on all indebtedness and the estimated interest portion of rental expense.
13
<PAGE>
RISK FACTORS
Holders of the Notes should carefully consider the risk factors set forth
below, as well as the other information appearing elsewhere in this
Prospectus, before tendering their Notes in the Exchange Offer.
Certain statements, estimates, predictions and projections contained herein
under "Prospectus Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," in
addition to certain statements contained elsewhere herein, are "forward-
looking statements" within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act. These forward-looking statements are
prospective, involving risks and uncertainties. While these forward-looking
statements, and any assumptions upon which they are based, are made in good
faith and reflect the Company's current judgment regarding the direction of
its business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Some important factors (but not necessarily all
factors) that could affect the Company's revenues, growth strategies, future
profitability and operating results, or that otherwise could cause actual
results to differ materially from those expressed in or implied by any
forward-looking statement, include the following: lack of operating history as
an independent public company; inability to enter into and borrow under the
Senior Credit Facility; ability to successfully implement operating
strategies; working capital adjustments; payments pursuant to indemnification
arrangements; changes in economic conditions; competition; regulatory
difficulties; and the other matters referred to herein or elsewhere in this
Prospectus. Holders of the Notes are urged to carefully consider these factors
in connection with the forward-looking statements.
Risks Relating to the Exchange Notes
Substantial Leverage
The Company incurred significant debt in connection with the Transactions.
As of May 5, 1998, the Company had outstanding indebtedness of $319.0 million,
including $200.0 million drawn under the Term Loan Facility $110.0 million of
the Notes, and $9.0 million of the Seller Subordinated Note, and had a
significant members' deficit. In addition, the Company had available
borrowings of up to $75.0 million under the Revolving Credit Facility. In
addition, subject to restrictions in the Senior Credit Facility and the
Indenture, the Company may incur additional indebtedness from time to time to
finance acquisitions or capital expenditures. For the year ended December 31,
1998, after giving pro forma effect to the Transactions, the Company's ratio
of earnings to fixed charges would have been 0.9 to 1.
The Company's ability to make scheduled payments of principal of, or to pay
the premium, if any, interest or Liquidated Damages, if any, on, or to
refinance, its indebtedness (including the Exchange Notes), or to fund planned
capital expenditures will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control. Based
upon the current level of operations and certain anticipated improvements,
management believes that cash flow from operations and available cash,
together with available borrowings under the Senior Credit Facility, will be
adequate to meet the Company's future liquidity needs for at least the next
several years. There can be no assurance, however, that the Company's business
will generate sufficient cash flow from operations, that anticipated revenue
growth and operating improvements will be realized or that future borrowings
will be available under the Senior Credit Facility in an amount sufficient to
enable the Company to service its indebtedness, including the Exchange Notes,
or to fund its other liquidity needs. The Company may be required to refinance
all or a portion of the principal of the Exchange Notes on or prior to
maturity. There can be no assurance, however, that such refinancing would be
available on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
14
<PAGE>
The degree to which the Company has been leveraged following the
Transactions could have important consequences to holders of the Exchange
Notes, including, but not limited to: (i) making it more difficult for the
Company to satisfy its obligations with respect to the Exchange Notes; (ii)
increasing the Company's vulnerability to general adverse economic and
industry conditions; (iii) limiting the Company's ability to obtain additional
financing to fund future working capital, capital expenditures, research and
development and other general corporate requirements; (iv) requiring the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of, and interest on, its indebtedness, thereby
reducing the availability of such cash flow to fund working capital, capital
expenditures, research and development or other general corporate purposes;
(v) limiting the Company's flexibility in planning for, or reacting to,
changes in its business and the industry in which it competes; and (vi)
placing the Company at a competitive disadvantage compared to less leveraged
competitors. In addition, the Indenture and the Senior Credit Facility contain
financial and other restrictive covenants that limit the ability of the
Company to, among other things, borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company's business, financial condition and results of operations. If the
Company cannot generate sufficient cash to meet its obligations as they become
due or refinance such obligations, the Company may have to sell assets or
reduce capital expenditures. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing all of the Exchange Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
Senior Credit Facility" and "Description of the Exchange Notes--Repurchase at
the Option of Holders--Change of Control."
Subordination of the Exchange Notes; Guarantees
The Exchange Notes will be contractually subordinated to all Senior Debt
including all obligations under the Senior Credit Facility. Upon any
distribution to creditors of the Company in a liquidation or dissolution of
the Company or in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, the holders of
Senior Debt will be entitled to be paid in full in cash before any payment may
be made with respect to the Exchange Notes. In addition, the subordination
provisions of the Indenture will provide that payments with respect to the
Exchange Notes can be blocked in the event of defaults on Designated Senior
Debt (as defined). In the event of a bankruptcy, liquidation or reorganization
of the Company, holders of the Notes will participate ratably with all holders
of subordinated indebtedness of the Company that is deemed to be of the same
class as the Exchange Notes, and potentially with all other general creditors
of the Company, based upon the respective amounts owed to each holder or
creditor, in the remaining assets of the Company. In any of the foregoing
events, there can be no assurance that there would be sufficient assets to pay
amounts due on the Exchange Notes. As a result, holders of the Exchange Notes
may receive less, ratably, than holders of Senior Debt. At May 5, 1998, after
giving effect to the Transactions, the aggregate amount of consolidated
indebtedness and other liabilities to which the Exchange Notes were
subordinated was approximately $200.0 million, consisting of secured
borrowings under the Term Loan Facility. In addition, the Company had
available borrowings of up to $75.0 million under the Revolving Credit
Facility, all of which would constitute Senior Debt. Subject to certain
limitations, the Indenture will permit the Company to incur additional
indebtedness. Substantially all of the assets of the Company will or may in
the future be pledged to secure other indebtedness of the Company or its
Subsidiaries. See "The Transactions," "Description of Senior Credit Facility"
and "Description of the Exchange Notes--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Issuers' payment obligations under the Exchange Notes will be jointly
and severally guaranteed on a senior subordinated basis by the Parent and each
of the Company's future direct and indirect domestic subsidiaries. The
Exchange Notes will not be guaranteed by any of the Company's current direct
and indirect domestic subsidiaries or current or future foreign subsidiaries.
For the fiscal year ended December 31, 1998, the Non-Guarantor Subsidiaries
accounted for 3.0% of the Company's net sales and generated $1.7 million of
EBITDA . The Guarantees will be subordinated to the guarantees of Senior Debt
issued by the Guarantors under the Senior Credit Facility. Additionally, the
Company's payment obligations under the Notes will be structurally
subordinated to indebtedness of the Company's subsidiaries. See "Description
of the Exchange Notes--Subordination--Exchange Note Guarantees."
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Restrictions Imposed by the Senior Credit Facility and the Indenture
The Senior Credit Facility requires the Company to maintain specified
financial ratios and tests, among other obligations, including a minimum
interest coverage ratio and a maximum leverage ratio. In addition, the Senior
Credit Facility contains affirmative and negative covenants customary for
financings of that type, including, among other things, limitations on the
Company's ability to incur additional indebtedness and make acquisitions and
capital expenditures. A failure to comply with such covenants could lead to an
event of default thereunder, which could result in an acceleration of such
indebtedness. Such an acceleration would constitute an event of default under
the Indenture relating to the Exchange Notes. If an event of default exists on
Designated Senior Debt, subordination provisions in the Indenture may restrict
payments to holders of the Exchange Notes until holders of Senior Debt are
paid in full or such default is cured or waived or has ceased to exist. In
addition, the Indenture restricts, among other things, the Company's ability
to incur additional indebtedness, sell assets, create liens or other
encumbrances, make certain payments and dividends or merge or consolidate. A
failure to comply with the restrictions in the Indenture could result in an
event of default under the Indenture. See "Description of Senior Credit
Facility" and "Description of the Exchange Notes--Certain Covenants."
Fraudulent Transfer
A significant portion of the net proceeds of the Offering were paid as a
dividend to the Parent and used to consummate the Merger. Under applicable
provisions of the United States Bankruptcy Code or comparable provisions of
state fraudulent transfer or conveyance laws, if the Company, at the time it
issued the Notes, (i) incurred such indebtedness with intent to hinder, delay
or defraud creditors or (ii)(a) received less than reasonably equivalent value
or fair consideration for incurring such indebtedness and (b)(1) was insolvent
at the time of incurrence, (2) was rendered insolvent by reason of such
incurrence (and the application of the proceeds thereof), (3) was engaged or
was about to engage in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital to carry on
its businesses or (4) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they mature, then, in each case,
a court of competent jurisdiction could void, in whole or in part, the
Exchange Notes, or, in the alternative, subordinate the Exchange Notes to
existing and future indebtedness of the Company. The measure of insolvency for
purposes of the foregoing will vary depending upon the law applied in such
case. Generally, however, the Company would be considered insolvent if the sum
of its debts, including contingent liabilities, was greater than all of its
assets at fair valuation or if the present fair saleable value of its assets
was less than the amount that would be required to pay the probable liability
on its existing debts, including contingent liabilities, as they become
absolute and matured. The Company believes that, for purposes of all such
insolvency, bankruptcy and fraudulent transfer or conveyance laws, the Notes
were issued without the intent to hinder, delay or defraud creditors and for
proper purposes and in good faith and that the Company, after the issuance of
the Notes and the application of the proceeds thereof, was solvent, will have
sufficient capital for carrying on its business and will be able to pay its
debts as they mature. There can be no assurance, however, that a court passing
on such questions would agree with the Company's view.
Limitations on Change of Control
In the event of a Change of Control, the Issuers will be required to make an
offer for cash to repurchase the Exchange Notes at 101% of the principal
amount thereof, plus accrued and unpaid interest, and Liquidated Damages, if
any, thereon to the repurchase date. The provisions of the Indenture may not,
however, afford holders of the Exchange Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of
Exchange Notes, if such transaction does not result in a Change of Control. A
Change of Control will result in an event of default under the Senior Credit
Facility and may result in a default under other indebtedness of the Company
that may be incurred in the future. The Senior Credit Facility will prohibit
the purchase of outstanding Exchange Notes prior to repayment of the
borrowings under the Senior Credit Facility, and any exercise by the holders
of the Exchange Notes of their right to require the Issuers to repurchase the
Exchange Notes will cause an event of default under the Senior Credit
Facility. In addition, prior to repurchasing the Exchange Notes upon
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a Change of Control, the Company must either repay all outstanding
indebtedness under the Senior Credit Facility or obtain the consent of the
lenders. If the Company does not obtain such consent or repay its outstanding
indebtedness under the Senior Credit Facility, the Company would remain
effectively prohibited from offering to purchase the Exchange Notes. Finally,
there can be no assurance that the Company will have the financial resources
necessary or be able to arrange financing to repay obligations under the
Senior Credit Facility and the Indenture or to repurchase the Exchange Notes
upon a Change of Control. See "Description of the Exchange Notes--Repurchase
at the Option of Holders--Change of Control."
Absence of Public Market
Prior to the Exchange Offer, there has been no public market for the Notes.
The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in
this Exchange Offer. The holders of Notes (other than any such holder that is
an "affiliate" of either Alliance or ALC within the meaning of Rule 405 under
the Securities Act) who are not eligible to participate in the Exchange Offer
are entitled to certain registration rights, and the Issuers are required to
file a Shelf Registration Statement with respect to such Notes. The Exchange
Notes are new securities for which there currently is no market. The Exchange
Notes are eligible for trading by qualified buyers in the Private Offerings,
Resale and Trading though Automated Linkages (PORTAL) market. The Issuers do
not intend to apply for listing of the Exchange Notes on any securities
exchange or for quotation through the National Association of Securities
Dealers Automated Quotation System. Although the Exchange Notes are eligible
for trading through PORTAL, the Exchange Notes may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar securities, the Company's performance and other factors.
The Issuers have been advised by the Initial Purchasers that they currently
intend to make a market in the Exchange Notes as permitted by applicable law
and regulations; however, the Initial Purchasers are not obligated to do so
and any such market-making activities, if commenced, may be discontinued at
any time without notice. In addition, such market-making activities may be
limited during the Exchange Offer and pendency of the Shelf Registration
Statement. Therefore, there can be no assurance that an active market for any
of the Exchange Notes will develop, either prior to or after the Issuers'
performance of their obligations under the Registration Rights Agreement. See
"Description of the Exchange Notes."
The Exchange Notes generally will be permitted to be resold or otherwise
transferred (subject to the restrictions described under "Description of
Exchange Notes") by each holder without the requirement of further
registration. The Exchange Notes, however, will also constitute a new issue of
securities with no established trading market. The Exchange Offer will not be
conditioned upon any minimum or maximum aggregate principal amount of Notes
being tendered for exchange. No assurance can be given as to the liquidity of
the trading market for the Exchange Notes, or, in the case of non-exchanging
holders of Notes, the trading market for the Notes following the Exchange
Offer.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market or by declines in the
market for similar securities. Such declines may adversely affect such
liquidity and trading markets independently of the financial performance of,
and prospects for, the Company.
Exchange Offer Procedures
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Issuers of such
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Notes desiring to tender
such Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. The Issuers are under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
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Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." To the
extent that Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Notes could be adversely
affected. See "The Exchange Offer."
Company-Specific Risks
Appliance Co. Transaction
The Company has mutual supply agreements with Appliance Co. that terminate
in 1999. Pursuant to such agreements, (i) the Company purchased commercial
small-chassis frontload washers from Appliance Co.'s Searcy, Arkansas facility
until September 1998 and purchases commercial small-chassis frontload dryers
from the Searcy facility until September 1999 and (ii) Appliance Co. purchases
consumer topload washers from the Company's Ripon, Wisconsin facility (the
"Appliance Co. Supply Agreement") until September, 1999. Consumer topload
washers sold to Appliance Co. currently comprise a substantial percentage of
the unit volume of the Ripon facility and represented approximately 23% of
1998 net sales. Upon the termination of the Appliance Co. Supply Agreement,
the Company will experience a significant decline in unit volume. This volume
decline may result in an increase in the Company's average cost per unit, due
to, among other factors, unabsorbed manufacturing overhead, reduced raw
materials purchasing scale and reduced manufacturing efficiency. In addition,
a failure by the Company to successfully implement the reconfiguration of the
Ripon plant and thereby to partially offset any impact on the Company's cost
per unit following this volume decline could have a material adverse effect on
the Company's business, financial condition and results of operations. See "--
Ripon Transition" and "Business--Ripon Transition;--Appliance Co.
Transaction."
The Company relies on Appliance Co. to supply it with commercial small-
chassis frontload dryers and will continue to rely on Appliance Co. until the
Company has established manufacturing capability for such products at the
Ripon facility (expected to be September 1999). Products sourced from
Appliance Co., including frontload washers and dryers, represented 9% of the
Company's 1998 net sales. In the event Appliance Co. is unable or unwilling to
continue to manufacture commercial small-chassis frontload dryers for the
Company, it could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
Appliance Co. will continue to supply products that are consistent with the
Company's standards or that any disagreements will not result therefrom. In
this regard, the Company has occasionally received and may in the future
receive shipments of products from Appliance Co. that fail to conform with the
Company's quality control standards. In such event, the Company risks the loss
of revenue from the sale of such frontload dryers. The failure of Appliance
Co. to supply frontload dryers that conform to the Company's standards could
have a material adverse effect on the Company's business, financial condition
and results of operations, as well as on its reputation in the marketplace.
See "Ripon Transition" and "Business--Ripon Transition." For a discussion of
pending litigation with Appliance Co., see "Business--Appliance Co.
Transaction."
Ripon Transition
The Company is in the process of establishing manufacturing capability at
the Ripon facility for commercial small-chasis dryers (beginning September,
1999) and has recently introduced a new line of commercial small-chassis
frontload washers (beginning September, 1998). Full implementation of the
Company's plan to introduce small-chassis frontload washer and dryer
production and to cease production of consumer topload washers for Appliance
Co. is expected to require aggregate capital expenditures of approximately
$13.0 million ($2.9 million incurred in 1998) and result in aggregate
nonrecurring expenses (such as plant reconfiguration expenses, severance
expenses and
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manufacturing start-up expenses) of approximately $2.5 million ($0.2 million
incurred in 1998). There can be no assurance, however, that the
reconfiguration of the Ripon plant will be completed on time or will not
exceed estimated costs. In addition, there can be no assurance that the Ripon
plant will not experience any production problems once reconfiguration is
completed and frontload washer and dryer production begins. To the extent that
such transition is not completed in a timely manner or within expected costs
or to the extent that production problems occur, it could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Ripon Transition;--Appliance Co. Transaction."
Dependence Upon Significant Customers
The Company's top ten equipment customers (excluding Appliance Co.)
accounted for approximately 26% of 1998 net sales (excluding sales to
Appliance Co.), of which one customer, Coinmach Corporation ("Coinmach")
accounted for 11.1% of such net sales for the period. While the Company
believes its relationships with such customers are stable, many arrangements
are by purchase order and are terminable at will at the option of either
party. In addition, Appliance Co. accounted for 23% of 1998 net sales. The
Company's business also depends upon the financial viability of its customers.
A significant decrease or interruption in business from the Company's
significant customers could result in loss of future business and could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "--Appliance Co. Transaction," "Business--Appliance
Co. Transaction."
Possible Fluctuations in the Cost of Raw Materials; Possible Loss of
Suppliers
The major raw materials and components the Company purchases for its
production process are motors, stainless steel, aluminum, electronic controls,
corrugated boxes and plastics; in addition, the Company externally sources
finished small-chassis dryers from Appliance Co. The price and availability of
these raw materials and components are subject to market conditions affecting
supply and demand. Raw material costs increased significantly in 1995 due to
increases in commodity prices and as a result of such increase, the 1995
results of the Company were adversely affected. There can be no assurance that
increases in raw material or component costs (to the extent the Company is
unable to pass on such higher costs to customers) or future price fluctuations
in raw materials will not have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there
can be no assurance that the loss of suppliers or a significant delay in the
supply of externally manufactured finished goods from Appliance Co. or of
components would not have a material adverse effect on the Company's business,
financial condition and results of operations. See "--Appliance Co.
Transaction," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Manufacturing."
Competition
Within the North American stand alone commercial laundry equipment industry,
the Company competes with several large competitors. With respect to
laundromats, the Company's principal competitors include Wascomat (the
exclusive North American distributor of Electrolux AB products), Maytag
Corporation and The Dexter Company. In multi-housing, key competitors include
Maytag Corporation and Whirlpool Corporation. In on-premise laundry, the
Company competes primarily with Pellerin Milnor Corporation, American Dryer
Corporation and Wascomat. There can be no assurance that significant new
competitors or increased competition from existing competitors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
Certain of the Company's principal competitors have greater financial
resources and/or are less leveraged than the Company and may be better able to
withstand market conditions within the commercial laundry industry. There can
be no assurance that the Company will not encounter increased competition in
the future, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Competition."
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Absence of Recent Independent Operating History
The Company has benefited in the past from Raytheon's procurement leverage
with respect to insurance selection, travel services, telecommunications and
computer hardware and operating systems, audit, tax, banking and legal
services and retirement/benefits plan selection. No long-term agreement exists
or is contemplated between Raytheon and the Company for the supply of such
services subsequent to the consummation of the Transactions. While management
believes the Company will be able to procure adequate replacement services
from third-party suppliers, there can be no assurance that such services will
be obtained at favorable prices. As part of the Transactions, the Company and
Raytheon entered into a transition services agreement pursuant to which
Raytheon would provide the Company with certain of such services for a period
of at least 90 days after the closing of the Transactions. See "Certain
Relationships and Related Transactions--Transition Services Agreement."
Foreign Sales Risk
Sales of equipment to international customers represented approximately
10.0% of 1998 net sales and may increase in the future. Demand for the
Company's products are and may be affected by economic and political
conditions in each of the countries in which it sells its products and by
certain other risks of doing business abroad, including fluctuations in the
value of currencies (which may affect demand for products priced in United
States dollars), import duties, changes to import and export regulations
(including quotas), possible restrictions on the transfer of funds, labor or
civil unrest, long payment cycles, greater difficulty in collecting accounts
receivable and the burdens and cost of compliance with a variety of foreign
laws. Changes in policies by foreign governments could result in, for example,
increased duties, higher taxation, currency conversion limitations, or
limitations on imports or exports, any of which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company does not and currently does not intend to hedge
exchange rate fluctuations between United States dollars and foreign
currencies.
Risks Relating to Asset Backed Facility
The Company offers an extensive financing program to end-users, primarily
laundromat owners, to assist in their purchases of new equipment from the
Company's distributors or, in the case of route operators, from the Company.
Typical terms include 2-7 year loans with an average principal amount of
approximately $50,000. At the Closing, the Company entered into a five year
Asset Backed Facility to finance both new equipment loans as well as the
future sale of trade receivables through off-balance sheet bankruptcy remote
subsidiaries (the "Financing Subsidiaries"). A significant increase in the
cost of funding the Financing Subsidiaries could have a material adverse
effect on the Company's business, financial condition and results of
operations. In addition, if certain limits in the size of the Asset Backed
Facility are reached (either overall size or certain sublimits), additional
indebtedness may be required to fund the financing programs. The Company's
inability to incur such indebtedness to fund the financing programs could
result in the loss of sales and have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Significant Transactions--Equipment Financing Program,"
"Business--Sales and Marketing--Equipment Financing" and "Description of Asset
Backed Facility."
Dependence on Key Personnel
The Company is dependent on the continued services of its senior management
team. Although the Company believes it could replace key employees in an
orderly fashion should the need arise, the loss of such key personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management--Directors and Executive Officers."
Labor Relations
Approximately 610 of the Company's employees at its Wisconsin facilities are
represented by The United Steel Workers of America. The Company is
periodically in negotiations with The United Steel Workers of
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America, and the collective bargaining agreement covering employees at its
Wisconsin facilities, approved in March, 1999, expires in February 2002.
Although the Company expects to renew the existing agreement or negotiate a
new agreement without a work stoppage, there can be no assurance that the
Company can successfully negotiate a new agreement or that work stoppages by
certain employees will not occur. Any such work stoppages could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company believes that its relations with
its union employees are generally satisfactory, there can be no assurance that
the Company will not at some point be subject to work stoppages by some of its
employees and, if such events were to occur, that there would not be a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Employees."
Computer System; Year 2000 Issue
The Company is evaluating the extent to which its computer operating systems
will be disrupted upon the turn of the century as a result of the widely-known
dating system flaw inherent in most operating systems (the "Year 2000 Issue").
While the Company believes that new software being installed into its computer
system will address the Year 2000 Issue, there can be no assurance that the
new software will be installed in time to remedy the Year 2000 Issue, that the
Company's computer operating systems will not be disrupted upon the turn of
the century or that such modifications will not require unanticipated capital
expenditures. Any such disruption, whether caused by the Company's systems or
those of any of its suppliers or customers, could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Year 2000."
Controlling Shareholders
The Securityholders beneficially own substantially all of the outstanding
membership interests of the Parent and collectively control the affairs and
policies of the Company, including the ability to amend the Company's
Certificate of Formation and the LLC Agreement (as defined). Circumstances may
occur in which the interests of the Securityholders could be in conflict with
the interests of the holders of the Exchange Notes. In addition, the
Securityholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders
of the Notes. See "Security Ownership."
Environmental, Health and Safety Requirements
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of wastewater and storm water and the
disposal of solid and hazardous wastes. The Company is also subject to
liability for the investigation and remediation of environmental contamination
(including contamination caused by other parties) at the properties it owns or
operates and at other properties where the Company or predecessors have
arranged for the disposal of hazardous substances. As a result, the Company is
involved, from time to time, in administrative and judicial proceedings and
inquiries relating to environmental matters. There can be no assurance that
the Company will not be involved in such proceedings in the future and that
the aggregate amount of future clean-up costs and other environmental
liabilities will not have a material adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Environmental
Liabilities" and "Business--Environmental, Health and Safety Matters."
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at the Company's facilities or at other properties where the
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Company or its predecessors have arranged for the disposal of hazardous
substances. The enactment of more stringent laws or regulations or stricter
interpretation of existing laws and regulations could require expenditures by
the Company, some of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Environmental, Health and Safety Matters."
Pursuant to the Merger Agreement, and subject to a three year notice period
following the Closing, Raytheon has agreed to indemnify the Company for
certain environmental liabilities in excess of $1,500,000 in the aggregate
arising from the operations of the Company and its predecessors prior to the
Merger, including with respect to environmental liabilities at the Ripon and
Marianna facilities. In addition to the Raytheon indemnification, with respect
to the Marianna, Florida facility, a former owner of the property has agreed
to indemnify the Company for certain environmental liabilities. In the event
that Raytheon or the former owner fail to honor their respective obligations
under these indemnifications, such liabilities could be borne directly by the
Company and could be material.
Reliance on Trademarks and Other Intellectual Property
The Company holds numerous United States and foreign trademarks that
management believes have significant value and are important in the marketing
of its products to customers. The Company owns numerous United States and
foreign patents and has patent applications pending in the United States and
abroad. In addition, the Company owns United States (federal and state) and
foreign registered trade names and service marks and has applications for the
registration of trade names and service marks pending in the United States and
abroad. The Company also owns several United States copyright registrations
and a wide array of unpatented proprietary technology and know-how. Further,
the Company licenses certain intellectual property rights from third parties.
The Company's ability to compete effectively with other companies depends,
to a significant extent, on its ability to maintain the proprietary nature of
its owned and licensed intellectual property. Although the Company's
trademarks are currently registered with the United States Patent and
Trademark Office and in all 50 states and are registered or have applications
pending in 58 foreign countries, there can be no assurance that the Company's
trademarks cannot be circumvented, do not or will not violate the proprietary
rights of others or that the Company would not be prevented from using its
trademarks if challenged. Any challenge to the Company for its use of its
trademarks could have a material adverse effect on the Company's business,
financial condition and results of operations, as a result of either a
negative ruling with regard to the Company's use, validity or enforceability
of its trademarks or because of the time consumed and the legal costs of
defending against such a claim. In addition, there can be no assurance that
the Company will have the financial resources necessary to enforce or defend
its trademarks. In addition, there can be no assurance as to the degree of
protection offered by the various patents, the likelihood that patents will be
issued for pending patent applications or, with regard to the licensed
intellectual property, that the licenses will not be terminated. If the
Company were unable to maintain the proprietary nature of its intellectual
property, such loss could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business--
Patents and Trademarks."
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THE TRANSACTIONS
Overview
On May 5, 1998, pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") among Bain LLC, RCL Acquisitions, L.L.C., a Delaware limited
liability company ("MergeCo"), the Parent and Raytheon, MergeCo was merged
with and into the Parent (the "Merger") with the Parent being the surviving
entity. Prior to the Merger, Raytheon owned 100% of the equity securities of
the Parent and Bain LLC, the BRS Investors and the Management Investors owned
100% of the equity securities of MergeCo. As a result of the Merger (i)
Raytheon's limited liability company interest in the Parent was converted into
the right to receive (a) an aggregate amount of cash equal to $339.5 million,
subject to pre-closing and post-closing adjustments (which resulted in a
reduction of $24.8 million as of December 31, 1998, substantially all of which
was due to working capital levels) (b) a Junior Subordinated Promissory Note
from the Parent in the original principal amount of $9.0 million which matures
in 2009 (the "Seller Subordinated Note"), (c) preferred membership interests
of the Parent with a liquidation value of approximately $6.0 million which are
mandatorily redeemable in 2009 (the "Seller Preferred Equity") and (d) Common
Units (as defined) of the Parent representing 7% of the total common
membership interests of the Parent and (ii) Bain LLC's, the BRS Investors' and
the Management Investors' limited liability company interests in MergeCo were
converted into the right to receive up to 93% of the total common membership
interests of the Parent. Pursuant to the Merger Agreement, immediately
following the Merger, the corporate name of the Parent was changed to
"Alliance Laundry Holdings LLC."
The Merger Agreement contains various other provisions customary for
transactions of this size and type, including representations and warranties
with respect to the condition and operations of the business, covenants with
respect to the conduct of the business prior to the Closing (as defined) and
various closing conditions.
The transactions contemplated by the Merger Agreement were funded by: (i)
$200.0 million of term loan borrowings by the Company pursuant to the Senior
Credit Facility; (ii) the Note Offering, with aggregate gross proceeds of
$110.0 million (substantially all of the amounts in clauses (i) and (ii) were
distributed to the Parent to fund the Merger and related fees and expenses);
(iii) the issuance by the Parent of the Seller Subordinated Note to Raytheon
in the original principal amount of $9.0 million; (iv) the issuance by the
Parent of the Seller Preferred Equity with a liquidation value of
approximately $6.0 million; (v) the Investors Equity Contribution; and (vi)
the Raytheon Equity. Each of the Transactions was conditioned upon
consummation of each of the others, and consummation of each of the
Transactions occurred simultaneously.
Simultaneous with the consummation of each of the other Transactions (the
"Closing"), the Parent contributed (the "Parent Contribution") substantially
all of its assets and liabilities to the Company. Immediately after the
consummation of the Transactions, the Company became the only direct
subsidiary of the Parent and succeeded to substantially all of the assets and
liabilities of the Parent.
Senior Credit Facility
In connection with the Transactions, the Company entered into a credit
agreement (the "Senior Credit Facility") with a syndicate of financial
institutions (the "Lenders") for which Lehman Brothers Inc. acted as arranger
and Lehman Commercial Paper Inc. acted as syndication agent. The Senior Credit
Facility is comprised of a term loan facility aggregating $200.0 million (the
"Term Loan Facility") and a $75.0 million revolving credit facility (the
"Revolving Credit Facility"), which was made available in conjunction with the
issuance of the Notes. The Term Loan Facility requires no principal payments
during the first two years and amortizes at the rate of $1.0 million per year
for years three through five, $40.0 million for year six and $157.0 million
for year seven. The borrowings under the Term Loan Facility, together with the
aggregate gross proceeds from the issuance of the Notes and from the Investors
Equity Contribution, were used to consummate the Merger and pay fees and
expenses in connection with the Transactions. In addition, the Revolving
Credit Facility provides financing for future working capital and other
general corporate purposes. See "Description of Senior Credit Facility."
23
<PAGE>
Asset Backed Facility
In connection with the Transactions, the Company, through the Financing
Subsidiaries, entered into a $250.0 million Asset Backed Facility to finance
trade receivables and notes receivable related to equipment loans. The Company
offers equipment financing to end-users of its commercial laundry equipment to
assist in their purchases of new equipment from the Company's distributors or,
in the case of route operators, from the Company. See "Description of Asset
Backed Facility."
24
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes in the
Exchange Offer. The sources and uses of funds from the proceeds from the Note
Offering, the Investors Equity Contribution and borrowings under the Senior
Credit Facility as of May 5, 1998 are set forth below:
<TABLE>
<CAPTION>
May 5, 1998
---------------------
(Dollars in millions)
<S> <C> <C>
Sources of Funds
Senior Credit Facility(/1/):
Revolving Credit Facility...................... $ --
Term Loan Facility............................. 200.0
9 5/8% Senior Subordinated Notes due 2008........ 110.0
Seller Subordinated Note(/2/).................... 9.0
Seller Preferred Equity(/2/)..................... 6.0
Raytheon Equity(/2/)............................. 3.5
Investors Equity Contribution(/3/)............... 47.1
------
Total sources of funds(/4/).................... $375.6
======
Uses of Funds
Merger consideration(/3/)(/4/)................... $333.2
Fees and expenses of the Transactions............ 22.4
Notes received from management(/5/).............. 1.8
Excess cash to fund working capital(/4/)......... 18.2
------
Total uses of funds............................ $375.6
======
</TABLE>
- --------
(1) The Company received commitments of up to $275.0 million for the Senior
Credit Facility, of which $200.0 million was in the form of a Term Loan
Facility and $75.0 million was in the form of a Revolving Credit Facility
maturing in 2003. At May 5, 1998, the Company borrowed $200.0 million
under the Term Loan Facility and had no amounts outstanding under the
Revolving Credit Facility. The Term Loan Facility requires no principal
payments during the first two years and amortizes at the rate of $1.0
million per year for years three through five, $40.0 million for year six
and $157.0 million for year seven. See "Description of Senior Credit
Facility."
(2) The Seller Subordinated Note and the Seller Preferred Equity issued by the
Parent and the Raytheon Equity represent non-cash Merger consideration
paid to Raytheon. The Seller Subordinated Note pays interest-in-kind and
is not redeemable until 2009 or upon a change of control or an initial
public offering. The Seller Preferred Equity does not accrete or accrue or
pay dividends and is mandatorily redeemable in 2009 or upon a change of
control or an initial public offering.
(3) Reflects the issuance of membership interests in the Parent to the
Securityholders in exchange for a capital contribution of $47.1 million.
(4) The Merger consideration of $358.0 is subject to pre-closing and post-
closing adjustments estimated as of May 5, 1998 to result in a reduction
of $24.8 million, substantially all of which was due to changes in working
capital levels. In addition, as a result of this reduction, the Company
did not sell any notes receivable or accounts receivable to generate funds
for use as of the Closing. In March 1999, the Parent and Raytheon agreed
to an additional reduction of the Merger consideration of $2.8 million
which is not reflected above in resolution of a dispute regarding working
capital levels as of the Closing.
(5) The Parent loaned approximately $1.8 million to the Management Investors
to finance a portion of their purchase of membership interests in the
Parent.
25
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1998 the capitalization of
the Parent. This table should be read in conjunction with the "Selected
Historical Financial Data" and the historical financial statements of the
Company and notes related thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
December 31,
1998
------------
Parent
------------
(Dollars in
millions)
<S> <C>
Long-term debt:
Senior Credit Facility:
Revolving Credit Facility...................................... $ --
Term Loan Facility............................................. 200.0
9 5/8% Senior Subordinated Notes due 2008........................ 110.0
Junior Subordinated Note......................................... 10.1
------
Total long-term debt........................................... 320.1
------
Mandatorily redeemable preferred equity............................ 6.0
------
Members' deficit................................................... (151.3)
------
Total capitalization........................................... $174.8
======
</TABLE>
26
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Financial Data for the year ended
December 31, 1998 are based on the historical financial statements of the
Parent as adjusted to give effect to the Transactions. The pro forma
adjustments were applied to the historical financial statements to reflect and
account for the Merger as a recapitalization. Accordingly, the historical
basis of the Company's assets and liabilities has not been impacted by the
Transactions.
The following Unaudited Pro Forma Consolidated Statement of Income for the
year ended December 31, 1998 gives effect to the Transactions as if they had
occurred on January 1, 1998. See "The Transactions." The Unaudited Pro Forma
Statement of Income is for informational purposes only and does not purport to
represent what the Company's results of operations would have been if the
Transactions had occurred as of the date indicated or what such results will
be for any future periods. The Unaudited Pro Forma Financial Data are based
upon assumptions the Company believes are reasonable and should be read in
conjunction with the historical financial statements and the notes related
thereto included elsewhere in this Prospectus.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales...................... $330,267 $ (930)(/1/) $329,337
Cost of sales.................. 251,159 -- 251,159
-------- -------- --------
Gross profit.................. 79,108 (930) 78,178
Selling, general and
administrative expense........ 43,478 (140)(/2/) 43,682
344 (/3/)
Nonrecurring costs............. 6,784 -- 6,784
-------- -------- --------
Operating income.............. 28,846 (1,134) 27,712
Other income, net............. 306 -- 306
Interest expense............... 21,426 11,192 (/4/) 32,618
-------- -------- --------
Income before taxes............ 7,726 (12,326) (4,600)
Provision for income taxes..... 2,391 (2,391)(/5/) --
-------- -------- --------
Net income..................... $ 5,335 $ (9,935) $ (4,600)
======== ======== ========
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME
(Dollars in thousands)
(1) Represents the reduction in gain recorded on the sale of notes receivable
originated in the equipment financing program, as follows:
<TABLE>
<CAPTION>
For the period
January 1
through May 4,
1998
--------------
<S> <C>
Historical gain on equipment financing program.............. $(3,114)
Pro forma gain under the Asset Backed Facility.............. 2,184
-------
Net decrease in net sales................................. (930)
=======
</TABLE>
The Company recognizes a gain when notes receivable originated by the
Company are sold to the Financing Subsidiaries. As part of the Transactions,
the historical equipment financing program with the previous financial
institution was terminated. The historical program provided the Company with
certain preferential interest and advance rates due, in part, to guarantees
made by the Company's former parent, Raytheon. As a direct result of the
Transactions, Raytheon will no longer provide any such guarantees. As a
result, the new Asset Backed Facility is therefore based on terms and
conditions which are less favorable (both with respect to interest and
advance rates) than the historical program. The pro forma gain under the
Asset Backed Facility is calculated using the less favorable interest and
advance rates partially offset by the impact of using estimates (when
determining the gain to be recorded under the Asset Backed Facility) that
reflect the performance of equipment loans similar to those expected to be
sold under the Asset Backed Facility. The pro forma gain under the Asset
Backed Facility is calculated based on the terms of the Asset Backed
Facility and on the actual performance of the equipment loan portfolio both
of which are factually supported by the agreements creating the Asset Backed
Facility or the Company's books and records. The December 31, 1998 balance
sheet includes a residual interest of $4.2 million related to the notes that
had been sold since May 4, 1998.
(2) Represents the reduction in loss recorded on the sale of trade
receivables, as follows:
<TABLE>
<CAPTION>
For the period
January 1
through May 4,
1998
--------------
<S> <C>
Historical loss on the trade receivables financing program. $(1,575)
Pro forma loss under the Asset Backed Facility ............ 1,435
-------
Net decrease in selling, general and administrative ex-
pense................................................... (140)
=======
</TABLE>
The Company recognizes a loss on trade receivables sold to the Financing
Subsidiaries. As part of the Transactions, the historical trade receivables
financing program with the previous financial institution was terminated.
The historical program provided the Company with certain preferential
interest and advance rates due, in part, to guarantees made by the Company's
former parent, Raytheon. As a direct result of the Transactions, Raytheon
will no longer provide any such guarantees. As a result, the new Asset
Backed Facility is therefore based on terms and conditions which are less
favorable (both with respect to interest and advance rates) than the
historical program. The pro forma loss under the Asset Backed Facility is
calculated using the less favorable interest and advance rates. The pro
forma loss under the Asset Backed Facility is calculated based on the terms
of the Asset Backed Facility which are factually supported by the agreements
creating the Asset Backed Facility. The December 31, 1998 balance sheet
includes a residual interest of $6.9 million related to the trade
receivables that had been sold since May 4, 1998.
(3) Represents the $1.0 million annual management fee to be paid to Bain for
consulting and financial services to be provided to the Company. See
"Certain Relationships and Related Transactions--Management Services
Agreement."
29
<PAGE>
(4) The increase in pro forma interest expense as a result of the Transactions
is as follows:
<TABLE>
<CAPTION>
For the period
January 1,
1998 through
May 4, 1998
--------------
Senior Credit Facility:
<S> <C>
Revolving Credit Facility(a).............................. $ 287
Term Loan Facility(b)..................................... 5,829
9 5/8% Senior Subordinated Notes due 2008(c).............. 3,662
-------
Cash interest expense....................................... 9,778
Non-cash interest expense(d)................................ 1,414
-------
Net increase in interest expense.......................... $11,192
=======
</TABLE>
(a) Represents interest and commitment fees on the $75.0 million Revolving
Credit Facility using an assumed interest rate of 8.175% (LIBOR plus
2.375%) assuming an average annual outstanding balance of $5.8 million for
the period from January 1, 1998 through May 4, 1998.
(b) Represents interest on the Term Loan Facility using an assumed interest
rate of 8.425% (LIBOR plus 2.625%).
(c) Represents interest on the Notes using an interest rate of 9.625%.
(d) Represents amortization of $16.2 million in deferred financing costs
utilizing a weighted average maturity of 6.7 years and non-cash interest
on the Seller Subordinated Note.
An increase or decrease in the assumed weighted average interest rate on the
Senior Credit Facility of 0.125% would change pro forma interest expense by
$0.3 million for the year ended December 31, 1998.
(5) Represents the elimination of the historical provision for income tax.
Historical amounts represent the Company's tax attributes as a division of
Raytheon as calculated on a separate return basis. As the Parent and the
Company are both limited liability companies, the individuals or entities
who ultimately hold common membership interests in these limited liability
companies are responsible for income taxes. Subject to certain limitations,
the Company is allowed per Board of Managers' approval to distribute amounts
necessary to pay income taxes related to its operations should the
Securityholders have income tax obligations related to the ownership of
their common membership interests.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical combined financial data
for the four years ended December 31, 1997 and selected historical
consolidated financial data for the year ended December 31, 1998. For periods
prior to the Transactions, the historical combined financial information
represents the results of the Company. As a result of the Transactions, the
Company is now a wholly-owned subsidiary of the Parent. Because the Parent is
a holding company with no operating activities and provides certain
guarantees, the financial information presented herein for periods subsequent
to the Transactions represents consolidated financial information of the
Parent, rather than consolidated financial information of the Company. The
selected historical combined financial data for the four years ended December
31, 1997 were derived from the audited combined financial statements of the
Company which for the two years ended December 31, 1997 are included elsewhere
in this Prospectus, together with the report thereon of PricewaterhouseCoopers
LLP, independent accountants. The summary historical consolidated financial
data for the year ended December 31, 1998 were derived from audited
consolidated financial statements of the Company, which are included elsewhere
herein, together with the report of PricewaterhouseCoopers LLP, independent
accountants. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and the notes related
thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Income:
Net sales.................... $267,445 $324,529 $318,263 $347,709 $330,267
Cost of sales................ 208,543 259,272 246,017 263,932 251,159
-------- -------- -------- -------- --------
Gross profit................. 58,902 65,257 72,246 83,777 79,108
Selling, general and
administrative expense...... 29,782 35,360 34,464 40,827 43,478
Nonrecurring costs(/1/)...... -- 574 3,704 -- 6,784
-------- -------- -------- -------- --------
Operating income............. 29,120 29,323 34,078 42,950 28,846
Other income, net............ 312 778 685 (243) 306
Interest expense............. -- -- -- -- 21,426
-------- -------- -------- -------- --------
Income before taxes.......... 29,432 30,101 34,763 42,707 7,726
Provision for income
taxes(/2/).................. 11,265 11,545 13,408 16,431 2,391
-------- -------- -------- -------- --------
Net income................... $ 18,167 $ 18,556 $ 21,355 $ 26,276 $ 5,335
======== ======== ======== ======== ========
Other Operating Data:
EBITDA(/3/).................. $ 37,573 $ 40,948 $ 45,908 $ 57,152 $ 44,241
EBITDA Margin(/4/)........... 14.0% 12.6% 14.4% 16.4% 13.4%
Depreciation and
amortization................ $ 8,141 $ 10,847 $ 11,145 $ 14,445 $ 16,671
Operating cash flows......... 19,381 17,517 77,192 39,654 6,787
Investing cash flows......... (19,659) (80,847) (21,177) (19,159) (5,511)
Financing cash flows......... 549 63,126 (55,226) (20,249) 2,355
Capital expenditures(/5/).... 11,579 16,177 22,030 19,990 7,861
Ratio of earnings to fixed
charges(/6/)................ 149.6x 153.0x 96.8x 108.8x 1.4x
Balance Sheet Data (at end of
period):
Working capital (deficit).... $ (5,222) $ 66,673 $ 23,899 $ 15,434 $ 29,378
Total assets................. 201,496 220,063 209,795 205,086 214,204
Total debt................... 1,400 1,100 1,000 -- 320,124
Mandatorily redeemable
preferred equity............ -- -- -- -- 6,000
Parent company
investment/members' deficit. 93,335 175,317 141,546 148,573 (151,312)
</TABLE>
31
<PAGE>
- --------
(1) Nonrecurring costs in 1995 and 1996 are associated primarily with
reductions in work force. In 1998 such costs relate to a $4.5 million
restructuring charge and $2.3 million associated with payments under
retention agreements with certain key employees. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations."
(2) Subsequent to the consummation of the Transactions, the Company is not a
tax paying entity. Historical amounts represent the Company's tax attributes
as a division of Raytheon as calculated on a separate return basis. See
"Unaudited Pro Forma Financial Data."
(3) "EBITDA," as presented, represents income before income taxes plus
depreciation, amortization, cash interest expense and non-cash interest
expense on the Seller Subordinated Note. Interest accrued on the Seller
Subordinated Note is capitalized annually and will be repaid when the note
becomes due. EBITDA is included because management believes that such
information provides an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income as a measure of the Company's operating results and
cash flows as a measure of the Company's liquidity. Because EBITDA is not
calculated identically by all companies, the presentation herein may not be
comparable to other similarly titled measures of other companies.
(4) Represents EBITDA as a percentage of net sales.
(5) Excludes purchase of assets related to the November 1994 acquisition of
the business of UniMac. For each of the five years ended December 31, 1998,
capital expenditures excluding those relating to major new products,
significant product redesign and major capacity additions, would have been
less than $10.0 million.
(6) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
on all indebtedness and the estimated interest portion of rental expense.
The Company had no significant interest or rental expense for the periods
prior to the Recapitalization.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations covers periods both before and after the consummation of the
Transactions. In connection with the Transactions, Alliance Laundry Holdings
LLC and its wholly owned subsidiary, Alliance Laundry Systems LLC entered into
financing arrangements and significantly altered its capital structure. As a
result of the Transactions, the Company is operating as a stand alone entity
for the first time, and the historical combined financial statements and notes
related thereto reflect management's estimates of certain costs associated
with operating as a stand alone entity and reflect taxes that are not
applicable to the Company following the consummation of the Transactions.
Additionally, since September 10, 1997 the Company has sold consumer laundry
equipment to Appliance Co. at negligible margins to cost compared to modest
margins for sales to Raytheon's consumer appliance business in prior periods.
Accordingly, the results of operations for the periods subsequent to the
consummation of the Transactions will not necessarily be comparable to prior
periods. See "The Transactions," "Capitalization," "Unaudited Pro Forma
Financial Data," "Selected Historical Financial Data," "Description of Senior
Credit Facility," "Description of Asset Backed Facility" and the historical
financial statements and notes related thereto included elsewhere in this
Prospectus.
Overview
The Company believes it is the leading designer, manufacturer and marketer
of stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and
Huebsch, the Company produces a full line of commercial washing machines and
dryers with load capacities from 16 to 250 pounds. The Company's commercial
products are sold to three distinct customer groups: (i) laundromats; (ii)
multi-housing laundries, consisting primarily of common laundry facilities in
apartment buildings, universities and military installations; and (iii) on-
premise laundries, consisting primarily of in-house laundry facilities of
hotels, hospitals, nursing homes and prisons. In addition, pursuant to the
Appliance Co. Supply Agreement, the Company supplies consumer washing machines
to the consumer appliance business of Appliance Co. for sale at retail.
Internationally, the Company has developed targeted opportunities, generating
equipment sales of $45.5 million and $34.1 million in 1997 and 1998,
respectively. The Company's net sales have grown at a compound annual rate of
5.4% to $330.3 million in 1998 from $267.4 million in 1994. For this same
period operating income before certain nonrecurring costs described herein has
grown at a compound annual rate of 5.2% to $35.6 million in 1998 from $29.1
million in 1994.
Significant Transactions
Appliance Co. Transaction
The Company's former parent, Raytheon, sold its consumer appliance business
to Appliance Co. on September 10, 1997. In connection with the Appliance Co.
Transaction, the Company entered into a two year agreement to supply consumer
topload washers to Appliance Co. at selling prices that approximate cost.
Prior to this supply agreement, transfers of product to Raytheon's consumer
appliance business generated modest margins; in addition, in 1997, the Company
incurred $0.9 million of transition costs associated with the Appliance Co.
Transaction and $2.1 million of costs which would have been reimbursed under
the terms of the Appliance Co. Supply Agreement. If this supply agreement had
been in place for the full year of 1997, net sales would have been lower by
approximately $3.6 million and operating income would have been lower by
approximately $0.6 million. Accordingly, the results of operations for the
periods subsequent to the Appliance Co. Transaction will not necessarily be
comparable to prior periods. The Company also entered into a similar supply
agreement for the Company to purchase commercial small-chassis frontload
washers and dryers from Appliance Co. for one year and two years,
respectively.
Ripon Transition
The Company is in the process of establishing at its Ripon facility the
capability to manufacture small-chassis commercial dryers (beginning
September, 1999) and has recently introduced a new line of commercial small-
chassis frontload washers (beginning September, 1998). Until such time, the
Company will continue to source these products from Appliance Co. The Company
has provided notice to Appliance Co. that it will not be renewing the supply
agreement to purchase small-chassis dryers after September 1999. Similarly, as
of
33
<PAGE>
September 1998, Appliance Co. had provided notice to the Company that it will
not renew the supply agreement to purchase consumer topload washers from the
Company. This supply agreement expires in September, 1999. As a result, the
Company will experience a significant decline in unit volume. The Company's
plan to introduce small-chassis frontload washer and dryer production and to
cease production of consumer topload washers for Appliance Co. (the
"Transition Plan") is expected to require aggregate capital expenditures of
approximately $13.0 million ($2.9 million incurred in 1998) and nonrecurring
expenses (such as plant reconfiguration, severance expenses and manufacturing
start-up expenses) of approximately $2.5 million ($0.2 million incurred in
1998). To the extent that the Transition Plan is not completed in a timely
manner or within expected costs, it could have a material adverse effect on
the Company's business, financial condition and results of operations.
Equipment Financing Program
Since 1992, the Company has provided equipment financing to laundromat
owners, multi-housing route operators and on-premise laundry operators. From
1992 to January 1996, the Company provided financing through several external
sources. Under these programs, the Company originated financing transactions
and sold the notes receivable and the servicing rights to third parties.
In January 1996, the Company developed an in-house program to replace its
external financing programs, thereby retaining the benefits and risks
associated with these financings. As notes receivable in this program were
sold to the Company's Financing Subsidiaries, the Company recognized a gain in
accordance with generally accepted accounting principles.
Concurrent with the Closing of the other Transactions, the Company entered
into the Asset Backed Facility, which provides $250.0 million of off-balance
sheet financing for trade receivables and equipment loans. The Asset Backed
Facility is structured in a manner that qualifies for off-balance sheet
treatment in accordance with generally accepted accounting principles. It is
expected that under the Asset Backed Facility, the Company will continue to
act as originator and servicer of the equipment financing promissory notes and
trade receivables. The Asset Backed Facility is based on terms and conditions
which are less favorable (both with respect to interest and advance rates)
than the prior program. As a result, the earnings and cash flows resulting
from the sale of trade receivables and equipment loans in the future will be
negatively impacted by the sale of trade receivables and equipment loans to
the Asset Backed Facility versus the prior facility.
Results of Operations
The following table sets forth the Company's historical net sales for the
periods indicated:
<TABLE>
<CAPTION>
Years Ended December
31,
--------------------
1996 1997 1998
------ ------ ------
(Dollars in
millions)
<S> <C> <C> <C>
Net sales
Commercial laundry equipment....................... $209.1 $239.3 $220.1
Appliance Co. consumer laundry equipment........... 77.0 76.8 77.2
Service parts...................................... 32.2 31.6 33.0
------ ------ ------
$318.3 $347.7 $330.3
====== ====== ======
</TABLE>
The following table sets forth certain condensed historical financial data
for the Company expressed as a percentage of net sales for each of the periods
indicated:
<TABLE>
<CAPTION>
Years Ended
December 31,
-------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of sales....................................... 77.3% 75.9% 76.0%
Gross profit........................................ 22.7% 24.1% 24.0%
Selling, general and administrative expense......... 10.8% 11.7% 13.2%
Nonrecurring costs.................................. 1.2% 0.0% 2.1%
Operating income.................................... 10.7% 12.4% 8.7%
Net income.......................................... 6.7% 7.6% 1.6%
</TABLE>
34
<PAGE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. Net sales for the year ended December 31, 1998 decreased $17.4
million, or 5.0%, to $330.3 million from $347.7 million for the year ended
December 31, 1997. This decrease was primarily due to decreases in commercial
laundry equipment sales of $19.2 million which were partially offset by
increases in consumer laundry equipment sales of $0.4 million and in service
part sales of $1.4 million. The decrease in commercial laundry sales consisted
of lower sales to international customers of $11.4 million and a decrease in
laundromat sales of $11.5 million which were partially offset by higher
earnings from the Company's off-balance sheet equipment financing program of
$1.8 million. Sales to international customers were lower as the Company's
products (priced in U.S. dollars) have become less competitive due to
unfavorable exchange rate movements. The laundromat sales decrease was due to
lower sales to a recently formed laundromat chain following higher sales in
1997 to support an initial nationwide rollout.
Gross profit. Gross profit for the year ended December 31, 1998 decreased
$4.7 million, or 5.6%, to $79.1 million from $83.8 million for the year ended
December 31, 1997. Gross profit as a percentage of net sales decreased to
24.0% for the year ended December 31, 1998 from 24.1% for the year ended
December 31, 1997. The gross profit decrease is primarily attributable to the
decreases in international sales, laundromat sales and higher field service
expenses of $1.4 million related to late 1997 product introductions, and a
decrease in consumer laundry selling prices and related service parts pricing
under the Appliance Co. Supply Agreement. These reductions were partly offset
by profit growth from other North American sales, manufacturing efficiencies
and the increased earnings from the Company's equipment financing program.
Selling, general and administrative expense. Selling, general and
administrative expenses for the year ended December 31, 1998 increased $2.7
million, or 6.6%, to $43.5 million from $40.8 million for the year ended
December 31, 1997. Selling, general and administrative expenses as a
percentage of net sales increased to 13.2% for the year ended December 31,
1998 from 11.7% for the year ended December 31, 1997. The increase in selling,
general and administrative expenses was primarily due to an increase in the
Company's Argentina selling and administrative expense of $1.2 million and
higher administrative expenses associated with being a stand-alone company of
$1.3 million.
Nonrecurring costs. Nonrecurring costs for the year ended December 31, 1998
were $6.8 million, with no nonrecurring costs recorded for the year ended
December 31, 1997. Nonrecurring costs are comprised of employee retention
costs of $2.3 million and a restructuring charge of $4.5 million ($3.6 million
is non-cash) associated with the closing of the Company's Argentina coin
laundromat operations. See Note 4--Nonrecurring Items in Notes to Financial
Statements.
Operating income. As a result of the foregoing, operating income for the
year ended December 31, 1998 decreased $14.1 million, or 32.8%, to $28.8
million from $43.0 million for the year ended December 31, 1997. Operating
income as a percentage of net sales decreased to 8.7% for the year ended
December 31, 1998 from 12.4% for the year ended December 31, 1997.
Interest Expense. Interest expense for the year ended December 31, 1998 was
$21.4 million, with no interest expense recorded for the year ended December
31, 1997. The increase is attributable to interest expense on debt issued in
connection with the Recapitalization and represents interest from May 5, 1998
through December 31, 1998.
Income Taxes. The provision for income taxes for the year ended December 31,
1998 decreased $14.0 million, to $2.4 million from $16.4 million for the year
ended December 31, 1997. Income tax provisions recorded through May 4, 1998
represent the Company's tax attributes as a unit of Raytheon as calculated on
a separate return basis. Effective May 5, 1998 the Company is a stand alone
limited liability company, and is no longer subject to federal or state income
taxes.
35
<PAGE>
Net Income. As a result of the foregoing, net income for the year ended
December 31, 1998 decreased $21.0 million, or 79.7%, to $5.3 million from
$26.3 million for the year ended December 31, 1997. Net income as a percentage
of net sales decreased to 1.6% for the twelve months ended December 31, 1998
from 7.6% for the year ended December 31, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales. Net sales for 1997 increased $29.4 million, or 9.2%, to $347.7
million from $318.3 million for 1996. This increase was due to an increase in
commercial laundry sales of $30.2 million partially offset by slight
reductions in Appliance Co. consumer laundry equipment sales and service
parts. The increase in commercial laundry equipment sales consisted of
increases of: (i) $14.7 million in laundromat sales due to the inclusion of a
full year of sales to a new laundromat customer compared to two months in the
prior year as well as increased sales to existing and other new customers;
(ii) $4.7 million in multi-housing customer sales primarily due to increased
sales to key customers under supply agreements; (iii) $3.7 million in on-
premise laundry sales due in part to the Company's new product offerings in
1996 and 1997; (iv) $5.6 million due to increased volume of equipment
financing promissory notes originated and sold pursuant to the Company's off-
balance sheet equipment financing program; and (v) $1.5 million in other
commercial laundry equipment sales.
Gross profit. Gross profit for 1997 increased $11.6 million, or 16.1%, to
$83.8 million from $72.2 million for 1996. Gross profit as a percentage of net
sales increased to 24.1% for 1997 from 22.7% for 1996. This increase was
primarily attributable to an increase in commercial laundry equipment sales
volume and related efficiencies, manufacturing cost reductions and growth in
the Company's equipment financing program, which were partially offset by a
decrease in Appliance Co. consumer laundry equipment selling prices under the
Appliance Co. Supply Agreement, costs related to the Appliance Co.
Transaction, new product start-up costs as well as increased depreciation.
Selling, general and administrative expense. Selling, general and
administrative expense for 1997 increased $6.3 million, or 18.3%, to $40.8
million from $34.5 million for 1996. Selling, general and administrative
expense as a percentage of net sales increased to 11.7% for 1997 from 10.8%
for 1996. The increase in selling, general and administrative expense was
primarily due to a $3.4 million loss on sale recognized in connection with the
increased level of trade receivables sold through the Company's Financing
Subsidiaries, an increase of $1.9 million in selling and distribution expense
resulting from increased sales and an increase of $1.3 million in engineering
expense principally to support new product introductions.
Operating income. Operating income for 1997 increased $8.9 million, or
26.1%, to $43.0 million from $34.1 million for 1996. Operating income as a
percentage of net sales increased to 12.4% for 1997 from 10.7% for 1996. The
increase in operating income was primarily due to the factors discussed above;
in addition, nonrecurring costs of $3.7 million were incurred in 1996
primarily associated with the elimination of certain redundant processes as
part of the consolidation of Raytheon's appliance businesses, which included
the Company. See Note 4 to the Company's historical financial statements and
notes related thereto included elsewhere herein.
1997 vs 1996
Income Taxes. The provision for income taxes for the year ended December 31,
1997 increased $3.0 million, to $16.4 million from $13.4 million for the year
ended December 31, 1996. The income tax provision for 1997 reflects the higher
pre-tax earnings. The effective tax rate for the years ended December 31, 1996
and 1997 is 38.5%.
Net Income. As a result of the foregoing, net income for the year ended
December 31, 1997 increased $4.9 million, or 22.9%, to $26.3 million from
$21.4 million for the year ended December 31, 1996. Net income as a percentage
of net sales increased to 7.6% for the year ended December 31, 1997 from 6.7%
for the year ended December 31, 1996.
36
<PAGE>
Liquidity and Capital Resources
Post-Transactions
Following the Transactions, the Company's principal sources of liquidity are
cash flow generated from operations and borrowings under the $75.0 million
Revolving Credit Facility. The Company's principal uses of liquidity are to
meet debt service requirements, finance the Company's capital expenditures and
provide working capital. The Company expects that capital expenditures in 1999
will not exceed $16.0 million, including all capital expenditures related to
the Ripon Transition. The Company expects that ongoing requirements for debt
service, capital expenditures and working capital will be funded by internally
generated cash flow and borrowings under the Revolving Credit Facility and
Asset Backed Facility. The Company has incurred substantial indebtedness in
connection with the Transactions. As of December 31, 1998, the Company has
approximately $320.1 million of combined indebtedness outstanding. The
Company's debt service obligations could have important consequences to
holders of the Exchange Notes. See "Risk Factors--Risks Relating to the
Exchange Notes--Substantial Leverage."
At May 5, 1998, after giving effect to the Transactions, the Company
borrowed $200.0 million under the Term Loan Facility, issued $110.0 million of
the Notes, issued a $9.0 million Junior Subordinated Note and had additional
availability of approximately $75.0 million under the Revolving Credit
Facility. Each of the $200.0 million Term Loan Facility and the $75.0 million
Revolving Credit Facility comprising the Senior Credit Facility is subject to
certain limitations on indebtedness set forth in the credit agreement
governing the Senior Credit Facility up to maximum borrowings of $200.0
million and $75.0 million, respectively. As of December 31, 1998, the Company
could have borrowed up to approximately $17.0 million in additional
indebtedness under the Revolving Credit Facility. In addition, subject to
certain limitations on the incurrence of indebtedness in the Indenture
governing the Exchange Notes, the Company may issue additional Exchange Notes
up to the aggregate principal amount of $200.0 million. As of December 31,
1998, the Company was not able to issue any additional Exchange Notes under
the Indenture. See "Description of Senior Credit Facility" and "Description of
the Exchange Notes--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock."
The $200.0 million Term Loan Facility amortizes quarterly and is repayable
in the following aggregate annual amounts:
<TABLE>
<CAPTION>
Amount Due
----------
(Dollars
Year in
---- millions)
<S> <C>
1999.......................... $ 0.0
2000.......................... $ 0.5
2001.......................... $ 1.0
2002.......................... $ 1.0
2003.......................... $20.5
2004.......................... $98.5
2005.......................... $78.5
</TABLE>
The Term Loan Facility is also subject to mandatory prepayment with the
proceeds of certain debt incurrences, asset sales and a portion of Excess Cash
Flow (as defined in the Senior Credit Facility). The Revolving Credit Facility
will terminate in 2003. See "Description of Senior Credit Facility."
Concurrent with the Closing of the other Transactions, the Company entered
into the Asset Backed Facility, which provides $250.0 million of off-balance
sheet financing for trade receivables and equipment loans. The finance
programs have been and will continue to be structured in a manner that
qualifies for off-balance sheet treatment in accordance with generally
accepted accounting principles. It is expected that under the Asset Backed
Facility, the Company will continue to act as originator and servicer of the
equipment financing promissory notes and the trade receivables. See
"Description of Asset Backed Facility."
37
<PAGE>
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Exchange Notes), or to fund planned capital
expenditures, will depend upon its future performance, which, in turn, is
subject to general economic, financial, competitive and other factors that are
beyond its control. Based upon the current level of operations and anticipated
growth, management believes that future cash flow from operations, together
with available borrowings under the Revolving Credit Facility, will be
adequate to meet the Company's anticipated requirements for capital
expenditures, working capital, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate sufficient cash flow from operations in the future to
service its debt and make necessary capital expenditures after satisfying
certain liabilities arising in the ordinary course of business. If unable to
do so, the Company may be required to refinance all or a portion of its
existing debt, including the Exchange Notes, to sell assets or to obtain
additional financing. There can be no assurance that any such refinancing
would be available or that any such sales of assets or additional financing
could be obtained. See "Risk Factors--Risks Relating to the Exchange Notes--
Substantial Leverage."
Historical
Prior to the Transactions, the Company's principal sources of funds have
been operations and short-term funding from Raytheon. The Company's principal
uses of funds have been capital expenditures and distributions to Raytheon as
described below. In 1998, the principal uses of funds included capital
expenditures and amounts held as retained interests related to trade
receivable and equipment loans under the Asset Backed Facility. See
"Description of Asset Backed Facility--Advance Rate."
Cash generated from operations during the year ended December 31, 1998 of
$6.8 million decreased from $39.7 million for the year ended December 31,
1997. The decrease is attributable to (i) the lower net income for the period,
(ii) amounts held as retained interests related to trade receivables and
equipment loans under the Asset Backed Facility and (iii) lower levels of
trade payables principally due to lower production activity in the fourth
quarter of 1998.
The Company's cash generated from operations during the year ended December
31, 1997 of $39.7 million decreased from $77.2 million for the year ended
December 31, 1996. The decrease is primarily attributable to the one time
impact in 1996 of the initial sale of $56.7 million of trade receivables
through the Company's off-balance sheet financing facility and to the higher
levels of notes receivable retained at December 31, 1997. These impacts were
partially offset by a decrease in inventory levels in 1997. The Company
retained a portion of notes receivable eligible for sale under its off-balance
sheet equipment financing facility at December 31, 1997, as a result of having
reached the maximum availability under that facility. Inventory decreased
during the year ended December 31, 1997 principally due to the transfer of
consumer laundry finished goods inventory to Appliance Co. at the time of the
Appliance Co. transaction.
Prior to the Transactions, cash has been transferred between the Company and
Raytheon based on the Company's cash position. For the years ended December
31, 1998, 1997 and 1996, respectively, the Company made cash and non-cash
transfers to Raytheon of $17.5 million, $19.2 million and $55.1 million
(including dividends of $7.7 million), respectively. The substantial transfer
in 1996 was attributable to the cash generated from the initial sale of trade
receivables through the Company's off-balance sheet financing facility.
Capital Expenditures
The Company's capital expenditures for the years ended December 31, 1998,
1997 and 1996 were approximately $7.9 million, $20.0 million and $22.0
million, respectively. For the three years ended December 31, 1997, capital
expenditures included investments for major new product updates and designs
(approximately $16.5 million) and modernization programs at all three of the
Company's manufacturing facilities, primarily related to increasing production
capacity and reducing manufacturing cost (approximately $13.7 million) and
Ripon transition costs of $2.9 million. Other capital expenditures of $16.8
million for the three years ended December 31, 1998 included ongoing cost
improvements and maintenance programs.
38
<PAGE>
Year 2000
The Company has completed the evaluation of its computer operating systems
that would potentially be disrupted upon the turn of the century as a result
of the Year 2000 Issue. As of February 1999, the Company estimates that it is
Year 2000 compliant on over 80% of all business-related software and hardware
and that it will be fully compliant by the end of the fourth quarter of 1999.
The Company's current status with respect to both information technology
("IT") and Non-IT systems is as follows:
IT software/hardware
The Company believes that its Infinium financial system applications,
including general ledger, accounts receivable, payroll, human resources and
accounts payable subsystems, and its Mapics manufacturing systems applications
are currently Year 2000 ready. In addition, the Company has conducted a
comprehensive analysis of its Data3 manufacturing and internally developed
order processing and warehouse location inventory systems for which Year 2000
readiness may be an issue. Impacted files within such systems and the programs
which access them have been triaged according to urgency based on critical
functionality and time period during which readiness will become an issue. As
of February 1999, the Company estimates that 70% of the files and programs are
Year 2000 ready and expects all files and programs to be Year 2000 ready by
December 1999. In addition, suppliers have provided Year 2000 ready releases
of the Company's Strategy Loan Management (implemented prior to year end 1998)
and Salestax Reporting (implemented February 1999) systems.
Based on the triage approach, ongoing testing in a development environment
and advanced implementation of changes to critical systems, the Company
currently anticipates that any Year 2000 vulnerability with respect to its IT
software and hardware will be encountered and corrected in advance of a crisis
situation. The Company currently estimates that all effectivity date
processing changes will be completed and implemented by the end of the first
quarter of 1999 and that critical date display functions which sort data by
date will be completed by August 1999.
The Company has completed an audit of IT hardware within the organization.
Results indicate that the AS400 processing platform is Year 2000 ready and, as
of February 1999, over 80% of the network, network software, printers and PCs
in place throughout the organization are Year 2000 compliant. The network and
network software will be upgraded with Year 2000 ready releases provided by
suppliers during the third quarter of 1999. Phased upgrades to Company PCs and
printers are planned during 1999 with periodic reassessment to ensure ongoing
Year 2000 readiness. The Company's phone system will be upgraded for Year 2000
readiness in the second quarter of 1999.
The Company currently believes that the worst case scenario with regard to
IT would be the malfunction of a non-critical or sporadically used
application. Although the Company believes this scenario to be unlikely,
manual back-up procedures for these types of functions currently exist and
would be initiated in the event of a Year 2000 readiness issue. Such
malfunctions, if they were to occur, would be prioritized in conjunction with
other critical projects being addressed at the time that the Year 2000
readiness issue arises.
Non-IT software/hardware
The Company began implementation of a coordinated effort in September 1998
to include every department in the challenge of ensuring Year 2000 readiness
in Non-IT areas. Areas that were assessed included office machines, security
access devices, Uninterrupted Power Sources, maintenance control chips within
equipment used throughout the organization, robotics, process control devices,
HVAC and electrical systems and Year 2000 date sensitive controlled devices.
Under the direction of each functional Vice President, the Company has begun
to implement programs to correct Year 2000 issues in Non-IT areas. In addition
to such remedial actions, the programs include the development of contingency
plans (such as additional inventory, alternate manufacturing processes,
manual/procedures, etc.) for areas where Year 2000 readiness may be an issue.
As of February 1999,
39
<PAGE>
the Company currently estimates that Year 2000 readiness for Non-IT areas is
40% complete in the Ripon facility, 75% complete in the Madisonville facility
and more than 80% complete in the Marianna facility. The Company currently
anticipates that all Non-IT Year 2000 issues will be addressed by December
1999.
Products, customers and suppliers
The Company, an industry leader in the use of electronic display controls,
uses micro controls, embedded chips and related software in several of its
products. The Company evaluated 100% of its products for Year 2000 readiness
between November 1997 and November 1998 and currently believes that its
products are Year 2000 ready. The Company has prepared a product-related Year
2000 readiness Field Bulletin that is distributed to customers upon request.
The Field Bulletin has been in use since the fourth quarter of 1998.
The Company sent out Year 2000 readiness questionnaires to all suppliers in
December 1998. As of February 1999, more than 60% of the Company's suppliers
have responded to the questionnaire and indicated when its products and
facilities will be Year 2000 ready. Based on the response to the initial
questionnaire, the Company will prioritize the suppliers that could
potentially have Year 2000 problems which could have a material adverse affect
on the Company's operations and will formulate contingency plans to mitigate
Year 2000 risk. The Company plans to routinely follow-up with suppliers to
reassess and monitor Year 2000 compliance allowing contingency plans to be
modified as required. Based upon our initial assessment, the Company does not
believe there are significant Year 2000 issues that would have a material
adverse effect on the Company's financial condition or results of operations.
Costs
In 1996, the Company utilized outside consultants to determine the scope of
the Year 2000 readiness project. This cost was commissioned by the Company's
former parent and was not incurred locally. The Company secured the services
of one consultant that was used for a period of 18 months to assist with some
of the initial code changes required for system conversions of the highest
priority. In addition, expenses incurred by the Company related to Year 2000
readiness included operating and application software upgrades, personal
computer and network computer upgrades, central computer upgrade and internal
IT resources required to upgrade in-house developed application software.
During 1998, expenditures related to Year 2000 were $1.2 million ($0.6 million
in expense and $0.6 million in capital). In 1999, the Company has budgeted
another $1.5 million ($0.9 million in expense and $0.6 million in capital) to
support Year 2000 related projects. The Company estimates that $0.8 million
($0.6 million in expense and $0.2 million in capital) will be needed in 2000
for equipment upgrades and clean-up projects for seldom used low priority
applications that have little impact on the Company's operations or
performance.
Certain of the Company's other IT projects have been delayed due to the
allocation of internal IT development staff to Year 2000 readiness issues.
However, quarterly project prioritization reviews occur at which time
competing critical priorities are assessed. Up to this point, resources have
been considered adequate to maintain progress on the Year 2000 readiness
project while supporting other strategic projects. The Company believes that
such deferrals will not have a material adverse effect on the Company's
financial condition and results of operations.
While the Company believes that new software being installed into its
computer system will address the Year 2000 Issue, there can be no assurance
that all of the new software will be installed in time to remedy the Year 2000
Issue or that the Company's computer operating systems will not be disrupted
upon the turn of the century. Any such disruption, whether caused by the
Company's systems or those of any of its suppliers or customers, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Company--Specific Risks--Computer
System; Year 2000 Issue."
Environmental Liabilities
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the
40
<PAGE>
demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at Company facilities or at other properties where the Company or
predecessors have arranged for the disposal of hazardous substances. The
enactment of more stringent laws or regulations or stricter interpretation of
existing laws and regulations could require expenditures by the Company, some
of which could be material. See "Business--Environmental, Health and Safety
Matters."
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Company anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a
significant effect on the Company's results of operations or its financial
position. This Statement is effective for fiscal years beginning after June
15, 1999.
Quantitative and Qualitative Disclosures about Market Risk
The Company is potentially exposed to market risk associated with changes in
interest and foreign exchange rates. The Company does not and currently does
not intend to hedge exchange rate fluctuations between United States dollars
and foreign currencies. However, from time to time, the Company may enter into
derivative financial instruments to hedge its interest rate exposures. An
instrument will be treated as a hedge if it is effective in offsetting the
impact of volatility in the Company's underlying interest rate exposures. The
Company does not enter into derivatives for speculative purposes.
Sales of the Company's products to international customers represented
approximately 10% of 1998 net sales. At December 31, 1998, there were no
material non-United States dollar denominated financial instruments
outstanding which exposed the Company to foreign exchange risk.
As noted above, the Company is exposed to market risk associated with
adverse movements in interest rates. Specifically, the Company is primarily
exposed to changes in the fair value of its $110 million senior subordinated
notes, and to changes in earnings and related cash flows on its variable
interest rate debt obligations outstanding under the Senior Credit Facility
and its retained interests related to trade accounts receivable and equipment
loans sold to the Company's special purpose finance subsidiaries. Borrowings
outstanding under the Senior Credit Facility totalled $200 million at December
31, 1998. Retained interests related to sold trade accounts receivable and
equipment loans totalled $6.9 million and $12.4 million, respectively, at
December 31, 1998.
The fair value of the Company's senior subordinated notes was approximately
$106 million based upon prevailing prices in recent market transactions as of
December 31, 1998. The Company estimates that this fair value would
increase/decrease by approximately $6.0 million based upon an assumed 10%
decrease/increase in interest rates compared with the effective yield on the
senior subordinated notes as of December 31, 1998.
An assumed 10% increase/decrease in the variable interest rate of 8.4% in
effect at December 31, 1998 related to the term loan borrowings outstanding
under the Senior Credit Facility would decrease/increase annualized earnings
and cash flows by approximately $1.7 million.
An assumed 10% increase/decrease in interest rates under the Asset Backed
Facility at December 31, 1998 would not have a material effect on the fair
value of the retained interest in sold trade accounts receivable due to the
short-term nature of the underlying receivables. Finally, based upon the mix
of variable and fixed rate equipment loans sold by the Company, a 10%
increase/decrease in interest rates would decrease/increase the fair value of
the Company's retained interests at December 31, 1998 of $12.4 million by less
than $1.0 million.
41
<PAGE>
BUSINESS
Alliance believes it is the leading designer, manufacturer and marketer of
stand alone commercial laundry equipment in North America and a leader
worldwide. Under the well-known brand names of Speed Queen, UniMac and
Huebsch, the Company produces a full line of commercial washing machines and
dryers with load capacities from 16 to 250 pounds. The Company believes it has
had the leading market share in the North American stand alone commercial
laundry equipment industry for the last five years and has progressively
increased its market share from approximately 21% in 1993 to 38% in 1997. The
Company attributes its industry leading position to: (i) the quality,
reliability and functionality of its products; (ii) the breadth of its product
offerings; (iii) its extensive distributor network and strategic alliances
with key customers; and (iv) its substantial investment in new product
development and manufacturing capabilities. As a result of its market
leadership, the Company has an installed base of equipment that it believes is
the largest in the industry and that generates significant recurring sales of
replacement equipment and service parts. Internationally, the Company has
developed targeted opportunities, generating equipment sales of $45.5 and
$34.1 million in 1997 and 1998, respectively. In addition, pursuant to an
agreement, the Company supplies consumer washing machines to Appliance Co. for
sale at retail. For 1997 and 1998 the Company generated net sales of $347.7
million and $330.3 million and EBITDA (as defined) of $57.2 million and $44.2
million, respectively.
The Company believes it has developed the most extensive distribution
networks to each of the three distinct customer groups within the North
American stand alone commercial laundry equipment industry: (i) laundromats;
(ii) multi-housing laundries, consisting primarily of common laundry
facilities in apartment buildings, universities and military installations;
and (iii) on-premise laundries, consisting primarily of in-house laundry
facilities in hotels, hospitals, nursing homes and prisons. The Company
estimates that in over 80% of the North American market its laundromat and on-
premise laundry distributors are either the number one or number two
distributor for their respective selling regions. In addition, the Company's
in-house sales force has developed superior relationships with leading route
operators that own, install and maintain commercial laundry equipment in
multi-housing laundries, a critical factor in enabling the Company to grow its
market share. Internationally, the Company sells its laundry equipment through
distributors and to retailers.
With an investment of over $77.0 million since 1994, the Company has
substantially completed the development of many new products, the redesign of
existing products and the modernization of its three manufacturing facilities
in Wisconsin, Florida and Kentucky. Since January 1, 1997, the Company has
introduced new product designs and new product models that comprise over 85%
of its current product offerings. The Company believes its considerable
investment in its product line and manufacturing capabilities has strengthened
and will continue to enhance its market leadership position.
ALC is a wholly owned subsidiary of Alliance that was incorporated for the
sole purpose of serving as a co-issuer of the Notes in order to facilitate the
Note Offering. ALC does not have any substantial operations or assets of any
kind and will not have any revenues. Prospective investors in the Exchange
Notes should not expect ALC to participate in servicing the interest,
principal obligations or Liquidated Damages, if any, on the Exchange Notes.
See "Description of the Exchange Notes--Certain Covenants."
Company Strengths
Market Leader with Significant Installed Base. The Company believes it led
the North American industry in sales to all customer groups, with a 38% market
share overall in 1997. The Company's market share has increased progressively
during the last five years for each customer group. As a result of its leading
market position, the Company has achieved superior brand recognition and
extensive distribution capabilities. The Company's market position has also
allowed it to establish what it believes to be the largest installed base in
its industry, which generates a significant level of recurring sales of
replacement equipment and service parts and provides a platform for sales
growth.
Industry-leading Product Offering. The Company believes its product line
leads the industry in reliability, breadth of offerings, functionality and
advanced features. Its development team of more than 100
42
<PAGE>
engineers and technical personnel, together with its marketing and sales
personnel, work with the Company's major customers to redesign and enhance the
Company's products to better meet customer needs. For example, the Company has
introduced since January 1, 1997 new product designs and new product models
that comprise over 85% of its current product offerings; the Company's new
products emphasize efficiency and new technology, facilitating ease of use as
well as improving performance and reliability. In addition, the Company
believes it is the only manufacturer in North America to produce a full
product line (including washers, dryers, washer-extractors and tumblers for
all customer groups), thereby providing customers with a single source for all
their stand alone commercial laundry equipment needs.
Extensive and Loyal Distribution Networks. The Company believes it has
developed the industry's most extensive North American distribution networks.
The Company estimates its distributors are either the number one or number two
distributor for their respective selling regions in over 80% of the North
American market. Most of the Company's distributors have been customers for
over ten years. In addition, through its in-house sales force the Company has
developed excellent relationships with industry-leading route operators, who
are direct customers of the Company. The Company believes its strong
relationships with its customers are based, in part, on the quality, breadth
and performance of its products and on its comprehensive value-added services.
Leading National Brands. The Company markets and sells its products under
the widely recognized brand names Speed Queen, UniMac and Huebsch. A survey
commissioned by the Company in 1993 of more than 1,000 commercial laundry
distributors and end-users ranked Speed Queen as the leader in terms of brand
awareness and as an industry leader for quality and reliability. In the same
study, UniMac was ranked a leading brand in the stand alone on-premise laundry
industry; Huebsch and Speed Queen ranked first and second, respectively, in
customer satisfaction.
Strong and Incentivized Management Team. Led by Chief Executive Officer
Thomas L'Esperance, the Company believes it has assembled the strongest
management team in the commercial laundry equipment industry. The Company's
seven executive officers have over 80 years of combined experience in the
commercial laundry equipment and appliance industries. This management team
has executed numerous strategic initiatives, including: (i) ongoing
refinements to its product offerings; (ii) the development of strategic
alliances with key customers; (iii) the implementation of manufacturing cost
reduction and quality improvement programs; and (iv) the acquisition and
successful integration of the commercial washer-extractor business of the
UniMac Company ("UniMac"). In addition, senior management (the "Management
Investors") owns approximately 19% of the Company's common units on a diluted
basis.
Business Strategy
The Company's strategy is to achieve profitable growth by offering a full
line of the most reliable and functional stand alone commercial laundry
equipment, along with comprehensive value-added services. The key elements of
the Company's strategy are as follows:
Offer Full Line of Superior Products and Services. The Company seeks to
satisfy all of a customer's stand alone commercial laundry equipment needs
with its full line of products and services. The Company seeks to compete with
other manufacturers in the commercial laundry equipment industry by
introducing new products, features and value-added services tailored to meet
evolving customer requirements. In 1998, for example, the Company introduced a
new line of small-chassis frontload washers, offering multi-housing laundries
increased water and energy efficiency. In addition, in 1997, the Company
introduced its Automatic Balance System for topload washers, providing
industry-leading out-of-balance handling; Alliance's new topload washers
generate a higher g-force, thereby reducing moisture left in the laundry and
drying time, ultimately reducing operating costs for the Company's customers.
Develop and Strengthen Alliances with Key Customers. The Company has
developed and will continue to pursue long-term alliances and multi-year
supply agreements with key customers. The Company is the predominant supplier
of new laundry equipment to Coinmach Corporation ("Coinmach"), the largest and
fastest
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growing operator of multi-housing laundries in North America. Similarly, the
Company is the supplier of substantially all of the laundry equipment
purchased by SpinCycle, Inc. ("SpinCycle"), an emerging leader in the North
American laundromat industry.
Continuously Improve Manufacturing Operations. The Company seeks to
continuously enhance its product quality and reduce costs through refinements
to manufacturing processes. The Company achieves such improvements through
collaboration among key customers and its engineering and marketing personnel.
Since 1995, the Company has progressively reduced manufacturing costs through
improvements in raw material usage and labor efficiency, among other factors.
These improvements are driven in part by the Company's goalsharing programs,
through which the Company's manufacturing teams share in a portion of the cost
reductions they achieve.
Industry Overview
The Company estimates that North American stand alone commercial laundry
equipment sales were approximately $498.0 million in 1997, of which the
Company's equipment sales represented approximately $187.0 million. The
Company believes that North American sales of stand alone commercial laundry
equipment have grown at a compound annual rate of approximately 4.5% since
1993. North American commercial laundry equipment sales historically have been
relatively insulated from business and economic cycles, given that economic
conditions do not tend to affect the frequency of use, or replacement, of
laundry equipment. Management believes industry growth will be sustained by
continued population expansion and by customers increasingly "trading up" to
equipment with enhanced functionality, raising average selling prices.
Manufacturers of stand alone commercial laundry equipment compete on their
ability to satisfy several customer criteria, including: (i) equipment
reliability and durability; (ii) performance criteria such as water and energy
efficiency, load capacity and ease of use; (iii) availability of innovative
technologies such as cashless payment systems and advanced electronic
controls, which improve ease of use and management audit capabilities; and
(iv) value-added services such as rapid spare parts delivery, equipment
financing and computer aided assistance in the design of commercial laundries.
Outside of the stand alone commercial laundry equipment market, the Company
does not participate in manufacturing or selling commercial dry cleaning
equipment or custom engineered, continuous process laundry systems. Each of
these other markets is distinct from the stand alone commercial laundry
equipment market, employing different technologies and distribution networks
and serving different customer groups.
Customer Categories. Each of the stand alone commercial laundry equipment
industry's three primary customer groups--laundromat operators, multi-housing
laundry operators and on-premise laundry operators--is served through a
different distribution channel and has different requirements with respect to
equipment load capacity, performance and sophistication. For example,
equipment purchased by multi-housing route operators is most similar to
consumer machines sold at retail, while equipment purchased by laundromats and
on-premise laundries has greater durability, delivers increased capacity and
provides superior cleaning and drying capabilities.
Laundromats. Management estimates that laundromats accounted for
approximately 52% of North American stand alone commercial laundry equipment
sales in 1997. These approximately 35,000 facilities typically provide walk-
in, self-service washing and drying. Laundromats primarily purchase commercial
topload washers, washer-extractors and tumblers. Washer-extractors and
tumblers are larger-capacity, higher-performance washing machines and dryers,
respectively. Laundromats have historically been owned and operated by sole
proprietors. Laundromat owners typically rely on distributors to provide
equipment, technical and repair support and broader business services. For
example, distributors may host seminars for potential laundry proprietors on
laundromat investment opportunities. Independent proprietors also look to
distributors and manufacturers for equipment financing. Given the laundromat
owner's reliance on the services of its local
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distributor, the Company believes that a strong distributor network in local
markets differentiates manufacturers in serving this customer group.
In addition to distributor relationships, the Company believes laundromat
owners choose among different manufacturers' products based on, among other
things: (i) availability of equipment financing; (ii) reputation, reliability
and ease and cost of repair; (iii) the water and energy efficiency of the
products (approximately 22% to 25% of annual gross wash and dry income of
laundromats is consumed by utility costs, according to the Coin Laundry
Association ("CLA")); and (iv) the efficient use of physical space in the
store (since 15% to 20% of annual gross income of laundromats is expended for
rent according to the CLA).
Multi-housing laundries. Management believes that multi-housing laundries
accounted for approximately 26% of North American stand alone commercial
laundry equipment sales in 1997. These laundries include common laundry
facilities in multi-family apartment and condominium complexes, universities
and military installations.
Most products sold to multi-housing laundries are small-chassis topload and
frontload washers and small-chassis dryers similar in appearance to those sold
at retail to the consumer market but offering a variety of enhanced durability
and performance features. For example, topload washers sold to multi-housing
laundries typically last up to 12,000 cycles, approximately twice as long as
the expected life of a consumer machine.
Multi-housing laundries are managed primarily by route operators who
purchase, install and service the equipment under contract with building
management. Route operators pay rent (which may include a portion of the
laundry's revenue) to building management. Route operators are typically
direct customers of commercial laundry equipment manufacturers such as the
Company and tend to maintain their own service and technical staffs. Route
operators compete for long-term contracts on the basis of, among other things:
(i) the reputation and durability of their equipment; (ii) the level of
maintenance and quality of repair service; (iii) the ability of building
management to audit laundry equipment revenue; and (iv) the water and energy
efficiency of products.
The Company believes reliability and durability are key criteria for route
operators in selecting equipment, as they seek to minimize the cost of
repairs. The Company also believes route operators prefer water and energy
efficient equipment that offers enhanced electronic monitoring and tracking
features demanded by building management companies. Given their investments in
spare parts inventories and in technician training, route operators are
reluctant to change equipment suppliers. Therefore, the Company believes an
installed base gives a commercial laundry equipment manufacturer a competitive
advantage.
On-premise laundries. Management believes that on-premise laundries
accounted for approximately 22% of North American stand alone commercial
laundry equipment sales in 1997. On-premise commercial laundries are located
at a wide variety of businesses that wash or process textiles or laundry in
large quantities, such as hotels and motels, hospitals, nursing homes, sports
facilities, car washes and prisons.
Most products sold to on-premise laundries are washer-extractors and
tumblers, primarily in larger capacities up to 250 pounds. These machines
process significantly larger loads of textiles in shorter times than equipment
typically sold to laundromats or multi-housing customer groups. Effective and
rapid washing (i.e., reduced cycle time) of hotel sheets, for example, reduces
both a hotel's linen requirements and labor costs of washing and drying
linens. The Company believes that in a typical hotel on-premise laundry, up to
50% of the cost of operations is labor.
On-premise laundries typically purchase equipment through a distributor who
provides a range of selling and repair services on behalf of manufacturers. As
with laundromats, the Company believes a strong distributor network is a
critical element of sales success. On-premise laundries select their equipment
based on the availability of specified product features, including, among
other things: (i) reputation and reliability of products; (ii) load capacity
and cycle time; (iii) water and energy efficiency; and (iv) ease of use. In
addition, the availability of technical support and service is important to an
on-premise laundry's selection of an equipment supplier.
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Trends and Characteristics
Growth Drivers. The Company believes that continued population expansion in
North America has and will drive steady demand for garment and textile
laundering by all customer groups purchasing commercial laundry equipment. The
Company believes population growth has historically supported replacement and
some modest growth in the installed base of commercial laundry equipment.
According to the U.S. Census Bureau, the United States population has grown at
a compound annual rate of 0.9% since 1988 and is projected to grow at
approximately 1.0% per year on average over the next ten years.
In addition, customers are increasingly "trading up" to equipment with
enhanced functionality, raising average selling prices. For example, national
customers in the laundromat and multi-housing customer groups are more likely
to take advantage of recently available electronic features, which the Company
believes provide such customers with a competitive advantage. Moreover,
customers are moving towards equipment with increased water and energy
efficiency as the result of government and consumer pressure and a focus on
operating cost containment.
Limited Cyclicality. North American commercial laundry equipment sales
historically have been relatively insulated from business and economic cycles
because economic conditions do not tend to affect the frequency of use, or
replacement, of laundry equipment. Management believes industry growth will be
sustained by continued population expansion and by customers increasingly
"trading up" to equipment with enhanced functionality, raising average selling
prices. Under all economic conditions, owners of commercial laundries
typically delay equipment replacement until such equipment can no longer be
economically repaired or until competition forces the owner to upgrade such
equipment to provide improved appearance or functionality. The economic life
of such equipment and thus timing of replacement of such equipment are also
generally unaffected by economic conditions; the economic life of stand alone
commercial laundry equipment is generally 7-14 years.
International Growth. The Company anticipates growth in demand for
commercial laundry equipment in international markets, especially in
developing countries where laundry machine penetration remains low. As of
1995, only 40% of the population of South America and 20% of the Asian
population had a washer in their home, compared to over 70% in North America.
Reducing Customer Operating Costs. The time required to wash and dry a given
load of laundry (i.e., cycle time) has a significant impact on the economics
of a commercial laundry operation. Accordingly, commercial laundry equipment
manufacturers produce equipment that provides progressively shorter cycle
times through improved technology and product innovation to decrease labor
costs and increase the volume of laundry that can be processed in a given time
period. Examples of methods of reducing cycle time are: (i) increasing the
fill, wash and drain rates; (ii) increasing water extraction capability by
increasing spin rate; and (iii) decreasing the number of unfinished wash
cycles by improving out-of-balance performance.
Products
Overview. The Company offers a full line of stand alone commercial laundry
washers and dryers, with service parts and value-added services supporting its
products, under the Speed Queen, Huebsch and UniMac brands throughout North
America and in over sixty foreign countries. The Company's products range from
small washers and dryers primarily for use in laundromats and multi-housing
laundry rooms to large laundry equipment with load capacities of up to 250
pounds used in on-premise laundries. The Company also benefits from domestic
and international sales of service parts for its large installed base of
commercial laundry equipment. Internationally, the Company sells laundry
equipment under the Speed Queen and private label brands. In addition, the
Company produces consumer laundry washers for Appliance Co. under a supply
agreement. See "--Appliance Co. Transaction."
Washers. Washers, including consumer products sold to Appliance Co.,
represented approximately 61% of 1998 net sales and include washer-extractors,
topload washers and frontload washers.
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Washer-Extractors. The Company manufactures washer-extractors, its largest
washer products, to process from 18 to 250 pounds of laundry per load. Washer-
extractors extract water from laundry with spin speeds that produce over
300g's of centrifugal force, thereby reducing the time and energy costs for
the drying cycle. Sold under the Speed Queen, UniMac and Huebsch brands, these
products represented approximately 23% of 1998 net sales. Washer-extractors
that process up to 80 pounds of laundry per load are sold to laundromats, and
washer-extractors that process up to 250 pounds of laundry per load are sold
to on-premises laundries. Washer-extractors are built to be extremely durable
due to the enormous g-force generated by spinning several hundred pounds of
water-soaked laundry, to the constant use of the equipment and to the high
cost of failure to the user.
In 1997, the Company introduced new features and increased capacity for
washer-extractors. The Company believes this redesign further strengthens the
Speed Queen and UniMac brands of on-premise laundry equipment as the leading
products within the industry. Increased capacity models allow the Company to
address a broader on-premise laundry customer base. The redesigned line
combines greater productivity at less cost with more options to meet the
demands of on-premise laundry customers, including improved features such as
the Ultra-soft wash cycle, which allows laundering of the most delicate hand-
washable draperies or bedspreads.
Topload Washers. Topload washers are small-chassis washers with the
capability to process up to 18 pounds of laundry per load with spin speeds
that produce up to 150g's. Sold primarily to multi-housing laundries and
laundromats under the Speed Queen and Huebsch brands, these products
represented approximately 15% of 1998 net sales. In addition, the Company's
sales of consumer washers to Appliance Co. represented approximately 23% of
1998 net sales.
In 1997, the Company introduced its Automatic Balance System ("ABS"), which
it believes provides the industry-leading out-of-balance handling. New topload
washers with ABS deliver higher g-force, reducing moisture left in the
laundry, thereby reducing drying time and energy usage.
Frontload Washers. In September 1998, the Company introduced a new small-
chassis frontload washer with the capability to process up to 18 pounds of
laundry per load. Frontload washers are sold under the Speed Queen brand to
laundromat and multi-housing customers. The frontload washer's advanced design
uses 28% less water compared to commercial topload washers. Furthermore,
decreased usage of hot water and superior water extraction in the high g-force
spin cycle reduce energy consumption. This new frontload washer is available
with front controls (front accessibility complies with Americans with
Disabilities Act regulations) and can be purchased with a matching small-
chassis dryer (single or stacked). The Company sourced frontload washers from
Appliance Co. through September 1998. See "--Appliance Co. Transaction" and
"--Ripon Transition."
Dryers. Dryers represented approximately 25% of 1998 net sales and include
tumbler dryers, standard dryers and stacked dryers. The Company also sells a
new line of stacked frontload washers and dryers.
Tumbler Dryers. Tumblers are very large dryers with the capability of drying
up to 170 pounds of laundry per load. Tumblers represented approximately 16%
of 1998 net sales. Tumblers are sold primarily to laundromats and on-premise
laundries under all three of the Company's brands. The Company's new tumbler
dryer design, introduced in October 1997, features commonality of internal
components between models, reducing parts inventory and improving
serviceability. These units have 33% to 50% fewer moving parts as compared to
their previous design. In addition, these tumblers reduce drying time using
22% less energy as compared to their previous design. The Company's new
product offering expands the capacity range of the tumbler dryer line to
include the 25 pound single dryer, which is popular in foreign markets.
Standard Dryers. Standard dryers are small capacity dryers with the
capability to process up to 18 pounds of laundry per load. Sold under the
Speed Queen and Huebsch brands, standard dryers (including stacked dryers)
represented approximately 9% of 1998 net sales. In 1997, the Company
introduced its newly designed standard dryer, which serves the multi-housing
and international consumer markets. The Company believes the dryer's increased
capacity, measuring 7.1 cubic feet, is among the largest in the industry. The
size of the loading door
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opening has also been increased to improve loading accessibility. The Company
believes that the increased drying capacity and enhanced operational
convenience that these improvements provide are critical factors to a
customer's product satisfaction. The Company will source its standard and
stacked dryers from Appliance Co. until September 1999. See "--Appliance Co.
Transaction" and "--Ripon Transition."
Stacked Dryers and Stacked Frontload Washers and Dryers. To enable its
multi-housing customers to conserve valuable floor space, the Company offers a
stacked unit consisting of two 18 pound standard dryers and will offer a
stacked unit consisting of an 18 pound frontload washer paired with an 18
pound standard dryer. The Company believes it will be the only manufacturer of
stacked frontload washer and dryer units.
Service Parts. The Company benefits from the recurring sales of service
parts to its large installed base. Such sales accounted for approximately 10%
of 1998 net sales. The Company offers immediate response service whereby many
of its parts are available on a 24-hour turnaround for emergency repair parts
orders.
Other Value-Added Services. The Company believes its customers attach
significant importance to the value-added services it provides. The Company
offers services that it believes are significant drivers of high customer
satisfaction, such as equipment financing (which accounted for approximately
2% of 1998 net sales), laundromat site selection assistance, investment
seminar training materials, computer-aided commercial laundry room design,
sales and service training for distributors, technical support and service
training material. In addition, the Company believes it offers an unmatched
range of complementary customer services and support, including toll-free
technical support and on-call installation and repair service through its
highly trained distributors. The Company believes its extensive service
capabilities, in addition to the dependability and functionality of its
products, will continue to differentiate its products from the competition.
Customers
The Company's customers include more than: (i) 120 distributors to
laundromats; (ii) 110 distributors to on-premise laundries; (iii) 110 route
operators serving multi-housing laundries; and (iv) 75 international
distributors serving more than 60 countries.
The Company's top ten equipment customers (excluding Appliance Co.)
accounted for approximately 26% of 1998 net sales (excluding sales to
Appliance Co.). Coinmach, the largest multi-housing route operator in the
United States, Macke Laundry Service, L.P. (which was acquired by Coinmach in
early 1998), PWS Investments, Inc. and Metropolitan Laundry Machinery Co.,
Inc. were the Company's largest customers (excluding Appliance Co.), the
largest of which, Coinmach, accounted for 11.1% of 1998 net sales (excluding
sales to Appliance Co.). In addition, sales to Appliance Co. accounted for 23%
of 1998 net sales. See "--Appliance Co. Transaction."
Sales and Marketing
Sales force. The Company's sales force of approximately 30 is structured to
serve the needs of each customer group. In addition, the Company, through a
staff of approximately 40 professionals, provides customers and distributors
with a wide range of value-added services such as laundromat site selection
assistance, investment seminar training materials, computer-aided commercial
laundry room design, sales and service training and technical support.
Marketing programs. The Company supports its sales force and distributors
through a balanced marketing program of advertising and industry trade shows.
Advertising expenses totaled $3.1 million in 1998 and included a variety of
forms, from print and electronic media to direct mail. In addition, Company
representatives attended over 40 trade shows in 1997 to introduce new
products, maintain contact with customers, develop new customer relationships
and generate demand for the Company's products.
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Equipment financing. The Company, through the Financing Subsidiaries, offers
an extensive off-balance sheet equipment financing program to end-users,
primarily laundromat owners, to assist in their purchases of new equipment.
Typical terms include 2-7 year loans with an average principal amount of
approximately $50,000. Management believes that the Company's off-balance
sheet equipment financing program is among the industry's most comprehensive
and that the program is an important component of its marketing activities. In
addition, this service provides the Company with stable, recurring income.
The program is structured to minimize risk of loss. The Company adheres to
strict underwriting procedures, including comprehensive applicant credit
analysis (generally including credit bureau, bank, trade and landlord
references, site analysis including demographics of the location and multiple
year pro-forma cash flow projections), the receipt of collateral and
distributor assistance in remarketing collateral in the event of default. As a
result of these risk management tools, losses from the program have been
minimal. Net write-offs inclusive of loans sold to third parties since the
inception of the program in 1992 have been less than 0.5% as of December 31,
1998. See "Certain Relationships and Related Transactions" and "Description of
Asset Backed Facility."
Research and Development
The Company's engineering organization is staffed with over 100 engineers
and technical support staff. The Company's recent research and development
efforts have focused primarily on continuous improvement in the reliability,
performance, capacity, energy and water conservation, sound levels and
regulatory compliance of its commercial laundry equipment. The Company's
engineers and technical personnel, together with its marketing and sales
personnel, collaborate with the Company's major customers to redesign and
enhance its products to better meet customer needs. Research and development
spending has increased from $4.8 million in 1994 to $8.4 million in 1998. The
Company has developed numerous proprietary innovations that the Company uses
in select products. Over the past two years, the Company has rolled out its
MicroMaster line of electronically controlled tumblers and washer-extractors
under the Speed Queen brand as well as its CardMate Plus debit card cashless
system designed to replace coin payment systems. The Company believes this
array of new products allows it to continue to be an innovative leader in
electronic controls equipment. The Company believes improvements made to
existing products and the introduction of new products have supported the
Company's market leadership position.
Competition
Within the North American stand alone commercial laundry equipment industry,
the Company competes with several large competitors. The Company believes,
however, it is the only participant in the North American stand alone
commercial laundry equipment industry to serve significantly all three
customer groups with a full line of washer-extractors, washers, tumbler dryers
and standard dryers. With respect to laundromats, the Company's principal
competitors include Wascomat (the exclusive North American distributor of
Electrolux AB products), Maytag Corporation and The Dexter Company. In multi-
housing, the principal competitors include Maytag Corporation and Whirlpool
Corporation. In on-premise laundry, the Company competes primarily with
Pellerin Milnor Corporation, American Dryer Corporation and Wascomat. The
Company does not believe that a significant new competitor has entered the
North American stand alone commercial laundry equipment industry during the
last ten years, however there can be no assurance that significant new
competitors or existing competitors will not compete for the business of
different customer groups in the future. Consequently, there can be no
assurance that the Company will be able to compete effectively in the future.
Certain of the Company's principal competitors have greater financial
resources and/or are less leveraged than the Company and may be better able to
withstand market conditions within the commercial laundry industry. There can
be no assurance that the Company will not encounter increased competition in
the future, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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Manufacturing
The Company owns and operates three manufacturing facilities in Wisconsin,
Florida and Kentucky--with an aggregate of more than 800,000 square feet. The
facilities are organized to focus on specific product segments, although each
facility serves multiple customer groups. The Ripon plant presently produces
the Company's topload washers and small-chassis frontload washers and is
expected to produce the Company's small-chassis dryers, beginning in fall of
1999. The Company's large-chassis products are produced in Marianna (washer-
extractors) and Madisonville (tumblers). The Company's manufacturing plants
primarily engage in fabricating, machining, painting, assembly and finishing
operations. The Company also operates four regional distribution centers, of
which three are owned and one is leased. The Company believes that existing
manufacturing facilities provide adequate production capacity to meet expected
product demand. See "--Ripon Transition."
The Company purchases substantially all raw materials and components from a
variety of independent suppliers. Key material inputs for manufacturing
processes include motors, stainless steel, aluminum, electronic controls,
corrugated boxes and plastics; in addition, the Company externally sources
finished frontload washers and dryers. The Company believes there are readily
available alternative sources of raw materials from other suppliers. The
Company has developed long-term relationships with many of its suppliers and
has sourced materials from nine of its ten largest suppliers for at least five
years.
The Company is committed to achieving continuous improvement in all aspects
of its business in order to maintain its industry leading position. All of the
Company's manufacturing facilities are ISO 9001 certified.
Properties
The following table sets forth certain information regarding significant
facilities operated by the Company as of December 31, 1998:
<TABLE>
<CAPTION>
Approximate
Location Function/Products Square Feet Owned/Leased
-------- ----------------------------- ----------- ------------
<S> <C> <C> <C>
Production Facilities
Ripon, WI............... Manufacture Small Washers 425,400 Owned
Marianna, FL............ Manufacture Washer-Extractors 222,200 Owned(/1/)
Madisonville, KY........ Manufacture Tumbler Dryers 152,700 Owned
---------
Subtotal 800,300
Regional Distribution
Centers
Ripon, WI............... Washers, Dryers, Tumblers 138,700 Owned
Ripon, WI............... Service Parts 60,800 Owned
Madisonville, KY........ Tumblers 80,000 Leased(/2/)
Marianna, FL............ Washers, Washer-Extractors 37,000 Owned
---------
Subtotal 316,500
Other
Ripon, WI............... Div. Support 65,700 Owned
Engineering, Procurement 43,100 Owned
---------
Subtotal 108,800
---------
Total 1,225,600
=========
</TABLE>
- --------
(1) The Marianna building is owned, however, the land is leased from the city
of Marianna.
(2) Up to 80,000 square feet of warehouse space is available and is rented on
an as needed basis. Currently 40,000 square feet is rented.
The Company believes existing manufacturing facilities provide adequate
production capacity to meet product demand. See "--Ripon Transition."
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Appliance Co. Transaction
On September 10, 1997, Raytheon (the former parent of the Company) completed
the sale of its consumer appliances business to Appliance Co. (the "Appliance
Co. Transaction"). Prior to the Appliance Co. Transaction, Raytheon owned two
plants that manufactured laundry equipment for both consumer and commercial
use on the same production lines: (i) a facility in Searcy, Arkansas that
manufactures small-chassis frontload washers and dryers and (ii) a facility in
Ripon, Wisconsin that manufactures small-chassis topload washers. In
connection with the Appliance Co. Transaction, Raytheon sold the Searcy
facility to Appliance Co. and retained the Ripon facility. In addition,
Appliance Co. entered into a supply agreement (the "Appliance Co. Supply
Agreement"), including license and cross license agreements to purchase
consumer topload washers from the Company until September 1999 (subject to
certain extension rights), and the Company entered into a supply agreement
with Appliance Co., including license and cross license agreements to purchase
commercial small-chassis frontload washers and dryers until September 1998 and
September 1999, respectively. Under both supply agreements, products are sold
at prices that approximate cost. As of September 1998, Appliance Co. had
provided notice to the Company that it would not be renewing the Appliance Co.
Supply Agreement which expires in September 1999. In addition, the Company
provided notice to Appliance Co. that it will not be renewing the supply
agreement to purchase small-chassis dryers after September 1999.
On April 17, 1998, Appliance Co. filed suit in the United States District
Court for the Southern District of New York against Raytheon and the Company
seeking (i) declaratory relief that the Company is bound by a non-compete
agreement between Appliance Co. and Raytheon that prohibits the participation
by Raytheon and corporate affiliates of Raytheon in the consumer retail
distribution laundry market, and (ii) unspecified damages from Raytheon and
the Company for breach of the non-compete agreement. On June 2, 1998,
Appliance Co. filed an amended complaint reiterating the allegations of the
original complaint and also asserting that, by virtue of the manner in which
they consummated the sale of the Company by Raytheon, both the Company and
Bain tortiously interfered with the non-compete agreement between Appliance
Co. and Raytheon. Appliance Co. now claims to be entitled to damages in excess
of $100 million and also contends that, if the Company is not bound by the
non-compete agreement, then Appliance Co. should also be relieved of any
obligations under the non-compete agreement. The defendants dispute all
Appliance Co. allegations, deny that Appliance Co. is entitled to any damages
and have filed motions to dismiss all claims pertaining to the non-compete
agreement, which are still pending. Raytheon has agreed to pay the attorney's
fees and costs incurred by the Company and Bain in contesting this lawsuit.
In late January 1999, Appliance Co. filed another amended complaint to add
claims against Raytheon and the Company in connection with the Horizon washing
machine, a "single-pocket" frontload washing machine that was being readied
for volume production as of the time when Appliance Co. was entering into the
Appliance Co. Transaction with Raytheon. Appliance Co. alleges that both
Raytheon and the Company subsequently breached their contractual obligations
with respect to preparing the Horizon for volume production and misrepresented
the readiness of the Horizon for volume production. Both the Company and
Raytheon are moving to dismiss these claims. Appliance Co. also alleges that
the Company has breached its contractual obligations to provide competent
engineering services in connection with preparing the Horizon for volume
production and also breached its duty of due care in the course of providing
Appliance Co. with these engineering services. Appliance Co. seeks damages for
(i) the profits it claims to have lost by virtue of not being able to sell the
Horizon, (ii) the damage to its commercial standing that is allegedly
attributable to its sale of defective washers to critical customers, and (iii)
the expenses it incurred in preparing for volume production of the Horizon. In
addition, Raytheon has agreed to hold the Company harmless against claims
pertaining to the Horizon and to reimburse the Company for any fees incurred
in defending these claims.
There can be no assurance that the Company will prevail in the Appliance Co.
lawsuit and, accordingly, the Company may be prohibited for some period of
time from participating in the consumer retail distribution laundry market.
The Company does not currently participate in this market. In addition,
although the Company does not believe that it is reasonably likely that
Appliance Co. will prevail in the lawsuit, if Appliance Co. did prevail, the
Company could be required to pay the claimed damages in excess of $100 million
and if so, such payment would have a material adverse effect on the Company's
business, financial condition and results of operations.
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Ripon Transition
The Company is in the process of establishing at its Ripon facility the
capability to manufacture small-chassis dryers (beginning September, 1999) and
has recently introduced a new line of commercial small-chassis frontload
washers (beginning September, 1998). Until such time, the Company will
continue to source small-chassis dryers from Appliance Co. Similarly, the
Company expects Appliance Co. to begin producing topload washers at its own
facilities in September 1999. The Company's plan to introduce small-chassis
frontload washer and dryer production and to cease production of consumer
topload washers for Appliance Co. (the "Transition Plan") is expected to
require aggregate capital expenditures of approximately $13.0 million ($2.9
million incurred in 1998) and nonrecurring expenses (such as plant
reconfiguration, severance expenses and manufacturing start-up expenses) of
approximately $2.5 million ($0.2 million incurred in 1998). The Company is
confident in its ability to successfully execute the Transition Plan for the
following reasons: (i) except for certain discrete improvements, the Company
is replicating production processes, equipment and tooling that its own
engineers designed and installed in the Searcy facility and (ii) the Company
will benefit from experience in the Searcy facility to improve upon existing
designs and manufacturing processes at the Ripon facility.
Consumer topload washers sold to Appliance Co. accounted for a substantial
percentage of the unit volume of the Ripon facility and represented
approximately 23% of 1998 net sales. The Company expects the decline in
topload washer production volume at the Ripon facility resulting from
termination of the Appliance Co. Supply Agreement will be offset in part by
the introduction of dryer and frontload washer production and by growth in
sales to other customers.
After implementation of the Transition Plan, the Company believes the Ripon
facility will be the world's largest facility dedicated to manufacturing
small-chassis commercial laundry equipment, comprised of three "focused
factories," each with its own dedicated manufacturing and engineering teams.
The Company believes the implementation of the Transition Plan will enable it
to respond more flexibly and rapidly to customer requirements with product
changes as a result of (i) improved communication and coordination among the
design, engineering, marketing and sales organizations centralized at the
Ripon facility and (ii) the ability to concentrate exclusively on medium
volume, higher margin products.
New Business Opportunities
The Company is evaluating a number of new business opportunities. For
example, the Company sees a potential opportunity to become a full-line
supplier of environmentally safe dry-cleaning equipment as the dry-cleaning
industry comes under increasing regulatory and consumer pressure to provide
environmentally friendly services. The cornerstone of this strategy is the
development of a CO\\2\\-based dry cleaning machine, based on a technology for
which the Company holds one of only two North American licenses. The Company
is also evaluating certain opportunities to increase sales of existing
products in international markets.
Patents and Trademarks
The Company's trademarks are currently registered with the United States
Patent and Trademark Office and in all 50 states and registered or
applications are pending in 58 foreign countries. Management believes that
such trademarks have significant value and are important in the marketing of
its products to customers. The Company owns numerous United States and foreign
patents and has patent applications pending in the United States and abroad.
In addition, the Company owns United States (federal and state) and foreign
registered trade names and service marks and has applications for the
registration of trade names and service marks pending in the United States and
abroad. The Company also owns several United States copyright registrations
and a wide array of unpatented proprietary technology and know-how. Further,
the Company licenses certain intellectual property rights from third parties.
The Company's ability to compete effectively with other companies depends, to
a significant extent, on its ability to maintain the proprietary nature of its
owned and licensed intellectual property.
52
<PAGE>
Legal Proceedings
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
Company cannot predict the outcome of these matters, in the opinion of
management, any liability arising thereunder will not have a material adverse
effect on the Company's business, financial condition and results of
operations after giving effect to provisions already recorded. In addition,
the Company is currently involved in litigation with Appliance Co. which the
Company believes will not result in material monetary obligation to the
Company. See "Business--Appliance Co. Transaction."
On February 8, 1999, Raytheon commenced an arbitration under the Commercial
Arbitration Rules of the American Arbitration Association in Boston,
Massachusetts against the Parent. Raytheon seeks damages of $12,223,310.66
plus interest thereon and attorney's fees for breach of the Merger Agreement
based on Raytheon's claim for indemnification for a payment made to a third
party allegedly on behalf of the Parent and the Company following the Closing
Date. Raytheon also filed suit that same day in Massachusetts Superior Court
for the county of Middlesex seeking the same relief; the suit was dismissed by
Raytheon without prejudice in March 1999. The Parent believes that Raytheon
owed the $12,223,310.66 to the third party and that neither the Parent nor the
Company is liable for such amount. In addition, the Parent and Bain LLC have
filed counterclaims and claims, respectively, seeking damages in excess of $30
million from Raytheon. See "The Transactions."
Pursuant to the Merger Agreement, Bain LLC, the Parent and Raytheon have
agreed on a post-closing price adjustment of $2.8 million due to the Company
from Raytheon, as a result of a dispute regarding working capital levels as of
the Closing. The parties have agreed this amount will not be paid to the
Company until the resolution of the arbitration discussed above or this amount
will be offset against any amounts due to Raytheon from the Company as a
result of such arbitration, and as such, this amount has not been reflected in
the accompanying financial statements.
Environmental, Health and Safety Matters
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates
and at other properties where the Company or predecessors have arranged for
the disposal of hazardous substances. As a result, the Company is involved,
from time to time, in administrative and judicial proceedings and inquires
relating to environmental matters. There can be no assurance that the Company
will not be involved in such proceedings in the future and that the aggregate
amount of future clean-up costs and other environmental liabilities will not
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that its facilities and
operations are in material compliance with all environmental, health and
safety laws.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that affect the Company's operations or
facilities or increase the cost of producing, or otherwise adversely affect
the demand for, the Company's products. The Company cannot predict the
environmental liabilities that may result from legislation or regulations
adopted in the future, the effect of which could be retroactive. Nor can the
Company predict how existing or future laws and regulations will be
administered or interpreted or what environmental conditions may be found to
exist at the Company's facilities or at other properties where the Company or
its predecessors have arranged for the disposal of hazardous substances.
Certain environmental investigatory and remedial work is underway or planned
at, or relating to, the Company's Marianna, Florida and Ripon, Wisconsin
manufacturing facilities and at a facility in Omro, Wisconsin formerly leased
by the Company. With respect to the Marianna facility, such work is being
conducted by a former owner of the property and is being funded through an
escrow account, the available balance of which
53
<PAGE>
the Company believes to be substantially greater than remaining remediation
costs. With respect to the Ripon facility, such work will be conducted by the
Company. The Company currently expects to incur costs of approximately
$200,000 through 1999 at the Ripon facility to complete remedial work, subject
to the Raytheon indemnification described below. There can be no assurance,
however, that additional remedial costs will not be incurred by the Company in
the future with respect to the Ripon facility. With respect to the Omro
facility, the Company leased the Omro facility through July 1998 at which time
it completed a transition to outsourced aluminum die castings. The remedial
work is being conducted by Raytheon, the current owner of the facility, at
Raytheon's sole cost and expense. The Company does not currently expect to
incur any costs with respect to the remediation of the Omro facility.
Pursuant to the Merger Agreement, and subject to a three year notice period
following the Closing, Raytheon has agreed to indemnify the Company for
certain environmental liabilities in excess of $1,500,000 in the aggregate
arising from the operations of the Company and its predecessors prior to the
Merger, including with respect to environmental liabilities at the Ripon and
Marianna facilities. In addition to the Raytheon indemnification, with respect
to the Marianna, Florida facility, a former owner of the property has agreed
to indemnify the Company for certain environmental liabilities. In the event
that Raytheon or the former owner fail to honor their respective obligations
under these indemnifications, such liabilities could be borne directly by the
Company and could be material.
The Company has also received an order from the U.S. Environmental
Protection Agency ("EPA") requiring participation in clean-up activities at
the Marina Cliffs site in South Milwaukee, Wisconsin, the location of a former
drum reconditioner. EPA asserted that the Ripon facility was a generator of
wastes that were disposed of at the Marina Cliffs site. The asserted disposal
predated the Company's ownership of the Ripon facility. The Company believes
that EPA also has contacted a prior owner of the facility to assert that the
former owner may be liable. There is an established group of potentially
responsible parties that are conducting a cleanup of the site. The group has
estimated that the cleanup will cost approximately $5 million. The group
proposed to settle their alleged claims against the Company, and to protect
the Company from further liability at the site, for approximately $100,000.
The Company declined the proposal because it believes that any liability
related to the site is borne by the Ripon facility's prior owner, and not be
the Company. The Company has met with EPA to explain its defenses to
enforcement of the administrative order. However, in the event the Company
were to incur liability related to the site, the Company believes that any
allocated remediation costs (currently estimated by the Company at $100,000
based upon on the proposed settlement offer mentioned above which would
protect the Company from further liability at the site) would not have a
material adverse affect on its business, financial condition or results of
operations.
Employees
As of February 1999, the Company had approximately 1,623 full-time
employees. Approximately 610 of the Company's employees at its Ripon,
Wisconsin facility are represented by The United Steel Workers of America. The
Company is periodically in negotiations with The United Steel Workers of
America. The Company considers its overall relations with its work force to be
satisfactory. The Company's current contract with The United Steel Workers of
America for its Ripon employees was approved in March 1999 and will expire in
February 2002.
54
<PAGE>
MANAGEMENT
Managers and Executive Officers
The representatives to the Board of Managers and executive officers of the
Company following the Merger are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas F. L'Esperance... 50 Chief Executive Officer and Manager
Jeffrey J. Brothers..... 52 Senior Vice President, Sales and Marketing
Bruce P. Rounds......... 42 Vice President, Chief Financial Officer
Herman W. Beach......... 52 Vice President, Washer-Extractor Operations
R. Scott Gaster......... 46 Vice President, Washer, Dryer and Tumbler Operations
Robert T. Wallace....... 43 Vice President, Controller
Scott L. Spiller........ 48 Vice President, Law and Human Resources
Edward W. Conard........ 41 Manager
Robert C. Gay........... 46 Manager
Stephen C. Sherrill..... 43 Manager
Philip S. Taymor........ 42 Manager
</TABLE>
Thomas F. L'Esperance has been Chief Executive Officer of the Company since
March 1996. He had served as President of the Amana Home Appliance Company
from 1993 to 1996 and was President of Caloric Corporation, a manufacturer of
appliances, for two years prior thereto.
Jeffrey J. Brothers has been Senior Vice President of Sales and Marketing of
the Company since October 1989. He has been employed with the Company since
1977. Mr. Brothers has been involved in sales for the Company since 1983 and
has held other positions such as Manager of Distribution Development, Plant
Controller and Financial Analyst.
Bruce P. Rounds joined the Company in 1989 as Vice President of Finance and
was promoted to his current position in February 1998. He held the position of
Vice President, Business Development, for the Company from 1996 to 1998.
Before coming to the Company, he served in a variety of capacities for eight
years at Mueller Company and for three years with Price Waterhouse. He is a
Certified Public Accountant.
Herman W. Beach has worked for Raytheon and the Company for nearly 20 years
and has held his current position since April 1996. His employment with
Raytheon began in the Missile Systems Company for two years. His career with
the Company began in 1980 with positions in Human Resources and Strategic
Planning. Mr. Beach's prior work experiences include the Tennessee Valley
Authority and H.D. Lee Company.
R. Scott Gaster joined the Company as Vice President, Procurement and
Materials, in June 1995. He took on the added responsibility of Vice President
of Washer and Dryer Operations in July 1997 and Tumbler Operations in August
1998. Mr. Gaster has also retained his former purchasing responsibilities.
Prior to joining the Company, he was employed by GKN Automotive, Inc. from
1979 to 1995 in such positions as Director of Procurement and Logistics,
Corporate Purchasing Agent and Purchasing Manager.
Robert T. Wallace has been Vice President, Controller, of the Company since
June 1996. He held positions as Controller and Manager-Reporting and Analysis
for the Company from 1990 to 1996. Mr. Wallace's previous experience includes
two years as Controller of Alcolac (chemicals), four years as Manager of
Reporting and Analysis with Mueller Company, five years with Ohmeda and two
years with Price Waterhouse. He is a Certified Public Accountant.
55
<PAGE>
Scott L. Spiller has been Vice President of Law & Human Resources, and
General Counsel of the Company since February 1998. From April 1996 to
February 1998, Mr. Spiller was practicing law as a sole proprietor. Prior to
that, he was General Counsel and Secretary of the Company for ten years.
Edward W. Conard serves as a Manager following the Merger. He has been a
Managing Director of Bain since March 1993. From 1990 to 1992, Mr. Conard was
a director of Wasserstein Perella, an investment banking firm that specializes
in mergers and acquisitions. Previously, he was a Vice President of Bain &
Company, where he headed the management consulting firm's operations practice
area. Mr. Conard also serves as a director of Waters Corporation, Details
Holdings Corp., Details, Inc. and Cambridge Automotive.
Robert C. Gay serves as a Manager following the Merger. Mr. Gay has been a
Managing Director of Bain since 1993 and has been a General Partner of Bain
Venture Capital since 1989. From 1988 through 1989, Mr. Gay was a principal of
Bain Venture Capital. Mr. Gay is Vice Chairman of the Board of Directors of
IHF Capital, Inc., parent of ICON Health & Fitness Inc. Mr. Gay also serves as
a director of Alliance Entertainment Corp., GT Bicycles, Inc., Physio-Control
International Corporation, Cambridge Industries, Inc., Nutraceutical
Corporation, American Pad & Paper Company, GS Technologies and Small Fry Snack
Foods Limited.
Stephen C. Sherrill serves as a Manager following the Merger. Mr. Sherrill
has been a principal of Bruckmann, Rosser, Sherrill & Co., L.P. since its
formation in 1995. Mr. Sherrill was an officer of Citicorp Venture Capital,
Ltd. from 1983 through 1994. Mr. Sherrill is a director of Galey & Lord, Inc.,
Jitney-Jungle Stores of America, Inc., Restaurant Associates Corp., B & G
Foods, Inc., Windy Hill Pet Food Company, Inc. and HealthPlus Corporation.
Philip S. Taymor serves as a Manager. Mr. Taymor has been Senior Vice
President and Chief Financial Officer of Waters Corporation since August 1994.
Previously, he was an officer in the Millipore organization, including
Corporate Controller, Director of Finance of Millipore's Membrane Division and
Manager of Corporate Accounting. Mr. Taymor joined Millipore from Grant
Thornton & Company, Certified Public Accountants.
Executive Compensation
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to the Company or its
predecessor for 1998 of those persons who served as (i) the chief executive
officer during 1998 and (ii) the other four most highly compensated executive
officers of the Company or its predecessor for 1998 (collectively, the "Named
Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
----------------------------------
Other Annual
Name and Principal Position Year Salary($) Bonus($) Compensation($)
--------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Thomas F. L'Esperance................ 1998 310,003 94,615 6,529(/1/)
R. Scott Gaster...................... 1998 131,700 31,780 --
Jeffrey J. Brothers.................. 1998 126,006 21,775 --
Herman W. Beach...................... 1998 120,696 30,294 --
Bruce P. Rounds...................... 1998 119,700 25,160 --
</TABLE>
- --------
(1)Represents payments for nondeductible moving expenses.
Retention Agreements
In connection with the Merger, the Company has succeeded to retention
agreements originally entered into by Raytheon Commercial Laundry LLC in
connection with the sale of its commercial laundry business. The retention
agreements are with certain key executives, managers and commissioned
salespeople, including Mr. L'Esperance, Mr. Gaster, Mr. Brothers, Mr. Beach,
Mr. Rounds and Mr. Wallace and have remaining terms of approximately one year.
As of December 31, 1998, the Company's remaining aggregate commitment under
these agreements was $1.8 million of which $0.4 million was accrued at
December 31, 1998.
56
<PAGE>
Employment Agreement
In connection with the Merger, the Company entered into an employment
agreement with Thomas F. L'Esperance. Such agreement provides for: (i) a five
year employment term; (ii) a minimum base salary and bonus following the end
of each fiscal year so long as the Company employs Mr. L'Esperance; (iii)
severance benefits; (iv) non-competition, non-solicitation and confidentiality
agreements; and (v) other terms and conditions of Mr. L'Esperance's
employment.
Executive Unit Purchase Agreement
In connection with the Merger, MergeCo entered into Executive Unit Purchase
Agreements with certain members of management of the Company (each, an
"Executive"), including Mr. L'Esperance, Mr. Gaster, Mr. Brothers, Mr. Beach,
Mr. Rounds, Mr. Spiller and Mr. Wallace. Such agreements govern the sale to
the Executives of common membership interests of MergeCo in exchange for cash
and/or a promissory note from the Executive and provide for repurchase rights
and restrictions on transfer of the common units. In connection with the
Merger, the Executives' membership interests in MergeCo were converted into
common membership interests of the Parent.
Deferred Compensation Agreement
In connection with the Merger, Raytheon, the Company and the Parent entered
into Deferred Compensation Agreements with certain Executives, including Mr.
L'Esperance, Mr. Gaster, Mr. Brothers, Mr. Beach, Mr. Rounds and Mr. Wallace
whereby the Company assumed certain long term compensation obligations earned
by management under programs established by Raytheon. Such agreements provide
for the deferral of compensation until the earlier of (i) the payment of a
lump sum (the "Benefit Amount") to the Executive ten years after the date of
such agreement, regardless of whether the Executive is employed by the Company
as of such date or (ii) the payment of the Benefit Amount upon the occurrence
of certain events described therein.
Pension Plan
Substantially all eligible salaried employees of the Company, including
executive officers of the Company, are covered under the Alliance Laundry
Systems Retirement Income Plan (the "Pension Plan"). The cost of the Pension
Plan is borne entirely by the Company. Annual amounts of normal retirement
pension commencing at age 65 based on the highest consecutive sixty months of
compensation over the prior ten years of service are illustrated in the
following table:
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
-----------------------------------------------
Remuneration 15 20 25 30 35 40
------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000........................ 9,450 12,600 14,700 16,800 18,900 21,000
75,000........................ 15,669 20,892 24,373 27,855 31,377 34,819
100,000........................ 22,419 29,892 34,873 39,855 44,837 49,819
150,000........................ 35,919 47,892 55,873 63,855 71,837 79,819
200,000........................ 49,419 65,892 76,873 87,855 98,837 109,819
300,000........................ 76,419 101,892 118,873 135,855 152,837 169,819
400,000........................ 103,419 137,872 160,873 183,855 206,837 229,819
500,000........................ 130,419 173,892 202,873 231,855 260,837 289,819
</TABLE>
The annual pension amount is equal to the participant's highest consecutive
sixty months of compensation over the prior ten years of service less the
participant's primary social security amount, multiplied by 1.8% for each of
the first 20 years of service and multiplied by 1.2% for each year of Benefit
Service in excess of 20. The participant's final average earnings is defined
generally as a the highest consecutive five year average of the
57
<PAGE>
participant's base salary and bonus during the last ten years. The amount of
earnings that can be recognized for plan purposes is limited by the IRS to
$160,000 in 1998. A participant vests in his benefits accrued under the
Pension Plan after five years of service.
Respective years of benefit service under the Pension Plan, through December
31, 1998, are as follows: Mr. L'Esperance 0; Mr. Gaster 1; Mr. Brothers 20;
Mr. Beach 19; and Mr. Rounds 9. Mr. L'Esperance was covered under Raytheon
plans through April 1998, at which time he became a participant under the
Company's Pension Plan.
Savings Plans
Substantially all of the salaried employees, including executive officers of
the Company, participate in a 401(k) savings plan established by the Company
(the "Company 401(k) Plan"). Prior to the transaction, such employees
participated in a 401(k) plan and an ESOP sponsored by Raytheon. As part of
the Transactions, Raytheon transferred the account balances associated with
the Company employees in the Raytheon 401(k) plan to the Company 401(k) Plan.
Employees are permitted to defer a portion of their income under the Company
401(k) Plan and the Company will match such contribution. The matching
contribution is consistent with that under the prior Raytheon plan which
provided a matching contribution equal to 50% of the first 6% of the
employee's contribution. In addition, employees received a contribution under
the Raytheon ESOP equal to 0.5% of W-2 pay. This contribution is made as a
supplemental contribution to the Company 401(k) Plan in the form of a
discretionary cash contribution (instead of membership interests).
Compensation of Managers
The Company will reimburse Managers for any out-of-pocket expenses incurred
by them in connection with services provided in such capacity. In addition,
the Company may compensate Managers for services provided in such capacity.
58
<PAGE>
SECURITY OWNERSHIP
The Parent owns all of the outstanding equity interests of the Company. The
following table sets forth certain information regarding the approximate
beneficial ownership of the Parent's common equity interests held by (i) each
person (other than Managers and executive officers of the Company) known to
the Company to own more than 5% of the outstanding common membership interests
of the Company, (ii) certain Managers of the Company and (iii) the Named
Executive Officers of the Company. The Parent's common equity interests are
comprised of four classes of membership units including Class A, Class L,
Class B and Class C.
<TABLE>
<CAPTION>
Percentage of
Common Membership
Name and Address of Beneficial Owner Interests
- ------------------------------------ -----------------
<S> <C>
Bain Funds(/1/)(/2/).......................................... 54.9%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
BRS Investors(/3/)............................................ 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Management Investors(/4/)..................................... 9.4%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Raytheon Company.............................................. 7.0%
141 Spring Street
Lexington, Massachusetts 02173
Edward Conard(/1/)(/2/)(/5/).................................. 54.9%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Robert Gay(/1/)(/2/)(/5/)..................................... 54.9%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Stephen Sherrill(/3/)(/6/).................................... 27.7%
c/o Bruckmann, Rosser, Sherrill & Co., L.P.
126 East 56th Street, 29th Floor
New York, NY 10022
Stephen Zide(/1/)(/2/)........................................ 16.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Thomas F. L'Esperance(/4/).................................... 3.4%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Philip S. Taymor(/7/)......................................... 0.5%
c/o Maple Street Partners
34 Maple Street
Milford, MA 01757
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Common Membership
Name and Address of Beneficial Owner Interests
- ------------------------------------ -----------------
<S> <C>
R. Scott Gaster(/4/)......................................... 0.6%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Jeffrey J. Brothers(/4/)..................................... 0.8%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Herman W. Beach(/4/)......................................... 0.9%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
Bruce P. Rounds(/4/)......................................... 0.7%
c/o Alliance Laundry Systems LLC
P.O. Box 990
Ripon, WI 54971-0990
All Managers and executive officers as a group (21
persons)(/1/)(/2/)(/3/)(/4/)................................ 92.0%
</TABLE>
- --------
(1) Amounts shown reflect interests in Bain/RCL, L.L.C. which beneficially
owns 55.9% of the outstanding common membership interests of the Company
through its ownership of Class A and Class L membership units in the
Parent.
(2) Amounts shown reflect the aggregate interests held by Bain Capital Fund V,
L.P. ("Fund V"), Bain Capital Fund V-B, L.P. ("Fund V-B"), BCIP Trust
Associates II ("BCIP Trust"), BCIP Trust Associates II-B ("BCIP Trust II-
B"), BCIP Associates II ("BCIP") and BCIP Associates II-B ("BCIP II-B")
(collectively, the "Bain Funds"), for the Bain Funds and Messrs. Conard
and Gay and the aggregate interests held by BCIP Trust, BCIP Trust II-B,
BCIP and BCIP II-B for Mr. Zide.
(3) Amounts shown reflect the aggregate interests held by Bruckmann, Rosser,
Sherrill & Co., L.P. ("BRS"), BCB Family Partners, L.P., NAZ Family
Partners, L.P., Paul D. Kaminski, Bruce C. Bruckmann, Donald J. Bruckmann,
Harold O. Rosser, Stephen C. Sherrill, H. Virgil Sherrill, Nancy A. Zweng,
John Rice Edmonds, Susan Kaider, Marilena Tibrea, Walker C. Simmons and
MLPF&S Custodian FBO Paul Kaminski (collectively, the "BRS Investors.")
(4) Includes Class A and Class L membership units in the Parent but excludes
Class B and Class C membership units which are subject to vesting and
generally have no voting rights, representing on a fully diluted basis
approximately 10.6% of Parent's membership units for the Management
Investors, 3.1% for Mr. L'Esperance, 1.3% for Mr. Gaster, 1.4% for Mr.
Brothers, 1.3% for Mr. Beach and 1.3% for Mr. Rounds.
(5) Messrs. Conard and Gay are each Managing Directors of Bain Capital
Investors V, Inc., the sole general partner of Bain Capital Partners V,
L.P. ("BCPV"), and are limited partners of BCPV, the sole general partner
of Fund V and Fund V-B. Accordingly Messrs. Conard and Gay may be deemed
to beneficially own the interests owned by Fund V and Fund V-B. Messrs.
Conard and Gay are each general partners of BCIP, BCIP II-B, BCIP Trust
and BCIP Trust II-B and, accordingly, may be deemed to beneficially own
the interests owned by BCIP, BCIP II-B, BCIP Trust and BCIP Trust II-B.
Each such person disclaims beneficial ownership of any such shares in
which he does not have a pecuniary interest.
(6) Mr. Sherrill is a director of BRSE Associates, Inc., the sole general
partner of BRS Partners, L.P., the sole general partner of BRS and,
accordingly, may be deemed to beneficially own the interests owned by BRS.
Mr. Sherrill disclaims beneficial ownership of any such shares in which he
does not have a pecuniary interest.
(7) Mr. Taymor is a partner of Maple Street Partners LLC, and accordingly, may
be deemed to beneficially own the interests owned by Maple Street
Partners. Mr. Taymor disclaims beneficial ownership of any such shares in
which he does not have a pecuniary interest.
60
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Parent Securityholders Agreement
Upon the consummation of the Merger, the Parent, Raytheon and the
Securityholders entered into a securityholders agreement (the "Securityholders
Agreement"). The Securityholders Agreement: (i) restricts the transfer of the
equity interests of the Parent; (ii) grants tag-along rights on certain
transfers of equity interests of the Parent; (iii) requires the
Securityholders to consent to a sale of the Parent to an independent third
party if such sale is approved by certain holders of the then outstanding
equity interests of the Parent; and (iv) grants preemptive rights on certain
issuances of equity interests of the Parent. Certain of the foregoing
provisions of the Securityholders Agreement will terminate upon the
consummation of an Initial Public Offering or a Liquidity Event (each as
defined in the Securityholders Agreement).
Management Services Agreement
In connection with the Transactions, the Company entered into a Management
Services Agreement (the "Management Services Agreement") with Bain pursuant to
which Bain agreed to provide: (i) general executive and management services;
(ii) identification, support, negotiation and analysis of acquisitions and
dispositions; (iii) support, negotiation and analysis of financial
alternatives; and (iv) other services agreed upon by the Company and Bain. In
exchange for such services, Bain will receive (i) an annual management fee of
$1.0 million, plus reasonable out-of-pocket expenses (payable quarterly) and
(ii) a transaction fee in an amount in accordance with the general practices
of Bain at the time of the consummation of any additional acquisition or
divestiture by the Company and of each financing or refinancing (currently
approximately 1.0% of total financings). The Management Services Agreement has
an initial term of ten years subject to automatic one-year extensions unless
the Company or Bain provides written notice of termination.
Parent Registration Rights Agreement
Upon the consummation of the Merger, the Parent, Raytheon and the
Securityholders, entered into a registration rights agreement (the "Parent
Registration Rights Agreement"). Under the Parent Registration Rights
Agreement, the holders of a majority of the Registrable Securities (as defined
in the Parent Registration Rights Agreement) owned by Bain LLC have the right,
subject to certain conditions, to require the Parent to register any or all of
their common equity interests of the Parent under the Securities Act at the
Parent's expense. In addition, all holders of Registrable Securities are
entitled to request the inclusion of any common equity interests of the Parent
subject to the Parent Registration Rights Agreement in any registration
statement at the Parent's expense whenever the Parent proposes to register any
of its common equity interests under the Securities Act. In connection with
all such registrations, the Parent has agreed to indemnify all holders of
Registrable Securities against certain liabilities, including liabilities
under the Securities Act.
Parent Amended and Restated Limited Liability Company Agreement
Bain LLC, the BRS Investors, the Management Investors and Raytheon
(collectively, the "Members") have entered into an Amended and Restated
Limited Liability Company Agreement (the "LLC Agreement"). The LLC Agreement
governs the relative rights and duties of the Members.
Membership Interests. The ownership interests of the members in the Parent
consist of preferred units (the "Preferred Units") and common units (the
"Common Units"). The Common Units represent the common equity of the Company.
Holders of the Preferred Units are entitled to return of capital contributions
prior to any distributions made to holders of the Common Units.
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Distributions. Subject to any restrictions contained in any financing
agreements to which the Parent or any of its Affiliates (as defined in the LLC
Agreement) is a party, the Board of Managers (the "Board") may make
distributions, whether in cash, property or securities of the Parent, at any
time or from time to time in the following order of priority:
First, to the holders of Preferred Units, an amount determined by the
aggregate Unreturned Capital (as defined and described in the LLC
Agreement).
Second, to the holders of Class L Common Units (the "Class L Units"), the
aggregate unpaid amount accrued on such Class L Units on a daily basis, at
a rate of 12% per annum.
Third, to the holders of Class L Units, an amount determined by the
aggregate Unreturned Capital.
Fourth, to the holders of Common Units, an amount equal to the amount of
such distribution that has not been distributed pursuant to clauses First
through Third above.
The Parent may distribute to each holder of units within 75 days after the
close of each fiscal year such amounts as determined by the Board to be
appropriate to enable each holder of units to pay estimated income tax
liabilities.
Management. The Board consists of six individuals (each a "Representative").
Pursuant to the Securityholders Agreement, the holder of the majority of the
Common Units held by the BRS Investors appointed one Representative. The
members of the Parent holding a majority of the Bain Units (as defined in the
LLC Agreement) appointed the remaining Representatives. The initial Board
consists of Messrs. L'Esperance, Conard, Gay, Zide, Sherrill and Taymor.
Parent Seller Subordinated Note
Upon the consummation of the Merger, the Parent issued a Junior Subordinated
Promissory Note (the "Seller Subordinated Note") in the principal amount of
$9.0 million due August 21, 2009, to Raytheon. Pursuant to the terms of the
Seller Subordinated Note, interest accrues at the rate of 19.0% per annum
until the eighth anniversary of the date of issuance of the Seller
Subordinated Note and at a rate of 13.0% thereafter. The Seller Subordinated
Note is subordinated in priority and subject in right and priority of payment
to certain indebtedness described therein.
Parent Seller Preferred Equity
Upon the consummation of the Merger, the Parent issued mandatorily
redeemable preferred membership interests (the "Seller Preferred Equity") with
a liquidation value of $6.0 million to Raytheon. The Seller Preferred Equity
does not accrete, accrue or pay dividends and is redeemable at the earlier of
(i) a Change of Control (as defined therein), (ii) any initial public offering
or (iii) 2009. The holders of the Seller Preferred Equity are entitled to
receive distributions from the Parent in an amount equal to their Unreturned
Capital (as defined therein) prior to distributions in respect of any other
membership interests of the Parent. See "--Parent Amended and Restated Limited
Liability Company Agreement."
Management Investor Promissory Notes
In connection with the Transactions, the Parent entered into promissory
notes (the "Promissory Notes") aggregating approximately $1.8 million with Mr.
L'Esperance, Mr. Gaster, Mr. Brothers, Mr. Beach, Mr. Rounds and Mr. Wallace
to help finance the purchase of Common Units in the Parent. The Promissory
Notes bear interest at a rate of 5.94% per annum and mature on June 5, 2008.
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DESCRIPTION OF SENIOR CREDIT FACILITY
In connection with the Transactions, the Company entered into a credit
agreement (the "Senior Credit Facility") with a syndicate of financial
institutions (the "Lenders") for which Lehman Brothers Inc. acted as arranger
and Lehman Commercial Paper Inc. acted as syndication agent. The following is
a summary of the material terms and conditions of the Senior Credit Facility
and is subject to the detailed provisions of the Senior Credit Facility and
the various related documents entered into in connection therewith.
Loans; Interest Rates. The Senior Credit Facility is comprised of a $200.0
million Term Loan Facility and a $75.0 million Revolving Credit Facility,
which were made available in conjunction with the issuance of the Senior
Subordinated Notes. The proceeds of the Senior Credit Facility, together with
the proceeds of this Offering, provided a portion of the financing for the
Transactions and certain expenses related to the Transactions and provide
financing for future working capital and other general corporate purposes.
The Term Loan Facility was available for one drawing on the date of the
Closing and will be repaid in full at the end of seven years. The Revolving
Credit Facility is available on a revolving basis during the period commencing
on the date of the Closing and ending on the date that is five years after the
date of the Closing. The Term Loan Facility bears interest, at the Company's
election, at either the Base Rate plus a margin ranging from 1.125% to 1.625%
or the Eurodollar Rate plus a margin ranging from 2.125% to 2.625%. The
Revolving Credit Facility bears interest, at the Company's election, at either
the Base Rate plus a margin ranging from 0.625% to 1.375% or the Eurodollar
Rate plus a margin ranging from 1.625% to 2.375%.
Repayment. The principal amounts of the Term Loan Facility are repayable in
quarterly installments in the following approximate aggregate annual amounts:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1......................................... $ 0
2......................................... 0
3......................................... 1,000,000
4......................................... 1,000,000
5......................................... 1,000,000
6......................................... 40,000,000
7......................................... 157,000,000
</TABLE>
Security. The obligations under the Senior Credit Facility and the related
documents are secured by a first priority lien upon substantially all of the
real and personal property of the Company and its Domestic Subsidiaries (other
than the Financing Subsidiaries) and a pledge of all of the capital stock of
the Company's subsidiaries (provided that no lien will be granted on the
assets of foreign subsidiaries and no capital stock of foreign subsidiaries
will be pledged).
Guarantees. The obligations of the Company under the Senior Credit Facility
are guaranteed by the Parent and substantially all of the Company's
subsidiaries (other than the Financing Subsidiaries) (provided that no
guarantee by a foreign subsidiary shall be made).
Prepayments. The Company will be required to make prepayments, with
customary exceptions, on loans under the Senior Credit Facility in an amount
equal to 100% of the net proceeds of the incurrence of certain indebtedness,
100% of the net proceeds received by the Company and its subsidiaries (other
than certain net proceeds reinvested in the business of the Company or its
subsidiaries) from the disposition of certain assets (and certain recovery
events in connection therewith) including proceeds from the sale of stock of
any of the Company's subsidiaries and 75% of excess cash flow (which
percentage may be reduced to 50% under certain circumstances).
Conditions and Covenants. The obligations of the lenders under the Senior
Credit Facility are subject to the satisfaction of certain conditions
precedent, including consummation of the Offering, customary for similar
credit facilities or otherwise appropriate under the circumstances. The
Company and each of its subsidiaries are
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subject to certain negative covenants contained in the Senior Credit Facility,
including without limitation covenants that restrict, subject to specified
exceptions: (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens; (ii) mergers,
consolidations, amalgamations, liquidations, dissolutions and dispositions of
assets; (iii) investments, loans and advances; (iv) dividends, stock
repurchases and redemptions; (v) prepayment or repurchase of other
indebtedness and amendments to certain agreements governing indebtedness,
including the Indenture and the Notes; (vi) engaging in transactions with
affiliates; (vii) capital expenditures; (viii) sales and leasebacks; (ix)
changes in fiscal periods; (x) changes of lines of business; and (xi) entering
into agreements which prohibit the creation of liens or limit the Company's
subsidiaries ability to pay dividends. The Senior Credit Facility also
contains customary affirmative covenants, including compliance with
environmental laws, maintenance of corporate existence and rights, maintenance
of insurance, property and interest rate protection, financial reporting,
inspection of property, books and records, and the pledge of additional
collateral and guarantees from certain new subsidiaries. In addition, the
Senior Credit Facility requires the Company to maintain compliance with
certain specified financial covenants including maximum capital expenditures,
a maximum ratio of total debt to EBITDA (as defined in the Senior Credit
Facility) and a minimum interest coverage ratio. Certain of these financial,
negative and affirmative covenants are more restrictive than those set forth
in the Indenture.
The Senior Credit Facility requires the Company to maintain compliance with
two financial covenants which are tested at the end of each fiscal quarter of
the Company for the period of the preceding four consecutive fiscal quarters
(or on an annualized basis in the case of the Consolidated Interest Coverage
Ratio for the first fiscal year from the Closing Date). The Consolidated
Leverage Ratio prohibits the Company from exceeding specified ratios (which
decline over time) of Consolidated Total Debt (as defined in the Senior Credit
Facility) for the applicable period to Consolidated EBITDA (as defined in the
Senior Credit Facility) for such period. The Company is currently prohibited
from exceeding a Consolidated Leverage Ratio, to be measured as of the four
consecutive fiscal quarters ending March 31, 1999, of 6.50 to 1.00. The
Consolidated Leverage Ratio at December 31, 1998 was 6.17 to 1.00. This
Consolidated Leverage Ratio periodically declines over time such that as of
the four consecutive fiscal quarters ending on the dates set forth below, the
Company will be prohibited from exceeding the Consolidated Leverage Ratio set
forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Quarter Ending On or Consolidated
About Leverage Ratio
--------------------------- --------------
<S> <C>
June 30, 1999................... 6.50 to 1.00
September 30, 1999.............. 6.50 to 1.00
December 31, 1999............... 6.50 to 1.00
March 31, 2000.................. 7.00 to 1.00
June 30, 2000................... 7.10 to 1.00
September 30, 2000.............. 7.00 to 1.00
December 31, 2000............... 6.40 to 1.00
March 31, 2001.................. 6.40 to 1.00
June 30, 2001................... 6.40 to 1.00
September 30, 2001.............. 6.40 to 1.00
December 31, 2001............... 6.00 to 1.00
March 31, 2002.................. 6.00 to 1.00
June 30, 2002................... 6.00 to 1.00
September 30, 2002.............. 6.00 to 1.00
December 31, 2002............... 5.25 to 1.00
March 31, 2003.................. 5.25 to 1.00
June 30, 2003................... 5.25 to 1.00
September 30, 2003.............. 5.25 to 1.00
December 31, 2003............... 4.25 to 1.00
March 31, 2004.................. 4.25 to 1.00
June 30, 2004................... 4.25 to 1.00
September 30, 2004.............. 4.25 to 1.00
December 31, 2004 and each
Fiscal Quarter thereafter...... 3.10 to 1.00
</TABLE>
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The other financial covenant, the Consolidated Interest Coverage Ratio
requires the Company to maintain specified minimum ratios (which increase over
time) of Consolidated EBITDA for the applicable period to Consolidated Cash
Interest Expense (as defined in the Senior Credit Facility) for such period.
The Company is currently required to maintain a Consolidated Interest Coverage
Ratio, to be measured as of the four consecutive fiscal quarters ending March
31, 1999 of 1.60 to 1.00. The Consolidated Interest Coverage Ratio at December
31, 1998 was 1.73 to 1.00. This Consolidated Interest Coverage Ratio
periodically increases over time such that as of the four consecutive fiscal
quarters ending on the dates set forth below, the Company will be required to
maintain the Consolidated Interest Coverage Ratio set forth opposite such
date:
<TABLE>
<CAPTION>
Consolidated
Interest
Fiscal Quarter Ending On or About Coverage Ratio
--------------------------------- --------------
<S> <C>
June 30, 1999.................... 1.60 to 1.00
September 30, 1999............... 1.60 to 1.00
December 31, 1999................ 1.60 to 1.00
March 31, 2000................... 1.50 to 1.00
June 30, 2000.................... 1.45 to 1.00
September 30, 2000............... 1.45 to 1.00
December 31, 2000................ 1.60 to 1.00
March 31, 2001................... 1.60 to 1.00
June 30, 2001.................... 1.60 to 1.00
September 30, 2001............... 1.60 to 1.00
December 31, 2001................ 1.70 to 1.00
March 31, 2002................... 1.70 to 1.00
June 30, 2002.................... 1.70 to 1.00
September 30, 2002............... 1.70 to 1.00
December 31, 2002................ 1.90 to 1.00
March 31, 2003................... 1.90 to 1.00
June 30, 2003.................... 1.90 to 1.00
September 30, 2003............... 1.90 to 1.00
December 31, 2003................ 2.30 to 1.00
March 31, 2004................... 2.30 to 1.00
June 30, 2004.................... 2.30 to 1.00
September 30, 2004............... 2.30 to 1.00
December 31, 2004 and each Fiscal
Quarter thereafter.............. 3.00 to 1.00
</TABLE>
The Senior Credit Facility also limits the amount of capital expenditures that
the Company and its Subsidiaries may make or commit to make in any fiscal
year, including up to $17.5 million for fiscal 1998, $25.0 million for fiscal
1999 and $15.0 million for fiscal 2000 and each fiscal year thereafter. Up to
50% of such amounts may be carried over for expenditure in the next succeeding
fiscal year if not so expended in the fiscal year for which it is permitted.
Events of Default. The Senior Credit Facility also includes events of
default that are typical for senior credit facilities and appropriate in the
context of the Transactions, including, without limitation, nonpayment of
principal, interest, fees or reimbursement obligations with respect to letters
of credit, violation of covenants, inaccuracy of representations and
warranties in any material respect, cross default to certain other
indebtedness and agreements, bankruptcy and insolvency events, material
judgments and liabilities, defaults or judgements under ERISA and change of
control. The occurrence of any of such events of default could result in
acceleration of the Company's obligations under the Senior Credit Facility and
foreclosure on the collateral securing such obligations, which could have
material adverse results to holders of the Exchange Notes.
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DESCRIPTION OF ASSET BACKED FACILITY
In connection with the Transactions, a special purpose single member limited
liability company (the "SPE") that is a Subsidiary of the Company entered into
a $250.0 million revolving loan agreement (the "Asset Backed Facility") with
Lehman Commercial Paper Inc. (the "Facility Lender"), an affiliate of Lehman
Brothers Inc., an Initial Purchaser of the Notes. The SPE is operated in a
fashion intended to ensure that its assets and liabilities are distinct from
those of the Company and its other affiliates, and its assets are not
available to satisfy claims of creditors of the Company and its other
subsidiaries. As a result of the foregoing, the SPE was not consolidated as a
part of the financial statements of the Company. The SPE constitutes an
"Unrestricted Subsidiary" and a "Securitization Entity" under the Indenture.
In addition, the transactions described in this section constitute "Qualified
Securitization Transactions" under the Indenture.
The Company sells certain eligible trade receivables and certain eligible
equipment loans to the SPE. For financial reporting purposes, the transfer of
trade receivables and equipment loans from the Company to the SPE is recorded
as a sale and results in the derecognition of trade receivables and equipment
loans from the financial statements of the Company.
The following is a summary of the material terms and conditions of the Asset
Backed Facility and is subject to the detailed provisions of the Asset Backed
Facility and the various related documents entered into in connection
therewith.
Facility Amount. The Asset Backed Facility is a $250.0 million facility,
with sublimits of $100.0 million for loans on eligible trade receivables and
$200.0 million for loans on eligible equipment loans. The amount of loans may
be increased or decreased, subject to certain standard conditions precedent.
The Asset Backed Facility has a term of five years. The obligation of the SPE
under the Asset Backed Facility is a recourse obligation of the SPE.
Advance Rate. Loans under the Asset Backed Facility are secured by a pledge
of receivables owned by the SPE. With respect to loans secured by trade
receivables, the Facility Lender will make loans up to but not exceeding 85%
of the outstanding amount of eligible trade receivables. With respect to loans
secured by equipment loans, the Facility Lender will make loans up to but not
exceeding the lesser of 90% of the outstanding principal balance of eligible
equipment loans or 90% of the market value with respect to eligible equipment
loans, as determined by the Facility Lender in its reasonable discretion. The
eligibility of both trade receivables and equipment loans is subject to
certain concentration and other limits. In addition, after 24 months in the
Asset Backed Facility, an otherwise eligible equipment loan will no longer be
considered an eligible equipment loan, subject to two automatic six-month
extensions upon payment of a fee if such equipment loans have not been
securitized or otherwise disposed of by the SPE.
Interest Rate. The interest rate of loans under the Asset Backed Facility is
generally equal to one-month LIBOR (adjusted for reserves, if applicable) plus
1.00% per annum.
Credit Enhancement. The SPE provides additional credit enhancement to the
Facility Lender (consisting of an irrevocable letter of credit, an
unconditional lending commitment of the Lenders under the Senior Credit
Facility or a cash collateral account) in an amount not to exceed 10% of the
aggregate principal amount of loans outstanding under the Asset Backed
Facility up to $125.0 million and 5% of the aggregate principal amount of
loans outstanding above $125 million. The additional credit enhancement is
provided by the Lenders. The Company is obligated under the reimbursement
provisions of the Senior Credit Facility to reimburse the Lenders for any
drawings on the credit enhancement by the Facility Lender. If the credit
enhancement is not replenished by the Company after a drawing, the Facility
Lender will not be obligated to make further loans under the Asset Backed
Facility and the Asset Backed Facility will begin to amortize. In addition, at
any time when (i) the aggregate principal amount of loans outstanding under
the Asset Backed Facility exceeds $125.0 million and (ii) the delinquency or
default ratios with respect to trade receivables or equipment loans exceed
certain specified levels (an "Excess Spread Sweep Event"), and for four months
after a cure of such excess delinquency or default
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<PAGE>
ratios, the collections on the equipment loans (after payment of accrued
interest on the loans under the Asset Backed Facility) will be directed into
an excess spread sweep account in the name of the Facility Lender until the
amount on deposit in such account is equal to five percent of the aggregate
principal amount of loans outstanding under the Asset Backed Facility.
Collateral. In order to secure payment of principal and of interest on the
loans and other amounts owing to the Facility Lender under the Asset Backed
Facility documents, the SPE has assigned, pledged, and granted to the Facility
Lender a security interest in all of its right, title and interest in, to and
under trade receivables and equipment loans originated by the Company and
related assets. The Facility Lender will release its security interest in some
or all of such collateral under certain specified conditions.
Prepayment. Early repayment of the loans under the Asset Backed Facility
will be required upon the occurrence of certain "events of default," which
include: (i) default in the payment of any principal of or interest on any
loan under the Asset Backed Facility when due, (ii) the bankruptcy of the SPE,
the Company or the issuer of the letter of credit or provider of the line of
credit, (iii) any materially adverse change in the properties, business,
condition or prospects of the SPE or the Company, or any other condition which
constitutes a material impairment of the SPE's ability to perform its
obligations under the Asset Backed Facility and related documents, (iv)
specified defaults by the SPE or the Company on certain of their respective
obligations, (v) delinquency, dilution or default ratios on pledged
receivables exceeding certain specified ratios in any given month, (vi) the
ratio of (a) the indebtedness of the Company and its subsidiaries minus
indebtedness subordinated to the loans under the Asset Backed Facility to (b)
the sum of the tangible net worth of the Company and its subsidiaries and the
amount of debt subordinated to the loans under the Asset Backed Facility
exceeding a specified amount and (vii) a number of other specified events.
The SPE expects to effect term securitizations of equipment loans on a
periodic basis and to use the proceeds to repay the loans under the Asset
Backed Facility. There is no assurance, however, that such securitizations
will be at an equivalent advance rate or that the cost of funds will be
equivalent to or more favorable than the cost of funds under the Asset Backed
Facility. In addition, no sooner than the date which is three months prior to
the time that an equipment loan will cease to be eligible for financing, or
will have a substantially reduced value, under the Asset Backed Facility, the
SPE will cause such equipment loan to be included (and may include other
specified equipment loans) in a term securitization or to be otherwise
disposed of on terms and conditions as favorable to the SPE as are obtainable
in the market.
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DESCRIPTION OF THE EXCHANGE NOTES
General
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
among the Company ALC, the Parent and United States Trust Company of New York,
as trustee (the "Trustee"). The terms of the Exchange Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
Exchange Notes are subject to all such terms, and Holders of Exchange Notes
are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of the material provisions of the Indenture
does not purport to be complete and is qualified in its entirety by reference
to the Indenture, including the definitions therein of certain terms used
below. Copies of the proposed form of Indenture and the Registration Rights
Agreement are available to Holders as set forth below under "--Additional
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions." For purposes of this
summary, the term "Company" refers only to Alliance Laundry Systems LLC and
not to any of its Subsidiaries.
ALC is a wholly owned subsidiary of the Company that was incorporated in
Delaware for the purpose of serving as a co-issuer of the Notes in order to
facilitate the Note Offering. The Company believes that certain prospective
purchasers of the Exchange Notes may be restricted in their ability to
purchase debt securities of limited liability companies, such as the Company,
unless such debt securities are jointly issued by a corporation. ALC will not
have any business operations or assets and will not have any revenues. As a
result, prospective purchasers of the Notes should not expect ALC to
participate in servicing the interest, principal obligations and Liquidated
Damages, if any, on the Notes. See "--Certain Covenants."
The Exchange Notes will be general unsecured obligations of the Issuers and
will be subordinated in right of payment to all current and future Senior
Debt, including permitted borrowings under the Senior Credit Facility. The
Exchange Notes will rank pari passu in right of payment with all senior
subordinated Indebtedness of the Issuers issued in the future, if any, and
senior in right of payment to all subordinated Indebtedness of the Issuers
issued in the future, if any. As of May 5, 1998, on a pro forma basis giving
effect to the application of the net proceeds from the Offering, the Company
would have had Senior Debt of approximately $200.0 million. The Indenture will
permit the incurrence of additional indebtedness, including additional Senior
Debt, subject to certain restrictions, in the future. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
As of the date of the Indenture, all of the Issuers' Subsidiaries will be
Restricted Subsidiaries, other than the SPE, Alliance Commercial Appliances
Receivables LLC, Alliance Commercial Appliances Finance LLC and Alliance
Laundry S.A. However, under certain circumstances, the Issuers will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the Indenture.
The Indenture provides that two Officers (as defined in the Indenture) shall
sign the Exchange Notes for each of the Issuers by manual or facsimile
signature. In addition, the Indenture provides that the Trustee shall, upon a
written order of each of the Issuers signed by two Officers of each Issuer,
authenticate Exchange Notes for original issue up to the aggregate principal
amount of $200.0 million. The Trustee may (at the expense of the Issuers)
appoint an authenticating agent acceptable to the Issuers to authenticate
Exchange Notes. An authenticating agent may authenticate Exchange Notes
whenever the Trustee may do so.
Principal, Maturity and Interest
The Exchange Notes will be limited in aggregate principal amount to $200.0
million, of which $110.0 million will be issued in the Offering, and will
mature on May 1, 2008. Interest on the Exchange Notes will accrue at the rate
of 9 5/8% per annum and will be payable semi-annually in arrears on May 1 and
November 1, commencing on November 1, 1998, to Holders of record on the
immediately preceding April 15 and October 15. Additional Exchange Notes may
be issued from time to time after the Offering, subject to the provisions of
the
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Indenture described below under the caption "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock." Interest on the Exchange
Notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of original issuance. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. Principal, premium, if any, and interest and Liquidated Damages
thereon, if any, on the Exchange Notes will be payable at the office or agency
of the Issuers maintained for such purpose within the City and State of New
York or, at the option of the Issuers, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders of the Exchange
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments of $1,000 or more principal, premium, if
any, interest and Liquidated Damages, if any, with respect to Exchange Notes
the Holders of which have given wire transfer instructions to the Issuers at
least ten business days prior to the applicable payment date will be required
to be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Issuers,
the Issuers' office or agency in New York will be the office of the Trustee
maintained for such purpose. The Exchange Notes will be issued in
denominations of $1,000 and integral multiples thereof.
Subordination
The payment of principal of, premium, if any, and interest on the Exchange
Notes, Liquidated Damages, if any, Change of Control Payments or other
obligations of the Issuers in respect of the Exchange Notes (collectively, the
"Note Payments") will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Issuers in a liquidation or
dissolution of any Issuer or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or its property, an
assignment for the benefit of creditors or any marshalling of such Issuer's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt, whether or not such claim is allowed
under applicable law) before the Holders of Exchange Notes will be entitled to
receive any payment with respect to the Exchange Notes, and until all
Obligations with respect to Senior Debt are paid in full in cash, any
distribution to which the Holders of Exchange Notes would be entitled shall be
made to the holders of Senior Debt (except that Holders of Exchange Notes may
receive and retain Permitted Junior Securities and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance").
The Issuers also may not make any Note Payment or any deposit pursuant to
provisions described under "--Legal Defeasance and Covenant Defeasance"
(except in Permitted Junior Securities or from the trust described under "--
Legal Defeasance and Covenant Defeasance") if (i) a default in the payment of
the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from a representative of the holders of
any Designated Senior Debt. Payments on the Exchange Notes may and shall be
resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived or has ceased to exist or such Designated Senior
Debt has been discharged or repaid in full in cash and (b) in case of a
nonpayment default, the earlier of the date on which such nonpayment default
is cured or waived or 179 days after the date on which the applicable Payment
Blockage Notice is received or has ceased to exist or such Designated Senior
Debt has been discharged or repaid in full in cash, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until (i) 360 days have elapsed since the
commencement of the effectiveness of the immediately prior Payment Blockage
Notice and (ii) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee
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shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been waived for a period of not less than 180
days.
The Indenture further requires that the Issuers promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an
Event of Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Exchange Notes may recover less
ratably than creditors of the Issuers who are holders of Senior Debt. After
giving effect to the Transactions, including the Offering and the application
of the proceeds therefrom, the principal amount of Senior Debt outstanding at
May 5, 1998 was approximately $200.0 million. The Indenture limits, subject to
certain limitations, the amount of additional Indebtedness, including Senior
Debt, that the Issuers and their subsidiaries can incur. See "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Senior Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Issuers as "Designated Senior Debt."
"Permitted Junior Securities" means Equity Interests in or debt securities
of any Issuer or any Guarantor that are issued pursuant to a plan of
reorganization of such Issuer or such Guarantor and are subordinated to all
Senior Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Senior
Subordinated Notes are subordinated to Senior Debt pursuant to Article 10 of
the Indenture so long as (i) the effect of the issuance of such Equity
Interests or debt securities is not to cause the Exchange Notes (or the
relevant Note Guarantee) to be treated as part of the same class of claims or
any class of claims pari passu with, or senior to, such Senior Debt pursuant
to such plan of reorganization and (ii) the rights of the holders of such
Senior Debt are not altered or impaired without their consent.
"Senior Debt" means (i) all Indebtedness outstanding under Senior Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Exchange Notes and the Note Guarantees and (iii) all
Obligations of the Company and any Note Guarantor with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other
taxes owed or owing by the Issuers, (x) any Indebtedness of the Company or any
Guarantor to any of their Subsidiaries or other Affiliates (other than
Indebtedness of the Company or any Note Guarantor to Sankaty Partners
representing Sankaty Partners' participation in any one or more of the Senior
Credit Facilities where Sankaty Partners is one of the institutional lenders
to such Senior Credit Facilities), (y) any trade payables or (z) any
Indebtedness that is incurred in violation of the restrictions described under
"Incurrence of Indebtedness and Issuance of Preferred Stock" below; provided
that Indebtedness under Senior Credit Facilities will be Senior Debt if the
holders of such Senior Debt shall have received a written certificate from an
officer of the Company to the effect that the incurrence of such Indebtedness
does not (or in the case of up to $75.0 million of revolving credit
Indebtedness available to be borrowed under the Senior Credit Facility after
the date of the initial borrowing thereunder, that the incurrence of such
entire committed amount would not) violate the Indenture.
Parent Guarantee
The obligations of the Issuers under the Exchange Notes and the Indenture
are guaranteed (the "Parent Guarantee") on a senior subordinated basis by the
Parent. The Parent Guarantee is subordinated in right of payment to all Senior
Debt of the Parent to the same extent that the Exchange Notes are subordinated
to Senior Debt of the Issuers. Since the Parent is a holding company with no
significant operations, the Parent Guarantee provides little, if any,
additional credit support for the Exchange Notes, and investors should not
rely on the Parent Guarantee in evaluating an investment in the Exchange
Notes.
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Note Guarantees
After the date of the Indenture, the Issuers will cause each newly acquired
or created Domestic Subsidiary (each, a "Note Guarantor"), to execute and
deliver to the Trustee a supplemental indenture pursuant to which such
Subsidiary will guarantee (each, a "Note Guarantee") payment of the Exchange
Notes. Each such Note Guarantor as primary obligor and not merely as surety,
will jointly and severally, irrevocably and fully and unconditionally
Guarantee, on a senior subordinated basis, the performance and punctual
payment when due, whether at Stated Maturity, by acceleration or otherwise, of
all obligations of the Issuers under the Indenture and the Exchange Notes,
whether for principal of or interest on the Exchange Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by such Note
Guarantors being herein called the "Guaranteed Obligations"). Such Note
Guarantors will agree to pay, in addition to the amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under the Note Guarantees.
The obligations of each Note Guarantor will be limited to the maximum
amount, as will, after giving effect to all other contingent and fixed
liabilities of such Note Guarantor, result in the obligations of such Note
Guarantor under the Note Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law.
Each such Note Guarantee shall be a continuing Guarantee and shall (i)
remain in full force and effect until payment in full of the principal amount
of all outstanding Exchange Notes (whether by payment at maturity, purchase,
redemption, defeasance, retirement or other acquisition) and all other
Guaranteed Obligations then due and owing, unless earlier terminated as
described below, (ii) be binding upon such Note Guarantor and (iii) inure to
the benefit of and be enforceable by the Trustee, the Holders and their
successors, transferees and assignees.
The Indenture provides that, subject to the provisions described in the next
succeeding paragraph, no Note Guarantor may consolidate or merge with or into
(whether or not such Note Guarantor is the surviving Person) another Person
unless (i) the Person formed by or surviving any such consolidation or merger
(if other than a Note Guarantor or the Company) assumes all the obligations of
such Note Guarantor under the Note Guarantee, the Registration Rights
Agreement and the Indenture pursuant to a supplemental indenture, in form
reasonably satisfactory to the Trustee, and (ii) if such merger or
consolidation is with a Person other than the Company or a Restricted
Subsidiary, (x) immediately after such transaction, no Default or Event of
Default exists and (y) the Company will, at the time of such transaction after
giving pro forma effect thereto, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described below under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock."
Notwithstanding the preceding paragraph, concurrently with any sale or
disposition (by merger or otherwise) of any Note Guarantor in accordance with
the terms of the Indenture (including the covenant described under "--Asset
Sales") by the Company or a Restricted Subsidiary to any Person that is not an
Affiliate of the Company, such Note Guarantor will automatically and
unconditionally be released from all obligations under its Note Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
In addition, any Note Guarantee of any Note Guarantor will be automatically
and unconditionally released and discharged upon the merger or consolidation
of such Note Guarantor with and into the Company or another Note Guarantor
that is the surviving Person in such merger or consolidation.
"Guarantors" means each of (i) the Parent and (ii) any Subsidiary that
executes a Note Guarantee in accordance with the provisions of the Indenture,
and their respective successors and assigns.
Optional Redemption
The Exchange Notes are not redeemable at the Issuers' option prior to May 1,
2003. Thereafter, the Exchange Notes are subject to redemption at any time at
the option of the Issuers, in whole or in part, upon not
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less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued
and unpaid interest and Liquidated Damages thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on May 1
of the years indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2003.................................. 104.813%
2004.................................. 103.208%
2005.................................. 101.604%
2006 and thereafter................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to May 1, 2001, the Issuers
may on any one or more occasions redeem up to 35% of the aggregate principal
amount of Exchange Notes issued under the Indenture at a redemption price of
109.625% of the principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date, with the net cash
proceeds of any Equity Offerings; provided that at least 65% of the aggregate
principal amount of Exchange Notes issued under the Indenture remains
outstanding immediately after each occurrence of such redemption (excluding
Exchange Notes held by the Issuers and their Subsidiaries); and provided,
further, that each such redemption shall occur within 45 days of the date of
the closing of such Equity Offering.
If less than all of the Senior Exchange are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which the Exchange Notes are listed, or, if the Exchange
Notes are not so listed, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided that no Exchange Notes of
$1,000 or less shall be redeemed in part. Notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Exchange Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any
Exchange Note is to be redeemed in part only, the notice of redemption that
relates to such Exchange Note shall state the portion of the principal amount
thereof to be redeemed. A new Exchange Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Exchange Note. Exchange Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Exchange Notes or portions of
them called for redemption.
At any time prior to May 1, 2003, the Exchange Notes may also be redeemed,
as a whole but not in part, at the option of the Issuers upon the occurrence
of a Change of Control, upon not less than 30 nor more than 60 days prior
notice (but in no event may any such redemption occur more than 90 days after
the occurrence of such Change of Control) mailed by first-class mail to each
Holder's registered address, at a redemption price equal to 100% of the
principal amount thereof plus the Applicable Premium as of, and accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
redemption (the "Redemption Date").
"Applicable Premium" means, with respect to any Exchange Note on any
Redemption Date, the greater of (i) 1.0% of the principal amount of such
Exchange Note or (ii) the excess of (A) the present value at such Redemption
Date of (1) the redemption price of such Exchange Note at May 1, 2003 (such
redemption price being set forth in the table above) plus (2) all required
interest payments due on such Exchange Note through May 1, 2003 (excluding
accrued but unpaid interest), computed using a discount rate equal to the
Treasury Rate at such Redemption Date plus 75 basis points over (B) the
principal amount of such Exchange Note, if greater.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15
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(519) which has become publicly available at least two business days prior to
the Redemption Date (or, if such Statistical Release is no longer published,
any publicly available source or similar market data)) most nearly equal to
the period from the Redemption Date to May 1, 2003; provided, however, that if
the period from the Redemption Date to May 1, 2003 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the Redemption Date to May 1,
2003 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year shall
be used.
Mandatory Redemption
Except as set forth below under "--Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Exchange Notes.
Repurchase at the Option of Holders
Change of Control
Upon the occurrence of a Change of Control, each Holder of Exchange Notes
will have the right to require the Issuers to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Exchange
Notes pursuant to the offer described below (the "Change of Control Offer") at
an offer price in cash equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to
the date of purchase (the "Change of Control Payment"). Within ten days
following any Change of Control, the Issuers will mail a notice to each Holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Exchange Notes on the date specified in
such notice, which date shall be no earlier than 30 days and no later than 60
days from the date such notice is mailed (the "Change of Control Payment
Date"), pursuant to the procedures required by the Indenture and described in
such notice. The Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (iii) deliver or cause to
be delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Issuers. The Paying Agent will
promptly mail to each Holder of Exchange Notes so tendered the Change of
Control Payment for such Exchange Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Exchange Note equal in principal amount to any unpurchased
portion of the Exchange Notes surrendered, if any; provided that each such new
Exchange Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Indenture will provide that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a
Change of Control, the Issuers will either repay all outstanding Senior Debt
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of Exchange Notes required by
this covenant. The Issuers will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Exchange Notes to require
that the Issuers repurchase or redeem the Exchange Notes in the event of a
takeover, recapitalization or similar transaction.
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The Senior Credit Facility limits the ability of the Issuers to purchase any
Exchange Notes and also provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future
credit facilities or other agreements relating to Senior Debt to which the
Issuers become a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Issuers is prohibited from
purchasing Exchange Notes, the Issuers could seek the consent of its lenders
to the purchase of Exchange Notes or could attempt to refinance the borrowings
that contain such prohibition. If the Issuers do not obtain such a consent or
repay such borrowings, the Issuers will remain prohibited from purchasing
Exchange Notes. In such case, the Issuers' failure to purchase tendered
Exchange Notes would constitute an Event of Default under the Indenture which
would, in turn, constitute as default under the Senior Credit Facility. In
such circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Exchange Notes. See "--Subordination."
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control (i) if a third party makes the Change of Control Offer in
the manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Issuers and purchases all Exchange Notes validly tendered and not withdrawn
under such Change of Control Offer or (ii) the Issuers exercise their option
to purchase all the Exchange Notes upon a Change of Control as described above
under the caption "Optional Redemption."
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Managers set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefore received by the Company or such Restricted Subsidiary,
as the case may be, is in the form of cash or Cash Equivalents; provided that
the amount of (x) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet), of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary
from further liability and (y) any securities, notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately converted by the Company or such Restricted Subsidiary
into cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Notwithstanding the immediately preceding paragraph, the Company and its
Restricted Subsidiaries are permitted to consummate an Asset Sale without
complying with the prior paragraph if (i) the Company or the applicable
Restricted Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets or
other property sold, issued or otherwise disposed of (as evidenced by a
resolution of the Company's Board of Managers set forth in an Officers'
Certificate delivered to the Trustee) and (ii) at least 75% of the
consideration for such Asset Sale constitutes a controlling interest in a
Permitted Business, long-term assets used or useful in a Permitted Business
and/or cash or Cash Equivalents; provided that any cash or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in connection
with any Asset Sale permitted to be consummated under this paragraph shall
constitute Net Proceeds subject to the provisions of the next succeeding
paragraph.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (i) to repay Senior
Debt and, in the case of any Senior Debt under any revolving credit facility,
effect a corresponding commitment reduction under such credit facility, (ii)
to the acquisition of a controlling interest in a Permitted Business, the
making of a capital expenditure or the acquisition of other Additional Assets
or (iii) a combination of prepayment and investment permitted by the forgoing
clauses (i) and (ii). Pending the final application of any such Net Proceeds,
the Company may temporarily reduce revolving
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credit borrowings or otherwise invest such Net Proceeds in any manner that is
not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10.0 million, the Issuers will be required to make an
offer to all Holders of Exchange Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of Exchange Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture (the first date the aggregate of all
such Net Proceeds is equal to $10.0 million or more shall be deemed an "Asset
Sale Offer Trigger Date"). Each Asset Sale Offer will be mailed to the record
Holders as shown on the register of Holders within 25 days following the Asset
Sale Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Asset Sale
Offer, Holders may elect to tender their Exchange Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent that any
Excess Proceeds remain after consummation of an Asset Sale Offer, the Company
may use such Excess Proceeds for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Exchange Notes tendered into
such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Exchange Notes to be purchased
on a pro rata basis. Upon completion of such offer to purchase, the amount of
Excess Proceeds shall be reset at zero.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Exchange Notes pursuant to an Asset Sale Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
Asset Sale provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Asset Sale provisions of the Indenture by
virtue thereof.
Certain Covenants
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct
or indirect holders of the Company's or any of its Restricted Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or to the Company or a Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value (including, without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent
of the Company or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Restricted Subsidiary); (iii) make any
payment on or with respect to, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness that is subordinated to the
Senior Subordinated Notes or any guarantee thereof, except a payment of
interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock"; and
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(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted Payments
permitted by clauses (ii), (iii), (iv), (vi), (vii), (viii) and (ix) of the
next succeeding paragraph), is less than the sum, without duplication, of
(i) 50% of the Consolidated Net Income of the Company and its Restricted
Subsidiaries for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing after the date of the
Indenture to the end of the Company's most recently ended fiscal quarter
for which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net
proceeds (including the fair market value of property other than cash
(determined in good faith by the Board of Managers as evidenced by a
certificate filed with the Trustee, except that in the event the value of
any non-cash consideration shall be $15.0 million or more, the value shall
be as determined based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing))
received by the Company since the date of the Indenture as a contribution
to its common equity capital or from the issue or sale of Equity Interests
(other than Disqualified Stock) of the Company (excluding any net proceeds
from an Equity Offering or capital contribution to the extent used to
redeem Notes in accordance with the optional redemption provisions of the
Notes) or from the issue or sale of Disqualified Stock or debt securities
of the Company that have been converted into such Equity Interests (other
than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of the Company), plus (iii) to the extent
that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any), plus (iv) any dividends (the fair market
value of property other than cash shall be determined in good faith by the
Board of Managers as evidenced by a certificate filed with the Trustee,
except that in the event the value of any non-cash consideration shall be
$15.0 million or more, the value shall be as determined based upon an
opinion or appraisal issued by an accounting, appraisal or investment
banking firm of national standing) received by the Company or a Restricted
Subsidiary after the date of the Indenture from an Unrestricted Subsidiary
of the Company, to the extent that such dividends were not otherwise
included in Consolidated Net Income of the Company for such period, plus
(v) to the extent that any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary after the date of the Indenture, if as a result of
such redesignation, (x) the Fixed Charge Coverage Ratio of the Company on a
pro forma basis is lower than such ratio immediately prior thereto, then
the lesser of (A) the fair market value of the Company's Investment in such
Subsidiary as of the date of such redesignation or (B) such fair market
value as of the date on which such Subsidiary was originally designated as
an Unrestricted Subsidiary or (y) the Fixed Charge Coverage Ratio of the
Company on a pro forma basis is equal to or higher than such ratio
immediately prior thereto, the fair market value of the Company's
Investment in such Subsidiary as of the date of such redesignation;
provided, further that any increase in the amount of Restricted Payments
permitted to be incurred as a result of application of subparagraphs (iii),
(iv) or (v) above related to dividends, returns of capital or redesignation
of foreign joint ventures shall be reduced by the difference between (A)
the fair market value of any equipment (as determined by sales by the
Company of comparable equipment to unaffiliated third parties) transferred
to such joint ventures in reliance on subparagraph (xii) of the covenant
entitled "Transactions with Affiliates" and (B) the value received by the
Company or any Restricted Subsidiary from such joint venture with respect
to such equipment transfer.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any Equity Interests of the Company or subordinated
Indebtedness of the Company or any Guarantors in exchange for, or out of the
net cash proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement,
defeasance or other acquisition shall be excluded from clause (ii) of the
preceding paragraph provided that no Default or Event of Default shall have
occurred and be continuing immediately after such transaction; (iii) the
defeasance, redemption, repurchase or
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other acquisition of subordinated Indebtedness with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Restricted Subsidiary of the Company to the holders of its
Equity Interests on a pro rata basis; (v) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Parent, the
Company or any Restricted Subsidiary of the Company held by any member of the
Company's (or any of its Restricted Subsidiaries') management pursuant to any
management agreement, stock option agreement or similar agreement; provided
that the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests shall not exceed $5.0 million in the aggregate since
the date of the Indenture (and shall be increased by the amount of any net
cash proceeds to the Company from (x) sales of Equity Interests of the Parent
to management employees subsequent to the date of the Indenture and (y) any
"key-man" life insurance policies which are used to make such redemptions or
repurchases) and no Default or Event of Default shall have occurred and be
continuing immediately after such transaction; provided further, that the
cancellation of Indebtedness owing to the Company from members of management
of the Company or any of its Restricted Subsidiaries in connection with such a
repurchase of Capital Stock of the Parent will not be deemed to constitute a
Restricted Payment under the Indenture; (vi) the making of distributions,
loans or advances to the Parent in an amount not to exceed $1.5 million per
annum in order to permit the Parent to pay required and ordinary operating
expenses of the Parent (including, without limitation, directors' fees,
indemnification obligations, professional fees and expenses, but excluding any
payments on or repurchases of the Seller Subordinated Note or the Seller
Preferred Equity); (vii) distributions to the Parent to fund the required tax
obligations of the Parent or its members related to income generated by the
Company and its Restricted Subsidiaries and taxable to such members, including
the tax distributions contemplated by Article IV of the LLC Agreement as in
effect on the date of the Indenture; (viii) repurchases of Capital Stock
deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof; (ix) distributions to the
Parent to fund the Transactions (as described under "Use of Proceeds"); (x)
distributions to the Parent to purchase or redeem the Seller Subordinated Note
and the Seller Preferred Equity pursuant to change of control provisions
contained in the governing instrument relating thereto; provided, however,
that (x) no offer or purchase obligation may be triggered in respect of such
Seller Subordinated Note or Seller Preferred Equity unless a corresponding
obligation also arises with respect to the Notes and (y) in any event, no
repurchase or redemption of any such Seller Subordinated Note or Seller
Preferred Equity may be consummated unless and until the Issuers shall have
satisfied all repurchase obligations with respect to any required purchase
offer made with respect to the Notes; provided, however, that such purchases
or redemption of the Seller Subordinated Note or the Seller Preferred Equity
shall be included in the calculation of the amount of Restricted Payments and
provided that no Default or Event of Default shall have occurred and be
continuing as a consequence thereof; and (xi) if no Default or Event of
Default shall have occurred and be continuing or would occur as a consequence
thereof, other Restricted Payments in an aggregate amount not to exceed $5.0
million since the date of the Indenture. In addition, any dividend which is
declared but not paid shall not be included in the calculation of Restricted
Payments under clause (c), and any dividend which is declared and paid shall
be included only once in the calculation of Restricted Payments under clause
(c).
The Board of Managers may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Managers whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an
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accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $15.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting
forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed, together with a copy of any fairness
opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Issuers will not, and will not permit any of
their Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Issuers will not issue any
Disqualified Stock and will not permit any of their Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company or
any Guarantor may incur Indebtedness (including Acquired Debt) or issue shares
of Disqualified Stock or preferred stock if (i) no Default or Event of Default
shall have occurred and be continuing at the time of or as a consequence of
the incurrence of any such Indebtedness or the issuance of any such
Disqualified Stock and (ii) the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company (and the guarantee thereof by the
Guarantors) of Indebtedness and letters of credit under one or more Senior
Credit Facilities; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Restricted Subsidiaries thereunder) outstanding under all Senior Credit
Facilities after giving effect to such incurrence does not exceed an amount
equal to the greater of (x) $275.0 million less the aggregate amount of all
repayments of any term Indebtedness and all commitment reductions of any
revolving indebtedness, in each case, under one or more Senior Credit
Facilities pursuant to clause (i) of the third paragraph of the covenant
described above under the caption "--Asset Sales" and (y) the Company's
Borrowing Base;
(ii) the incurrence by the Issuers of Indebtedness represented by the
Notes and the Guarantees thereof by the Guarantors in an aggregate
principal amount of $110.0 million outstanding on the date of the
Indenture;
(iii) the incurrence by a Restricted Subsidiary that is a Foreign
Subsidiary and is not a Guarantor of the Exchange Notes in an amount at any
one time outstanding that does not exceed (x) $3.0 million plus (y) the
Borrowing Base of such Restricted Subsidiary; provided, that none of the
Company or any other such Restricted Subsidiary shall be obligated,
directly or indirectly, to pay principal, premium, interest or other
amounts thereon or in respect thereof (including by way of net worth
requirements, equity keepwells, etc.);
(iv) the incurrence by the Company and its Subsidiaries of other
Indebtedness outstanding on the date of the Indenture for so long as such
Indebtedness remains outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (including Capitalized Lease Obligations) to finance the
purchase, lease or improvement of property (real or personal) or equipment
(whether through the direct purchase of assets or the Capital Stock of any
Person owning such assets) in an aggregate principal amount outstanding not
to exceed the greater of (x) $10.0 million and (y) 7.5% of Total Assets at
the time of any incurrence thereof (including any Refinancing Indebtedness
with respect thereto) (which amount may, but need not, be incurred in whole
or in part under the Senior Credit Facilities);
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(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including,
without limitation, letters of credit in respect of workers' compensation
claims or self-insurance, or other indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
(vii) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Indebtedness incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Company and its Restricted Subsidiaries in connection with
such disposition;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with an industrial revenue bond in an
aggregate principal amount not to exceed $10.0 million for the expansion of
the Company's Madisonville, Kentucky facility;
(x) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that was permitted by the Indenture to be
incurred under the first paragraph hereof or clauses (ii) and (iv) of this
paragraph or any Indebtedness issued to so refund, refinance or replace
such Indebtedness;
(xi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Subsidiary, as the case may be, that was not permitted by this clause (xi);
(xii) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred in the normal course of business
and not for speculative purposes used for fixing or hedging currency or
interest rate risk with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding provided,
however, that in the case of Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risks with respect to
Indebtedness, the notional principal amount of any such Hedging Obligation
does not exceed the principal amount of the Indebtedness to which such
Hedging Obligation relates;
(xiii) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
covenant;
(xiv) the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (xiv);
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(xv) the incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is Non-Recourse Debt with respect
to the Company and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings and Limited Originator Recourse); and
(xvi) the incurrence by the Company or any of its Restricted Subsidiaries
that is a Guarantor of additional Indebtedness and/or the issuance of
Disqualified Stock in an aggregate principal amount or aggregate
liquidation value, as applicable (or accreted value, as applicable) at any
time outstanding, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (xvi), not to exceed $30.0 million.
For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (xvi) above or is entitled
to be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify or later reclassify such item of
Indebtedness in any manner that complies with this covenant. Accrual of
interest, accretion or amortization of original issue discount and the payment
of interest on any Indebtedness in the form of additional Indebtedness with
the same terms will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant; provided, in each such case, that the amount
thereof is included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or otherwise cause or suffer to exist or become effective any Lien of any kind
securing Indebtedness or trade payables (other than Permitted Liens) upon any
of their property or assets, now owned or hereafter acquired, unless (i) in
the case of Liens securing Indebtedness that is expressly subordinated or
junior in right of payment to the Notes, the Notes are secured on a senior
basis to the obligations so secured until such time as such obligations are no
longer secured by a Lien and (ii) in all other cases, the Notes are secured on
an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Senior Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained
in the Senior Credit Facility as in effect on the date of the Indenture, (c)
the Indenture and the Notes, (d) applicable law, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of
its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of the Indenture to be incurred, (f) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (g) purchase money obligations for property
acquired in
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the ordinary course of business that impose restrictions of the nature
described in clause (iii) above on the property so acquired, (h) any agreement
for the sale of a Restricted Subsidiary that restricts distributions by that
Restricted Subsidiary pending its sale, (i) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive,
taken as a whole, than those contained in the agreements governing the
Indebtedness being refinanced, (j) secured Indebtedness otherwise permitted to
be incurred pursuant to the provisions of the covenant described above under
the caption "Liens" that limits the right of the debtor to dispose of the
assets securing such Indebtedness, (k) provisions with respect to the
disposition or distribution of assets or property in joint venture agreements
and other similar agreements entered into in the ordinary course of business,
(l) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business, (m) any
Purchase Money Note, or other Indebtedness or other contractual requirements
of a Securitization Entity in connection with a Qualified Securitization
Transaction; provided that such restrictions apply only to such Securitization
Entity, (n) other Indebtedness of a Restricted Subsidiary that is a Guarantor
permitted to be incurred subsequent to the date of the Indenture pursuant to
the provisions of the covenant described above under the caption "Incurrence
of Indebtedness and Issuance of Preferred Stock"; provided that any such
restrictions are ordinary and customary with respect to the type of
Indebtedness or preferred stock being incurred or issued (under the relevant
circumstances), and (o) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (a) through (n) above; provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Managers, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
Merger, Consolidation, or Sale of Assets
The Indenture provides that neither Issuer may consolidate or merge with or
into (whether or not such Issuer 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 (i) the Company is the surviving
corporation or the entity or the 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 shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
such Issuer) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Issuers under the Registration Rights Agreement, the
Exchange Notes and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately prior thereto
and immediately after such transaction no Default or Event of Default exists;
and (iv) except in the case of a merger of the Company with or into a
Restricted Subsidiary of the Company and except in the case of a merger
entered into solely for the purpose of reincorporating the Company in another
jurisdiction, 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 shall have
been made will immediately after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, (x) be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock" or (y) the Fixed Charge Coverage
Ratio for the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company) would be greater than such
ratio for the Company or such surviving entity immediately prior to such
transaction.
Notwithstanding the foregoing, the Company is permitted to reorganize as a
corporation in accordance with the procedures established in the Indenture,
provided that the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that such reorganization
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is not adverse to holders of the Exchange Notes (it being recognized that such
reorganization shall not be deemed adverse to the holders of the Exchange
Notes solely because (i) of the accrual of deferred tax liabilities resulting
from such reorganization or (ii) the successor or surviving corporation (a) is
subject to income tax as a corporate entity or (b) is considered to be an
"includible corporation" of an affiliated group of corporations within the
meaning of the Code or any similar state or local law) and certain other
conditions are satisfied.
The entity or the Person formed by or surviving any consolidation or merger
(if other than the Company) will succeed to, and be substituted for, and may
exercise every right and power of, the Issuers under the Indenture, but, in
the case of a lease of all or substantially all its assets, neither Issuer
will be released from the obligation to pay the principal of and interest on
the Exchange Notes.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $3.0 million, a resolution of the Board of Managers set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Managers and (b) with
respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $10.0 million, an
opinion as to the fairness to the Holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment
banking firm of national standing. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (ii) transactions
exclusively between or among the Company and/or its Restricted Subsidiaries
provided such transactions have not otherwise been prohibited by the
Indenture, (iii) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of the Company, (iv) transactions effected as part of a
Qualified Securitization Transaction, (v) Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"--Restricted Payments," (vi) reasonable fees and compensation paid to and
indemnity provided on behalf of, officers, directors, employees or consultants
of the Company or any Subsidiary as determined in good faith by the Company's
Board of Managers or senior management, (vii) the payment of consulting and
advisory fees, annual management fees and related expenses to the Principals
made pursuant to any financial advisory, financing, underwriting or placement
agreement or in respect of other investment banking activities, including,
without limitation, in connection with acquisitions or divestitures which are
approved by the Board of Managers of the Company or such Restricted Subsidiary
in good faith, (viii) any agreement as in effect on the date of the Indenture
or any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) in any replacement agreement thereto so
long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the date of the Indenture, (ix) payments or loans to
employees or consultants which are approved by the Board of Managers of the
Company in good faith, (x) the existence of, or the performance by the Company
or any of its Restricted Subsidiaries of its obligations under the terms of,
any stockholders agreement (including any registration rights agreement or
purchase agreement related thereto) to which it is a party as of the date of
the Indenture and any similar agreements which it may enter into thereafter;
provided, however, that the existence of, or the performance by the Company or
any of its Restricted Subsidiaries of obligations under, any future amendment
to any such existing agreement or under any similar agreement entered into
after the date of the Indenture shall only be permitted by this clause (x) to
the extent that the terms of any such amendment or new
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agreement are not otherwise disadvantageous to the Holders of the Notes in any
material respect, (xi) transactions with customers, clients, suppliers, joint
venture partners or purchasers or sellers of goods or services, in each case
in the ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of the
Indenture which are fair to the Company or its Restricted Subsidiaries, in the
good faith determination of the Board of Managers of the Company or the senior
management thereof, or are on terms at least as favorable as might reasonably
have been obtained at such time from an unaffiliated party and (xii) in the
case of foreign joint ventures, transfers of equipment for sale outside of
North America in exchange for value not less than the Company's cost of
producing such equipment.
No Senior Subordinated Debt
The Indenture provides that (i) the Issuers will not, directly or
indirectly, incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to
the Notes and (ii) no Guarantor will incur any Indebtedness that is
subordinate or junior in right of payment to its Guarantor Senior Debt and
senior in any respect in right of payment to such Guarantor's Guarantee.
Limitation on Issuances of Guarantees of Indebtedness
The Indenture will provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any other Indebtedness of the Company unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for the Guarantee of the payment of the
Exchange Notes by such Restricted Subsidiary, which Guarantee shall be senior
to or pari passu with such Restricted Subsidiary's Guarantee of or pledge to
secure such other Indebtedness, unless such other Indebtedness is Senior Debt,
in which case the Guarantee of the Exchange Notes may be subordinated to the
Guarantee of such Senior Debt to the same extent as the Exchange Notes are
subordinated to such Senior Debt. Notwithstanding the foregoing, any such
Guarantee by a Subsidiary of the Notes shall provide by its terms that it
shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of the Company, of
all of the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of the Indenture. The form of such Guarantee
will be attached as an exhibit to the Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole and ALC will not own any operating assets or other properties or
conduct any business other than to serve as an Issuer and obligor on the
Senior Subordinated Notes.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Exchange Notes unless such consideration is
offered to be paid or is paid to all Holders of the Exchange Notes that
consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Exchange Notes are outstanding, the Issuers will furnish to the
Holders of Exchange Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Issuers were required to file
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such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Issuers and its consolidated Subsidiaries
(showing in reasonable detail, either on the face of the financial statements
or in the footnotes thereto the financial condition and results of operations
of the Issuers and their Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Issuers) and, with respect to the annual information only, a report thereon by
the Issuers' certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Issuers were required to file such reports, in each case within the time
periods specified in the Commission's rules and regulations. For so long as
the Parent is a Guarantor of the Exchange Notes, the Indenture will permit the
Issuers to satisfy its obligations in this covenant with respect to financial
information relating to the Issuers by furnishing financial information
relating to the Parent; provided that the same is accompanied by consolidating
information that explains in reasonable detail the differences between the
information relating to the Parent, on the one hand, and the information
relating to the Issuers and their Restricted Subsidiaries on a stand-alone
basis, on the other hand. In addition, following the consummation of the
exchange offer contemplated by the Registration Rights Agreement, whether or
not required by the rules and regulations of the Commission, the Issuers will
file a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing) and make
such information available to securities analysts and prospective investors
upon request. In addition, the Issuers and the Guarantors have agreed that,
for so long as any Exchange Notes remain outstanding, they will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Exchange Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Exchange Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Issuers or any of their Restricted Subsidiaries to comply
with the provisions described under the captions "--Change of Control," or "--
Merger, Consolidation or Sale of Assets;" (iv) failure by the Issuers or any
of their Restricted Subsidiaries for 30 days after written notice by the
Trustee or Holders of at least 25% in principal amount of the then outstanding
Notes to comply with the provisions described under the captions "--Asset
Sales," "--Restricted Payments" or "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; (v) failure by the Issuers or any of their Restricted
Subsidiaries for 30 days after written notice by the Trustee or Holders of at
least 25% in principal amount of the then outstanding Exchange Notes for 60
days after notice to comply with any of its other agreements in the Indenture
or the Exchange Notes; (vi) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (other than a Securitization Entity) (or the payment of which is
guaranteed by the Company or any of its Subsidiaries (other than a
Securitization Entity)) whether such Indebtedness or guarantee now exists, or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such Indebtedness prior to its express maturity and, in
each case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (vii) failure by the Company or any of its Subsidiaries
to pay final judgments aggregating in excess of $10.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (viii) certain
events of bankruptcy or insolvency with respect to the Issuers or any of their
Subsidiaries; and (ix) except as permitted by the Indenture, any Guarantee
shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Guarantee.
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If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Exchange Notes may
declare all the Exchange Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Issuers, any
Restricted Subsidiary of the Company that constitutes a Significant Subsidiary
or any group of Restricted Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Senior Subordinated Notes will
become due and payable without further action or notice. Holders of the
Exchange Notes may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Exchange Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Exchange Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the Holders
of all of the Exchange Notes waive any existing Default or Event of Default
and its consequences under the Indenture except a continuing Default or Event
of Default in the payment of interest on, or the principal of, the Exchange
Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Issuers,
as such, shall have any liability for any obligations of the Company under the
Exchange Notes, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Exchange Notes
by accepting a Exchange Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Exchange
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Notes and to
have each Guarantor's obligations discharged with respect to its Guarantee
("Legal Defeasance") except for (i) the rights of Holders of outstanding
Exchange Notes to receive payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages, if any, on such Exchange Notes when
such payments are due from the trust referred to below, (ii) the Issuers'
obligations with respect to the Exchange Notes concerning issuing temporary
Exchange Notes, registration of Exchange Notes, mutilated, destroyed, lost or
stolen Exchange Notes and the maintenance of an office or agency for payment
and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Issuers' obligations in
connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Issuers may, at their option and at any time,
elect to have the obligations of the Issuers and each Guarantor released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Exchange
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Subordinate Notes, cash in U.S. dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium,
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if any, and interest and Liquidated Damages, if any, on the outstanding
Exchange Notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Issuers must specify whether the Exchange Notes are
being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Issuers have received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of
the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the outstanding Exchange Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance the Issuers shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding Exchange Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than
a Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance will not result in a breach or violation of, or constitute a
default under any material agreement or instrument (other than the Indenture)
to which the Issuers or any of their Subsidiaries are a party or by which the
Issuers or any of their Restricted Subsidiaries are bound; (vi) the Issuers
must have delivered to the Trustee an Opinion of Counsel (subject to customary
qualifications and assumptions) to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Issuers must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Issuers with the intent of preferring the Holders of Exchange Notes over the
other creditors of the Issuers or with the intent of defeating, hindering,
delaying or defrauding creditors of the Issuers or others; and (viii) the
Issuers must deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange the Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Exchange Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Exchange Note for a period of 15 days
before a selection of Exchange Notes to be redeemed.
The registered Holder of an Exchange Note will be treated as the owner of it
for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the Indenture or
the Exchange Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the Exchange Notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Exchange Notes),
and any existing default or compliance with any provision of the Indenture or
the Exchange Notes may be waived with the consent of the Holders of a majority
in principal amount of the then outstanding Exchange Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender
offer or exchange for, Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting Holder): (i)
reduce the principal amount of Exchange Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to
the redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the caption "--Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Exchange Notes (except
a rescission of acceleration of the Exchange Notes by the Holders of at least
a majority in aggregate principal amount of the Exchange Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any
Exchange Note payable in money other than that stated in the Exchange Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of Exchange Notes to receive payments
of principal of or premium, if any, or interest on the Exchange Notes, (vii)
waive a redemption payment with respect to any Exchange Note (other than a
payment required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Exchange
Notes, the Issuers and the Trustee may amend or supplement the Indenture or
the Exchange Notes to cure any ambiguity, defect or inconsistency, to provide
for uncertificated Exchange Notes in addition to or in place of certificated
Exchange Notes, to provide for the assumption of the Issuers' obligations to
Holders of Exchange Notes in the case of a merger or consolidation or sale of
all or substantially all of the Company's assets, to add additional guarantees
with respect to the Exchange Notes, including any new Exchange Note
Guarantees, to make any change that would provide any additional rights or
benefits to the Holders of Exchange Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
In addition, any amendment to the provisions of Article 10 of the Indenture
(which relate to subordination) will require the consent of the Holders of at
least 75% in aggregate principal amount of the Notes then outstanding if such
amendment would adversely affect the rights of Holders of Exchange Notes.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Exchange Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required,
in the exercise of its power, to use the degree of care of a prudent man in
the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Exchange Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Exchange and Registration Rights Agreement without charge by writing to
Alliance Laundry Systems LLC, P.O. Box 990, Ripon, WI 54971-0990, Attention:
Chief Financial Officer.
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Book-Entry: Delivery And Form
The Exchange Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Note"). The Global Note will be deposited upon issuance with the Trustee, as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Note may not be exchanged for
Notes in certificated form except in the limited circumstances described
below.
The Notes may be presented for registration of transfer and exchange at the
offices of the Exchange Agent.
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of the Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of DTC are recorded on the records of the Participants and the Indirect
Participants.
DTC has also advised the Issuers that pursuant to procedures established by
it, (i) upon deposit of the Global Note, DTC will credit the accounts of
Participants designated by the exchanging holders with portions of the
principal amount of the Global Note and (ii) ownership of such interests in
the Global Note will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with
respect to other owners of beneficial interests in the Global Note).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in the Global Note to such persons may be
limited to that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect Participants and
certain banks, the ability of a person having beneficial interests in the
Global Note to pledge such interests to persons or entities that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing
such interests.
Except as described below, owners of interest in the Global Note will not
have Notes registered in their names, will not receive physical delivery of
Notes in certificated form and will not be considered the registered owners or
holders thereof under the Indenture for any purpose.
Payments in respect of the principal of (and premium, if any) and interest
on the Global Note registered in the name of DTC or its nominee will be
payable to DTC or its nominee in its capacity as the registered holder under
the Indenture. Under the terms of the Indenture, the Issuers and the Trustee
will treat the persons in whose names the Notes, including the Global Note,
are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, none of
the Issuers or the Trustee nor any agent of the Issuers or the Trustee has or
will have any responsibility or liability for (i) any aspect or accuracy of
DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global
Note, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Note, or (ii) any other matter relating to
the actions and practices of DTC or any of the Participants or the Indirect
Participants.
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DTC has advised the Issuers that its current practice, upon receipt of any
payment is respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
as shown on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of the Notes will be governed by
standing instructions and customary practices and will not be the
responsibility of DTC, the Trustee or the Issuers. Neither the Issuers nor the
Trustee will be liable for any delay by DTC or any of the Participants in
identifying the beneficial owners of the Notes, and the Issuers and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the Global
Note for all purposes.
Interests in the Global Note will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and the Participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures and will be settled in
same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Participants
to whose account with DTC interests in the Global Note are credited and only
in respect of such portion of the aggregate principal amount of the Notes as
to which such Participant or Participants has or have given such direction.
However, if any of the events described under "--Exchange of Book Entry Notes
for Certificated Notes" occurs, DTC reserves the right to exchange the Global
Note for Notes in certificated form and to distribute such Notes to its
Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interest in the Global Note amount accountholders in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Issuers or the Trustee
nor any agent of the Issuers or the Trustee will have any responsibility for
the performance by DTC or its respective participants, indirect participants
or accountholders of their respective obligations under the rules and
procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
The Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (x) notifies the Issuers that it is unwilling or
unable to continue as depository for the Global Note and the Issuers thereupon
fail to appoint a successor depository or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Issuers, at their option,
notify the Trustee in writing that they elect to cause the issuance of the
Notes in certificated form or (iii) there shall have occurred and be
continuing a Default or an Event of Default with respect to the Notes. In all
cases, certificated Notes delivered in exchange for the Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of DTC (in accordance
with its customary procedures).
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including,
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without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) to be used by the Company or a Restricted
Subsidiary in a Permitted Business; (ii) the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or a Restricted Subsidiary of the Company; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary of the Company; provided, however, that, in the
case of clauses (ii) and (iii), such Restricted Subsidiary is primarily
engaged in a Permitted Business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "--Change of Control" and/or the
provisions described above under the caption "--Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Restricted Subsidiaries of Equity
Interests of any of the Company's Subsidiaries, in the case of either clause
(i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or
(b) for net proceeds in excess of $1.0 million. Notwithstanding the foregoing,
the following items shall not be deemed to be Asset Sales: (i) a transfer of
assets by the Company to a Restricted Subsidiary or by a Restricted Subsidiary
to the Company or to another Restricted Subsidiary, (ii) an issuance of Equity
Interests by a Restricted Subsidiary to the Company or to another Restricted
Subsidiary, (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Restricted Payments," (iv) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof, (v) the factoring of accounts receivable arising in the
ordinary course of business pursuant to arrangements customary in the
industry, (vi) the licensing of intellectual property, (vii) disposals or
replacements of obsolete, uneconomical, negligible, worn out or surplus
property in the ordinary course of business, (viii) sales of equipment loans
on a non-recourse basis to a third party in an amount at least equal to 75% of
the fair market value thereof, and (ix) sales of receivables, equipment loans
and related assets (including contract rights) of the type specified in the
definition of "Qualified Securitization Transaction" to a Securitization
Entity for the fair market value thereof, including consideration in the
amount specified in the proviso to the definition of Qualified Securitization
Transaction.
"Borrowing Base" means, with respect to any Person, the sum of (x) up to 90%
of the net book value of the non-affiliated accounts receivable of such Person
in accordance with GAAP and (y) up to 60% of the net book value of the
inventory of such Person in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
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corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any lender
party to the Senior Credit Facility or with any domestic commercial bank
having capital and surplus in excess of $500 million and a Thompson Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard
& Poor's Corporation and in each case maturing within six months after the
date of acquisition and (vi) money market funds at least 95% of the assets of
which constitute Cash Equivalents of the kinds described in clauses (i)-(v) of
this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act), whether or not otherwise in compliance with the
provisions of the Indenture (other than the Principals and their Related
Parties), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of the first transaction
(including, without limitation, any merger or consolidation) the result of
which is that any "person" (as defined above) becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a
subsequent condition), directly or indirectly, of more of the Voting Stock of
the Company (measured by voting power rather than number of shares) than is at
the time "beneficially owned" (as defined above) by the Principals and their
Related Parties in the aggregate or (iv) the first day on which a majority of
the members of the Board of Managers of the Company or the Parent are not
Continuing Managers (as defined below).
Clause (i) of the definition of Change of Control includes a phrase relating
to the sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the assets of the Company and its Restricted
Subsidiaries taken as a whole. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of Exchange Notes to require the Issuers to repurchase such Exchange
Notes as a result of a sale, lease, transfer, conveyance or other disposition
of less than all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to another Person or group may be uncertain.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes, including foreign
withholding taxes to the extent paid, based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net
Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such
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expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that
was paid in a prior period) of such Person and its Restricted Subsidiaries for
such period to the extent that such depreciation, amortization and other non-
cash expenses were deducted in computing such Consolidated Net Income, plus
(v) one time non-cash legal, accounting and debt issuance charges resulting
from the Transactions, minus (vi) non-cash items increasing such Consolidated
Net Income for such period, in each case, on a consolidated basis and
determined in accordance with GAAP. Consolidated Cash Flow shall exclude the
amortization of debt issuance costs.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded, (iv) the cumulative effect of a change in accounting
principles shall be excluded, (v) any one time non-cash charges relating to
the Transition Plan in an amount not to exceed $5.0 million shall be excluded,
and (vi) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its
Subsidiaries.
"Continuing Managers" means, as of any date of determination, any member of
the Board of Managers of the Company who (i) was a member of such Board of
Managers on the date of the Indenture, (ii) was nominated for election or
elected to such Board of Managers with the approval of a majority of the
Continuing Managers who were members of such Board at the time of such
nomination or election or (iii) was nominated by a Principal pursuant to the
Securityholders Agreement.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Issuers to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Issuers
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means any offering of Qualified Capital Stock of the
Parent, the Company or any successor thereto; provided that, in the event of
any Equity Offering by the Parent, the Parent contributes to the common equity
capital of the Company (other than as Disqualified Stock) the portion of the
net cash proceeds of such Equity Offering necessary to pay the aggregate
redemption price (plus accrued interest and Liquidated Damages thereon, if
any, to the redemption date) of the Notes to be redeemed pursuant to the
preceding paragraph.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount, non-
cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest of such Person and its Restricted Subsidiaries that was capitalized
during such period, and (iii) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted Subsidiaries
or secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv)
all dividend payments, whether or not in cash, on any series of Preferred
Stock of such Person or any of its Restricted Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests of
the Company (other than Disqualified Stock) or to the Company or a Restricted
Subsidiary of the Company. Fixed Charges shall exclude the amortization of
debt issuance costs.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, Consolidated Cash Flow
and Fixed Charges shall be calculated after giving effect on a pro forma basis
for the period of such calculation to (i) acquisitions that have been made by
the Company or any of its Restricted Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date as if such transaction had occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii)
the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP
and operations or businesses disposed of prior to the Calculation Date, shall
be excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the
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Company consistent with Article 11 of Regulation S-X, promulgated pursuant to
the Securities Act, as such Regulation is in effect on the date of the
Indenture.
"Foreign Subsidiary" means (a) any Restricted Subsidiary of the Company that
is not organized under the laws of the United States of America or any state
thereof or the District of Columbia and (b) any Restricted Subsidiary of the
Company that has no material assets other than securities of one or more
Foreign Subsidiaries, and other assets relating to an ownership interest in
any such securities or Subsidiaries.
"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 have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to depreciation, amortization or other expenses recorded as a
result of the application of purchase accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates or currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the guarantee by such Person of any indebtedness of any other Person
(but excluding, with respect to Indebtedness of a Qualified Securitization
Entity, any Limited Originator Recourse or Standard Securitization
Undertakings that might be deemed to constitute guarantees). The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness issued with original issue discount,
and (ii) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness. For
purposes of calculating the amount of Indebtedness of a Securitization Entity
outstanding as of any date, the face or notional amount of any interest in
receivables or equipment that is outstanding as of such date shall be deemed
to be Indebtedness but any such interests held by Affiliates of such
Securitization Entity shall be excluded for purposes of such calculation.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other Obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
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Company such that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of the Company, the Company shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of in an amount determined as provided in the
final paragraph of the covenant described above under the caption "--
Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Limited Originator Recourse" means a reimbursement obligation to the
Company or a Restricted Subsidiary in connection with a drawing on a letter of
credit, revolving loan commitment, cash collateral account or other such
credit enhancement issued to support Indebtedness of a Securitization Entity
under a facility for the financing of trade receivables and the warehousing of
equipment loans and leases; provided that the available amount of any such
form of credit enhancement at any time shall not exceed 10.0% of the principal
amount of such Indebtedness at such time.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness (other than Senior Debt under one or more of
the Company's Senior Credit Facilities) secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other
than the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Parent" means Alliance Laundry Holdings LLC, a Delaware limited liability
company, or any corporation as successor thereto.
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"Permitted Business" means the lines of business conducted by the Company
and its Subsidiaries on the date hereof and businesses that are reasonably
similar, ancillary or related thereto or which constitute a reasonable
extension or expansion thereof.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Note Guarantor
(whether existing on the date of the Indenture or created thereafter); (ii)
any Investment in Cash Equivalents; (iii) any Investment by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (x) such Person becomes a Wholly Owned Restricted Subsidiary of the
Company or (y) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Restricted Subsidiary and Note
Guarantor of the Company; (iv) any Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase
at the Option of Holders--Asset Sales"; (v) any acquisition of assets solely
in exchange for the issuance of Equity Interests (other than Disqualified
Stock) of the Company; (vi) Hedging Obligations permitted under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock"; (vii) any
Investment by the Company or a Subsidiary of the Company in a Securitization
Entity or any Investment by a Securitization Entity in any other Person in
connection with a Qualified Securitization Transaction; provided that any
Investment in a Securitization Entity is in the form of a Purchase Money Note
or an equity interest and (viii) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (viii) that
are at the time outstanding, not to exceed the greater of (x) $7.5 million and
(y) 7.5% of Total Assets.
"Permitted Liens" means (i) Liens securing Senior Debt (including the Senior
Credit Facilities); (ii) Liens in favor of the Company and any Restricted
Subsidiary; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens incurred
or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance or other kinds of social
security, or to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature incurred
in the ordinary course of business; (vi) purchase money Liens to finance
property or assets of the Company or any Restricted Subsidiary of the Company
acquired in the ordinary course of business; provided, however, that (A) the
related purchase money Indebtedness shall not exceed the cost of such property
or assets and shall not be secured by any property or assets of the Company or
any Restricted Subsidiary of the Company other than the property and assets so
acquired and (B) the Lien securing such Indebtedness shall be created within
90 days of such acquisition; (vii) Liens existing on the date of the
Indenture; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) statutory liens of
landlords, mechanics, suppliers, vendors, warehousemen, carriers or other like
Liens arising in the ordinary course of business; (x) judgment Liens not
giving rise to an Event of Default so long as any appropriate legal proceeding
that may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired; (xi) easements, rights-of-way, zoning and
similar restrictions and other similar encumbrances or title defects incurred
or imposed, as applicable, in the ordinary course of business and consistent
with industry practices which, in the aggregate, are not substantial in
amount, and which do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Company or its
Subsidiaries) or interfere with the ordinary conduct of the business of the
Company or such Subsidiaries; provided, however, that any such Liens are not
incurred in connection with any borrowing of money or any commitment to loan
any money or to extend any credit; (xii) Liens on assets transferred to a
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Securitization Entity or on assets of a Securitization Entity, in either case
incurred in connection with a Qualified Securitization Transaction; (xiii)
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding and that (a) are not incurred
in connection with the borrowing of money or the obtaining of advances or
credit (other than trade credit in the ordinary course of business) and (b) do
not in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the Company
or such Subsidiary; (xiv) Liens on assets of Guarantors to secure Senior Debt
of such Guarantors that were permitted by the Indenture to be incurred; (xv)
Liens on assets of Unrestricted Subsidiaries that secure Non-Recourse Debt of
Unrestricted Subsidiaries; (xvi) any interest or title of a lessor under any
Capital Lease Obligation; (xvii) Liens upon specific items of inventory or
other goods and proceeds of any Person securing such Person's obligations in
respect of bankers' acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such inventory or
other goods; (xviii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof; (xix)
Liens encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual or warranty requirements of the Company or any of its
Restricted Subsidiaries, including rights of offset and set-off; (xx) Liens
securing Hedging Obligations which Hedging Obligations relate to Indebtedness
that is otherwise permitted under the Indenture; (xxi) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company and its Restricted Subsidiaries; (xxii) Liens arising
from filing Uniform Commercial Code financing statements regarding leases;
(xxiii) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customer duties in connection with the importation
of goods; (xxiv) Liens securing Indebtedness under Currency Agreements; and
(xxv) Liens securing Indebtedness of Restricted Subsidiaries that are Foreign
Subsidiaries incurred in reliance on clause (iii) of the second paragraph of
the covenant described above under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock."
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries or any Disqualified Stock of the Company
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Company
or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount
of (or accreted value, if applicable), plus accrued interest on, the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
Senior Subordinated Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Exchange Notes on terms at least as favorable to the
Holders of Exchange Notes as those contained in the documentation governing
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded or is Disqualified Stock; and (iv) such Indebtedness is incurred
either by the Company or by the Restricted Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded or is Disqualified Stock.
"Principals" means Bain Capital, Inc., Bruckmann, Rosser, Sherrill & Co.,
L.P., their respective affiliates and executive officers of the Company as of
the date of the Indenture.
"Purchase Money Note" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Restricted Subsidiary of the Company in connection with a Qualified
Securitization Transaction, which note shall be repaid from cash available to
the Securitization Entity, other than amounts required to be established as
reserves pursuant to agreements, amounts paid to investors in respect of
interest, principal and other amounts owing to such investors and amounts paid
in connection with the purchase of newly generated receivables or newly
acquired equipment.
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"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization
Entity (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (b) any other Person (in case of a transfer by a
Securitization Entity), or may grant a security interest in, any receivables
or equipment loans (whether now existing or arising or acquired in the future)
of the Company or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such
receivables and equipment loans, all contracts and contract rights and all
Guarantees or other obligations in respect of such receivables and equipment
loans, proceeds of such receivables and equipment loans and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving receivables and equipment (collectively,
"transferred assets"); provided that in the case of any such transfer by the
Company or any of its Restricted Subsidiaries, the transferor receives cash or
Purchase Money Notes in an amount which (when aggregated with the cash and
Purchase Money Notes received by the Company and its Restricted Subsidiaries
upon all other such transfers of transferred assets during the ninety days
preceding such transfer) is at least equal to 75% of the aggregate face amount
of all receivables so transferred during such day and the ninety preceding
days.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 60% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding a 60% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary; provided that, on the date of
the Indenture, all Subsidiaries of the Company shall be Restricted
Subsidiaries (other than the SPE, Alliance Commercial Appliances Receivables
LLC, Alliance Commercial Appliances Finance LLC and Alliance Laundry S.A.).
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Restricted Subsidiary of the
Company makes an Investment and to which the Company or any Restricted
Subsidiary of the Company transfers receivables or equipment and related
assets) that engages in no activities other than in connection with the
financing of receivables or equipment and that is designated by the Board of
Managers of the Company (as provided below) as a Securitization Entity (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by the Company or any Restricted Subsidiary of the
Company other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse, (ii) is recourse to or obligates the Company or any
Restricted Subsidiary of the Company (other than the Securitization Entity) in
any way other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse or (iii) subjects any property or asset of the Company or
any Restricted Subsidiary of the Company (other than the Securitization
Entity), directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings or Limited Originator Recourse, (b) with which neither the
Company nor any Restricted Subsidiary of the Company has any material
contract, agreement, arrangement or understanding other than on terms no less
favorable to the Company or such Restricted Subsidiary than those that might
be obtained at the time from Persons that are not Affiliates of the Company,
other than fees payable in the ordinary course of business in connection with
servicing receivables of such entity and (c) to which neither the Company nor
any Restricted Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Managers of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Board of Managers of the
Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
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"Seller Preferred Equity" means preferred membership interests with a
liquidation value of $6.0 million due August 21, 2009 issued by the Parent to
Raytheon.
"Seller Subordinated Note" means a junior subordinated promissory note in
the principal amount of $9.0 million due August 21, 2009 issued by the Parent
to Raytheon.
"Senior Credit Facility" means that certain Senior Credit Facility, dated as
of May 5, 1998, by and among the Company, General Electric Capital
Corporation, as administrative agent, and Lehman Commercial Paper Inc., as
syndication agent, providing for up to $75.0 million of revolving credit
borrowings and up to $200.0 million of term loan borrowings, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Senior Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the Senior Credit Facility) or
commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"SPE" means the special purpose single member limited liability company that
is a Subsidiary of the Company and that entered into a $250.0 million
revolving loan agreement with Lehman Commercial Paper Inc. at the Closing.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in receivables or equipment loan
transactions.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet, except that calculations made for the purpose of
determining compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect to goodwill,
deferred financing costs and other intangibles shown on the balance sheet as a
result of the application of purchase accounting in accordance with Accounting
Principles Board Opinion Nos. 16 and 17.
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"Transition Plan" means the process by the Company of establishing at its
Ripon, Wisconsin facility the capability to manufacture small-chassis
frontload washers and dryers beginning in September 1998 and September 1999,
respectively, and to cease production of consumer topload washers for
Appliance Co.
"Unrestricted Subsidiary" means each of the SPE, Alliance Commercial
Appliances Receivables LLC, Alliance Commercial Appliances Finance LLC and
Alliance Laundry S.A. In addition, "Unrestricted Subsidiary" means (i) any
Subsidiary that is designated by the Board of Managers as an Unrestricted
Subsidiary pursuant to a Board Resolution; but only to the extent that such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt; (b) is not
party to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable
to the Company or such Restricted Subsidiary than those that might be obtained
at the time from Persons who are not Affiliates of the Company; (c) is a
Person with respect to which neither the Company nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of the Company or any of its
Restricted Subsidiaries; and (e) has at least one director on its board of
directors that is not a director or executive officer of the Company or any of
its Restricted Subsidiaries and has at least one executive officer that is not
a director or executive officer of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Managers shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and
was permitted by the covenant described above under the caption "Certain
Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary,
it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "Incurrence of Indebtedness and Issuance
of Preferred Stock," the Company shall be in default of such covenant). The
Board of Managers of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
the Company of any outstanding Indebtedness of such Unrestricted Subsidiary
and such designation shall only be permitted if (i) such Indebtedness is
permitted under the covenant described under the caption "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock," calculated on a
pro forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, (ii) such Subsidiary shall execute a Note
Guarantee and deliver an opinion of counsel in accordance with the terms of
the Indenture and (iii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors or the Board of Managers of such Person, as the case may be.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Notes were originally sold by the Issuers on May 5, 1998 to the Initial
Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and in offshore transactions pursuant to
Regulation S under the Securities Act. As a condition to the Purchase
Agreement, the Issuers entered into the Registration Rights Agreement with the
Initial Purchasers pursuant to which the Issuers have agreed to: (i) to use
their respective best efforts to file with the Commission on or prior to 90
calendar days after the date of issuance of the Notes (the "Issue Date") a
registration statement on an appropriate form under the Securities Act (the
"Exchange Offer Registration Statement") relating to a registered exchange
offer (the "Exchange Offer") for the Notes under the Securities Act and (ii)
use their respective best efforts to cause the Exchange Offer Registration
Statement to become effective within 180 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless it
would not be permitted by applicable law or Commission policy, the Issuers
will promptly offer to exchange any and all of the outstanding Notes for the
Exchange Notes that are identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to
transfer restrictions) and that would be registered under the Securities Act.
The Issuers will keep the Exchange Offer open for not less than 20 business
days (or longer, if required by applicable law) after the date on which notice
of the Exchange Offer is mailed to the holders of the Notes. For each Note
surrendered to the Issuers pursuant to the Exchange Offer, the holder of such
Note will receive an Exchange Note having a principal amount equal to that of
the surrendered Note. Interest on each Exchange Note will accrue from the date
of its original issue.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the Issuers believe that the
Exchange Notes would in general be freely tradeable after the Exchange Offer
without further registration under the Securities Act. However, any purchaser
of Notes who is an "affiliate" of either Alliance or ALC or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes: (i) will not be able to rely on the interpretation of the staff of the
Commission; (ii) will not be able to tender its Notes in the Exchange Offer;
and (iii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer of
the Notes, unless such sale or transfer is made pursuant to an exemption from
such requirements.
If (i) the Issuers are not required to file the Exchange Offer Registration
Statement or permitted to effect the Exchange Offer because the Exchange Offer
is not permitted by applicable law or Commission policy; or (ii) any Holder of
Transfer Restricted Securities notifies the Issuers at least 20 business days
prior to commencement of the Exchange Offer that (a) it is prohibited by law
or Commission policy from participating in the Exchange Offer or (b) that it
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a Broker-Dealer and owns Notes acquired directly
from the Issuers or an affiliate of the Issuers, then the Issuers will file
with the Commission a shelf registration statement (the "Shelf Registration
Statement") to cover resales of Transfer Restricted Securities by such holders
who satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note and each Exchange
Note, the Holder of which is subject to prospectus delivery requirements of
the Securities Act in order to sell such Note or Exchange Note, until the
earliest to occur of any of the following events: (i) the first date on which
such Note may be exchanged for an Exchange Note in the Exchange Offer, if
following such exchange such Holder would be entitled to resell such Exchange
Note to the public without complying with the prospectus delivery requirements
of the Securities Act; (ii) the date on which such Note has been registered
pursuant to an effective Shelf Registration Statement under the Securities Act
and disposed of in accordance with the "Plan of Distribution" section of the
Prospectus contained in such Shelf Registration Statement; or (iii) the date
on which such Note is sold to the public pursuant to Rule 144 under the
Securities Act or by a Broker-Dealer pursuant to
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the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained therein).
The Issuers will use their respective best efforts to cause the Exchange
Offer Registration Statement or, if applicable, the Shelf Registration
Statement (each, a "Registration Statement") to become effective under the
Securities Act by the Commission as soon as practicable after the filing
thereof but in no event later than 180 calendar days after the Issue Date.
Upon the effectiveness of the Exchange Offer Registration Statement, unless
it would not be permitted by applicable law or Commission policy, the Issuers
will promptly commence the Exchange Offer to enable each Holder of the Notes
(other than Holders who are affiliates (within the meaning of the Securities
Act) of either Alliance or ALC or underwriters (as defined in the Securities
Act) with respect to the Exchange Notes) to exchange the Notes for Exchange
Notes. If applicable, the Issuers shall keep the Shelf Registration Statement
continuously effective for, under certain circumstances, a period of two years
after the Issue Date.
In the event that, for any reason whatsoever: (a) the Issuers fail to file
any of the Registration Statements on or before the date specified for such
filing; (b) any of such Registration Statements is not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); (c) the Issuers fail to consummate the Exchange
Offer within 30 business days of the Effectiveness Target Date with respect to
the Exchange Offer Registration Statement; or (d) the Shelf Registration
Statement or the Exchange Offer Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Exchange
and Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Issuers will pay
liquidated damages ("Liquidated Damages") to each Holder of Notes, with
respect to the first 90 calendar day period, or any portion thereof,
immediately following the occurrence of a Registration Default, in an amount
equal to $.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up
to a maximum amount of Liquidated Damages for all Registration Defaults of
$.50 per week per $1,000 principal amount of Notes. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
The Issuers (i) shall make available for a period of 180 days from the
consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale
of any such Exchange Notes and (ii) shall pay all expenses incident to the
Exchange Offer (including the expense of one counsel to the Holders covered
thereby) and will indemnify certain holders of the Notes (including any
broker-dealer) against certain liabilities, including liabilities under the
Securities Act. A broker-dealer which delivers such a prospectus to purchasers
in connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the Exchange and Registration Rights Agreement (including
certain indemnification rights and obligations).
Each holder of Notes who wishes to exchange such Notes for Exchange Notes in
the Exchange Offer will be required to make representations in the Letter of
Transmittal that (a) it is not an "affiliate" of either Alliance or ALC
(within the meaning of Rule 405 of the Securities Act); (b) it is not engaged
in and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Exchange Notes to be
issued in the Exchange Offer; (c) it is acquiring the Exchange Notes in its
ordinary course of business; and (d) if it is a Participating Broker-Dealer
holding Notes acquired for its own account as a result of market-making
activities or other trading activities, it acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Exchange Notes
pursuant to the Exchange Offer. The Commission has taken the position and the
Issuers believe that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the Exchange Notes (other than a resale
of an unsold allotment from the original sale of the Notes) with the
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prospectus contained in the Exchange Offer Registration Statement. Under the
Exchange and Registration Rights Agreement, the Issuers are required to allow
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the
Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes.
If the holder is a Participating Broker-Dealer, it will be required to
include a representation in such Participating Broker-Dealer's letter of
transmittal with respect to the Exchange Offer that such Participating Broker-
Dealer has not entered into any arrangement or understanding with the Issuers
or any affiliate of the Issuers to distribute the Exchange Notes.
Holders of the Notes will be required to make certain representations to the
Issuers (as described above) in order to participate in the Exchange Offer and
will be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have their Notes included in the
Shelf Registration Statement and benefit from the provisions regarding
liquidated damages set forth in the preceding paragraphs. A holder who sells
Notes pursuant to the Shelf Registration Statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Exchange and Registration Rights
Agreement which are applicable to such a holder (including certain
indemnification obligations).
For so long as any Notes are outstanding, the Issuers will continue to
provide to holders of the Notes and to prospective purchasers of the Notes the
information required by Rule 144A(d)(4) under the Securities Act.
The foregoing description of the Registration Rights Agreement contains a
discussion of all material elements thereof, but does not purport to be
complete and is qualified in its entirety by reference to all provisions of
the Registration Rights Agreement. The Issuers will provide a copy of the
Registration Rights Agreement to holders of Notes identified to the Issuers by
any Initial Purchasers upon request.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Issuers will issue $1,000 principal amount of
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Notes pursuant to the Exchange Offer. However, Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Notes except that: (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Notes; (ii) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof; and (iii) the holders of the Exchange Notes
will not be entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in the interest
rate on the Notes in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The Exchange Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $110,000,000 aggregate principal amount
of Notes were outstanding. The Issuers have fixed the close of business on May
19, 1999 as the record date for the Exchange Offer for purposes of determining
the persons to whom this Prospectus and the Letter of Transmittal will be
mailed initially.
Holders of Notes do not have any appraisal or dissenters' rights under the
Delaware Limited Liability Company Act, the General Corporation Law of
Delaware or the Indenture in connection with the Exchange Offer. The Issuers
intend to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
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The Issuers shall be deemed to have accepted validly tendered Notes when, as
and if the Issuers have given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Issuers.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Issuers will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange
Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on June
18, 1999, unless the Issuers, in their sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. Notwithstanding the foregoing,
the Company will not extend the Expiration Date beyond June 25, 1999.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "--Conditions" shall not
have been satisfied, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
Interest on the Exchange Notes
The Exchange Notes will bear interest form their date of issuance. Holders
of Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest was paid with the first interest payment on the Exchange
Notes on November 1, 1998. Interest on the Notes accepted for exchange will
cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each May 1 and
November 1 commencing on November 1, 1998.
Procedures for Tendering
Only a holder of Notes may tender such Notes in the Exchange Offer. To
tender in the Exchange Offer, a holder must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed
if required by the Letter of Transmittal, and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Notes and any other
required documents, to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date. To be tendered effectively, the Notes, Letter of
Transmittal and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Notes
may be made by book-entry transfer in accordance with the procedures described
below. Confirmation of such book-entry transfer must be received by the
Exchange Agent prior to the Expiration Date.
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By executing the Letter of Transmittal, each holder will make to the Issuers
the representations set forth in the eighth paragraph under the heading "--
Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Issuers will
constitute agreement between such holder and the Issuers in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF
THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE
ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL
BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH
HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
maybe, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Notes listed therein, such Notes must be endorsed or accompanied
by a properly completed bond power, signed by such registered holder as such
registered holder's name appears on such Notes with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Issuers of their authority to so act must be submitted with the Letter of
Transmittal.
The Issuers understand that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Notes at the book-entry transfer facility, The Depository Trust Company (the
"Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution
that is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Notes by causing such Book-Entry Transfer Facility to
transfer such Notes into the Exchange Agent's account with respect to the
Notes in accordance with the Book-Entry Transfers Facility's procedures for
such transfer. Although delivery of the Notes may be effected through book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
105
<PAGE>
The Depositary and DTC have confirmed that the Exchange Offer is eligible
for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC
participants may electronically transmit their acceptance of the Exchange
Offer by causing DTC to transfer Notes to the Depositary in accordance with
DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to
the Depositary.
The term "Agent's Message" means a message transmitted by DTC, received by
the Depositary and forming part of the confirmation of a book-entry transfer,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Notes which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Pen-Tab may enforce such agreement
against such participant. In the case of an Agent's Message relating to
guaranteed delivery, the term means a message transmitted by DTC and received
by the Depositary, which states that DTC has received an express
acknowledgment from the participant in DTC tendering Notes that such
participant has received and agrees to be bound by the Notice of Guaranteed
Delivery.
Notwithstanding the foregoing, in order to validly tender in the Exchange
Offer with respect to Securities transferred pursuant to ATOP, a DTC
participant using ATOP must also properly complete and duly execute and
applicable Letter of Transmittal and deliver it to the Depositary. Pursuant to
authority granted by DTC, any DTC participant which has Notes credited to its
DTC account at any time (and thereby held of record by DTC's nominee) may
directly provide a tender as though it were the registered holder by so
completing, executing and delivering the applicable Letter of Transmittal to
the Depositary. DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will
be determined by the Issuers in their sole discretion, which determination
will be final and binding. The Issuers reserve the absolute right to reject
any and all Notes not properly tendered or any Notes the Issuers' acceptance
of which would, in the opinion of counsel for the Issuers, be unlawful. The
Issuers also reserves the right in their sole discretion to waive any defects,
irregularities or conditions of tender as to particular Notes. The Issuers'
interpretation of the terms and conditions of the Exchange Offer (including
the instructions in the Letter of Transmittal) will be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of Notes must be cured within such time as the Issuers shall
determine. Although the Issuers intend, to notify holders of defects or
irregularities with respect to tenders of Notes, neither the Issuers, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
by the Exchange Agent to the tendering holders, unless otherwise provided in
the Letter of Transmittal, as soon as practicable following the Expiration
Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Notes and the principal amount of Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificate(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any
106
<PAGE>
other documents required by the Letter of Transmittal will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. To
withdraw a tender of Notes in the Exchange offer, a telegram, telex, letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Notes to be withdrawn (the
"Depositor"), (ii) identify the Notes to be withdrawn (including the
certificate number(s) and principal amount of such Notes, or, in the case of
Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Notes register the transfer of such Notes
into the name of the person withdrawing the tender and (iv) specify the name
in which any such Notes are to be registered, if different form that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuers, whose
determination shall be final and binding on all parties. Any Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Notes so withdrawn are validly retendered. Any Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
Conditions
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange Exchange Notes for, any Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the sole judgment of the Issuers, might materially impair the
ability of the Issuers to proceed with the Exchange Offer or any material
adverse development has occurred in any existing action or proceeding with
respect to the Issuers or any of their respective subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the sole judgment
of the Issuers, might materially impair the ability of the Issuers to
proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Issuers; or
(c) any governmental approval has not been obtained, which approval the
Issuers shall, in their sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Issuers determine in their sole discretion that any of the conditions
are not satisfied, the Issuers may (i) refuse to accept any Notes and return
all tendered Notes to the tendering holders, (ii) extend the Exchange
107
<PAGE>
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Notes (see
"--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which
have not been withdrawn.
Exchange Agent
United States Trust Company of New York has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Delivery to an address other than as set forth above will not constitute a
valid delivery.
Fees and Expenses
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Issuers and their respective affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Issuers however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
Accounting Treatment
The Exchange Notes will be recorded at the same carrying value as the Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the Exchange Notes.
Consequences of Failure to Exchange
The Notes that are not exchanged for Exchange Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Notes may be resold
only; (i) to the Issuers (upon redemption thereof or otherwise); (ii) so long
as the Notes are eligible for resale pursuant to Rule 144A, to a person inside
the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act
in a transaction meeting the requirements of Rule 144A, in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from the
registration requirements of the Securities Act (and based upon an opinion of
counsel reasonably acceptable to the Issuers); (iii) outside the United States
to a foreign person in a transaction meeting the requirements of Rule 904
under the Securities Act; or (iv) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States.
108
<PAGE>
Resales of the Exchange Notes
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Issuers believe that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of either Alliance or ACL within the meaning of Rule
405 under the Securities Act) who receives Exchange Notes in exchange for
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement or understanding with person
to participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction, unless an exemption
from registration is otherwise available. Further, each Participating Broker-
Dealer that receives Exchange Notes for its own account in exchange for Notes,
where such Notes were acquired by such Participating Broker-Dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Issuers in the Letter of Transmittal that (a) it is not an "affiliate"
of either Alliance or ALC (within the meaning of Rule 405 of the Securities
Act); (b) it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a distribution
of the Exchange Notes to be issued in the Exchange Offer; (c) it is acquiring
the Exchange Notes in its ordinary course of business; and (d) if it is a
Participating Broker-Dealer holding Notes acquired for its own account as a
result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes received in
respect of such Exchange Notes pursuant to the Exchange Offer. As indicated
above, each Participating Broker-Dealer that receives and Exchange Note for
its own account in exchange for Notes must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. For a
description of the procedures for such resales by Participating Broker-
Dealers, see "Plan of Distribution."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion (including the opinion of special counsel described
below) is based upon current provisions of the Internal Revenue Code of 1986,
as amended, applicable Treasury regulations, judicial authority and
administrative rulings and practice. There can be no assurance that the
Internal Revenue Service (the "Service") will not take a contrary view, and no
ruling from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conditions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies, tax-
exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Issuers
recommend that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Notes for Exchange
Notes, including the applicability and effect of any state, local or foreign
tax laws.
Kirkland & Ellis, special counsel to the Issuers, has advised the Issuers
that in its opinion, the exchange of the Notes for Exchange Notes pursuant to
the Exchange Offer will not be treated as an "exchange" for federal income tax
purposes because the Exchange Notes will not be considered to differ
materially in kind or extent from the Notes. Rather, the Exchange Notes
received by a holder will be treated as a continuation of the Notes in the
hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging Notes for Exchange Notes pursuant to the
Exchange Offer.
109
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Notes pursuant to the
Exchange Offer. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of Exchange Notes received in exchange for Notes where such Notes were
acquired as a result of market-making activities or other trading activities.
The Issuers have agreed that for a period of 180 days from the consummation of
the Exchange Offer, it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any
such resale. In addition, until August 19, 1999, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.
The Issuers will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by
Participating Broker-Dealers for their own account pursuant to the Exchange
Offer may be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the writing of options
on the Exchange Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchaser or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such Participating Broker-
Dealer and/or the purchasers of any such Exchange Notes. Any Participating
Broker-Dealer that resells the Exchange Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation a under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third
parties, the Issuers believe that a holder or other person who receives
Exchange Notes, whether or not such person is the holder (other than a person
that is an "affiliate" of either Alliance or ACL within the meaning of Rule
405 under the Securities Act) who receives Exchange Notes in exchange for
Notes in the ordinary course of business and who is not participating, does
not intend to participate, and has no arrangement or understanding with person
to participate, in the distribution of the Exchange Notes, will be allowed to
resell the Exchange Notes to the public without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes
a prospectus that satisfies the requirements of Section 10 of the Securities
Act. However, if any holder acquires Exchange Notes in the Exchange Offer for
the purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the staff of the Commission
enunciated in such no-action letters or any similar interpretive letters, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction and such a secondary
resale transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K under the Securities Act, unless an
exemption from registration is otherwise available. Further, each
Participating Broker-Dealer that receives Exchange Notes for its own account
in exchange for Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Issuers have agreed that, for a
period of up to one year from the consummation of the Exchange Offer, it will
make this Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale.
110
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to issuance of the Exchange Notes offered
hereby will be passed upon for the Issuers by Kirkland & Ellis, New York, New
York.
EXPERTS
The financial statements of Alliance Laundry Holdings LLC as of December 31,
1997 and 1998 and for each of the three years in the period ended December 31,
1998 included in this Prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
111
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Financial Statements:
Balance Sheets at December 31, 1997 and 1998............................ F-3
Statements of Income for the years ended December 31, 1996, 1997 and
1998................................................................... F-4
Statements of Parent Company Investment/Members' Deficit for the years
ended December 31, 1996, 1997 and 1998................................. F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998................................................................... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers and Members of Alliance Laundry Holdings LLC
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial statements of Alliance
Laundry Holdings LLC at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
March 9, 1999, except as to Note 14 which is as of March 26, 1999
F-2
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
Consolidated
December 31,
-----------------
1997 1998
ASSETS -------- --------
<S> <C> <C>
Current assets:
Cash...................................................... $ 1,208 $ 4,839
Cash-restricted........................................... -- 2,084
Accounts receivable (net of allowance for doubtful
accounts of $451 and $692 at December 31, 1997 and 1998,
respectively)............................................ 21,648 21,421
Inventories, net.......................................... 33,714 30,443
Deferred income taxes..................................... 7,860 --
Prepaid expenses and other................................ 1,732 8,900
-------- --------
Total current assets.................................... 66,162 67,687
Notes receivable............................................ 12,424 10,036
Property, plant and equipment, net.......................... 69,701 62,264
Goodwill (net of accumulated amortization of $4,747 and
$6,246 at December 31, 1997 and 1998, respectively)........ 51,318 49,819
Debt issuance costs, net.................................... -- 14,940
Other assets................................................ 5,481 9,458
-------- --------
Total assets............................................ $205,086 $214,204
======== ========
<CAPTION>
LIABILITIES AND PARENT COMPANY INVESTMENT/ MEMBERS' DEFICIT
<S> <C> <C>
Current liabilities:
Accounts payable.......................................... $ 15,915 $ 8,617
Finance program obligation................................ 13,324 5,154
Other current liabilities................................. 21,489 24,538
-------- --------
Total current liabilities............................... 50,728 38,309
Long-term debt:
Senior credit facility................................... -- 200,000
Senior subordinated notes................................ -- 110,000
Junior subordinated note................................. -- 10,124
Deferred income taxes....................................... 5,785 --
Other long-term liabilities................................. -- 1,083
-------- --------
Total liabilities....................................... 56,513 359,516
Commitments and contingencies (See Note 14).................
Mandatorily redeemable preferred equity..................... -- 6,000
Parent company investment/members' deficit.................. 148,573 (151,312)
-------- --------
Total liabilities and parent company investment/members'
deficit................................................ $205,086 $214,204
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Combined
Years Ended
December 31,
-----------------
Consolidated
Year Ended
December 31,
1996 1997 1998
-------- -------- ------------
<S> <C> <C> <C>
Net sales:
Commercial laundry............................ $209,123 $239,255 $220,068
Appliance Co. consumer laundry................ 76,992 76,853 77,184
Service parts................................. 32,148 31,601 33,015
-------- -------- --------
318,263 347,709 330,267
Cost of sales................................... 246,017 263,932 251,159
-------- -------- --------
Gross profit.................................... 72,246 83,777 79,108
-------- -------- --------
Selling, general and administrative expense..... 34,464 40,827 43,478
Nonrecurring costs.............................. 3,704 -- 6,784
-------- -------- --------
Total operating expenses........................ 38,168 40,827 50,262
-------- -------- --------
Operating income.............................. 34,078 42,950 28,846
Interest expense................................ -- -- 21,426
Other income (expense), net..................... 685 (243) 306
-------- -------- --------
Income before taxes........................... 34,763 42,707 7,726
Provision for income taxes...................... 13,408 16,431 2,391
-------- -------- --------
Net income.................................... $ 21,355 $ 26,276 $ 5,335
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF PARENT COMPANY INVESTMENT/MEMBERS' DEFICIT
(in thousands)
<TABLE>
<CAPTION>
Combined
Years Ended Consolidated
December 31, Year Ended
------------------ December 31,
1996 1997 1998
-------- -------- -------------
<S> <C> <C> <C>
Parent company investment, beginning of
period...................................... $175,317 $141,546 $ 148,573
Comprehensive income:
Net income................................. 21,355 26,276 5,335
Net unrealized holding gain on residual
interest.................................. -- -- 2,800
-------- -------- ---------
Total comprehensive income................. 21,355 26,276 8,135
Dividends.................................... (7,746) -- --
Net cash and noncash transfers to Parent..... (47,380) (19,249) (17,450)
Issuance of common units..................... -- -- 48,882
Distribution to Parent and related
transaction costs........................... -- -- (339,452)
-------- -------- ---------
Parent company investment/members' deficit,
end of period............................... $141,546 $148,573 $(151,312)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Combined Consolidated
Years Ended December 31, Year Ended
-------------------------- December 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 21,355 $ 26,276 $ 5,335
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 11,145 14,445 16,671
Restructuring charge............... -- -- 4,466
Non-cash junior subordinated note
interest.......................... -- -- 1,124
(Gain) loss on sale of property,
plant and equipment............... (19) 243 (306)
Deferred income taxes.............. 1,073 2,281 180
Changes in assets and liabilities:
Accounts and notes receivable.... 25,863 (21,751) 2,615
Inventory........................ (3,453) 10,546 3,271
Other assets..................... (2,019) (4,468) (10,049)
Accounts payable................. (2,054) (1,966) (7,298)
Finance program obligation....... 24,598 13,324 (10,254)
Other liabilities................ 703 724 1,032
------------ ------------ --------
Net cash provided by (used in)
operating activities.......... 77,192 39,654 6,787
------------ ------------ --------
Cash flows from investing activities:
Additions to property, plant and
equipment........................... (22,030) (19,990) (7,861)
Proceeds on disposal of property,
plant and equipment................. 853 831 2,350
------------ ------------ --------
Net cash provided by (used in)
investing activities.......... (21,177) (19,159) (5,511)
------------ ------------ --------
Cash flows from financing activities:
Transfers to Parent.................. (47,380) (19,249) (15,553)
Dividend payments to Parent.......... (7,746) -- --
Increase (decrease) in other long-
term debt........................... (100) (1,000) --
Proceeds from senior term loan....... -- -- 200,000
Proceeds from senior subordinated
notes............................... -- -- 110,000
Proceeds from junior subordinated
note................................ -- -- 9,000
Issuance of mandatorily redeemable
preferred equity.................... -- -- 6,000
Issuance of common units............. -- -- 48,882
Debt financing costs................. -- -- (16,522)
Distribution to Parent and related
transaction costs................... -- -- (339,452)
------------ ------------ --------
Net cash provided by (used in)
financing activities.......... (55,226) (20,249) 2,355
------------ ------------ --------
Increase in cash....................... 789 246 3,631
Cash at beginning of year.............. 173 962 1,208
------------ ------------ --------
Cash at end of year.................... $ 962 $ 1,208 $ 4,839
============ ============ ========
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest........................... $ 70 $ 33 $ 15,579
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Note 1--Description of Business and Basis of Presentation:
Description of Business
Alliance Laundry Holdings LLC (the "Company") designs, manufactures and
services a full line of commercial laundry equipment for sale in the U.S. and
for export to numerous international markets. The Company also manufactures
consumer washing machines for sale to Appliance Co. (see "Sale to Appliance
Co.") and international customers. The Company produces all of its products in
the U.S. at three manufacturing plants located in Ripon, Wisconsin, Marianna,
Florida and Madisonville, Kentucky. In 1996, Raytheon Appliances, S.A. was
established to build, own and operate coin laundromats in Latin America.
The Company originated from the acquisition of Speed Queen Company ("Speed
Queen") by Raytheon Company (the "Parent") in October of 1979. Speed Queen
operated as a separate subsidiary of the Parent until March 31, 1996 when it
was merged into Amana Refrigeration, Inc. ("Amana"), a wholly-owned subsidiary
of the Parent, which manufactured and serviced home appliances. In connection
with this consolidation, the Speed Queen legal entity was dissolved and Amana
was renamed Raytheon Appliances, Inc. On September 10, 1997, in connection
with the sale by the Parent of its consumer laundry business (see "Sale to
Appliance Co."), Raytheon Appliances, Inc. was dissolved. Concurrently,
Raytheon Commercial Laundry LLC was established as a limited liability company
to carry on the commercial laundry portion of the Parent's appliance business.
In addition, the legal entity Raytheon Appliances, S.A. became a wholly-owned
subsidiary of the newly established entity, Raytheon Commercial Laundry LLC.
Sale to Appliance Co.
Historically, the Company reported as one of five operating units comprising
the Parent's appliances division. On September 10, 1997, the Parent sold three
of the five operating units of its appliances division to Amana Company, L.P.
("Appliance Co." or the "Appliance Co. Transaction"). As a result of this
sale, the Parent divested its consumer appliance, heating and air
conditioning, and commercial cooking operating units, while retaining its
commercial laundry and control systems operating units. In connection with the
sale, the Parent also sold to Appliance Co. a laundry manufacturing plant in
Searcy, Arkansas ("Searcy"). This plant was acquired by the Parent as part of
the Speed Queen acquisition. Searcy's operations are predominantly related to
the production of consumer laundry equipment (approximately 80% consumer and
20% commercial).
Since 1991 the Company's operations have been managed as a strictly
commercial laundry business with the Searcy plant's consumer products managed
as an integral part of the Parent's consumer business. Therefore the Searcy
plant's operations have been excluded from the Company's financial statements.
All assets and liabilities of Searcy have been excluded from these financial
statements, except for certain tooling and dies which are specific to the
production of commercial laundry products and which were retained by the
Company subsequent to the sale. Production of commercial product by Searcy has
been reflected as being purchased by the Company at standard cost for all
periods presented. Outstanding payables associated with these purchases from
Searcy of $1.3 million and $0.5 million are included in accounts payable at
December 31, 1997 and 1998, respectively.
On September 10, 1997, $10.4 million of consumer laundry inventory was
located at the Ripon plant. This inventory was sold by the Parent as part of
the Appliance Co. Transaction. The Company recorded the transfer of this
inventory to its Parent at book value as a reduction to inventory and parent
company investment.
F-7
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Effective September 10, 1997, in connection with the Appliance Co.
Transaction, the Company and Appliance Co. entered into two supply agreements.
Under the first supply agreement, the Company has agreed to purchase small
chassis front loading washing machines from Appliance Co. for one year and
small chassis dryers, stack dryers, and stack front loading washer/dryer
combinations for two years commencing on September 10, 1997. The Company has
agreed to purchase a minimum of 144,000 machines over the two year period at
an approximate cost of $40 million. Failure to purchase the minimum quantity
in any twelve month period would result in damages due Appliance Co. of $45
per unit of shortfall. The Company is currently developing the production
capability to produce those products purchased from Appliance Co. at its
Ripon, Wisconsin facility.
Under a second agreement (the "Appliance Co. Purchase Agreement"), Appliance
Co. has agreed to purchase a specified quantity of top loading washing
machines from the Company annually over the term of the agreement. The Company
has been notified by Appliance Co. that the agreement will not be renewed
after September 10, 1999.
Basis of Presentation
The financial statements as of and for the year ended December 31, 1998
present the financial position and results of operations of the Company
following the May 1998 recapitalization (the "Recapitalization") and merger
discussed in Note 3. The merger has been accounted for as a recapitalization
and accordingly, the historical accounting basis of the assets and liabilities
is unchanged. The financial statements as of and for the year ended December
31, 1998 represent the consolidated financial position and results of
operations of the Company, including its wholly-owned direct and indirect
subsidiaries, Alliance Laundry Systems LLC and Alliance Laundry Corporation
which were formed in connection with the Recapitalization.
For periods prior to the Recapitalization, financial statements present the
Company's results of operations and financial position as it operated as a
unit of the Parent, including certain adjustments necessary for a fair
presentation of the business. The financial statements presented for pre-
Recapitalization periods may not be indicative of the results that would have
been achieved had the Company operated as an unaffiliated entity. Since the
Company did not operate as a stand-alone legal entity until September 10,
1997, the financial statements have been presented on a combined basis for the
year ended December 31, 1996. Although the Company was a stand-alone legal
entity at December 31, 1997, it did not operate as such for the majority of
1997 and therefore the financial statements for the year then ended have also
been presented on a combined basis. The balance sheet at December 31, 1997 is
presented on a consolidated basis. All material intercompany transactions have
been eliminated in the preparation of these financial statements.
Note 2--Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in prior year financial statements have been reclassified to
conform to the current year presentation.
F-8
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Cash, Cash Equivalents and Cash Management
The Company considers all highly liquid debt instruments with an initial
maturity of three months or less at the date of purchase to be cash
equivalents. Prior to May 5, 1998 under the Company's cash management program,
which was handled through the treasury function of the Parent, checks and
amounts in transit were not considered reductions of cash or accounts payable
until presented to the appropriate banks for payment. At December 31, 1997,
checks and amounts in transit totaled $3.8 million. Restricted cash at
December 31, 1998 represents unremitted collections on notes receivable sold
prior to May 5, 1998.
Revenue Recognition
Commercial Laundry Revenue--Commercial laundry revenue is recognized upon
shipment. Commercial laundry revenues include sales of consumer laundry
products to international customers.
Appliance Co., Consumer Laundry Revenue--The Company sells consumer laundry
products manufactured at its Ripon, Wisconsin plant to Appliance Co. and its
predecessor Amana. Revenues from consumer laundry sales to Amana have been
recognized at standard cost plus 7% for all periods presented prior to
September 10, 1997. Subsequent to September 10, 1997, sales of consumer
laundry products are made to Appliance Co. at amounts approximating 1997
standard costs in accordance with the Appliance Co. Purchase Agreement.
Service Parts Revenue--Service parts revenue is recognized upon shipment.
Financing Program Revenue--As discussed below, the Company sells notes
receivable and accounts receivable through its special-purpose bankruptcy
remote entities. The Company, as servicing agent, retains collection and
administrative responsibilities for the notes. The Company earns a servicing
fee, based on the average outstanding balance. In addition, the Company
records gains or losses on the sales of notes receivable and accounts
receivable in the period in which such sales occur in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities". The Company also recognizes interest income on notes receivable
and other beneficial interests retained in the period the interest is earned.
Servicing revenue, interest income on beneficial interests retained, and gains
on the sale of notes receivable are included in commercial laundry revenues.
Losses on the sale of accounts receivable are recognized in the period in
which such sales occur and are included in selling, general and administrative
expense.
Sales of Accounts Receivable and Notes Receivable (See Notes 5 and 6)
Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." According to SFAS No. 125, a transfer of financial assets in
which the transferor surrenders control over those assets is accounted for as
a sale to the extent that consideration other than beneficial interests in the
transferred assets is received in exchange. Beginning in 1997, the Company
sold a significant portion of accounts receivable and notes receivable to
third parties through special-purpose bankruptcy remote entities designed to
meet the SFAS No. 125 requirements for sale treatment. Accordingly, the
Company removed these receivables from its balance sheet at the time of
transfer. Prior to the Recapitalization, the special-purpose bankruptcy remote
entities included Raytheon Commercial Appliances Receivables Corporation
("RAYCAR") through which the Company sold eligible trade accounts receivable
and Raytheon Commercial Appliances Financing Corporation ("RAYCAF") through
which the Company sold eligible notes receivable. In connection with the
Recapitalization, the Company established Alliance Laundry Receivables
Warehouse LLC ("ALRW"), a special-purpose bankruptcy remote entity, to which
all eligible trade
F-9
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
accounts receivable and eligible notes receivable are sold after May 4, 1998.
In a subordinated capacity, the Company retains rights to the residual portion
of interest earned on the notes receivable sold. This retained beneficial
interest is recorded at its estimated fair value at the balance sheet date.
Unrealized gains and losses resulting from changes in the estimated fair value
of the Company's retained interests are recorded as other comprehensive income
in accordance with SFAS No. 125. In determining the gain on sales of notes
receivable, the investment in the sold receivable pool is allocated between
the portion sold and the portion retained, based on their relative fair
values.
Under these arrangements the Company acts as servicer or sub-servicer of the
accounts receivable and notes receivable sold. As such, the Company continues
to administer and collect amounts outstanding on such receivables. At December
31, 1997, the Company had collected approximately $7.8 million of accounts
receivable, which were subsequently transferred through a monthly settlement
process. At the balance sheet date, this amount was recorded as a finance
program obligation. At December 31, 1997 and December 31, 1998, the Company
had collected approximately $1.5 million and $1.9 million, respectively, of
notes receivable which were subsequently transferred to the buyers through a
monthly settlement process. At the balance sheet dates, these amounts were
also recorded as finance program obligations.
Inventories
Inventories are stated at cost using the first-in, first-out method but not
in excess of net realizable value.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Betterments and major
renewals are capitalized and included in property, plant and equipment while
expenditures for maintenance and repairs and minor renewals are charged to
expense. When assets are retired or otherwise disposed of, the assets and
related allowances for depreciation and amortization are eliminated and any
resulting gain or loss is reflected in other income (expense). When events or
changes in circumstances indicate that assets may be impaired, an evaluation
is performed comparing the estimated future undiscounted cash flows associated
with the asset to the asset's carrying amount to determine if a write-down is
required. Provisions for depreciation are computed generally on a declining-
balance or straight-line method. Depreciation provisions are based on the
following estimated useful lives: buildings 40 years; machinery and equipment
(including production tooling) 5 to 10 years. Leasehold improvements are
amortized over the lesser of the remaining life of the lease or the estimated
useful life of the improvement.
Intangibles
Goodwill represents the excess of the acquisition cost over the fair value
of the net assets acquired in purchase transactions, and is amortized using
the straight-line method over 40 years. At each balance sheet date, the
Company evaluates the realizability of goodwill and other intangibles based on
expectations of non-discounted cash flows and operating income. Based on its
most recent analysis, the Company believes that no impairment of recorded
intangibles exists at the balance sheet date.
Debt Issuance Costs
In conjunction with the Recapitalization, the Company recorded $16.5 million
of debt issuance costs. These costs are being amortized on a straight-line
basis over periods ranging from 5 to 10 years. Accumulated amortization was
$1.6 million at December 31, 1998.
F-10
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Warranty Liabilities
The cost of warranty obligations are estimated and provided for at the time
of sale. Standard product warranties cover most parts for two years (three
years for products sold beginning in June 1997) and certain parts for five
years. Warranty costs were $2.3 million, $2.2 million and $3.6 million in
1996, 1997 and 1998, respectively.
Research and Development Expenses
Research and development expenditures are expensed as incurred. Research and
development costs were $6.3 million, $7.6 million and $8.4 million in 1996,
1997 and 1998, respectively.
Advertising Expenses
The Company expenses advertising costs as incurred. The Company incurred
advertising expenses of $3.0 million, $3.4 million and $3.1 million in 1996,
1997 and 1998, respectively.
Environmental Costs
The Company adopted Statement of Position 96-1 (SOP 96-1) "Environmental
Remediation Liabilities", in 1997. SOP 96-1 provides authoritative guidance
with respect to specific accounting issues that are present in the
recognition, measurement, display and disclosure of environmental remediation
liabilities. The adoption did not have a material impact on the Company's
financial position or results of operations.
Income Taxes
Historically, the Company's operations have been included in the
consolidated income tax returns filed by the Parent. For periods prior to the
Recapitalization, income tax expense in the Company's statement of income was
calculated on a separate tax return basis as if the Company had operated as a
stand-alone entity. The provision for income taxes was calculated in
accordance with SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred income taxes using the liability method. As a
result of the Recapitalization, the Company is now a stand-alone limited
liability company and is not subject to federal or state income taxes
effective May 5, 1998.
Parent Company Investment
Prior to the Recapitalization, the Company received short-term funding from
its Parent to meet its periodic cash flow needs. During 1996, the Company paid
dividends from its earnings to its Parent of $7.7 million. No dividends were
paid to its Parent in 1997 or 1998. Interest expense associated with the
Parent's general corporate debt has not been allocated to the Company. Prior
to the Recapitalization, the Company participated in numerous benefit plans of
the Parent (see Note 15). Certain services were provided to the Company by its
Parent, primarily related to treasury, taxes, legal and risk management. The
estimated costs of such services have been included in these financial
statements. Management believes these allocations are reasonable. The Parent
provided certain supplemental services to the Company related primarily to
general tax and legal, audit and human resources which are not material and
have been excluded from these financial statements. During a portion of 1996
and a portion of 1997, certain administrative services were performed by Amana
on behalf of the Company. In 1996, these costs were not material and were
excluded from these financial statements. The estimated cost of these
services, which consisted mainly of accounting and payroll services, have been
reflected in the income statement in 1997.
All transfers to and from the Parent have been reported in the parent
company investment account.
F-11
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Fair Value of Financial Instruments
The carrying amounts reported in the statement of assets, liabilities and
parent company investment/members' deficit for cash and cash equivalents,
accounts receivable, and accounts payable approximate fair value due to the
short-term maturity of these financial instruments. The amounts reported for
borrowings under the senior credit facility approximate fair value since the
underlying instruments bear interest at variable rates that reprice
frequently. The fair value of the Company's senior subordinated notes at
December 31, 1998 is estimated based upon prices prevailing in recent market
transactions.
Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk include trade accounts receivable and notes receivable.
Concentrations of credit risk with respect to trade receivables and notes
receivable are limited because a large number of geographically diverse
customers make up the Company's customer base, thus spreading the credit risk.
The Company controls credit risk through credit approvals, credit limits and
monitoring procedures. Bad debt expenses have not been material.
Certain Concentrations
As discussed in Note 1, the Company has mutual supply agreements with
Appliance Co. that terminate in 1999. Products sourced from Appliance Co.
represented 9% of the Company's 1998 net sales. In the event Appliance Co. is
unable or unwilling to continue to manufacture commercial small-chassis
frontload dryers for the Company, it could have a material adverse effect on
the Company's business, financial condition and results of operations. There
can be no assurance that Appliance Co. will continue to supply products that
are consistent with the Company's standards or that any disagreements will not
result therefrom. In this regard, the Company has occasionally received and
may in the future receive shipments of products from Appliance Co. that fail
to conform with the Company's quality control standards. In such event, the
Company risks the loss of revenue from the sale of such frontload dryers. The
failure of Appliance Co. to supply frontload dryers that conform to the
Company's standards could have a material adverse effect on the Company's
business, financial condition and results of operations, as well as on its
reputation in the marketplace.
In addition, consumer topload washers sold to Appliance Co. currently
comprise a substantial percentage of the unit volume of the Ripon facility and
represented approximately 23% of 1998 net sales. Upon the termination of the
Appliance Co. Purchase Agreement, the Company will experience a significant
decline in unit volume. This volume decline may result in an increase in the
Company's average cost per unit, due to, among other factors, unabsorbed
manufacturing overhead, reduced raw materials purchasing scale and reduced
manufacturing efficiency. In addition, a failure by the Company to
successfully implement the reconfiguration of the Ripon plant and thereby to
partially offset any impact on the Company's cost per unit following this
volume decline could have a material adverse effect on the Company's business,
financial condition and results of operations.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which established standards for
reporting and display of comprehensive income and its components. This
standard requires that certain items recognized under accounting principles as
components of comprehensive income be reported in an annual financial
statement that is displayed with the same prominence as other financial
statements. The Company has adopted this standard in 1998.
F-12
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Future Accounting Changes
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires all derivative
instruments to be recorded in the consolidated balance sheet at their fair
value. Changes in fair value of derivatives are required to be recorded each
period in current earnings or other comprehensive income, depending on whether
the derivative is designed as part of a hedge transaction and if it is, the
type of hedge transaction. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The effect of adoption of this
statement on the Company's earnings or financial position is expected to be
minimal.
Note 3--Recapitalization Transaction:
On May 5, 1998, pursuant to an agreement and Plan of Merger (the "Merger
Agreement") among Bain LLC, RCL Acquisitions, LLC ("MergeCo"), Raytheon
Commercial Laundry LLC and the Parent, MergeCo was merged with and into
Raytheon Commercial Laundry LLC (the "Merger") with Raytheon Commercial
Laundry LLC (renamed immediately following the Merger to "Alliance Laundry
Holdings LLC") being the surviving entity. Prior to the Merger, the Parent
owned 100% of the equity securities of Raytheon Commercial Laundry LLC and
Bain LLC, the BRS Investors, as defined, and certain members of management
owned 100% of the equity securities of MergeCo. As a result of the Merger (i)
the Parent's limited liability company interest in Raytheon Commercial Laundry
LLC was converted into the right to receive (a) an aggregate amount of cash
equal to $339.5 million, subject to pre-closing and post-closing adjustments,
(b) a junior subordinated promissory note from the Company in the original
principal amount of $9.0 million which matures in 2009, (c) preferred
membership interests of the Company with a liquidation value of approximately
$6.0 million which are mandatorily redeemable in 2009 and (d) common
membership units of the Company representing 7% of the total common membership
interests of the Company and (ii) Bain LLC's, the BRS Investors' and the
certain management members' limited liability company interests in MergeCo
were converted into the right to receive up to 93% of the total common
membership interests of the Company.
Simultaneous with the consummation of the Merger and each of the other
related transactions (the "Closing"), the Company contributed substantially
all of its assets and liabilities to Alliance Laundry Systems LLC, a newly-
formed limited liability company ("Alliance Laundry"). Immediately after the
consummation of the transactions, Alliance Laundry became the only direct
subsidiary of the Company and succeeded to substantially all of the assets and
liabilities of the Company. Subsequent to May 4, 1998, Alliance Laundry
comprises all of the operating activities of the Company.
The transactions contemplated by the Merger Agreement (the "Transactions")
were funded by: (i) $200.0 million of term loan borrowings by Alliance
Laundry; (ii) $110.0 million of senior subordinated notes of Alliance Laundry
due in 2008 (substantially all of the amounts in (i) and (ii) were distributed
by Alliance Laundry to the Company to fund the Merger and to fund related fees
and expenses); (iii) the issuance by the Company of a junior subordinated
promissory note in the original principal amount of $9.0 million; (iv) the
issuance by the Company of the mandatorily redeemable preferred membership
interests with a liquidation value of $6.0 million; and (v) the investors'
equity contributions. Each of the transactions was conditioned upon
consummation of each of the others, and consummation of each of the
transactions occurred simultaneously.
Note 4--Nonrecurring Items:
During the fourth quarter of 1998, the Company recorded a $4.5 million
restructuring charge associated with the closing of the Company's Latin
American coin laundromat operations. A decision was made to close these
operations because of continued unprofitable performance. The charge includes
$1.5 million for the estimated loss on the sale of company-owned drycleaning
and laundry stores representing the excess of the carrying value
F-13
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
of assets relating to these stores over estimated proceeds from sale, $1.4
million for the write-off of the unamortized balance of the LaveRap tradename
and franchise rights purchased in 1996 for use in developing coin laundromats
in Latin America, $0.9 million for severance and related benefits arising from
the termination of 41 employees and $0.7 million for certain other expenses
associated with discontinuing the Latin American operations. The carrying
value of assets held for disposal at December 31, 1998 is not material. The
Company anticipates that all stores will be sold during 1999. The components
of the restructuring charge and its utilization are summarized as follows:
<TABLE>
<CAPTION>
Balance at
December
1998 Utilized 31,
Charge Cash Non-cash 1998
------ ----- -------- ----------
<S> <C> <C> <C> <C>
Estimated loss on sale of stores........ $1,469 $ -- $ -- $1,469
Write-down of intangible assets......... 1,366 -- (1,366) --
Write-down of other assets.............. 656 -- -- 656
Employee termination and severance
benefits............................... 893 (213) -- 680
Other................................... 82 -- -- 82
------ ----- ------- ------
Total................................. $4,466 $(213) $(1,366) $2,887
====== ===== ======= ======
</TABLE>
The Company's Latin American operations generated net sales of $2.4 million
and an operating loss of $1.6 million before this restructuring charge for the
year ended December 31, 1998.
The Parent entered into retention agreements with certain key executives,
managers and commissioned salespeople prior to the Recapitalization. During
1998, the Company incurred approximately $2.3 million in expense associated
with payments under these agreements. Payments under this program continue
through November of 1999.
During 1996, the Company incurred $3.7 million in costs associated with
severance and benefit payments to reduce headcount and eliminate certain
redundant processes as part of the consolidation of Speed Queen into Amana
Refrigeration (see Note 1).
Note 5--Customer Financing:
Since 1992, the Company has offered a variety of equipment financing
programs (capital leases) to finance equipment purchases. These capital leases
are transferred immediately to third parties who administer the contracts and
earn all associated interest revenues ("External Financing"). These External
Financings have terms ranging from 2 to 7 years and carry market interest
rates as set by the third-party lender. These third parties have recourse
against the Company ranging from 15% to 100%. Under these programs, the
Company sold $20.2 million during the year ended 1996. At December 31, 1997
and 1998, the uncollected balance of leases with recourse under these programs
was $102.4 million and $25.5 million, respectively. In connection with the
Recapitalization, the Parent agreed to indemnify the Company for any recourse
obligations arising from these programs.
In 1996, the Company established an internal financing organization to
originate and administer promissory notes for financing of equipment purchases
and laundromat operations. These notes typically have terms ranging from Prime
plus 1% to Prime plus 3% for variable rate notes and 9.9% to 14.5% for fixed
rate notes. The average interest rate for all notes approximates 10.9% with
terms ranging from 2 to 7 years. All notes allow the holder to prepay
outstanding principal amounts without penalty, and are therefore subject to
prepayment risk. In connection with the Transactions, the Company entered into
a five year $250.0 million revolving loan agreement (the "Asset Backed
Facility") through ALRW, its special-purpose single member limited liability
company, to
F-14
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
finance trade receivables and notes receivable related to equipment loans with
Lehman Commercial Paper, Inc. (the "Facility Lender"), an affiliate of Lehman
Brothers, Inc. The Asset Backed Facility is a $250.0 million facility, with
sublimits of $100.0 million for loans on eligible trade receivables and $200.0
million for loans on eligible equipment loans. With respect to loans secured
by equipment loans, the Facility Lender will make loans up to but not
exceeding the lesser of 90% of the outstanding principal balance of eligible
equipment loans or 90% of the market value with respect to eligible equipment
loans, as determined by the Facility Lender in its reasonable discretion. The
eligibility of both trade receivables and equipment loans is subject to
certain concentration and other limits. In addition, after 24 months in the
Asset Backed Facility, an otherwise eligible equipment loan will no longer be
considered an eligible equipment loan, subject to two automatic six-month
extensions upon payment of a fee if such equipment loans have not been
securitized or otherwise disposed of by ALRW. The interest rate of loans under
the Asset Backed Facility is generally equal to one-month LIBOR plus 1.0% per
annum. The Company as servicing agent retains collection and administrative
responsibilities for the notes sold. The Company sold $44.2 million of notes
under this agreement during 1998. The amount of uncollected balances on
equipment loans sold to ALRW was $42.4 million at December 31, 1998.
ALRW provides additional credit enhancement to the Facility Lender
(consisting of an irrevocable letter of credit, an unconditional lending
commitment of the Lenders under the Senior Credit Facility or a cash
collateral account) in an amount not to exceed 10% of the aggregate principal
amount of loans outstanding under the Asset Backed Facility up to $125.0
million and 5% of the aggregate principal amount of loans outstanding above
$125 million. The Company is obligated under the reimbursement provisions of
the Senior Credit Facility to reimburse the Lenders for any drawings on the
credit enhancement by the Facility Lender. If the credit enhancement is not
replenished by the Company after a drawing, the Facility Lender will not be
obligated to make further loans under the Asset Backed Facility and the Asset
Backed Facility will begin to amortize. In addition, at any time when (i) the
aggregate principal amount of loans outstanding under the Asset Backed
Facility exceeds $125.0 million and (ii) the delinquency or default ratios
with respect to trade receivables or equipment loans exceed certain specified
levels (an "Excess Spread Sweep Event"), and for four months after a cure of
such excess delinquency or default ratios, the collections on the equipment
loans (after payment of accrued interest on the loans under the Asset Backed
Facility) will be directed into an excess spread sweep account in the name of
the Facility Lender until the amount on deposit in such account is equal to
five percent of the aggregate principal amount of loans outstanding under the
Asset Backed Facility.
Early repayment of the loans under the Asset Backed Facility will be
required upon the occurrence of certain "events of default," which include:
(i) default in the payment of any principal of or interest on any loan under
the Asset Backed Facility when due, (ii) the bankruptcy of ALRW, Alliance
Laundry or the issuer of the letter of credit or provider of the line of
credit, (iii) any materially adverse change in the properties, business,
condition or prospects of, or any other condition which constitutes a material
impairment of ALRW's ability to perform its obligations under the Asset Backed
Facility and related documents, (iv) specified defaults by ALRW or Alliance
Laundry on certain of their respective obligations, (v) delinquency, dilution
or default ratios on pledged receivables exceeding certain specified ratios in
any given month, (vi) the ratio of (a) the indebtedness of Alliance Laundry
and its subsidiaries minus indebtedness subordinated to the loans under the
Asset Backed Facility to (b) the sum of the tangible net worth of Alliance
Laundry and its subsidiaries and the amount of debt subordinated to the loans
under the Asset Backed Facility exceeding a specified amount and (vii) a
number of other specified events.
Prior to the Transactions, the Company through its special-purpose
bankruptcy remote entity, RAYCAF, had entered into an agreement with Falcon
Asset Securitization Corporation (the "Bank"), a wholly-owned subsidiary of
First Chicago/NBD, under which it sold defined pools of notes receivable.
Under the terms of the
F-15
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
agreement with the Bank, the Bank is paid interest based on the 30-day
commercial paper rate plus 0.3% and has recourse against the Company ranging
from 15% to 100%. The Company, as servicing agent, retains collection and
administrative responsibilities for the notes. In 1996, 1997, and 1998 under
this financing program, the Company sold $55.9 million, $105.0 million, and
$28.7 million, respectively. Notes were no longer sold under this program
after May 4, 1998. The total amount uncollected at December 31, 1997 and 1998,
was $134.0 million and $89.1 million, respectively.
Gains on sales of notes receivable in 1996, 1997, and 1998 of approximately
$0.6 million, $5.9 million, and $7.7 million, respectively, are included in
commercial laundry revenues. At December 31, 1998, the Company has included in
notes receivable $4.2 million related to its retained interest in notes sold
to ALRW. In addition, at December 31, 1997 and 1998, included in other assets
is $3.4 million and $8.2 million, respectively, related to the Company's
beneficial interest in the residual portion of interest earned on notes sold.
Note 6--Sales of Accounts Receivable:
As described in Note 5 above, in connection with the Transactions, the
Company entered into the Asset Backed Facility through ALRW to finance trade
receivables and notes receivable related to equipment loans. With respect to
loans secured by trade receivables, the Facility Lender will make loans up to
but not exceeding 85% of the outstanding amount of eligible trade receivables.
The interest rate of loans under the Asset Backed Facility is generally equal
to one-month LIBOR plus 1.0% per annum. The Company as servicing agent retains
collection and administrative responsibilities for the accounts receivable
sold. Under this agreement, the Company sold $210.4 million during 1998.
Uncollected balances on trade accounts receivable sold totaled $43.4 million
at December 31, 1998.
Prior to the Transactions, the Company had entered into an agreement through
its special-purpose bankruptcy remote entity, RAYCAR, with the Preferred
Receivables Funding Corporation, a wholly-owned subsidiary of First
Chicago/NBD, to sell certain defined pools of trade accounts receivable. Under
the terms of the agreement, interest was charged based on the 30-day
commercial paper rate plus 0.3%. The interest rates were adjusted based on the
Parent's debt rating. The Company, as servicing agent, retained collection and
administrative responsibility for the accounts receivable. Under this
agreement, the Company sold $56.7 million, $284.5 million and $92.2 million in
1996, 1997 and 1998, respectively. Accounts receivable were no longer sold
under this agreement after May 4, 1998. At December 31, 1997, $74.6 million
was uncollected or had not been remitted to the Bank. No receivables under
this agreement were uncollected as of December 31, 1998.
Losses on sales of trade accounts receivable of $3.4 million and $4.1
million in 1997 and 1998, respectively, are included in selling, general and
administrative expense. At December 31, 1998, included in other current assets
is $6.9 million related to the Company's retained interest in trade accounts
receivable sold to ALRW.
Note 7--Inventories:
Inventories consisted of the following at:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Materials and purchased parts........................... $16,701 $14,296
Work in process......................................... 2,758 3,280
Finished goods.......................................... 18,564 16,571
Less: inventory reserves................................ (4,309) (3,704)
------- -------
Total................................................. $33,714 $30,443
======= =======
</TABLE>
F-16
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Note 8--Property, Plant and Equipment:
Property, plant and equipment consisted of the following at:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ---------
<S> <C> <C>
Land................................................. $ 556 $ 773
Buildings and leasehold improvements................. 26,788 26,215
Machinery and equipment.............................. 137,245 137,279
-------- ---------
164,589 164,267
Less: accumulated depreciation....................... (98,555) (107,135)
-------- ---------
66,034 57,132
Construction in process.............................. 3,667 5,132
-------- ---------
Property, plant and equipment, net................... $ 69,701 $ 62,264
======== =========
</TABLE>
Depreciation expense was $9.5 million, $12.9 million and $13.3 million for
the years ended December 31, 1996, 1997 and 1998, respectively.
Note 9--Other Current Liabilities:
The major components of other current liabilities consisted of the following
at:
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------- -------
<S> <C> <C>
Warranty reserve.......................................... $ 4,748 $ 4,626
Workers compensation...................................... 1,576 435
Accrued sales promotion and cooperative advertising....... 4,417 4,381
Salaries, wages and other employee benefits............... 5,157 5,297
Accrued interest.......................................... -- 2,931
Accrued restructuring..................................... -- 2,887
Other current liabilities................................. 5,591 3,981
------- -------
Total................................................... $21,489 $24,538
======= =======
</TABLE>
Note 10--Long-Term Debt:
Long-term debt at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Term Loan Facility........................................... $200,000
Senior Subordinated Notes.................................... 110,000
Junior Subordinated Notes.................................... 10,124
--------
$320,124
========
</TABLE>
F-17
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Senior Credit Facility
In connection with the Transactions, the Company entered into a credit
agreement (the "Senior Credit Facility") with a syndicate of financial
institutions (the "Lenders") for which Lehman Brothers, Inc. acted as arranger
and Lehman Commercial Paper, Inc. acted as syndication agent. The Senior
Credit Facility is comprised of a term loan facility aggregating $200.0
million (the "Term Loan Facility") and a $75.0 million revolving credit
facility (the "Revolving Credit Facility), which was made available in
conjunction with the issuance of the Company's senior subordinated notes. The
Term Loan Facility requires no principal payments during the first two years
and amortizes at the rate of $1.0 million per year for years three through
five, $40.0 million for year six and $157.0 million for year seven. The
Company is required to make prepayments with the proceeds from the disposition
of certain assets and from excess cash flow, as defined. No excess cash flow
payment was required for 1998.
The Term Loan Facility bears interest, at the Company's election, at either
the Lenders' Base Rate plus a margin ranging from 1.125% to 1.625% or the
Eurodollar Rate plus a margin ranging from 2.125% to 2.625%. The Revolving
Credit Facility bears interest, at the Company's election, at either the Base
Rate plus a margin ranging from 0.625% to 1.375% or the Eurodollar Rate plus a
margin ranging from 1.625% to 2.375%.
The interest rate on borrowings outstanding at December 31, 1998 was 8.4%.
Borrowings outstanding under the Senior Credit Facility are secured by
substantially all of the real and personal property of the Company and its
domestic subsidiaries (other than the financing subsidiaries).
Senior Subordinated Notes
Also on May 5, 1998, the Company and its wholly-owned subsidiary, Alliance
Laundry Corporation, issued $110.0 million of 9 5/8% senior subordinated notes
due in 2008 (the "Notes") to Lehman Brothers, Inc. and Credit Suisse First
Boston Corporation (the "Initial Purchasers"). The Initial Purchasers
subsequently resold the Notes to qualified institutional buyers pursuant to
Rule 144A of the Securities and Exchange Act and to a limited number of
institutional accredited investors that agreed to comply with certain transfer
restrictions and other conditions.
The Notes are general unsecured obligations and are subordinated in right of
payment to all current and future senior debt, including permitted borrowings
under the Senior Credit Facility.
Interest on the Notes accrues at the rate of 9 5/8% per annum and is payable
semi-annually in arrears on May 1 and November 1, commencing on November 1,
1998. The fair value of the Notes at December 31, 1998 was approximately
$105.6 million based upon prices prevailing in recent market transactions.
The Notes are not redeemable prior to May 1, 2003. Thereafter, the Notes are
subject to redemption at any time at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on May 1 of the
years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2003........................................ 104.813%
2004........................................ 103.208%
2005........................................ 101.604%
2006 and thereafter......................... 100.000%
</TABLE>
F-18
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Notwithstanding the foregoing, at any time prior to May 1, 2001, the Company
may on any one or more occasions redeem up to 35% of the aggregate principal
amount of the Notes at a redemption price of 109.625% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the redemption
date, with the net cash proceeds of any equity offerings, as defined by the
indenture governing the Notes; provided that at least 65% of the aggregate
principal amount of Notes remains outstanding immediately after each
occurrence of such redemption; and provided, further, that each such
redemption shall occur within 45 days of the date of the closing of such
equity offering.
The Company is required under the terms of the Notes to offer to redeem the
Notes at a redemption price of 101% of the principal amount thereof, plus
accrued and unpaid interest thereon, if any, to the redemption date, upon a
change of control, as defined. Further, the Company is required to offer to
redeem the Notes at a redemption price of 100% of the principal amount thereof
plus accrued and unpaid interest thereon, if any, to the redemption date, when
the amount of excess proceeds from asset sales, as defined, exceeds $10
million, up to the maximum principal amount that may be purchased out of such
excess proceeds.
Junior Subordinated Promissory Note
Upon the consummation of the Merger, the Company issued a junior
subordinated promissory note (the "Junior Note") in the principal amount of
$9.0 million due August 21, 2009, to the Parent. Pursuant to the terms of the
Junior Note, interest accrues at the rate of 19.0% per annum until the eighth
anniversary of the date of issuance of the Junior Note and at a rate of 13.0%
thereafter. The Junior Note is subordinated in priority and subject in right
and priority of payment to certain indebtedness described therein. Interest
which accrues on the Junior Note is payable in kind.
The Senior Credit Facility and the indenture governing the Notes contain a
number of covenants that, among other things, restrict the ability of the
Company to dispose of assets, repay other indebtedness (including, in the case
of the Senior Credit Facility, the Notes), incur liens, make capital
expenditures and make certain investments or acquisitions, engage in mergers
or consolidation and otherwise restrict the activities of the Company. In
addition, under the Senior Credit Facility, the Company will be required to
satisfy specified financial ratios and tests, including a maximum of total
debt to EBITDA (earnings before interest, income taxes, depreciation and
amortization) and a minimum interest coverage ratio.
The aggregate scheduled maturities of long-term debt in subsequent years are
as follows:
<TABLE>
<S> <C>
1999.......................................... $ --
2000.......................................... 500
2001.......................................... 1,000
2002.......................................... 1,000
2003.......................................... 20,500
Thereafter.................................... 297,124
--------
$320,124
========
</TABLE>
Note 11--Income Taxes:
Prior to May 5, 1998, the Company's financial statements reflect a provision
for federal, state and foreign income taxes based on income as if the Company
had been subject to income tax on a separate return basis. The
F-19
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
charge was computed in accordance with SFAS No. 109 and the charge was based
on current tax rates. Effective May 5, 1998, in connection with the
Transactions, the Company became a stand-alone limited liability Company and
is no longer subject to federal or state income taxes.
<TABLE>
<CAPTION>
Years Ended December
31,
----------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current income tax expense:
Federal and foreign.............................. $10,081 $11,576 $1,809
State............................................ 2,254 2,574 402
------- ------- ------
12,335 14,150 2,211
Deferred income tax expense...................... 1,073 2,281 180
------- ------- ------
Income tax provision............................. $13,408 $16,431 $2,391
======= ======= ======
</TABLE>
The provision for income taxes differs from the U.S. Federal statutory rate
due primarily to state income taxes in 1996 and 1997 and to state income taxes
and the change to a non-tax paying entity effective May 5, 1998.
Current income tax expense amounts are included as a transfer to the Parent
in the parent company investment account. The effect of temporary differences
which gave rise to deferred income tax balances is summarized below. Deferred
tax account balances which existed at the date of the Merger were transferred
to the Parent as part of the Recapitalization.
<TABLE>
<CAPTION>
December 31,
1997
------------
<S> <C>
Current deferred tax assets:
Inventory reserve........................................... $ 1,588
Accounts receivable allowances.............................. 2,384
Warranty reserve............................................ 1,878
Accrued vacation............................................ 435
Other reserves.............................................. 1,575
-------
7,860
Noncurrent deferred tax liabilities:
Depreciation and amortization............................... (5,785)
-------
Net deferred tax assets..................................... $ 2,075
=======
</TABLE>
F-20
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Note 12--Mandatorily Redeemable Preferred Equity and Members' Equity:
The following table summarizes the authorized, issued and outstanding
preferred and common units by class and the related dollar amounts for each
class as of December 31, 1998. During the year ended December 31, 1998, the
only activity relating to the preferred and common units was the issuance of
such units in connection with the Recapitalization. Certain members of
management entered into promissory notes totaling $1.8 million to help finance
the purchase of the common units.
<TABLE>
<CAPTION>
Units Dollars
--------- -----------
<S> <C> <C>
Preferred Units..................................... 6,000.00 $ 6,000,000
Common Units:
Class A........................................... 50,645.16 $ 5,064,516
Class B........................................... 3,232.67 32
Class C........................................... 3,439.01 34
Class L........................................... 5,627.24 45,580,645
--------- -----------
Total Common Units.............................. 62,944.08 50,645,227
=========
Management Investor Promissory Notes........................ 1,762,901
-----------
Net Proceeds................................................ $48,882,326
===========
</TABLE>
Bain LLC, the BRS Investors, certain management investors and the Parent
(collectively, the "Members") have entered into an Amended and Restated
Limited Liability Company Agreement (the "LLC Agreement"). The LLC Agreement
governs the relative rights and duties of the Members.
The ownership interests of the Members in the Company consist of preferred
units (the "Preferred Units") and common units (the "Common Units"). Holders
of the Preferred Units are entitled to a return of capital contributions prior
to any distributions made to holders of the Common Units. The Common Units
represent the common equity of the Company.
Preferred Units--Upon consummation of the Merger, the Company issued
mandatorily redeemable preferred membership interests (the "Seller Preferred
Equity") with a liquidation value of $6.0 million to the Parent. The Seller
Preferred Equity does not accrete, accrue or pay dividends and is redeemable
at the earlier of (i) a change of control (as defined in the LLC Agreement),
(ii) any initial public offering or (iii) 2009. The holders of the Seller
Preferred Equity are entitled to receive distributions from the Company in an
amount equal to their unreturned capital (as defined in the LLC Agreement)
prior to distributions in respect of any other membership interests of the
Company.
Common Units--The Common Units of the Company are divided into the following
four classes:
Class L Units--These units provide a yield of 12% on the unreturned capital
and unpaid yield (as defined), compounded quarterly. Class L Units do not
provide any voting rights to the holders.
Class A Units--These units are the primary vehicle of equity ownership in
the Company. Class A Units are the only units that provide voting rights.
Decisions made by a majority of the voting holders of Class A Units are
binding on the Company, provided that members holding at least 20% of the
Class A Units are present.
Class B and C Units--Class B Units and Class C Units do not provide any
voting rights to the holders. These units are not eligible to receive
distributions until the Company achieves the defined target multiple
F-21
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
applicable to each class of units. The target multiple is calculated as the
sum of all distributions to all holders of Class L and Class A Units divided
by the sum of all capital contributions made by such holders. Class B Units
become eligible to receive distributions when vested and the target multiple
reaches or exceeds 1.0 and the Class C Units become eligible when vested and
the target multiple reaches or exceeds 3.0. Pursuant to agreements entered
into with the members of management who participated in the purchase of
membership interests (see Note 16), the Class B and Class C Units vest ratably
from the Closing to May 5 of each year through 2003. Such agreements also
provide for accelerated vesting in certain circumstances.
Distributions--Subject to any restrictions contained in any financing
agreements to which the Company or any of its affiliates (as defined in the
LLC Agreement) is a party, the Board of Managers (the "Board") may make
distributions, whether in cash, property, or securities of the Company, at any
time in the following order of priority:
First, to the holders of Preferred Units, an amount determined by the
aggregate unreturned capital.
Second, to the holders of Class L Units, the aggregate unpaid yield
accrued on such Class L Units.
Third, to the holders of Class L Units, an amount equal to the aggregate
unreturned capital.
Fourth, ratably to the holders of Common Units, an amount equal to the
amount of such distribution that has not been distributed pursuant to the
clauses described above.
The Company may distribute to each holder of units within 75 days after the
close of each fiscal year such amounts as determined by the Board to be
appropriate to enable each holder of units to pay estimated income tax
liabilities.
Allocations--Profits and losses of the Company are allocated among the
various classes of units in order to adjust the capital accounts of such
holders to the amount to be distributed upon liquidation of the Company.
Restrictions on transfer of securities--No holder of securities may sell,
assign, pledge or otherwise dispose of any interest in the holder's securities
except that (i) Bain LLC may transfer its securities to other security holders
in the same class, (ii) holders may transfer their securities through
applicable laws of descent and distribution, (iii) transfers of securities may
be made to an affiliate, and (iv) the Parent may transfer its Preferred Units
with the consent of the Board.
Note 13--Employee Stock Plans:
As an operating unit of its Parent, the Company had no employee stock option
plan; however, certain employees of the Company participated in the Parent's
stock option plans.
The Parent had three stock option plans. The 1976 Stock Option Plan provided
for the grant of both incentive and nonqualified stock options at an exercise
price which was 100% of the fair market value on the date of grant. The 1991
Stock Plan provided for the grant of incentive stock options at an exercise
price which was 100% of the fair market value, and nonqualified stock options
at an exercise price which may be less than the fair market value on the date
of grant. The 1995 Stock Option Plan provided for the grant of both incentive
and nonqualified stock options at an exercise price which was not less than
100% of the fair market value on the date of grant.
The plans also provided that all stock options could be exercised in their
entirety 12 months after the date of grant. Incentive stock options terminate
10 years from the date of grant, and those stock options granted after
F-22
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
December 31, 1986 became exercisable to a maximum of $100,000 per year.
Nonqualified stock options terminate 11 years from the date of grant or 10
years and a day if issued in connection with the 1995 Stock Option Plan.
The following stock option information relates to options granted to the
Company's employees under the Parent's plans. Shares exercisable at the
corresponding weighted average exercise price at December 31, 1997 and 1996,
respectively, were 95,928 at $44.19 and 73,861 at $34.22.
Information for 1996 and 1997 follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Option Price
------- ----------------
<S> <C> <C>
Outstanding at December 31, 1995...................... 88,460 $34.04
Granted............................................. 48,950 52.56
Exercised........................................... (14,599) 33.14
------- ------
Outstanding at December 31, 1996...................... 122,811 $41.53
Granted............................................. 115,000 51.69
Exercised........................................... (26,883) 32.60
------- ------
Outstanding at December 31, 1997...................... 210,928 $48.20
======= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------------------------------------
Shares Weighted Average Shares
Exercise Outstanding at Contractual Weighted Average Exercisable at Weighted Average
Price Range December 31, 1997 Remaining Life Exercise Price December 31, 1997 Exercisable Price
----------- ----------------- ---------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$22.98 to $28.44 6,040 5.2 $28.40 6,040 $28.40
$32.88 to $39.03 40,938 7.1 36.52 40,938 36.52
$51.69 to $52.56 163,950 9.2 51.95 48,950 52.56
------- ------
Total 210,928 95,928
======= ======
</TABLE>
The Parent applied Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations, in accounting for
its plans. The Parent adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and accordingly, no compensation
expense is recognized for the stock option plans in these financial
statements. Had compensation cost for the stock options awarded to the
Company's employees been determined based on the fair value at the grant date
for awards under these plans, consistent with the methodology prescribed under
SFAS No. 123, and had such compensation expense been reflected in net income,
the Company's net income would have approximated the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net income-as reported.................................... $26,276 $21,355
Net income-proforma....................................... $25,819 $21,131
</TABLE>
F-23
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
The weighted-average fair value of each option granted in 1997 and 1996 was
estimated as $9.95 and $10.80, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<S> <C>
Expected life............................................ 4 years
Assumed annual dividend growth rate (5 year historical
rate)................................................... 6%
Expected volatility...................................... 15%
Risk free interest rate (month-end yields on 4 year
treasury strips Equivalent zero coupon)................. 5% to 7.5% range
Assumed annual forfeiture rate........................... 5%
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
Options which had not vested at the time of the Recapitalization were
settled by the Parent at a cost of $0.4 million. Employees holding vested
options have a period of one year following the date of the Recapitalization
to exercise these options. The difference between net income as reported for
the year ended December 31, 1998 and pro forma net income, after deducting the
compensation cost of stock options determined in accordance with SFAS No.,
123, is not material.
Note 14--Commitments and Contingencies:
At December 31, 1998, the Company had commitments under long-term operating
leases requiring approximate annual rentals in subsequent years as follows:
<TABLE>
<S> <C>
1999............................................ $ 603
2000............................................ 526
2001............................................ 236
2002............................................ 108
2003............................................ 27
Thereafter...................................... 49
------
$1,549
======
</TABLE>
Rental expense for 1996, 1997 and 1998 amounted to $1.1 million, $1.2
million and $1.5 million, respectively.
The Company's Marianna, Florida plant is located on property leased from the
Marianna Municipal Airport Development Authority (acting on behalf of the City
of Marianna). The lease expires on February 28, 2005 and may be renewed at the
Company's option for five additional consecutive ten year terms.
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates
and at other properties where the Company or predecessors have arranged for
the disposal of hazardous substances. As a result, the Company is involved,
from time to time, in administrative and judicial proceedings and inquiries
relating to environmental matters. There can be no assurance that the Company
will not be involved in such proceedings in
F-24
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
the future and that the aggregate amount of future clean-up costs and other
environmental liabilities will not have a material adverse effect on the
Company's business, financial position and results of operations. However, in
the opinion of management, any liability related to matters presently pending
will not have a material affect on the Company's financial position, liquidity
or results of operations after giving affect to provisions already recorded.
Pursuant to the Merger Agreement, and subject to a three year notice period
following the Closing, Raytheon has agreed to indemnify the Company for
certain environmental liabilities in excess of $1.5 million in the aggregate
arising from the operations of the Company and its predecessors prior to the
Merger, including with respect to environmental liabilities at the Ripon and
Marianna facilities. In addition to the Raytheon indemnification, with respect
to the Marianna, Florida facility, a former owner of the property has agreed
to indemnify the Company for certain environmental liabilities. In the event
that Raytheon or the former owner fail to honor their respective obligations
under these indemnifications, such liabilities could be borne directly by the
Company and could be material.
On April 17, 1998, Appliance Co. filed suit in the United States District
Court for the Southern District of New York against Raytheon Company and
Alliance Laundry seeking (i) declaratory relief that Alliance Laundry is bound
by a non-compete agreement between Appliance Co. and Raytheon Company that
prohibits the participation by Raytheon Company and corporate affiliates of
Raytheon Company in the consumer retail distribution laundry market, and (ii)
unspecified damages from Raytheon Company and Alliance Laundry for breach of
the non-compete agreement. On June 2, 1998, Appliance Co. filed an amended
complaint reiterating the allegations of the original complaint and also
asserting that, by virtue of the manner in which they consummated the sale of
Alliance Laundry by Raytheon Company, both Alliance Laundry and Bain Capital,
Inc. ("Bain") tortiously interfered with the non-compete agreement between
Appliance Co. and Raytheon Company. Appliance Co. now claims to be entitled to
damages in excess of $100 million and also contends that, if Alliance Laundry
is not bound by the non-compete agreement, then Appliance Co. should also be
relieved of any obligations under the non-compete agreement. The defendants
dispute all Appliance Co. allegations, deny that Appliance Co. is entitled to
any damages and have filed motions to dismiss all claims pertaining to the
non-compete agreement, which are still pending. Raytheon Company has agreed to
pay the attorneys' fees and costs incurred by Alliance Laundry and Bain in
contesting this lawsuit. There can be no assurance, however, that Alliance
Laundry will prevail in the lawsuit and, accordingly, Alliance Laundry may be
prohibited for some period of time from participating in the consumer retail
distribution laundry market. Alliance Laundry does not currently participate
in this market. In addition, although the Company does not believe that it is
reasonably likely that Appliance Co. will prevail in the lawsuit, if Appliance
Co. did prevail, the Company could be required to pay the claimed damages in
excess of $100 million and if so, such payment would have a material adverse
effect on the Company's business, financial condition and results of
operations.
In late January 1999, Appliance Co. filed another amended complaint to add
claims against Raytheon and the Company in connection with the Horizon washing
machine, a "single-pocket" frontload washing machine that was being readied
for volume production as of the time when Appliance Co. was entering into the
Appliance Co. Transaction with Raytheon. Appliance Co. alleges that both
Raytheon and the Company subsequently breached their contractual obligations
with respect to preparing the Horizon for volume production and misrepresented
the readiness of the Horizon for volume production. Both the Company and
Raytheon are moving to dismiss these claims. Appliance Co. also alleges that
the Company has breached its contractual obligations to provide competent
engineering services in connection with preparing the Horizon for volume
production and also breached its duty of due care in the course of providing
Appliance Co. with these engineering services. Appliance
F-25
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Co. seeks damages for (i) the profits it claims to have lost by virtue of not
being able to sell the Horizon, (ii) the damage to its commercial standing
that is allegedly attributable to its sale of defective washers to critical
customers, and (iii) the expenses it incurred in preparing for volume
production of the Horizon. In addition, Raytheon has agreed to hold the
Company harmless against claims pertaining to the Horizon and to reimburse the
Company for any fees incurred in defending these claims.
On February 8, 1999, Raytheon Company commenced an arbitration under the
Commercial Arbitration Rules of the American Arbitration Association in
Boston, Massachusetts against the Company, seeking damages of $12.2 million
plus interest thereon and attorney's fees for breach of the Merger Agreement
based on Raytheon's claim for indemnification for a payment made to a third
party allegedly on behalf of the Company and Alliance Laundry following the
Closing. Raytheon also filed suit that same day in Massachusetts Superior
Court for the county of Middlesex seeking the same relief; the suit was
dismissed by Raytheon without prejudice in March 1999. The Company believes
that Raytheon owed the $12.2 million to the third party and that neither the
Company nor Alliance Laundry is liable for such amount. In addition, the
Company and Bain LLC have filed counterclaims and claims, respectively,
seeking damages in excess of $30 million from Raytheon.
Pursuant to the Merger Agreement, Bain LLC, the Company and Raytheon have
agreed on a post-closing price adjustment of $2.8 million due to the Company
from Raytheon, as a result of a dispute regarding working capital levels as of
the Closing. The parties have agreed this amount will not be paid to the
Company until the resolution of the arbitration discussed above or this amount
will be offset against any amounts due to Raytheon from the Company as a
result of such arbitration, and as such, this amount has not been reflected in
the accompanying financial statements.
Various claims and legal proceedings generally incidental to the normal
course of business are pending or threatened against the Company. While the
ultimate liability from these proceedings is difficult to determine, in the
opinion of management, any additional liability will not have a material
effect on the Company's financial position, liquidity or results of
operations.
Note 15--Pensions and Other Employee Benefits:
The Company has several pension and retirement plans covering the majority
of its employees. The pension plan covering salaried and management employees
provides pension benefits that are based on the five highest consecutive years
of the employee's compensation in the ten years before retirement. The pension
plan covering hourly and union employees generally provides benefits of stated
amounts for each year of service, but in some cases can use a final average
pay based calculation. The Company's funding policy for the salaried plan is
to contribute annually at a rate that is intended to remain at a level
percentage of compensation for the covered employees. The Company's funding
policy for the hourly and union plan is to contribute annually at a rate that
is intended to remain level for the covered employees. Unfunded prior service
costs under the funding policy are generally amortized over periods from 10 to
30 years.
F-26
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Total pension expense (benefit) for the Company's plans was $0.7 million,
$0.2 million and ($0.8) million in 1996, 1997, and 1998, respectively,
including the following components:
<TABLE>
<CAPTION>
Years Ending
December 31,
----------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Service cost benefits earned during the period.... $1,233 $1,118 $1,391
Interest cost on projected benefit obligation..... 1,590 1,650 2,086
Actual (gain) loss on assets...................... (4,508) (2,278) (6,261)
Net amortization and deferral..................... 2,158 (315) 1,942
Curtailment adjustments........................... 213 -- --
------ ------ ------
Net periodic pension cost (benefit)............. $ 686 $ 175 $ (842)
====== ====== ======
Assumptions used in the accounting were:
Discount rate................................... 7.75% 7.25% 6.75%
Expected long-term rate of return on assets..... 9.25% 9.25% 9.25%
Rate of increase in compensation levels......... 4.50% 4.50% 4.00%
</TABLE>
In 1996, various plan curtailments were recognized as a result of workforce
reductions.
The following table provides a reconciliation of benefit obligations, plan
assets and funded status of the plans at December 31:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Change in benefit obligation:
Benefit obligation at beginning of year........................... $28,355
Service cost...................................................... 1,391
Interest cost..................................................... 2,086
Actuarial loss.................................................... 3,368
Benefits paid..................................................... (1,330)
-------
Benefit obligation at end of year............................... 33,870
-------
Change in plan assets:
Fair value of plan assets at beginning of year.................... 39,880
Actual return on plan assets...................................... 6,261
Benefits paid..................................................... (1,330)
-------
Fair value of plan assets at end of year........................ 44,811
-------
Funded status..................................................... 10,941
Unrecognized transition asset..................................... (287)
Unrecognized prior service cost................................... 2,178
Unrecognized (gains)/losses....................................... (12,339)
-------
Prepaid (accrued) benefit cost.................................. $ 493
=======
</TABLE>
F-27
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Funded status.................................................... $11,525
Unrecognized transition asset.................................... (431)
Unrecognized prior service cost.................................. 2,362
Unrecognized (gains)/losses...................................... (13,674)
-------
Prepaid (accrued) benefit cost................................. $ (218)
=======
</TABLE>
As a result of the management of the Company's plans with those of the
Parent prior to September 10, 1997, information relating to the change in the
benefit obligations and the change in plan assets is not available for 1997.
Plan assets primarily include equity and fixed income securities.
The Company's salaried pension plan provides that in the event of a
termination of the plan within three years after an involuntary change of
control of the Company, the assets of the plan will be applied to satisfy all
liabilities to participants and beneficiaries in accordance with Section 4044
of the Employee Retirement Income Security Act of 1974. Any remaining assets
will be applied on a pro rata basis to increase the benefits to the
participants and beneficiaries.
In addition to providing pension benefits, the Company provides certain
health care and life insurance benefits for retired employees. Substantially,
all of the Company's employees may become eligible for these benefits if they
reach normal retirement age while working for the Company. Retiree health
plans are paid for in part by employee contributions, which are adjusted
annually. Benefits are provided through various insurance companies whose
charges are based either on the benefits paid during the year or annual
premiums. Health benefits are provided to retirees, their covered dependents,
and beneficiaries. Retiree life insurance plans are noncontributory and cover
the retiree only.
The net postretirement benefit cost for the Company in 1996, 1997 and 1998
included the following components:
<TABLE>
<CAPTION>
Years Ending
December 31,
-----------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Service cost benefits earned during the period............ $ 45 $ 52 $ 58
Interest cost on projected benefit obligation............. 110 107 142
Net amortization and deferral............................. 64 63 91
----- ----- -----
Net postretirement benefit cost......................... $ 219 $ 222 $ 291
===== ===== =====
Assumptions used in the accounting were:
Discount rate........................................... 7.75% 7.25% 6.75%
Rate of increase in compensation levels................. 4.50% 4.50% 4.00%
Health care cost trend rate in the first year........... 7.00% 6.50% 6.00%
Gradually declining to a trend rate in the year
2001 & beyond of....................................... 5.00% 5.00% 5.00%
</TABLE>
F-28
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
The following provides a reconciliation of benefit obligations, plan assets
and the funded status of the plan at December 31:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $1,441 $1,523
Service cost................................................ 52 58
Interest cost............................................... 107 142
Actuarial loss.............................................. 62 562
Benefits paid............................................... (139) (415)
------ ------
Benefit obligation at end of year......................... 1,523 1,870
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year.............. -- --
Employer contribution....................................... 139 415
Benefits paid............................................... (139) (415)
------ ------
Fair value of plan assets at end of year.................. -- --
------ ------
Funded status............................................... (1,523) (1,870)
Unrecognized transition obligation.......................... 963 899
Unrecognized net loss....................................... 70 605
------ ------
Prepaid (accrued) benefit cost............................ $ (490) $ (366)
====== ======
</TABLE>
A one percentage point change in the assumed health care cost trend rate
would change the accumulated postretirement benefit obligation as of December
31, 1998 by approximately $47 and would change the net postretirement benefit
expense for 1998 by approximately $6.
Prior to the Recapitalization, eligible employees were able to participate
in the Parent's Savings and Investment Plan and the Parent's Employee Stock
Ownership Plan. Subsequent to the Recapitalization, eligible employees are
able to participate in the Alliance Laundry Systems Capital Appreciation Plan
("ALCAP"). The provisions of ALCAP are substantially the same as those of the
Parent's Savings and Investment Plan. In addition, the Company makes an annual
contribution to ALCAP equal to approximately one half of one percent of
salaries and wages, subject to statutory limits, of eligible employees.
Under the terms of the Savings and Investment Plan, a defined contribution
plan, covered employees are allowed to contribute up to 17 percent of their
pay on a pre-tax basis up to the limit established by the Internal Revenue
Service. The Company contributes amounts equal to 50 percent of the employee's
contributions, up to a maximum of such Company contributions equal to three
percent of the employee's pay. Total expense for the Savings and Investment
and ALCAP plans totaled $1.0 million in 1996 and 1997 and $1.1 million in
1998.
The Company's annual contribution to the Employee Stock Ownership Plan was
approximately one half of one percent of salaries and wages, subject to
statutory limits, of substantially all United States salaried and a majority
of hourly employees. The expense was $0.1 million, $0.3 million and $0.1
million for 1996, 1997 and 1998, respectively.
F-29
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Prior to May 5, 1998, the Company's employees were covered under the
Parent's workers compensation program. The Company's allocated expense for
workers compensation during the years ended December 31, 1996 and 1997 and the
period ended May 4, 1998 was $1.0 million, $0.8 million and $0.4 million,
respectively.
Deferred Compensation Agreements
In connection with the Merger, the Company and the Parent entered into
deferred compensation agreements with certain executives, whereby the Company
assumed certain long-term compensation obligations earned by management under
programs established by the Parent. Such agreements provide for the deferral
of compensation until the earlier of (i) the payment of a lump sum (the
"Benefit Amount") to the executive ten years after the date of such agreement,
regardless of whether the executive is employed by the Company as of such date
or (ii) the payment of the Benefit Amount upon the occurrence of certain
events described therein. The balance sheet at December 31, 1998 includes a
long-term liability of $1.1 million related to such agreements.
Note 16--Related Party Transactions
Securityholders Agreement
Upon the consummation of the Merger, the Company, the Parent and certain
securityholders entered into a securityholders agreement (the "Securityholders
Agreement"). The Securityholders Agreement (i) restricts the transfer of the
equity interests of the Company; (ii) grants tag-along rights on certain
transfers of equity interests of the Company; (iii) requires the
Securityholders to consent to a sale of the Company to an independent third
party if such sale is approved by certain holders of the then outstanding
equity interests of the Company; and (iv) grants preemptive rights on certain
issuances of equity interests of the Company. Certain of the foregoing
provisions of the Securityholders Agreement will terminate upon the
consummation of an initial public offering or a liquidity event (each as
defined in the Securityholders Agreement).
Management Investor Promissory Notes
In connection with the Transactions, the Company entered into promissory
notes (the "Promissory Notes") aggregating approximately $1.8 million with
certain members of management to help finance the purchase of Common Units in
the Company. The Promissory Notes bear interest at a rate of 5.94% per annum
and mature on June 5, 2008. The Promissory Notes are classified as a component
of members' deficit at December 31, 1998.
Executive Unit Purchase Agreements
In connection with the Merger, MergeCo entered into executive unit purchase
agreements (the "Purchase Agreements") with certain members of management of
the Company (each an "Executive"). Such agreements govern the sale to the
Executives of common membership interests of MergeCo in exchange for cash
and/or a promissory note from the Executive and provide for repurchase rights
and restrictions on transfer of the common units. In connection with the
Merger, the Executives' membership interests in MergeCo were converted into
common membership interests of the Company.
The Purchase Agreements provide the Company with a repurchase option upon
the termination of each Executive. If the Executive's termination is the
result of death, permanent disability or without cause, as defined, Class A
and Class L Units, and vested Class B and Class C Units may be repurchased by
the Company at a price per unit equal to fair market value, as defined, and
unvested Class B and Class C Units may be repurchased
F-30
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
at a price per unit equal to the lower of fair market value or original value,
as defined. If an Executive's termination is voluntary or for cause, as
defined, all units may be repurchased at a price equal to the lower of fair
market value or original value, unless an Executive's voluntary termination
occurs seven and one-half years from May 5, 1998, in which case the repurchase
price shall be fair market value. The Class B and Class C Units were purchased
by the Executives at a nominal value based upon the subordinated nature of
such interests (see Note 12).
Management Services Agreement
In connection with the Transactions, the Company entered into a management
services agreement (the "Management Services Agreement") with Bain pursuant to
which Bain agreed to provide: (i) general executive and management services;
(ii) identification, support, negotiation and analysis of acquisitions and
dispositions; (iii) support, negotiation and analysis of financial
alternatives; and (iv) other services agreed upon by the Company and Bain. In
exchange for services, Bain will receive (i) an annual management fee, plus
reasonable out-of-pocket expenses (payable quarterly) and (ii) a transaction
fee in an amount in accordance with the general practices of Bain at the time
of the consummation of any additional acquisition or divestiture by the
Company and of each financing or refinancing (currently approximately 1.0% of
total financings). In connection with the Recapitalization, Bain also received
a transaction fee from the Company. The Management Services Agreement has an
initial term of ten years subject to automatic one-year extensions unless the
Company or Bain provides written notice of termination.
Note 17--Condensed Financial Information of Alliance Laundry Systems LLC
As discussed more fully in Note 3, substantially all of the assets and
liabilities of the Company were transferred to Alliance Laundry, a wholly-
owned subsidiary of the Company, in connection with the Merger. Therefore, the
historical financial statements of Alliance Laundry are the same as the
historical financial statements of the Company prior to the Merger inasmuch as
Alliance Laundry did not exist prior to that time. Subsequent to the Merger,
Alliance Laundry is the only direct subsidiary of the Company and comprises
all of the Company's operating activities.
F-31
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
In connection with the Merger, and as discussed in Note 10, Alliance Laundry
and its wholly owned subsidiary, Alliance Laundry Corporation, issued the
$110.0 million senior subordinated notes. Alliance Laundry Corporation was
incorporated for the sole purpose of serving as a co-issuer of the Notes in
order to facilitate their issuance. Alliance Laundry Corporation does not have
any substantial operations or assets of any kind. Alliance Laundry Holdings
LLC has provided a full and unconditional guarantee of the Notes and has no
operating activities independent of Alliance Laundry. Separate financial
statements of Alliance Laundry are not presented because Company management
has determined that they would not be material to investors. Summarized
information for Alliance Laundry as of December 31, 1998 and for the year then
ended is presented below.
<TABLE>
<CAPTION>
December 31,
1998
------------
(in
millions)
<S> <C>
Current assets............................................... $ 67.7
Noncurrent assets............................................ 146.5
-------
$ 214.2
=======
Current liabilities.......................................... $ 38.3
Long-term debt............................................... 310.0
Other long-term obligations.................................. 1.1
Member's deficit............................................. (135.2)
-------
$ 214.2
=======
<CAPTION>
For the year
ended
December 31,
1998
------------
<S> <C>
Net sales.................................................... $ 330.3
Gross profit................................................. 79.1
Selling, general and administrative expense.................. 43.5
Nonrecurring costs........................................... 6.8
-------
Operating income............................................. 28.8
Interest expense............................................. 20.3
Other income (expense), net.................................. 0.3
-------
Income before taxes.......................................... $ 8.8
=======
</TABLE>
F-32
<PAGE>
ALLIANCE LAUNDRY HOLDINGS LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998, 1997 and 1996
(dollar amounts in thousands unless otherwise indicated)
Note 18--Segment Information
Based upon the information used by management for making operating decisions
and assessing performance, the Company has organized its business into
categories based upon products and services broken down primarily by markets.
Commercial laundry equipment and service parts, including sales to
international markets, are combined to form the commercial laundry segment.
Commercial laundry net sales include amounts related to the Company's finance
program which supports its commercial laundry operations. The Company's
primary measure of operating performance is gross profit which does not
include an allocation of any selling or product distribution expenses. Such
amounts are reviewed on a consolidated basis by management. In determining
gross profit for its operating units, the Company also does not allocate
certain manufacturing costs, including manufacturing variances and warranty
and service support costs. Gross profit is determined by subtracting cost of
sales from net sales. Cost of sales is comprised of the costs of raw materials
and component parts, plus costs incurred at the manufacturing plant level,
including, but not limited to, labor and related fringe benefits,
depreciation, tools, supplies, utilities, property taxes and insurance. The
Company does not allocate assets internally in assessing operating
performance. Net sales and gross profit as determined by the Company for its
operating segments are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------------- ---------------- ----------------
Net Gross Net Gross Net Gross
Sales Profit Sales Profit Sales Profit
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial laundry....... $241,271 $76,367 $270,856 $94,048 $253,083 $91,145
Appliance Co. consumer
laundry................. 76,992 5,688 76,853 3,926 77,184 2,642
-------- ------- -------- ------- -------- -------
$318,263 82,055 $347,709 97,974 $330,267 93,787
======== ======== ========
Other manufacturing
costs................... (9,809) (14,197) (14,679)
------- ------- -------
Gross profit as
reported.............. $72,246 $83,777 $79,108
======= ======= =======
</TABLE>
Depreciation expense allocations for each segment are presented below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- -------
<S> <C> <C> <C>
Commercial laundry................................. $4,515 $ 5,975 $ 6,078
Appliance Co. consumer laundry..................... 3,876 5,754 5,957
------ ------- -------
$8,391 $11,729 $12,035
====== ======= =======
</TABLE>
F-33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations not in this Prospectus, and, if given or made, such
information or representation must not be relied upon as having been
authorized by the Issuers or the Initial Purchasers. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
securities other than the Exchange Notes offered hereby nor does it constitute
an offer to sell, or a solicitation of an offer to buy, any of the Exchange
Notes to any person in any jurisdiction in which it would be unlawful to make
such an offer or solicitation to such person. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Company since the date hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 14
The Transactions.......................................................... 23
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Unaudited Pro Forma Financial Data........................................ 27
Selected Historical Financial Data........................................ 31
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
Business.................................................................. 42
Management................................................................ 55
Security Ownership........................................................ 59
Certain Relationships and Related Transactions............................ 61
Description of Senior Credit Facility..................................... 63
Description of Asset Backed Facility...................................... 66
Description of the Exchange Notes......................................... 68
The Exchange Offer ....................................................... 101
Certain United States Federal Income Tax Consequences..................... 109
Plan of Distribution...................................................... 110
Legal Matters............................................................. 111
Experts................................................................... 111
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$110,000,000
[LOGO] ALLIANCE
LAUNDRY SYSTEMS
ALLIANCE LAUNDRY SYSTEMS LLC
ALLIANCE LAUNDRY CORPORATION
Offer to Exchange their Series B
9 5/8% Senior Subordinated
Notes due 2008 for Series A
9 5/8% Senior Subordinated
Notes due 2008
-----------------
PROSPECTUS
-----------------
May 19, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
